1.Individual health insurance covers either one person or a family.
Answer:TRUE2.Two basic types of life
insurance are temporary and permanent insurance.
Answer:TRUE3.Direct real estate
investments include single-family dwellings, duplexes, apartments, land, and commercial
property.
Answer:TRUE4.Potential investors should
not wait until they put their financial affairs in order before starting to invest.
Answer:FALSE5.In a straight bankruptcy,
many, but not all, debts are forgiven.
Answer:TRUE6.Disability income insurance
benefits provide regular cash income lost by employees as the result of an accident or
illness.
Answer:TRUE7.Commercial property refers
to land and buildings that produce lease or rental income.
Answer:TRUE8.Because bonds are
considered debt financing that must be repaid at maturity, the corporation’s financial
stability has little effect on the bond’s value between the issue date and the maturity date.
Answer:FALSE9.The cash values of a
variable life insurance policy increase at a constant rate over time.
Answer:FALSE10.If you are a government
employee, you may have a Section 457 plan.
Answer:TRUE11.An inheritance tax is levied
on the right of an heir to receive all or part of the estate and life insurance proceeds of a
deceased person.
Answer:TRUE12.The consumer credit laws
require that an advance notice be given before repossessing a car.
Answer:FALSE13.Medigap insurance,
intended to supplement Medicare, is sold and serviced by the federal government.
Answer:FALSE14.Life insurance proceeds
may be used to provide an education or income for children.
Answer:TRUE15.Prices of collectibles aren’t
necessarily cheaper on the Web, but it’s much easier to compare them.
Answer:TRUE16.Ownership of an individual
housing unit in a building is commonly called:
A.a cooperative.
B.modular housing.
C.manufactured housing.
D.a condominium.
E.zoned housing.
Answer:D17.The purpose of title insurance is
to:
A.transfer ownership of property.
B.reduce the chance of a decrease in property value.
C.protect an owner from unknown claims on the property.
D.protect an owner from changes in mortgage interest rates.
E.cover the closing costs of a real estate transaction.
Answer:C18.If Marjorie Wilcox borrows
$200 for one year with an APR of 12% and an annual service fee of $10, what is her total
cost of credit?
A.$10
B.$12
C.$24
D.$34
E.$42
Answer:D
Cost of credit = ($200 x .12) + $10 = $34
19.What does it mean to sublet an apartment?
A.increase the rent
B.lower maintenance costs
C.convert the units to condominiums
D.meet certain government housing regulations
E.obtain another tenant to complete a lease period
Answer:E20.What would be the maximum
limit for an individual’s debt-to-equity ratio, excluding the home mortgage?
A.0.50
B.0.33
C.1.00
D.2.00
E.2.25
Answer:C21.Possible sources of income for
many retirees include:
A.Social Security.
B.other public pension plans.
C.employer pension plans.
D.personal retirement plans and annuities.
E.all of the sources listed in the other answers.
Answer:E22.Which one of the following
statements is true about estate planning?
A.Estate planning is only for the rich.
B.It is always easy to plan for your family’s financial security in the event of your death.
C.Most people provide a lifetime of income for those who will survive them.
D.Most people give meticulous attention to estate planning.
E.Many people do little to financially prepare for death.
Answer:E23.Which statement is correct
about whole life insurance?
A.It is cheaper than term life.
B.It builds up cash value.
C.The premiums increase with your age.
D.It is the best choice for most people.
E.It is the same thing as term life insurance.
Answer:B24.Austin Guess has written his
resume and had it checked by his career placement center for errors. He plans on sending it
to three companies he has identified as having job openings. Which step in the career
planning process is Austin completing?
A.assess and research personal goals and abilities.
B.evaluate the employment market to identify specific employment opportunities.
C.develop a resume and cover letter to apply for specific positions.
D.interview for specific positions and assess the interview performance.
E.evaluate financial and other factors of positions offered.
Answer:C25.Which will is sufficient for most
smaller estates?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.living
Answer:A26.If a bond is purchased at a price
above the face value, the yield to maturity is:
A.greater than the stated interest rate.
B.the same as the stated interest rate.
C.less than the stated interest rate.
D.zero.
E.of no significance.
Answer:C27.An online buying club requires
an annual fee of $60 in order to qualify for a 15 percent discount on purchases. What
amount would a person have to buy in order to save enough to cover the cost of the
membership?
A.$15
B.$60
C.$165
D.$400
E.$600
Answer:D
Breakeven = $60/.15 = $400
28.A bond that can be exchanged, at the owner’s option, for a specified
number of shares of the corporation’s stock is called a(n) ____________ bond.
