Finance Final Review

You made an error when you filed your tax return last year. You can correct this error by filing Form

1040X

about___ of americans lack health insurance

13%

To qualify for the capital gain exclusion on a home sale, the seller must have resided in the residence for ___ of the previous 5 years.

2

Employees of a nonprofit corporation can contribute to a(n)

403(b)

An adequate emergency fund should last

6-9 months

Unhealthy lifestyles can contribute to more than [ 40 | 60] percent of all diagnosed illnesses.

60

You can learn about the financial strength of an insurance company by checking [ the SEC's | A. M. Best's] rating system.

A.M. Best's

It is advisable to purchase life insurance from a relatively small, newly formed company.

False

The face value on a whole life policy is likely to change over time.

False

is the total of all goods and services produced by workers located within the country.

GDP

[ HO-2 | HO-3] is an example of a named peril policy.

HO-2

Which type of educational loan most likely carries the highest interest charges?

PLUS Loan

Living a healthy lifestyle is an example of loss prevention and control.

True

The income and expense statement is specific to

a specific period of time

Adjustments to gross income on the 1040 form?

a. Health insurance premiums paid by self-employed individuals b. Alimony paid c. Moving expenses

When the simple-interest method is used to determine finance charges, the interest is calculated based on the

actual loan balance outstanding

Miscellaneous sources of health care coverage include

all of the above: homeowners insurance automobile insurance veterans benefits

The majority of single-payment loans [ are | are not] secured by collateral.

are not

The personal balance sheet describes a family's wealth

at a certain point in time

For a person who sometimes pays his entire credit balance and sometimes pays the minimum payment, which calculation method would be the least expensive?

average daily balance excluding new purchases

Buying collision and comprehensive auto insurance from the dealer selling you the car is considered to be a [ good | bad] idea.

bad

most bank credit cards have interest rates that will

be adjusted as interest rates in general rise and fall

example of a liquid assest

checking account

[Comprehensive | Named peril] policy covers all perils unless they are specifically excluded.

comprehensive

The employee is subject to the investment risk in a defined [ contribution | benefit] plan

contribution

If your expenses exceed your income, the bottom line of your income/expense statement will show a

deficit

Calculating interest using the [ discount | simple interest] method will result in the higher APR on a single-payment loan

discount

When a cash surplus exists on your income and expense statement, you can use it to

do any of the above

The Rule of 78 loads an inordinate amount of interest charges to the [ early | later] months of the loan.

early

Which of the following has accounted for a growing amount of total retirement income?

earned income

Activities of daily living (ADLs) are important in determining ____ for long-term care insurance

eligibility

Chapter 7 bankruptcy will typically

eliminate most debt obligations

When Phil lists his house on his personal balance sheet, he should record the

fair market value

A long-term capital gain is taxed at the same rate as ordinary income

false

A personal property floater and a personal liability umbrella policy offer similar coverage.

false

A tax deduction is more valuable than a tax credit.

false

Always paying cash is helpful in establishing a high level of creditworthiness.

false

An IRA is a type of an investment.

false

Annuity premiums are paid to the company during the distribution period.

false

Approximately 50 percent of Americans prepare a detailed household budget.

false

As a rule, the smaller the bank or S&L, the more likely it is to charge an annual fee for its credit cards.

false

Blue Cross provides hospital coverage and Blue Shield provides prescription pharmacy coverage.

false

Child support received is included in gross income

false

Hospital insurance policies will pay for all hospital expenditures most of the time

false

In long-term retirement planning, you decide on the required level of retirement income and funds needed over a 3 to 5 year series of intervals

false

Interest you earned on your savings account would be an entry on your personal balance sheet.

false

Internal limits are constraints placed on insurance agents stipulating the level of risk for which they can write a policy.

false

It really makes little difference whether you start retirement savings at age 25 or at age 45.

false

Most loans made by consumer finance companies are for larger amounts and are made to low-risk borrowers.

false

One good way to save money is to purchase a new car every eight years to avoid high maintenance costs

false

Only the current month's payment on your mortgage loans would be listed on the personal balance sheet as a liability.

