Final Exam Study
Jenny's modified adjusted gross income (MAGI) is $120,000 a year, and she owns real estate property that generates a rental income of $10,000 annually. If she pays mortgage interest of $4,000 on her property per year, she might be able to write off up to _____ in depreciation.
$6,000
Jane and Arthur Patrikson are happy that their daughter is graduating from high school. They gift their daughter $25,000, with $12,500 being paid out of Mr. Patrikson's account and the remaining from Mrs. Patrikson's account. What will be the gift tax payable by the Patriksons on account of the above transaction?
0
The net income of Sunrise Corporation is $5 million, and shareholders' equity is $50 million. The return on equity (ROE) is:
10%
The maximum limit on most dental policies is often in the range of _____ per patient.
1000 to 25000
The applicable exclusion amount (AEA) from estate tax for 2018 was:
11,180,000
Tom takes a loan of $60,000 at 4% annual interest to purchase a property worth $100,000. He earns an annual income of $10,000 after expenses but before interest and income taxes are deducted. If the income tax rate is 30%, calculate Tom's leveraged return on the real estate investment. (Show all work. Round the answer to the nearest whole number.)
13%
You could gift any number of people _____ per year without having to pay any gift taxes.
14000
Bill has worked for Excellent Corp. for 4 years. During this period, Excellent Corp. has contributed $25,000 to his retirement plan. Assuming the company uses graded vesting, how much will Bill be able to roll into an individual retirement account (IRA) if he leaves Excellent Corp. at the end of 4 years?
15000
Michael's estimated current monthly take-home pay is $4,500. His total existing monthly disability benefits are $2,950. Michael's estimated monthly disability benefits needed are:
1550
The current net profit of Sigma Inc. is $8 million, the market price of the stock is $65, and sales is $50 million. The net profit margin of Sigma Inc. is:
16
Megan invested in 10 bonds with a total face value of $5,000, issued by Zen Corporation. The bonds paid 10% semiannual interest until the maturity date. Which of the following is the value of interest earned in the first installment on a single bond?
50
Mathew purchased 100 shares of Blue Corporation for $100 per share. Currently, the stocks of Blue Corporation are trading at $150. Which of the following is the rate of return on Mathew's investment in one share?
50% ($150-$100)/$100=50%
A bond is quoted as a 6.5% coupon. The par value of the bond is $1,000, and the market value is $1,200. The bondholder would receive _____ in interest per year.
65
A person born in 1960 or later has to be _____ years old to be able to retire with full Social Security benefits.
67
The market price per share of Zinc Corporation is $145, and earnings per share (EPS) is $20. What is the price/earnings (P/E) ratio of Zinc Corporation?
7.5
A person who is not gainfully employed must start withdrawing funds from his or her Keogh retirement account by age:
70½
A Puppy Pet Services $1,000 bond has a 7.5% coupon rate, matures in 2020, and is currently quoted at $820. What is the current yield? (Round the answer to two decimal places.)
9.15
John Smith is in the 28% tax bracket. If he were to purchase a $1,000 municipal bond that has a stated interest rate of 6.9%, what would the fully taxable equivalent yield be? (Round the answer to two decimal places.)
9.583%.
Which of the following statements regarding bonds is true? a. Individuals investing in bonds receive dividends. b. Bonds cannot be purchased or sold prior to maturity. c. The principal invested in bonds is not returned at the time of maturity. d. Bonds are liabilities of the issuer. e. Income from bonds varies every year.
Bonds are liabilities of the issuer
The _____ reflects the total market value of 98 to 99% of all publicly traded stock in the United States.
Dow Jones Wilshire 5000 Index
Which of the following sections in an annual stockholders' report gives information on ongoing litigation?
Management's discussion and analysis
Which of the following is an advantage of giving gifts? a. Marital deduction allows gifts to be tax free. b. Gifts avoid depreciation in value. c. Gift tax exclusion attracts more estate tax. d. There is no tax exemption for charitable contributions. e. The annual inclusion amount increases with gifts.
Marital deduction allows gifts to be tax free
A _____ is applied to reduce estate tax when a large amount of real estate is for sale in one area.
Marketability discount
Which of the following is a public assistance program that provides health insurance benefits only to those who are unable to pay for health care?
Medicaid
The _____ is often used as a benchmark in assessing the price behavior of high-tech stocks.
NASDAQ Composite Index
The federal government regulates the disclosure of information about securities through the:
Securities and Exchange Commission
A form of joint ownership that may exist only between husband and wife is:
Tenancy by the entirety
___ is a special form of marital property co-ownership that is found only in common-law states
Tenancy by the entirety
The _____ contains the so-called Volcker Rule, which prohibits depository banks from proprietary trading.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
Which of the following best describes portfolio management? a. A plan for dividing a portfolio among different classes of securities in order to preserve capital by protecting the portfolio against negative market development b. The process of creation of a document that is made available to prospective security buyers that describes the firm and a new security issue c. The management of a marketplace in which stocks, bonds, and other financial instruments are traded d. The buying, selling, and holding of various securities in order to meet a set of predetermined investment needs and objectives e. The management of an agency of the federal government that regulates the disclosure of information about securities and generally oversees the operation of the securities exchanges and markets
The buying, selling, and holding of various securities in order to meet a set of predetermined investment needs and objectives
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary rather than being considered part of your estate, which means that:
The cash benefits from your life insurance policy cannot be claimed by creditors
The first step when buying property and liability insurance is to develop a(n):
Inventory of exposures to loss
A document that legally modifies a will without revoking it is called a(n):
A codicil
Which of the following statements regarding American Depositary Receipts (ADRs) is true? a. ADRs are denominated in foreign currencies. b. ADRs represent a stated number of shares in a specific foreign company. c. The investors in ADRs receive dividends in foreign currencies. d. The investors in ADRs receive annual interest amounts in dollars. e. ADRs are traded only in foreign exchanges.
