1) A corporation is a state-chartered legal entity that can conduct business operations in
its own name.
2) The concept of “pay myself first,” saving and investing before you pay other
expenses, is a characteristic of successful financial managers.
3) The potential return for any investment over a period of years can be determined by
adding anticipated income to the future value of the investment minus its original cost.
4) Painting a rental property is an example of a repair.
5) Sales commissions represent as much as 90 percent of the first-year premium paid
for a cash-value life insurance policy.
6) If one has no legal heirs, the state receives one’s estate.
7) It is crucial in estate planning to plan the transfer of ownership of your assets.
8) Withdrawing money early from a tax-sheltered retirement account makes it difficult
to make up for lost compound growth.
9) The dollar amount of Social Security benefits received depends on the level of
earnings during the working years.
10) The number of credits determines eligibility for Social Security benefits.
11) A “best buy” is a product or service that, in the buyer’s opinion, represents
acceptable quality at a fair or low price for that level of quality.
12) Homeowner’s insurance can be purchased by renters as well as by homeowners.
13) Only one-fourth of all renters in the United States carry insurance protection for
their personal property and liability risks.
14) Individual junk bonds are riskier than junk bond mutual funds.
15) All bonds have a maturity date by which the principal of the debt must be paid.
16) The basis for the buy-and-hold philosophy is that investments go up over time and
it is best to think long-term after selecting well positioned investments.
17) Zero bonds are municipal, corporate, and government bonds that pay no annual
interest.
18) You cannot build financial security or wealth unless you spend less than you earn.
19) Investment banking firms specialize in serving as intermediaries between
companies issuing new stocks and bonds and the investing public.
20) ____ is not an example of a capital improvement.
a. Adding a new roof
b. Repairing a fence
c. Paneling a living room
d. Putting in a sprinkler system
21) Maxine used her bank credit card to make a three-day reservation at a fancy hotel.
When she tried to charge another purchase to the same credit card, Maxine was
surprised to learn that her credit limit had been reached. What probably caused this?
a. Credit card blocking
b. Bad checks charged against the Visa card
c. Chargeback of transactions
d. Tiered pricing
22) If you receive tax-sheltered income, it means that
a. you will never have to pay taxes on the income
b. the income has already been taxed
c. the taxes on the income will be deferred until a later date
d. taxes will be assessed on the state rather than federal leve
23) Which of the following are examples of monetary assets?
a. Cash on hand, corporate stock, and insurance
b. Money market accounts, cash on hand, and certificates of deposit
c. Savings accounts, interest-earning checking accounts, and corporate stock
d. Real estate, money market accounts, interest-earning checking accounts
24) A tax-exempt municipal bond is currently earning 5.4 percent interest while a
similar taxable bond is earning 7.5 percent interest. Taxpayers in the ____ percent
marginal tax bracket and above would benefit by investing in the tax-exempt bond.
a. 10
b. 15
c. 25
d. 33
25) The price of a mutual fund share excluding any transaction cost is its
a. expense ratio
b. net income
c. net asset value
d. exchange rate
26) Comprehensive automobile insurance protects against property damage losses
caused by perils. Which one of the following is not a covered peril?
a. Fire
b. Theft
c. Rollover
d. Hail
27) More than ____ percent of service contracts are never used.
a. 90
b. 80
c. 70
d. 60
28) When an account pays one rate of interest on a minimum amount on deposit and a
higher rate of interest on additional deposits, this is called ____ interest.
a. compound
b. variable
c. tiered
d. none of these
29) Wendy Wilson, a successful graduate of State University, is currently employed in a
position paying $37,500 a year. Wendy’s annual living expenses are only $33,000 so she
has accumulated $4,600 in monetary assets and $27,000 in investment assets since her
graduation. Use the liquidity ratio to figure how long Wendy could pay expenses if she
were to lose her job.
a. Less than three weeks
b. About two months
c. Approximately seven months
d. Approximately eleventh months
30) Common stock owners typically expect to make money on stocks by receiving
a. interest and dividends
b. interest and capital gains
c. dividends and capital gains
d. dividends and rent income
31) What does it mean in auto leasing and auto financing when you are said to be
upside down?
a. You don’t qualify for the lease or financing
b. You owe more on the car than it is worth
c. You wrecked the car and can’t pay the debt
d. None of these
32) ____ are specifically designed for situations where more than one person is likely to
be driving the car being insured.
a. Personal automobile policies
b. Family automobile policies
c. No-fault automobile insurance plans
d. Automobile insurance plans
33) Which type of credit card is issued through banks, savings and loans, and credit
unions across the country?
a. Travel and entertainment accounts
b. Bank credit card accounts
c. Retail accounts
d. Thirty-day charge accounts
34) The advantage of term insurance is
a. stable premiums
b. forced savings
c. more coverage per premium dollar
d. high rates of investment return
35) Sal is a 27-year-old single taxpayer in the 28 percent marginal tax bracket.
