1.Current interest rates can affect the price of a home.
Answer:TRUE2.The fairest method of
calculating interest is the adjusted balance method.
Answer:FALSE3.The premium for a whole
life policy remains constant for as long as an insured lives.
Answer:TRUE4.A beneficiary is a person
designated to receive something such as life insurance proceeds, from the insured.
Answer:TRUE5.Only saving now and
curtailing current spending can ensure comfortable retirement later.
Answer:TRUE6.The adjusted gross estate is
equal to the gross estate minus debts and costs.
Answer:TRUE7.You have the right to file
your own bankruptcy case and represent yourself at all court hearings.
Answer:TRUE8.When more than one
payment is made on a simple interest loan, the method of computing interest is known as
the declining balance method.
Answer:TRUE9.An office audit requires that
a taxpayer visit an IRS office to clarify some aspect of his or her tax return.
Answer:TRUE10.A certificate of deposit is
usually considered to be very liquid.
Answer:FALSE11.A load fund is a mutual
fund in which investors pay a commission either when they purchase or when they redeem
shares.
Answer:FALSE12.Earnings per share is a
corporation’s after-tax earnings divided by the number of stockholders.
Earnings per share = After-tax income/Number of shares outstanding
Answer:FALSE13.The net asset value for a
mutual fund share is calculated by dividing the value of the fund’s portfolio by the fund’s
liabilities.
Answer:FALSE14.With the use of
technology and computers, the book entry form of bond ownership is no longer used.
Answer:FALSE15.It is common for
professional advisory services like Morningstar, Standard & Poor’s, and Value Line to
charge for more detailed financial information than provided on other Internet Web sites.
Answer:TRUE16.The time to begin saving is
when you are young.
Answer:TRUE17.A defined-contribution
plan has an individual account for each employee; therefore, these plans are also called
individual account plans.
Answer:TRUE18.Ease of mobility is an
advantage of renting.
Answer:TRUE19.For a load fund, the
average commission usually ranges between 3 and 5 percent of the purchase price.
Answer:TRUE20.The decision to establish
an investment plan is an important first step to accomplishing your financial goals.
Answer:TRUE21.A loan officer is examining
your income and the amount of your existing debt payments in deciding whether to make a
loan to you today. Which aspect of the 5 Cs of lending is the loan officer most likely
looking at?
A.character
B.capacity
C.capital
D.collateral
E.conditions
Answer:B22.If you have declared personal
bankruptcy, that fact may be reported by credit bureaus for ____________ years.
A.5
B.10
C.15
D.20
E.25
Answer:B23.What type of account would be
considered the most liquid?
A.certificate of deposit
B.checking account
C.money market account
D.brokerage account
E.share of stock
Answer:B24.Many taxpayers with high
incomes and high amounts of deductions must pay an additional tax referred to as the
________________ tax.
A.deferred
B.bonus
C.excess
D.capital gains
E.alternative minimum
Answer:E25.Hospital insurance (Part A) of
Medicare is financed from part of the ____________ tax.
A.state income
B.federal excise
C.individual income
D.corporate income
E.Social Security
Answer:E26.Your first step in determining a
life insurance program should be to:
A.consult a local insurance company agent.
B.buy as much life insurance as you can afford.
C.estimate your life insurance requirements.
D.determine your life insurance objectives.
E.evaluate the ratings of the insurance company.
Answer:D27.Which of the following is
considered personal property for home insurance coverage?
A.automobile
B.garage
C.furniture
D.house
E.trees and shrubs
Answer:C28.Marcia Fuller has an insurance
policy that lists that she and her three daughters, ages 6, 10, and 12, are covered under this
policy. Which provision in her insurance policy is defined by this list?
A.eligibility
B.assigned benefits
C.benefit limits
D.guaranteed renewable
E.exclusions and limitations
Answer:A29.The assessed value of your
home is the:
A.value used to calculate property taxes.
B.estimated current market value.
C.the price you paid to purchase the home.
D.amount of money a buyer has offered to purchase the home.
E.cost basis assigned to your home by your insurance company.
Answer:A30.Which one of the following is
not a private source of retirement income?
A.traditional IRAs
B.Social Security
C.defined contribution plans
D.defined benefit plans
E.spousal IRAs
Answer:B31.Lynn Roy wants to travel after
she retires as well as pay off the balance of the loan she has on the home she owns. Which
step in the financial planning
process does this situation demonstrate?
A.Determining her current financial situation
B.Developing her financial goals
C.Identifying alternative courses of action
D.Evaluating her alternatives
E.Implementing her financial plan
Answer:B32.Using the “nonworking” spouse
method, what should be the life insurance need for a family whose youngest child is 10
years old?
A.$30,000
B.$50,000
C.$80,000
D.$100,000
E.$180,000
Answer:C
Need = (18 – 10) x $10,000 = $80,000
33.Mike Lively is thinking about buying an investment that represents an
ownership claim on a company. The most important priority he has with this investment is
receiving his dividends before dividends are paid on other types of investments. What
investment is Mike thinking about purchasing?
A.common stock
B.preferred stock
C.corporate bond
D.option
E.mutual fund
Answer:B34.Garrett Jennings is thinking
about buying an investment that represents the most basic form of business ownership and
pays a dividend. The dividend on this investment is paid after all other payments and
dividends have been made. Which investment is Garrett thinking about purchasing?
A.common stock
B.preferred stock
C.corporate bond
D.option
E.mutual fund
Answer:A35.As of 2010, what is the
maximum yearly amount that an individual can give as a gift without incurring gift tax
liability or having to report the gift to the IRS?
