1) For couples with two vehicles, each should be owned separately.
2) The key to reducing one’s tax liability is to reduce taxable income rather than gross
income.
3) Planting trees and shrubs on your rental property is an example of a capital
improvement.
4) With cash-value life insurance the actual amount of insurance goes down over time
while the amount of investment value goes up with the two components adding up to
the face amount of the policy.
5) An irrevocable trust cannot be changed or undone by the grantor during his or her
lifetime.
6) The first attempt by a lender to dispose of a foreclosed property is at a foreclosure
auction.
7) Taxpayers are required to pay taxes throughout the year via either payroll
withholding or by paying estimated taxes.
8) Balloon auto loans were developed by lenders in response to the popularity of auto
leasing.
9) There are more open-end mutual funds than there are companies listed on the New
York Stock Exchange.
10) Electronic funds transfers (EFTs) move money electronically between accounts
rather than by check or cash.
11) ____ is a repair expense for rental property rather than a capital improvement.
a. Painting the kitchen
b. Remodeling the garage into a game room
c. Adding a new patio
d. Building a sidewalk
12) Using the continuous-debt method of setting your debt limit, you should be able get
completely out of debt (other than your mortgage) once within ____ years
a. 2
b. 4
c. 6
d. 8
13) Which of the following is characteristic of term life insurance?
a. Provides no investment features
b. Costs more than other types of life insurance
c. Has premiums that decrease over one’s lifetime
d. Pays benefits to the insured when the insured reaches age 65
14) Automatic dividend and capital gains reinvestment
a. is a requirement of all mutual fund companies
b. compounds share ownership
c. allows one to defer taxes on this income
d. reduces investment yields
15) The best-quality precious gems and metals are sold by
a. wholesale firms
b. jewelers
c. miners
d. wholesale firms and jewelers
16) ____ invest in highly liquid, relatively safe securities with very short maturities.
a. Exchange-traded funds
b. Intermediate corporate bond funds
c. Fixed-income funds
d. Money market funds
17) Vincent and Paula Farelli have decided to pay off their $875 MasterCard debt by
taking $875 out of their money market savings account. This transaction will
a. increase their net worth on their balance sheet
b. not change their net worth on their balance sheet
c. decrease the surplus on their income and expense statement
d. not change the surplus on their income and expense statement
18) Marsha Lansdale purchased a homeowner’s policy that covers all perils except for
the specifically named exclusions in the policy. Which of the following statements is
(are) true about Marsha’s policy?
a. The policy is a named-perils policy
b. The policy provides broader coverage than most homeowner’s policies
c. The policy is an open-perils policy
d. The policy is an open-perils policy and provides broader coverage than most
homeowner’s policies
19) Shad Yarbrough wants to consider the cost per use of a high-end desk top computer
he is considering for his web site business. The computer costs $1,750 and has a life
expectancy of four years. If Shad feels he would use the computer three days a week,
on average, what is Shad’s cost per use?
a. $2.10
b. $3.04
c. $3.60
d. $2.80
20) Sally is in the 15 percent marginal tax bracket, Ben is in the 25 percent marginal tax
bracket, and Julie is in the 28 percent marginal tax bracket. On the basis of only this
information, a municipal bond investment would be most attractive to
a. Sally
b. Ben
c. Julie
d. It would be equally attractive to each of them
21) With a ____ policy, if premiums drop below the amount necessary to cover the
insurance protection and expenses, funds are removed from the cash-value account to
cover the shortfall.
a. variable life insurance
b. universal life insurance
c. variable-universal life insurance
d. cash-value life insurance
22) When the price of a stock declines to the point where the investor’s equity is less
than the required percentage, the brokerage firm will make a telephone call to the
investor telling him or her to immediately either provide more collateral or face having
the investment liquidated. This procedure is know as a(n)
a. limit order
b. IPO
c. margin call
d. odd lot
23) Your average tax rate
a. equals your marginal tax rate
b. is greater than your marginal tax rate
c. is less than your marginal tax rate
d. is none of these
24) Recommended limits for auto liability insurance are at least
a. 20/40/15
b. 25/50/20
c. 50/100/25
d. 250/500/100
25) Hillary and Justin Palmer have a long-term goal of saving $6,000 for a down
payment on a new vehicle they would like to buy in three years. Which of the following
is a short-term goal that is most consistent with this long-term goal?
a. Buy a new car every two years
b. Save $2,000 this year
c. Save $3,000 this year
d. Accumulate $1,500 for a trip to Florida this year
26) Which of the following rates of return in a cash-value life insurance policy does the
agent tend to focus on and which should the purchaser focus on?
