Personal Finance Fall 2015

The method of determining life insurance requirements that considers factors such as Social Security and your liquid assets is called the:

"family need" method

Ted pays $4,500 in real estate property taxes and is in the 28 percent tax bracket. What is the value of this federal tax deduction?

$1,260

Assume that you purchase a $1,000 corporate bond that pays 9.25 percent interest. What is the amount of interest that you receive each year?

$92.50

A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent.

12.3

A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent.

2.88

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases

20

A $200 savings account that earns $13 interest in a year has a yield of _______ percent

6.50

By evaluating your credit options, you may: a. reduce your finance charges b. find a lender that charges a lower rate c. discover a less expensive type of loan d. reconsider your decision to borrow money e. All of these

All of these

Which type of credit insurance repays your debt in the event of a loss of income due to illness or injury?

Credit accident and health insurance

Orlando Blodgett is buying stock in the Getaway Caribbean Cruise Company today. He had thought about buying the stock yesterday and if he had, he would have received this quarter's dividend. However, since he waited until today, he will not receive that dividend payment. Given this information, which one of the following dates applies to this stock today? a. Ex-dividend date b. Stock split date c. Payment date d. Stock repurchase date e. Record date

Ex-dividend date

What is the number one reason why consumers default on their debts

Excessive use of credit

Which one of the following is not included in gross income? a. Tax credit b. Earned income c. Exemption d. Exclusion e. Portfolio income

Exclusion

What is the purpose of a cover letter?

Express interest in a job

Liquid assets refer to

Find a place to live with a lower rent

If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?

Future value of a single amount

Which health care institution directly employs or contracts with selected medical care specialists to provide managed health care services in exchange for a fixed, prepaid monthly premium?

HMO

Which type of financial records includes stock and bond reports?

Investment

What does it mean to sublet an apartment?

Obtain another tenant to complete a lease period

For an investor who wants to speculate, which of the following investments would be appropriate?

Options

Julie Cumbie is playing softball and gets hurt sliding into second base. She gets an x-ray at her doctor's office to make sure her ankle isn't broken. Which part of her basic insurance coverage should help pay for this x-ray?

Physician expense

Which of the following statements is true? a. When establishing an investment program, you should examine the potential return offered by different investment alternatives. b. When you are choosing an investment, you should examine only the interest rate risk factor associated with each investment. c. When establishing an investment program, you should begin by monitoring your investments. d. Leave the financial planning to the professionals e. There is no need to monitor your investments after you have made your investment decision.

When establishing an investment program, you should examine the potential return offered by different investment alternatives.

Float can be defined as

a period of time during which no interest is charged

The main goal of personal financial planning is:

achieving personal economic satisfaction

The first step of the financial planning process is to:

analyze your current personal and financial situation

Consumer credit:

dates back to colonial times

Health insurance includes:

disability insurance

The most expensive loans are available from:

finance companies

By paying cash for a purchase, you:

forgo the opportunity to keep the cash in an interest-bearing account

A certificate of deposit usually has

limited liquidity

A disadvantage of leasing an automobile would be the

limited mileage in the lease agreement

The maximum amount of credit you are allowed by a creditor is called

line of credit

A common criticism of including a career objective on a resume is that it:

may be too vague

The process of resolving consumer complaints with the use of a third party whose recommendations are non-binding is called:

mediation

A corporation selling stock is obligated to:

pay dividends to preferred stockholders prior to common stockholders

An unauthorized person who obtains a credit report under false pretenses may be

subject to a fine and imprisonment

Tax-deferred retirement plans are a type of

tax shelter

Peril is defined as:

the cause of a possible loss

Home insurance costs are affected most directly by:

the number of claims in an area

A common opportunity cost associated with renting is interest lost on money spent for:

the security deposit

The sticker price of a car refers to:

the suggested retail price of a new car

Opportunity costs refer to:

trade-offs associated with financial decisions

The purpose of a debit card is to:

transfer money electronically

Which one of the following is not a common consumer myth? a. "You can't repossess my car; it's on private property." b. "I can return my car within 3 days of purchase. c. "An auto lease is like a rental; if I have problems with the car or paying, I can just bring it back." d. "Automotive service contracts can cover repairs not included in the manufacturer's warranty." e. "My creditors can't call me at work."

