1) The approximate compound yield formula provides a measure of the annualized
compound growth of any long-term investment.
2) Umbrella liability insurance policies provide for high dollar amounts of coverage
over and above the basic policies.
3) Monetary asset management includes setting money aside in a savings account for
use later when making investments.
4) Historically, homeowner’s insurance paid only the actual cash value of property
damaged or destroyed.
5) The time period between billing dates is referred to as the billing cycle.
6) Some variable return life policies pay both the face amount and the accumulated cash
value on the death of the insured party.
7) A redemption charge is designed to discourage frequent trading in and out of
particular mutual funds.
8) Utility company stocks are generally classified as income stocks.
9) Employers can obtain your credit report and may use the information contained in
the report to make an employment decision.
10) The P/E ratios of well-known growth stocks are generally higher than those of
lesser-known growth stocks.
11) Which of the following would be considered smart financial planning?
a. Turn all your income tax planning over to someone else
b. Withhold too much income in order to receive a refund next year
c. Ignore the impact of income taxes in your personal financial planning
d. Contribute to your employer-sponsored 401(k) retirement plan at least up to the
amount of the employer’s matching contribution
12) Advantages of bond funds over individual bonds include all of the following except
a. Bond funds are more liquid because shares can be readily sold
b. Bond funds automatically reinvest interest and other income
c. Bond funds earn higher rates of return
d. Bond funds automatically reinvest interest and are more liquid
13) Bonny Clackman is considering investing in Larkman, Inc. The current price of
Larkman is $62 a share, the after-tax earnings are $37,900,000, and there are
13,000,000 outstanding shares of common stock. What is Larkman’s price/earnings
ratio?
a. 15.5
b. 21.3
c. 4.77
d. 17.6
14) People slip up in building and maintaining good credit when they
a. pay more than 14 percent of disposable income toward non-mortgage debt payments
b. save over long periods of time
c. make on-time payments on credit cards
d. regularly check the accuracy of credit bureau files
15) ____ income is not an example of current income.
a. Capital gains
b. Interest
c. Dividend
d. Rent
16) A debt-payments-to-disposable-income ratio of ____ percent or more is considered
to be problematic.
a. 10
b. 14
c. 15
d. 36
17) An investor can make money on bond investments by receiving
a. interest income
b. dividend income
c. capital gains
d. both interest income and capital gains
18) Owning a big-screen TV is called a(n) ____, while the potential theft of that TV is
called a(n) ____.
a. hazard; peril
b. peril; exposure
c. exposure; peril
d. peril; hazard
19) Misty and Jason Long rented out their lake house for five days and were paid $800.
Assuming this is their only rental income and they are in the 28 percent marginal tax
bracket, their tax liability on this $800 would be
a. $576
b. $448
c. $224
d. $0
20) ____ is (are) normally provided by both general brokerage firms and discount
brokerage firms.
a. Execution of buy and sell orders
b. Personal advice about investments
c. Research analysis of investments
d. Investment newsletters
21) Since 1927 the worst 20-year performance for stocks was a ____ of ____ percent.
a. gain; 1
b. loss; 43
c. gain; 3
d. loss; 66
22) A ____ does not take effect until a specified event occurs, usually mental
incapacitation.
a. durable power of attorney
b. limited power of attorney
c. trust estate
d. partnership theory of marriage rights
23) Most credit cards have a grace period only if
a. you made the minimum payment the previous month
b. you paid the full finance charge the previous month
c. you paid the balance in full the previous month
d. you made no additional charges since the previous billing
24) Misty Malone and her passenger, Angela, were involved in a one-car accident for
which Misty was not at fault. Misty suffered bodily injuries of $5,500, while Angela’s
bodily injuries were $35,000. If Misty’s auto insurance policy includes 20/40/15 bodily
injury liability and $10,000 medical payments insurance, how much will the insurance
policy pay for Misty and Angela’s injuries?
a. $5,500 for Misty and $10,000 for Angela
b. $5,500 for Misty and $30,000 for Angela
c. $0 for Misty and $30,000 for Angela
d. $0 for Misty and $35,000 for Angela
25) Which type of fund would be most likely to invest in guaranteed investment
contracts?
a. Sector fund
b. Stable-value fund
c. Index fund
d. Growth and income fund
26) _________ has to do with the speed with which new information is reflected in the
market prices for investments.
a. Leverage
b. Modern portfolio theory
c. Dollar-cost averaging
d. Market efficiency
27) Gordon Avelar purchased 100 shares of Hemp, Inc., at $48 a share. At the same
time, he instructed his broker to sell these shares if the price fell to $40 a share. This is
an example of a ____ order.
