1) Compounding serves as the basis of all time value of money considerations.
2) Your need for life insurance will change significantly over the course of your life
cycle.
3) A 12b-1 fee is actually a perpetual sales load because it is assessed on the investment,
as well as on reinvested dividends, every year forever.
4) If the home buyer changes his or her mind after putting up earnest money, he or she
usually forfeits the money.
5) A debt service-to-income ratio of 0.36 or less is considered manageable for most
families.
6) A month order is good until the close of trading on the last business day of the
current month.
7) One generally has to have a life insurance policy ten years or more before the cash
surrender value amounts to much.
8) In times of moderate to high inflation, people on fixed incomes suffer.
9) The interest rate on variable-rate credit cards is usually tied to some form of prime
interest rate.
10) “Fun” money is a sum of investment money that you can afford to lose without
doing serious damage to your total portfolio.
11) For most people, the only way to increase net worth is to spend less than their
income; people must save and invest.
12) Index funds are
a. designed to beat the market
b. managed
c. unmanaged
d. focused on the money market
13) Robert and Jessica Stein have a gross income of $53,000 a year and annual
expenses of $51,500 including taxes. Their annual debt payments total $15,000.
According to the recommended standards for the debt service-to-income ratio, the
Steins’ ratio of
a. 36 percent and is too high for easily manageable debt repayment
b. 36 percent implies they have the ability to easily make their debt repayments
c. 28 percent is much too high for easily manageable debt repayment
d. 28 percent implies they have the ability to make their debt repayments
14) Which of the following is likely to be the largest cost of withdrawing the funds
from an employer-based retirement plan when you change jobs prior to retirement?
a. the ten percent penalty for early withdrawal
b. the taxes you must pay on the withdrawal
c. the lost future growth if the funds had been left on deposit
d. the penalty assessed by the employer
15) Esther is covered by a group health plan that is a preferred provider organization
(PPO). Which of the following would be true of Esther’s coverage?
a. Esther must go to the PPO doctors
b. Esther will go to the PPO clinic to receive health care
c. Esther will save money by going to PPO doctors
d. Esther must first get permission from her primary care physician before going to the
PPO for care
16) It is wise to limit your investment in the stock of the company you work for to no
more than ____ percent of your portfolio.
a. 25
b. 5
c. 10
d. 50
17) You can accept ____ risk when investing for long-term goals.
a. unlimited
b. more
c. less
d. no
18) Which is not an additional charge when leasing an automobile?
a. Acquisition fee
b. Disposition fee
c. Residual value
d. Early termination fee
19) The ____ of a bond is variable.
a. stated coupon rate of interest
b. face value
c. maturity date
d. purchase price
20) Selling your car is an example of handling risk through
a. risk avoidance
b. loss control
c. risk reduction
d. transferring risk
21) Long-term capital gains are taxed at a maximum rate of ____ percent.
a. 15
b. 20
c. 28
d. 35
22) Mutual funds that invest in lesser-known companies with a market capitalization of
$2-$3 billion are called ____ funds.
a. large-cap
b. small-cap
c. microcap
d. mid-cap
23) ____ bonds are long-term, high-risk, high-interest-rate corporate (or municipal)
IOUs issued by companies (or municipalities) with poor or no credit ratings.
a. Junk
b. Municipal
c. Zero-coupon
d. Investment-grade
24) Which of the following is designed for employees of tax-exempt employers and
does not allow employer contributions?
a. 401(k) plan
b. 403(b) plan
c. 457 plan
d. SIMPLE IRA
25) Figure 14-2
Tina and Eugene Bradley are considering buying stock. They would like to purchase
600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures
for the past year:
Refer to Figure 14-2. What is Sudsy Soap’s book value?
a. $600,000
b. $700,000
c. $1,500,000
d. $1,600,000
26) A living benefit clause provides
a. a cash-value loan to the policyholder
b. the death benefit prior to death if the insured is terminally ill
c. cash dividends to the policyholder
d. income for life
27) Concerning investing in mutual funds, all of the following are recommended except
a. sign up for automatic reinvestment of your mutual fund dividends
b. rebalance your portfolio at least once a year
c. focus on fund return, not risk
d. match your investment philosophy and financial goals to a mutual fund’s objectives
28) Which is not one of the major objectives of mutual funds?
a. Income
b. Growth
c. Social responsibility
d. Growth and income
29) Which of the following is the best advice for people who want to start saving?
a. Fools and their money are soon parted
b. Pay yourself first
c. Marry in haste, respect at leisure
d. There’s no fool like an old fool
30) Approximately ____ percent of all households invest in mutual funds.
a. 20
b. 25
c. 33
d. 50
31) Which is not a step in the planned buying process?
a. Prioritizing wants
b. Preshopping research
c. Purchasing on credit
d. Comparison shopping
32) If you find an error or omission on your credit report, you should notify the bureau
that you wish to exercise your right to reinvestigation under the
a. FCRA
b. FDIC
c. SEC
d. FICO
33) Life insurance is generally least needed on the lives of
a. singles with dependents
b. primary breadwinners
c. children
d. secondary breadwinners
34) Which of the following could happen with an adjustable-rate mortgage?
a. The amount of the monthly payment could go up
b. The outstanding loan balance could increase
c. The amount of the monthly payment could go down
d. All of these
35) 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 amount of Rosa’s retained earnings?
a. $100,000
b. $400,000
c. $550,000
d. $650,000
36) Title insurance to protect the ____ is usually required.
a. buyer
b. lender
c. seller
d. buyer and lender
37) If the Social Security tax rate is 7.65 percent (6.2% FICA plus 1.45% Medicare)
and the maximum taxable yearly earnings is $106,800, how much Social Security tax
would be paid by an employee earning $115,800?
a. $8,170.20
b. $8,300.70
c. $8, 858.70
d. $16,601.40
38) What is the actual cash value for a computer with a life expectancy of seven years
that was purchased two years ago for $1,800 and would cost $2,300 to replace?
a. $1,800
b. $1,286
c. $1,643
d. $2,300
39) When a life insurance policy has both a beneficiary and a contingent beneficiary,
these two persons will divide the proceeds of the policy equally after the death of the
insured person.
40) The legal heirs to an estate for which there is no will are defined by the federal
government.
41) A house that is underwater has been foreclosed on.
42) Beta assesses the investment’s relationship to its expected performance.
43) ATM cardholders are liable for only the first $50 of unauthorized use if they notify
the issuing company within five business days after the loss or theft of their card or
PIN.
44) The maximum permissible employer-sponsored retirement plan contribution for
most people is about $25,000.
45) A matching contribution can only be partial.
46) Fees of no more $10 are generally charged for money orders, certified checks and
cashier’s checks.
47) The average share cost is a simple calculation of the amount paid for the investment
made by dividing the share price total by the number of investment periods.
48) Most investors nearing retirement are aggressive in investment philosophy.