Personal Finance Final Exam Review
Robert just received his first paycheck after starting his new job just after graduation from college. He was surprised by how much less his NET PAY is from his GROSS PAY. He calculated that a total of 33% of his earnings was withheld to pay taxes. He is now experiencing buyer's remorse for purchasing a new $300 game console. Robert realized that he paid for the game console with after-tax dollars. How much did he really have to earn to pay for the console?
$448
while standards can adjust at any time, a credit score of ______ or above has historically been considered the best for most people.
760
A car is basically:
A box of miles
Insurance is just one piece of __________________________
A larger risk management plan
Lenders want to make sure borrowers:
A, B, and C are correct
Students can sometimes earn college credit for free or almost free by:
A, B, and C are correct
The government taxes:
A, B, and C are correct
The key to credit cards, is to understand:
A, B, and C are correct.
Lenders want to make sure borrowers have the ________ to repay their loans and the willingness to use their resources to do so.
Ability
just because someone is approved for a loan does not mean they can ________ it.
Afford
Many more people are involved in a real estate transaction than just the real estate __________.
Agent's
for a person to get their dream job, they must identify:
All of the above are correct. (the requirements of the job and work their way back to where they are right now, the experiences and skills they need to acquire, the specific jobs that lead to their dream job and in what order, the education that is required for the position).
The future value of a(n) __________ calculates how much a regular series of payments will be worth at some point in the future.
Annuity
_________ is a just a financial term that means equal payments at equal time intervals.
Annuity
If a person chooses to take a risk on themselves they are practicing:
Assumption
The first step in developing a positive _______ at work is to believe in one's self.
Attitude
_________ is the cheapest and easiest way to manage risk.
Avoidance
Most homeowners must _______ money (or obtain a mortgage) to buy their homes.
Borrow
A __________ check is not only illegal, but it is also costly.
Bounced
A __________ provides the insight to control impulse purchases and plan for big expenses like a used car or an upcoming vacation.
Budget
A __________ sheet allows easy comparison of income and what is spent.
Budget
A debt-to-income ratio can easily be calculated from a ___________ sheet.
Budget
Unfortunately, most people do not __________ nor plan well for a wedding
Budget
To Properly Buy Insurance:
Buy the Broadest coverage available
Most experts agree that a home buyer should employ a ________ real estate agent.
Buyer's
There is almost always more pressure from insurance salespeople to buy __________ life insurance rather than term life insurance.
Cash Value
The five C's of credit are:
Character, capital, conditions, capacity, collateral
__________ is one of the five C's of credit and is a specific asset of some value that is pledged to the lender.
Collateral
AmeriCorps, Peace Corps, and Teach for America all offer educational service awards that help pay for __________ while the student does something that makes a difference in the world.
College
__________ insurance coverage pays for damages to a car when it is involved in an accident.
Collision
As part of the budgeting process one should:
Compare estimated expenses with actual expenses
The biggest disadvantage and advantage or Credit cards is they are simply more ___________ than cash.
Convenient
although the resume is the tool that helps secure an interview, a well written __________________ provides the incentive for a potential employer to read the resume.
Cover letter
A(n) __________ score is derived from information gathered from a credit report.
Credit
The ease of __________ provided by credit cards makes it very easy to overspend.
Credit
___________ are not evil by themselves.
Credit Cards
________ _________ from the different credit reporting agencies may look somewhat different from each other.
Credit reports
A person can get their ______ ________ for free, but they likely have to pay to see their ______ ______.
Credit reports / Credit score
there is a big difference between a __________ card and a credit card.
Debit
For most people, how they manage their career is one of the biggest personal financial ________ they will ever make.
Decisions
Lower profits could result in the value of assets to ____________ or low or no dividend to be paid or even bankruptcy.
Decrease
On average cars ___________ or lose about ______ percent of their value each of the first few years.
Depreciate / 20%
The very first step in one's financial plan is:
Develop their goals
A career __________ speech is a 20-30 second summary of who someone is and what they are looking to do.
Elevator
When purchasing a car people want to avoid making an _________ decision.
Emotional
A good first savings goal for most people:
Establish an emergency fund in a savings account.
Tax _________ means not paying all taxes that are legally owed, such as not reporting all income or making false claims for ineligible credits or deductions.
Evasion
An _________ warranty is simply one that is expressed or documented.
Express
when interest rates rise, existing bond prices generally:
Fall
A big disadvantage of home ownership is equity ownership.
