W!SE exam

The best suggestion you gave a friend who is writing a check for the first time is

Date the check because it is usually proof of payment -Date the check because checks are proof of payment. Checks written in pencil or erasable ink can be changed to pay a different payee or amount than the check writer intended to pay. Keep a record of the check written in the checkbook register or stub and deduct the amount from your checkbook balance so you know how much money you have left and you can reconcile your checking account against the bank statement. In addition, it is harder for a forger to change the dollar amount if, on the second line, it is printed rather than written in cursive.

The only type of life insurance that does not develop a cash value is:

Term life insurance -Term life insurance provides a death benefit at a low premium cost. All other types of life insurance are described as cash value life insurance because they develop some type of cash value or cash accumulation.

Which investment would you choose today if you believe interest rates will go up?

Short-term savings instruments -By investing money in short-term savings instruments, your money will be available to invest in a higher interest instrument in the near future.

Consumer finance companies, which are often advertised on TV, are also known as:

Small loan companies -Consumer finance companies specialize in making small loans to individuals or businesses. They primarily make loans to people who cannot qualify for credit elsewhere because of a poor credit history, low income, or minimal assets. For these reasons, interest rates are usually higher than loans from a bank or credit union.

Neil will be traveling by air in Southeast Asia for a six-week vacation. Which step will not provide protection during the trip?

Take his passport -Many medical insurance policies do not cover or severely limit medical care received outside the U.S. when traveling to certain areas of the world. Luggage is more likely to be lost during international travel with multiple stops, and airlines will reimburse travelers only up to a certain dollar amount for lost luggage. Most international airline tickets are expensive, and flight insurance reimburses the traveler if he/she cannot take the flight due to illness or accident.

New coins and currency make their way into the general economy, consumers and businesses, through the distribution system of the:

Federal Reserve System -The U.S. Federal Mint , which is an operating bureau of the Department of the Treasury, makes new coins. The U.S. Bureau of Engraving and Printing prints new currency. The coins and currency are sent to the Federal Reserve Banks, which distribute it as needed. Most new coins and currency replace damaged or worn out coins and currency being taken out of circulation.

Travelers checks, often used for vacations:

Function as cash and are easily replaced if lost -Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it.

Banks use savings account deposits to:

Give loans to consumers and businesses - The basic functions of banks and credit unions are to be an intermediary between savers and borrowers. Banks and credit unions pay interest on customers' savings accounts and hold customers' money through checking accounts and then lend most of that money to other consumers and businesses for a fee (interest).

When securities are traded in the secondary market, who makes or loses money?

Investors -After a share or bond is bought upon its initial issue, it is traded on the secondary market, and the company that issued the stock or bond receives no further profit. Most stocks and bonds are bought and sold by investors on the secondary market. A bond or a share of stock can be sold many times in the secondary market. The New York Stock Exchange, the American Stock Exchange, the NASDAQ, and the over-the-counter market are all part of the secondary market.

An example of closed-end credit is a

mortgage

As an investment, a person decides to buy a small house that has three rental apartments. The profits from this investment may be lower then expected if the

one of the apartments is not rented. -The investor regards the house as a small business. Any time that any apartment is not rented, the investor is losing income and therefore profits on the investment.

When an investor buys a zero-coupon bond, the investor

purchases the bond at a discount from the face value of the bond.

Money set aside to grow is typically called:

savings or investments

After five years of owning a Roth Individual Retirement Account (IRA), a person wants to buy his first home, the person can withdraw money from the Roth IRA

tax and penalty free. - Under normal circumstances, withdrawals from a Roth IRA before retirement age are subject to both taxes and a penalty. However, use of funds for education, purchase of a first home and medical emergencies are three situations which permit the holder of the IRA to use savings in the funds without incurring a penalty or paying taxes on the amount withdrawn.

A 60-year-old makes a withdrawal from his Roth Individual Retirement Account (IRA). The money withdrawn will be

tax free

Our values are:

the basic principles that guide our actions and beliefs

A person complains about how expensive it is to be a cigarette smoker. One of the reasons cigarettes are so expensive is that

the government imposes an excise tax on them. -The government may impose a tax on specific goods and services such as alcohol, cigarettes, gasoline, and airline services, which are called excise taxes. These taxes produce revenue for the government and are usually placed on items not considered necessities. Often, as in the case of alcohol and cigarettes, these taxes are also levied as away to try to deter certain behaviors. As a result, these taxes have become known as \n?sin taxes.?

