Personal Finance Final Exam

True

A mutual fund's price per share will increase if its underlying holdings increase in value.

False

A personal, unsecured consumer loan is most frequently used to help borrowers straighten out a critical financial situation.

True

A portfolio is a collection of investment vehicles assembled to meet an investment goal.

wealth

A primary determinant of your quality of life is

tax at a higher rate

A progressive tax system is one in which higher-income people pay ____ than lower-income people.

the amount you are willing to pay for the property.

A real estate sales contract will include

usually matures in one year or less.

A single payment loan

true

A successful financial plan will be based on a person's goals.

True

A systematic investment routine involves investing similar sums in regular intervals.

True

A testamentary trust is established in a will

True

A variable life policy combines life insurance coverage with tax-favored investment options.

money manager

A(n) ____ actually runs the portfolio and makes the buy and sell decisions.

equity-income

A(n) ____ fund invests primarily in a portfolio of common stocks for the income they provide.

will depreciate less quickly.

Advantages of buying a used car rather than a new car include

personal property off premises (homeowner's coverage).

After packing up to return home for the holidays after the fall semester, Tex stopped at Double T bookstore to sell textbooks. After collecting $25, he headed back to his pickup truck only to find a broken window, the truck broken into, and all his suitcases and personal property gone. The loss of his personal property and suitcases would be covered by

False

All no-load funds charge an upfront fee to purchase shares of a mutual fund.

short waiting period

All of the following except a ____ are highly recommended for a long-term disability income policy.

All of these.

All property insurance companies require you to show the following when making a claim:

True

An investment is acceptable if the expected rate of return is greater than the desired rate of return

False

An investor is guaranteed to make a positive return on Treasury notes and bonds.

False

An overdraft protection line of credit allows one to routinely bounce checks with little or no adverse consequences.

$2.88 per share.

Anderson, Inc. has $10 million liabilities, $12 million preferred stock, 8 million shares of common stock outstanding, and $45 million in total assets. The book value is

False

Annuity premiums are paid to the company during the distribution period.

True

Annuity premiums are paid to the insurance company during the accumulation period.

retirement plans have more difficulty meeting their goals.

As the rate of inflation increases,

$115,000

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities?

Money market deposit account.

Mandy has $2,000. She would like to start a savings program. She will add to it regularly by investing $50 per month in a liquid account. Which of the following types of accounts would be most appropriate in this situation?

$ 0

Mike gave his 25 year old son $13,000 worth of stock in 2009. When Mike died in 2010, that stock was worth $15,000. How much of that gift would potentially be subject to the federal gift and estate tax?

True

Miles has no retirement plan at work. Therefore, $2,000 contributed to his regular IRA will be tax deductible

Roth IRAs.

Minimum distributions are not required from

are typically federally insured.

Money Market Deposit Accounts

True

Money held in checking accounts is liquid.

a medium of exchange

Money is

True

More than 50 percent of all wage earners and salaried workers today are covered by some type of employer-sponsored retirement or profit-sharing plan.

true

Most families find it difficult to discuss money matters.

False

Most group insurance policies require a second opinion for non-surgical procedures.

25-30

Most lenders do not want mortgage payments to exceed ____ percent of your gross monthly income.

guaranteed performance.

Mutual funds do not offer

True

Negative amortization is possible with an adjustable-rate mortgage.

a closed-end

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have ____ lease.

True

At the same time as employers are cutting back on traditional pension plans, more are offering 401(k) plans.

True

Automobile liability claims could potentially be more costly to you than car damage claims.

30%

If your total assets equal $50,000 and your total liabilities equal $15,000, your debt ratio is

88.5%

If your total assets equal $87,000 and your total liabilities equal $10,000, your solvency ratio is

False

In most cases, lenders will liquidate the collateral until the loan is paid.

False

Income tax refunds are automatically sent to those who qualify for refunds no later than April 15.

True

Increasing the deductible is likely to lower the premium on a comprehensive major medical policy

True

Integrating a retirement plan with social security benefits typically increases a retiree's retirement income.

home equity loans

Interest rates on ____ are typically lower than on any other form of consumer credit.

False

Internal limits are constraints placed on insurance agents stipulating the level of risk for which they can write a policy.

False

Investment assets include items such as boats or automobiles.

False

Investment company earnings result solely from dividends.

live beyond one's means.

It is not a good idea to use credit to

$1,500.

Jamil and Vicki have one child, age 3, for which they paid $2,500 in child care expenses this year. If they are eligible for the 20% dependent care credit plus the child tax credit, how much will these two credits reduce their tax liability?

$ 9,700

Jamil and Vicky purchased a $200,000 homeowner's policy for their house in 1988. They have renewed the policy each year since and have replacement coverage. This policy has a $1,000 deductible. Their home now has a replacement value of $275,000. Last week they came home to find a small fire which caused the following damages: Home $50,000 Personal property $20,000 Landscaping $ 7,000 Assume Jamil and Vicky have a standard HO-3 policy with personal property covered at 50% and landscaping covered for 10%. How much will the insurance pay for the losses of their personal property and landscaping?

