1.The least expensive loans are available from finance companies and retailers.
Answer:FALSE2.The finance charge is the
total dollar amount you pay to use credit.
Answer:TRUE3.A class action suit allows
many people with the same complaint to take action as a group.
Answer:TRUE4.People often buy surgical
expense insurance in combination with hospital expense insurance.
Answer:TRUE5.Opportunity costs refer to
time, money, and other resources that are given up when a decision is made.
Answer:TRUE6.Since first and second
mortgages are risky investments, these can potentially provide relatively high rates of
return.
Answer:TRUE7.All-in-one accounts may be
used by financial institutions to simplify the maze of financial services and to attract
customers.
Answer:TRUE8.The potential loss of buying
power during inflation is what makes it so important to plan ahead for your retirement.
Answer:TRUE9.A person’s net worth is the
difference between the value of the items owned and the amounts owed to others.
Answer:TRUE10.The rate of return on
annuities is rarely pegged to market rates.
Answer:FALSE11.The 500 in 200/500/50
refers to:
A.property damage liability coverage.
B.the amount of the deductible.
C.collision coverage.
D.the total coverage for an accident.
E.the limit for all bodily injury claims from a single accident.
Answer:E12.Drew Davis earns $4,500 per
month from his job at Cisco Systems; $900 is withheld from this amount each month for
taxes. What type of tax is this most likely to be?
A.general sales tax
B.excise tax
C.personal property tax
D.income tax
E.estate tax
Answer:D13.The management fee for most
mutual funds ranges between ______ percent.
A.0.25 to 1.5
B.1.5 to 3
C.3 to 4
D.5 to 6 1/2
E.7 to 8 1/2
Answer:A14.Last month Nellie Jacobson’s
divorce became final. As part of the settlement, she received $150,000. She would like to
invest in mutual funds, but since she is 62 years old, she is concerned with the safety of her
“nest egg.” Which of the following mutual funds would you recommend?
A.growth fund
B.small cap fund
C.high-yield bond fund
D.international fund
E.short-term U. S. bond fund
Answer:E15.To calculate dividend yield, the
annual dividend amount per share is divided by the _______ per share.
A.current stock price
B.stock’s original issue value
C.current earnings
D.current book value
E.current sales
Answer:A16.The main purpose of taxes is to:
A.generate revenue for funding government programs.
B.reduce the chances of inflation.
C.create jobs.
D.discourage use of certain goods and services.
E.decrease competition from foreign companies.
Answer:A17.A possible disadvantage of FHA
and VA mortgages can be:
A.higher debt ratios for buyers.
B.a longer processing time.
C.loans may be assumable.
D.the monthly payments can be higher than those of other mortgages.
E.the high down payment requirements.
Answer:B18.What is the primary goal of
asset allocation?
A.investment income
B.growth
C.liquidity
D.return
E.risk reduction
Answer:E19.The major service offered by
investment companies is:
A.interest-bearing checking accounts.
B.variable-rate loans.
C.credit card accounts.
D.savings bonds.
E.mutual funds.
Answer:E20.A term that refers to the
borrower’s assets or net worth is called:
A.capacity.
B.character.
C.capital.
D.collateral.
E.conditions.
Answer:C21.Henry Garrison starts the month
with a balance on his credit card of $1,000. The average daily balance for the month
including purchase is $883. The average daily balance for the month excluding new
purchase is $750. The bank charges 1.5 percent per month and uses the average daily
balance including new purchases method. What would Henry’s finance charges be for the
month?
A.$7.50
B.$13.25
C.$11.25
D.$15.00
E.$18.00
Answer:B
Interest = $883 x .015 = $13.25
22.Renee Warning has a life insurance policy where the payments to
beneficiaries get smaller as time passes. What type of term life insurance does Renee likely
have?
A.straight
B.renewable
C.convertible
D.decreasing
E.accelerated
Answer:D23.Which one of the following is a
retirement plan that allows a $5,000 annual contribution with tax-free earnings after five
years?