"Automotive service contracts can cover repairs not included in the manufacturer's warranty."

Beverly Frickel purchased 100 shares of Gleason Systems stock for $42.50 per share. Her commission for this purchase was $35. She sold the stock two years later for $55 per share and a commission of $50. While she held the stock it paid a dividend of $1.50 per share. What was Beverly's total dollar return on this stock?

$1,315

A credit purchase with 24 monthly payments of $78 and a down payment of $120 would have a total cost of:

$1,992

Some real estate experts estimate that remodeling a kitchen can add 130 percent of the cost of remodeling to the value of the house. A remodeled kitchen costing $8,000 could add _____ to the value of the house.

$10,400

The total debts of you and your spouse include the following: mortgage, $180,000; auto loan, $10,000; credit card balance, $2,000; and other debts of $6,000. Further, you estimate that your funeral will cost $4,000. Your spouse expects to continue to work after your death. What is your life insurance need using the DINK method?

$106,000

If you borrow $100 at 10 percent simple annual interest and repay it in one lump-sum at the end of one year, you will repay:

$110

Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket would result in after-tax earnings of:

$1152

Eric Peltz earns $80,000 a year. His monthly expenses total $4,300. What is the minimum amount of money that Mr. Peltz should set aside in an emergency fund?

$12,900

Based on the following information, what amount would be subtracted from the bank balance side of the checking account reconciliation? Service charge $12; Outstanding checks $145; Interest $3.50; Deposit in transit $80.

$145.00

Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000, and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Patricia's net worth?

$162,000

Duane Miller wants to know what price home he can afford. His annual gross income is $60,000. He has no other debt expenses and expects property taxes and insurance to cost $400 per month. He knows he can get a 6%, 15 year mortgage so his mortgage payment factor is 8.43. He expects to make a 10% down payment. What is Duane's affordable home purchase price? Round your answer to the nearest $100.

$164,800

Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? Assume each month has 30 days.

$21

A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:

$23,000

Your annual income is $50,000. What is your life insurance need based on the easy method?

$245,000

Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value of $500 would have a tax-equivalent value of:

$694

Jerrod Dean starts the month with a balance on his credit card of $1,000. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $500. The bank charges 1.5 percent interest per month using the adjusted balance method. What would Jerrod's finance charges be for the month?

$7.50

Natasha and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction may reduce their taxable income by:

$8,000

If interest rates in the overall economy increase to 8 percent, which one of the following is most likely to be the market value of a $1,000 corporate bond with a fixed interest rate of 7 percent?

$900

The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus. Which of the following must be disclosed? a. Corporate earnings b. Qualifications of top management c. All of these must be disclosed d. Products or services e. Assets and liabilities

All of these must be disclosed

Which one of the following is a professional association that can assist in career planning for a specific career area? a. Rotary Club b. U.S. Department of Labor c. Chamber of Commerce d. Bureau of Labor Statistics e. American Marketing Association

American Marketing Association

Which types of problems are least likely to be covered by a home buyer warranty?

Appliance

Which one of the following illustrates an insolvent situation? a. Liabilities $45,000; net worth $6,000 b. Annual cash inflows $45,000; liabilities $50,000 c. Assets $40,000; liabilities $45,000 d. Assets $78,000; net worth $22,000 e. Assets $56,000; annual expenses $60,000

Assets $40,000; liabilities $45,000

Joan Wilder receives a phone call from a salesperson who tries to sell her an insurance policy by scaring her about her high risk of death from this disease. She knows that this type of insurance policy has a notoriously poor value so she politely declines. What type of insurance policy did this salesperson likely try to sell her?

Cancer

A loan officer is examining your income and the amount of your existing debt payments in deciding whether to make a loan to you today. Which aspect of the 5 Cs of lending is the loan officer most likely looking at?

Capacity

Which one of the following is defined as a commitment to a profession that requires continued training and offers a clear path for occupational growth? a. Apprenticeship b. Internship c. Career d. Job e. Cooperative employment experience

Career

Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?

Chapter 13

A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5 Cs of lending?