$250,000

Janie Long has checking and savings accounts in a federally insured financial institution. The maximum amount of her insurance coverage is

is an example of a personal asset.

Jewelry

asset management account.

Joe Gustafson is a very busy person who likes to handle all his financial services needs with one account if possible. Which of the following types of accounts would best serve this need?

True

John and Mary Smith own 500 shares of ABE stock. After the company pays a 6 percent stock dividend, John and Mary will own 530 shares of ABE stock.

False

Joint checking accounts imply the right of survivorship if one party should die.

b and d

To reduce auto insurance premiums as your car depreciates in value, you should consider self-insuring which of the following risks?

False

Typically the best time to invest in the stock market is when the market is very volatile.

True

Typically, a will must be signed by two witnesses to be valid.

True

Typically, higher levels of education are rewarded with higher income over the lifetime.

False

Using credit is the ideal way to provide for financial emergencies.

True

Using the future value calculations to estimate the funds needed to meet a goal takes compounding into account.

the satisfaction you receive from purchasing something.

Utility refers to

True

Variable rate loans are desirable if interest rates are expected to fall in the future.

True

Wealth can be defined as the total value of all the things you own.

9.42%.

Julie Johnson is in the 31 percent tax bracket. If she were to purchase a $1,000 municipal bond that had a stated interest rate of 6.5%, the taxable equivalent yield would be

20

Leasing accounts for about ____ percent of all vehicles sold today

False

Like Keogh Plans, SEP plans are only for self-employed persons with no employees.

False

Load fees charged on mutual funds help insure that the fund is well managed and that the investor's yields will be greater than those on no-load funds.

inform the issuer in writing

When canceling a credit card, you should cut up the card and ____ that you are canceling your account

False

When cash value is withdrawn from a life insurance policy it is always tax free.

all of these

When evaluating a stock as a possible investment, one must consider

fall.

When interest rates rise, bond prices will

True

When preparing a cash budget, estimating expenses using actual expenses from previous years and by tracking current expenses makes the task easier

all of these.

When refinancing your mortgage, you should consider

all of these.

When setting retirement goals you should consider

False

When you stop making premium payments on a whole life policy, the protection is immediately forfeited.

checkbook ledger

Whenever you write a check or make a deposit, an entry should be made on your

traded on listed exchanges

Which of the following are characteristic of exchange-traded mutual funds?

a, b, and c

Which of the following can be (an) adjustment(s) to gross income on the 1040 form?

a and d tenancy in common + A

Which of the following forms of ownership do not have rights of survivorship?

Low PE ratio

Which of the following is an advantage of owning growth stocks?

changes in IDB

Which of the following is not a source of mutual fund returns?

It may be more difficult to get a home mortgage than for other types of housing.

Which of the following is true regarding cooperative apartments?

variable life

Which of the following types of policies is most likely to allow you to switch investments?

Unscheduled personal property

Which of the following would be insured for actual cash value under a standard HO-2 policy?

all of these

Why does an estate "Break Up"?

80%

With a graduated vesting schedule over five years, Marianne is likely to keep ____ of her employer's contribution if she leaves her company after four years.

IRS 800 numbers.

You are preparing your own tax return. The least costly source for answering your questions would be

$50

You have $450 in your checking account when your ATM card and PIN are stolen. You could lose up to ____ if you report the lost ATM card within 2 business days.

spouse and children.

You have a spouse, two children, one grandchild, and a living father. If you died without a valid will, the person(s) most likely to receive the proceeds of your estate would be

1040X

You made an error when you filed your tax return last year. You can correct this error by filing Form

True

You may be under-budgeting for food if you continually have monthly deficits in the food category.

True.

You put $1,000 into a 12-month certificate of deposit. After seven months, you really need the money. The bank will let you have it before 12 months, but you will pay a penalty.

True

You received a cash dividend from your stock investment this year. This is taxable income.

False

You would most likely purchase an annuity from a bank.

life insurance death benefit payments

You would typically not include ____ in your gross income.

Take-home

____ income is gross income less tax deductions and payments for insurance and retirement savings.

Federal estate taxes

____ would represent a second-level death-related cost.

convenience, services, and cost

Factors typically influencing the choice of where to maintain a checking account are:

False

Federal income taxes paid can be deducted the following year.

$3,650

For 2010, each personal exemption reduced taxable income by

True

For a fee, credit bureaus can provide credit scores for prospective borrowers.

True

For most investors, the best way to deal in foreign securities is through an international mutual fund.

False

For someone with a good credit rating, lenders will typically lend up to 100% of equity in a home using a home equity credit line.

a single individual with dependents.

For tax purposes, head-of-household refers to

False

From a financial planning perspective, you should ask yourself how low of a payment you can get when considering using consumer loans.

quarters

Fully insured status requires 40 ____ of employment covered by social security.

False

Generally, finance charges are computed only on the unpaid balance from previous months' purchases.

