Personal Finance Study Guide: Final EXAM!

Insurance experts have estimated that extra costs of up to _____________blank a year may be required to replace the services of a homemaker in a family with small children.

$10,000

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $520,000 in a joint account with her husband, Ted. How much is not covered by FDIC insurance?

$20,000

Min Soo-Yun bought 20 shares of stock two years ago. She recently sold her stock making a profit of $1,400. Long-term capital gain rates are 15 percent for her income level. She is in the 22 percent tax bracket. Her tax on this investment is:

$210.

Kendrick Bishop bought 200 shares of Bayview Petroleum Company for $100 per share and paid a commission of $50. He sold the stock five years later for $125 per share and paid $65 commission. While he held the stock, it paid exactly one dividend of $4.00 per share. What was Kendrick's total dollar return on this stock?

$5,685

Twenty years ago, you began investing $200 a month. Because your investments earned an average of 8 percent a year, your investment portfolio has a current dollar value of $128,000. How much did you earn on your investments over the 20-year period of time?

$80,000

Alisha Pierce would like to invest in 10 T-bills that will have a maturity value of $1,000. The bills have a stated interest rate of 2 percent. What would be the purchase price of these T-bills?

$980

Koehn Plumbing Supply, Incorporated has one million shares of common stock outstanding at a price per share of $62.50. The company earned $6 million after taxes. The annual dividend is $2.50 per share. The company has assets of $250,000,000 and liabilities of $50,000,000. What is the dividend yield?

4%

Home ownership rates are highest among those individuals in which age group?

65 and over

Which one of the following would be your best selection if you could only choose one of the following types of insurance?

A basic plan combined with a major medical expense plan

Which statement is correct regarding mutual life insurance companies?

A mutual company refunds part of the premium to its policyholders.

Which one of the following people is least likely to have to file a federal income tax return?

A single person earning less than $5,000.

Which of the following is the process of spreading your money among several different types of investments to lessen risk?

Asset allocation

Which one of the following is most likely to qualify as an itemized deduction?

Charitable contributions

Which type of organization does not provide home mortgages?

Check-cashing outlets

Which one of the following insurance policy provisions requires the insured to pay for part of the loss if the property is not insured for the specified percentage of replacement value?

Coinsurance clause

Which of the following states the seller must give you a written statement of your right to cancel a deal within three business days if you buy a living trust in your home or somewhere other than the seller's permanent place of business (say, a hotel seminar)?

Cooling Off Rule

Which of the following would be covered by a home insurance policy?

Damage to your roof from hail

Which type of health insurance is notoriously a poor value?

Dread disease

What is the purpose of a cover letter?

Express your interest to obtain an interview

A speculative investment is a high-risk investment that is made in the hope of earning a relatively large profit over a long period of time.

False

Banks often encourage you to make the maximum payment, referred to as the "cardholder amount due."

False

Economics is the study of using money to achieve financial goals.

False

If you work after full retirement age, your Social Security benefits will neither increase nor decrease.

False

Medical payments coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for injury or property damage of others.

False

Most people cannot afford the expense of using trusts.

False

Most speculators purchase stock and hold onto it for a number of years.

False

There are no costs involved in filing for a bankruptcy.

False

Treasury bonds are issued in $5,000 units with 10-year maturities.

False

When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

False

With a credit score of at least 600, a person will usually be able to obtain home financing.

False

Your contribution to a Traditional IRA is fully tax deductible regardless of your filing status and your income.

False

Your friends and neighbors easily can get credit information about you.

False

What type of warranty indicates that the seller has the right to sell a product?

Implied warranty of title

Which statement is not true about a letter of last instruction?

It is legally enforceable in all states.

If a gold bullion bar does not remain in the possession of the dealer or bank that sells it, what must happen before it can be resold?

It must be reassayed.

Which of the following expenses is paid from an escrow account?

Property taxes

Sophia Martinez's goal has been to travel around the world. She has been traveling for six months and she has decided she is a little tired of living out of a suitcase. She has decided to go home, look for a part-time job, and take shorter trips to locations around the world that appeal to her. Which step in the financial planning process does this scenario most likely demonstrate?

Reviewing and revising her financial plan

Which of these is an example of an opportunity cost?

Saving and investing for the future reduces the amount you can spend now.

Rashed Roberts pays a premium each month to State Farm Insurance for automobile insurance on his 2014 Dodge Ram pick-up truck. How is Rashed managing his risk?

Shifting

Maya is seeking interest income for two years but wants to ensure that her investment is as safe as possible. Which type of mutual fund best fits her requirements?

Short-term government bond fund

Which of the following would be organized as a personal and employment record in a home file?

Social Security number

Which of the following serves as collateral for the mortgage?

The home you buy

Which one of the following is a true statement regarding the components of the risk factor?

The interest rate risk associated with corporate bonds is the result of changes in the interest rates in the economy.

Tamara Lock is 55 years old, divorced, and has worked at her current job for five years. She is interested in looking at her credit report. Which of the following pieces of information should she find in this report?

