1.The Education IRA was renamed the Coverdell Education Savings Account.
Answer:TRUE2.Risks associated with most
financial decisions are fairly easy to measure.
Answer:FALSE3.Because of the need for
secrecy, most corporations do not supply financial information about the company on their
Web sites.
Answer:FALSE4.Many retailers use
open-end credit.
Answer:TRUE5.A creditor may ignore your
retirement income in rating your application.
Answer:FALSE6.Higher returns on savings
will usually result in less liquidity.
Answer:TRUE7.Immediate annuities are
generally purchased by people of retirement age.
Answer:TRUE8.A cafeteria-style employee
benefits program allows workers to select the benefits they prefer based on their personal
situations.
Answer:TRUE9.Life insurance proceeds may
provide a retirement income.
Answer:TRUE10.Your Social Security
payments will start at age 65 whether you apply for benefits or not.
Answer:FALSE11.Medicaid is administered
by each state within certain broad federal requirements and guidelines.
Answer:TRUE12.An ethical will is a way to
pass on your values and beliefs to your heirs.
Answer:TRUE13.Cooperative housing is a
form of housing in which the units in a building are owned by a nonprofit organization.
Answer:TRUE14.With closed-end credit,
generally the seller holds the title to the merchandise until the payments have been
completed.
Answer:TRUE15.When you invest in Class
A shares, you pay a sales commission when you sell your mutual fund shares.
Answer:FALSE16.A mutual fund that invests
in investment-grade corporate debt with maturities between 5 and 10 years is called a(n)
____________ fund.
A.long-term bond
B.growth
C.sector
D.income
E.intermediate corporate bond
Answer:E17.Which one of the following is
true with respect to closed-end funds?
A.Shares are issued whenever an investor wants to purchase them.
B.Most of the funds today are closed-end.
C.Shares are traded on stock exchanges similar to stocks.
D.Shares always trade at NAV.
E.Investors redeem their shares by selling them directly to the fund.
Answer:C18.is a benefit on which you pay
no taxes.
A.Networking
B.Vesting
C.A tax-deferred benefit
D.A tax-exempt benefit
E.An opportunity cost
Answer:D19.A person’s net worth is
computed by:
A.adding assets and liabilities.
B.deducting current living expenses from total assets.
C.subtracting total liabilities from total assets.
D.subtracting assets from current liabilities.
E.adding liabilities and budgeted expenses.
Answer:C20.Ed Bostrom wants to reduce his
fixed expenses. Which action would be appropriate?
A.get a part-time job
B.eat more meals at home rather than in restaurants
C.find a place to live with a lower rent
D.save more money for the future
E.buy on credit items than might cost more later
Answer:C21.A debit card:
A.immediately deducts the cost of your purchase from your bank account.
B.credits your account at the moment you buy goods or services.
C.is a new type of a credit card issued by VISA International.
D.is another name for a travel and entertainment card.
E.typically has a credit limit of $1,000.
Answer:A22.As Jean Tyler plans to set aside
funds for her young children’s college education, she is setting a(n) ____________ goal.
A.intermediate
B.long-term
C.short-term
D.intangible
E.durable
Answer:B23.Most people pay federal income
tax by:
A.paying the total amount owed on April 15.
B.filing quarterly tax payments.
C.having amounts withheld from income.
D.earning tax credits for various deductions.
E.filing the 1040 EZ form.
Answer:C24.A fee that some investment
companies charge for advertising and marketing a mutual fund is called a:
A.14A-1 fee.
B.12b-1 fee.
C.18-2 fee.
D.403(b) fee.
E.401(k) fee.
Answer:B25.An investor concerned with a
predictable source of income provided by an investment would choose:
A.government bonds.
B.commodities.
C.options.
D.common stocks.
E.speculative investments.
Answer:A26.Gerald Wilkins owns a home
worth $250,000, a car worth $15,000, various investments worth $600,000 and other
personal assets worth $25,000. What are these things to Gerald?
A.estate
B.will
C.trust
D.probate
E.liabilities
Answer:A27.Which method of payment is
likely to be the least expensive in the long run?
A.bank credit card
B.check written on a home equity line of credit
C.cash
D.store credit card
E.cash advance on a Visa credit card
Answer:C28.If interest rates in the overall
economy decrease to 6 percent, which one of the following is most likely to be the market
value of a $1,000 corporate bond with a fixed interest rate of 7 percent?
A.$400
B.$1,100
C.$900
D.$1,000
E.$700
Answer:B
Since the market rate is less than the coupon rate, the market price should exceed $1,000.
29.Efficient work habits are an example of:
A.on-the-job training.
B.continuing education.
C.an employee’s initiative.
D.cooperative education.
E.seniority.
Answer:C30.Which of the following
statements regarding debit and credit card liability is correct?
A.A credit card carries more risk of loss to the cardholder.
B.A debit card carries more risk of loss to the cardholder.
C.There is no cardholder liability if either type of card is lost.
D.The Federal Government insures losses on credit but not debit cards.
E.The Federal Government insures losses on debit but not credit cards.
Answer:B31.During __________, even
though prices decline spending slows because consumers expect prices to continue to
decline.
A.deflation
B.depreciation
C.appreciation
D.economic recovery
E.inflation
Answer:A
32.Sandra Peterson has been thinking about investing in corporate bonds.
She is concerned about safety and wants the most secure bond investment possible. She
would most likely invest in ____________ bonds.
A.debenture
B.mortgage
C.speculative
D.convertible
E.subordinated
Answer:B33.Private label products are those
that:
A.are sold as government surplus.
