1) The market price of bonds are sensitive to interest rates.
2) If you die intestate, your state of residence will decide how your assets are divided.
3) Commercial banks typically offer the widest variety of financial services.
4) Mutual funds are readily available to people saving for retirement through 401(k)
plans and IRAs.
5) Low-balling generally occurs just before the close of a sale.
6) A real estate bubble is rapid and unsustainable increases in home prices followed by
sharp declines in values.
7) A stop order instructs a stockbroker to sell your shares at the market price if a stock
declines to or below a specified price.
8) A disadvantage for a seller placing a limit order is that it could result in no sale if the
price of the stock drops.
9) Convertible term offers the policyholder the option of exchanging a term policy for a
cash-value policy without evidence of insurability.
10) A young, healthy person may be able to buy term life insurance privately at lower
premiums than through a group policy.
11) Limited-pay whole life insurance is whole life insurance that allows premium
payments to cease before you reach the age of 100 .
12) By saving and investing, people are much more likely to have funds available for
future consumption.
13) A car’s sticker price is the manufacturer’s suggested retail price.
14) Three methods are employed to calculate interest on single-payment loans: the
declining balance method, the discount method, and the add-on interest method.
15) 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. In the same fire, Robert and Denise lost a large portion of their
personal property. The lost personal property will cost the Swansons $80,000 to replace,
but it had an actual cash value of only $48,000. How much will their insurance
company pay for the personal property loss?
a. $80,000
b. $48,000
c. $47,250
d. $40,000
16) Owing more on a vehicle loan than the vehicle is actually worth is called being
a. upside down
b. in default
c. strangled
d. depreciation
17) A real estate investment is referred to as ____ when an investor holds actual legal
title to the property.
a. tenancy in common
b. joint tenancy
c. right of survivorship
d. direct ownership
18) The time between when a homeowner is in default on a mortgage and when the
lender has filed a formal notice of foreclosure is called
a. preforeclosure
b. the foreclosure auction period
c. the short sale window
d. the underwater period
19) Buying an alarm system as an option on your new sports car is an example of
a. risk avoidance
b. loss control
c. transferring risk
d. risk retention
20) The formal legal document that outlines the actual agreement to buy a house is
called a(n)
a. offer to purchase
b. warranty deed
c. purchase contract
d. contingency contract
21) What is the break even price of an option to sell 100 shares of ABC with a $33
strike price if the cost of the option was $250?
a. $30
b. $30.50
c. $33.00
d. $35.50
22) Which of the following will not help you become a better on-line shopper?
a. Only do business with sellers for which you have complete contact information
b. Use only one particular credit card for on-line purchases
c. Use a debit card for on-line purchasing
d. Do not use your regular e-mail address
23) You might find yourself obligated to pay an entire debt in full if you miss several
payments because of the ____ clause found in most installment loan contracts.
a. lien
b. acceleration
c. cosigner
d. mortgage
24) The ____ is the recommended way to judge the cost of a term life insurance policy.
a. cost per $1,000 of coverage
b. net cost method
c. interest-adjusted cost index method
d. interest-adjusted net payment index method
25) ____ is the current value of an asset that will be received in the future.
a. Present value
b. Future value
c. A benefit
d. Inflation
26) Kay Halden had three credit cards in her billfold when her wallet was stolen. She
reported the cards missing as soon as she discovered the loss (one day), but the
following charges were incurred before she reported the stolen cards:
How much is Kay’s maximum legal liability for the fraudulent charges on these cards?
a. $660
b. $585
c. $125
d. $0
27) When a star running back pays an insurance company to insure his legs, this is an
example of
a. risk avoidance
b. loss control
c. transferring risk
d. risk retention
28) Which of the following is not true regarding loans based on the cash values built up
in cash-value life insurance policies?
a. The interest rates are low, ranging from 4 to 6 percent
b. Should the insured person die before repaying the loan, the life insurance company
will forgive the loan
c. Many people fail to pay back such loans because no fixed schedule of repayment is
established
d. Insurance companies do not pressure borrowers to repay the debt
29) Paul is a college student who has the following financial information. He would like
your help in figuring his surplus for last year.
What is Paul’s surplus?
a. $2,650
b. $2,200
c. $1,250
d. $1,000
30) The inverse of the P/E ratio is the
a. dividend yield
b. income curve
c. earnings yield
d. earnings per share
31) Most investors own common stocks because their return has historically been ____
the returns for other securities.
a. the same as
b. twice as high as
c. lower than
d. riskier than
32) ____ accounts allow the investor to purchase stock with funds borrowed from the
brokerage firm.
a. Cash
b. Discretionary
c. Open
d. Margin
33) Ben and Susan Shew, filing jointly, would pay $6,534 in taxes on $49,110 of
taxable income. If Ben won $4,000 in the lottery, they would pay $7,134, in taxes. What
is the couple’s marginal tax rate?
a. 10 percent
b. 15 percent
c. 25 percent
d. 28 percent
34) Jamie and Danny Delano are financing their new $275,000 home with a 7.5 percent,
30-year mortgage. They will be making a $55,000 down payment and paying 1 point.
How much will the point cost in dollars?
a. $550
b. $2,200
c. $2,750
d. $3,300
35) Which of the following perils is not covered under any of the standard homeowner’s
forms?
a. Windstorm
b. Theft
c. Smoke
d. Flood
36) The true cost of an automobile to the dealer is
a. the sticker price
b. the manufacturer’s suggested retail price
c. the dealer holdback
d. none of these
37) Laura and Alan Sager are a married couple with three small children. Alan earns
$60,000 a year, but Laura has no earned income. What is the maximum total
contribution Laura and Alan can make to their IRA accounts this year?
a. $10,000
b. $5,000
c. $7,500
d. $0
38) The maximum amount of income the typical employee may contribute to an
employer-sponsored 401(k), 403(b), or 457 plan is currently
a. $5,000
b. $5,500
c. $16,500
d. $25,000
39) Julie and Alex have compiled their financial records and would like to know if they
are living within their level of income. What is their surplus?
a. $7,100
b. $8,300
c. $9500
d. $12,500
40) Ronald’s gross income is $60,000, and his living expenses consume 75 percent of
his gross income. According to financial experts, Ronald should set aside ____ to cover
emergencies.
a. $22,500 to $45,000
b. $5,000 to $10,000
c. $15,000 to $30,000
d. $11,250 to $22,500
41) Janice Dawson, an active environmentalist, has a MasterCard with the Sierra Club
logo on it. What type of card is this?
a. Premium card
b. Gold card
c. Affinity card
d. Both a premium card and a gold card
42) People seeking moderate returns should consider investing in
a. dividend-paying common stock
b. growth and income mutual funds
c. high-quality corporate bonds
d. any of these
43) Since it is impossible to make precise forecasts about economic trends, indicators
such as inflation and interest rates can be ignored when planning your finances.
44) Salaried employees are paid overtime, and the majority of college graduates have
salaried positions.
45) Life insurance needs typically increase while assets decrease over the course of
one’s life.
46) All funds in a tax-sheltered retirement plan are taxed every five years.
47) Financial planning is the process of developing and implementing short-term plans
to achieve financial objectives.
48) Interest income is generally received semiannually on zero-coupon bonds.
49) Financial success is marked by having high wealth.
50) Share draft accounts at credit unions are generally more expensive than NOW
accounts at commercial banks.
51) In community property states, all property owned by spouses is jointly owned by
the spouses, no matter how it was acquired.
52) A company with a price/earnings ratio of 10 should probably be avoided.