Assuming Sal’s standard deduction is $5,800 and she has itemized deductions totaling
$6,500, Sal should take the ____ for the additional tax savings of ____.
a. standard deduction; $700
b. standard deduction; $196
c. itemized deduction; $700
d. itemized deduction; $196
36) Which of the following types of taxes is deductible for federal income tax
purposes?
a. Federal income taxes
b. Real estate property taxes
c. Federal Social Security taxes
d. Federal excise taxes on tires
37) The term used to describe righting a wrong is
a. negotiation
b. redress
c. complaint
d. warranty
38) The ____ is the losses paid by an insurance company divided by the premiums
collected.
a. profit
b. claims ratio
c. support ratio
d. net worth
39) A ____ allows savers to add up to 100 percent of the initial deposit whenever
desired.
a. certificate of deposit
b. variable-rate certificate of deposit
c. bump-up certificate of deposit
d. brokered certificate of deposit
40) With negative amortization, the ____ with each payment.
a. monthly payment goes up
b. monthly payment goes down
c. outstanding loan balance goes up
d. outstanding loan balance goes down
41) When the final balloon payment is due on a balloon auto loan, you can generally
a. pay the balloon payment and keep the car
b. return the car to the lender
c. sell the car and pay the balloon payment with the proceeds
d. all of these
42) Which of the following coverages are relatively inexpensive to carry?
a. Rental reimbursement and towing
b. Bodily injury and property damage liability
c. Collision and comprehensive
d. Medical payments and collision
43) Which is not a characteristic of a true timeshare arrangement?
a. Provides a long-term lease
b. Right-to-use purchase
c. Can be locked out of the premises by the creditors
d. Grants legal real estate ownership to the purchaser
44) A form of alternative dispute resolution that is legally binding at least one party is
a. civil court
b. small claims court
c. mediation
d. arbitration
45) To protect your credit card privacy, which of the following is recommended?
a. Review your credit bureau report at least once a year
b. Cancel all credit card accounts
c. Write your driver’s license number on charge slips
d. All of these
46) 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. Most of the landscaping located within 25 feet of the house was
also destroyed by either the fire or the fire trucks. What is the maximum amount of
coverage the Swansons have on their landscaping?
a. $12,000
b. $10,000
c. $9,000
d. $8,000
47) Which of the following is true regarding growth stocks of well-known companies?
a. They pay above-average cash dividends
b. They have relatively low P/E ratios
c. They often have betas of 1.5 or more
d. Investors are expecting low to moderate appreciation in stock prices
48) The most obvious health-related loss is
a. direct health care expenses
b. recuperative care costs
c. rehabilitation costs
d. income loss while unable to work
49) Management of ____ is not included in monetary asset management.
a. tangible assets
b. savings accounts
c. money market accounts
d. checking accounts
50) You may still owe money after repossession if there is a
a. deficiency balance
b. contingency clause in your contract
c. foreclosure agreement
d. Chapter 7 bankruptcy
51) You can make sure that your mutual fund account passes to your desired heir by
completing a ________ when you open your account.
a. switching privilege
b. systematic pass through
c. open-end designation
d. beneficiary designation
52) With ____ life insurance policies, cash-value accumulations are used to pay
premiums that no longer must be paid.
a. limited-pay whole
b. vanishing premium
c. return of premium
d. term
53) Of the following types of stock funds, ____ funds tend to be the least risky.
a. aggressive-growth
b. growth
c. growth and income
d. sector
54) The burden of proof concerning numerical accuracy of a return is on the IRS, not
the taxpayer.
55) Using credit cards to “balance” your budget is a proper budgeting tool.
56) New stock offerings are called ground floor opportunities.
57) Conservative investors are fairly comfortable during rising and falling market
conditions.
58) The type of cash-value life insurance that allows you to increase the face value
amount without buying a new policy is called modified life insurance.
59) The typical U.S. recession is marked by an average economic decline of 4 percent.
60) ETFs act like traditional open-end mutual funds in that they can be bought and sold
directly from the mutual fund.
61) One should invest in a tax-free investment rather than a taxable investment
whenever a tax-free investment opportunity is available.
62) Stock brokerage firms are federally insured institutions.