1) The opportunity cost of a decision is the value of the next best alternative that must
be foregone.
2) To be most successful in negotiating, one must be willing to walk away from the
deal.
3) The interest rate you earn on your checking and savings account can vary with the
amount you have in the accounts.
4) For most personal property, replacement cost will be higher than actual cash value.
5) Laddering CDs is a technique that smoothes out the fluctuations in interest rates.
6) The IRS requires receipts for cash contributions of $250 or more.
7) The longer the term of repayment on a mortgage loan, the more interest that is
charged over the repayment period.
8) Endorsements are amendments and additions to the basic insurance policy.
9) Having an investment approach that focuses on preservation of capital means that
you do not want to lose any of the money you have invested.
10) I bonds pay an earnings rate that is a combination of two rates.
11) If one purposely lied about his or her health on a life insurance application, the
company could refuse to pay the death benefit.
12) Financial experts recommend that each person in a relationship keep some money
of his or her own.
13) Tom and Kelly McDonald have total assets valued at $346,000 and total debt of
$168,000. What is Tom and Kelly’s asset-to-debt ratio?
a. 2.06
b. 1.00
c. 0.51
d. 0.49
14) When one trades equity in one property for equity in a similar property without
receiving cash, he or she pays
a. no income taxes in the year of the exchange
b. income taxes at a maximum 27 percent rate
c. income taxes at the normal marginal tax rate
d. income taxes the year following the exchange
15) A customer who wanted to directly transfer funds from his or her bank account to a
retailer’s bank account would use a(n)
a. automated teller machine
b. electronic funds transfer
c. check
d. credit card
16) Which of the following serve as the intermediaries between companies and
investors when new issues of stocks or bonds are offered?
a. Mutual funds
b. Stock brokers
c. IPOs
d. Investment banking firms
17) Which of the following types of companies would tend to have the lowest P/E
ratio?
a. Growing
b. Rapidly growing
c. Successful but stable
d. Speculative
18) Under the Fair Credit Billing Act, you must make billing error complaints ____ to
protect your legal rights.
a. in person
b. within 60 days after the first bill containing the error was mailed to you
c. over the telephone
d. both over the telephone and within 60 days after the first bill containing the error was
mailed to you
19) Sandra Maxwell is a full-time student and her husband, Joel, is employed, so they
take their young son, Sam, to a child care center during the day. They qualify for a 25
percent dependent care tax credit, and they are in the 15 percent marginal tax bracket. If
the annual cost of the child care is $2,200, how much will it save Sandra and Joel on
their income taxes?
a. $2,200
b. $1,100
c. $550
d. $330
20) Ownership investments generally
a. offer a fixed rate of return
b. have a set maturity date
c. offer a limited return
d. produce capital gains
21) A(n) ____ is a closed-end investment company that makes a one-time public
offering of only a specific, fixed number of units of investments in bonds.
a. unit investment trust
b. REIT
c. exchange-traded fund
d. fixed-term fund
22) The type of business ownership that has the potential to raise large amounts of
capital through the sale of stock is called
a. a partnership
b. a corporation
c. a sole proprietorship
d. none of these
23) The ____ is a highly regarded interest inventory.
a. Strong Interest Inventory
b. Stanford-Binet Assessment
c. Likert Inventory
d. Simpson Test of Preferences (STOP)
24) No monthly payment is made on the mortgage debt itself with a(n) ____ mortgage
loan.
a. shared-appreciation
b. lender buy-down
c. interest-only
d. graduated-payment
25) A flexible spending account (FSA) is
a. a vehicle that allows employee-paid expenses for medical or dependent care to be
paid with pretax dollars
b. available through all employers
c. funded by an employer
d. taxable income received by the employee if not used by the end of the year
26) List the money market accounts according to the interest rate generally paid on each
account (from highest to lowest).