False
A good cover letter should be at least three pages long.
False
A good way for people to save on purchasing insurance is to buy policies with the smallest deductible they can afford without it causing financial discomfort.
False
A net worth sheet allows easy comparison of income and what is spent.
False
A net worth statement provides the insight to control impulse purchases and plan for big expenses like a used car or an upcoming vacation.
False
According to finaid.org, the average community college tuition is 40% above of the average tuition of a four-year public university.
False
After finding all "free" student financial aid available (grants, scholarships, and even tax credits), the next best way for college students to pay for college is to use private student loans.
False
Bad debt has three common characteristics
False
Budgets should never be simple.
False
Credit card payments should be made on or after the due date.
False
Debit cards provide more protection from fraud and poor business practices than cash.
False
Determining home ownership needs is the most objective part of the home buying process.
False
Even when a budget is seen on paper (or computer), it is difficult to spot specific changes in spending that can be taken to reach any financial goal.
False
Everyone?s tolerance for risk is/should be the same.
False
Federal College Work Study is one of the most used forms of financial aid.
False
Financial autonomy is never healthy for a relationship.
False
Fortunately, after exhausting all grants, scholarships, jobs, and loans, college students are rarely short on tuition money.
False
Good financial goals should be general and make sense for everyone.
False
Good reasons for buying a new car include many reasons, but NOT reduced maintenance, warranty coverage, roadside assistance, or peace of mind.
False
Home owners are viewed by the financial industry as being LESS stable
False
Investing a steady stream of money regularly is called asset allocation.
False
It is NOT a good idea to walk-through an apartment with the landlord or their representative before occupying a newly rented apartment.
False
It is illegal for colleges to have a hard waiver policy, which means college students are automatically covered and charged for health insurance
False
It is necessary to pay the full asking price of an extended warranty when purchasing a car as these prices are not negotiable.
False
It is not a good idea to plan for a career
False
Life insurance needs RARELY change over time.
False
Never review one's tax situation in order to avoid an ?April 15th Surprise.?
False
On federal student loans college students are granted a one year period after they leave school before they need to begin making their loan payments
False
Only for very rich people is their tax burden the largest annual household expense.
False
PLUS student financial aid loans do not charge a fee each time a disbursement is made.
False
Personal property includes all personal items, but excludes thing like furniture, clothing, electronics, computers, and other similar items.
False
Preparing for a job interview is easy
False
Risk management is usually a short-range, disorganized, unplanned strategy to protect assets, families, and individuals.
False
Since taxes are infused into almost everything most people do it is the effect they have on everyday purchases and decisions can be ignored
False
Talking about money is always the best area of communication in a relationship.
False
The federal government does not have an estate tax.
False
The financial planning process needs to be completed on once. (or only once).
False
The future value of an annuity allows easy calculation of what a series of regular payments to be received in the future is worth today.
False
The question, "how much money did grandma put into an account in the beginning?" implies an annuity.
False
The type of investment selected should NOT be linked to time horizon of the financial goal.
False
There are NO tax deductions for contributions made to a traditional individual retirement account (IRA).
False
There are two options to resolve a shortage on a budget sheet; increase expenses or decrease income.
False
There is NO such thing as GOOD debt or BAD debt.
False
Understanding the affect taxes have on purchasing decisions is not important to reaching personal financial goals in as short a time as possible.
False
Unsubsidized student loans are need-based, and the federal government determines how much he or she will get after reviewing the Free Application for Federal Student Aid (FAFSA).
False
When a landlord has insurance to rebuild or repair the apartment building, it also protects the renter?s interest.
False
college students should monitor their student loans each year while in college, but it is not important that they know the total amount they owe before they graduate
False
good communication is about only the ability to write well or to deliver a good presentation.
False
since it is a government form, it is not important to carefully read the instructions on how to fill out the Free Application for Federal Student Aid (FAFSA)
False
there are very few federal, state, and private grants available for college students.
False
when beginning to invest, it is usually best to avoid simple investments.
False
Credit reports are like report cards about a person's professional life.
False. (Financial life)
Few people are familiar with sales tax even though 45 states plus the District of Columbia have some type of sales tax on purchases.
False. (Many people are familiar with sales tax)
Wealth is taxed at both the state and federal levels primarily through sales taxes.
False. (inheritance taxes)
It is not important for taxpayers to understand the difference between tax credits and tax deductions if they want to pay minimum income taxes.
