1) Dollar-cost averaging forces an investor to buy more shares when the price per share
is low and fewer shares when the price per share is high.
2) When budgeting, recordkeeping is the process of recording the sources and amount
of dollars earned and spent.
3) You can buy life insurance designed specifically to pay off a home mortgage should
the borrower pass away.
4) For every speculative company that succeeds, many others do poorly or fail
altogether.
5) Your debt limit is the overall maximum you believe you should owe based on your
ability to meet the repayment obligations.
6) When estimating your retirement savings goal in today’s dollars, the amount saved
must be higher to adjust for inflation.
7) During the period that a billing dispute is being investigated, creditors cannot send
dunning letters.
8) Weighing the demands of particular jobs with your social and cultural preferences
involves making lifestyle trade-offs.
9) Smart investors recognize that the degree of inflation risk is higher for long-term
lending than for short-term lending.
10) Employer-sponsored retirement plans that have been approved by the IRS for
tax-sheltering are said to be “qualified.”
11) A certificate of insurance, rather than an insurance policy, is received by those with
group health care coverage.
12) Market volatility is the degree to which a market fluctuates up and down over time..
13) The interest rate in force when a CD is purchased typically remains fixed for the
entire term of the deposit.
14) The credit scores needed for credit approval vary from lender to lender.
15) Credit term life insurance is generally more expensive per dollar of coverage than
similar types of term insurance.
16) It is okay to wait until retirement to decide whether or not to buy an annuity with a
portion of your retirement funds..
17) A sale of your home that begins during the time period of the listing agreement to a
buyer not otherwise listed as an exception will result in a commission paid to the realtor
even if you find the buyer on your own.
18) Which of the following is a characteristic of a cash-flow statement?
a. It covers a period of time, usually one month or one year
b. It shows if you were able to live within your income for the period covered
c. The statement includes three sections: income, expenses, and surplus (or deficit)
d. All of these
19) Adjustable life insurance allows you to change ____ on your policy.
a. the premium
b. the face amount
c. the rate of cash-value accumulation
d. any of these
20) A method not recommended for getting out of excessive credit card debt is to
a. negotiate with your creditors to lower your payments and interest rates
b. consider transferring existing balances on high-interest rate accounts to an account
with a lower interest rate
c. pay the minimum amount due on your high interest-rate cards, and pay as much as
possible on the lowest interest-rate cards
d. not open new credit accounts or accept any new credit offers
21) If the Social Security (FICA plus Medicare) tax rate is 7.65 percent, how much total
Social Security tax would be paid by an employee earning $50,000 and his or her
employer?
a. $3,825
b. $4,797
c. $7,650
d. $15,300
22) Figure 10-2
Mr. Todd Green has an automobile insurance policy with the following limits:
Mr. Green and his daughter were on the way to the mall when they were involved in a
four-car accident that was Mr. Green’s fault. The following damages resulted from the
accident:
Refer to Figure 10-2. A few months later, Mr. Green and his wife were driving through
town when they were hit by Frank, an uninsured driver, who ran a stop sign. Mr. Green
sustained injuries of $12,000, and his wife’s injuries were $25,000. The car cost $5,500
to repair. How much will the Greens’ auto policy pay for these damages?
a. $37,000 for bodily injury and $5,250 for the car
b. $32,000 for bodily injury and $5,250 for the car
c. $37,000 for bodily injury and $5,400 for the car
d. $32,000 for bodily injury and $5,400 for the car
23) A cash advance can be obtained by using
a. service accounts
b. bank credit card accounts
c. retail accounts
d. service accounts and retail accounts
24) The amount of reimbursement for any loss under homeowner’s insurance will be
calculated using the actual-cash-value formula.
25) MIN Corporation stock is currently selling for $52 a share, and it pays a quarterly
dividend of $0.75. What is the dividend yield on MIN Corporation?
a. 4.4 percent
b. 33 percent
c. 5.8 percent
d. 1.4 percent
26) Eligibility for which of the following is based on household income and net worth?
a. Social Security Disability Income Insurance
b. Medicaid
c. Medicare
d. Long-term care insurance
27) A(n) ____ is a refund of part of the purchase price.
a. rebate
b. MSRP
c. sticker price
d. dealer holdback
28) Norma is buying a home with a $180,000 mortgage using a 5.5 percent, 30-year
loan. How much of the first month’s payment will go to principal if the payment per
$1000 on this loan is $5.6779?