They are issued by large domestic commercial banks.They facilitate U.S. trading in foreign securities.
The settlement option chosen by most policyholders is:
lump sum
If you are laid off, your group health insurance:
m if you pay the premiums
_____ is a health care plan in which subscribers/users contract with the provider organization, which uses a designated group of providers meeting specific selection standards to furnish health care services for a monthly fee.
managed care plan
All mutual funds always charge a:
management fee
_____ risk results from the behavior of investors buying and selling securities that lead to swings in prices.
market
The _____ of securities in a worksheet of investments will be the most helpful in calculating the cumulative return on investments.
market value
f the ownership of a closely held company is less than 50% of the outstanding stock, then the ownership is termed a:
minority interest
Damien plans to buy a share at $120 and hold it for 5 years. During this period, he would receive average annual dividends of $4 a share. He expects to receive $145 at the end of the 5-year period when he sells the share. What are the keystrokes used to calculate the rate of return on the investment?
b. N = 5, PV = −120, PMT = 4, FV = 145
Which of the following individuals would a portfolio containing 80 to 90% in common stocks be appropriate for? a. Meredith and Joe, a blue-collar, two-income family with 2 children, both of whom will be starting college within the next 3 years b. Ryan and Ramona, newlyweds who are in their mid-20s, have steady jobs, and are putting money aside for retirement c. Antonio and Lora, a couple in their mid-50s who earn a combined $150,000 in salary and are planning to retire in 10 years d. John and Vanessa, a retired couple in their mid-60s e. Michelle, a divorced middle-aged mother who has custody of her children, ages 2 and 6, and earns $60,000 a year in salary
b. Ryan and Ramona, newlyweds who are in their mid-20s, have steady jobs, and are putting money aside for retirement
he community rating approach to health insurance premium pricing:
prohibits insurance companies from varying rates based on health status or claims history
he Employee Retirement Income Security Act (ERISA) was established to provide:
protection to employees participating in private employer retirement plans.
Changes in the general level of prices within an economy produce:
purchasing power risk
Cash dividends on common stock are most often paid:
quarterly
Selling your back-end load mutual fund shares might result in a charge called the:
redemption fee
The basic purpose of insurance is to
reduce financial uncertainty and make accidental loss manageable protect from economic losses
_____ covers the cost of visits to a doctor's office or for a doctor's hospital visits, including consultation with a specialist.
regular medical expense insurance
To purchase a personal liability umbrella policy, the insured party must already have:
relatively high liability limits on their homeowner's and auto coverage.
A policy provision ensuring continued insurance coverage for the insured's lifetime as long as the premiums continue to be paid is known as:
renewability
A(n) _____ provision enables you to purchase a term life policy again at its expiration.
renewable
The _____ is the amount earned on an investment per dollar invested.
return on investment
An advantage of a(n) _____ trust is that it provides for management continuity and income flow even after the grantor's death and allows assets to bypass probate.
revocable living trust
_____ is the choice to accept and bear the risk of loss.
risk assumption
_____ involves abstaining from any activity that will affect an individual financially.
risk avoidance
The purchase of insurance is a common form of _____ by the insured.
risk transfer
When you buy 300 shares of a company, you have purchased a(n):
round lot
The most important reason why people invest is to:
saving for retirement
The _____ requires investment companies to register with the Securities and Exchange Commission (SEC) and to fulfill certain disclosure requirements.
securities act of 1933
The new securities sold in primary markets are handled by a(n):
security exchange council
The disposition of property involves:
selling the unneeded property to a third party
A grantor is also called the:
settlor
The person setting up a trust is called the:
settlor
Which of the following statements regarding risk avoidance is true? a. Risk avoidance is any activity that lessens the severity of loss once it occurs. b. Risk avoidance is any activity that increases the chance that a loss will occur. c. Risk avoidance is any activity that helps evade an act that creates a risk. d. Risk avoidance is an effective way to handle many types of potentially small exposures to loss when insurance would be too expensive. e. Risk avoidance is an act that reduces the probability that a loss will occur.
c. Risk avoidance is any activity that helps evade an act that creates a risk.
An investor receives a return from an investment due to:
capital gains on sale of an investment.
Discount brokers will:
charge low commissions
The commonly cited price for a bond in the financial press and on the Internet is usually its _____ bond price.
clean
Which of the following statements regarding a good insurance agent is true? a. The agent is aggressive while pursuing business from the potential insured. b. The agent charges high commissions for providing insurance coverage. c. The agent replies with fancy buzzwords and generic answers to questions. d. The agent is recommended by professionals like bankers and attorneys. e. The agent is the first one to solicit the potential insured's patronage.
d. The agent is recommended by professionals like bankers and attorneys.
Which of the following types of bonds is unsecured? a. Equipment trust certificates b. Treasury bonds c. Mortgage bonds d. Debentures e. Agency bonds
debenture
A bear market condition is associated with:
declining securities prices.
n increase in the amount of the deductible will:
decrease the amount of insurance premiums.
