1) If all the funds are removed or transferred from a retirement account at one time after
changing employers or taking retirement, the disbursement is called a lump-sum
distribution.
2) Whenever you request that someone write a reference letter you should provide the
person with your resume.
3) A rsum is a summary record of your education, training, experience, and other
qualifications.
4) New cars typically lose 25 percent of their value in the first year.
5) A Keogh plan is applicable to people who are self-employed.
6) A business cycle is a pattern of economic activity that includes an expansion, peak,
contraction, and trough.
7) Deflation occurs in an economy when their is a contraction in the money supply.
8) If a taxpayer expects to be in a lower tax bracket the next year, he or she would
benefit by defering income to the later year.
9) The Truth in Lending Act limits a cardholder’s credit card liability for lost or stolen
credit cards.
10) The Internal Revenue Service is the agency that collects federal income taxes.
11) Interest is the price of credit.
12) Today, even stock brokerages and insurance companies provide certain products for
use in cash management.
13) A direct trustee-to-trustee rollover will avoid the IRS’s 20 percent withholding on
retirement rollover.
14) Independent agents sell insurance for more than one life insurance company.
15) For children younger than 18, unearned income in a custodial account in excess of
$1,900 is taxed at the parent’s rate.
16) Service credit is granted to consumers by public utilities, physicians, dentists, and
other service providers that do not require full payment when services are rendered.
17) Safe-deposit boxes take two keys to open, and the financial institution where the
box is located keeps one of these keys.
18) The Truth in Savings Act requires depository institutions to disclose a standardized
rate of interest so that depositors can easily compare various savings options.
19) Kerri and Jason Smith have an adjusted gross income of $55,000. During the year
they incurred unreimbursed expenses of $500 on prescription drugs, $2,506 on doctor
and dentist bills, $1,200 on health insurance premiums, and $150 on medical related
transportation costs. Assuming they have enough total itemized deductions to itemize,
how much will they be allowed to deduct for these unreimbursed medical expenses?
a. $231
b. $3,080
c. $327
d. $4,356
20) 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. At this point in their lives, it is most important to buy adequate
life insurance protection on ____ life.
a. Antonio’s
b. Trina’s
c. Jason’s
d. Amy’s
21) 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. Assuming the taxes and insurance on this home will be $150 per
month and the lender requires a front-end ratio of 0.31, how much will Janice and
Roland’s monthly gross income need to be to qualify for loan 1?
a. $2,148
b. $2,235
c. $2,519
d. $2,719
22) The Thomas family projects a budget deficit of $250 in January and $450 in
February with surpluses the rest of the year. Their revolving savings fund should be at
least
a. $700
b. $450
c. $350
d. $250
23) If you have a(n) ____ investment philosophy, you accept very little risk and are
generally rewarded with relatively low rates of return.
a. aggressive
b. conservative
c. moderate
d. ultraconservative
24) Which of the following goals is most clearly stated?
a. Save enough for a down payment on a house in five years
b. Save $1,000 in one year for a vacation to San Diego
c. Pay off all credit card balances
d. Pay cash for a car
25) A(n) ____ is created to become effective on the death of the grantor.
a. testamentary trust
b. advanced directive
c. power of attorney
d. escheat
26) 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 dividend yield on Rosa’s stock?
a. 0.75 percent
b. 1.43 percent
c. 2.14 percent
d. 5.00 percent
27) Perhaps the greatest disadvantage of credit use is the
a. loss of financial flexibility in personal money management
b. risk of overspending
c. reduction in future buying power due to finance charges
d. possibility of getting a poor credit reputation
28) Discount bonds are sold to investors at ____ discounts from their face value and
may be redeemed at ____ value on maturity.
a. minor; partial
b. significant; face
c. significant; partial
d. minor; face
29) ____ are vulnerable to negative amortization.
a. Fixed-rate mortgages
b. Adjustable-rate mortgages with interest rate caps
c. Adjustable-rate mortgages with payment caps
d. Growing-equity mortgages
30) The amount of cash flow in income-producing real estate investments depends on
a. rent received
b. expenses paid
c. method of repaying mortgage debt
d. all of these
31) If your time horizon is zero to five years and your portfolio consists of 35 percent
cash, 40 percent bonds, and 25 percent stocks, you would be considered to have a(n)
____ investment philosophy.
a. conservative
b. aggressive
c. moderate
d. ultraconservative
32) How many years are you allowed for correcting any errors in your earnings history
as listed in your Social Security Estimate?
a. 1
b. 3
c. 5
d. 7
33) An investment that can be sold quickly but only by making price concessions
suffers from ____ risk.
a. liquidity
b. marketability
c. financial
d. market volatility
34) Credit bureaus compile information from
a. banks
b. creditors
c. court records
d. all of these
35) Shelly Addison’s $125,000 cash-value policy has a cash value of $18,000. If Shelly
dies, her beneficiary receives ____. If she does not die but decides to cancel the policy,
Shelly will receive ____.