a. guaranteed minimum; current
b. current; guaranteed minimum
c. fixed; current
d. current; projected
27) In an employer-sponsored retirement plan, interest, dividends, and capital gains
earned from the funds invested in the plan are taxed
a. only after funds are withdrawn from the plan, if at all
b. with each payment
c. annually
d. on a quarterly basis
28) According to financial advisers, a family with monthly living expenses of $2,500
should maintain readily accessible savings of at least
a. $2,500
b. $5,000
c. $7,500
d. $10,000
29) Figure 10-1
Robert and Denise Swanson insured their home for $180,000 with an HO-3 policy with
a 100 percent replacement cost requirement. Their home has a market value of
$200,000 and a replacement value of $240,000. The following coverages are included
in their HO-3 policy:
*Percent of insured value of the house
Refer to Figure 10-1. Before Robert and Denise had to cut their vacation short due to a
fire, they were having a great time visiting old college classmates. While staying with
Shirley and James Jackson, however, Denise accidentally dropped a $550 piece of
Shirley’s prized glass collection. What, if anything, will Robert and Denise’s insurance
policy pay for the broken glass?
a. $0
b. $300
c. $550
d. $1,000
30) Which of the following is classified as a tangible asset?
a. Motorcycle
b. Cash
c. Real estate investment
d. Pension plan
31) Shelly and Chris Carney have a homeowner’s policy with $120,000 coverage, a
$1,000 deductible, and required coverage of 80 percent of the replacement cost. Their
home recently suffered extensive fire damage in the amount of $92,000. Assuming the
replacement value of the home was $160,000, how much will the insurance company
pay on this loss?
a. $73,600
b. $85,312
c. $86,250
d. $92,000
32) Figure 14-3
Use the following stock listing for transactions on December 12 to answer the
questions:
Refer to Figure 14-3. On December 12, Reebok closed ____ lower than its 52-week
high.
a. $0.50
b. $0.75
c. $1.00
d. $1.38
33) As a professional financial planner, you contribute your expertise to your church by
helping it with its investment decisions. Your contributions to the church for the year
are
$2,500 cash
$4,500 value of your time based on your hourly rate
$350 travel expenses using the standard mileage allowance
How much of your contributions are deductible if you can itemize deductions?
a. $6,650
b. $2,500
c. $2,850
d. $7,350
34) Personal injury protection pays for ____ in addition to bodily injury.
a. nothing
b. damage to your automobile
c. lost wages
d. damage to property in your automobile
35) Taxes on annual earnings from mutual funds can be avoided
a. while those amounts are kept in an IRS-qualified retirement account
b. if those earnings are interest from municipal bonds
c. as long as the mutual shares are not sold
d. while those amounts are kept in an IRS-qualified retirement account and if those
earnings are interest from municipal bonds
36) ____ comprises the arrangements you make during your lifetime for the
administration and transfer of your worldly possessions and assets after your death.
a. Probate court
b. A will
c. Estate planning
d. A codicil
37) A switching privileges on mutual funds allows shareholders to exchange shares of
one mutual fund for shares of
a. common stock
b. any mutual fund sold in the United States
c. any mutual fund in the same family of funds
d. all of these
38) Marcia and Tom Gregory will make $750 monthly payments on their new
condominium for two years before the payments are scheduled to increase to $950
monthly. During these two years, the outstanding loan balance will go up. This is an
example of
a. negative amortization
b. an adjustable-rate mortgage
c. a reverse-annuity mortgage
d. interest rate caps
39) The maximum annual deposit into a health savings account is ____ for an
individual and ____ for a family.
a. $1,100 / $2,200
b. $3,650 / $7,300
c. $3,000 / $5,950
d. $5,950 / $11,900
40) With a(n) ____ investment, the borrower agrees to pay the investor a specific rate of
return for use of the principal.
a. fixed maturity
b. fixed income
c. debt
d. equity
41) A medical information bureau can be a helpful resource for checking on the ratings
of medical care providers.
42) The higher your credit score the more you will pay for credit.
43) According to the U.S. Census Bureau, adults with an advanced degree earn
approximately $48,000 more per year than adults with only a bachelor’s degree.
44) The APR expresses the cost of credit on a monthly basis as a percentage rate.
45) Collection agencies may telephone a debtor’s employer to obtain financial
information.
46) Duplication of employee health care benefits is recommended for even broader
coverage.
47) Historically, both common stock and corporate bonds have performed well in times
of inflation.