1) Independent research has found that over five-year periods, lower-cost funds always
deliver returns better than those offered by higher-cost funds.
2) A survivorship joint life policy pays when the last person covered dies.
3) Aggressive investors take a particularly speculative position when they do not own
the underlying asset, as when they buy naked options or sell naked puts.
4) Form 1040-X is used to obtain a refund when correcting any tax filing mistakes from
earlier years.
5) An ill-advised credit purchase can have negative effects on your budget for years.
6) If a Roth IRA has been in place for more than five years and you have reached age
59 , or the earnings have been used for qualified educational expenses or first-time
homebuyer expenses, earnings are not taxed or penalized at withdrawal.
7) You will earn money each year off your tax-deferred retirement accounts without
having to pay taxes until the funds are withdrawn..
8) Value investing involves looking for investments, stocks in particular, that are
underpriced in the market and, thus, a good value.
9) People can use credit to take advantage of “free” credit.
10) If a child is under age 18 and has net investment income exceeding $1,900, the
excess is taxed as if it were the income of the parent.
11) A retail credit card allows a customer to make purchases on credit at any of the
outlets of a particular retailer or retail chain.
12) Most communities and housing developments have rules that govern such things as
minimum lot size, the outside appearance and landscaping of the property, allowable
secondary buildings, parking of vehicles, and other aspects of the use and appearance of
the property.
13) A money market fund will have an income rather than growth objective.
14) The return on lending investments is limited to what the investor was originally
promised.
15) There are many sources of income protection during a period of disability, but most
are for only short periods of time.
16) The goal of modern portfolio theory is to find an optimal portfolio of assets that will
have the highest expected returns for that level of risk.
17) The debt service-to-income ratio provides a view of total debt burden of an
individual or family by comparing the dollars spent on gross annual debt repayments
with gross annual income.
18) Investors can obtain 10-K and 10-Q reports from the Securities and Exchange
Commission.
19) Janice Leno has the following assets and debts listed on her balance sheet:
Janice’s asset-to-debt ratio is
a. 3.45
b. 2.54
c. 3.96
d. 0.29
20) MAX Corporation stock is currently selling for $38 a share, and it pays a quarterly
dividend of $0.25. What is the dividend yield on MAX Corporation?
a. 1.0 percent
b. 2.6 percent
c. 3.3 percent
d. 6.5 percent
21) Figure 10-1
Robert and Denise Swanson insured their home for $180,000 with an HO-3 policy with
a 100 percent replacement cost requirement. Their home has a market value of
$200,000 and a replacement value of $240,000. The following coverages are included
in their HO-3 policy:
*Percent of insured value of the house
Refer to Figure 10-1. During the rebuilding of the house after the fire, one of the
neighbor children wandered onto the Swansons’ property and was injured when he fell
off some scaffolding. The child’s parents are suing Robert and Denise for $150,000. If
the court does award damages of $150,000, how much would the homeowner’s
insurance policy pay?
a. $150,000
b. $125,000
c. $100,000
d. $90,000
22) When negotiating to purchase a vehicle, besides the price, what other variables
should be considered?
a. Trade-in value
b. Prices of options
c. Interest rate
d. All of these
23) A mortgage loan with a fixed rate of interest and a fixed payment for principal and
interest that is available from a financial institution is called
a. an assumable mortgage
b. a conventional mortgage
c. seller financing
d. a lender buy-down mortgage
24) Which form of compensation is not considered an employee benefit?
a. Paid holidays
b. Commissions
c. Health insurance
d. Retirement plan
25) A mortgage applicant who anticipated increasing interest rates would be most
interested in
a. a settlement statement
b. refinancing a mortgage
c. a mortgage lock-in
d. a due-on-sales clause
26) Donald is a college student who has $4,000 in savings that he earned from his
summer job. He plans to leave the $4,000 in a 6 percent certificate of deposit (CD) for
three years, but his banker has asked Donald whether he wants the interest earned on
the CD mailed to him at the end of each year or reinvested in the CD. Approximately
how much more will Donald earn if he decides to reinvest the interest rather than
withdrawing the interest income each year?
a. $14
b. $44
c. $144
d. $240
27) Living trusts can either be
a. current or testamentary
b. private or public
c. retrievable or irretrievable
d. revocable or irrevocable
28) ____ would be a reasonable investment for funds that could be invested less than
two years.
a. Stocks paying high dividends
b. Short-term bonds
c. Money market accounts
d. Balanced mutual funds
29) In a cash-balance plan, the employer contributes ____ of the funds and the
employee contributes ____.
a. 100 percent; nothing
b. any amount; a matched amount
c. half; half
d. nothing; 100 percent
30) Which of the following expenses on a home is not deductible annually?
a. Interest paid on a first mortgage
b. Property taxes
c. Homeowners insurance premium
d. Interest paid on a second mortgage
31) In communities with a multiple-listing service, a listed home
a. can be shown by all realtors in the community
b. is listed with many different realtors
c. is listed many times with one realtor
d. can be shown by only realtors approved by the listing agency
32) If you purchase an item using a credit card and later take it back for a refund you
will receive
a. a credit receipt and the amount will be charged back to the merchant by your card
issuer
b. a check in the mail for the refund
c. a cash refund
d. higher credit score
33) Both commercial bank and savings bank accounts are insured by the FDIC through
a fund called the
a. bank insurance fund
b. deposit insurance fund
c. savings bank insurance fund
d. fiduciary trust fund
34) Selling shares of stock for more than you originally paid is called
a. modern portfolio theory
b. leverage
c. current income
d. capital gain
35) Jackson Thompson purchased Logo, Inc., stock for $30 a share and sold it for $36 a
share three years later. Over those three years he received an average annual dividend of
$1. The approximate compound yield on this investment was ____ percent.
