1.Typically, you must invest at least $15,000, to open a mutual fund account.
Answer:FALSE2.Because an index fund is a
mirror image of a specific index, the dollar value of a share in an index fund increases
when the index increases.
Answer:TRUE3.A stop-loss provision
requires the policyholder to pay up to a certain amount, after which the insurance company
pays 100 percent of all remaining covered expenses.
Answer:TRUE4.Two key concepts that you
should keep in mind when borrowing are the finance charge and the annual percentage
rate.
Answer:TRUE5.The cost of preparing a will
varies from place to place.
Answer:TRUE6.Part A of Medicare pays for
all covered services for inpatient hospital care after you pay a single annual deductible.
Answer:TRUE7.Passive loss is the total
amount of losses from a passive activity minus the total income from the passive activity.
Answer:TRUE8.Insured municipal bonds
offer slightly lower interest rates than uninsured bonds because of the reduced risk of
default.
Answer:TRUE9.A hospital indemnity policy
pays benefits only when you are hospitalized and only to the hospital where the care was
provided.
Answer:FALSE10.Parents or family
members are often the source of the least expensive loans.
Answer:TRUE11.A deductible provision
requires the policyholder to pay a basic amount before the policy benefits begin.
Answer:TRUE12.Two sources of
government health insurance are Medicare and Medicaid.
Answer:TRUE13.If a corporation’s earnings
decline, the stock’s value usually increases.
Answer:FALSE14.An itemized deduction of
$500 with a 36 percent tax rate would reduce a person’s taxes by:
A.$500.
B.$36.
C.$464.
D.$280.
E.$180.
Answer:E
$500 x .36 = $180
15.When an investor purchases shares in a load fund, the average sales
charge is usually between ____________ percent.
A.0.5 to 2
B.1 and 3
C.3 and 5
D.5 and 7
E.4 and 6
Answer:C16.Jerrod Dean starts the month
with a balance on his credit card of $1,000. On the 10th day of the month, he purchases
$200 in clothes with his credit card. On the 15th day of the month he makes a payment on
his credit card of $500. The bank charges 1.5 percent interest per month using the adjusted
balance method. What would Jerrod’s finance charges be for the month?
A.$7.50
B.$13.25
C.$11.25
D.$15.00
E.$18.00
Answer:A
Interest = .015 x ($1,000 – $500) = $7.50
17.A renter is required to pay a security deposit of $800, on which 4
percent interest will be paid. What amount would the person earn each year?
A.$100
B.$64
C.$32
D.$16
E.$4
Answer:C
Earnings = $800 (.04) = $32
18.In 2009, the largest percentage of U.S. health care dollars was spent
on:
A.hospital care.
B.dental care.
C.physician/clinical services.
D.prescription drugs.
E.nursing care.
Answer:A19.Bob Newsome purchased 250
shares of the Northern Lights Growth Fund. The purchase cost was $30 per share. If this
fund charges a 3 percent load, what is the commission amount he will pay the investment
company?
A.$3
B.$30
C.$300
D.$225
E.$250
Answer:D
Commission = 250 x $30 x .03 = $225
20.Which of the following options can a mutual fund investor use to
purchase shares in an open-end fund?
A.regular accounts.
B.voluntary savings plan.
C.contractual savings plan.
D.reinvestment plan.
E.all of the options listed in the other answers
Answer:E21.Increasing interest rates in the
economy cause gold prices to:
A.skyrocket.
B.increase moderately.
C.remain stable.
D.decline.
E.change, but the direction of the change cannot be predicted.
Answer:D22.Which of the following is a true
statement?
A.A corporation generally obtains equity capital from bondholders.
B.A corporation must issue either preferred stock or common stock but not both.
C.When a corporation is experiencing financial problems, an investor should purchase
common rather than preferred stock.
D.Most corporations sell options to satisfy a large part of their financing needs.
E.A stock split may not cause a stock’s value to increase.
Answer:E23.The main responsibility of The
Fed is to:
A.maintain an adequate supply of money.
B.approve spending by Congress.
C.set federal income tax rates.
D.determine illegal business activities.