Character

Recently, Jim Dahl was on a bus tour in a mountainous area. The bus broke down forcing the group to stay overnight. Group members had to pay for their own hotel bills. Jim believes that the hotel cost for the group should be paid by the tour company. Which legal action would be most appropriate?

Class action suit

Jeff Goldblum has just purchased a security which has no maturity date and no promised payments. He can recoup his investment by either selling the security to another individual or to the issuer, if the issuer ever makes an offer to buy it. What type of security did Jeff purchase?

Common stock

____________ is a type of major medical insurance that has a very low deductible amount and is offered without any separate basic plan.

Comprehensive major medical insurance

Which one of the following is a local organization that provides debt counseling services for families and individuals?

Consumer Credit Counseling Service

What should you do if your identity is stolen?

Contact the fraud departments of each of the 3 major credit bureaus

Which type of preferred stock can be exchanged for common stock at the stockholder's option?

Convertible

Tim Bridges has a life insurance policy where he makes payments of $265 per year until he reaches the age of 65. His policy is then 'paid up' for life. His beneficiaries will receive the face value upon his death. What type of life insurance does Tim likely have?

Limited payment life

Which type of life insurance plan requires you to pay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age?

Limited payment policy

Which one of the following statements is true? a. Corporate bonds do not have any default risk b. The maturity dates for corporate bonds are generally less than a year c. Long-term corporate bonds have maturities over 15 years d. Corporate bonds do not have a maturity date e. Corporate bonds are a form of equity

Long-term corporate bonds have maturities over 15 years

One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs. Which aspect of financial planning does this deal with?

Managing Risk

Which of the following is not a social factor that would influence a consumer buyer's decision? a. Marital status b. Peer group c. Lifestyle d. Culture e. Hobbies

Marital status

Lisa Smith has her age listed on her driver's license as being three years younger than it actually is. This is also how old she tells her insurance company she is. Her insurance company has discovered she lied about her age. What provision of her life insurance contract states that her benefits will be what her premium would have bought if she had been truthful about her age?

Misstatement of age

Which of the following would be considered a long-term liability? a. Charge account payment b. Six month personal loan c. Mortgage d. Amount due for taxes e. Amount due on a credit card

Mortgage

Which one of the following statements is false? a. Most individual investors that purchase Treasury bills, notes, and bonds bid competitively b. U.S. government Treasury securities carry a reduced risk of default when compared to corporate securities c. The federal government sells bonds and securities to obtain financing d. Treasury securities may be purchased through banks or brokers e. U.S. government Treasury securities offer lower interest rates than corporate bonds

Most individual investors that purchase Treasury bills, notes, and bonds bid competitively

Which one of the following investments offers the least amount of growth potential? a. Real estate b. Common stock c. Options d. Mutual funds e. Preferred stock

Options

Which is a correct statement about life insurance? a. Consumer awareness of life insurance has changed considerably over the years b. Life insurance is extremely important if you are single and living alone c. There is only one type of life insurance d. Private sources are the only available sources for life insurance e. People are less apt to actively seek life insurance than health insurance

People are less apt to actively seek life insurance than health insurance

____________ coverage would pay for damage to your vehicle caused by an accident when another driver with insurance was legally at fault.

Property damage liability

Francesca Brown has a life insurance policy that provides her with protection for the next five years. However, she can get five more years of protection at the end of this term without having to have a medical examination because she will be less than 70 years old at that time. Her premiums will rise during each five-year period. What type of term life insurance does Francesca likely have?

Renewable

Brenda Lee has received a $10,000 gift from her mother and is trying to decide how to invest it. She thinks she would like to invest it in stocks because she knows that stocks have been earning about a 10% rate of return over the last several years. What aspect of investing interests Brenda?

Return

Which of the following financial documents would most likely be stored in a safe-deposit box?

Savings certificates

Valerie Kilmer owns stock in the Williams Widget Company. She was just advised that in the near future she will be receiving two shares for every one share she owns today. What has the company declared that will cause this change to her shares?

