Personal Finance Final

The Rule of 72 is: A) The legal code for requiring companies to provide a match on retirement savings B) The number of steps required to complete a financial plan C) Used to estimate how fast prices will double using a given annual inflation rate D) A tool to determine the number of years until retirement for an employee E) Used to calculate interest rates for savings

Used to estimate how fast prices will double using a given annual inflation rate

The rising or falling of prices that causes changes in buying power is referred to as ________ risk. A) interest-rate B) liquidity C) income D) personal E) inflation

inflation

Common stock and bond brokerage statements are an example of a(n) ________ record. A) insurance B) estate planning C) investment D) tax E) consumer purchase

investment

The difficulty of converting savings and investments to cash is referred to as ________ risk. A) income B) inflation C) liquidity D) interest-rate E) personal

liquidity

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n) A) Budget B) Statement C) Insurance prospectus D) Financial plan E) Investment forecast

Financial plan

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a A) W-4. B) 1099. C) 1040. D) W-2. E) Schedule A.

1099.

When creating a budget, it is important to A) Spend the amount of money you have budgeted in each category. B) Save the amount you have left at the end of the month. C) "Pay yourself first" by setting aside savings before other expenses are budgeted. D) Set aside savings after your variable expenses are paid. E) Save an amount no more than 3% of your annual income in an emergency fund.

"Pay yourself first" by setting aside savings before other expenses are budgeted.

What is the unit price of a 32 ounce box of brown sugar that costs $3.20? A) $6.40 per pound. B) $0.10 per pound. C) $1.60 per ounce. D) $0.10 per ounce. E) $3.20 per pound.

$0.10 per ounce.

If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months? A) $15.00 B) $500.00 C) $5.00 D) $25.00 E) $30.00

$15.00

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar. A)$18,000 B) $25,000 C) $5,727 D) $17,460 E) None of these choices are correct.

$17,460

If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period? A) $30,500 B) $22,054 C) $11,970 D) $18,000 E) $2,000

$22,054

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for? A) $50 B) $238 C) $500 D) $0 E) $188

$238

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of A) $100,000. B) $160,000. C) $20,000. D) $60,000. E) $40,000.

$40,000.

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for? A) $50. B) $0. C) $25. D) $173. E) $500.

$50.

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now? A) $885 B) $889 C) $1,040 D) $1,030 E) $1,000

$889

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about A) 0.2. B) 0.25. C) 1. D) 0.5. E) 0.

1.

Experts suggest that the debt payments-to-income ratio should be a maximum of A) 100% B) 15% C) 20% D) 50% E) 25%

20%

A typical grace period offered by many credit card issuers is A) 0-10 days. B) 30-40 days. C) 45-60 days. D) 10-20 days. E) 20-25 days.

20-25 days.

Gross income less Adjustments to Income equals A) Exclusions from income. B) Adjusted gross income. C) Earned income. D) Tax-deferred income. E) Tax-exempt income.

Adjusted gross income.

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension? A) 1040 B) 4868 C) W-4 D) 1099 E) W-2

4868

When calculating federal income taxes, what increases "gross income"? A) Tax-exempt income B) Tax-deferred income C) Tax deductions D) Exclusions E) Alimony received

Alimony received

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go? A) A payday loan company B) A rent-to-own center C) A check-cashing outlet D) A commercial bank E) A pawnshop

A commercial bank

Billy accepted a job at a company that specializes in providing money for short-term retail lending. Where did he go to work? A) A finance company B) A credit card company C) A life insurance company D) An investment company E) A payday loan company

A credit card company

All of the following are non-deposit institutions except A) A life insurance company. B) A credit card company. C) A finance company. D) A credit union. E) An investment company.

A credit union.

Which of the following is an example of open-end credit? A) An installment loan for purchasing furniture B) An automobile loan C) A mortgage loan D) A department store credit card E) Single lump-sum credit

A department store credit card

All of the following are deposit institutions except A) A commercial bank. B) A mutual savings bank. C) A credit union. D) A savings and loan association. E) A finance company.

A finance company.

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open? A) A certificate of deposit B) A money market account C) A money market fund D) An interest-earning checking account E) A regular savings account

A money market account

Which of the following is an example of closed-end credit? A) A department store credit card. B) Overdraft protection. C) Travel and entertainment cards. D) A mortgage loan. E) All of these are examples of closed-end credit.

A mortgage loan.

