1.Developing financial goals is the first step in the financial planning process.
Answer:FALSE
2.Most people are more likely to lose their income due to death than due to disability.
Answer:FALSE
3.If you have no dependents and your wife earns as much as you do, you have very simple
insurance needs.
Answer:TRUE
4.Perhaps the greatest disadvantage of using credit is the temptation to overspend.
Answer:TRUE
5.On small gold bars, gold dealers and banks add a five to eight percent premium over the
pure gold bullion value.
Answer:TRUE
6.It takes just a few days to sell your limited partnership shares.
Answer:FALSE
7.The Tax Reform Act of 1986 adversely affected the investment potential of real estate
syndicates.
Answer:TRUE
8.With closed-end credit, loans are made on a continuous basis and you make at least a
partial payment each billing period.
Answer:FALSE
9.Single lump-sum credit is a loan that must be repaid in total on a specified day, usually
within 30 to 90 days.
Answer:TRUE
10.Buying on credit is almost always cheaper than paying cash.
Answer:FALSE
11.Capital gains refer to profits from the sale of investments.
Answer:TRUE
12.Some experts suggest starting retirement planning while you are in school.
Answer:TRUE
13.The coverage of term insurance ends at the conclusion of the term, but you can continue
it if you have a renewability option.
Answer:TRUE
14.An example of ____________ risk occurs when an investment does not keep up with
prices that are increasing in the overall economy.
A.market
B.interest
C.inflation
D.business failure
E.current
Answer:C
15.Which federal law protects you by requiring credit bureaus to furnish correct and
complete information to creditors?
A.Fair Credit Reporting Act
B.Truth in Lending Act
C.Fair Credit Billing Act
D.Equal Credit Opportunity Act
E.Fair Debt Collection Practices Act
Answer:A
16.A high tech scam that uses spam or pop-up messages to deceive you into revealing your
credit card number, bank account information, social security number, passwords, or other
sensitive information is called:
A.pharming
B.phishing
C.Internet pyramid scheme
D.bogus “campus card” scheme
E.foreign scam
Answer:B
17.George Clancy wants to diversify his portfolio by adding a stock that has a value which
moves in direct relation to the business cycle. What type of stock is George thinking about
adding to his portfolio?
A.defensive stock
B.cyclical stock
C.small-cap stock
D.blue-chip stock
E.growth stock
Answer:B
18.What is bond laddering?
A.buying only long-term bonds
B.buying only short-term bonds
C.buying bonds with staggered maturity dates
D.combining stock and bond investments
E.exchanging bonds for shares of stock
Answer:C
19.____________ is the settlement of a difference by a third party whose decision is
legally binding.
A.Negotiation
B.Mediation
C.Arbitration
D.Servicing
E.Cooperative action
Answer:C
20.What should you consider before you buy life insurance?
A.your present and future sources of income
B.your savings
C.employer’s group life insurance
D.pension benefits
E.all of the factors listed in the other answers
Answer:E
21.Which one of the following would be an example of the driver classification category
that determines insurance rates?
A.John Brown has a 2005 Mazda Miata Convertible.
B.Harry Anderson lives in Boca Raton, Florida.
C.Charlie Purciful is 22 years old.
D.Charlotte Webb has her vehicle in a locked garage.
E.Barry Evans has just moved to Raleigh, North Carolina.
Answer:C
22.Affan Chawdry has monthly net income of $1,050. He has a house payment of $450 per
month, a car loan with payments of $250 per month, a Visa card with payments of $50 per
month, and a credit card with a local department store with payments of $100 per month.
What is Affan’s debt payments-to-income ratio?
A.2.63
B.1.24
C.0.81
D.0.38
E.0.50
Answer:D
Ratio = ($250 + 50 + 100)/$1,050 = 0.38
23.A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest
rate of ____ percent. Ignore compounding.
A.33.00
B.27.50
C.20.00
D.5.50
E.2.75
Answer:A
33% = 2.75% (12 months)
24.Paul Carter is applying for a loan from a bank. The bank is concerned because Paul is
an airline pilot for United Airlines. The bank thinks that Paul may be laid off in the near
future. Which one of the 5 Cs of credit is the bank concerned with?
A.character
B.capacity
C.capital
D.collateral
E.conditions
Answer:E
25.Which federal law requires creditors to inform applicants of acceptance or rejection of
their credit application within 30 days of receiving a completed application?
A.Truth in Lending Act
B.Fair Credit Reporting Act
C.Fair Credit Billing Act
D.Equal Credit Opportunity Act
E.Fair Debt Collection Practices Act
Answer:D
26.Excessive indebtedness can result in:
A.heavy drinking.
B.a neglect of children.
C.marital problems.
D.drug abuse.
E.all of the answers are possible results.
Answer:E
27.Purchasing a new CD upon maturity of the current CD is commonly referred to as:
A.creating a CD portfolio.
B.rolling over.
C.refinancing.
D.calling a CD.
E.bumping up.
Answer:B
28.Once you retire, the first step in stretching your retirement income is to make sure that
you are:
A.contributing to Social Security.
B.covered by an employer pension plan.
C.contributing to a 401(k) plan.
D.saving funds in an IRA.