While using the needs analysis approach to determine how much life insurance to purchase, you should:
deduct available resources from your family's total economic needs
The _____ represents the initial amount that's not covered by a health insurance policy and thus must be paid by the insured.
deductible
___ gives the property owner an allowance for the decline in the physical condition of real estate over time.
depreciation
The relevant sale or invoice price of a bond to the buyer, which adds the accrued interest to the quoted price, is its:
dirty
A bond selling below par value is selling at:
discount
A diversified portfolio of securities is characterized by:
dissimilar risk-return characteristics of the financial instruments
A(n) _____ sells fund shares, either directly to the public or through authorized dealers.
distributor
Return on equity (ROE) is calculated by:
dividing the net income by average stockholders' equity.
Universal life insurance is:
a combined investment plan and insurance policy.
An exclusive provider organization (EPO) is a:
a managed care plan that reimburses members only when affiliated providers are used
Which of the following changes would tend to increase the premium on a disability policy? a. A shorter elimination period b. Decreasing the payment period until age 65 to a maximum of 2 years c. Decreasing the benefit level to 50% from 66% of prior earnings d. Use of the "any occupation" definition of disability instead of the "own occupation" definition e. Mandatory disability insurance in which the employer pays the entire premium
a shorter elimination period
Which of the following is a reason to invest in mutual funds? a. Mutual funds provide diversification of invested funds. b. Mutual funds do not charge any fees. c. Mutual funds provide a guaranteed return in spite of market risks. d. Mutual funds are free of any hidden costs. e. Mutual funds earn tax-free returns.
a. Mutual funds provide diversification of invested funds.
Stockbrokers are also known as:
account executives
When a bond is sold between coupon payment dates, the buyer pays the seller for the _____, which is the prorated share of the upcoming coupon payment.
accrued interest
The period during which premiums are paid for the purchase of an annuity is called the:
accumulation
Which of the following statements regarding real estate investments is true? a. Adding real estate to your stock portfolio increases investment diversification. b. Real estate investments move in tandem with stocks. c. Real estate is an asset with high liquidity. d. Real estate investments cannot depreciate. e. Real estate investments have less scope for financial leverage.
adding real estate to your stock portfolio increases investment diversity
Through underwriting, insurance companies try to guard against:
adverse selection which happens when only high risk clients apply for and get insurance coverage (means a disproportionate # of bad risks)
Bonds issued by political subdivisions of the U.S. government that are not obligations of the U.S. Treasury are called:
agency bonds
From an investor's point of view, the most important feature of a convertible bond is its:
allow corporations to borrow money at a lower rate of interest (lower coupon
Which of the following best describes a situation of intestacy? a. Eduardo became physically challenged after he was injured in a car accident. b. Mason died without any probate property. c. Jill died without heirs. d. George has insufficient medical insurance to cover the cost of medical treatment he needs. e. Lily died without a valid will.
dying without a valid will
Which of the following statements regarding the multiple-of-earnings method is true? a. The multiple-of-earnings method subtracts specific financial obligations and resources from the gross annual earnings of the insured to determine the amount of annual insurance premium. b. The multiple-of-earnings method considers the insured's financial obligations to compute the insurance premium amount. c. The multiple-of-earnings method multiplies the amount of tax benefits available to the insured when the life insurance benefit is paid. d. The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the net annual earnings of the insured by some selected number. e. The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.
e. The multiple-of-earnings method determines the amount of life insurance coverage needed by multiplying the gross annual earnings of the insured by some selected number.
Insurance is a tool that can reduce your _____ risk.
economic
Activities of daily living (ADLs) are important in determining _____ for long-term-care insurance.
eligibility
_____ are senior, unsecured, unsubordinated debt securities issued by an underwriting bank.
exchange traded notes
If a term life insurance policy is convertible, it can be:
exchanged for cash
The most comprehensive measure of money management costs is the _____, which includes the management fee.
expense ratio
Melissa's retirement plan is described in her employee handbook as follows:NoncontributoryCliff vesting (100%) after 3 years of full-time employmentMonthly retirement benefits based on average salary over the last 3 years of employment and the total number of years worked for the companyWhich of the following statements about this retirement plan is true? a. Melissa will have to pay money into the plan. b. For Melissa, vesting takes place gradually over the first 3 years of employment. c. Melissa's retirement plan is a defined contribution plan. d. Melissa will have to make investment decisions regarding her retirement plan. e. If Melissa leaves this company before working full time for 3 years, she will not receive any benefits.
f Melissa leaves this company before working full time for 3 years, she will not receive any benefits.
The tax base for the transfer tax is:
fakir market value
Conversion privileges allow investors to switch from one mutual fund to another within a:
family of funds.
Companies with a great deal of long-term debt are considered to have high _____ risk.
financial
_____ can be both an advantage and a disadvantage of universal life insurance.
flexible premiums
Standard homeowner's policies will not include coverage for damage done by:
flood
Families faced with the loss of a principal wage earner receive Social Security survivor's benefits:
from the government that are intended to provide basic, minimum support.
An investment that earns interest on interest is said to be earning a:
fully compounded rate of return
Your gross estate is reduced by _____ to determine the adjusted gross estate.
funeral and administrative expenses
Which of the following would be a first-level death-related cost? a. Inheritance taxes b. Federal estate taxes c. Funeral expenses d. Administrative costs e. Probate expenses
funeral expenses
A _____ is a type of municipal bond that is backed by the full faith and credit of the municipality.
general obligation?