a. $0
b. $197
c. $825
d. $1,022
29) An investor using the fundamental approach would look at
a. the management of the company
b. the outlook for the profitability of the industry
c. the value of an individual company
d. all of these
30) 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 Maria and John’s current net worth.
a. $26,325
b. $25,025
c. $23,825
d. $16,325
31) Which of the following is an example of unearned income?
a. Wages
b. Interest
c. Tips
d. Both interest and tips
32) Which of the following taxes is progressive?
a. Federal income taxes
b. State sales taxes
c. Social Security taxes
d. All of these
33) Which of the following is a not peril?
a. Fire
b. Wind
c. Frozen water pipes
d. Smoking
34) Mike and Patty are saving monthly so they can buy a home, but they are currently
renting an apartment. The apartment is part of
a. their standard of living
b. their level of living
c. their savings
d. personal inflation rate
35) Tracy Martin’s health insurance policy says that if there is a three-month period
between doctor’s visits, each visit is considered treatment for a separate episode. This
statement is an example of a ____ clause.
a. coordination of benefits
b. recurring
c. preexisting condition
d. residual
36) Gloria Decardenas purchased a $1,000 bond for $935. The coupon rate of interest is
7.5 percent, and the bond matures in 12 years. What is Gloria’s current yield on this
bond?
a. 8.38 percent
b. 7.88 percent
c. 8.02 percent
d. 9.35 percent
37) Property taxes are based on the ____ of the house.
a. loan value
b. assessed value
c. purchase price
d. replacement price
38) If Beth Marshall works at a job where her income fluctuates from month to month
and is concerned about not being able to pay her cash-value life insurance premium
some months, she should consider a policy with
a. a waiver of premium
b. cash dividends
c. automatic premium loan provision
d. a guaranteed insurability option
39) Which of the following characteristics would cause a person to prefer renting over
buying housing?
a. Large amount of funds available for front-end expenses
b. Unknown job stability in the geographical area
c. Enjoying the responsibilities of home maintenance
d. All of these
40) Which of the following statements is correct?
a. Long-term interest rates are generally higher than short-term interest rates
b. Stock market investors are positively affected when inflation rises
c. The degree of inflation risk is higher for short-term lending
d. During times of high inflation, interest rates on new loans for cars, homes, and credit
cards fall
41) Which is not a characteristic of bonds?
a. Par value
b. Dividend yield
c. Coupon
d. Maturity date
42) Each of the following mortgage loans is for $155,000. The closing costs on each
loan will be $4,200, and all points will be paid by the buyer. Which loan requires the
most money to be paid up front at closing?
a. Adjustable-rate mortgage5 percent interest with 2 points
b. FHA-insured mortgage7 percent interest with 1 point
c. Conventional mortgage8 percent interest with 0 points
d. All require the same amount at closing.
43) Tara Butler had a life insurance policy with a face value of $150,000. At the time of
her death, the policy had a cash value of $33,000, an outstanding loan of $4,000, and
earned but unpaid dividends of $2,000. Assuming this is a typical policy, what death
benefit would be paid to Tara’s beneficiary?
a. $146,000
b. $150,000
c. $148,000
d. $152,000
44) The legal right to seize and dispose of property to obtain payment of an unpaid
claim is called a(n)
a. acceleration clause
b. garnishment
c. chattel mortgage
d. lien
45) Which of the following is (are) a unique advantage(s) of investing in a family of
funds?
a. Beneficiary designation
b. Switching privileges
c. Automatic reinvestment
d. Beneficiary designation and switching privileges
46) Which is not a regional stock exchange?
a. Boston
b. Philadelphia
c. San Francisco
d. NASDAQ
47) A(n) ____ annuity provides monthly payments for as long as one of the two
peopleusually a husband and wifeis alive.
a. straight
b. immediate
c. joint-and-survivor
d. variable
48) Tax avoidance is illegal whereas tax evasion is legal.
49) Dividends are distributions of profits an investor receives for depositing funds in a
bank or savings and loan association.
50) Precious metals are an appropriate investment if your time horizon is six to ten
years.
51) A positive price-to-book ratio indicates something is wrong with a company’s use of
its assets.
52) Buying a home with a land contract is very safe for the buyer.
53) You would want to lock-in your mortgage interest rate if you expect rates to decline
before the closing.
54) If you have a tax refund coming, the IRS will automatically send the refund to you.