E.receiving all of the income to which you are entitled.
Answer:E
29.If a bond is purchased at a price below the face value, the yield to maturity is:
A.greater than the stated interest rate.
B.the same as the stated interest rate.
C.less than the stated interest rate.
D.zero.
E.of no significance.
Answer:A
30.Which formula dictates that you pay more interest at the beginning of the loan and pay
less and less interest as the debt is reduced?
A.adjusted balance method
B.previous balance method
C.the rule of 78s
D.average daily balance
E.accelerated balance
Answer:C
31.Higher interest rates can be caused by:
A.a lower money supply.
B.an increase in the money supply.
C.a decrease in consumer borrowing.
D.lower government spending.
E.increased saving and investing by consumers.
Answer:A
32.Real property equity investments are usually considered attractive during times of:
A.deflation.
B.disinflation.
C.inflation.
D.recession.
E.unemployment.
Answer:C
33.One aspect of financial planning is to buy stocks, bonds and mutual funds with the
potential for long term growth. Which aspect of financial planning does this deal with?
A.Borrowing
B.Spending
C.Managing Risk
D.Investing
E.Retirement and Estate Planning
Answer:D
34.On May 20, 2010, Tony Blackman bought 100 shares of stock from XYZ Corporation.
The quarterly dividend is $1.25 per share and the record date is May 25. How much will
Tony receive for this quarterly dividend?
A.$0.00
B.$1.25
C.$12.50
D.$125.00
E.$0.13
Answer:A
Dividend = $1.25 x 100 = $125
35.Which one of the following is probably the best suggestion for stretching your
retirement income?
A.skip leisure activities
B.cut your food expenditures
C.cancel your life and property insurance
D.use your skills and time instead of your money
E.get rid of your health insurance
Answer:D
36.Most cars bought from private parties have:
A.no implied warranties.
B.a 30-day return privilege.
C.a limited warranty.
D.no express warranty.
E.a government-supported repair guarantee.
Answer:D
37.Which of the following is an important document needed for estate planning?
A.your driver’s license
B.your transcript from college
C.your birth certificate
D.your birthday cards
E.all of the items listed in the other answers
Answer:C
38.The average U.S. household has ______ credit cards.
A.3
B.5
C.7
D.9
E.12
Answer:D
39.A good rule of thumb is to limit consumer credit payments to ____________ percent of
your net monthly income.
A.20
B.30
C.40
D.50
E.60
Answer:A
40.Which type of insurance provides for the partial replacement of income lost by
employees as a result of an accident or illness?
A.comprehensive major medical
B.major medical expense
C.physician’s expense
D.disability income
E.surgical expense
Answer:D
41.Which of the following is an example of opportunity cost?
A.renting an apartment near school
B.saving money instead of taking a vacation
C.setting aside money for paying income tax
D.purchasing automobile insurance
E.using a personal computer for financial planning
Answer:B
42.For January, Bethany DeWeese had cash inflows of $4,200 and cash outflows of
$4,750, resulting in a
A.balanced budget.
B.surplus of $550.
C.deficit of $550.
D.surplus of $8,950.
E.deficit of $4,750.
Answer:C
$4,200 – 4,750 = – $550 (a deficit for the month)
43.Bill Evans is concerned about the effect of current economic conditions on various
career fields. Which one of the following would be most useful to Bill as he addresses his
concerns?
A.Occupational Outlook Handbook
B.The Wall Street Journal
C.campus placement office
D.Chamber of Commerce
E.professional association
Answer:B
44.Which one of the following investments offers the greatest liquidity?
A.savings account
B.common stock
C.corporate bond
D.real estate
E.collectibles
Answer:A
45.Mary Cooper just purchased 100 shares in the All-American Fund. The purchase cost
for each share was $20. If this fund charges a 5 percent load, what is the total amount of
commission she will pay the investment company?
A.$100
B.$1,000
C.$2,000
D.$200
E.$1
Answer:A
Commission = 100 x $20 x .05 = $100
46.The fees for investor services and newsletters generally range from ____________ a
year.
A.$10 to $20
B.$20 to $30
C.$30 to $1,000
D.$300 to $1,000
E.over $1,000
Answer:C
47.Which of the following are considered to be personal financial statements?
A.budget and credit card statements
B.balance sheet and cash flow statement
C.checkbook and budget
D.tax returns
E.bank statement and savings passbook
Answer:B
48.Which one of these statements correctly applies to a Roth IRA?
A.earnings on the account are tax-free after five years
B.annual contributions may exceed $2,000
C.deposits must be in federally-insured accounts
D.funds are only to be used for educational expenses
E.only self-employed workers can contribute to a Roth
Answer:A
49.Most home insurance policies provide coverage for:
A.earthquake damage.
B.flood damage.
C.an umbrella liability.
D.personal property floaters.
E.medical payments.
Answer:E
50.The turnover ratio of a mutual fund measures the:
A.length of time a manager has been in charge of the fund.
B.amount of profit the fund earns from one investment period to the next.
C.number of months the average investor holds the fund before selling.
D.percentage of a fund’s holdings that have changed during a 12-month period.
E.percentage of institutional investors who own the fund.
Answer:D