Personal Finance Final Exam Calhoun

an amortization schedule shows all but the

increase in market value

financial institutions typically provide home equity loans up to ____ of the value of the equity in a home.

80%

which of the following is NOT a key budgeting influence for a personal financial plan?

Change investments from risky stocks to more conservative stocks

obtaining a graduate degree will always improve your financial position.

False

Auto insurance can be very expensive if you

are a male under 25

the social security tax is applied to every dollar of regular income for all tax payers

false

there is no limit on the dollar amount you can contribute to a 401(k) plan

false

you will build equity in the car faster when you finance the purchase for a longer period of time

false

your homeowner's insurance deductible should be twice as much as the deductible on your auto insurance

false

As the lump sum amount increases, the present value of the amount at a fixed interest rate _____

decreases

If your marginal tax rate while working is low, but you expect your marginal income tax rate to be high after you retire, you may be better off investing in a traditional IRA than in a Roth IRA.

false

Index stock funds always contain the stock of every company in a particular index

false

It is often a good idea to invest most or all of your retirement savings in the stock of your employer so that you will demonstrate your loyalty.

false

Once you leave a job with an employer, you will probably forfeit your retirement account unless you have been with the company for 15 years or more

false

a branch of the U.S. treasury department, called the department of tax, administers the federal tax system

false

contributing to a Roth IRA will give you an immediate tax benefit

false

generally, there are tax penalties for withdrawals from a traditional IRA before the age of 65

false

in addition to closing costs, real estate agent fees of more than 10% are charged when you buy a home

false

once drivers are labeled as "high risk", they will not be able to get automobile insurance at any price

false

You want to know how much you need to save today to have $5,000 in five years. Which of the following calculations should you complete?

Present value of a single amount

In general, insurance companies generate their revenue from the payments received for policies and from the return earned from investing the payments until the funds are needed to cover claims

True

the money you contribute to a 403(b) plan is deducted from your pay before taxes are assessed.

true

the tax characteristics of a Roth IRA and a traditional IRA differ in terms of initial contribution and withdrawals after retirement

true

there is no social security tax on income beyond a certain level

true

your financial plan should include a plan for protecting your assets and income through insurance coverage.

true

when interest rates rise, individuals who make deposits will earn a ______ rate of interest, while individuals who need to borrow funds will have to pay a _____ rate.

higher; higher

The opportunity cost of building a park in your hometown would be the

highest valued bundle of other goods and services that must be forgone because of the park construction.

which of the following statements about student loans is not true?

if you don't complete your education, you will not have to pay back your student loan.

which of the following is true about millionaires?

more than 75 percent of American millionaires have college degrees.

Private health insurance plans contain all of the following, EXCEPT

nursing home insurance

A bond's yield to maturity is above its coupon rate when the bond's market price is below par value

true

Corporate bonds

offer a predictable return to investors in the form of interest or coupon payments

Mutual funds that sell shares directly to investors and repurchase shares investors want to sell are called ____ funds

open-end

Which of the following does NOT reflect the impact of a strong economy on home prices.

people spend money more conservatively

Which of the following statements is true regarding a plan with 70/30 coinsurance

the insurance company will pay 70% of the bill while the insured person will pay 30%

Even if you don't use the proceeds to improve your home, the interest on a home equity loan is deductible for federal income tax purposes.

true

insurance is not a good option for managing risk when

the probability of loss is very small and the expected loss is small

If you don't need advice or other services offered, you are better off using a discount broker or Internet broker rather than a full-service broker.

true

Which of the following statements is true regarding non-installment credit?

Credit is usually issued for 30 days or less

Which of the following ranges of returns would indicate a less risky, more stable investment?

.4% to 1.4%

which of the following is a document that provides financial information about a mutual fund, including expenses and past performance?

A prospectus

which of the following is NOT included in the prospectus

Advice on when to buy and sell

which of the following is NOT a characteristic of treasury bonds?

