1) Under a tiered pricing system, creditors charge lower interest rates to lower-risk
borrowers.
2) Marginal cost is the incremental cost of one more incremental unit of something.
3) Whenever you make more than the minimum payment on your credit card account,
the lender must apply any excess above the minimum payment to the portion of the card
debt that carries the highest APR.
4) A modest funeral can easily cost more than $10,000.
5) Balanced mutual funds are an appropriate investment if your time horizon is two to
five years.
6) For a mortgage interest tax credit, the home must not cost more than 90 to 110
percent of the average area purchase price.
7) A prospective borrower must be given a good-faith estimate of all specific closing
costs when they apply for a mortgage.
8) A title to real property is the legal right of ownership interest.
9) If you choose to strive for a very high return by accepting a high level of risk, you
could be characterized as a risk seeker.
10) A cash-flow statement shows flows of income in and expenses out of your finances
for a given period of time.
11) Securities are negotiable instruments of ownership or debt.
12) Growth companies typically pay little or no cash dividends.
13) Group health plans are especially important to anyone who has existing health
problems.
14) People with hazardous occupations (police officers) or dangerous hobbies
(skydivers) are sometimes required to pay higher insurance premiums.
15) Tax-sheltered retirement accounts allow a certain portion of your income to remain
exempt from income taxes for the current year.
16) Taxpayers may claim both the child tax credit and the dependent care tax credit in
the same year.
17) Always notify the police and file a report when involved in an auto accident.
18) Combining a health savings account with a high deductible health care plan is a
way to save money on the cost of a health care plan.
19) Legally, sellers must disclose known defects in their homes.
20) ____ are topics and activities that engage your attention.
a. Career plans
b. Professional interests
c. Career goals
d. Professional abilities
21) The average expense ratio for diversified stock mutual funds is around ____
percent.
a. 5.00
b. 0.25
c. 1.45
d. 0.40
22) Elizabeth Kennedy is a secondary school teacher with an employer-sponsored
retirement plan and is also self-employed as an educational consultant. If Elizabeth’s net
self-employment income is $16,000, what is her maximum contribution to a Keogh
account?
a. $0
b. $5,000
c. $4,000
d. $16,000
23) Kim Rice was injured in a freak accident in her dorm room and had to spend several
days in the hospital. Her covered medical costs totaled $14,000. How much will Kim’s
health insurance policy pay for this claim given the following policy information?
$100,000 annual policy limit
$250 deductible per year
80/20 coinsurance
$1,500 per year out-of-pocket coinsurance cap
a. $12,250
b. $11,200
c. $11,000
d. $10,950
24) Gary Plummer contributes $200 a month to a flexible spending account for health
care. If Gary is in the 28 percent marginal tax bracket, which of the following is true?
a. Gary will save $1,728 in federal income taxes
b. Gary will save $2,400 in taxes
c. Gary could write off $2,400 as an itemized deduction
d. Gary will save $672 in federal income taxes
25) ____ is (are) a high-risk investment.
a. Real estate
b. Collectibles
c. Options
d. All of these
26) Lucy and Max, ages 28 and 30, have earned income of $32,400 and adjusted gross
income of $34,500. They spent $2,200 on child care for their young son so that they
could both work part time and finish their college degrees. Which of the following tax
credits could reduce their taxes?
a. Dependent care credit
b. Earned income credit
c. Both dependent care credit and earned income credit
d. Neither dependent care credit nor earned income credit
27) William Peterson is insured by a $100,000 life insurance policy with the following
nonforfeiture table:
What is the maximum amount William could borrow from this policy if it has been in
force ten years?
a. $17,225
b. $14,250
c. $7,950
d. $6,500
28) Mary Beth has just applied for a credit card that offers a 6 percent interest rate for
12 months. At the end of 12 months, the interest rate will be “prime plus 9 percent.”
Which of the following characteristics does this card have?
a. Variable interest rates
b. Teaser rates
c. Co-branded
d. Both variable interest rates and teaser rates
29) Most of the total return from a real estate investment usually comes from
a. high mortgage rates
b. cash flow
c. price appreciation
d. capital improvements
30) The Federal Deposit Insurance Corporation (FDIC) insures accounts in
a. commercial banks
b. credit unions
c. brokerage companies
d. commercial banks and credit unions
31) A REIT is a type of closed-end mutual fund that focuses on
a. high real returns on investment for shareholders
b. regular earnings
c. real estate
d. rollover equities
32) Sally Norton has an insurance policy with a $1000 deductible that pays up to $950
per day for room and board, up to $100,000 per episode, and up to $500,000 per year.
