1.Liquidity is the ease with which an asset can be converted to cash without a substantial
loss in dollar value.
Answer:TRUE2.An estate tax is imposed on
the value of an individual’s property at the time of his or her death.
Answer:TRUE3.If only a few changes are
needed in your will, adding a codicil may be the best choice.
Answer:TRUE4.If life insurance proceeds
are left with the company, the company acts as trustee and pays the interest to the
beneficiary.
Answer:TRUE5.Today real estate investors
must use accelerated depreciation methods to recover the costs.
Answer:FALSE6.A qualified personal
residence trust, or QPRT, lets you get your home or vacation home out of your estate.
Answer:TRUE7.Social Security benefits do
not increase even if the cost of living increased during the preceding year.
Answer:FALSE8.Service contracts are
usually included in the cost of appliances and other high-priced items.
Answer:FALSE9.Although there is a great
deal of information on the Internet about stock investments, it is impossible to evaluate
bonds using the Internet.
Answer:FALSE10.The first gold bullion coin
ever produced by the U. S. government was issued in 2001.
Answer:FALSE11.Most of the information in
your credit file may be reported for only seven years. If you have declared personal
bankruptcy, that fact may be reported for 10 years.
Answer:TRUE12.Debit cards are often called
bank cards, ATM cards, cash cards, and check cards.
Answer:TRUE13.A limit order allows
investors to specify the price at which a security will be bought or sold.
Answer:TRUE14.If you work after age 65,
your Social Security benefit will increase by one-fourth of one percent for each month you
delay retirement up until what age?
A.67
B.70
C.75
D.80
E.85
Answer:B15.Which type of risk affects only
a specific company or a specific industry?
A.interest rate
B.systematic
C.unsystematic
D.economic
E.inflation
Answer:C16.Katherine Kocher has
determined the following information about her own financial situation. Her checking
account is worth $850 and her savings account is worth $1,200. She owns her own home
that has a market value of $98,000. She has furniture and appliances worth $12,000 and a
home computer and laptop worth $3,300. She has a car worth $12,500. She has recently
purchased a 2-year certificate of deposit worth $5,500 and she has a retirement account
worth $38,550. What is the value of her personal assets?
A.$2,050
B.$98,000
C.$27,800
D.$44,050
E.$171,900
Answer:C
$12,000 + 3,300 + 12,500 = $27,800
17.Which one of the following is a retirement plan sponsored by an
employer?
A.Roth IRA
B.Education IRA
C.Keogh Account
D.401(k) Plan
E.Traditional IRA
Answer:D18.What percent of all applicants
who apply for life insurance are found to be insurable?
A.58
B.68
C.78
D.88
E.98
Answer:E19._________ coverage protects
your automobile from risks such as glass breakage, falling objects, vandalism, or damage
caused by hitting an animal.
A.Towing and emergency road service
B.Comprehensive
C.Collision
D.Wage loss
E.Medical payments
Answer:B20.All except which one of the
following are good ways to acquire money for starting an investment program?
A.pay bills first, and then save a reasonable amount of money for investment
B.participate in an elective savings program offered by your employer
C.make a special savings effort one month per year
D.borrow money specifically for investment purposes
E.take advantage of gifts, inheritances, and windfalls
Answer:D21.The Arnold Fertilizer
Company’s stock is selling for $55 in the market and its earnings per share is $5. The
company is projected to grow at a rate of 22% over the next year. What is this company’s
price/earnings to growth (PEG) ratio?
A.11.00
B.9.09
C.0.50
D.50.00
E.22.73
Answer:C
PEG = ($55/$5)/22 (You ignore the percent) = .50
22.Amy Farmer has developed a budget that she follows each month. She
went to the office supply store and purchased a spiral notebook. Each month she pens in
what she wants to spend in the various categories. At the end of the month, she pens the
amount that she actually spent in each of these categories and compares the results. What
type of budget has Amy created?