a. Super NOW account, money market deposit account, and money market mutual fund
b. Money market deposit account, money market mutual fund, and super NOW account
c. Money market mutual fund, money market deposit account, and super NOW account
d. Money market deposit account, super NOW account, and money market mutual fund
27) Sylvia owns 100 shares of Maxima Growth mutual fund. In December she received
a check for $50, payment of dividends and capital gains distributions. Sylvia also
noticed in her daily newspaper listings that Maxima Growth is now worth $2 per share
more than what she purchased it for at the beginning of the year. How much taxable
income will Sylvia have to pay taxes on Maxima Growth assuming she decides not to
sell the fund this year?
a. $0
b. $50
c. $52
d. $250
28) The primary difference between health maintenance organizations (HMOs) and
individual practice organizations (IPOs) is
a. services provided
b. payment method used
c. type of location where treatment is received
d. all of these
29) Of the following investment alternatives, which is highest on the investment
pyramid?
a. Growth stocks
b. Municipal bonds
c. Collectibles
d. Aggressive-growth mutual funds
30) 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 dividend per share?
a. $1.15
b. $0.75
c. $0.50
d. $0.25
31) Jeremiah and Sara’s family income increased from $60,000 to $63,000 in the past
year. Inflation was 2 percent over the same time period.Which of the following is true
regarding Jeremiah and Sara’s income?
a. Their nominal income increased 4.8 percent
b. Their nominal income increased 5 percent
c. Their real income decreased 2 percent
d. Their real income decreased 5 percent
32) The approximate compound yield (ACY) formula provides a measure of the
a. annualized compound growth of any long-term investment
b. annualized compound growth of any short-term investment
c. total return of any long-term investment
d. total return of any short-term investment
33) The average expense ratio for index stock mutual funds is around ____ percent.
a. 0.25
b. 0.40
c. 1.45
d. 0.20
34) An automobile buyer can call the National Highway Traffic Safety Administration
website www.safecar.gov to get information on government safety test results, recalls,
and
a. new car prices
b. used car prices
c. theft ratings
d. financing information
35) You can earn profits when the price of a security declines by
a. selling long
b. selling short
c. margin calling
d. buying long
36) Performing a large number of calculations on the possible returns from a mix of
combinations of investments in an overall portfolio is called
a. Monte Carlo analysis
b. leverage
c. Black Jack strategy
d. asset allocation
37) Which of the following is not true of Medicare Part B?
a. Is supplementary health care coverage
b. Does not cover outpatient care
c. Requires the payment of monthly premiums
d. Covers doctor office visits
38) Figure 14-1
Rosa’s is a small chain of Mexican food restaurants that features five delicious varieties
of salsa. The business has grown over the past ten years from a hobby to a small
corporation with 200,000 shares of common stock outstanding. The corporation has not
issued any preferred stock. The following is Rosa’s latest financial data:
Refer to Figure 14-1. What are the earnings per share for Rosa’s?
a. $2.00
b. $2.34
c. $3.50
d. $3.75
39) Which of the following continuation provisions is least desirable in a health
insurance policy?
a. Optionally renewable
b. Guaranteed renewable
c. Cancelable
d. Noncancelable
40) Figure 14-3
Use the following stock listing for transactions on December 12 to answer the
questions:
Refer to Figure 14-3. What was Reebok’s closing price on December 12?
a. $44.75 per share
b. $44.25 per share
c. $43.38 per share
d. $25.00 per share
41) A price-to-book ratio of less than 1 indicates an overvalued company.
42) Owning a motorcycle is an example of a peril.
43) An original tenant who subleases to another tenant is automatically released from
financial responsibility for future rent payments.
44) Demand deposits are savings that are expected to remain on deposit in a financial
institution for an extended period.
45) Interest income is reported to the recipient on a W-2 form.
46) Large-cap stocks are the stocks of companies that are quite substantial in terms of
capitalization, around $750 million to $3 billion in size.
47) Diversification reduces all risk.