a. $125,000; $18,000
b. $125,000; $0
c. $143,000; $18,000
d. $107,000; $18,000
36) A qualified joint and survivor benefit is an annuity whose payments continue to the
surviving spouse after the participant’s death, equal to at least ____ percent of the
participant’s benefit.
a. 20
b. 35
c. 50
d. 80
37) Adriana is financially responsible for her aged parents. She wants to provide
income for her parents for 15 years should she die. Adriana earns $48,000 after taxes
and believes that her parents could live on 60 percent of her current income. If the
insurance funds could be invested at 4 percent after taxes and inflation, how much life
insurance does Adriana need? The approximate interest factor is 11.9.
a. $228,480
b. $342,720
c. $432,000
d. $571,200
38) The ____ method of comparing the costs of life insurance policies assumes the
policy will be cashed in at the end of a certain period of time rather than remaining in
force until death.
a. cost per $1,000 of coverage
b. interest-adjusted cost index
c. interest-adjusted net payment index
d. net cost
39) In a zero-sum game, the return actually becomes ____ if transaction costs are
included.
a. zero
b. negative
c. positive
d. risk-free
40) The principle of indemnity is very difficult to apply to ____ insurance.
a. auto
b. homeowner’s
c. health
d. life
41) ____ can be used to provide mutual fund information.
a. Mutual fund prospectuses
b. Morningstar Mutual Funds
c. Financial magazines such as Money and Forbes
d. All of these
42) Which of the following statements is true regarding mutual savings banks?
a. Mutual savings banks provide financial services nationwide
b. Accounts in mutual savings banks are not federally insured
c. Mutual savings banks are quite similar to savings banks
d. Holding savings is the only financial service provided by mutual savings banks
43) ____ plans are riskier than other employer-sponsored plans due to their lack of
investment diversification.
a. Profit-sharing
b. Employee stock-ownership
c. Nonqualified deferred-compensation
d. Salary reduction
44) An annuity purchased before retirement is typically a
a. deferred annuity
b. fixed annuity
c. immediate annuity
d. straight annuity
45) Hillary Harlan borrows $2,000 from her credit union to purchase a new computer.
This is an example of
a. a cash loan
b. a purchase loan
c. a sales credit
d. all of these
46) When the declining-balance method is used to calculate interest on an installment
loan, the periodic interest rate is applied to the
a. beginning loan balance
b. outstanding balance each period
c. average balance for each year
d. average balance for the entire loan period
47) If U.S. Treasury bills are earning 4 percent and the stock investment you are
considering has a potential return of 10 percent, you would be paid a ____ percent
return to take the additional risk of investing in the stock.
a. 4
b. 6
c. 10
d. 14
48) Bonnie Heaton owned 1,000 shares of Barton Creek Corporation worth $24 a share
when the company declared a 6 percent stock dividend. After the stock dividend was
paid, Bonnie owned ____ shares.
a. 1,000
b. 1,060
c. 1,025
d. 1,042
49) One’s take-home pay is reduced during the working years with a(n) ____ retirement
plan.
a. contributory
b. salary-reduction
c. vested
d. integrated
50) If you have a nonworking spouse, that person may contribute to a spousal IRA.
51) Which of the following is not a deductible medical expense?
a. Travel and conference registration fees for a parent to learn about a child’s disease
b. Fees for childbirth preparation classes
c. Funeral expenses
d. Medical equipment and aids
52) Compare the cost of the following leasing agreement with the finance charge on a
loan for the same time period. The price of the car is $14,000, and its projected residual
value at the end of four years is $3,000.
Other things being equal, one would want to finance this car rather than take this lease
if the finance cost were less than
a. $200
b. $1,550
c. $2,200
d. $2,450
53) The study of personal finance includes
a. financial and career planning
b. risk management
c. tax planning
d. all of these
54) A 10-year term life policy will cost ____ a 5-year renewable term policy during the
early years of the 10-year period, other factors being equal.
a. more than
b. less than
c. the same as
d. Not enough information is given to answer the question
55) Mortgage ____ occurs when a new mortgage is obtained to pay off an existing
mortgage.
a. amortization
b. subleasing
c. appreciation
d. refinancing
56) Investors who look for investments that are underpriced given current market
conditions are engaging in
a. value investing
b. leverage
c. asset allocation
d. market diversification
57) A stock that has a negative beta tends to
a. be stable compared to the market as a whole
b. be volatile compared to the market as a whole
c. move up when the market as a whole moves down
d. move up when the market as a whole moves up
58) Employer contributions to retirement plans must be completely vested after five
years of employment.
59) Deferred loads are a set percentage of the value of your portfolio.
60) The returns on common stocks have historically been half as high as the returns on
cash savings.
61) Vesting requirements apply to both employer and employee contributions into a
retirement plan.
62) A call option is an option contract that gives the option holder the right to sell the
optioned asset from the option writer at the striking price.
63) High-demand occupations tend to pay low salaries.
64) Values have little impact on financial goals.
65) The real rate of return on an investment is the yield minus the effect of taxes only.