1) Fee-based financial planners/brokers charge up-front fees for providing services and
charge commissions on any securities trades or insurance purchases that they conduct
on your behalf.
2) With an assumable mortgage, the buyer generally pays a down payment equal to the
seller’s equity in the home.
3) A taxpayer who reported lottery winnings of $500 on his or her taxes could deduct a
maximum of $500 in any offsetting gambling losses.
4) Negotiating is expected for autos and some other major purchases we make.
5) If your tax is $3,756 on a taxable income of $27,825 and your tax is $3,771 on a
taxable income of $27,900 you are in the 15 percent tax bracket.
6) You can shop for life insurance on the Internet.
7) When shopping for any product, it may help to review publications on a more
specific topic, such as PC World. Bear in mind that trade magazines accept advertising
for the products they report on and may not be as unbiased as Consumer Reports.
8) Choosing your Medicare plan through a private company that combines Medicare
Parts A and B into one plan called a Medicare Advantage plan can reduce your
out-of-pocket health care costs.
9) Investment risk represents the uncertainty that the yield on an investment will deviate
from what is expected.
10) Medicaid is a health care program for low income individuals.
11) A shareholder is also called a stockholder.
12) With declining-balance loans, there are no prepayment penalties.
13) If the balance on either a super NOW account or a money market deposit account
falls below a specified level, the account generally earns interest at the lower rate paid
on a regular NOW account.
14) In most states you have 10 days to cancel a life insurance policy for a full refund.
15) Investors in securities can diversify within an investment medium, such as different
stocks in one industry, or across alternatives, such as in stocks, bonds, and mutual
funds.
16) Tax-deferred compounding refers to the tax-free growth of investments in a
tax-deferred account.
17) Affordability is a benefit of layering term life insurance policies.
18) Households dependent on the income from a self-employed person may need a
larger emergency cash reserve than others.
19) Home buyers often use lender buy-down mortgages to take advantage of lower
monthly payments in early years of the loan.
20) You should not consider investing in an annuity until all other tax-sheltered vehicles
to save and invest for retirement have been maximized.
21) Sally Eason put $4,000 in her deductible IRA this year. If Sally is in the 25 percent
marginal tax bracket, the government actually contributed ____ of that amount for her.
a. $1,000
b. $3,000
c. $0
d. $4,000
22) The real rate of return on a taxable investment yielding 8 percent annually would be
____ percent if the investor were in the 15 percent marginal tax bracket and inflation
were 2 percent.
a. 6.80 percent
b. 6.00 percent
c. 4.80 percent
d. 5.10 percent
23) Which of the following provides information about a person’s financial condition at
a specific point in time?
a. Balance sheet
b. Federal tax return
c. Income and expense statement
d. All of these
24) The ____ strategy avoids the risks and responsibilities of investment timing because
the stock purchases are made regularly regardless of the price.
a. dollar-cost averaging
b. asset allocation
c. modern portfolio theory
d. portfolio diversification
25) Examples of direct ownership in real estate investments are
a. residential and commercial property
b. real estate investment trusts
c. raw and residential lots
d. residential and commercial property and raw and residential lots
26) Which of the following automatically updates the value of your portfolio?
a. stock screener
b. portfolio tracker
c. net worth spreadsheet
d. portfolio screener
27) Interest earned on ____ funds is tax-exempt.
a. small-cap
b. balanced
c. specialty
d. municipal bond
28) A bond
a. represents a share of ownership in a corporation
b. represents a debt owed by a business or organization
c. is a portfolio
d. an example of leverage
29) Which of the following statements is true regarding home mortgages?
a. There is a penalty for prepaying a home mortgage
b. An advantage of 15-year mortgages is that equity buildup is slower than with 30-year
mortgages
c. It is generally wise to take a longer repayment period even if you plan to pay off the
loan more quickly
d. More total interest is paid with a shorter mortgage repayment time
30) An alternative plan to Medicaid for long-term care is to
a. apply for Social Security disability income insurance
b. exercise your COBRA rights
c. set up an investment fund during middle age
d. adjust your annual limits
31) The amount of one’s retirement account value depends directly on the success of
investments in the retirement fund if your retirement account is a ____ retirement plan.
a. defined-benefit
b. defined-contribution
c. cash-balance
d. vested
32) Aggressive investors take a particularly speculative position when they do not own
the underlying asset, as when they buy ____ or sell ____.
a. stock options; put options
b. futures contracts; stock options
c. naked options; naked puts
d. naked puts; naked options
33) 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. What is the maximum number of personal exemptions Tony and
Liz can take this year?
a. Four
b. Three
c. Two
d. One
34) The Federal Deposit Insurance Corporation (FDIC) currently insures against loss of
up to ____ per person in an individual account at any one institution.
a. $50,000
b. $100,000
c. $250,000
d. $500,000
35) Common stock holders have ____ in the income and assets of a corporation after
preferred stockholders and bond holders.
a. an equal claim
b. a residual claim
c. preemptive right
d. limited liability
36) A written authorization given by a shareholder to someone else to represent him or
her and to vote his or her shares at the stockholders’ meeting is called
a. a coupon
b. a proxy
c. an indenture
d. none of these
37) Your ____ determine(s) the unique approach you take to working with and
responding to your job requirements, surroundings, and associates.