The unified rate schedule applies to federal _____ taxes.
gift and estate
In which of the following procedures does vesting take place gradually over the first 6 years of employment?
graded
Employers often provide _____ life insurance as a fringe benefit for their full-time employees.
group
Which of the following policy features allows the insured to increase coverage periodically without showing proof of insurability?
guaranteed purchase option
During the past few decades, the percentage of our income spent on health care:
has increased due to an aging us population
When a trade occurs in a securities exchange:
he buyer purchases directly from the seller.
The business risk faced by an investor when investing in a company is related to:
he firm's ability to meet operating expenses in a timely manner.
One drawback of long-term-care insurance is its:
high annual premiums
Medicare Part A provides:
hospitalization insurance - inpatient
A real estate investment trust (REIT) that invests in various types of income-producing properties and mortgage loans is a:
hybrid REIT
Which of the following characteristics of an investor should be evaluated in order to formulate an effective portfolio strategy? a. Level of educational attainment b. Interest in specific activities c. Level of Internet skills d. Judgment skills to buy and sell securities e. Level and stability of income
level and stability of income
You will receive the largest monthly payment under an annuity contract when the annuity disbursement option is the:
life annuity with no refund.
Instructing your broker to buy or sell a stock at a particular price is a:
limit order
You want to pay premiums for 20 years and have your insurance premium obligations finished at that time. However, you feel you will need life insurance for the rest of your life. You should choose a _____ insurance policy.
limited payment whole life
A document that precisely states the treatments a person wants if he or she becomes terminally ill is called a(n):
living will
The insurance designed to help with nursing home, assisted-living community, or in-home care due to chronic illness is called:
long term care
The Securities Investor Protection Corporation (SIPC) provides insurance to protect the investor from:
loss of cash and insecurities
The probability of a loss occurring can be reduced by:
loss prevention
The death benefit of a(n) _____ life insurance policy may decrease because of poor investment returns.
variable
If an annuity plan is designed so that the monthly payment is adjusted by the actual investment experience of the insurer, it is a(n):
variable annuity
The policy owner assumes the investment risk with a _____ insurance policy.
variable life
Leverage involves:
when a investor or business uses borrowed money in an attempt to increase the rate of return that is earn on a investment.
Negligence occurs when someone:
when someone causes an accident or injury due to their failure to exercise reasonable care
Maria has invested $200,000 in mutual funds and $20,000 in bonds. The total value of her portfolio is:
. $220,000
Lillian has a defined benefit plan that promises an annual retirement benefit based on 2% of her final 3-year average annual salary for each year of service. At retirement, Lillian has 15 years of service and had an average salary of $80,000 over the last 3 years. What is the amount of her annual benefit?
. $24,000
Which of the following statements regarding medical insurance costs in the United States is true? a. Advances in medical technology have decreased medical insurance costs. b. Increased regulation and decreased administrative costs have reduced medical insurance costs in the United States. c. Due to the financial importance of health insurance, nearly 50% of the U.S. population has health insurance. d. A poor demand-and-supply distribution of health care facilities and services has increased health care costs. e. Health insurance does not pay for routine medical costs
. A poor demand-and-supply distribution of health care facilities and services has increased health care costs.
Which of the following statements regarding long-term-care insurance is true? a. Long-term-care policies do not reimburse the insured for the cost of services incurred on a day-to-day basis. b. There is no waiting period to receive the benefits. c. Most long-term-care insurance policies are non-renewable in nature. d. Many policies offer inflation protection riders for an additional premium. e. The maximum duration of benefits is only 1 year.
. Many policies offer inflation protection riders for an additional premium.
Compared to mutual funds, exchange-traded funds (ETFs):
. accommodate investors pursuing narrow market segments.
A general-purpose money fund:
. invests in virtually any type of money market investment vehicle.
Clara's portfolio is worth $200,000, and her portfolio consists of common stocks worth $56,000. Therefore, equity constitutes _____ of Clara's portfolio.
28
A(n) _____ oversees a mutual fund's portfolio and makes the buy and sell decisions.
investment advisor
A bull market is characterized by:
investor optimism, gov stimulus
Exchange-traded funds (ETFs):
is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. have become more popular as a form of investment in recent years.
A bond was issued at a par value of $1,000 when the interest rate for similar bonds was 8%. Presently, new bonds issued with a similar creditworthiness have a 10% interest rate. Which of the following statements about the bond is most likely to be true?
it is currently selling at a discount
Which of the following investments has the highest liquidity risk? a. Treasury bond b. Land c. Mutual fund share d. Common stock e. Corporate bond
land
The Dow Jones Industrial Average (DJIA) is based on:
30 stocks
A grace period permits a policyholder to retain full death protection for usually _____ after a premium payment date is missed.
31
An annual contribution of $3,000 to a retirement account that earns 6% will be worth approximately _____ in 20 years. (Round the answer to the nearest whole dollar.)
$110,357
Henry has a defined benefit plan that promises an annual retirement benefit based on 2% of his final 5-year average annual salary for each year of service. At retirement, Henry has 21 years of service and had an average salary of $95,000 over the last 5 years. His annual benefit will be:
$39,900
Jacque Solis, a 38-year-old, is leaving her current job and would like to take a long vacation before a new job. She has $62,000 in an individual retirement account (IRA) that she would like to live on during this period. If she is in a 25% marginal tax bracket, how much will she have left after paying taxes and penalties?
$40,300
Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement fund. If they can earn 8% annually on their funds, how much do they need to save annually? (Round the answer to the nearest whole dollar.)
