1) Any after-tax profit a company earns but does not pay out as dividends is called its
retained earnings.
2) You should consider selling a bond before maturity when the bond rating has
seriously slipped.
3) If the home seller rejects an offer after accepting earnest money, he or she must
return the earnest money to the potential buyer.
4) A global fund invests in growth stocks of companies listed on foreign exchanges as
well as in the United States.
5) When the declining-balance method of calculating interest on installment loans is
used, the simple rate of interest and the APR will differ only if fees boost the finance
charge.
6) The best way to document a homeowner’s insurance loss is with pictures.
7) Front-end loads typically amount to 3 to 8.5 percent of the amount invested.
8) Your credit score can be negatively affected if you borrow from lenders who have
low standards.
9) A career goal can be a specific job or field of work.
10) Disposable personal income is the amount of take-home pay remaining after all
deductions are withheld for taxes, insurance, union dues, and other.
11) Which of the following is (are) true of group health plans?
a. The premiums are lower than individually purchased policies
b. The underwriting criteria are less restrictive than individually purchased policies
c. Employers often provide this coverage as a fringe benefit for their employees
d. All of these
12) Aaron Jefferies has located a condominium he would like to buy, and he would like
the current owners to leave all window coverings in the condo. This condition should be
included in the
a. purchase offer
b. purchase contract
c. warranty deed
d. purchase offer and purchase contract
13) An investor who expected an economic downturn would want to put his or her stock
portfolio in ____ stocks.
a. cyclical
b. well-known growth
c. speculative
d. countercyclical
14) Reduced risk gives one the freedom to
a. drive a car
b. own a home
c. plan financially for the future
d. all of these
15) Auto leasing is becoming an attractive option and about ____ percent of new cars
‘sold” each year are actually leased.
a. 20
b. 30
c. 40
d. 50
16) An umbrella liability policy pays for
a. professional liability claims only
b. liability claims arising from auto-related accidents only
c. others’ injuries when accidents happen on your property only
d. liability losses that arise out of any activity
17) ____ must actually buy or sell an optioned common stock if requested by the holder
of the option contract.
a. The corporation that issued the stock
b. The broker who handled the option contract
c. The writer of the option contract
d. None of these
18) Which of the following is generally not part of the process of opening a credit
account?
a. Filling out a credit application
b. Inspection and appraisal of assets
c. Having your credit history investigated
d. Credit scoring of your application
19) The primary purpose of the Employee Retirement Income Security Act (ERISA) is
to
a. regulate employer-sponsored pension plans
b. require employer-sponsored pension plans for large companies
c. collect taxes on retirement benefits
d. regulate employer-sponsored pension plans and require employer-sponsored pension
plans for large companies
20) Iris Rosales is an unmarried college student age 21, and is claimed as a dependent
on her married parents’ tax return. What is the maximum number of personal
exemptions Iris can legally claim on her own tax return?
a. 3
b. 2
c. 1
d. 0
21) Same as cash offers often carry the risk that
a. your interest rate will be increased
b. all prior interest will be owed if full payment is not made within the agreed time
period
c. you will be insolvent
d. you will lose a tax deduction for the interest owed
22) Which of the following statements about survivor’s and disability benefits under
defined-benefit plans is false?
a. Most employer-sponsored retirement plans provide survivor’s benefits
b. If spousal benefits are waived, the worker’s retirement benefit will be higher
c. The covered worker can cancel spousal benefits only if the spouse consents in writing
d. Disability and survivor’s benefits are typically the same amount as retirement benefits
23) All income other than capital gains is referred to as
a. gross income
b. earned income
c. ordinary income
d. personal income
24) Reimbursement for costs associated with intermediate and custodial care in a
nursing facility or at home is provided by
a. Medicare
b. long-term care insurance
c. disability income insurance
d. HMOs
25) The measure of a fund’s expenses expressed per dollar of the assets under
management is its
a. beta
b. expense load
c. expense ratio
d. front-end load
26) Stocks with low price/earnings ratios tend to have
a. lower yields
b. higher risk
c. higher prices
d. a slower earnings growth rate
27) Risk retention would be most appropriate in which of the following cases?
a. Collision coverage on a $14,000 car
b. Coverage for loss of a contact lens
c. Medical expenses for a healthy young adult
d. Liability coverage for a middle-income individual
28) The penalty for tax evasion can include
a. jail sentences
b. penalties
c. interest charges
d. all of these
29) The present value of an annuity is the ____ worth of a stream of payments to be
received in the future.
a. inflated
b. estimated
c. previous
d. current
30) The Better Business Bureau is an example of which channel of complaint?
a. Local business
b. Self-regulatory organizations
c. Consumer-action agencies
d. Small claims court
31) Ginnie Mae and Freddie Mac bonds are examples of ____ bonds.
a. U.S. Series EE savings
b. Treasury
c. federal agency
d. municipal
32) 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. According to the liquidity ratio, how long could Maria and John
continue to meet their expenses after a total loss of income?
a. Less than 1 month
b. Slightly more than 1 month
c. Nearly 5 months
d. Over 12 months
33) When is the best time to consider purchasing an annuity with all or part of your
retirement funds?
a. when you first sign up for a plan
b. at age 30
c. at age 50
d. when you retire
34) ____ insurance is generally required when a borrower makes a minimum down
payment.
a. Title
b. Homeowner’s
c. Mortgage
d. Liability
35) ____ tend to offer the more reliable and more expensive used cars.
a. New car dealerships
b. Used car dealerships
c. Rental car companies
d. Private individuals
36) Federal law requires ____ workers to convert their group coverage to individual
coverage when company-sponsored group health care plans are terminated.
a. COBRA rights that allow
b. a 60-day period for
c. a portability option that allows
d. a 36-month notice for
37) If you borrow funds from your employer-sponsored retirement account you must
a. pay the money back within 90 days
b. pay the money back within 30 days of changing employers
c. pay your employer interest
d. borrow at least 50 percent of the amount in the account
38) Which of the following would be considered an estate planning mistake?
a. Having a will
b. Having a signed medical power of attorney
c. Choosing an executor based on emotional ties
d. Having a legal guardian appointed for each of your children
39) Group policies exclude more preexisting conditions than individual policies.
40) The basic information about who is covered, the time period of coverage and the
policy limits are contained in the insuring agreements section of a life insurance policy.
41) Almost every state imposes an inheritance tax assessed by the dependent’s state of
residence on beneficiaries who receive inherited property.
42) Leases work best for people who plan to buy a new vehicle every five to seven
years.
43) It is illegal for a creditor to charge different interest rates to different borrowers.
44) Limited-pay whole life insurance is whole-life insurance that allows premium
payments to cease before you reach the age of 65 .
45) A secured credit card is backed by collateral in the form of a savings account
opened at the financial institution that issues the card, and this savings balance can be
withdrawn at any time.
46) Investing in a sector fund decreases risk and return because it is more diversified
than other funds.