a. 4.0
b. 8.6
c. 9.1
d. 12.0
36) NASDAQ is the sophisticated telecommunications network used by
a. the over-the-counter market
b. the New York Stock Exchange
c. the American Stock Exchange
d. all of these
37) An insurance rate
a. is the price charged for each unit of insurance coverage
b. should be sufficient to provide coverage for that applicant
c. represents the average cost of providing coverage to various groups of insureds
d. all of these
38) Using the rule of 78s, a borrower who repaid a 12-month loan after only 5 months
would save ____ of his or her interest.
a. 7/12
b. 5/12
c. 50/78
d. 28/78
39) The most widely reported security market index is the
a. Standard & Poor’s 500
b. Dow Jones Industrial Average
c. New York Stock Exchange Index
d. Nikkei Dow
40) Jeff Deleon’s apartment was broken into and his three-year-old TV was taken. Jeff
had paid $900 for the TV, but it will cost $1,200 to replace the unit. What is the actual
cash value of the TV assuming it has a life expectancy of nine years?
a. $1,200
b. $900
c. $600
d. $300
41) Which of the following statements about options is not true?
a. Covered puts reduce risks
b. Options holders generally make money by buying or selling the underlying asset
c. Most options expire worthless
d. Stock options are considered high-risk
42) Making tax-deferred deposits into a retirement account means that the funds are
a. taxed when deposited but not taxed when withdrawn
b. not taxed when deposited but taxed when withdrawn
c. taxed both when deposited and when withdrawn but not while held in the account
d. never taxed
43) Andrew Deaton paid $15,000 and borrowed $90,000 for an investment worth
$105,000. What was the loan-to-value ratio?
a. 10 percent
b. 14 percent
c. 86 percent
d. 90 percent
44) The commission for a mutual fund with a stated commission of 4.5 percent is
actually ____ percent of the amount invested.
a. 4.5
b. 1.05
c. 4.71
d. 95.5
45) Your collection of multiple investments in different assets chosen to meet your
financial goals is your
a. monetary assets
b. market basket
c. portfolio
d. net worth
46) Figure 11-1
Rob and Liza Jacobs are a dual-earner couple with a young son, Kevin. Rob and Liza
each receive health care coverage for themselves from their respective employers. Their
employers pay the premiums for the workers, and coverage for dependents is available
if the worker pays the premium cost. They are trying to decide which policy to cover
Kevin under for the upcoming year. The following is a brief description of their plans
and projected medical expenses for Kevin.
Kevin is a healthy six-year-old who is accident prone. On the basis of his past medical
records, Rob and Liza expect the following covered medical costs for the year:
Seven trips to the doctoraverage cost of $75 per trip
Three trips to the emergency clinicaverage cost of $150 per trip
One broken boneaverage cost of in-hospital surgery $1,200
Ten prescriptionsaverage cost of $30 per prescription
Refer to Figure 11-1. If Kevin had a defective heart condition (diagnosed at birth) and
needed an expensive corrective surgery for his heart condition in 2011, which of the
policies would cover the surgery?
a. The HMO
b. The major medical policy
c. The major medical policy if Kevin was also covered under the policy in 2009
d. Both the HMO and the comprehensive health plan if Kevin was also covered under
the policy in 2011
47) The type of mortgage where the interest rate can fluctuate up and down according
to an index of interest rates is the ____ mortgage.
a. renegotiable-rate
b. adjustable-rate
c. graduated-payment
d. shared-appreciation
48) ____ are not sold at a discount by the issuer.
a. Zero-coupon bonds
b. U.S. Series EE savings bonds
c. Treasury bills
d. Treasury bonds
49) Nongovernmental ____ mortgage insurance is generally required for any mortgage
loan where the down payment is less than 20 percent.
a. VA
b. Private
c. FHA
d. Brokerage
50) Most people save for ____ goals by putting away a series of payments.
a. short-term
b. unachievable
c. long-term
d. tax-free
51) The process of comparing products or services to find what you think is the best
buy is called
a. negotiating
b. preshopping research
c. comparison shopping
d. decision making
52) The annual cash dividend return to an investor expressed as a percentage of the
price of a security is a
a. stock dividend
b. dividend yield
c. dividend payout ratio
d. dividend per share
53) Figure 14-2
Tina and Eugene Bradley are considering buying stock. They would like to purchase
600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures
for the past year:
Refer to Figure 14-2. What is Sudsy Soap’s price-to-book ratio?
a. 0.5
b. 0.9
c. 1.5
d. 2.0
54) A credit applicant is required by federal regulations to disclose all of his or her
sources of income.
55) The only way to obtain a secured loan is to put up collateral.
56) Real income and nominal income are two terms that reflect the actual purchasing
power of one’s income.
57) The mutual fund offer price is the price at which a mutual fund’s share can be
purchased by investors. It equals the current NAV per share minus sales charges, if any.
58) Examples of residential real estate investments include office buildings, medical
centers, and gas stations.
59) ATMs can be used to withdraw funds from a money market mutual fund.