$7,238
Mike has decided to purchase a real estate property that is expected to generate a net operating income (NOI) of $63,000 per year. With a 9% cap rate, the property would have an estimated value of:
$700,000
Under the Patient Protection and Affordable Care Act (ACA), family health care insurers must allow parents to retain their children on their health insurance policies up to the age of:
26
Jonathan estimates that financial resources worth $2,000,000 will be necessary to protect his family after his death. What amount of insurance, as per the needs analysis method, should Jonathan purchase if he has current financial resources worth $1,000,000?
1,000,000
Treasury notes are issued with:
2 to 10 years.
Suppose the earnings per share (EPS) of a stock is $2, and the current price/earnings (P/E) ratio is 10. What is the current price of the stock?
20
Patrick's monthly take-home pay is $5,000. His net worth is $125,000. He estimated that he would receive Social Security benefits worth $1,000 and company disability benefits worth $2,000 if he becomes disabled. The additional amount of disability benefits that he needs to arrange for is:
2000
Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, is the primary beneficiary, and their children, Mimi (age 24) and Ann (age 30), are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed?
200000 to jack
The Smith family owns 200 shares of Elta stock. The company declared a 5% stock dividend. The Smiths now own:
210 shares.
It is advisable to purchase life insurance from an insurance company that has been in business for at least _____ years.
25
James purchased five bonds with a face value of $1,000 that paid a 5% annual interest rate. James's total annual interest income for each year is:
250
Jamie has worked for ABC Printing for 5 years. During this period, ABC Printing has contributed $25,000 to her noncontributory retirement plan. Assuming ABC uses cliff vesting, the longest period allowed, how much will Jamie be able to roll into an individual retirement account (IRA) if she leaves ABC Printing?
25000
Which of the following represents a disadvantage of a whole life insurance policy? a. A whole life insurance policy provides only temporary coverage for a set period. b. It is difficult to evaluate the true cost of a whole life insurance policy at the time of purchase. c. A whole life insurance policy often provides lower yields than other investment vehicles. d. A whole life insurance policy does not provide any tax advantages on accumulated earnings. e. A whole life insurance policy may require a policyholder to pay higher premiums when the policy is renewed.
A whole life insurance policy often provides lower yields than other investment vehicles
Comprehensive automobile coverage refers to:
A. coverage for damage to an insured automobile from perils (with a few exceptions) other than collision.
Two investment prerequisites that are essential to developing a successful investment program are:
Ample insurance and liquidity (cash and savings) with which to meet life's emergencies
Which of the following is a difference between an exchange-traded fund (ETF) and a mutual fund? a. An ETF is a hybrid security, whereas a mutual fund is not a hybrid security. b. An ETF can only be traded at the end of the day, whereas a mutual fund can be bought or sold throughout the trading day. c. An ETF is a fixed-income instrument, whereas a mutual fund is a variable-income instrument. d. An ETF is a convertible security, whereas a mutual fund is a nonconvertible security. e. An ETF provides more favorable tax treatment than a mutual fund.
An ETF provides more favorable tax treatment than a mutual fund.
A personal liability umbrella policy:
An insurance policy providing excess liability coverage for homeowner's and automobile insurance as well as additonal coverage not provided by either policy
If you withdraw funds from a Keogh plan before age 59½, you will have to pay a _____ federal income tax penalty.
B. 10%
Which of the following statements about a stock's beta is true? a. Stocks with betas of less than 2.0 have low price volatility. b. Stocks with positive betas are considered to be highly volatile. c. Most stock betas are positive. d. The higher the beta, the more confidences that investors are presumed to have in a given security. e. High-beta stocks are relatively conservative investments.
B. High-beta stocks are relatively conservative investments.
Which of the following bond ratings would be for junk bonds? a. AaA b. BBB c. C d. BB e. Aaa
BB
High-grade corporate bond funds invest chiefly in investment-grade securities rated _____ or better.
BBB
Which of the following statements about balanced funds is true? a. Balanced funds are viewed by many high-income investors as a type of tax-sheltered investment. b. Balanced funds generally keep 30% to 40% of their portfolios in bonds. c. Balanced funds look for stocks with relatively low price/earnings (P/E) ratios, high dividend yields, and moderate amounts of financial leverage. d. Balanced funds put most of their money into equities. e. Balanced funds are most suitable for investors who can tolerate risk and price volatility.
Balanced funds generally keep 30% to 40% of their portfolios in bonds.
Donna, who is single and 30 years old, received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2017 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance?
C. Raising her deductible from $250 to $1,000
_____ dividends are the most common form of dividends.
Cash dividends
A life insurance agent who takes his or her profession seriously is likely to have earned which of the following professional certifications?
Chartered Life Underwriter
An insurance company usually assigns more complex loss cases to a:
Claims adjustor
Which of the following combines some of the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund? a. Net asset fund b. Preferred fund c. Unit investment fund d. Exchange-traded fund (ETF) e. Common fund
ETF
_____ are highly speculative investments that seek large profits from capital gains.
ETFs
Which of the following statements about exchange-traded notes (ETNs) is true?
Exchange-traded notes (ETNs) are senior, unsecured debt securities issued by a bank or financial institution.
The primary purpose of life insurance is to provide:
Financial security for dependents in the event of death
Ben (age 40) pays a low ($15) co-payment each time he visits a doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben has a relatively low deductible, has no exclusions, and does not have to file insurance claims. Which of the following most likely provides Ben's health coverage?