false

Over the long run, gaining an extra two percent on an investment makes little difference in earnings generated.

false

Payments from a defined benefits plan will be determined by the investment performance of the retirement funds.

false

Portfolio-related expenses can be written off against passive income

false

Reduced early retirement Social Security benefits can be received at age 60.

false

Social Security taxes are not limited by the amount of wages earned.

false

Student loans are dischargeable in Chapter 7 bankruptcy proceedings.

false

Tax-deferred income is better than tax-free income

false

The length of time you keep your money invested is less important than the rate of return you earn on your investments.

false

The number of new retirement plans started among small businesses is growing.

false

The personal exemption for a student can be taken both by the parent and by the child

false

The terms "perils" and "losses" refer to the same thing.

false

The type of car you drive has little effect on your auto insurance premiums.

false

There is no limit on the amount of social security tax withheld annually.

false

To save premium costs, one should decrease her deductible and liability coverage on a homeowners' policy.

false

Uninsured motorist coverage covers passengers in your car from losses caused by your negligence

false

Upon retirement, married couples automatically receive 1.5 times the higher earning spouse's Social Security benefit.

false

Using credit is the ideal way to provide for financial emergencies.

false

With low-load whole life policies, sales commissions and marketing expenses account for between 20% to 25% of total premiums paid over the life of the policy.

false

You are single and age 35. Getting married will lower your auto insurance premiums.

false

Your ____ is an example of a liquid asset.

false

wealthy people have higher average propensity to consume

false

When interest rates are rising, you would prefer a [ fixed-rate | variable-rate] loan.

fixed-rate

Four categories, accounting for 75% of consumer spending, include

housing

Workers' compensation insurance makes payments to an injured worker [ if he has been hurt on the job | only if he can prove negligence on the part of his employer].

if he has been hurt on the job

The basic assumptions that the company uses to compute its insurance illustrations include all except

income

Your chances of being approved for a loan [ increase | decrease] the higher your credit score.

increase

The principle of [ indemnity | peril] states that the insured may not be compensated by the insurance company in an amount exceeding the insured's economic loss.

indemnity

On an income and expense statement covering January 1 to June 30, ____ would not be included as income

inheritance granted in April, to be paid in September

People share losses through [ loss control | insurance].

insurance

The amount of health insurance reimbursement actually paid may be reduced by

internal limits

would not be listed as an asset on your balance sheet.

leased automobile

The longer the loan maturity, the [ lower | higher] the monthly payments will be.

lower

If a loss is certain to occur, there is [ a | no] risk.

no

William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What features should William especially look for in a credit card?

no annual fee and long grace period

A "coordination of benefits" provision in a health insurance policy may possibly provide which of the following benefits?

often results in lower-cost insurance premiums

Hospital indemnity policies would make payment for

per day hospital charges

Which of the following is among the four categories accounting for almost three-quarters of consumer spending?

personal insurance and pensions

Section I of a homeowner's insurance policy covers all of the following except

personal liability

Dividends received from stocks are known as [ passive | portfolio] income.

portfolio

____ value is the value today of an amount to be received in the future.

present

The federal income tax is

progressive

federal income taxes are

progressive

The purpose of the Social Security retirement program is to

provide a basic adequate income to eligible retirees

Through insurance, society is able to

reduce financial risks and share losses.

All of the following are key items lenders look at in granting credit except

religious affiliations

Inflation refers to

rising prices

A personal liability umbrella policy is designed to [ replace | supplement] HO and car liability coverage.

supplement

____ income is subject to federal taxes

taxable

Government places controls on the personal financial environment by use of

taxation and regulation

The two principal constraints which government places upon us are regulations and

taxes

Tax credits directly reduce a taxpayer's

taxes due

If your employer matches your 401(k) contributions, you should contribute at least [ the maximum allowed for tax deferral | the amount matched by your employer].

the amount matched by your employer

On which of the following types of income would you normally have income tax withheld?

tips

The initial estimates of retirement expenses and income should be done in [ today's | future] dollars.

today's

Which of the following types of retirement plans is becoming less common?