A.debenture
B.mortgage
C.indenture
D.convertible
E.subordinated
Answer:D29.Which type of will allows you
to pass to your spouse any amount that satisfies your family objective?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.A/B trust
Answer:D30.The investment tax credit has
been eliminated entirely for all types of real estate except:
A.low-income housing projects.
B.single-family dwellings.
C.shopping centers.
D.raw land.
E.developed land.
Answer:A31.Federal Trade Commission
regulations require that:
A.all used cars be sold with a warranty.
B.used car buyers be informed of whether or not the vehicle comes with a warranty.
C.used cars with over 100,000 miles be sold only by the individual owner, not by a dealer.
D.major repairs must be made on all used cars prior to being offered for sale.
E.the seller of a defective used car pay half the cost of the required repairs.
Answer:B32.Stored value (or gift) cards:
A.look nothing like typical debit cards
B.have decreased in popularity since the mid-1990s
C.work the same as a credit card
D.may be eroded by fees and eventually expire
E.are currently being used for very limited purposes
Answer:D33.Margaret Wilson has a piece of
paper that she can mail in to the manufacturer of the product she just purchased that allows
her to get part of her purchase price back. What is she most likely using?
A.coupon
B.rebate
C.warranty
D.indenture
E.service contract
Answer:B34.The legal document involved in
renting an apartment is called a(n):
A.service contract.
B.mortgage.
C.lease.
D.security deposit.
E.escrow account.
Answer:C35.Jerry Lewis is thinking about
purchasing some life insurance. He goes to a company that is owned by shareholders.
What type of life insurance company has he visited?
A.stock
B.debt
C.mutual
D.exclusionary
E.cooperative
Answer:A36.Audrey is thinking about an
investment that involves buying a written pledge by a corporation to repay a specified
amount of money. It also pays interest every 6 months until it matures. What investment is
Audrey thinking about purchasing?
A.common stock
B.preferred stock
C.corporate bond
D.real estate
E.mutual fund
Answer:C37.An investment account that
increases from $3,000 to $3,271 in one year is earning approximately ___ percent annual
interest.
A.3
B.5
C.7
D.9
E.11
Answer:D
$3,271 – 3,000 = $271; $271/$3,000 = .09 (x 100) = 9%
38.Which one of the following would not be considered a safe investment
for a conservative investor?
A.corporate bonds
B.certificates of deposit
C.passbook savings accounts
D.blue-chip stocks
E.collectibles
Answer:E39.After the death of her husband,
Gina Baker, 35, received a check for $350,000 from a life insurance company. Gina has
two small children and wants to make sure that both she and the children are taken care of
in the future. Based on this information, which of the investment factors listed below
would be the most important to Gina in her investment program?
A.beta
B.safety
C.business failure
D.market risk
E.liquidity
Answer:B40.The commission charge for
purchasing fund shares that impose an up-front commission charge ____________ percent.
A.averages 0.50 to 1
B.averages 1 to 2
C.averages 2 to 4
D.averages 5 to 6 1/2
E.may be as high as 8 1/2
Answer:E41.For an investor who wants to
speculate, which of the following investments would be appropriate?
A.blue-chip stocks
B.options
C.utility stocks
D.corporate bonds
E.preferred stocks
Answer:B42.Which of the following was not
a demographic used by the National Center for Health Statistics to analyze life
expectancies for its life expectancy table released in 2006?
A.race
B.occupation
C.sex
D.age
E.gender
Answer:B43.A short-term capital gain is
profit earned on an investment that is:
A.made involving small companies.
B.not taxed as ordinary income.
C.held less than 12 months.
D.in foreign companies.
E.made in real estate.
Answer:C44.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 liquid assets?
A.$2,050
B.$98,000
C.$27,800
D.$44,050
E.$171,900
Answer:A
$850 + 1,200 = $2,050. These are the only liquid assets listed.
45.An example of a personal opportunity cost would be:
A.interest lost by using savings to make a purchase.
B.higher earnings on savings that must be kept on deposit a minimum of six months.
C.lost wages due to continuing as a full-time student.
D.time comparing several brands of personal computers.
E.having to pay a tax penalty due to not having enough withheld from your monthly salary.
Answer:D46.____________ coverage would
pay for damage to your vehicle caused by an accident when another driver with insurance
was legally at fault.
A.Property damage liability
B.Collision
C.Comprehensive physical damage
D.Uninsured motorists protection
E.Assigned risk
Answer:A47.What coverages are commonly
included in a homeowner’s insurance policy?
Answer:
Most home insurance policies include coverage against fire, theft, and other hazards for
your home and other structures, and personal property. In addition, policies cover
additional living expenses, personal liability, medical payments, and supplemental
coverage for minor property damage mishaps.
48.What are the four methods of determining your life insurance needs?
Explain the basic principle of each method.