The outstanding balance on the Visa card she has today

A generation-skipping trust allows people to directly leave a substantial amount of money to their grandchildren or great-grandchildren.

True

A large percentage of people do little or nothing to provide for those who will survive them.

True

Affordable health care has become one of the most important social issues of our time.

True

Because an index mutual fund is a mirror image of a specific index, the dollar value of a share in an index fund increases when the index increases.

True

Collectibles include rare coins, works of art, antiques, stamps, rare books, paintings, and other items that appeal to collectors and investors.

True

Dollar cost averaging helps investors avoid the pitfall of buying high and selling low.

True

Estate planning includes a subject most people would rather avoid: death—your own or that of your spouse.

True

Immediate annuities provide income payments at once and are usually purchased with a lump-sum payment.

True

Life insurance may be a reasonable, feasible, and economical means of paying your estate tax.

True

Millions of nontraditional households have unique estate planning problems.

True

Parents or family members are often the source of the least expensive loans.

True

Perhaps the most popular form of marital trust is the Q-TIP trust.

True

Personal opportunity costs refer to time, effort, and health that are given up when a decision is made.

True

Physician expense insurance helps pay for physician's care that does not involve surgery.

True

Risk management is an organized strategy for protecting and conserving assets and people.

True

Technical skills, also known as hard skills, are skills needed for a specific profession.

True

Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20 years.

True

The Tax Cuts and Jobs Act of 2017 limited the mortgage interest deduction from $1 million down to $750,000 for your primary residence if you filed a joint return.

True

The ability-to-repay (ATR)/qualified mortgage (QM) rule requires lenders to consider a borrower's financial situation before granting a mortgage.

True

The cost-of-living protection rider is designed to help prevent inflation from eroding the purchasing power of the protection your policy provides.

True

The current yield for a corporate bond is determined by dividing the annual income amount by the current market value.

True

Too many people make the move to change housing during retirement without doing enough research.

True

You may not be denied credit because you receive Social Security or public assistance.

True

Ella Holman has been selected to manage the property under a trust agreement for Davis Peterson until he reaches the age of 30. Davis is currently 21. In what capacity would Ella be acting?

Trustee

Which organization tests products for electrical and fire safety to assure items meet safety standards?

Underwriters Laboratories

What should you do when you shop online using your credit card?

Use a secure browser.

Which document does the seller use to guarantee the title is good?

Warranty deed

Investors buy precious metals as a safe haven during:

an economic upheaval.

The current financial position of an individual or family is best presented with the use of a:

balance sheet.

Today, almost all bond ownership records are maintained by a process called:

book entry.

Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of:

closed-end credit.

A mutual fund that requires investors to make regular purchases over a specified period of time is called a:

contractual savings plan

The most commonly purchased type of credit insurance is:

credit life insurance.

In the banking industry, checking accounts are frequently referred to as _____________blank deposits.

demand

If you receive a phone call from a debt collector:

expect follow-up written communication within five days.

Trade-offs of career decisions may include:

giving up a secure job to operate your own business. choosing part-time employment to have more time with children. refusing a promotion to move to employment that would reduce leisure time. selecting challenging employment over employment offering the highest salary.

A plan that insures a large number of persons under the terms of a single policy without requiring medical examinations is called a(n) _____________blank life insurance policy.

group

Disability:

has several definitions.

When compared to corporate bonds, the dividend yield on preferred stocks is often _____________blank the yield on bonds.

higher than

Taxable income is used to compute the amount of:

income tax owed.

Inflation is likely to result from:

increased demand by consumers without increased supply

Federal law requires food labels to contain:

ingredients and nutrients

Money received in the form of dividends or interest is classified as ____________blank income.

investment

Arbitration differs from mediation in that arbitration:

is legally binding.

The money obtained by a company from selling corporate bonds:

is obtained from investors.

The debt ratio is calculated as:

liabilities divided by assets

Fluctuations in the prices of stocks, bonds, or other investments due to political activity may cause investors to experience _____________blank risk.

market

You may identify a satisfying career using guidance tests that:

measure interests, abilities, and personal qualities.

Your aunt gives you some money for your birthday and you decide to put it into your savings account instead of spending it. The trade-off of not being able to spend the money now is an example of _____________blank cost.

opportunity

To avoid high fees for cash loans, a person should avoid borrowing from a:

pawnshop.

The turnover ratio of a mutual fund measures the:

percentage of a fund's holdings that have changed or "been replaced" during a 12-month period.

Which of the following is not a variable expense?

rent or mortgage payments

Changes in personal, social, and economic factors make it necessary to:

review and revise your financial plan.

Aaron Garza likes to play golf. This hobby would be an example of a(n) _____________blank factor that influences his purchasing decision.

social

Income dividends and capital gain distributions are:

subject to federal taxation.

A _____________blank cover letter is designed to compare your experiences with the job requirements side-by-side.

targeted