1) During the comparison-shopping phase, you narrow the choices so you can begin
negotiating for the best deal.
2) The yield on Treasury bills is commonly considered a zero real rate of return.
3) The rate of interest paid on bond investments is called the coupon rate.
4) Approximately 7 percent of workers work at home online.
5) A conditional sales contract is also known as a financing lease.
6) If you wait 7-9 years after starting your first full-time to begin saving for retirement,
your nest egg at age 67 will likely be about one-half what it would have been if you had
started right away.
7) The APR can be used to compare credit contracts with different time periods, finance
charges, repayment schedules, and amounts borrowed.
8) A limit order instructs the stockbroker to buy or sell at a specific price.
9) Stock selection takes time because there are more than 8,000 public companies
available.
10) Under a full warranty, a product will be fixed at no cost to the buyer.
11) The dividend reported in stock listings is the past year’s annual dividend.
12) A ____ mortgage is a fixed-rate mortgage, but the payments increase at a
predetermined rate.
a. price-level-adjusted
b. rollover
c. graduated-payment
d. conventional
13) In any one policy, which of the following policy limits will be the highest?
a. Episode
b. Item
c. Time
d. Annual
14) A(n) ____ can be used to simulate the performance of hundreds or even thousands
of individual mutual funds and stocks through thousands of fluctuating securities
markets.
a. salary reduction plan
b. IRA
c. Monte Carlo simulation
d. Keogh
15) Providing for a secure income for your family can be met through adequate term
life insurance when in your childrearing years that is replaced with your _________ as
you enter the empty-nest years and approach retirement.
a. whole-life insurance
b. cash-value life insurance
c. retirement nest egg
d. Social Security
16) Capital gains on the sale of municipal bonds are taxable and will occur when bonds
are purchased
a. at a discount and then sold at a higher price
b. at a discount and then redeemed for full value at maturity
c. in an IRA account
d. at a discount and then sold at a higher price at full value at maturity
17) Which of the following types of subtractions cannot be taken by a taxpayer if he or
she itemizes deductions?
a. Adjustments to income
b. Exemptions
c. Tax credits
d. Standard deduction
18) Maria Segovia purchased 100 shares of JAX stock for $30 per share and sold this
same stock one year later for $29 per share. She paid commissions of $50 when she
purchased the stock and $45 when she sold the stock. Dividends of $2 per share were
paid during the year. The capital loss on this stock transaction was
a. $100
b. $145
c. $150
d. $195
19) Most companies will not write disability income policies for more than ____
percent of one’s after-tax earnings.
a. 80 to100
b. 60 to 80
c. 40 to 60
d. 20 to 40
20) A personal line of credit is structured much like a
a. credit card account
b. travel and entertainment card account
c. budget account
d. service credit
21) The retirement plan contribution credit would allow a single person whose AGI is
less than $27,750 to
a. reduce their income taxes by $2000
b. reduce their income taxes by $0.50 for every $1 they put into a retirement plan up to
$2000
c. take an income tax deduction of up to $2000
d. take an income tax deduction of $0.50 for every $1 they put into a retirement plan up
to $2000
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. How much will Mr. Green’s auto insurance policy pay for the
bodily injury liability claims in this accident?
a. $100,000
b. $139,000
c. $143,000
d. $153,000
23) A junk bond is rated ____ or lower by Moody’s.
a. Caa
b. B
c. Ba
d. Baa
24) In which of the following is the retirement plan contribution for the employee
dependent on the financial success of the employer?
a. Profit-sharing
b. Employee stock-ownership
c. Nonqualified deferred-compensation
d. Salary reduction
25) Bill Soriano is concerned that his monthly disability income benefit would be
eroded by inflation in case of a long-term disability. Which policy provision would
guard against this problem?
a. Residual clause
b. Social Security rider
c. Cost-of-living adjustments
d. Benefit period
26) Periodic, systematic investment in mutual funds is an example of
a. switching privileges
b. systematic withdrawal
c. dollar-cost averaging
d. exchange trading
27) If a homeowner is considering insuring the home computer used in his or her home
office, which of the following losses should be identified and evaluated?
a. The computer itself
b. Extra expenses that may arise because of its loss
c. Loss of income sustained because of its loss
d. All of these
28) A hedge fund
a. can profit in times of market volatility
b. can profit in a falling market
c. is subject to the regulations of the Securities and Exchange Commission
d. can profit in times of market volatility as well as in a falling market
29) Your health insurance requires that you pay $10 each time you visit the doctor’s
office and $5 for each prescription drug. This is an example of
a. a copayment
b. a deductible
c. coinsurance
d. policy limits
30) Figure 14-1
Rosa’s is a small chain of Mexican food restaurants that features five delicious varieties
of salsa. The business has grown over the past ten years from a hobby to a small
corporation with 200,000 shares of common stock outstanding. The corporation has not
issued any preferred stock. The following is Rosa’s latest financial data:
Refer to Figure 14-1. What is the price/earnings ratio for Rosa’s?