E.maintain a balanced budget for the federal government.
Answer:A24.Items that you own with a
monetary worth are referred to as:
A.liabilities.
B.variable expenses.
C.net worth.
D.income.
E.assets.
Answer:E25.Sophie Bennett has personally
paid a total of $5,000 in medical costs this year. At this point, there is a clause in her
insurance contract that requires her insurance company to pay 100% of her medical costs
for the remainder of the year. What clause is this likely to be?
A.coordination of benefits
B.hospital indemnity clause
C.coinsurance
D.stop-loss provision
E.major medical expense provision
Answer:D26.Which one of the following is
not a business periodical?
A.Barrons
B.Business Week
C.New York Stock Exchange Report
D.Forbes
E.Fortune
Answer:C27.A certificate of deposit usually
has:
A.high interest-rate risk.
B.low safety for savers.
C.limited liquidity.
D.a variable rate of return.
E.no minimum deposit amount.
Answer:C28.In order for a corporation’s
stock to be bought and sold on the New York Stock Exchange, the corporation must meet
certain requirements. Which one of the following incorrectly states one of those
requirements?
A.A corporation’s annual earnings before income taxes must be at least $10 million per
year for the last three consecutive he most recent three years.
B.All of the requirements listed in the other answers are correct.
C.The market value of its publicly held stock must exceed $25 million.
D.A corporation must have a total of at least 400 U.S. shareholders and at least 1,100,000
total shares outstanding.
E.A corporation must have at least $75 million in revenues for the most recent year.
Answer:C29.The Form 1040 is most helpful
to a person who:
A.is single with no other exemptions.
B.makes less than $50,000 with no interest or dividends.
C.itemizes deductions.
D.has exempt income.
E.has a simple tax situation.
Answer:C30.The quality rating given by
Standard & Poor’s to highly-speculative bonds is:
A.high-grade.
B.default.
C.investment-grade.
D.medium-grade.
E.unrated.
Answer:B31.Which one of the following is
not included in gross income?
A.Tax credit.
B.Exemption.
C.Exclusion.
D.Earned income.
E.Portfolio income.
Answer:C32.Bill Teague has just gotten a gift
of $20,000 from his parents and is trying to decide how to invest it. He is thinking about
investing in a money market mutual fund because he knows he can withdraw the money
from the money market mutual fund whenever he needs it with little chance of loss in
value. What aspect of investing is Bill most concerned about?
A.risk
B.return
C.diversification
D.liquidity
E.investment growth
Answer:D33.An expense that would be
included in the itemized deductions of a taxpayer is:
A.personal postage expenses.
B.life insurance premiums.
C.real estate property taxes.
D.a driver’s license fee.
E.annual interest paid on credit cards.
Answer:C34.What should you do when you
shop on-line using your credit card?
A.delete immediately all records of your transactions
B.use a secure browser
C.give out your private information to anyone who requests it on-line
D.make sure to open and download all files sent you by strangers
E.give your password to anyone who requests it
Answer:B35.A family has a net worth of
$156,000 and liabilities of $167,000, what is the amount of their assets?
A.$11,000
B.$156,000
C.$167,000
D.$323,000
E.$452,000
Answer:D
Assets = $167,000 + 156,000 = $323,000
36.The finalists for a job position are invited for a(n) ____________
interview.
A.informational
B.confirmation
C.selection
D.screening
E.personal contact
Answer:C37.A bond that is listed in the
owner’s name by the issuing company is called a ______________ bond.
A.certified
B.coupon
C.registered
D.zero-coupon
E.general obligation
Answer:C38.If a gold bullion bar does not
remain in the possession of the dealer or bank that sells it, what must happen before it can
be resold?
A.It must be made into coins.
B.It must be pounded flat.
C.It must be reassayed.
D.It must be turned into jewelry.
E.It must be taxed.
Answer:C39.Based on historical
performance, which one of the following investments is most apt to provide an average
return of 10 percent a year between now and the year 2025?
A.U.S. Treasury bills
B.corporate bonds
C.stocks
D.options
E.zero-coupon bonds
Answer:C40.Lucy Kelson has been selected
to manage the assets of Rodney Peterson until he reaches the age of 30. Rodney is
currently 21. In what capacity would Lucy be acting?