traditional defined benefit

A large selection of investment types can qualify as IRA investments.

true

A taxpayer claiming himself and one dependent had personal exemptions in 2014 amounting to $7,900

true

A vested employee has a right to receive benefits from an employer's retirement funds even if he no longer works there.

true

Actual cash value is defined as replacement cost minus depreciation.

true

Alimony received is included in gross income for the receiver and deducted from gross income for the payer.

true

Annuity premiums are paid to the insurance company during the accumulation period.

true

As an HMO member, you may have co-payments but no deductibles

true

Being late on credit payments only 2-3 times per year may label you a "late payer" in your credit file.

true

Decreasing taxes stimulates the economy.

true

Dividends received from the stock you own will be taxable income.

true

Financial assets are paper assets, such as savings accounts and securities.

true

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early.

true

If the insured dies during the grace period, the face amount of the policy less the unpaid premium is paid to the beneficiary

true

Integrating a retirement plan with Social Security benefits typically increases a retiree's retirement income.

true

Liability insurance generally provides some coverage for legal fees.

true

Life insurance policy loans are generally not taxable in the year taken and not deductible in the year repaid.

true

Low-load whole life policies grow cash values more quickly than traditional whole life policies.

true

Miles has no retirement plan at work. Therefore, $2,000 contributed to his regular IRA will be tax deductible.

true

Personal property floaters provide increased coverage for jewelry and other collectable items at an additional premium.

true

Qualified dividends are taxed at the same rates as long-term capital gains.

true

Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances.

true

Secured credit cards require that the cardholder put up collateral in order to get the card.

true

Supplemental retirement plans are usually voluntary.

true

The "other-insurance clause" helps prevent the violation of the principle of indemnity.

true

The alternative minimum tax calculation includes in taxable income certain types of deductions otherwise allowed, such as state and local income and property taxes.

true

The federal personal income tax is a progressive tax

true

The interest rate on a loan against your life insurance policy is set at the time the policy is taken out.

true

The most common method of computing finance charges on a credit card is the average daily balance method including new purchases.

true

The primary purpose of life insurance is to protect family members financially after one's death.

true

The principle of indemnity does not apply to life and health insurance.

true

The value of assets purchased on credit should be included on the asset side of your personal balance sheet.

true

To receive the most favorable capital gains treatment, a taxpayer must own and occupy a home for at least two of the five years prior to its sale.

true

When a child qualifies as a dependent on her parent's return, the child cannot take a personal exemption for herself.

true

When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.

true

When you charge your car rental to your credit card, collision insurance may be offered under the umbrella of the credit card

true

With a managed care plan, an insurance company may not be involved

true

You are more likely to have your tax return audited if you have large deductions for meals, travel, and entertainment.

true

You should itemize deductions when total itemized deductions exceed the standard deduction

true

You would most likely purchase an annuity from an insurance company

true

Your personal value system will shape your attitude toward money and wealth accumulation

true

t is possible to convert a traditional IRA to a Roth IRA.

true

when preparing a cash budget, estimating expenses using actual expenses from previous years and by tracking current expenses makes the task easier

true

The income-shifting tax strategy is least effective when income-producing gifts are given to persons

under age 19

Negligent acts must be [ intentional | unintentional] in order to be insured.

unintentional

The death benefit of ____ life insurance may go down due to poor investment returns.

universal and variable

When interest rates are falling, you would prefer a [ fixed-rate | variable-rate] loan.

variable rate

A ____ option allows a terminally ill insurance holder to sell an interest in the life insurance policy to an investor.

viatical settlement

The personal property of your [ boarder | visiting mother-in-law] would be covered by your HO policy.

visting mother in law

You use a small building on your property to manufacture widgets. This building [ will | will not] be covered by your standard HO policy.

will not

The theft of your favorite jacket from your locked car [ would be | would not be] taken care of by your renter's policy.

would be

Earthquake policy and flood protection [ would | would not] be provided by the standard HO policy.

would not

the liquidity ratio is designed to show the percentage of _____ you should cover with your current assets

your current debt obligations