1) A personal exemption is a legally permitted amount deducted from adjusted gross
income based on the number of persons supported by the taxpayer’s income.
2) All bonds now issued are registered bonds rather than bearer bonds.
3) To meet the replacement-cost requirement, a homeowner must insure his or her home
for at least 80 percent of its replacement value.
4) The simple-interest formula assumes that the interest is withdrawn each year.
5) The IRS allows interest and real estate tax deductions on a second home.
6) Generally the smaller the value of a stock transaction, the higher the percentage
commission charged on the transaction.
7) The executor named in a will identifies assets, collects any money due, pays off
debts, liquidates assets, files final income tax and estate tax returns, and with the court’s
permission distributes the balance of any remaining money and property to the
beneficiaries.
8) The process of gradually paying off a mortgage loan though a series of periodic
payments to the lender is called amortization.
9) Service contracts are generally very profitable for their sellers.
10) The price/earnings ratio tells how much investors are willing to pay for future
earnings.
11) Among the intermediate-term goals for capital accumulation is having a fund for
emergencies.
12) Taxable income is determined by subtracting all but which of the following from
gross income.
a. exemptions
b. adjustments
c. exclusions
d. credits
13) How much more would one have to pay per month on an $85,000 30-year loan if
the interest rate increased from 7.5 to 8.5 percent? The payments per $1,000 debt under
these terms are $6.9921 and $7.6891, respectively.
a. $54
b. $84
c. $65
d. $59
14) A single person with a monthly taxable income of $7,000 in the 28 percent marginal
tax bracket forgoes consumption and instead places $450 into a tax-sheltered retirement
plan every month. What are the yearly tax savings due to these retirement
contributions?
a. $1,120
b. $5,400
c. $1,512
d. $1,316
15) Darla had $750 in her checking account when her ATM card and PIN were stolen.
Assuming the thief withdrew $525 from the account, how much could she save by
reporting the stolen ATM card immediately rather than waiting three months before
reporting the theft?
a. $50
b. $525
c. $475
d. $500
16) The lowest price anyone will accept at that time for a particular security is called
the ____ price.
a. asked
b. negotiated
c. bid
d. market
17) Amy and Lance are newlyweds. This is Lance’s second marriage. Because of
problems that occurred before his divorce (his ex-wife took all the money out of their
joint accounts), he is more cautious than most about setting up joint accounts. Which
type of account would you recommend for Amy and Lance?
a. Tenancy by the entirety
b. Tenancy in common
c. Trustee account
d. Joint tenancy account with right of survivorship
18) The tax advantage of a flexible spending account (FSA) occurs because the
deducted amounts of salary avoid federal income tax, Social Security taxes, and, in
most states, state income taxes, thereby allowing selected personal expenses to be paid
with pretax income.
19) Generally, debt consolidation loans ____ monthly payments and ____ the interest
rate on the debt.
a. increase; increase
b. decrease; decrease
c. increase; decrease
d. decrease; increase
20) Figure 14-3
Use the following stock listing for transactions on December 12 to answer the
questions:
Refer to Figure 14-3. How many shares of Reebok traded on December 12?
a. 3,289
b. 32,890
c. 328,900
d. 3,289,000
21) Which of the following ways of valuing personal property is the highest for most
personal property?
a. Actual cash value
b. Purchase price
c. Taxable value
d. Replacement value
22) A group of physicians and hospitals who have banded together to offer a health
insurance contract in areas where there is no available HMO is called a
a. preferred-provider network
b. individual practice organization
c. cooperative health care group
d. provider-sponsored network
23) An option is a contract that
a. gives the holder the right to buy or sell a specific asset
b. specifies a predetermined price
c. specifies a time period
d. all of these
24) If a long-term care policy is purchased prior to age ____, the buyer faces a
significant risk because inflation may render the daily benefit woefully inadequate
when care is ultimately needed.
a. 60
b. 50
c. 40
d. 30
25) Research suggests that you can eliminate random risk by holding ____ or more
stocks and bonds.
a. 5
b. 10
c. 15
d. 20
26) A person who is claimed as a dependent on someone else’s tax return can claim
____ exemption(s) and at least a ____ standard deduction on his or her own tax return.
a. 1; $5,800
b. 0; $5,800
c. 0; $0
d. 1; $0
27) Less than ____ percent of households headed by persons aged 55 to 64 are renters.
a. 10
b. 20
c. 30
d. 40
28) Lenders in the sub-prime market offer loans
a. to higher-risk applicants
b. with lower interest rates
c. to applicants with excellent credit ratings
d. to applicants that have been preapproved
29) Marc Chens purchased 100 shares of LXM stock for $25 per share and sold this
same stock two years later for $28 per share. He paid commissions of $50 when he
purchased the stock and $55 when he sold the stock. No dividends were paid during the
period he owned LXM. Marc’s current income from this investment is ____, and his
capital gains were ____.
a. $0; $195
b. $0; $300
c. $195; $0
d. $300; $0
30) Patricia Nall was approved for a $3,000, two-year, 11 percent loan with the finance
charges figured using the discount method. How much cash will Patricia receive from
this loan?
a. $3,330
b. $2,670
c. $3,000
d. $2,340
31) Which of the following statement(s) is (are) correct?
a. Fee-only planners sell financial products, such as stocks or insurance
b. Commission-only financial planners/brokers live solely on the commissions they
receive on the financial products (such as investments or insurance) they sell to their
clients
c. Fee-only financial planners may benefit from steering a client to a specific financial
product
d. From the point of view of the client there is no difference between a fee-only planner
and a commission-only planner
32) What do credit bureaus do?
a. They collect and provide credit information
b. They lend money to people who are members of the credit bureau
c. They make decisions regarding who should get credit
d. They share information with each other
33) ____ would be classified as a countercyclical industry.
a. Airlines
b. Hotels
c. Tobacco
d. Autos
34) Medicare Part B covers all of the following except
a. outpatient care
b. doctor office visits
c. chiropractic services
d. hospitalization
35) Nearly ____ percent of households headed by persons under age 25 are renters.
a. 60
b. 70
c. 80
d. 90
36) The promise not to smoke in exchange for lower life insurance premiums would be
included in the ____ section of an insurance policy.
a. declarations
b. exclusions
c. conditions
d. endorsements
37) Student loan interest paid may be taken as an itemized deduction.
38) The total protection an individual might have with any institution, including all its
branches, is $250,000 with no more than $125,000 each on single-ownership and joint
accounts.
39) Mutual fund quotations normally include the NAV, YTD Percentage Return, and the
fund’s expense ratio.
40) For Social Security purposes, fully insured status implies that the worker will
receive the maximum benefits allowable.
41) The index of leading economic indicators includes eight components of growth.