a. stop
b. limit
c. market
d. month
28) A standard homeowner’s insurance policy provides protection from various types of
property losses such as damage to all except
a. a dwelling
b. other structures on the property
c. personal property and dwelling contents
d. vehicles parked in an attached garage
29) As reported in the newspaper, a major insurance company paid a claim for a dent on
a car roof after a man barbecuing steaks accidently dropped one over his balcony and
watched it fall 17 floors onto the car. Assuming the car belonged to someone other than
the chef, which of the chef’s insurance coverages would have covered the dented roof?
a. Automobile comprehensive coverage
b. Automobile property damage liability coverage
c. Homeowner’s general liability coverage
d. Homeowner’s personal property coverage
30) Bond prices are most volatile when
a. bonds are sold at less than face value when first issued
b. the stated rate of interest is low
c. the bond maturity is a long time away
d. all of these
31) Compute the net asset value for a share of a mutual fund with the following
characteristics:
a. $23.66
b. $22.76
c. $26.07
d. $24.41
32) Federal estate and gift taxes affect fewer than ____ percent of the wealthiest
Americans each year.
a. 1
b. 5
c. 10
d. 25
33) Which of the following types of insurance can be purchased only through a federal
government program?
a. Earthquake insurance
b. Flood insurance
c. Renter’s insurance
d. Medical payments insurance
34) Redemption fees typically
a. are assessed on shares sold back within the first five years
b. represent 3 percent of the shares redeemed
c. are designed to discourage frequent trading
d. are particularly troublesome for long-term investors
35) Anne and Jose Romero are in the 28 percent marginal federal tax bracket. Two
years ago they purchased 100 shares of ABC stock for $28 per share, paying
commissions of $75. Last week they sold this stock for $35 per share and paid
commissions of $50. How much is their taxable capital gain on this investment?
a. $825
b. $700
c. $575
d. $196
36) Steep staircases with no lighting are an example of a
a. morale hazard
b. peril
c. physical hazard
d. fortuitous loss
37) A future is a type of forward contract that is standardized usually in terms of
a. size of contract
b. quality of product to be delivered
c. delivery date
d. all of these
38) With a(n) ____, a customer asks to have a purchase put on his or her account for
repayment at a later date without using a credit card.
a. personal line of credit
b. retail charge account
c. service credit account
d. affinity account
39) Which of the following auto coverages would most likely be considered optional
insurance?
a. Collision
b. Bodily injury liability
c. Rental reimbursement
d. Comprehensive
40) Typically the lowest rate of interest would be paid on
a. U.S. Treasury bills
b. U.S. Treasury bonds
c. U.S. Treasury notes
d. federal agency issues
41) The process of recording the sources and amounts of dollars earned and spent is
called
a. record keeping
b. budgeting
c. financial planning
d. goal setting
42) The mortgage suited for someone who has his or her home completely paid for but
needs cash to live on is the ____ mortgage.
a. biweekly
b. shared-appreciation
c. rollover
d. reverse
43) Before applying for a preapproved credit card, you have already
a. been granted credit
b. had a credit card credit limit set
c. had the APR determined
d. all of these
44) Because certificates of deposit require that the deposited funds remain on deposit
for a specified period of time they are subject to
a. interest rate risk
b. fixed withdrawal risk
c. market risk
d. systemic risk
45) _____________ funds offer investors premixed portfolios of stocks, bonds, and
cash that investors of a certain age and risk tolerance might prefer.
a. target-date retirement
b. sector
c. socially responsible
d. equity-income fund
46) Real estate does not include
a. land
b. permanent structures
c. furniture
d. mineral rights
47) A settlement option for a life insurance policy is
a. lump sum
b. interest income
c. income for life
d. any of these
48) The contract for a credit card account is called the
a. promissory note
b. credit agreement
c. credit application
d. credit report
49) Floater policies provide named-peril protection for movable personal property.
50) Social Security is funded via the federal income tax.
51) Those who have delayed planning for retirement until their late thirties or forties
should begin investing at least 35 percent annually in an effort to catch up.
52) The default rate on high-quality bonds is less than 1 percent, whereas the default
rate on junk bonds ranges from 8 to 12 percent.
53) The insured person retains all rights and privileges granted by a life insurance
policy, including the right to amend the policy and the right to designate who receives
the proceeds.
54) Trusts can only take effect during the grantor’s life.
55) Being risk averse means that you focus primarily on preservation of capital with
little desire for current income from your investments.
56) The kiddie tax applies to children under the age of 14 and means that all the child’s
income is taxed at their parents’ marginal tax rate.