Exempt from federal tax

Financial advisors often advise having 4-6 months of income in "near cash" for rainy day funds. Which of these investments do not provide the necessary liquidity to meet this need?

High dividend paying blue chip stock

You want to know how much you need to save every year to amass $15,000 in 5 years at a 5% interest rate. What are you calculating?

Payment

Which of the following is an example of money management?

Putting your money in a savings account at your bank

the least expensive form of life insurance is

Term

Before you start an investment program, you should ensure liquidity by having money in financial institutions or in money market securities.

True

reduction of gross income for such items as individual retirement accounts (IRAs), moving expenses, and student loan interest payments will result in

adjusted gross income

by establishing high and unrealistic financial goals, you will probably

become discourages and lose interest in planning

Generally, the ____ the credit history, the ____ the credit limit.

better; higher

Analyzing your expected income and expenses over the coming 6 months is

called budgeting and is worthwhile no matter your stage of life

The security that represents equity or ownership of a corporation is

common stock

Disadvantages of leasing a vehicle include all of the following EXCEPT

cost of finding a buyer for the car at the termination of the lease

In making the purchase versus leasing decision, it is important to remember that

dealers may impose additional mileage cost

Financial institutions that accept deposits (that are insured up to maximum level) from individuals and provide loans are called

depository institutions

which of the following federal student loans requires financial need to be demonstrated for eligibility?

direct subsidized

You can reduce your risk by

diversifying your investments

going through documents discarded by your bank to obtain information in order to access your bank account is an example of

dumpster diving

You want to know how much savings you would accumulate in 15 years if you save $2,000 per year and earn 4% per year. You need to determine the_____

future value of an annuity

all reportable income from any source is called

gross income

everything else being equal, the _____ the interest rate, the _____ the future value.

higher; higher

when making payments on a credit card, the amount paid is first applied to_____ and the remainder is applied to ______

interest for the month; balance due

a disadvantage of term insurance is that

it becomes more expensive when you renew it

If you are age 60, which of the following investments would you most likely NOT consider

junk bond funds

When a firm performs well, investors holding shares are ________ willing to sell it and therefore, the demand for the stock ________.

less; increases

Growth stocks tend to pay____ dividends and have _____ appreciation of stock prices.

lower; higher

what is the core purpose of buying insurance?

protect your wealth and assets

to significantly reduce your automobile insurance premiums and still have adequate coverage, you should

raise the deductibles on comprehensive and collision

when purchasing a home, which of the following costs will you NOT incur?

real estate agent's commission

As you near retirement, you should

reduce your risk in your portfolio and move funds from risky investments to income generating investments

the cost of health care has risen dramatically in recent years due to all of the following, EXCEPT

reduced litigation

if a stock was purchased for $5,000 in January 2015 and is sold in December 2015 for $3,000, a ______ of $2,000 results.

short term capital loss

Regarding dividends paid on common stock,

some firms don't pay any dividend at all

If you find yourself with an excessive credit card balance, the first thing you should do is

spend as little as possible

a bond's yield to maturity is above its coupon rate when

the bond's market price is below par value

The time value of money refers to

the difference in the value of money depending on when it is received.

The traditional IRA allows an unlimited tax-deductible contribution amount for individuals who are not covered by employer-sponsored retirement plans or meet income qualifications if they have an employer plan

true

different tax rates are associated with each filing status such as single, married filing jointly, and head of household

true

in an employer-sponsored retirement plan, you should contribute at least the amount the employer will match.

true

individuals normally incur a tax penalty if funds are drawn from a traditional IRA before the age of 59 1/2

true

investments with a higher risk of default pay higher rates of interest than those that are less risky.

true

maintenance and insurance are both part of the costs of auto ownership.

true

Key retirement planning decisions include all of the following EXCEPT

whether or not you should contribute

why is it important to monitor and revise your financial plan on a regular basis?

your financial plan changes over time as does your personal, job, and family situation.