a. 9.3
b. 13.6
c. 32.8
d. 35.0
31) Successful use of dollar-cost averaging requires investor
a. discipline
b. knowledge
c. luck
d. timing
32) Which of the following is not characteristic of a growing-equity mortgage?
a. It has a fixed interest rate
b. Payment increases are determined annually on the basis of inflation
c. Increased payments go to reducing principal owed
d. The loan is paid off in shorter period of time compared to a conventional loan
33) There are approximately ____ open-end mutual funds in the United States.
a. 2,800
b. 6,500
c. 8,100
d. 12,000
34) Figure 9-1
Janice and Ronald Vittucci have decided to finance their first home with First American
Bank. They are buying their home for $105,000 and making a 10 percent down
payment. They will also be paying $3,000 in closing costs. First American has offered
them the following mortgage alternatives:
Refer to Figure 9-1. Assuming Janice and Ronald are willing to accept the higher risk of
the loan 4 adjustable-rate mortgage (ARM), what is the highest possible interest rate
they would be paying after three years?
a. 4.75 percent
b. 5.75 percent
c. 7.75 percent
d. 9.75 percent
35) Occasionally, the economy will dip into a trough before it has reached a new peak
after a previous trough. This phenomena is called a
a. depression
b. recession
c. double-dip recession
d. stagflation
36) Which of the following is not true about commercial banks?
a. Commercial banks are corporations chartered under federal and state regulations
b. Accounts in federally chartered commercial banks are insured against loss by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation
c. Commercial banks offer numerous consumer services
d. Commercial banks generally pay depositors an interest rate about 0.10 to 0.20
percentage points higher than the rate found at savings banks
37) Investors redeem coupons to receive interest with a
a. bearer bond
b. registered bond
c. bond issued in book-entry form
d. debenture bond
38) Which of the following types of insurance can be purchased only from a private
insurance company either as a separate policy or as an endorsement to an existing
homeowner’s insurance policy?
a. Earthquake insurance
b. Flood insurance
c. Renter’s insurance
d. Medical payments insurance
39) The product that is the best buy will be the one with the
a. lowest price without regard for quality
b. lowest quality without regard for price
c. highest quality at a reasonable price
d. acceptable quality at a fair price
40) Losses to ____ are not covered under a homeowner’s policy.
a. detached structures on your property
b. your landscaping
c. the lot that your house is built on
d. your personal property
41) Which investment would not be an appropriate choice for a conservative investor?
a. Aggressive-growth stocks
b. Treasury bills
c. Municipal bonds
d. High-quality corporate bonds
42) Someone who consistently falls below the minimum balance in his or her checking
account for only a few days during each month needs to open a checking account that
computes the balance by the ____ method.
a. minimum-balance
b. quarterly compounding
c. APY
d. average daily balance
43) A retirement plan that is self-directed means that the employee decides.
a. how much the employer will contribute to the plan
b. how much the employee will contribute to the plan
c. where the funds contributed to the plan will be invested
d. Both b and c
44) You are seriously overindebted if your debt payments-to-disposable income ratio is
a. 0-14 percent
b. 15-18 percent
c. 19-28 percent
d. 29+ percent
45) After purchasing a new computer, Sally Michaels met her friend Jason for lunch.
On returning to her car, Sally discovered that her car had been broken into and her
computer was gone. ____ insurance will cover the damage to her car, and ____
insurance will cover the stolen computer.
a. Comprehensive auto; comprehensive auto
b. Collision; comprehensive auto
c. Comprehensive auto; homeowner’s
d. Collision; homeowner’s
46) The decision not to buy collision insurance on an old car is called
a. risk avoidance
b. loss control
c. risk reduction
d. risk retention
47) Arbitration as a method of alternative dispute resolution is always binding on both
parties.
48) Social Security survivor’s benefits end when the youngest child reaches age 21 or
graduates from college, whichever comes first.
49) Real estate agents are usually paid by the buyer.
50) A passive investor carefully studies investment alternatives, regularly monitors
them, and makes decisions to buy and sell with or without the advice of a professional.
51) One’s average federal income tax rate is generally higher than one’s marginal tax
rate.
52) The additional cost of increasing the liability coverage on homeowner’s policies is
substantial.
53) Once you determine your gross income you may take several subtractions including
adjustments, deductions, exemptions and credits to arrive at your actual taxable income.
54) NOW accounts get their name because they are considered demand deposits.
55) Discount brokers typically provide personal investment advice as well as executing
trades.