Personal Finance
In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
False
Nondepository institutions are referred to as banks
False
Since 2011, a surviving spouse cannot use the unused unified transfer tax (UTT) credit of the deceased spouse.
False
Tax credits are dollar-for-dollar reductions in taxable income
False
Tax preparers must be licensed by either the state or the federal government.
False
The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions
False
The add-on method is less expensive than the simple interest method when the stated rates of interest are identical
False
The best way to balance your annual budget is to increase borrowing to cover shortages
False
The cost of workers' compensation insurance is usually paid by the employees.
False
The preparation of an income and expense statement is the first step in the personal financial planning process.
False
Uninsured motorists protection usually provides protection to the insured's car if a hit-and-run incident occurs.
False
Workers who elect to retire early—at age 72—will receive reduced Social Security retirement benefits.
False
Funds in commercial banks are protected by the:
Federal Deposit Insurance Corporation (FDIC)
A trust that provides for management continuity and income flow even after the grantor's death and allows assets to bypass probate, but which provides no income or estate tax advantages, is a(n) _____ trust.
revocable living
A _____ would most likely have to pay estimated taxes
self-employed plumber
When an individual gives his or her child an income-producing asset, he or she is:
shifting his or her income
Payments under the provisions of the Federal Insurance Contributions Act (FICA) are also known as:
Social Security tax
Which of the following is the correct formula for calculating the debt safety ratio?
the account balance is paid in full every month
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
Underwriting refers to
the determination of which exposures to insure
Russ and Lois were married on December 30. Even though they were single for most of the year, they can legally file as married filing jointly taxpayers in the year of the wedding
True
Suppose you carelessly, but unintentionally, knocked someone down a flight of stairs in your home. You would be covered by your homeowner's insurance.
True
Tax avoidance is legal, whereas tax evasion is illegal
True
The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases.
True
The need for life insurance increases with children.
True
The premiums for homeowner's insurance policies are affected by the type of structure and its location.
True
The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender
True
Visa and MasterCard issue debit cards linked to your checking account
True
Your need for additional life insurance can be determined by looking at the difference between your family's available financial resources after your death and your family's total economic needs.
True
Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate.
True
Many people tend to be too conservative when investing their retirement funds.
Truw
If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:
if the lender wants to recover part of the full interest that would have been earned
A letter of last instructions is a(n):
informal memorandum that is separate from a will and contains suggestions or recommendations for carrying out a decedent's wishes.
Variable auto ownership costs are dependent on the:
miles covered by the automobile.
A budget helps in:
monitoring and controlling spending
The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n)
negative amortization
Insurance companies make profit by
paying out less than the sum of the premiums and the earnings on them
Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:
prequalification
The personal property floater:
provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy
Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):
real estate short sale
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
Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when:
the mileage limits are exceeded.
Insurance underwriting is best described as
the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premium
Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they have adjusted gross income (AGI) of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is
$250
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 to the nearest whole dollar.)
$7,238
Which of the following statements regarding a consumer loan is true?
A consumer loan is used to finance the purchase of very expensive items
A payment made using a(n) _____ is equivalent to paying by cash
A debit card
Home equity loans are similar to home equity credit lines because they are also not secured with any collateral
False
Which of the following will lead to a poor credit rating?
Applying for a long-term loan and occasionally being late with a payment
Which of the following statements regarding budgets is true?
Budgets are forward looking
Which of the following statements regarding loan collateral is true?
Collateral is an item of value used to secure the principal portion of a loan
If your debt safety ratio works out to 10%, you are relying too heavily on credit.
False
A personal property floater and a personal liability umbrella policy offer similar coverage.
False
A trustee is the person who writes a will.
False
Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades.
False
All taxpayers have an equal probability of having their tax returns audited.
False
Always paying cash helps in establishing a high level of creditworthiness
False
Blue Cross/Blue Shield payments for health care services are made directly to the subscriber rather than the hospital or physician.
False
Budgeting and record keeping are the same
False
Cash is the only kind of liquid asset.
False
Extremely low interest rates favor investors and boost the incentive to save
False
Floods are covered under most homeowner's insurance policies.
False
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?
If Melissa leaves this company before working full time for 3 years, she will not receive any benefits.
Which of the following statements regarding private health insurance plans is true?
In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan
Which of the following statements regarding a budget is true?
It is a detailed financial report that looks forward
Which of the following is an interest-bearing checking account?
Negotiable order of withdrawal (NOW) account
In a traditional indemnity (fee-for-service) plan, the
health care provider and the insurer are separate
Which of the following statements regarding the Affordable Health Care Act (ACA) is true?
The ACA eliminates lifetime limits on total health care insurance payments by insurers
The basic purpose of insurance is to:
The basic purpose of insurance is to
Which of the following is the biggest fixed auto ownership cost?
The cost of installment loan payments
Which of the following statements regarding tax credits is true?
They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.
A chattel mortgage is an instrument that gives lenders title to movable personal property in the event of default
True
A credit card application requests information that is routinely used to predict creditworthiness.
True
An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her total expenditures for the year.
True
Arranging for and fully repaying a small loan helps improve creditworthiness
True
Compound interest means that a savings account earns interest on the interest previously earned
True
Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items
True
Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.
True
Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes.
True
Living a healthy lifestyle is an example of loss prevention and control
True
Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement
True
Paying a loan on schedule is one way to build a good credit history
True
Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans
True
Which of the following statements regarding insurance underwriting is true?
Which of the following statements regarding insurance underwriting is true?
Which of the following statements regarding workers' compensation insurance is true?
Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
When the simple interest method is used to determine finance charges, the interest is calculated based on the:
actual balance of the loan
A personal liability umbrella policy typically includes:
added liability coverage for homeowner's and automobile insurance.
One of the biggest financial benefits of starting early to save for your retirement fund is related to:
compound interest.
Social Security benefits (cash benefits) are funded by:
compulsory contributions from employees, employers, and self-employed people.
Comprehensive automobile coverage refers to:
coverage for damage to an insured automobile from perils (with a few exceptions) other than collision
The loss in the value of an automobile that occurs over its period of ownership is called:
depreciation
Insurance is a tool that can reduce your _____ risk.
economic
Negligence occurs when someone:
fails to act in a reasonable manner
A balance sheet describes your:
financial position at a given point in time
The primary purpose of life insurance is to provide
financial security for your dependents after your death
If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):
fixed-rate mortgage
Commercial banks are able to charge lower interest rates than other lending institutions because:
they usually take only the best credit risks
A liability suit could result against you if:
your dog bites your neighbor.