When Sally was diagnosed with cancer, she was in the hospital for 20 days. While the
room and board charges were only $825 per day, the total cost of the hospitalization
was $120,000. How much would the insurance pay?
a. $16,500
b. $19,000
c. $100,000
d. $120,000
33) Robby Gordon bought commercial property in 1980 for $50,000. In 2011, he traded
it for similar property valued at $150,000 and received $10,000 in cash. His taxable
income from this transaction in 2011 would be
a. $10,000
b. $50,000
c. $100,000
d. $150,000
34) ____ would be classified as cyclical industries.
a. Drug manufacturers
b. Food retailers
c. Utility companies
d. Airlines
35) A net surplus at the end of the month could be
a. used to pay down credit card debt
b. invested in a retirement account
c. carried forward to the next month
d. all of these
36) Life insurance needs typically ____ over your lifetime.
a. increase
b. fluctuate
c. remain the same
d. stay high
37) Which of the following best describes a preexisting condition?
a. An exclusion
b. Cancer, heart condition, or other serious disease
c. An injury that results from an accident
d. A previously diagnosed medical condition
38) A form of dispute resolution that is not legally binding on either party is
a. civil court
b. small claims court
c. mediation
d. arbitration
39) When comparing buying versus renting comparable housing, renting requires a
____ annual cash flow while buying typically ____ one’s tax liability.
a. lower; increases
b. lower; decreases
c. higher; increases
d. higher; decreases
40) Under the depreciation provisions applying to real estate, which of the following
statements is false?
a. The value of the land and property is added together and divided by the depreciation
factor
b. The guidelines for residential and commercial properties are 27.5 and 39 years,
respectively
c. Depreciation can be deducted from the cost of the asset over the asset’s estimated life
d. The IRS allows the investor to deduct depreciation from income earned
41) Gilbert and Associates, Inc. has a book value of $500,000, a market price per share
of stock of $25, and 33,333 outstanding shares. What is its price-to-book ratio?
a. 4.0
b. 3.5
c. 2.0
d. 1.7
42) Consumer credit can take the form of a loan that is repaid in ____ payments over a
____ period of time.
a. variable; variable
b. equal; set
c. increasing; set
d. decreasing; variable
43) Investing in a mutual fund rather than an individual stock reduces
a. systemic risk
b. pure risk
c. market risk
d. random risk
44) Figure 12-1
Antonio and Trina Tyson are a young couple with two small children, Jason (age four)
and Amy (age two). Trina is an account executive for a brokerage firm while Antonio
has taken a couple years off from his profession as a civil engineer to work on an MBA
degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to
living on two incomes, but Trina’s employer has just circulated employer benefit
information, so Antonio and Trina believe this is a good time to evaluate their life
insurance needs. They have listed the financial information they believe is relevant.
Refer to Figure 12-1. Using the needs approach, how much additional life insurance is
needed on Antonio’s life using his former income?
a. $528,875
b. $453,875
c. $421,478
d. $321,478
45) The prudent investor limits high-risk investments to less than ____ percent of his or
her overall investment mix.
a. 10
b. 15
c. 20
d. 25
46) A substantial benefit for working families with young children should a parent die
are
a. Social Security retirement benefits
b. Social Security survivors benefits
c. Medicare benefits
d. Social Security disability benefits
47) Which of the following statements is not true regarding cash dividends?
a. Cash dividends are generally paid out of current earnings
b. Cash dividends are normally paid semiannually
c. Cash dividends are normally paid four times per corporate year
d. The amount of the cash dividend is determined by the board of directors of the
company
48) Unsecured bonds are called ____ bonds.
a. mortgage
b. collateral trust
c. equipment
d. debenture
49) The fee that is assessed as a percent of the net asset value of a mutual fund account
annually to pay for advertising, marketing, and distribution costs of the fund is called a
a. front-end load
b. 12b-1 fee
c. management fee
d. contingent deferred sales charge
50) Dave Scott’s total income is $42,000, but his taxable income is only $34,050.
Therefore, his tax liability is $4,694. Dave’s average tax rate is approximately ____
percent.
a. 11
b. 14
c. 15
d. 25
51) Under the free-look provision available in most states you have up to how many
days to cancel a life insurance policy and receive a full refund?
a. three
b. five
c. ten
d. thirty
52) Insurance can be purchased for a speculative risk but not for a pure risk.
53) A bond is most likely to be called when interest rates in the economy have risen.
54) If your credit card is lost or stolen or if you ever suspect fraudulent use of an
account, you should contact each of the three national credit bureaus and have a
“high-risk account holder” designation put on your file.
55) Comprehensive personal liability insurance is sometimes called malpractice
insurance.
56) Cash dividends on life insurance policies are similar in that they are taxable as
income by the IRS.
57) The suicide clause in a life insurance policy is an example of an endorsement.
58) It is correct to say that you invest in a 401(k) or IRA account.
59) People who start saving and investing for retirement during their twenties should
aim to reserve 9 to 12 percent of their pretax income every year.