A.Roth IRA
B.Education IRA
C.Keogh Account
D.401(k) Plan
E.SEP
Answer:A24.An intermediate-term
investment objective is defined as one that will be accomplished within a period of:
A.five to ten years.
B.two to five years.
C.more than five years.
D.one to five years.
E.less than one year.
Answer:D25.A ____________ rsum presents
a person’s education, work experience, and other information in a reverse time-sequence.
A.goal-oriented
B.functional
C.chronological
D.targeted
E.data base
Answer:C26.In planning your insurance
program, you should:
A.seek advice from a competent financial adviser.
B.determine what insurance is required.
C.consider Social Security and other group insurance.
D.decide what type of insurance best meets your needs.
E.consider all of the factors listed in the other answers.
Answer:E27.Valerie Kilmer owns stock in
the Williams Widget Company. She was just advised that in the near future she will be
receiving two shares for every one share she owns today. What has the company declared
that will cause this change to her shares?
A.extra dividend
B.capital gains distribution
C.stock split
D.stock repurchase
E.stock conversion
Answer:C28.Benjamin Wiley is married and
has assets totaling $7 million. What type of will would most likely result in the lowest
overall amount of federal estate taxes? Assume the exemption amount is $3 million.
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.living
Answer:B29.A savings account earns 4
percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would
be ____ percent.
A.28.00
B.16.72
C.4.00
D.2.88
E.1.12
Answer:D2.88% = 4 %( 1-.28)
30.Which is an advantage of investing in Series EE U.S. Savings Bonds?
A.When a bond is cashed, the earned interest is exempt from federal income taxes.
B.Interest is not taxed by the federal government until the bond is cashed.
C.The interest rate on the bond is adjusted to keep up with inflation.
D.Series EE Bonds can be sold at a profit on the open bond market.
E.The rates on Series EE Bonds are usually higher than the rates offered on stocks or
corporate bonds.
Answer:B31.Lynn Roy wants to travel
around the world. Lynn Roy has several options she can pursue. She can continue to work
full time to earn the money she needs for her trip. She can work part time so that she can
still earn some money but have the time necessary to complete her trip. She can take full
retirement so that she has all the time necessary to complete her trip. Which step in the
financial planning process does this scenario 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:C32.George Washburn had earnings
from his salary of $34,000, interest on savings of $800, a contribution to a traditional
individual retirement account of $1,500, and dividends from mutual funds of $600.
George’s adjusted income (AGI) would be:
A.$33,900.
B.$34,000.
C.$34,600.
D.$34,800.
E.$35,400.
Answer:A
$34,000 + $800 – $1,500 + $600 = $33,900
33.A loan based on the equity of the home that provides the homeowner
with tax-free income and which is paid back when the home is sold is called a(an):
A.conventional mortgage.
B.growing equity mortgage.
C.second mortgage.
D.reverse mortgage.
E.adjustable rate mortgage.
Answer:D34.Jennifer Fritz is thinking about
purchasing the stock of the Sunshine Corporation at the current market price. What type of
order should she place?
A.market order
B.limit order
C.stop order
D.discretionary order
E.common order
Answer:A35.James Fitzwater has created a
will that leaves exactly $2 million to his wife. What type of will has James created?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.living will
Answer:D36.Negligence refers to:
A.failure to take ordinary and reasonable care.
B.cancellation of insurance.
C.property damage.
D.high risk insurance coverage.
E.common hazards in our society.
Answer:A37.Ned Turner has done some
research and has found that the population in the U.S. is aging which means there will be
an increased need for health care professionals in the future. This is an example of
__________________ influencing jobs in the future.
A.demographic trends
B.economic conditions
C.industry trends
D.geographic trends
E.educational trends
Answer:A38.The maximum amount of credit
you are allowed by a creditor is called
A.revolving credit.