Harvey needed some cash quickly, so he received a short-term loan based on the value of an old ring. Where did he go? A) A payday loan company B) A pawnshop C) A commercial bank D) A check-cashing outlet E) A rent-to-own center

A pawnshop

Which of the following will likely provide the most expensive loans? A) A life insurance company B) A payday loan company C) A finance company D) An investment company E) A credit card company

A payday loan company

The saving component of financial planning focuses on long-term security and includes: A) A current will B) A realistic budget for your current financial situation C) Bankruptcy counseling D) A regular savings plan for emergencies E) Minimizing transportation expenses through careful planning

A regular savings plan for emergencies

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use? A) A trust. B) A home mortgage. C) A savings account. D) A credit card. E) A loan.

A savings account.

Claudette's grandchildren are 7 and 9 years old. When Claudette passed away, her grandchildren inherited her money. However, the will stipulated that they should not get control of the money until age 25. Which of the following should be set up to provide for the management and control of the funds? A) A trust B) A certificate of deposit C) A savings account D) A checking account E) A loan

A trust

Which of the following can result from a failure to repay a loan? A) Bankruptcy. B) Damage to family relationships. C) Loss of income or valuable property. D) Loss of a good reputation. E) All of the above may result from the failure to repay a loan.

All of the above may result from the failure to repay a loan.

While evaluating alternatives, all of the following are appropriate questions you could ask before making a major purchase except A) Is it possible to delay the purchase or to do without the item? B) Should I pay for the item with cash or buy it on credit? C) How do the price, quality, and service compare at different stores? D) Which brands should I consider? E) All of these are questions that should be asked.

All of these are questions that should be asked.

Which of the following questions is NOT needed before deciding how and when to make a major purchase? A) Could I use the credit I need for this purchase in some better way? B) Could I postpone the purchase? C) Do I have the cash I need for the down payment? D) Does the purchase fit my budget? E) All of these questions should be considered.

All of these questions should be considered.

A direct loan for personal purposes, home improvements, or vacation expenses is called A) A bank line of credit. B) Single lump-sum credit. C) Open-end credit. D) A credit card. E) An installment cash credit.

An installment cash credit.

Which of the following usually offers money market mutual funds? A) A finance company B) A payday loan company C) An investment company D) A life insurance company E) A credit card company

An investment company

How long should you keep documents relating to investments? A) No need to since the broker probably has a copy. B) Seven years. C) As long as you own these items. D) Ten years. E) Permanently.

As long as you own these items.

Items that you own that have a monetary value are referred to as A) Assets. B) Variable expenses. C) Liabilities. D) Net worth. E) Income.

Assets.

The tax based on the total tax due divided by taxable income is called the A) Marginal tax rate. B) Income tax rate. C) AMT. D) Average tax rate. E) Total tax rate.

Average tax rate.

The document that would report your current financial position is the A) Budget. B) Balance sheet. C) Bank statement. D) Credit card statement. E) Cash flow statement.

Balance sheet.

The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning. A) Sharing B) Protecting C) Obtaining D) Borrowing E) Saving

Borrowing

The document that would be most useful to plan spending and saving to achieve financial goals is the A) Monthly investment brokerage statement. B) Bank statement. C) Credit card statement. D) Budget. E) Balance sheet.

Budget.

The document that would tell you what you received and spent over the past month is the A) Credit card statement. B) Balance sheet. C) Bank statement. D) Budget. E) Cash flow statement.

Cash flow statement.

When Jane researched the brands and prices of refrigerators, she was A) Compulsive shopping. B) Impulse shopping. C) Comparison shopping. D) Warranty shopping. E) Trade-off shopping.

Comparison shopping.

Which of the following will increase the net worth of a household? A) Invest in possessions whose values do not increase B) Decrease spending by $5 per day C) Increase spending by $5 per day D) Increase the amount borrowed for major purchases E) Decrease saving by $50 per month

Decrease spending by $5 per day

The first step of the financial planning process is to A) Develop financial goals. B) Create a financial action plan. C) Evaluate and revise the financial plan. D) Determine your current financial situation. E) Implement the financial plan.

Determine your current financial situation.

________ goals relate to infrequently purchased, expensive tangible items. A) Durable-product B) Intangible-purchase C) Intermediate D) Consumable-products E) Short-term

Durable-product

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the A) Student deduction. B) Itemized deduction credit. C) Alternative minimum tax. D) Withholding credit. E) Earned income credit.

Earned income credit.

Fees, tips, and bonuses are forms of A) Passive income. B) Tax-deferred income. C) Exclusions from income. D) Tax-exempt income. E) Earned income.

Earned income.

An example of a variable expense is a(n) A) Electric bill. B) Installment loan payment. C) Monthly train ticket for commuting to work. D) Mortgage or rent payment. E) Monthly allocation for life insurance.

Electric bill.