To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and

the rate of inflation. -The ?time value of money? is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person?s earning power. For example, it may not seem as though depositing $100 a month in a retirement account when someone is 23 makes a whole lot of sense; why not wait until age 40 when it will probably be a lot easier to deposit $250 or $300 a month in the account. However, because of the miracle of compounding interest, that $100 will be worth a lot more when the person is older than the money that is deposited at age 40. However, the other factor to consider in making deposits to a regular savings account is the rate of interest as compared to the rate of inflation. If the annual rate of inflation is 03% and the interest earned on money is 01%, the deposit is actually going to have less purchasing power at the end of the year than it did at the start.

A company offers a defined-contribution pension plan which means that upon retirement the employee will receive

the total amount of money contributed plus investment earnings. -A defined-contribution plan has an individual account for each employee. The document that explains the plan indicates how much the employer will contribute and does not promise any particular benefit. On retirement, or when the individual becomes eligible for benefits, the benefit is the total amount in the participant?s account, including investment earnings on the funds in the account.

A person is convinced that a lending institution is charging too much interest for a loan. This person should be aware that

there are state usury laws. -Charging excessive interest rates on loans is known as ?usury? and that practice is prohibited by law.

A woman has just received a very expensive piece of jewelry. The woman has homeowner's insurance. Which statement would it be most appropriate for her to make to her insurance agent?

"I think I need a personal property floater." -A personal floater is additional property insurance, which is available within a homeowner?s policy, to cover damage or loss of a specific item of value.

Ben's annual income is $30,000, and he contributed $3,000 to a traditional IRA in his local bank. What is his taxable income?

$27,000 -Ben's annual income is low enough that he can deduct his IRA contribution from his taxable income. His taxable income after deducting the contribution is $27,000 ($30,000 - $3,000), so the amount of tax he has to pay is lower than it would have been if he hadn't made the contribution.

If a person has $1,000 in a savings account and earns $20 a year in interest on that account, the rate of return on the money is close to

2%

An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split

80 shares of the stock and the price of each share is $40. -A stock split is when the existing stock divides into a larger number of shares and the price of each share is then reduced accordingly, i.e., a 2-for-1 split on 40 shares that is worth $80 would result in 80 shares at $40 at the time of the split. Among other reasons, companies often decide to declare a stock split when they want to bring in more investors and do not want to issue more stock. Or, they believe that by bringing down the price of the stock through a stock split, that they will increase activity and interest in the corporation's stock.

Lamar believes that interest rates are going to fall in the near future and remain low for a considerable period of time. She should invest in:

A long-term, fixed rate certificate of deposit -By investing now in a long-term, fixed rate certificate of deposit, she will lock in the higher current rate over a long period of time. If she waited until later to invest and interest rates had fallen, the certificate of deposit would have a lower interest rate. This is an example of interest rate risk.

The most liquid type of investment is:

A money market account -The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.

Which statement best describes the relationship between a person's educational level and that person's potential earning power?

A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school -There is a direct relationship between educational level and potential earning power. A person with a professional degree, for example, is likely to earn at least four times as much per year as a person who never completed high school.

What is meant by an uncollateralized loan?

A personal loan without assets to cover the loan amount. -Collateral? is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an ?uncollateralized loan? is one that does not have an asset to support the loan.

A type of electronic funds transfer (EFT) is:

An ATM transaction -According to the Electronic Funds Transfer Act, Electronic funds transfers (EFTs) are any transfers of funds, other than a transaction originated by check, draft, or other paper instrument, initiated through electronic terminal, telephone, or computer, to authorize a financial institution to debit or credit an account. EFT's can be used to carry out many financial transactions, for example, to pay utility bills, make installment loan payments, and transfer funds from a savings account to a checking account or vice versa.

Sally's health insurance policy requires her to pay the first $500 of medical costs each year before the company will pay any of her medical bills. This policy provision is the:

Annual deductible -The deductible is the dollar amount of medical expenses that the insured must pay each year before the insurance company pays anything. Deductibles are used in medical, auto, and property insurance. A basic insurance principle is the higher the deductible, the lower the premium.

How can you avoid becoming a victim of identity theft?

Avoid giving your Social Security number on a phone call you did not initiate

When money is not used and goods and services are exchanged for other goods and services, this system is called:

Barter

The "Rule of 72" is an easy way to:

Calculate how fast your savings will double in value at given interest rates -The Rule of 72 is a formula to approximate the time it will take for a given amount of money to double at a given compound interest rate. The formula is 72 divided by the interest rate earned. In a little over seven years, $100 will double at a compound annual rate of 10 percent (72/10 = 7.2 years).