A.executrix
B.trustee
C.guardian
D.beneficiary
E.administrator
Answer:B41.Which one of the following
provisions requires that the policyholder pay a basic amount before the policy benefits
begin?
A.coinsurance
B.stop loss
C.deductible
D.self insurance
E.incontestable
Answer:C42.In the bank reconciliation
process, service fees should be:
A.added to the bank statement balance.
B.subtracted from the bank statement balance.
C.added to the checkbook balance.
D.subtracted from the checkbook balance.
E.ignored.
Answer:D43.Which organization specializes
in the testing of products for electrical and fire safety?
A.Consumers Union
B.Better Business Bureau
C.Consumer Product Safety Commission
D.Underwriters Laboratories
E.Federal Trade Commission
Answer:D44.(p.233, Exhibit 7-3)If you
receive a phone call from a debt collector, he/she must send you a written notice within
____________ days.
A.5
B.10
C.15
D.20
E.30
Answer:A45.Which form of bankruptcy
allows a debtor with a regular income to extinguish his or her debts from future earnings or
other property over a period of time?
A.Chapter 7
B.Chapter 11
C.Chapter 13
D.Chapter 15
E.Chapter 17
Answer:C46.A federal and state tax levied on
the privilege of making gifts to others is called a(n) ____________ tax.
A.estate income
B.trust income
C.inheritance
D.gift
E.estate
Answer:D47.What steps should a person take
when planning a career?
Answer:
Answers will vary
Feedback: The career planning process involves the following steps: (1) assess your
interests, abilities, and goals; (2) evaluate the job market; (3) develop a rsum and cover
letter; (4) interview for available positions; (5) evaluate job offers; and (6) plan for career
growth.
48.Discuss the types of information available for use when doing career
planning.
Answer:Answers will vary
Feedback: The major sources of career planning information are the library, government
publications, mass media (television, radio, newspaper, magazine) reports, the Internet, the
career development offices, community organizations, professional associations, and
business contacts.
49.What are the two types of life insurance companies?
Answer: Explain the basic features of each type.
There are two types of life insurance companies: stock life insurance companies, owned by
shareholders, and mutual life insurance companies, owned by their policyholders. About
75 percent of U.S. life insurance companies are stock companies, and about 25 percent are
mutuals. Stock companies generally sell nonparticipating (or nonpar) policies, while
mutual companies specialize in the sale of participating (or par) policies. A participating
policy has a somewhat higher premium than a nonparticipating policy, but a part of the
premium is refunded to the policyholder annually. This refund is called the policy
dividend.
50.Explain choices available in declaring bankruptcy.
Answer: Answers will vary
Feedback: The U S Bankruptcy Act of 1978 offers two choices. Chapter 7 is a straight
bankruptcy and Chapter 13 is a wage earner bankruptcy. Under a Chapter 7 bankruptcy, an
individual must list all assets and liabilities. Most debts are forgiven. The debtor’s assets
are sold to pay creditors. Debts not forgiven include alimony, child support, school loans,
certain taxes and undisclosed debts. Under Chapter 13 bankruptcy, a debtor with regular
income proposes a plan for future earnings or assets to eliminate outstanding debts.
Regular payments are made to a Chapter 13 trustee. Obtaining future credit is typically
easier with a Chapter 13 bankruptcy.
51.What are the advantages of a 401K?
Answer:
Answers will vary
Feedback: Tax-deferred defined contribution plans such as 401Ks, allow individuals to put
aside more money than they otherwise could since it is pre-tax dollars; it allows the gains
from the investments made with the pre-tax dollars to grow in a tax deferred account; it
vests to the individual after a statutory time period and cannot be used by the company;
and finally may possibly be taxed at a lower rate when finally withdrawn.
52.Distinguish between an implied warranty and an express warranty.
Answer:Answers will vary
Feedback: An express warranty is usually in written form and can be either a full warranty
or a limited warranty. An implied warranty covers a product’s intended use or other basic
understandings that are not in writing.