1) The cost of replacing the household labor of a stay-at-home spouse should be
included in life insurance planning.
2) Taking on excessive debts early in life may compromise your goal of being
financially successful.
3) A taxpayer with a taxable income greater than $100,000 must use the tax-rate
schedules rather than the tax tables to find his or her tax liability.
4) Failing to factor in income lost due to vacancies and collection costs for tenants who
do not pay is a mistake that real estate investors may make.
5) Lenders usually are willing to lend 75 to 95 percent on leveraged real estate
investments.
6) The term coupon yield refers to the interest rate printed on the bond certificate.
7) A credit card holder is in default when he or she fails to meet any requirement of a
credit agreement.
8) Increasing the waiting period on a disability income policy from 30 to 90 days can
significantly reduce the premium.
9) Adjustable life insurance policies allow changes with no added proof of insurability.
10) A managed care plan is any health care plan that pays or reimburses for health care
expenditures and exerts significant control over the conditions under which health care
can be obtained.
11) Monetary assets include cash and near-cash items that can be readily converted to
cash.
12) Annuities are usually sold by insurance companies.
13) A state income tax refund is reported as taxable income only if the taxpayer
itemized deductions the previous year.
14) Certificates of deposit are available through stockbrokers as well as through
bank-like institutions.
15) Financial planning begins by examining one’s values.
16) An employed taxpayer’s effective marginal tax rate on income is higher than his or
her federal marginal tax rate.
17) Most options expire without being exercised.
18) The only truly free way to obtain your credit reports is through
annualcreditreport.com.
19) 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. How much additional life insurance is needed on Antonio’s life
using his former income and the multiple-of-earnings approach?
a. $337,500
b. $487,500
c. $512,500
d. $562,500
20) A mortgage lock-in is the lender’s promise to
a. grant a loan
b. hold a certain interest rate for a period of time
c. pay interest on money held in escrow
d. schedule a specific date for the closing
21) When selecting a corporate bond, which of the following would you least consider?
a. Risk level and maturity
b. After-tax return
c. Highest yield to maturity
d. Political variables
22) Financial experts estimate that retirees need at least ____ percent of their
preretirement income to live comfortably.
a. 55
b. 60
c. 80
d. 100
23) Countercyclical stocks have a beta
a. above 1.0
b. below 1.0
c. of 0
d. that is negative
24) Tyler Blevins is going to invest $2,000 in a money market mutual fund. He has
narrowed his choices to a tax-free fund currently earning 2.8 percent and a taxable fund
earning 4.1 percent. If Tyler is in the 28 percent marginal tax bracket, which of these
funds would give him the highest after-tax yield?
a. The tax-free fund
b. The taxable fund
c. They would both give him the same yield
d. Not enough information is given to answer the question
25) Alternative names for traditional health insurance include
a. comprehensive health insurance
b. indemnity plan
c. fee-for-service plan
d. all of these
26) The entire business cycle normally takes ____ years.
a. two to three
b. four
c. six
d. ten to twelve
27) ____ are sold on a discount basis with the gain at maturity representing the interest
earned.
a. Treasury bills
b. Treasury notes
c. Treasury bonds
d. Federal agency bonds
28) Federal law states that bills must be mailed to cardholders at least ____ days before
payments are due.
a. 7
b. 10
c. 14
d. 21
29) The typical early withdrawal penalty for taking money out of a retirement account
early for unapproved reasons is.
a. 10 percent
b. 20 percent
c. your marginal tax rate
d. 30 percent
30) Monthly fees assessed to buyers of cooperatives include funds for
a. management fees
b. payment on the cooperative’s debt
c. insurance covering the building(s)
d. all of these
31) 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. Calculate and evaluate Maria and John’s debt service-to-income
ratio.
a. 18 percentadequate income to repay debt
b. 18 percentin the danger zone
c. 25 percentadequate income to repay debt
d. 25 percentin the danger zone
32) Maria and James Arias (ages 26 and 30) withdrew $10,000 from their IRA accounts
to pay for a new car when their old car was destroyed in a fire. None of the
contributions to their accounts had been taxed before going into the IRAs. Which of the
following statements is (are) true?