Nora needed to make a long-distance call from a pay phone and did not have the cash. She was able to make the call by using her:

Cash card -Consumers purchase cash cards for a specific amount of money. The amount paid is stored in the card's memory, and the card can be used to pay for goods or services specific to a particular store or action until the amount stored, or "loaded" on the card, has been spent. The type of cash card Nora used is called a phone card. Some retail chain stores sell cash cards which can be used to pay for their products. Cash cards are either disposable or re-loadable. Disposable cash cards cannot be replenished (loaded again). With re-loadable cash cards, the consumer can return to the merchant and pay to have the balance on the card replenished.

Which financial product may pay a dividend?

Common stock -All of these types of accounts and financial products except for common stock earn interest. Some companies declare and pay dividends to their common stock shareholders.

Interest earned on interest is known as:

Compounded interest -Compound interest enables the saver to earn interest on the interest that was earned earlier.

Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution?

Credit union -Credit unions are not-for-profit savings and lending financial institutions. Membership in a credit union is made up of individuals who have something in common, such as a place of employment, membership in a professional organization, or residence in the same geographic area. Loans are made to its members from the savings of other members. Loan costs tend to be lower and savings interest rates higher at credit unions than at other types of financial institutions.

Which type of financial institution usually pays the highest rate of interest on savings account balances?

Credit unions -Credit unions usually pay the highest rates of interest because they have lower risks and costs of operation. They are not-for-profit organizations, and their members have something in common, such as their employer, geographic area, or religious affiliation. Credit unions also offer fewer services than a commercial bank.

Purchases made with your debit card are usually:

Deducted immediately from your checking account -Debit card purchases are immediately deducted from your checking account balance while credit card purchases are added to your credit card balance. You have about 20 days after receiving a credit card bill to pay it without being charged interest. Through the use of a credit card, you get use of goods or services before they are paid for.

You have a $2,000 loss. Your insurance company pays you $1,500 on the claim for the loss. The $500 the insurance did not pay is a result of your policy having a:

Deductible -Most homeowner's insurance policies include a deductible. The policy owner is responsible for the deductible amount before the insurance company will pay any portion of the claim. Thus, the policyholder must pay for all losses equal to or less than the deductible. Raising the deductible on a policy causes the premium to decrease, sometimes significantly.

Which of the following is considered to be open-end credit?

Department store charge cards. -Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.

When a person is reconciling a checking account and notices that the balance in the checkbook does not match the balance on the statement from the bank, which action is it appropriate for the person to take first?

Determine that checks already written have cleared. -Quite often, the balance reported on a checking account?s bank statement differs from the balance in the person?s checkbook. Reasons for that difference may be due to checks that have been written, and therefore are in the checkbook?s register, but that have not been cleared (returned to the bank for payment). Therefore, first, the person must looked at the bank?s statement and compare it to his/her checkbook register to see that all checks written have cleared.

The term that best describes money left over after paying taxes, fixed and other essential living expenses, is:

Disposable income -The income left over after paying taxes, fixed expenses and other essential living expenses is called discretionary income. Discretionary income is used for extras such as additional savings and investments, vacations, entertainment, and special purchases.

In which situation is a corporation most likely to call (buy back) a bond?

It issued bonds at a 7.5% interest rate, but its current corporate bonds are now being issued at a 5% rate. -A corporation is most likely to buy back a bond when the rate it was issued at is greater than the current rate that the corporation is issuing its bonds. This saves the company from paying a lot of extra in interest payments.

Which factor would most likely lead to an increase the interest rate on a persons credit card?

Late payments. -Before setting interest rates, credit card companies look at the individual?s \ncapacity to repay outstanding obligations. If the capacity is limited then the person is likely to make late payments.

Who benefits the most from inflation?

Long-term fixed rate borrowers -Inflation reduces the purchasing power of money, so every dollar you spend in the future has less value than it has now. Since the payments on long-term fixed rate loans, like 30-year mortgages remain the same for the term of the loan, future payments will take place with dollars that have less purchasing power. Inflation also raises long-term interest rates, so if you are already locked into a fixed rate loan. your interest rate looks more and more favorable.

I find myself using my credit card to cover the cost of food or rent because I'm regularly short on cash at the end of each month. The best thing to do is:

Make a budget and consider ways to reduce expenses or increase income. -Paying for basic needs because you don't have enough money at the end of the month is a sign of credit stress. Ignoring it won't make it go away, and paying only minimums while continuing to charge only increases your balance and your problem. Doing a budget discourages over-spending and helps you save.