Answer:In determining your life insurance needs, you must
first determine your insurance objectives and then use the easy method, the DINK method,
the “nonworking” spouse method, or the family need method.
1) THE EASY METHOD-It is based on the insurance agent’s rule of thumb that a “typical
family” will need approximately 70 percent of your salary for seven years before they
adjust to the financial consequences of your death. In other words, for a simple estimate of
your life insurance needs, just multiply your current gross income by 7 (7 years) and 0.70
(70 percent).
2) THE DINK (DUAL INCOME, NO KIDS) METHOD-If you have no dependents and
your spouse earns as much as or more than you do, you have simple insurance needs. All
you need to do is ensure that your spouse will not be unduly burdened by debts should you
die. Amount of insurance equals funeral expenses and of debt. Typically debt includes
mortgage, auto loan, credit card, and other personal debt.
3) THE “NONWORKING” SPOUSE METHOD-Insurance experts have estimated that
extra costs of up to $10,000 a year may be required to replace the services of a homemaker
in a family with small children. These extra costs may include the cost of a house-keeper,
child care, more meals out, additional carfare, laundry services, and so on. They do not
include the lost potential earnings of the surviving spouse, who often must take time away
from the job to care for the family. To estimate how much life insurance a homemaker
should carry, multiply the number of years before the youngest child reaches age 18 by
$10,000. For example:
4) THE “FAMILY NEED” METHOD-The first three methods assume you and your family
are “typical” and ignore important factors such as Social Security and your liquid assets.
To determine life insurance needs a detailed worksheet is used for making a thorough
estimation of your life insurance needs.
49.What is estate planning and how does your personal situation affect
that planning?
Answer:
Answers will vary
Feedback: Estate planning is a definite plan for the administration and disposition of one’s
property during one’s lifetime and at one’s death. Estate planning is an essential part of
retirement planning and an integral part of financial planning. The personal aspects of
estate planning depend on whether you are married or single. If you are married, your
estate planning involves the interests of at least two people; more if there are children.
Never having been married does not eliminate the need to arrange for the disposition of
your assets.
50.A friend wants to understand what affects the cost of auto insurance.
Explain the factors used to determine the automobile insurance premiums a person pays.
Answer:The main factors that influence the amount paid for
auto insurance are the year, make, and model of automobile; your geographic location;
your driver classification, including age, sex, marital status, driving record and driving
habits; the amount of coverage; and discounts for driver training, security devices, or other
factors.
51.(p.84, 97)Darlene Elkin has the following financial amounts: checking
accounts $850, savings account $3,500, credit card balance $300, jewelry $1,600, real
estate valued at $78,000, a mortgage on the real estate of $23,000. What is the total of
Darlene’s assets? What actions could she take to increase her net worth?
Answer:
Answers will vary
Feedback: Total assets = $850 + 3,500 + 1,600 + 78,000 = $83,950. For Darlene to
increase her net worth, she should increase her income, decrease her living expenses,
increase her savings, or reduce her debt.
52.(p.639 – 641)Explain what a will is and what occurs at your death if
you do not have one.
Answer:Answers will vary
Feedback: A will is a legal declaration of a person’s mind as to the disposition of property
after death. If there is no will, the state steps in and controls the distribution of your estate
without regards to your wishes. Legally, then, the state’s law of descent and distribution
becomes your will.
53.What are some common reasons for setting up a trust?
Answer:
Answers will vary
Feedback: Individual circumstances will dictate whether it makes sense to establish a trust.
Some common reasons are: to reduce or otherwise provide for payment of estate taxes,
avoid probate and transfer your assets immediately to your beneficiaries, free yourself
from management of your assets while you receive a regular income from the trust,
provide income for a surviving spouse or other beneficiaries, or to ensure that your
property serves a desired purpose after your death.
54.Louise Ellis recently has been offered employment in another city. She
has been employed in her current position for four years. What factors should Louise
consider when evaluating this new position?
Answer:
Answers will vary
Feedback: Before accepting a position, you should consider the working environment of
the organization, the operating policies, and the salary offered along with other financial
employee benefits. Also, talk to people who currently work at the company to obtain
information on the working conditions, benefits, and opportunities for advancement.
55.Explain the Rule of 78s.
Answer:Answers will vary
Feedback: The rule of 78s is a mathematical formula to determine how much interest has
been paid at any point in a loan term. It demonstrates that interest payments decelerate
throughout the loan while reduction of debt accelerates throughout the loan.
56.Explain the difference between arbitration and mediation.
Answer:Answers will vary
Feedback: Mediation involves the use of a third party to settle grievances. Mediation is a
nonbinding process. Arbitration also involves the use of a third party, but the arbitrator’s
decision is legally binding.