B.require nutritional labeling information.
C.provide freshness information on the package.
D.are distributed by all national chain stores.
E.are sold by one chain of stores.
Answer:E34.According to consumer affairs
experts, the nation’s number one family financial problem is:
A.poor money management.
B.over-indebtedness.
C.medical costs.
D.insurance costs.
E.unemployment.
Answer:B35.A lack of willingness to accept a
variety of employment positions is a common career planning mistake associated with a
lack of:
A.common sense.
B.communication skills.
C.training.
D.flexibility.
E.perseverance.
Answer:D36.The most common type of
permanent life insurance is called:
A.whole life.
B.term life.
C.universal life.
D.modified life.
E.variable life.
Answer:A37.The maturity dates for most
bonds range between ____________ years.
A.0 to 5
B.5 to 20
C.10 to 20
D.1 to 30
E.15 to 40
Answer:D38.A municipal bond fund:
A.is too risky for most investors.
B.provides investors with federally tax-free interest income.
C.invests in bonds that are backed by the federal government.
D.is a risk-free investment.
E.invests solely in Treasury bonds.
Answer:B39.Which interest formula may be
used by creditors to determine how much interest you have paid at any point in a loan?
A.simple interest formula
B.compound interest formula
C.multiple compound interest formula
D.the rule of 78s
E.the rule of 72s
Answer:D40.The most popular and least
complicated method of purchasing shares in an open- end mutual fund is through a:
A.regular account transaction.
B.voluntary savings plan.
C.contractual savings plan.
D.minimum withdrawal plan.
E.free contract plan.
Answer:A41.Michelle Duncan wants to
know what price home she can afford. Her annual gross income is $45,000. She owes $750
per month on other debts and expects her property taxes and homeowners insurance to cost
$250 per month. She knows she can get a 7.5%, 30year mortgage so her mortgage
payment factor is 6.99. She expects to make a 20% down payment. What is Michelle’s
affordable home purchase price? Round your answer to the nearest $100.
A.$76,000
B.$60,800
C.$304,000
D.$42,500
E.$254,800
Answer:A
See page 299 for detailed example.
Step 1) $45,000/12 = $3,750
Step 2) $3,750 x .38 = $1,425
Step 3) $1,425 – 750 – 250 = $425
Step 4) ($425/6.99) x $1,000 = $60,801
Step 5) $60,801/(1 – .2) = $76,000 (rounded)
42.Zachary Harris owns a home in Elk City. There was a bad
thunderstorm and his gazebo was hit by lightening and burned to the ground. What part of
his homeowner’s insurance policy would cover this loss?
A.buildings and other structures
B.additional living expenses
C.personal property
D.personal liability
E.specialized coverage
Answer:A43.Bad products or poor corporate
management may result in investors experiencing ______________ risk.
A.inflation
B.interest rate
C.business failure
D.systematic
E.income
Answer:C44.A trust has the purpose of:
A.solving a person’s financial problems
B.obtaining low-interest loans
C.handling daily money management activities
D.managing the assets of a person
E.improving a person’s budgeting skills
Answer:D45.Explain how current interest
rates can affect the price of a home.
Answer:Answers will vary
Feedback: The main factors in a home price are recent selling prices in the area, current
demand, time on market, financing options, condition, and owner’s need to sell. Also,
when interest rates are low, more people will qualify for a loan of a given size, and
therefore demand may be higher for housing.
46.Explain why opportunity cost is an important concept in money
management.
Answers will vary
Feedback: Opportunity costs are the trade-offs that come from having to give up
something when you make a decision. Every decision carries with it an opportunity cost.
This is especially important to remember in money management because choosing one
path, such as saving your money for the future, means you will have to forego what you
could have bought with that money today. The opposite of course is also true. Spending
your money today means you won’t have it in the future and you will also miss out on the
interest that you could have earned by saving. It is very important to keep this in mind
when mapping out your plan for managing your money.
Answer:47.Explain the difference between a
short-term capital gain and a long-term capital gain.
Answers will vary
Answer: Feedback: Capital gains are profits made from the
sale of a capital asset such as stock, bonds, or real estate. Taxes are paid at the time of sale.
If an asset was held for less than a year it is considered a short-term capital gain and taxed
as ordinary income. Long-term capital gains are assets held greater than a year and taxed at
a lower rate. The 2010 tax rate is 15%.
48.What are the various methods used to calculate interest?
Answer:Answers will vary
Feedback: The various methods used to calculate interest include the following:
1. Simple Interest- computed on principal only, no compounding
2. Simple Interest on the declining balance- a method used when more than one payment is
made on a simple interest loan
3. Add-on Interest- interest is calculated on the full amount of the original principal
4. Adjusted balance method- finance charges after payments made during the billing period
have been subtracted
5. Previous balance method- gives no credit for payments made during the billing period
6. Average daily balance method- uses a weighted average of the account balance
throughout the current billing period.
49.Evan Nolan is a college graduate who has just landed a great job. He
feels it is time for him to start saving a portion of his earnings. What factors would you
recommend he consider when evaluating and comparing different savings plans?
Answer:
Answers will vary
Feedback: When evaluating a savings plan, consider the rate of return (yield), the interest
compounding method, liquidity, safety, restrictions, and costs of the account.
50.Explain simple interest.
Answer:Answers will vary
Feedback: Simple interest is the interest computed on principal only; it is the dollar cost of
borrowing money. Simple interest formula is Interest = Principal x rate of interest x Time
(I= P x r x T).