Stock split

Which one of the following statements is true? a. Corporations are required by law to have two stockholder meetings each year b. Corporations are required by law to report all activities to their stockholders each month c. Stockholders must approve the sale of all goods and services by the company d. Stockholders must approve major changes to corporate policies e. Stockholders may vote only by proxy

Stockholders must approve major changes to corporate policies

Which of the following is (are) false? a. Mutual companies generally sell participating policies b. You can expect to receive a policy dividend from a stock company c. Stock companies generally sell nonparticipating policies d. More than one of the listed answers are false e. A participating policy usually has a somewhat higher premium than a comparable nonparticipating policy

You can expect to receive a policy dividend from a stock company

What should you consider before you buy life insurance? a. Your present and future sources of income b. You should consider all of the factors listed Which is a correct statement about life insurance? c. Pension benefits d. Your savings e. Employer's group life insurance

You should consider all of the factors listed

Nick Boss has a savings account with $550 in it. He knows that he can withdraw this money whenever he wishes. This would be an example of:

a liquid asset

A good example of closed-end credit is:

a mortgage loan

The stages that an individual goes through based on age, financial needs, and family situation is called the:

adult life cycle

A call feature

allows the corporation to buy outstanding bonds from current bondholders before the maturity date

Comparison of earnings for different savings plans can best be accomplished using the:

annual percentage yield

An all-purpose account that provides several services is a(n):

asset management account

The price that is paid for a vehicle in a lease is called the:

capitalized cost

Traditionally, the greatest variety of financial services is offered by:

commercial banks

The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution

convenience

A tax ____________ is an amount subtracted directly from the amount of taxes owed.

credit

The amount of mortgage a person is eligible for would be increased by:

decreasing the interest rate

Checking accounts are frequently referred to as ____________ deposits

demand

Compared to a job, a career:

demands regular updating of knowledge

In the career planning process, after identifying specific job opportunities, a person should:

develop a resume and cover letter

The purpose of a rate cap with an adjustable rate mortgage is to:

estrict the amount by which the interest rate can increase

Open dating provides information on:

freshness

The main purpose of taxes is to

generate revenue for funding government programs

Most people pay federal income tax by:

having amounts withheld from income

The first phase of the consumer buying process is

identifying the problem

A debit card:

immediately deducts the cost of your purchase from your bank account

Using the services of financial institutions will be most evident in your effort to:

implement the financial plan

Taxable income is used to compute a person's:

income tax

Higher prices are likely to result from

increased spending by consumers without increased production

Arbitration differs from mediation in that arbitration:

is legally binding

An umbrella policy is designed to cover

major personal liability suits

A trust has the purpose of

managing the assets of a person

In determining your credit capacity, you first provide for basic necessities, such as:

mortgage or rent

If a homeowner leaves toys on stairs that results in injury to a delivery person, this may be ruled as:

negligence

If you default on your automobile loan:

no advance notice is required before repossession

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:

owe $375

A condominium involves:

ownership of an individual living unit

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

pawn shop

Nick Rodr owns a home in Edmond, Oklahoma and pays $665 per year in insurance on the home. The $665 is an example of a:

premium

A taxpayer whose spouse recently died is most likely to use the ____________ filing status.

qualifying widow or widower

The ______________ property tax is based on the value of land and buildings at some point in time.

real estate

The best way to maintain your credit rating is to

repay your debts on time

A limit on the amount you must keep on deposit in order to earn interest or avoid a service charge is an example of a(n):

restriction

Another name for open-end credit is:

revolving credit

The most common service provided by a real estate agent when selling your home is:

screening potential buyers

Chuck Spencer wants to borrow money for three years to purchase a new car. He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent. By choosing the variable rate loan, Chuck is reducing the lender's risk by:

sharing the interest rate risk

Impulse buying refers to:

unplanned purchasing

Life insurance premiums are determined basically by the:

use of mortality tables

Medicare medical insurance is:

voluntary, and you must sign up for coverage

The most common type of permanent life insurance is called:

whole life

If you cosign a loan:

you will be required to pay the loan in full if the borrower defaults on the payments

John Peterson purchased a bond that is priced far below its face value, that makes no interest payments, and that will be redeemed at its face value at maturity. In all likelihood, he purchased a(n) ____________ bond.

zero-coupon

If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

$300

George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to a traditional individual retirement account of $1,500, and dividends from mutual funds of $600. George's adjusted income (AGI) would be:

$33,900

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10, what is her total cost of credit?