False. (it is important for taxpayers to understand)
Dinning out is done with Pre-tax dollars
False. (post-tax dollars)
when looking to buy a home, to be in a much stronger position to negotiate with potential home sellers the home buyer should:
Get prepared for a mortgage
Very few people truly understand how their housing needs are so closely tied to their other ________.
Goals
The purpose of _____________ is to protect against financial catastrophe.
Insurance
Car dealers often show customers the _________ price during a purchase negotiation.
Invoice
Ira has applied for similar jobs at three different companies. He spent hours developing his resume and cover letter. He had many knowledgeable people read his resume and make suggestions for improvement. He made sure his resume reflected his current skills and experiences in the best possible way. Ira thinks his resume is perfect. what mistake did Ira make when he sent his resume to the three companies?
Ira did not tailor his resume to each individual employer.
An automobile insurance policy written as 30/60/25 means:
It provides $30,000 maximum payout to any one person for bodily injury from an accident
Charles never seems to have enough money to cover all his expenses for the month. he has a financial plan in place and reviews his budget about once every three months. he tracks and records his income and expenses when he thinks of them on his budget worksheet. which of the following is the most likely reason Charles is experiencing difficulty with his financial plan?
L.I.F.E. L- listed expenses are underestimated. I- impulse buying. F - forgotten bills. E - Emergencies.
Certificates of deposit (CDs) are not designed for ________________ investments.
Long-Term
Financial goals include short-term, mid-range, and _________ goals.
Long-term
___________ can be one of the biggest financial decisions a couple can make.
Marriage
There can be a lot of emotional energy in a _________ conversation.
Money
most cases, the total cost of a new car is ______ expensive than a used one
More
A _________ fund, brings together thousands of small investors and pools together everyone's resources.
Mutual
There are thousands of __________ funds from which to choose.
Mutual
The way to get the best deal on a car is too:
Negotiate price only, then negotiate trade-in only, then negotiate financing only.
When it comes time to file taxes a person's goal should be to:
Neither owe money nor receive a large refund
A person can have a negative ______________.
Net worth
When deciding to buy a house your ____________ should be used to determine if there is sufficient cash to cover the costs of a down payment, the costs associated with closing on the home such as attorneys' fees, home inspections, property taxes, and the cost of obtaining a mortgage.
Net-worth Statement
Debt carries with it an ___________ to make those future payments:
Obligation
one type of ______________ protection banks offer is automatically deposit a set amount into a checking account when the account is overdrawn.
Overdraft
Which of the following is NOT one of the recommended strategies for paying off debt:
Pay the Lowest rate first.
_________ _____ are some of the most dangerous and expensive loans around.
Payday Loans
A __________ loan is generally unsecured, which means unlike a mortgage or a car loan there is not an asset attached directly to the loan as security.
Personal
__________ property tax is paid on the value of the things one owns.
Personal
By NOT understanding the basic concept of the time value of money (TVM) people make __________ financial decisions all the time.
Poor
Disability insurance purchased through an employer may allow the premium to be paid in __________ dollars.
Pre-Tax
People work in a ___________ world, but live and play in a post-tax world.
Pre-tax
______________ is a hybrid investment with characteristics similar to bonds and common stock.
Preferred stock
You may request that the collection agent provide ______ that you owe the debt.
Proof
Money affects all _______ whether horizontal, such as friends, siblings, and spouses, or vertical, like parents and children.
Relationships
Many people early in their career are usually better served by __________ their home so they can remain flexible enough to take a new job in another city or state.
Renting
__________ management is a long-range, organized, systematic, planned strategy to protect assets, families, and individuals.
Risk
with investing, the greater the probability of higher returns, the more ___________ that is incurred.
Risk
____________ ____________ is a long-range, organized, systematic, planned strategy to protect assets, families, and individuals.
Risk management
Mae and Robert were discussing how much life insurance they should purchase for Robert. Robert makes $52,000 working for the internal revenue service and Mae makes $61,000as director of admissions for the local community college. Mae and Robert have a mortgage on their home of $140,000, a car loan of $14,000, a student loan of $18,000, and a credit card balance of $3,000. they budget wisely and use every dollar of their salaries to pay their bills and fund their savings goals. what is the easiest way for Robert to determine how much life insurance he should buy?
Robert should determine the lump sum amount that when conservatively invested would provide an annual payment to Mae that is equal to his current salary.
Every reputable lender looks at a borrower's credit report and credit __________.
Score
in a __________ market, where there are more buyers than homes, there is less room for negotiation and the buyer may have to make an offer that is very close to the asking price.