HMO
Which of the following is a basic, seldom-used homeowner's policy with relatively narrow coverage? a. HO-1 b. HO-4 c. HO-6 d. HO-3 e. HO-2
HO-1
Which of the following homeowner's policies provides coverage for damage caused by electrical current? a. HO-9 b. HO-1 c. HO-8 d. HO-2 e. HO-7
HO-2
Which of the following homeowner's policies provides coverage for the damage caused by the accidental discharge of water or steam? a. HO-8 b. HO-1 c. HO-2 d. HO-9 e. HO-7
HO-2
Which of the following homeowner's policies is best suited to a renter of an apartment?
HO-4
The _____ is a good homeowner's policy for a condominium owner.
HO-6
In 2018, James gave his son John a $5,000,000 term life insurance policy taken on James' life. At the time of the gift, James was in good health, and the value of the term insurance policy for gift tax purposes was less than the $15,000 annual exclusion amount. However, James died in 2019. Which of the following statements is true? a. In 2019, the $5,000,000 gift will be included in James' gross estate for estate tax purposes. b. James will get an annual exclusion of $50,000 (i.e., 1% of the gift amount in 2019). c. James cannot avail the charitable deduction in 2019, as he did not outlive the transfer by more than 1 year. d. In 2019, the $5,000,000 payout will not be included in James' gross estate for estate tax purposes, as he had outlived the transfer by more than 1 year. e. In 2019, James will be eligible for a unified tax credit of $500,000 (i.e., 10% of the gift amount, as he has outlived the transfer by more than 1 year).
In 2017, the $5,000,000 gift is included in the gross estate of James, for the estate tax purpose.
Which of the following statements regarding Social Security benefits is true? a. Social Security benefits may be reduced if the recipient is under age 55 and still gainfully employed. b. Social Security benefits are available to military personnel only. c. To obtain Social Security benefits, you must participate in enough quarters. d. In two-income families, both husband and wife may be eligible for full benefits. e. Social Security benefits are retirement benefits extended only to self-employed people.
In two-income families, both husband and wife may be eligible for full benefits.
Harry starts receiving reduced retirement benefits at age 62. These benefits:
Increase when he reaches the normal retirement age
Which of the following statements regarding insurance underwriting is true? a. Insurance underwriters lessen the severity of loss after it occurs. b. Insurance underwriters perform any activity that reduces the chance that a loss will occur. c. Insurance underwriters design rate-classification schedules so that people pay premiums that reflect their chance of loss. d. Insurance underwriters perform a process used to avoid an act that would create a risk. e. Insurance underwriters help insurers determine the insurance needs of the potential insured.
Insurance underwriters design rate-classification schedules so that people pay premiums that reflect their chance of loss.
It pays to comparison shop for insurance policies because of the
Large variations in premiums and services
A higher home insurance cost may result from:
Low credit scores of the insured
Which of the following statements about the review of estate plans is true? a. Transfer costs are not applicable to the transfer of estates and, therefore, will not affect the review plan. b. Periodic reviews and revisions are required to update the plan. c. Estates are exempted from taxes when there is an intestacy, which makes a review process redundant. d. Estate planning and review is a very simple process that doesn't require professional assistance. e. Life events like disability and job change do not influence the review of estate plans.
Periodic review and revision is required to update the plan.
A coordination of benefits provision in a health insurance policy _____ by collecting benefits from more than one policy.
Prohibits collecting more than 100 percent of covered charges
Aside from the initial distribution of common stock when the corporation is formed, subsequent sales of additional shares may be made through a procedure known as a:
Public offering
Which of the following is the principal source of income for the average retiree? a. Earnings from full- or part-time jobs b. Earnings from income-producing assets (such as stocks and bonds) c. Pension plans d. Annuities e. Social Security
Social Security
While performing needs analysis, when determining the financial resources that will be available after your death to offset your family's total economic needs, you would generally ignore:
Social Security
Funds for Medicare benefits come from:
Social Security taxes paid by covered workers and their employers.
_____ is a risky short-term investment activity.
Speculating in securities
At the scene of an accident, the police are only responsible for assessing the:
The probability of a law violation
Insurance underwriting is best described as:
The process by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums
A letter of last instructions is a(n):
The court-supervised disposition of a decedent's estate. An informal memorandum separate from the will and containing suggestions or recommendations for carrying out the descendant's ...
Underwriting refers to:
The determination of which exposures o insure
Which of the following statements about risk is true? a. The higher the risk, the lower the maturity value of the investment. b. The higher the risk, the lower the expected return. c. The higher the risk, the lower the risk-free rate. d. The higher the risk, the higher the expected return. e. The lower the risk, the greater the maturity value of the investment
The higher the risk, the higher the expected return.
Which of the following is a requirement for nearly all workers today to qualify for full retirement benefits under the Social Security system? a. The individual must be employed in a job covered by Social Security for at least 50 quarters, or 12.5 years, which need not be consecutive. b. The individual must be employed in a job covered by Social Security for at least 50 consecutive quarters, or 12.5 years. c. The individual must be employed in a job covered by Social Security for at least 40 consecutive quarters, or 10 years. d. The individual must be employed in a job covered by Social Security for at least 40 quarters, or 10 years, which need not be consecutive. e. The individual must be employed in a job covered by Social Security for at least 60 quarters, or 15 years, which need not be consecutive.
The individual must be employed in a job covered by Social Security for at least 40 quarters, or 10 years, which need not be consecutive.
n insured does not get the right to arbitration when the:
The insurance company denies responsibility for the loss
Which of the following securities laws regulates the sale of mutual fund shares
The investment Company Act of 1940
_____ determines the amount of life insurance coverage required for an individual by considering his or her financial obligations and available financial resources in addition to life insurance.
The needs analysis method
Retirement planning starts with:
The setting of retirement goals.
