1) Budgeting is narrower in scope than overall financial planning as it is primarily
concerned with projecting future income and expenditures over a period of time.
2) When a college student saves all summer so that he or she has money available to
live on during the school year; he or she is using a revolving savings fund.
3) A long-term capital gain (or loss) occurs when the asset is held for over one year.
4) Real estate property taxes generally range from 1 to 4 percent of the value of the
home.
5) Credit card issuers sometimes send convenience checks to customers in an effort to
entice them to take out a costly cash advance.
6) A closed-end investment company issues a limited and fixed number of shares and
does not buy them back.
7) If you were born in 1990, you will reach your full-benefit retirement age for Social
Security in 2057 .
8) Credit counseling agencies can provide individuals with credit counseling as well as
assistance with financial problems.
9) Three factors affect the monthly payment on a mortgage loan: the amount borrowed,
the interest rate charged, and the time period of the loan.
10) A cover letter should be designed for each specific position for which you are
applying.
11) Paying off debts is an example of a financial goal even though it does not involve a
direct purchase.
12) You should sign a buyers order for a vehicle only after the salesperson and sales
manager have already done so.
13) You may want to buy a service contract for peace of mind, but it is generally unwise
economically.
14) Employees who want to avoid quarterly estimating can legally change their W-4
forms to increase the payroll withholding from their paychecks.
15) A stock or mutual fund with a ____ alpha means the company did better than
expected for its level of risk; a ____ alpha indicates poor performance.
a. positive; negative
b. negative; positive
c. zero; negative
d. positive; zero
16) ____ reimburse(s) the insured for medical expenses such as hospital room charges
and other hospital charges.
a. HMOs
b. Social Security
c. Indemnity insurance
d. Disability
17) Figure 9-1
Janice and Ronald Vittucci have decided to finance their first home with First American
Bank. They are buying their home for $105,000 and making a 10 percent down
payment. They will also be paying $3,000 in closing costs. First American has offered
them the following mortgage alternatives:
Refer to Figure 9-1. If Janice and Ronald choose loan 3, how much will their total costs
be when they close?
a. $823
b. $3,000
c. $13,500
d. $14,445
18) An example of investment risk is
a. business failure risk
b. marketability
c. time risk
d. any of these
19) A good source for ideas concerning online employment is
a. the Service Corps of Retired Executives
b. the National Association for the Self-Employed
c. the Small Business Administration
d. all of these
20) An insurable risk must be
a. fortuitous
b. financial
c. personal
d. all of these
21) Which of the following is not a technique for reducing the risk whenever you
conduct banking transactions on-line?
a. Avoid using someone else’s computer to manage your account
b. Regularly change your password and keep it to yourself
c. When finished, always hit the log off button at the top of the page instead of just
closing the browser window
d. Leave the computer on when finished
22) Revenues for bank credit cards are generated from
a. annual membership fees
b. finance charges
c. fees paid by participating merchants
d. all of these
23) Absent-minded Alfred lost his ATM card on May 1 . He reported it missing the next
day; however, $600 had been withdrawn from his checking account. According to the
Electronic Funds Transfer Act, how much of this $600 loss is Alfred responsible for?
a. $0
b. $50
c. $500
d. $600
24) Jeff is trying to decide whether to sell his baseball card collection. He has been
offered $2,500 by a dealer who has agreed to pay Jeff this price now or in January of
next year. This year Jeff is in the 28 percent marginal tax bracket, but next year Jeff
expects to be in the 15 percent marginal tax bracket. Therefore, the estimated income
tax liability on this $2,500 income would be ____ this year and ____ next year.
a. $700; $520
b. $520; $520
c. $375; $700
d. $700; $375
25) Which of the following is not a benefit of a savings account?
a. A way to save for your child’s education
b. Builds funds for large, irregular expenses
c. Protection against inflation
d. A way to achieve short-term savings goals
26) Figure 9-1
Janice and Ronald Vittucci have decided to finance their first home with First American
Bank. They are buying their home for $105,000 and making a 10 percent down
payment. They will also be paying $3,000 in closing costs. First American has offered
them the following mortgage alternatives:
Refer to Figure 9-1. Janice and Ronald are trying to decide between the two
adjustable-rate mortgages (ARMs). Which would you recommend and why?
a. Loan 4 because the front-end costs will be less
b. Loan 5 because the front-end costs will be less
c. Loan 4 because loan 5 could experience negative amortization
d. Loan 5 because loan 4 could experience negative amortization
27) Interest assessed during each payment period (usually each month) based on the
current outstanding balance of the installment loan is referred to as which method of
calculating interest?
