1) When a loan is paid off over a shorter period of time, the total interest costs are
reduced.
2) Flexible spending accounts are subject to a use-it-or-lose-it rule.
3) The rule of 78s method, or sum of the digits method, is a widely used method of
calculating a prepayment penalty.
4) Money market deposit accounts are normally federally insured whereas money
market mutual funds are not federally insured.
5) On an installment loan, the APR will always be higher than the add-on rate applied.
6) An escrow account is a special account at a financial institution where funds are held
until they are paid to a third party.
7) Comprehensive health insurance policies typically have limits of $1 million or more.
8) The present value of an annuity is the current worth of a stream of payments to be
received in the future.
9) A payable-on-death designation can be used to set up an individual account that
automatically goes to another person when you die.
10) Personal finance is the study of personal and family resources considered important
in achieving financial success.
11) All of the following are true about equity-index annuities except they have
a. characteristics of fixed and variable annuities
b. more risk than fixed annuities but less risk than variable annuities
c. no minimum interest rate
d. a higher potential return than a fixed annuity but a lower potental return than a
variable annuity
12) For families with children the bulk of their life insurance need relates to their.
a. final-expense
b. readjustment-period
c. debt-repayment
d. income-replacement
13) 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. What would the combined cost of premiums plus out-of-pocket
medical costs be for Kevin under Rob’s HMO?
a. $1,505
b. $1,480
c. $1,440
d. $1,200
14) Data on bankruptcy can be included in your credit file for ____ years.
a. 7
b. 10
c. 13
d. 15
15) Figure 3-1
Maria and John Sanchez have just completed their third annual set of financial
statements. They met in a personal finance class while in college and still remember
their instructor’s advice regarding the importance of knowing their financial condition
and progress. Even before they got married, they decided that each year on February 2
(Groundhog Day) they would update their cash-flow statement and their balance sheet.
The following information is taken from their latest financial statements:
Refer to Figure 3-1. Calculate Maria and John’s investment assets-to-total assets ratio.
a. 35 percent
b. 50 percent
c. 63 percent
d. 27 percent
16) A check drawn on a financial institution, backed by the financial institution’s
finances, and made out to a specific payee is called a
a. certified check
b. money order
c. cashier’s check
d. traveler’s check
17) A tax that requires a higher-income person to pay a higher percentage of his or her
income in taxes is called a ____ tax.
a. progressive
b. regressive
c. proportional
d. marginal
18) Financial goals should state
a. the “what” of the goal
b. the “how much” of the goal
c. the “when” of the goal
d. all of these
19) A ____ on your credit report tells the credit bureau not to release your financial
records to anyone without your consent.
a. fraud alert
b. security freeze
c. consumer statement
d. card verification code
20) Most mutual funds are
a. closed-end funds
b. index funds
c. managed funds
d. money market funds
21) Dishonest or deceptive practices by lenders who take advantage of consumers’ lack
of understanding of credit matters is called
a. usury
b. predatory lending
c. subprime lending
d. credit piracy
22) Variations on term life insurance include
a. adjustable life
b. universal life
c. credit life
d. modified life
23) A short-term goal is one that is projected to be acheived within how much time?
a. one month
b. three months
c. one year
d. five years
24) Credit cards issued by local and national merchants and other major non-bank
companies are examples of
a. retail credit accounts
b. affinity credit cards
c. service credit charge accounts
d. travel and entertainment cards
25) Laura and Robert Garza are covered by two health insurance policies because both
of their employers provide health insurance benefits for employees and their families.
During a recent illness Laura’s medical bills totaled $12,000. What clause will keep the
Garzas from collecting more than $12,000 from their two medical insurance policies?
a. Coinsurance
b. Deductibles
c. Coordination of benefits
d. General exclusions
26) Assuming a market rate risk of 8 percent and a return on Treasury bills of 4 percent,
what would the total estimated return be for a stock with a beta of 1.7?
a. 13.6 percent
b. 13.7 percent
c. 14.8 percent
d. 17.6 percent
27) XYZ Corporation has suffered a major downturn in business and will not be able to
pay interest on its bonds. This is an example of ____ risk.
a. financial
b. interest rate
c. market volatility
d. marketability
28) Marina is coming up on the end of a closed-end lease on her 2007 Ford Edge. Her
contract stipulates a $0.35 per mile excess mileage charge in excess of 39,000 miles. If
she actually drove the vehicle 35,000 miles during the three years, which of the
following is not one of her options?
a. Turn the vehicle back over the leasing company and receive $1,400 ($.35 x 4,000)
refund for driving the car fewer miles than anticipated
b. Turn the vehicle back over to the leasing company
c. Buy the vehicle at its residual value
d. All of these are options for Marina
29) Tax-sheltering for which of the following types of expenses cannot be had through a
type of FSA.
a. Physician expenses
b. Dependent care
c. Prescription drugs
d. Life insurance premiums
30) Never discuss ____ with an auto dealer.
a. trade-in values
b. cost of service contracts
c. affordable monthly payments
d. the need for a loan
31) Which of the following is simply an estimate based on projected future earnings?
a. dividend yield
b. trailing P/E ratio
c. forward P/E ratio
d. earnings per share
32) Jennifer and Chad Armstrong have a homeowner’s policy with contents
replacement-cost coverage for personal property up to 50 percent of the insurance on
their home. What will the insurance company pay for their stolen property under the
following situation?
a. $19,500
b. $34,500
c. $35,000
d. $44,500
33) The interest rate printed on the bond certificate
a. is generally paid monthly
b. is called the dividend yield
c. remains the same until maturity
d. all of these
34) Four strategies of portfolio management for long-term investors are portfolio
diversification, asset allocation, buy-and-hold, and
a. dollar-cost averaging
b. real return on investment
c. market risk
d. leverage
35) Traditional health insurance plans typically have ____ and ____ requirements that
result in out-of-pocket costs for the insured.
a. deductibles; coinsurance
b. Medicare; Medicaid
c. HMOs; PPOs
d. POS; PSN
36) ____ risk is the risk that the value of an investment will decline when overall prices
decline.
a. Inflation
b. Deflation
c. Interest rate
d. Financial
37) Which of the following can be obtained using credit?
a. Goods
b. Services
c. Money
d. All of these
38) When purchasing insurance, you should
a. trust your agent to determine your needs and wants
b. shop around for the lowest-cost coverage
c. stick with your current policy
d. understand that the best policies cost the most
39) A ____ mortgage is actually a series of short-term loans with amortization spread
over 25 to 30 years.
a. lender buy-down
b. renegotiable-rate
c. graduated-payment
d. reverse-annuity
40) Credit use increases future buying power.
41) Ginnie Mae bonds are an appropriate investment if your time horizon is less than
two years.
42) When the other driver is at fault, damages to your car must be paid by the other
driver’s property damage liability coverage.
43) A long-term, fixed-rate certificate of deposit would be most appropriate when
interest rates are moving up.
44) Medicare is the only federal health care program currently in place.
45) The only type of loss that is related to homeowners property insurance is damage to
or destruction of the property itself.