A.mental budget
B.physical budget
C.written budget
D.computerized budget
E.none of the answers
Answer:C23.Brad Johnson has a goal of
‘saving $50 a month for vacation.” Brad’s goal lacks:
A.measurable terms.
B.a realistic perspective.
C.specific terms.
D.the type of action to be taken.
E.a time frame.
Answer:E24.You can convert your traditional
IRA to a Roth IRA.
Answer:TRUE25.Your Aunt gives you some
money for your birthday and you decide to put it into your savings account instead of
spending it. The trade-off of not being able to spend the money now is this decision’s
________ cost.
A.fixed
B.opportunity
C.variable
D.transaction
E.total
Answer:B26.Which one of the following
statements is true?
A.It is possible to obtain financial information about a corporation that issues stock by
using the Internet.
B.While it is possible to obtain information about a company by accessing the Internet, the
information is usually out of date.
C.You can use an Internet search engine to only access a company’s price information.
D.Corporations have web pages but do not provide any financial information on them.
E.By using the Yahoo! Finance web site, investors can access financial information only
about the economy as a whole.
Answer:A27.An investment theory based on
the assumption that a stock’s intrinsic or real value is determined by the future earnings of
the company is called the ____________ theory.
A.fundamental
B.technical
C.efficient market
D.primary
E.market
Answer:A28.Future value calculations
involve:
A.discounting.
B.add-on interest.
C.compounding.
D.simple interest.
E.an annuity.
Answer:C29.A beneficiary is a person who:
A.acts as a trustee of your insurance policy.
B.is a guardian of your children.
C.acts on your behalf.
D.is designated to receive life insurance proceeds.
E.acts as an agent handling your insurance policy.
Answer:D30.Which of the following is
usually the largest fixed expense for a new vehicle?
A.insurance
B.gasoline
C.registration, license, and fees
D.parking
E.depreciation
Answer:E31.The people who are in the best
position to save are:
A.teenagers.
B.young adults in their 20s.
C.people in their 30s.
D.middle-aged.
E.elderly.
Answer:D32.Nancy Groom owns a $1,000
corporate bond that pays 8.5 percent. What is the amount of each interest payment?
A.$4.25
B.$42.50
C.$85.00
D.$850.00
E.$425.00
Answer:B
Interest payment = ($1,000 x .085)/2 = $42.50
33.The debt-to-equity ratio is:
A.calculated by dividing total liabilities by net worth.
B.calculated by dividing monthly debt payments by net monthly income.
C.determined by dividing your assets by your liabilities.
D.a useless ratio for determining your credit capacity.
E.rarely used by creditors in determining credit worthiness.
Answer:A34.Amy Farmer is getting a loan to
buy a used car. The bank wants to know the trade-in value of the car she is purchasing.
Which of the 5 Cs of credit is the bank examining?
A.character
B.capacity
C.capital
D.collateral
E.conditions
Answer:D35.Charles Rickman is applying
for a loan from the bank. The bank has determined that he has never been late making
payments on past loans. Which of the 5 Cs of credit is the bank looking at?
A.character
B.capacity
C.capital
D.collateral
E.conditions
Answer:A36.Harrison Ford has invested in
something that acts like a mutual fund and that derives income from interest on property
loans. He knows there are federal laws that require this type of investment to distribute at
least 90 percent of the income to shareholders and that requires there be at least 100
shareholders. What type of investment has Harrison made?
A.limited partnership
B.equity REIT
C.mortgage REIT
D.hybrid REIT
E.participation certificate
Answer:C37.Medicare medical insurance
helps pay for:
A.inpatient hospital care.
B.doctors’ services.
C.home health care.
D.hospice care.
E.none of the services listed in the other answers.
Answer:B38.George Smith worries that his
deteriorating health is going to make it difficult for him to conduct his day-to-day business.
He wants to grant his nephew, Brandon Smith, the ability to act on his behalf. To do this,
what document would he most likely need?
A.letter of last instruction
B.durable power of attorney
C.will
D.revocable trust
E.irrevocable trust
Answer:B39.ABC Corporation has assets
that total $12 million and liabilities that total $4 million. It also has 500,000 shares of stock
outstanding. What is the ABC’s book value per share?