B.line of credit.
C.convenience credit.
D.installment cash credit.
E.single lump-sum credit.
Answer:B39.The purpose of a screening
interview is to:
A.make business contacts.
B.reduce the number of applicants for a job.
C.locate potential people for advancement within the company.
D.judge the best qualified candidates for a position.
E.obtain information on available jobs in an area.
Answer:B40.Which one of the following is a
local organization that provides debt counseling services for families and individuals?
A.Credit Bureau
B.Chamber of Commerce
C.Consumer Credit Counseling Service
D.Internal Revenue Service
E.Better Business Bureau
Answer:C41.The affordability of which one
of these is one of the most important social issues of our time?
A.health care
B.clothing
C.automobiles
D.vacations
E.day care
Answer:A42.Describe the federal law that
protects you from billing mistakes.
Answer:Answers will vary
Feedback: The Fair Credit Billing Act (FCBA), passed in 1975, protects you from credit
card billing mistakes. The law sets procedures for promptly correcting billing mistakes,
refusing to make credit card or revolving credit payments on defective goods, and
promptly crediting your payments.
43.What can you do if you are unable to meet your credit obligations?
Answer:Answers will vary
Feedback: If you cannot meet your credit obligations, contact your creditors immediately.
Before signing up with a debt consolidation company, investigate it thoroughly. Better yet,
contact your local Consumer Credit Counseling Service. A debtor’s last resort is to declare
personal bankruptcy. Consider the financial and psychological costs of bankruptcy before
taking this extreme step.
44.What can you do if your identity is stolen?
Answer:
Answers will vary
Feedback: If your identity is stolen, take three actions immediately:
a. Contact the fraud departments of each of the three credit bureaus.
b. Contact the creditors for any accounts that have been tampered with or opened
fraudulently.
c. File a police report.
45.What types of expenses can be lowered or eliminated during
retirement?
Answer:
Work-related expenses, clothing expenses, transportation costs, and housing expenses will
probably be lower during retirement. You’ll probably pay taxes at a lower rate because
your taxable income may be lower.
46.You are given the choice of $4,000 in extra taxable income per year or
a tax-exempt medical policy. The medical policy costs $300 per month. Your tax rate is
25%. Considering financial factors only, should you take the cash or the medical policy?
Answer: Explain your decision.
Answers will vary
Feedback: Take the company medical coverage. The after-tax value of $4,000 is $4,000 x .
75 = $3,000. The comparable value of the insurance is $300 x 12 = $3,600.
47.What is the importance of health insurance and disability insurance in
personal financial planning?
Answer:
Both protections should be a part of your overall insurance program to safeguard your
family’s economic security.
48.What are the main sources of consumer information?
Answer:Answers will vary
Feedback: Sources of information for use when making buying decisions include personal
experiences and contacts, business organizations (advertisements, salespeople, labels, and
trade associations), media (newspapers, magazines, television, and radio), independent
testing organizations, and government agencies.
49.What legal actions are available when assistance is needed to resolve a
consumer problem?
Answer:Answers will vary
Feedback: Legal actions available to consumers include arbitration, mediation, small
claims court, class action suits, and hiring a lawyer.
50.Describe four common consumer myths and explain the dangers of
such erroneous beliefs. Why do you think they continue to be believed by many
consumers? Offer suggestions for ways to increase consumer awareness of such myths.
Answer:Answers will vary
Feedback: Answers might include the following: “I can return my car within three days of
purchase.”; “My credit report information is confidential.”; “My creditors can’t call me at
work.”; “You can’t repossess my car; it’s on private property.”; “An auto lease is like a
rental; if I have problems with the car or problems paying, I can just bring it back.”; “If I
lose my credit cards, I’m liable for purchases.”; It says right here that I’ve won; it must be
true.” Such beliefs continue largely due to ignorance and lack of personal experience.
Personal finance classes and informal education might be provided in high schools and
community centers.