Which of the following statements regarding individual retirement accounts (IRAs) is true? a. Traditional IRAs can be opened by anyone with a modified adjusted gross income (MAGI) of more than $50,000. b. It is not possible to convert a traditional IRA to a Roth IRA. c. A 10% tax penalty applies to any funds withdrawn from a traditional IRA before 70½. d. Withdrawals from Roth IRAs are tax free, so long as the account has been open for 5 years and the individual is past the age of 59½. e. Contributions made to traditional IRAs are made with after-tax dollars.
Withdrawals from Roth IRAs are tax free, so long as the account has been open for 5 years and the individual is past the age of 59½.
Which of the following statements regarding workers' compensation insurance is true? a. The federal government is responsible for setting workers' compensation legislation and regulating the program. b. Employees are required to bear half of the entire cost of workers' compensation insurance. c. Workers' compensation insurance includes only rehabilitation expenses. d. Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes. e. Employers who file the most claims pay the lowest premiums on the insurance coverage
Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
Having money taken at regular intervals from your paycheck and put into a mutual fund is an example of:
an automatic investment plan
A captive agent is a(n):
an insurance agent who represents only one insurance company.
A stop-loss order:
an order to sell a particular stock at the next available opportunity after its market price reaches a specified amount
A stock's dividend yield is calculated as the:
annual dividend received per shares divided by the market price per share of stock.
An _____ provides financial and descriptive information about a firm's operations in the recent past to stockholders and other interested parties.
annual stockholder's return
Medicare's supplementary medical insurance (SMI) provides health care protection beyond the basic hospital coverage for:
anyone age 65 or over who pays premiums on a voluntary basis.
_____ is a process to settle disputes between a brokerage firm and its clients.
arbitration
Exchange-traded funds (ETFs) are often the most cost-effective choice for investors who:
are investing a large sum of money.
Auto insurance is needed primarily:
as protection against potential liability claims.
The decision on how to divide your portfolio among different types of securities is known as:
asset allocation
Part A liability coverage under a personal automobile policy may be viewed as "following" the _____ first.
auto
An annual fee charged by a number of open-end mutual funds that's supposed to be used to offset promotion and selling expenses is called the:
automatic investment plan
A(n) _____ is a service offered by mutual funds that enables an investor to earn a fully compounded rate of return on their investments.
automatic reinvestment plan
Disability income policies usually have a(n) _____, which is a time delay from the date of the issuance of the policy until benefit privileges are activated.
probationary period
Which of the following statements regarding private health insurance plans is true? a. With a fee-for-service plan, the health care provider is the same as the insurer. b. With a traditional indemnity plan, the premium cost is low if it is a high-deductible plan. c. With a managed care plan, the employer contracts with the health care provider. d. Group health insurance is a contract between pharmaceutical companies and the health care provider. e. With a traditional indemnity plan, the insured pays 80% of the eligible health care expenses.
b. With a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
A market order is transacted at the:
best price when the order is entered
In the stock market, the market cap of a large-cap stock is:
between $10 billion and $200 billion;
If the amount of stock in the gross estate represents a substantial holding in a company, then the value subject to the tax will be reduced by the:
blockage discount
A stock generally issued by companies expected to provide an uninterrupted stream of dividends and good long-term growth prospects is called a(n):
blue-chip stocks.
Which of the following accounting measures indicates the amount of stockholder funds used to finance a firm? a. Actual rate of return b. Net profit margin c. Price/earnings (P/E) ratio d. Book value e. Earnings per share (EPS)
book value
Marcia works for Telephonic Industries and participates in its supplemental retirement plan. Last year, the firm did not earn a profit. Therefore, it did not contribute to the supplemental retirement plan. This plan is a(n):
profit-sharing plan
Stocks whose prices tend to increase when the economy is in an expansionary stage and decline during a contractionary stage are called:
cyclical
The easiest way to invest in foreign markets is through:
international mutual funds.
_____ have no maturity date.
common stocks
One of the biggest financial benefits of starting early to save for your retirement fund is related to:
compound interest
When a primary beneficiary dies before the insured, the death benefits are payable to the:
contingenet
An example of event risk is:
corporate takeover
The average level of Social Security benefits for retirees aged 67 and above is adjusted upward each year with subsequent increases in the:
cost of living
_____ insurance is generally sold in conjunction with installment loans.
credit life insurance
A trust designed to help couples gain full use out of each spouse's applicable exclusion amount (AEA) is the _____ trust.
credit shelter
A(n) _____ agent represents multiple insurance companies.
independent
A fund that is structured to match the performance of a certain market segment is known as a(n):
index fund
A life insurance policy with a small face amount where the premium may be collected weekly by agents is termed:
industrial life insurance
Even though homeowners are eligible for reimbursement on a full replacement-cost basis if they keep their homes insured for at least 80% of the amount that it would cost to build them today, _____ can cause the actual amount of coverage to fall below 80%.
inflation
The best way to buy automobile insurance is through a(n):
insurance agent
The personal property floater (PPF):
insurance endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner's policy
Which of the following types of risk has the most effect on owners of fixed-income securities? a. Business risk b. Event risk c. Interest rate risk d. Market risk e. Purchasing power risk
interest rate
Which of the following real estate investment trusts (REITs) is the most attractive to income-oriented investors? a. Back-end load b. Unit trust c. Mortgage d. Exchange-traded e. Equity
mortgage
You have been offered an opportunity to buy shares of a collection of diversified securities. You will be investing in:
mutual funds
When offering a flexible-benefit plan, most employers will set up a salary reduction agreement with an employee if the employee:
needs additional insurance benefits
The _____ method is a detailed method of determining the amount of life insurance coverage needed for an individual.
needs analysis
Which of the following is a characteristic of a universal life insurance policy?
no choice in how the accumulation account is invested
Which of the following leads to the payment of a higher insurance premium by the potential insured?
obesity of the potential insured
The employer retirement plan that is intended to promote employee productivity and allows the employer to vary the amount of annual contributions is a:
profit-sharing plan.