Most products come with some guarantee of quality. Which of the following is usually in written form, created by the seller or manufacturer, and has two forms? A) Limited warranty B) "As-is" warranty C) Full warranty D) Implied warranty E) Express warrant

Express warrant

Mike bought a new car. His new car warranty probably included all of the following except A) Power train coverage. B) Corrosion warranty. C) Extended coverage for air conditioning. D) Coverage of basic parts against defects. E) Possibility to transfer the warranty to other owners of the car (additional charges may apply).

Extended coverage for air conditioning.

Which of the following is correct? A) Entertainment is a durable-product goal. B) Food and clothing are consumable-product goals. C) Leisure and education are durable-product goals. D) A car purchase is a consumable-product goal. E) Appliances and sporting equipment are intangible-purchase goals.

Food and clothing are consumable-product goals.

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time. A) Implied warranty B) Express warranty C) Full warranty D) Limited warranty E) "As-is" warranty

Full warranty

Home equity loans A) Will cause you to lose your car if the loan is not repaid. B) Are based on the original purchase price of a home. C) Charge high interest rates ranging from 12 to 25%. D) Have interest that is tax-deductible. E) Require you to be a member of a credit union.

Have interest that is tax-deductible.

An investor should expect to receive a risk premium for A) Higher interest rates B) Lower consumer prices C) Higher uncertainty about getting his/her money back D) Expected lower inflation E) Reduced credit ratings

Higher uncertainty about getting his/her money back

When Paul completes his taxes, he can include all of the following as exemptions except A) Himself. B) His 12-year-old son. C) His 22-year-old daughter who is a full-time student. D) His wife. E) His 20-year-old son who is working full-time and living in an apartment.

His 20-year-old son who is working full-time and living in an apartment.

An example of a fixed expense is A) Home rental payment. B) Recreation. C) Utilities. D) Gifts. E) Medical expenses.

Home rental payment.

Most products come with some guarantee of quality. This type of warranty covers the product's intended use or other basic understandings that are not in writing. A) Full warranty B) Implied warranty C) Limited warranty D) "As-is" warranty E) Express warranty

Implied warranty

While Paul was shopping for a new chainsaw, he found a great deal on a new drill and bought it. This is an example of A) Comparison shopping. B) Compulsive shopping. C) Impulse shopping. D) Trade-off shopping. E) Warranty shopping.

Impulse shopping.

Which of the following is a cash inflow? A) Payment for medical expenses B) Income from employment C) Purchase of groceries D) Payment for loan E) Payment for rent

Income from employment

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A) Excise tax B) Real estate property tax C) Estate tax D) Sales tax E) Income tax

Income tax

An advantage of effective personal financial planning is: A) Increased impulse spending B) The use of low-interest savings C) Increased control of financial affairs D) Less monitoring of investments F) More credit card debt

Increased control of financial affairs

Which of the following best describes the concept of the time value of money? A) Changing demographic trends in our society. B) Personal opportunity costs such as time lost on an activity. C) Increases in an amount of money as a result of interest earned. D) Changes in interest rates due to changes in the supply and demand for money in our economy. E) Financial decisions that require borrowing funds from a financial institution.

Increases in an amount of money as a result of interest earned.

The inability to pay debts when they are due because liabilities far exceed the value of assets is called A) Net worth. B) Cash flow. C) Liquid assets. D) Liabilities. E) Insolvency.

Insolvency.

The dealer's cost is also known as the A) Invoice price. B) Capitalized cost. C) Set price. D) Sticker price. E) Residual value.

Invoice price.

Adolph has a low income and cannot afford his own attorney. He needs legal assistance and should make use of (a) A) Legal aid society. B) Mediator. C) Lawyer. D) Small claims court. E) Class action lawsuit.

Legal aid society.

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with? A) Credit card company. B) Finance company. C) Investment company. D) Life insurance company. E) Payday loan company.

Life insurance company.

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts. A) Express warranty B) Full warranty C) "As-is" warranty D) Implied warranty E) Limited warranty

Limited warranty

Which of the following appears as a cash outflow on a cash flow statement? A) Net worth B) Balance of mortgage C) Cash value of life insurance D) Loan payment E) Home value

Loan payment

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) ________ goal. A) Short-term B) Long-term C) Intangible D) Intermediate E) Durable

Long-term

A variable operating cost for a vehicle is A) Insurance. B) Maintenance and repairs. C) Depreciation. D) Interest on an auto loan. E) License and registration.

Maintenance and repairs.

Home equity loans should be used for A) Major expenses such as home improvements or education. B) Selling a car. C) Getting cash for weekend entertainment. D) Buying dinner at a restaurant. E) Borrowing money for impulse purchases.

Major expenses such as home improvements or education.