Seller's
Creditors and collection agencies are not allowed to make outrageous threats, call neighbors or family, and cannot harass by telephone or in-person if the borrower __________________________.
Sends a certified letter stating such
_________ is an interview tactic designed to get the interviewee to reveal much more about themselves than they ever intended.
Silence
_________ financial goals avoid general terms such as, "I plan to retire a millionaire".
Specific
____________ financial goals avoid general terms such as, ?I plan to retire a millionaire.?
Specific
The first thing to do to get out of debt is to:
Stop borrowing money.
Although rarely thought of this way, for most people their __________ burden is actually their largest annual household expense.
Tax
Because the federal government takes a significant portion of earned income, the key to spending wisely is to understand the ________ effect on decision making when spending money.
Tax
gnoring the effect __________ have on spending choices very often leads to making poor decisions.
Taxes
There are two basic types of life insurance:
Term and Cash Value
What distinguishes a financial calculator from any other calculator? There are five ___________ keys that set it apart.
Time value of money
Many new college __________ students suddenly find they are low on the financial aid priority list.
Transfer
all of the following are types of treasury securities offered by the U.S. treasury except:
Treasury deposits
A basic understanding or how insurance companies work is important to understand how to reduce insurance costs while maximizing protection.
True
A big advantage of renting is that the home requires little maintenance costs from the renter.
True
A bond rated AA by standard and poor is considered very high quality and very low risk.
True
A good cover letter should be brief and concise, and three paragraphs long at most.
True
A major life event includes things like marriage, divorce, having a baby, adopting a child, receiving an inheritance, changing jobs, or significantly reducing or increasing one's income.
True
A realistic goal would be adding an additional $50 to the minimum payment on a credit card.
True
After finding all "free" student financial aid available (grants, scholarships, and even tax credits), the next best way for college students to pay for college is to work part-time.
True
After signing the lease on a house or apartment the next step is to buy renters insurance
True
Although part-time jobs can be beneficial, it is recommend that most college students not work full-time while trying to attend school full-time.
True
Although the bank will certainly tell a borrower how much the bank is willing to lend, usually it is a much higher number than what the borrower can actually afford.
True
Any wage earner in the 25% federal marginal tax bracket gets to keep 75 cents of every marginal dollar earned.
True
At some point most people ask, ?Where did my money go?? There are countless ways that money seems to leak out of a budget.
True
Before beginning to search for car loans it is a good idea for people to review their credit report.
True
Cash value life insurance should be avoided at almost all costs.
True
College curricula are not standardized.
True
College students should be persistent in finding scholarships.
True
Consumer Reports is an organization dedicated to consumer protection.
True
Customers should be selective when choosing a bank and a checking account.
True
Debt often is one of the most stressful and difficult elements of personal finance.
True
Diversification is an investing basic.
True
Even money stuffed in a mattress is subject to the time value of money.
True
Everybody from advice columnists to counseling experts offer advice on how not to argue about money.
True
For the average wage earner about one-third of each marginal dollar in earned income goes toward taxes.
True
Good financial goals are S.M.A.R.T goals.
True
Good reasons for buying a new car include reduced maintenance, warrant coverage, roadside assistance, and peace of mind.
True
If a person knows what kind of job they want to do and they know the geographic areas that have lots of those kinds of jobs, they can identify specific employers for which they would like to work.
True
In order for debt to be good, the asset or the thing that is purchased should be something that appreciates in value.
True
Insurance should NOT be used to smooth out all the little bumps of life.
True
It is a good idea for people to make investments a priority and to pay themselves first.
True
It is a very good idea to make sure all correspondence with a collection agency is done by certified mail.
True
It is easy to balance most checking accounts.
True
It is important to continually plan for a career.
True
It is the student?s responsibility to seek out the services on campus to help with their particular problem.
True
Just like a financial plan, a career plan includes setting career goals and objectives and then implementing a plan that gets one to where they want to be.
True
Just like any other purchase, it is a good idea for people to shop around for a credit card that best meets their needs.
True
Most complicated investment choices and investment strategies DO NOT make better investments than quality simple investment choices.
True
Most people do a poor job of making a wise car purchase.
True
On nearly all real estate contracts there are contingency clauses.
True
Over the long run Prudent financial planning will slowly eliminate the need for life insurance.
True
People can gain control of their spending by creating a budget and choosing where to spend their money.