A.$32
B.$24
C.$16
D.$8
E.$0
Answer:C
Book value per share = ($12 million – 4 million)/500,000 = $16
40.Which statement is most likely correct about retirement planning?
A.Social Security will cover most of your expenses.
B.Your employer’s pension combined with your Social Security will cover your retirement
expenses.
C.Most retirees don’t need to worry about inflation.
D.Your pension may remain constant even in an inflationary environment.
E.Your living costs will remain constant once you retire.
Answer:D41.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. He still owes $125,000 on his mortgage and $5,000 on a
car loan. The probate and administration costs of his estate are estimated at $5,000. What
is his estimated net taxable estate?
A.$850,000
B.$870,000
C.$875,000
D.$755,000
E.$760,000
Answer:D
Net taxable estate = $250,000 + 15,000 + 600,000 + 25,000 – 125,000 – 5,000 – 5,000 =
$755,000
42.The purpose of a selection interview is to:
A.select the best applicants for further interviewing.
B.obtain training information on a career area.
C.question candidates for a job in detail.
D.explore possible job opportunities in a career area.
E.locate potential candidates for a position.
Answer:C43.What factors affect the cost of
home insurance?
Answer:
The main influences on home insurance costs are type of home, construction materials,
location of residence, amount of coverage, type of policy (basic, broad, special),
deductibles, discounts for fire and burglary devices, and the company selected.
44.What are the major sources of consumer credit?
Answer:Answers will vary
Feedback: The major sources of consumer credit are commercial banks, savings and loan
associations, credit unions, finance companies, life insurance companies, pawnshops, loan
sharks, and family and friends. Each type of source has unique advantages and
disadvantages.
45.Choose four of the investment alternatives presented in Chapter 13 and
describe how the factors of safety, risk, income, growth, and liquidity affect that
investment alternative.
Answer:The answer to this question depends on which four
investment alternatives students choose: common stock, preferred stock, corporate bonds,
government bonds, mutual funds, real estate, options, commodities, derivatives, precious
metals, gemstones, antiques, or other collectibles. Exhibit 13.5 provides a summary (in
table form) of each factor for all investment alternatives presented in this chapter.
46.In open-end credit, what are the various systems creditors use to
calculate the balance on which they assess finance charges?
Answer:Answers will vary
Feedback: Creditors use the following methods to calculate the balance on which they
assess finance charges:
(a) adjusted balance method(b) previous balance method, and(c) average daily balance
method.
47.What are the primary sources of government health care insurance?
Answer:
The federal government and state governments offer health coverage in accordance with
laws that define the premiums and benefits. Two well-known government health programs
are Medicare and Medicaid.
48.Corporate and Treasury bonds generally produce more interest revenue
than municipal bonds. Why do investors choose to buy municipal bonds?
Answer:
Answers will vary
Feedback: Municipal bond income is exempt from federal taxes and sometimes state and
local taxes. High-income individuals, especially those in high tax states, can benefit
significantly from the tax-exempt status of municipal bonds.
49.What are the possible sources of income for retirees?
Answer:
Possible sources of income for retirees include Social Security, other public pension plans,
employer pension plans, personal retirement plans, and annuities. Part-time employment is
also an option, or necessity, for many retirees.
50.Josh earned $120 on $1500 invested in a high yield money market
account. He is taxed at 28% of his earnings. What is the effective yield on his investment?
Answer:
Answers will vary
Feedback: Josh earned 8% ($120/$1500) on his high yield money market account. After he
pays taxes of 28% on the $120 he earned, his effective yield will be approximately 5.8%.
($120 x .72)/$1500 = $86.40/1500 = .0576
51.In what ways can a bond investor make money?
Answer:
Answers will vary
Feedback: The bondholder earns interest on the bond. If the prevailing interest rate falls
the bond could be sold for a premium. A zero-coupon bond could be held to maturity. A
bond bought at a discount could be held to maturity.