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe? A) Marriage certificates B) Personal financial statements C) Warranties D) Bank statements E) W-2 forms

Marriage certificates

Discretionary income equals A) Social Security taxes. B) Take-home pay. C) The amount being saved each month. D) Money left over after paying for housing, food, and other necessities. E) Gross income.

Money left over after paying for housing, food, and other necessities.

These products are highly advertised and available at many stores. A) Regional brands B) Private-label brands C) Generic items D) National brands E) Store brands

National brands

The lowest payment does not necessarily mean the best credit plan. If your car loan is a long period of time, you may end up owing more than the car is worth, which is called A) Low-interest loan. B) Low monthly payments. C) Negative equity. D) Loan preapproval. E) All of these are potential problems.

Negative equity.

Take-home pay is also called A) Monthly savings. B) Net pay. C) Deductions. D) Discretionary income. E) Gross income.

Net pay.

Attempts to increase income through employment are part of the ________ component of financial planning. A) Spending B) Obtaining C) Planning D) Saving E) Borrowing

Obtaining

Which of the following is often considered to offer the least expensive loans (loans with low interest)? A) Loan companies. B) Parents or family members. C) Banks. D) Finance companies. E) Savings and loan associations.

Parents or family members.

Which of the following is NOT a valid reason for borrowing? A) Paying for a medical emergency B) Buying a car so a homemaker can return to work C) Paying for everyday living expenses D) Borrowing for a college education E) All of these are valid reasons for borrowing

Paying for everyday living expenses

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a A) Bank statement. B) Cash flow statement. C) Personal balance sheet. D) Budget. E) Time value of money report.

Personal balance sheet.

Which of the following would increase the interest rate for a loan? A) Higher down payment B) Expected lower inflation C) Short time to maturity D) Poor credit rating E) Lower consumer price

Poor credit rating

These products are sold by one chain of stores and are low-cost alternatives to famous-name products. A) Counterfeit brands. B) Private-label or store brands. C) National brands. D) Replacement brands. E) All of these are correct.

Private-label or store brands.

The tax that is a major source of revenue for local governments is called a(n) A) Gift tax. B) Income tax. C) Real estate property tax. D) Estate tax. E) Sales tax.

Real estate property tax.

A cash advance A) Involves a grace period on most cards. B) Is a loan billed to your bank account. C) Is less expensive than charging a purchase to your credit card. D) On some cards has a lower interest rate than on purchases. E) Requires you to pay interest every day until you repay the cash advance.

Requires you to pay interest every day until you repay the cash advance.

George has never bought a new car before. Which of the following techniques should he use to get the best deal? A) Highballing B) Tell the dealer the highest monthly payment he can afford C) Lowballing D) Research the dealer cost and begin negotiations from that point E) Leave a deposit to hold the vehicle

Research the dealer cost and begin negotiations from that point

The expected value of a vehicle at the end of a lease is called the A) Residual value. B) Set price. C) Sticker price. D) Capitalized cost. E) Invoice price.

Residual value.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns? A) Until you receive your refund B) Seven years C) Permanently D) Three years E) Until the end of the current yea

Seven years

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is A) Single lump-sum credit. B) Open-end credit. C) An installment cash credit. D) A credit card. E) A bank line of credit.

Single lump-sum credit.

If you have a problem whose remedy will be between $1,500 and $3,000, the appropriate tool to use would be (a) A) Lawyer. B) Small claims court. C) Prepaid legal services. D) Class-action lawsuit. E) Legal aid society.

Small claims court.

The amount printed on a label with the suggested retail price that is posted on a vehicle is called the A) Residual value. B) Set price. C) Invoice price. D) Sticker price. E) Capitalized cost.

Sticker price.

Income that is taxed at a later date is A) Tax-exempt income. B) Earned income. C) Tax-deferred income. D) Exclusions from income. E) Adjusted gross income.

Tax-deferred income.

Income that is not subject to tax is called A) Passive income. B) Tax-deferred income. C) Adjusted gross income. D) Earned income. E) Tax-exempt income.

Tax-exempt income

Disposable income equals A) The amount being saved each month. B) Money left over after paying for housing, food, and other necessities. C) Social Security taxes. D) Gross income. E) The amount a person or household has to spend.

The amount a person or household has to spend.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a A) Schedule A. B) W-2. C) 1099. D) W-4. E) 1040.

W-2.

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired. A) Rebate B) Open dating C) Coupon D) Unit pricing E) Warranty

Warranty

Opportunity cost refers to A) The amount paid for taxes when a purchase is made. B) Current interest rates. C) Evaluating different alternatives for financial decisions. D) What you give up by making a choice. E) Money needed for major consumer purchases.

What you give up by making a choice.