a. They will pay a $1,000 penalty
b. They will pay taxes on the $10,000 withdrawal
c. They will pay taxes on only the portion of the $10,000 that represents investment
earnings
d. They will pay a $1,000 penalty, and they will pay taxes on the $10,000 withdrawal
33) Which of the following government programs is jointly funded by federal and state
governments?
a. Social Security disability income
b. Medicare
c. Medicaid
d. Veterans Administration hospitals
34) Tran Phueong has monetary assets valued at $17,500 and monthly expenses of
$2525. Using the liquidity ratio, how long could Tran live on his monetary assets if he
were to lose his job?
a. Over 12 months
b. About 7 months
c. About 3 month
d. Less than 1 month
35) ____ is a long-term care provision that is especially important for a relatively young
person purchasing this type of insurance.
a. A long waiting period
b. A long benefit period
c. Inflation protection
d. The type of care covered
36) Which of the following job-related apparel is most likely to qualify as a deductible
expense?
a. Man’s business suit for a bank executive
b. Jogging suit for a PE teacher
c. Safety goggles for a welder
d. Woman’s dress for a retail buyer
37) Figure 4-1
Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and
Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their
employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha.
The following is information related to their taxes for the current tax year:
Refer to Figure 4-1. If Tony and Liz owe $3,504 in taxes on their taxable income what
is their final tax liability after taking the credits for which they qualify?
a. $204
b. $1,504
c. $2,204
d. $3,504
38) Numerous job-related expenses can potentially be deducted from federal income
taxes as ____ expenses.
a. tax
b. interest
c. charitable
d. miscellaneous
39) Market analysts generally recommend that investors avoid companies with a
price-to-sales ratio of greater than
a. 0.50
b. 1.00
c. 1.50
d. 2.00
40) Bobby Nino borrowed $40,000 to make a $75,000 investment. A year later he sold
the investment making a profit of $5,000 after taxes. What was Bobby’s total percentage
return on this investment?
a. 20.0 percent
b. 14.3 percent
c. 12.5 percent
d. 6.67 percent
41) ____ tend to have the widest range of choices and quality for used cars.
a. New car dealerships
b. Used car dealerships
c. Rental car companies
d. Repossession auctions
42) Which of the following is the best example of a well-stated financial goal?
a. Buy a $3,000 computer in 18 months
b. Purchase a three-bedroom home in five years
c. Buy a $2,000 stereo
d. Pay off your credit cards as soon as possible
43) Default risk is rated by
a. Dow Jones and Company
b. Moody’s Investors Service
c. Standard and Poor’s Corporation
d. both Moody’s Investors Service and Standard and Poor’s Corporation
44) Traditional health insurance provides protection against direct medical expenses
and, thus, does not cover
a. injury related health care
b. illness related health care
c. recuperative care resulting from illness or injury
d. lost income when you cannot work due to illness or injury
45) Laura Larkin invested $4,000 in a mutual fund with a stated load of 6 percent. How
much of her money was actually invested in shares of the mutual fund?
a. $4,000
b. $3,940
c. $3,670
d. $3,760
46) Brokerage commissions are charged
a. annually
b. when stock is purchased
c. when stock is sold
d. both when stock is purchased and when stock is sold
47) The rate of increase in prices of items purchased by an individual is called the
a. personal interest rate
b. rate of inflation
c. personal inflation rate
d. consumer price index
48) When you sign a release, you are affirming
a. whether a loss is covered
b. the dollar amount of the loss
c. whether a loss has occurred
d. who will receive payment for the loss
49) The right of escheat gives a deceased’s property to the
a. surviving spouse
b. children
c. parents
d. state of residence
50) Owners of common stock vote to elect the corporation’s management.
51) Time deposits specify a period that the savings must be left on deposit, such as six
months or three years.
52) Seller financing arrangements are risk-free for the seller.
53) Leading economic indicators are those that do the best job of measuring the state of
the economy at any point in time.
54) If you are unable to get completely out of debt every five years (except for a
mortgage loan), you probably lean on debt too heavily.
55) During times of high mortgage interest rates, real estate investors can expect a
positive cash flow.
56) Secured bonds are always safer than unsecured bonds.
57) Generally investments with high capital gains potential also pay high current
income.
58) The annual report describes the mutual fund, its investment objectives, and how it
tries to achieve its objectives.