1) Title to real estate is transferred to a new owner through a deed.
2) Liquidity is the speed and ease with which an asset can be converted to cash.
3) The fundamental approach presumes that current and future earnings, trends,
industry outlook, and management’s expertise determine a stock’s price movement.
4) Unlike other providers of financial services, depository institutions can both take
deposits and make loans to consumers.
5) When forecasting long-term inflation rates for financial planning purposes, it is
better to err on the high side rather than on the low side.
6) An incontestability clause places a time limit on the right of an insurance company to
deny a claim.
7) U.S. government securities are considered almost risk-free.
8) Introductory rates are also known as teaser rates.
9) One HMO variation is the individual practice organization (IPO), a structure in
which the HMO contracts withrather than hiresgroups of physicians.
10) Most homeowner’s and renter’s insurance policies cover the liability for theft of
both debit and credit cards.
11) A market order instructs the stockbroker to execute an order at the prevailing market
price, the current selling price of a security.
12) Consumer Reports comprehensive review of makes and models of vehicles occurs
annually in its ____________ edition.
a. January
b. April
c. September
d. December
13) The amount loaned when a bond is issued is
a. the principal
b. its maturity
c. its par value
d. the dividend
14) Vicki Chadwell made a $1,000 capital gain on an investment she owned for 15
months. Assuming Vicki is in the 35 percent marginal tax bracket, how much federal
income tax would she pay on this capital gain?
a. $1,000
b. $350
c. $280
d. $150
15) If no payment is received by the due date on a credit account,
a. a credit bureau may be notified of slow payment
b. the company may begin collection efforts
c. the cardholder may be declared in default
d. all of these
16) Which of the following types of insurance is (are) not recommended for purchase
by an individual?
a. Vision care
b. Dread disease
c. Accident
d. All of these
17) A renter may have to pay ____ when moving into an apartment.
a. the first month’s rent
b. the last month’s rent
c. the security deposit
d. all of these
18) Which of the following statements regarding cash dividends is true?
a. Growth and speculative companies typically pay little or no cash dividends
b. Cash dividends to common and preferred stockholders are variable amounts
c. Cash dividends are guaranteed payments to preferred and common stockholders
d. All after-tax earnings of a corporation must be paid out to the common and preferred
stockholders
19) The escrow account is used to accumulate funds for
a. the down payment
b. homeowner’s insurance premiums
c. real estate property taxes
d. both homeowner’s insurance premiums and real estate property taxes
20) ACB, Inc., has a beta of 1.2. If the market as a whole goes up 15 percent, we would
expect ACB’s market value to go
a. up 15 percent
b. down 15 percent
c. up 18 percent
d. down 18 percent
21) The primary disadvantage of a 15-year mortgage as compared to a longer mortgage
is the
a. speed of equity buildup
b. amount of interest paid
c. amount of the monthly payment
d. speed of debt payoff
22) Lisa Carson has the opportunity to receive $12,000 now or $15,000 in four years. If
Lisa can earn 6 percent on her investments, what is the present value of the $15,000
payment?
a. $15,000
b. $13,785
c. $11,881
d. $9,505
23) Generally, the largest cost of selling a house is the
a. real estate transfer taxes
b. broker’s commission
c. title search
d. prepayment fee
24) ____ would be characteristic of a conservative investment philosophy.
a. Acceptance of very little risk
b. Moderate to high returns
c. Diversification among only a few investments
d. All of these
25) Which of the following is generally true regarding conversion of group coverage to
individual coverage?
a. Waiting periods will have to be met
b. Pre-existing condition provisions will apply
c. Higher policy premiums will have to be paid
d. All of these
26) Paying expenses with pretax dollars
a. increases taxable income
b. increases take-home pay
c. increases after-tax income
d. is only a good idea for high income earners
27) Adjustments to gross income
a. are subtracted from gross income
b. help one qualify for other deductions
c. can be taken even if one takes the standard deduction
d. all of these
28) Which is not an example of unearned income?
a. Rents
b. Dividends
c. Tips
d. Royalties
29) Employer-sponsored retirement plans include all of the following except
a. 401(k)
b. 403(b)
c. 457
d. IRA
30) Lending designed specifically for borrowers with low credit scores is called
a. predatory lending
b. subprime lending
c. bail-out lending
d. credit rebuilding
31) The primary purpose of setting long-term financial goals is to help
a. measure financial success or failure
b. provide direction for overall financial planning
c. acquire great wealth
d. achieve a comfortable retirement
32) Maxine Marshall received $24,000 in disability payments from an insurance policy
she paid for. How much of the $24,000 is included in Maxine’s gross income?
a. $24,000
b. $12,000
c. $6,000
d. $0
33) Which of the following is not true regarding U.S. government securities?
a. They can be purchased directly from the government or through a broker
b. Interest income is tax exempt from state and local taxes
c. Interest rates are lower than rates on corporate bonds
d. You receive certificates for the bonds purchased
34) The three broad areas of financial plans include financial plans for
a. spending
b. risk management
c. capital accumulation
d. All of these
35) Which of the following information about specific companies must be issued only
when a new security is issued?
a. Annual report
b. 10-K report
c. Prospectus
d. Both 10-K report and prospectus
36) Futures contracts usually focus on all of the following except
a. cattle
b. foreign currency
c. rubber
d. wheat
37) Typically the highest commissions are charged on investments in
a. stocks
b. bonds
c. collectibles
d. real estate
38) Which of the following provisions is not legally required as part of a full warranty?
a. A product will be fixed at no cost to the buyer within a reasonable period of time
b. The owner will not have to undertake an unreasonable task to return the product for
repair
c. The warranty will cover the product for at least three years after purchase
d. A defective product that cannot be fixed after a reasonable number of attempts will
be replaced or the money will be returned
39) Baxter is a computer programmer who works for Allied Company and is covered
under its retirement plan. Baxter’s AGI is $49,000, and he wants to contribute $2,000 to
either an IRA or his employer’s salary-reduction plan. Since he is in the 15 percent
marginal tax bracket, he would save ____ in taxes by using the IRA and ____ by using
the salary-reduction plan.
a. $300; $300
b. $300; $0
c. $0; $300
d. $0; $0
40) Bill and Alma are shopping for their first home. They have found two houses that
are nearly identical except for their locations. One house costs $250,000 and is 15 miles
from their places of employment. The second house costs $275,000, but it is within 5
miles of where they both work. Now Bill and Alma are trying to decide if living 10
miles closer to their workplaces is worth the extra $25,000 in the cost of the house.
Which decision-making concept are they using?
a. Opportunity cost
b. Marginal analysis
c. Time value of money
d. Total utility
41) Companies that offer written express warranties must do so under the provisions of
which federal act?
a. Magnuson-Moss Warranty Act
b. Taft-Hartley Act
c. Marshall Act
d. New Car Lemon Act
42) Financial goals
a. should be explicitly stated
b. should be consistent with your values
c. all of these
d. none of these
43) Retirement is defined as the time period when you stop all work for pay.
44) It is highly recommended that CD investments be made at local bank-like
institutions, even though some yield may be sacrificed.
45) By law, all financial planners must be Certified Financial Planners (CFPs).
46) By making the minimum payment on a typical credit card, a borrower will have the
debt paid off in about two years.
47) Treasury notes are the longest-term U.S. government securities.
48) A Social Security rider will allow a reduced level of disability income benefits
when partial, rather than full, disability strikes.
49) Most homeowner’s and renter’s insurance policies cover your liability for theft of
debit cards but not credit cards.