1) Investment risk is speculative risk rather than pure risk.
2) Both trailing and projected P/E ratios are of interest to investors.
3) Auto insurance needs to be reviewed more frequently than life insurance.
4) Completing a signature card is part of the process when opening a checking account.
5) The gross capitalized cost includes the price of the vehicle plus what the dealer paid
to finance the purchase plus any other items, including insurance or a maintenance
agreement over the life of the lease.
6) Almost all installment loan contracts contain an acceleration clause stating that after
a specific number of payments are unpaid, the loan is in default, and all remaining
installments are due and payable on demand of the creditor.
7) The lower the price-to-sales ratio, the better the marketability of a stock.
8) Home warranty insurance is quite similar to a service contract.
9) Service credit normally carries no interest.
10) A mutual fund can be arranged to keep its proceeds out of probate, in case of the
owner’s death.
11) To be legally responsible for only the first $50 of unauthorized use, one must report
an ATM card missing within two days after the loss or theft of the card.
12) Cash dividends are paid only on participating life insurance policies.
13) ____ rarely appreciate(s) in value.
a. Mobile homes
b. Condominiums
c. Cooperatives
d. Manufactured housing
14) Low-load mutual funds usually have sales charges of ____ percent.
a. 1 to 3
b. 3 to 5
c. 5 to 7
d. 7 to 9
15) Figure 4-1
Tony and Liz Montey both work for XYZ Corporation where Tony earns $32,000 and
Liz earns $31,000. However, XYZ Corporation does not have a retirement plan for their
employees. Tony and Liz have three-year old twin daughters named Trisha and Tasha.
The following is information related to their taxes for the current tax year:
Refer to Figure 4-1. Tony and Liz have just inherited $25,000. Which of the following
statements is true?
a. The $25,000 will be taxable income in the year received
b. The $25,000 is an exclusion for federal income taxes
c. They should invest this money in corporate bonds to save on taxes
d. The $25,000 will be taxable income in the year received, and they should invest this
money in corporate bonds to save on taxes
16) Figure 12-1
Antonio and Trina Tyson are a young couple with two small children, Jason (age four)
and Amy (age two). Trina is an account executive for a brokerage firm while Antonio
has taken a couple years off from his profession as a civil engineer to work on an MBA
degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to
living on two incomes, but Trina’s employer has just circulated employer benefit
information, so Antonio and Trina believe this is a good time to evaluate their life
insurance needs. They have listed the financial information they believe is relevant.
Refer to Figure 12-1. Given Antonio and Trina’s need for life insurance and their tight
budget, which type of life insurance should the Tysons purchase?
a. Limited-pay term life
b. Guaranteed renewable term
c. Whole life
d. Variable-universal life
17) People seeking aggressive returns should consider investing in
a. fast-growing companies
b. high-yielding junk bonds
c. stock-index and commodity futures
d. all of these
18) Minor injuries to passengers in your car would be covered by which of the
following parts of your auto insurance policy?
a. Bodily injury liability
b. Medical payments
c. Uninsured motorist
d. None of these
19) Using the decision-making grid below, calculate the total score for Appliance “A.”
a. 7.48
b. 7.60
c. 7.35
d. 7.00
20) Classes of insureds consist of insureds who share similar characteristics. ____
applicants in the class may qualify for lower premiums.
a. Standard
b. Preferred
c. Unacceptable
d. Substandard
21) The two most useful financial statements are ____ and ____.
a. federal tax returns; income and expense statements
b. cash-flow statements; balance sheets
c. balance sheets; wills
d. wills; federal tax returns
22) A budgeting device on which annual estimated income and expenses are recorded
for each month in an effort to look at surplus or deficit situations is called a
a. cash-flow calendar
b. revolving savings fund
c. cash budget
d. budget control statement
23) Which of the following investments has the lowest risk?
a. T-bills
b. Municipal bonds
c. Income stocks
d. Real estate
24) Preventive health care is encouraged by
a. government health care plans
b. health maintenance organizations
c. preferred provider organizations
d. private health insurance
25) Which of the following is the one key interest rate to focus on when trying to
forecast interest rate trends in the future?
a. Prime rate
b. Federal funds rate
c. Discount rate
d. Mortgage rate
26) Which real estate agent works solely for the home buyer?
a. Dual agent
b. Buyer’s agent
c. Listing agent
d. Selling agent
27) Investors with a(n) ____ investment philosophy seek capital gains through slow and
steady growth in the value of their investments along with some current income.
a. moderate
b. conservative
c. aggressive
d. ultraconservative
28) Joy McCall purchased 100 shares of PAC stock for $20 per share and sold this same
stock one year later for $25 per share. She paid commissions of $60 when she
purchased the stock and $70 when she sold the stock. Dividends of $2 per share were
paid during the year. The total rate of return on this investment was
a. 9.71 percent
b. 17.96 percent
c. 28.50 percent
d. 33.98 percent
29) A situation involving certain types of perils such as earthquakes and floods where
only those people with high probabilities of loss will want to buy the coverage thereby
violating the law of large numbers is called
a. unaffordable risk
b. adverse selection
c. the large-loss principle
d. the risk of large numbers
30) The ____ comprises the assets placed into a trust.
a. corpus
b. beneficiary
c. trustee
d. net worth
31) The normal operating costs of the business that are deducted from mutual fund
assets before earnings are distributed to shareholders are called ____.
a. redemption charges
b. 12b-1 fees
c. annual fund operating expenses
d. shareholder fees
32) Sally and Jason Abel would like to purchase a home with the following monthly
expenses:
The Abel’s need to have an annual gross income of at least ____ in order to qualify for a
loan if the front-end ratio requirement is 26 percent.
a. $57,462
b. $61,385
c. $73,615
d. $83,077
33) Which type of cash management instrument could also be used by a college student
to access his or her meal plan?
a. Credit card
b. Debit card
c. Stored-value card
d. Electronic money
34) The type of order that instructs the broker to buy or sell securities at the prevailing
price is called a ____ order.
a. stop
b. limit
c. market
d. month
35) Which of the following is true regarding futures trading?
a. Fifty percent of traders make money and 50 percent of traders lose money
b. An investor needs at least $10,000 capital to invest in futures contracts
c. Futures contracts are generally highly leveraged
d. Speculators generally take possession of their futures contracts
36) A _______ _________ report lists prior ownership, odometer readings, accident
reports, flood damage, total-loss information, and any title fraud on a used vehicle
a. vehicle history
b. lemon record
c. buyer pattern
d. insurance history
37) You bought a GMI bond for $1,000 that has a coupon rate of 7.75 percent. If you
were to sell this bond several years before maturity when the interest rate on
comparable new issues was 9.5 percent, you would probably get
a. $1,000
b. less than $1,000
c. more than $1,000
d. Not enough information is given to answer the question
38) The tax credit(s) for qualifying higher education expenses is
a. American Opportunity credit
b. earned income credit
c. lifetime learning credit
d. American Opportunity credit and lifetime learning credit
39) The salary-reduction pension plan specifically designed for employers with 100 or
fewer employees is called a
a. SIMPLE IRA
b. 401(k) plan
c. 403(b) plan
d. 457 plan
40) Mortgage insurance is generally required on any mortgage loan where the initial
loan-to-value ratio is more than 90 percent.
41) Electing to receive Social Security retirement benefits prior to age 65 increases the
monthly benefit received.
42) The declining-balance method is widely used by credit unions and consumer
finance companies to calculate interest.
43) Common stocks pay interest to the stockholder.
44) The typical time period for a grace period in life insurance is 15 days.