a. work-style personality
b. values
c. aptitudes
d. interest inventory
38) Which of the following methods is appropriate for determining the value of your
home?
a. Hire an appraiser
b. Ask your insurance agent
c. Use the original purchase price
d. Hire an appraiser or ask your insurance agent
39) Determining the magnitude of possible losses from a premature death can be
complicated. The best method is the
a. actuarial method
b. multiple-of-earnings approach
c. needs-based approach
d. return on investment method
40) Linda would like to purchase a stationary bike for $425. She thinks she will use the
bike four days a week over the next eight years. What is Linda’s cost per use?
a. $3.92
b. $0.28
c. $0.26
d. $0.15
41) Sellers of homes generally set a sales price ____ percent higher than what they
expect to get for it.
a. 0 to 5
b. 5 to 10
c. 5 to 15
d. 15 to 20
42) Investors choose derivatives
a. to invest directly in the asset
b. to reduce risk by hedging against losses
c. to take on additional risk by speculating
d. both to reduce risk by hedging against losses and to take on additional risk by
speculating
43) After hiring an employee, the law requires employers to do all of the following
except
a. provide unemployment insurance
b. pay Social Security taxes to the federal government
c. pay all of the employee’s health care expenses
d. provide workers’ compensation benefits to employees injured on the job
44) In shopping for a new house, you come across a very nice home with the following
financing:
5 percent interest in year 1
6 percent interest in year 2
7 percent interest in years 3 through 30
What type of mortgage is this?
a. Graduated-payment mortgage
b. Rollover mortgage
c. Shared-appreciation mortgage
d. Lender buy-down mortgage
45) Your credit card liability for fraudulent usage of your lost or stolen credit card is
limited to $____ if you report the loss.
a. 0
b. 50
c. 500
d. unlimited
46) States often limit the right to contest a will by providing that survivors have ____
months to challenge it and claim a legal share.
a. six
b. three
c. nine
d. twelve
47) In community property states, most of the money and property acquired during a
marriage are legally considered the property of
a. both spouses
b. the husband
c. the wife
d. the individual who bought it
48) In a dual-income household where both employers provide a health care plan, it is
important to choose to be covered under the plan that provides ____ and is ____.
a. more protection; less expensive
b. tuition support; partially subsidized
c. life and dental insurance; more costly
d. disability insurance; less expensive
49) Maxwell Communications Corporation has after-tax earnings of $1,508,000 after
paying $45,000 in dividends to its 10,000 preferred stockholders. If Maxwell has
500,000 common stockholders, its earnings per share are
a. $4.50
b. $4.00
c. $3.05
d. $3.02
50) A lifeline checking account is accurately described as an account that
a. always pays interest
b. assesses monthly fees depending on the maximum balance in the account
c. assesses no charges for ATM transactions
d. can be accessed using a debit card
51) Which of the following types of investment companies operates much like an index
fund?
a. closed-end fund
b. REIT
c. unit investment trust
d. exchange-traded fund
52) The worst aspect of simply taking the money out of an employer-based retirement
plan when changing jobs is
a. the taxes you must pay
b. the rollover penalty
c. having to do the paperwork
d. the ultimately lower retirement nest egg you will have
53) Homeowner’s insurance includes
a. property coverage
b. liability coverage
c. life insurance coverage
d. both property coverage and liability coverage
54) ____ fee is (are) common miscellaneous costs in buying a home.
a. An appraisal
b. A loan origination
c. A survey
d. All of these
55) The primary person who is intended to be provided for by a life insurance policy is
the
a. beneficiary
b. contingent beneficiary
c. policyholder
d. insured
56) A land contract is also called a
a. real estate contract
b. homeowners’ manual
c. bill of sale
d. contract for deed
57) Figure 14-3
Use the following stock listing for transactions on December 12 to answer the
questions:
Refer to Figure 14-3. What was Reebok’s latest quarterly dividend?
a. $1.20 per share
b. $0.70 per share
c. $0.30 per share
d. $0.075 per share
58) ____ investments have a variable value and a fixed yield.
a. Corporate bond
b. Common stock
c. Certificates of deposit
d. Money market mutual fund
59) The goal of ____ is to identify the investor’s acceptable level of risk tolerance and
then find an optimal portfolio of assets that will have the highest expected returns for
that level of risk.
a. modern market allocation
b. market timing
c. buy-to-hold
d. modern portfolio theory
60) 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. Robert and Denise had a new greenhouse located 15 feet from
their house that they had not even stocked with plants yet. The fire in the house caused
damages of $8,000 to the greenhouse. What will the insurance company pay for these
damages?
a. $800
b. $900
c. $8,000
d. $18,000
61) The first step in the investment planning process is to study available investment
alternatives and learn as much as you can about the ones you like.
62) Buying cyclical stocks is a defensive investment move.
63) Value stocks often operate within industries that benefit from a slowing economy.
64) You can always get more for your old car by trading it in for a new car rather than
by selling it on your own.
65) Should the insured person die before repaying a policy loan, the life insurance
company will pay the entire face value of the policy to the beneficiaries.
66) Procyclical economic indicators are those that predict a positive change in the
economy.