Which of the following does the Federal Reserve use to regulate the nation's money supply?

Monetary policy -The Federal Reserve uses monetary policy to regulate the nation's money supply. Monetary policy is directed at expanding or contracting the supply of money and credit in the U.S. economy. In theory, if there is too little money in circulation, consumers will spend less, interest rates will be high, and unemployment will rise. In this situation, the Fed can deliberately increase the amount of money in circulation, leading to lower interest rates, increases in consumer spending, and higher employment rates. If there is too much money in circulation, however, prices rise and the value of the dollar decreases (inflation).

What is the largest equities market in the world?

New York Stock Exchange (NYSE) - The largestof these markets is the New York Stock Exchange. It was founded in 1792 under a tree on Wall Street. Also known as the "Big Board" and "the Exchange." the NYSE has the most stringent listing requirements and is governed by a board of directors. Recent events have led the NYSE to develop and enforce stricter rules of corporate governance.

A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take?

Notify the credit card companies in order to negotiate a new payment plan. -When experiencing financial difficulties, the first action to take is to notify \ncreditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.

Ellen, Barbara, and Paul all charged $1,000 on their credit cards last year. Who paid the most in finance charges?

Paul, who only pays the minimum amount each month -In making the minimum payment, Paul is paying only a small portion (usually 2-4 percent) of the bill. Then interest is charged on the large unpaid balance resulting in the largest dollar amount in finance charges. Barbara, who always pays off her credit card shortly after she receives it, will pay no finance charge.

A good example of a well-stated financial goal is:

Pay off $5,000 in credit card debt in two years

Which statement does NOT accurately describe a characteristic of cash value for whole life insurance?

Policy that accumulates cash value is less expensive than a policy that does not accumulate cash value -Cash value is a dollar amount that increases over the years. The cash value is erroneously called the "policyholder's savings." The policyholder receives the cash surrender value (cash value less the surrender fee and less the loan balance)

Ms. Jackson contacted a mortgage company about refinancing her mortgage. The mortgage company gave her a home loan with unusually high costs and without regard to her ability to repay. This practice is called:

Predatory lending -Predatory lending uses abusive practices in any type of credit but the lenders primarily target applicants for home mortgages, home equity, and home refinancing loans. This practice tends to occur in low-income neighborhoods, particularly those with a large number of elderly or minority homeowners.

The time value of money refers to the concept that money:

Received today is worth more than the same amount of money received in the future -The time value of money refers to the declining value of a fixed sum of money over time due to inflation. Accordingly, a sum of money received today has more value than the same sum received in the future. If you receive $100 today, you can put it to work immediately through savings or investing immediately. The $100 will have the opportunity to grow over a longer period of time than $100 received in the future.

The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are:

Salaries, wages, and tips -The primary sources of income for most people between the ages of 20 and 35 are salaries, wages, and tips from their employment, also known as earned income. Earned income is also the primary source of income for most other age groups. Very few people have sufficient unearned income - dividends, interest, rents, or profits - to live on without holding a job or running a business.

A bank Certificate of Deposit is a:

Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals

A pharmacy is to drugs as the American Stock Exchange is to:

Securities -A pharmacy, run by a licensed pharmacist, is authorized by a state government to fill prescription orders. A stock or bond exchange is where registered stockbrokers buy and sell securities such as stocks or bonds (fill orders) for investors. Exchanges are similar to other marketplaces in that the prices of the goods (equities) change based upon the basic laws of supply and demand.

A government report indicated that the use of Pax's aspirin-free painkiller resulted in 100 cases of stomach poisoning. A large number of Pax's stockholders are likely to:

Sell shares causing the price of the stock to decline -The share price is likely to decrease because of the negative publicity and the costs associated with potential lawsuits and expenses the company will likely incur. If the company's other products are safe and they handle this problem responsibly, the problem may have only a temporary negative impact on its share price.

Which financial product can you buy for $25, is safe, and will be worth $50 at a future date?

Series EE savings bond

Before the Kiss Corporation can issue stocks or bonds, it must register the issue with:

The Securities and Exchange Commission (SEC) - Before a company can raise capital by issuing stocks or bonds, it must register the stock or bond issue with the Securities and Exchange Commission (SEC). An investment banking firm assists the corporation in completing the registration forms and serves as an intermediary between the issuing corporation and the initial investors.