$34

Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay?

$350

Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay?

$400

Thad Joslin was judged at fault in an automobile accident. Three others were awarded damages of $150,000, $75,000, and $75,000. Thad has 100/300 bodily injury liability coverage. What amount, if any, would not be covered by his insurance?

$50,000

A $2,000 deposit to a tax-deferred retirement account for a person in a 25 percent tax bracket would result in a reduced tax bill of:

$500

Twenty years ago, you began investing $2,000 a year. Because your investments earned an average of 8 percent a year, your investment portfolio has a current dollar value of $92,000. How much did you earn on your investments over the 20-year period of time?

$52,000

Michele Walsh is considering an additional charitable contribution of $2,000 to a tax-deductible charity, bringing her total itemized deductions to $16,000. If Michele is in a 28 percent tax bracket, how much will this $2,000 contribution reduce her taxes?

$560

Todd Foley is applying for a $100,000 mortgage. He can select either a $600 monthly payment with no points or a $520 payment with two points. How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

25

Which of the following are considered to be personal financial statements? a. Tax returns b. Checkbook and budget c. Budget and credit card statements d. Bank statement and savings passbook e. Balance sheet and cash flow statement

Balance sheet and cash flow statement

Which one of the following statements is correct? a. Stock must be repaid at maturity b. Bonds do not have to be repaid at maturity c. Bonds are a form of debt capital d. Interest payments to bondholders must be declared by the board of directors e. Stock is a form of debt capital

Bonds are a form of debt capital

All except which one of the following are good ways to acquire money for starting an investment program? a. Make a special savings effort one month per year b. Take advantage of gifts, inheritances, and windfalls c. Participate in an elective savings program offered by your employer d. Pay bills first, and then save a reasonable amount of money for investment e. Borrow money specifically for investment purposes

Borrow money specifically for investment purposes

Who is most likely to benefit from inflation?

Borrowers

John Hernandez is 24 and has saved enough money to fund an adequate emergency fund. In addition, he has saved $5,600 that can be used to fund an investment program. He is single, has no dependents, and would like to retire when he is 60. Which one of the investment factors listed below would be most important for an investor like Mr. Hernandez?

Growth

Harry Mayhue gets a bad case of the flu and ends up in the hospital for three days. Which part of his basic insurance coverage should help pay for this stay?

Hospital expense

Which one of the following is the best example of a long-term goal for a young couple?

Income for retirement

Which one of the following statements is true? a. The amount of time a specific investment has to work is an important consideration when developing an investment portfolio b. Diversification is one way to lessen systematic risk c. Younger investors should invest a large percentage of their portfolio in income-producing securities d. Investors should put all of their "eggs in one basket." e. Individuals can ignore their tolerance for risk when selecting specific investments

The amount of time a specific investment has to work is an important consideration when developing an investment portfolio

Which one of these statements best describes the major criticism of service contracts? a. Repair companies provide poor service b. There are a limited number of authorized repair facilities c. The government regulation of service contract companies is weak d. The contracts are expensive and contain a lot of exclusions e. Service contracts are included in the initial price of the product and thus are not optional

The contracts are expensive and contain a lot of exclusions

Which of the following statements is true about group life insurance? a. The cost of insurance per $1,000 is the same for each employee b. Group life is basically the same thing as term life insurance c. Group insurance is not a good bargain for older employees d. Principles that apply to other forms of insurance do not apply to group life insurance e. Group life has been losing its popularity recently

The cost of insurance per $1,000 is the same for each employee

Which one of the following is false? a. A search engine is a research tool that helps you find the investment information you want b. Both government and businesses provide individuals with investment information c. You can obtain recommendations to buy or sell stocks and other securities by accessing Internet sites. d. You can obtain current price information for stocks, bonds, and mutual funds by using the Internet. e. There is a wealth of investment information available, but most small investors cannot afford to use it.

There is a wealth of investment information available, but most small investors cannot afford to use it.

Which one of the following is the best example of a personal opportunity cost associated with a consumer purchase? a. Discount received for paying cash b. Money spent by stores on advertising c. Time spent comparing prices d. Enjoyment derived from owning an item e. Efforts by the government to prevent consumer fraud

Time spent comparing prices