Which of the following types of brokers enables an investor to trade electronically from his or her personal computer? a. A bank broker b. An online broker c. A full-service broker d. A market maker e. A futures broker
online
If you have two insurance policies on the same property, the _____ explains how the two insurance companies will share the loss.
other insurance clause
Medicare Part B covers:
outpatient services
A(n) _____ is a life insurance policy that pays policy dividends reflecting the difference between the premiums that are charged and the amount of premium necessary to fund the actual mortality experience of the company.
participating policy
Insurance companies make profit by:
paying out less than the sum of the premiums and the earnings on them.
The cash benefits provided by Social Security come from:
payroll taxes paid by covered employees and their employers.
Group life insurance is:
plan that provides coverage to more than one person under one policy;
A _____ is a hybrid form of health maintenance organization (HMO) that allows members to go outside of the HMO network for care.
point of service plan
The principle of indemnity will prevent:
policyholders from being compensated in an amount equal to the actual replacement cost of their property loss without deducting depreciation. I
A collection of securities assembled to meet common investment goals is called a(n):
portfolio
The main advantages of common stock ownership are:
potential substantial returns and high liquidity
Which of the following is an example of a hybrid security?
preferred stock
A potential investor in a new issue must be given a(n):
preliminary prospectus
The _____ of a stock reflects investors' confidence.
price/earnings ratio.
When interest rates decrease, bond:
prices go up
Which of the following terms best describes a day trader? a. Speculative b. Buy-and-hold mentality c. Illegal gambler d. Long-term perspective e. Money market maker
speculator
A decedent's unused unified transfer tax (UTT) credit can be used by his or her:
spouse
You could give an unlimited amount of property to your _____ without incurring any gift taxes.
spouse
You can learn about the financial stability of an insurance company by checking _____ rating system.
standar and poor
Planning for retirement over a series of short-run time frames requires:
stating your retirement income objectives as a percentage of your present earnings.
Which of the following is an order to sell a stock when the market price drops to or below a specified level?
stoploss
A(n) _____ policy is a type of term insurance.
straight term
If you are a mutual fund investor who needs a steady income, you might take advantage of a fund's:
systematic withdrawal plans.
Carlos holds a portfolio of stocks and bonds. He is planning to buy a real estate property worth $150,000. He can use financial leverage to make this purchase by:
taking a personal loan worth $100,000 and selling bonds worth $50,000 from his portfolio.
A _____ has no right of survivorship.
tenancy in common.
The unified tax credit can be applied against the:
tentative tax on the estate tax base
Which of the following types of insurance policies provides temporary coverage for a set period?
term life
A trust that comes into existence only after the will is probated is known as a(n) _____ trust.
testamentary
It can be difficult to evaluate the true cost of a _____ policy at the time of purchase.
universal life
The Patient Protection and Affordable Care Act (ACA) requires insurance companies to adhere to the:
the adjusted community rating approach for individuals and small businesses.
Section II of a homeowner's insurance policy covers:
the cost of defending the insured.
Replacement-cost coverage is the reimbursement of:
the cost of repairing or replacing damaged structures without deducting physical depreciation.H
The purchasing power of income from a long-term disability policy is protected by:
the cost-of-living adjustment (COLA) provision.
Long-term care is a term used to describe:
the delivery of medical and personal care to persons with chronic medical conditions who are not in a hospital.
Section I of a homeowner's insurance policy covers: a. the liability for negligence of the insured. b. the reasonable expenses incurred by an insured in helping the insurance company's defense. c. hospitalization costs provided to the insured. d. the cost of defending the insured. e. the dwelling, accompanying structures, and personal property of the insured.
the dwelling, accompanying structure, and personal property of the insured
With a traditional indemnity (fee-for-service) plan, the:
the health care provider and the insurer are separate
A homeowner's policy does not provide protection for:
the personal property of tenants
Insurance companies use actuarial data to measure the:
the risk of loss for a given population
In the pure community rating approach to health insurance premium pricing, all policyholders in an area pay:
the same premium without regard to their personal health, age, or gender.
People under the age of 65 are covered by the Medicare health insurance plan if
they receive monthly Social Security disability benefits.
One of the key goals of the Patient Protection and Affordable Care Act (ACA) is:
to reduce the number of uninsured citizens in the country
Insurance companies use _____ to determine whom they will insure and what they will charge for insurance coverage.
underwriting
Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy.
whole life
Sales commissions and marketing expenses can increase the costs of a fully loaded _____ policy.
whole life insurance
A written and legally enforceable document expressing how a person's property should be distributed on his or her death is known as a(n):
will
Which of the following leads to the breakup of an estate? a. Death-related costs b. The availability of a will c. Highly liquid assets d. The presence of probate estates e. The proper use of vehicles of transfer
Death related costs
Stocks whose earnings and market price have increased at an above-average rate over time are called:
cyclical stocks.
Investing in real estate is attractive to investors because:
it permits a high degree of financial leverage.
The current market value of all the securities a mutual fund owns, less any liabilities, on a per-share basis is known as the fund's:
net asset value.