a. Declining-balance
b. Add-on
c. Discount
d. Grace period
28) Closed-end investment companies
a. are the most common type of investment companies
b. issue a limited and fixed number of shares
c. redeem their shares directly from investors
d. buy and sell shares at net asset value
29) Figure 3-1
Maria and John Sanchez have just completed their third annual set of financial
statements. They met in a personal finance class while in college and still remember
their instructor’s advice regarding the importance of knowing their financial condition
and progress. Even before they got married, they decided that each year on February 2
(Groundhog Day) they would update their cash-flow statement and their balance sheet.
The following information is taken from their latest financial statements:
Refer to Figure 3-1. What is Maria and John’s asset-to-debt ratio?
a. 0.57
b. 35.0
c. 2.56
d. 1.77
30) A market order and a limit order are orders to ____, while a stop order is an order to
____.
a. buy; sell
b. buy or sell; buy
c. buy or sell; sell
d. sell; buy
31) The process of collecting on your property losses begins with ____ and ends with
your ____.
a. contacting your insurance representative; signing a release
b. contacting your insurance representative; receiving payment for the loss
c. filing an insurance claim; signing a release
d. filing an insurance claim; receiving payment for the loss
32) The claims of security owners in a corporation are satisfied in the following order:
a. bondholders, preferred stockholders, common stockholders
b. preferred stockholders, bondholders, common stockholders
c. common stockholders, bondholders, preferred stockholders
d. bondholders, common stockholders, preferred stockholders
33) If your time horizon is six to ten years and your asset allocation consists of 10
percent cash, 30 percent bonds, and 60 percent stocks, you would be considered to have
a(n) ____ investment philosophy.
a. aggressive
b. moderate
c. conservative
d. ultraconservative
34) You are 31-years old and have children ages 3, 6 and 8. You have determined that
you need an additional $700,000 in additional life insurance. You should buy.
a. one $700,000 5-year, guaranteed renewable term life policy
b. one $700,000 cash-value life insurance policy with guaranteed insurability
c. 3-5, 5-year, guaranteed renewable term life policies in various amounts adding up to
$700,000
d. realize that you cannot afford such coverage and simply start saving more in case you
die before your children are independent
35) Making a larger than required down payment on a given home will
a. reduce the amount of the monthly payments
b. increase the amount of interest paid
c. reduce the equity in the property
d. increase the amount of the loan
36) ____ represents the total market value of the more than 6,000 most actively traded
stocks.
a. Dow Jones Industrial Average
b. NASDAQ Composite Index
c. Wilshire 5000 Index
d. New York Stock Exchange Composite
37) A charge that often decreases 1 percent each year the investor owns shares in the
fund is called a
a. redemption charge
b. 12b-1 fee
c. management fee
d. deferred load
38) A mutual fund that emphasizes well-balanced return of income and long-term
capital gains is a ____ fund.
a. balanced
b. growth
c. current income
d. long-term growth
39) Figure 10-2
Mr. Todd Green has an automobile insurance policy with the following limits:
Mr. Green and his daughter were on the way to the mall when they were involved in a
four-car accident that was Mr. Green’s fault. The following damages resulted from the
accident:
Refer to Figure 10-2. How much will Mr. Green’s auto insurance policy pay for the
repair of his own car if it has a book value of $15,000?
a. $8,250
b. $9,750
c. $10,000
d. $14,750
40) An effective way to estimate the value or asking price of a real estate investment is
by using the
a. discounted cash-flow method
b. break-even price
c. REIT
d. call option
41) Which of the following allows you to easily move funds from one mutual fund to
another managed by the same investment company?
a. exchange privilege
b. automatic reinvestment
c. rotation
d. stock swap
42) Houses, real estate, and other ownership investments are subject to the inflation rate
risk in that the general price level in the economy might drop, thereby reducing the
investment’s value.
43) One of the limitations to purchasing a hedge fund is that you must own investments
over $1 million.
44) If you want to maintain the right to change the terms or cancel a trust that you have
created you should use an irrevocable trust.
45) HMOs are available only through group health care benefits.
46) A health insurance policy that will pay up to $100,000 for a particular health care
event is an example of a policy with annual limits.
47) The interest-adjusted cost index method provides an accurate means of comparing
among greatly different types of policies.
48) Social Security disability income payments are available to covered workers who
are either partially or totally disabled.
49) Credit scores are not related to the information in your credit report.