True
Some risk is unavoidable
True
Subsidized student loans are need-based, and the college student?s school determines how much he or she will get after reviewing the Free Application for Federal Student Aid (FAFSA).
True
The Independent Insurance Agents and Brokers of America organization provides a list of reputable insurance agents.
True
The federal government taxes gifts.
True
The future value of an annuity calculates how much a regular series of payments will be worth at some point in the future.
True
The old argument that a tax refund is like having a built-in savings plan is a very poor argument as there are better ways to save.
True
The power of compounding is how a small amount of money, such as a one-time deposit of $2,500, grows into a million dollars.
True
There are many easy ways to save money on wedding expenses.
True
To answer any time value of money question, at least three of the five pieces of information must be known
True
Unlike investing in stocks, real estate may require a more hands on approach.
True
When adding payroll tax (FICA) rates to the marginal federal tax rate and the marginal state tax rate it is easy for wage earners to pay 37% or more of their marginal income in taxes.
True
When talking about credit scores, it is common to hear the term FICO.
True
With speculative risk there is a chance of loss, but there is also a chance of significant gain.
True
completing a degree in the field of a dream job increases the chances of getting the next job on that dream career path.
True
it is common for a college student to feel isolated when they move to a new college
True
most credit unions and many banks offer free checking, especially if direct deposit is used.
True
one advantage of using an employer sponsored retirement account is that the contributions come out before employees see it.
True
taxes can be difficult and confusing
True
the very FIRST step in determining how to pay for college is filling out and submitting the free application for federal student aid. (FAFSA).
True
there is no real advantage of raising a credit score above 720.
True
There are so many different types of taxes and so many rules involved that even experienced tax professionals do not know it all.
True.
__________ risk can be avoided but total risk cannot be eliminated altogether.
Unnecessary
Smart investors avoid:
Unnecessary risk
___________ is taxed at both the state and federal levels primarily through inheritance taxes.
Wealth
A ____ is nothing more than a legal document that lets everyone know how and to whom money and other possessions are distributed upon death.
Will
A ________ is a necessity for most parents with young children because it is the best way to assign guardianship.
Will
There are basically three ways to complete a tax return. You can fill out the return yourself by hand, you can hire a tax professional, or:
You can purchase software
When negotiating with lenders and collecting agencies people should:
always get everything in writing, otherwise the deal does not exist.
Most Audits:
are completed through mail
The three W s of career management provide a lens through which to view a __________ plan.
career
Each type of insurance has its own type of ___________
deductible
After a person analyzes their needs, the next step in the car buying process is:
determine what they can afford.
_____ is responsible for their career
each individual on their own
A car loan is generally unsecured, which means unlike a mortgage there is not an asset attached directly to the loan as security.
false
In the student financial aid world, the term ?financial need? must reflect true need
false
Many businesses do not offer credit to their customers to facilitate the sale of their product.
false
Only one financial calculator is available to use in time value of money calculations.
false
There are lots of online websites to get a free credit report.
false
There is NO difference between a financial calculator and any other calculator.
false
The financial exposure of a risk CAN'T be shifted or transferred to another individual or entity
false. (it can be shifted)
federal student loans are considered borrower _______
friendly
according to the money management pyramid, one of the riskiest moves is:
futures and options trading
when choosing an investment advisor, the investor should:
interview the potential advisors and see who fits the best with their personality and goals.
_____________ is a finance term that simply means cash or easy to convert into cash.
liquidity
What do you want to do? Where do you want to do it? And who do you want to do it for? These are three easy questions to ask, but can be difficult to answer when managing a(n) __________ .
none of the answers are correct.
Tax preparation software:
simply asks a series of questions that can easily be answered
Conservative investors prefer:
smaller returns and low risk
Your FICO score is:
the most commonly used credit score.
When a wealthy person (worth more than $3.5 million) dies:
their estate may owe taxes because of estate and inheritance taxes.
When it comes to savings and investing, risk and return are tied together by __________.
time
The real key to getting the most from any community college is to make sure the credits will __________ to a four-year college.
transfer
A Perkins Loan is a relatively low 5% interest loan for which college students apply through their school?s financial aid office
true
A portion of all earned income is collected by various government entities.
true
An insurance rider is simply extra coverage that is in addition to what is received with the main insurance policy.
true
Compounding is the power of the time value of money.
true
Photographers and videographers at weddings usually base the price of their picture packages on the number of hours they work.
true
The present value of a lump sum is used to calculate what a future dollar amount is worth today.
true