A.$5,000
B.$13,000
C.$15,000
D.$20,000
E.$25,000
Answer:B36.With disability income
insurance, benefits usually begin:
A.on the first day of disability.
B.between 30 and 90 days after the disability occurs.
C.on the 10th day of disability.
D.one year after the start of the disability.
E.on the 15th day of disability.
Answer:B37.A two-earner couple likely will
have:
A.the greatest need for life insurance.
B.no need for life insurance.
C.a moderate need for life insurance, especially if they have a mortgage.
D.the greatest need for an annuity.
E.the exact same life insurance needs as all other two-earner couples.
Answer:C38.Which one of the following is a
true statement?
A.An investment bank is a financial firm that assists organizations in raising funds.
B.A corporation often deposits excess cash in an investment bank.
C.An investment bank provides checking services for large corporations.
D.Most investment banks help investors buy and sell a corporation’s stock.
E.Under current laws, an investment bank provides services to individuals but cannot
provide banking services to corporations.
Answer:A39.Jeff Willis has five kids and
more debt than the average family. What method would probably be the best method for
him to use to calculate his insurance needs?
A.easy method
B.DINK method
C.nonworking spouse method
D.family need method
E.soccer mom method
Answer:D40.Peril is defined as:
A.the refusal by an insurance company to pay for a loss.
B.the cause of risk.
C.the cause of a possible loss.
D.an uncertainty as to loss.
E.safety.
Answer:C41.Joseph is eligible for a
nontaxable life insurance benefit with an annual premium of $400 paid entirely by his
employer. Assuming Joseph is in a 25% bracket, how much would he have to earn to pay
for this benefit with after-tax dollars?
A.$425.00
B.$533.33
C.$433.33
D.$500.00
E.$400.00
Answer:B$533.33 = $400/(1-.25)
42.The ease with which an investment can be converted to cash without a
substantial loss in dollar value is called the:
A.asset value.
B.liquidity factor.
C.growth potential.
D.fixed cost factor.
E.variable cost factor.
Answer:B43.Jeff Bloom wants to have a
house just like the one his parents had when he was a teenager. He finds the house he
wants and gets an interest-only loan on it for the first five years. Which one of the answers
best explains Jeff’s spending?
A.misunderstanding or lack of communication
B.the use of money to punish
C.the expectation of instant comfort
D.keeping up with the Joneses
E.overindulgence of children
Answer:C44.Kate plans to rent instead of
buying her housing. Which advantage of renting will she realize?
A.tax deductions
B.lower initial costs
C.property appreciation
D.restricted lifestyle
E.home improvement flexibility
Answer:B45.The sticker price of a car refers
to:
A.the amount of government taxes on a new car.
B.the cost of repairing a used car which is for sale.
C.the list of optional equipment that may be added to a car.
D.the suggested retail price of a new car.
E.a comparison of costs and performance of comparable cars.
Answer:D46.Which CD starts with a higher
rate, has a long time to maturity, and can be retired by the bank after a set time period?
A.bump-up
B.indexed
C.callable
D.global
E.promotional
Answer:C47.The purpose of a rate cap with
an adjustable rate mortgage is to:
A.minimize interest costs.
B.prevent changes in the amount of the monthly payment.
C.increase negative amortization.
D.restrict the amount by which the interest rate can increase.
E.lower the escrow account.
Answer:D48.Why is it important to review
your assets and liabilities before your retirement?
Answer:
Reviewing your assets and liabilities is important to ensure that your net worth is adequate
for your retirement years.
Answer:50.What are the key steps in
retirement planning?
Answer:
The first step is to analyze your assets and liabilities to determine your net worth. Then,
estimate your expenses during retirement, and adjust those expenses for inflation using the
appropriate inflation factor. Determine your sources of income during retirement. Include
income from Social Security, other public pension plans, employer pension plans, personal
retirement plans, and annuities. Next, compare your income to your total inflated
retirement expenses. If your income approximates your expenses, you are in good shape; if
not, determine additional income needs and sources.
51.How is taxable income computed?
Answer:
Answers will vary
Feedback: Taxable income is a result of subtracting adjustments to income, deductions,
and exemptions from gross income.
52.How do wills and trusts help in planning your estate?
Answer:
Answers will vary
Feedback: Wills and trusts are tools of estate planning. The four types of wills are the
simple will, the traditional marital share will, the exemption trust will, and the stated dollar
amount will. Wills provide for the passing of your assets according to your wishes and can
be designed to help reduce, or even eliminate, estate taxes from the process.
Establishing a trust can be an excellent way to manage your estate. Trusts can be revocable
or irrevocable. Popular forms of trusts include living trusts, testamentary trusts, and
insurance trusts. An attorney’s assistance is needed to establish a trust. Trusts are a means
of passing assets and can also help reduce, or even eliminate, estate taxes. Trusts can also
help avoid the probate process.
53.Explain why gold prices tend to rise when influenced by such factors
as fear of war, political instability, and inflation.
Answer:Gold is considered a store of value. In times of
uncertainty, especially in times of inflation, gold is in great demand and prices rise. As an
extreme example, inflation in Zimbabwe was one million percent in a recent month. Would
you rather hold Zimbabwe’s currency or gold?
54.Explain the relationship between syndicates and REITs.
Answer:A syndicate is a temporary association of individuals
or firms, organized to perform a specific task that requires a large amount of capital. A
syndicate may be organized as a corporation, a trust, or, most commonly, a limited
partnership. REITs also invest in real estate but are more like mutual funds and are traded
on stock exchanges. REITs are more liquid than syndicates.