Discretionary income is:

The difference between your total income and your essential living expenses

Employees prefer direct deposits because:

The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person -Instead of a negotiable check, the wage earner receives a pay stub which lists the amount that was directly deposited and the amounts withheld for taxes, health insurance, etc. Through direct deposit, earnings are transferred electronically into the recipient's bank account. Direct deposit is more convenient, safer, and usually faster than receiving and manually depositing a paycheck.

Which of the following is your right as a shareholder of common stock?

The right to receive dividends if paid -Shareholders do not receive interest payments. A shareholder has the right to vote for members of the board of directors and for policy issues, the right to receive quarterly dividends if paid, and the right to transfer ownership of his/her shares to someone else through sale, gift, or inheritance (bequest in a will).

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the

US Treasury Department. - In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.

Can Cathy withdraw money from her IRA savings account?

There is a 10% penalty on any money she takes out before age 59 -If you withdraw money from a qualified retirement plan before you are If you withdraw money from a qualified retirement plan before you are 59 - years old, you have to pay taxes on the amount withdrawn and a 10 percent penalty. Similarly, you must start making regular withdrawals (that are taxable) from your retirement account no later than April 1 of the year following the year you are age 70 . If you fail to make withdrawals, you will pay a penalty equal to 50 percent of the money that was required to be withdrawn. A person can access retirement plan funds earlier than age 59 if he or she becomes totally and permanently disabled. years old, you have to pay taxes on the amount withdrawn and a 10 percent penalty. Similarly, you must start making regular withdrawals (that are taxable) from your retirement account no later than April 1 of the year following the year you are age 70 1/2. If you fail to make withdrawals, you will pay a penalty equal to 50 percent of the money that was required to be withdrawn. A person can access retirement plan funds earlier than age 59 if he or she becomes totally and permanently disabled.

You are behind on your debt payments and go to a responsible credit counseling service, the Consumer Credit Counseling Services. How can they help you?

They can work with those who loaned you money to set up a repayment schedule you can afford to make.

A person buys a flat screen, plasma, theater-like television. The person has homeowner?s insurance. Why would it be appropriate to add a personal property floater to that insurance?

To cover the cost of replacement should the television get damaged or stolen.

Jami lost her debit card. She did not report it missing for 3 months. If an unauthorized person used her debit card, her maximum liability is:

Unlimited liability -According to the Electronic Fund Transfer Act, if a consumer reports the theft or loss of an ATM or debit card to the issuing financial institution within two business days, he/she is liable for not more than $50 of unauthorized purchases. If reported within 60 days, the consumer is liable for up to $500 of unauthorized purchases. If reported after 60 days or not reported, the consumer may be liable for the entire amount of unauthorized purchases.

If you have a managed health care plan, it means that you:

Usually must first meet with your primary health care physician -A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. While differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-paymentsrenders the policy. With almost all life insurance policies, if the insured dies, the beneficiary receives the death benefit, but not the cash value.

Who does a credit bureau or credit reporting agency speak to when collecting information about you for your credit file?

Your creditors and landlords -Credit bureaus and credit reporting agencies get their information from stores, banks, and other creditors, as well as from public records such as court judgments. The information about a consumer is compiled by the credit bureau or credit reporting agency into a credit report that is a record of that particular consumer's transactions and payment patterns.

A man budgeted $200 a month for clothing. This month the man spent $150 on clothing therefore that budget item is considered to have

a budget variance. -The difference between the amount of money budgeted for items ($200 for clothing) and the actual amount of money spent for those items ($150 for clothing) is called a budget variance.

For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive

a calculated amount of money which includes the premiums paid as well as the interest on that money. -The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.

Patty is selling her car through a newspaper advertisement. When she finds a buyer, she wants a form of payment which is guaranteed to be good. Which form of payment should she avoid?

a check

When a person brings an item to a pawnshop to obtain cash, the transaction is considered

a collateralized loan. -Since pawnshops make loans based on determining the value of collateral (a \ntangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.

A consumer is having a dispute regarding an unfulfilled building contract. It is decided that the case will go to mediation, which means that

a neutral third party will hear both sides and then try to resolve the conflict. -Mediation is defined as an attempt by an impartial third party to resolve a difference between two parties through discussions and negotiations.

Buying a treasury bill (T-bill) is best for investors who are looking for

a secure, low risk investment. -These bills are backed by the full faith and credit of the US government, therefore considered relatively risk free.

A person's debt ratio shows the relationship between debt and net worth. The lower the ratio the

better off financially the person is. -Since the debt ratio is calculated by dividing liabilities by net worth, the \nlower the debt ratio the better; that is the better off the person is financially.

Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the

brokerage firm is lending the investor 50% of the money. -Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.

One of the benefits of holding an investment for over a year rather than selling it in less than a year is that the

capital gains on the investment will be taxed at a lower rate. -Capital gains are profits made from the sale of capital assets such as stocks and bonds and are tax deferred until the asset is sold. Capital assets that are held over one year are considered long-term capital gains and are taxed at a lower tax rate or in some cases are not taxed at all.

Sally took out a $50,000 life insurance policy. The $50,000 amount of coverage is called the:

death benefit or face-value

You want to gain control over your income and spending so that you will be able to save money. Which step will help you the most?

developing a budget -A budget is a realistic estimate of your sources and amounts of income and your expenses for a period of time. Developing and using a realistic budget can help you gain control over your income and spending. Developing, but not using a budget, does not help you gain control. Expenses may need to be reduced or eliminated, in order to develop have money left over (discretionary) to use for savings

The following is usually considered a variable expense:

electric bill payment -All expenses can be divided into fixed and variable expenses. Variable expenses change from one specific time period (for example, each month, twice a year, once a year) to another. Examples of monthly variable expenses are gas and electric bills, and the cost of food, clothing, and entertainment. An example of a semiannual variable expense is tuition. Fixed expenses are the same from one time period to another. Examples of fixed monthly expenses are mortgage, rent, and car payments.

A person owns a stock that pays a $2.00 a share dividend. If the person chooses to reinvest that dividend, this means that the $2.00 will go toward buying

more of the same stock. -A dividend reinvestment plan is designed to help the shareholder acquire additional shares (or partial shares if there is not enough money) of the stock by immediately reinvesting the dividend in the same company?s stock as soon as the dividend is declared. The shareholder is still responsible for paying taxes on the dividends earned.

Julian is a single and recent college graduate who just got his first full-time job. Which of the following should be his first financial goal?

establishing a fund for emergencies -Julian should first build an emergency fund, equal to 3 to 6 months' income, so that there will be money to cover major unforeseen expenses, such as car repairs, or travel expenses to visit an ailing family member. An emergency fund should be held in a statement savings account or other liquid investment so that it can be accessed quickly and easily when needed. After he has built the emergency fund, Julian can set and start working toward other financial goals, such as buying a house, buying an adequate life insurance policy, or building a stock portfolio.

The interest earned on United States Series EE Savings Bonds is

exempt from state and local taxes. -The interest rate on US savings bonds is exempt from state and local taxes.

When a person declares bankruptcy that fact will appear on the persons credit report

for a 10 year period. -Most of the adverse information on a credit report appears for 7 years. After a \ndeclared bankruptcy, the limit is 10 years.

To qualify for a Federal Housing Administration (FHA) loan, a person must generally

fulfill income guidelines. -The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.

Something you are working to achieve within a defined period of time is a(an):

goal

Rossi has a part time job delivering pizzas to raise money for college in two years. Going to college is one of Rossi's:

goals

A person places $1,000 in an investment that is considered a tax shelter. Because it is a tax shelter the person can expect

immediate tax benefits from the investment. - A tax shelter is defined as an investment which provides immediate tax benefits as well as an expectation of a future financial return. An example of a tax sheltered investment is an individual retirement account (IRA).

The cost to use someone else's money for a period of time is called the:

interest rate

A student?s grandmother has decided to buy a long term health care insurance policy. The student?s grandmother's decision is most likely related to the fact that this type of coverage

is not offered by Medicare. -Medicare may not cover care in skilled nursing facilities beyond 100 days or nursing or custodial care at home. Long-term care insurance usually covers day-in, day-out assistance that elders may need as they age.

A publicly held corporation announces it is planning to merge with another publicly held corporation. Based on this information, an investor should be aware that the price of the stock

is unpredictable. -Since the price of a stock is determined by demand, it will depend on why the merger occurs and how the merger is perceived by the public. If demand is high the price will increase. If demand for the stock of the merged company is low, the price will drop. Therefore, with the limited amount of information given, no predictions can be made.

A person is depositing $20 in cash and a check for $50. On the checking account deposit slip, the person should

list the cash deposit separately from the check as well as the total of the deposit. - Deposit slips have columns for the depositor to list cash and each check that is being deposited separately. Aside from this information, the depositor lists the total of the deposits, the date and the account number (if it is not a preprinted slip taken from the individual?s check book) on the deposit slip.