True

Generally, insurance is more reasonably priced through group plans than as individual policies.

$35,000 given to son

Gift tax liability could be incurred on this transaction:

True

Group health insurance premiums are usually lower than individual health insurance premiums.

False

Growth funds are mutual funds designed for short-term investing.

False

HO coinsurance requires the insured to carry insurance protection equal to the market value of the house.

True

Having a checking account tells a creditor that you have some experience in managing your own funds.

True

Having an accurate current income and expenditures statement would be very useful when calculating retirement needs.

False

Health Maintenance Organizations (HMOs) provide pre-paid health care to participants.

all of these.

Homeowner's insurance premiums are determined by

False

Hospital expense coverage is adequate for long-term or catastrophic medical needs of most people.

True

If Suzie has $2,000 in checking, $50,000 in a money market account, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be completely insured through FDIC.

listed on the exchange.

If a company's common stock is traded on an exchange, the company is said to be

higher than the nominal rate.

If interest on a savings account is compounded semiannually, the effective rate of interest will be

True

If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be repaid is $1,900.80.

True

If the current price of an investment increases, the investment's annual yield will decrease.

decrease yield

If the current price of an investment increases, what affect does the price increase have on approximate yield?

graded plan.

If you are gradually vested in a retirement plan over a 4-year period, the plan is a

False

If you die intestate, federal law dictates the disposition of your estate.

False

If you obtain a loan to purchase a car in June, this loan amount would be included as income for June.

you cannot accurately predict the total interest you will pay on the loan.

If your installment loan has a variable interest rate,

Become owners of a widely diversified portfolio of securities

A mutual fund allows investors to

False

A mutual fund always provides active professional investment management.

None of these

A "trustee" is also called the

All of these

A bond is quoted as Lging 8 1/2 07 with a close of 106. Which of the following statements are true about this bond?

a discount.

A bond selling below par value is selling at

all of these.

A characteristic of consumer loans is that they

requesting a stop payment.

A check you issued last week has been stolen. You can prevent it from being withdrawn from your account by an unauthorized person by

True

A company with low financial risk has little to no long-term debt.

include a per diem while in the hospital.

A comprehensive major medical insurance would not

HO-6

A condo owner would choose a(n) ____ policy.

mortgage points.

A fee charged by lenders as a condition of a mortgage loan that effectively raises the interest rate is called

True

A financial goal that would be important in all stages of the life cycle is creating and maintaining an emergency fund.

True

A fund's prospectus would provide information about a fund's fee structure.

True

A house and land are examples of real property.

True

A large selection of investment types can qualify as IRA investments.

False

A letter of last instruction is a legal document.

all of these.

A letter of last instruction might provide directions for

loan from the cash value of your life insurance policy would be characterized by

A loan from the cash value of your life insurance policy would be characterized by

False

A lower expected return will mean a higher risk will have to be accepted.

False

Back-ended load funds offer more liquidity to investors than no-load funds.

True

Balance sheets and income statements are most useful if prepared at least annually.

They will pay the same amount of Social Security taxes.

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay?

HMO.

Ben's health coverage charges a low ($15) deductible each time he visits the doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben must go to the health care providers listed by the provider of the health coverage. If he goes to a provider that is not on the list, there is very little coverage. Which of the following types of entity most likely provides Ben's health coverage?

management fee.

Both load and no-load funds will always charge a

$0

Buddy Slaton has only one itemized deduction item, the $3,000 he gave to his church. His standard deduction this year is $5,450, and he is in the 15% marginal tax bracket. How much will his contribution to the church save Buddy in taxes this year?

forward looking.

Budgets are

True

Businesses are a key part of the circular flow of income that sustains our free enterprise system.

True

Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.

True

Consumer choices ultimately determine the kinds of goods and services businesses will provide.

None of these

Credit bureaus

True

Credit unions grant loans only to members of the credit union.

True

Current consumption effects future consumption.

true

Current consumption is inversely related to saving for the future.

True

Cash value is an important component of whole life, universal life, and variable life but is never a component of term insurance.

True

Commercial banks are generally more selective in granting loans than finance companies.

True

Disability income benefits under social security are automatically adjusted periodically for cost of living increases.

probationary periods

Disability income policies usually have ____ that is a time delay from the date of the issuance of the policy until benefit privileges are activated.

False

Earnings per share can be defined as the return earned on behalf of each share of common and preferred stock, calculated by dividing all earnings by the total number of shares outstanding.

False

Eating healthy and exercising is an acceptable substitute for comprehensive health care coverage.

Thrift and savings

Employee contributions to ____ plans do not reduce taxable income.

True

Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.

True

Exchange-traded funds can create new shares to meet demand.

$ 930.

Nick has a comprehensive health care policy with a $250 per calendar year deductible and 80%-20% with a maximum $1,000 copayment cap per calendar year. In January, Nick had a $600 claim which the insurance company paid $280. Nick experiences another unrelated claim in October resulting in total bills of $5,000. How much will Nick have to pay for the second claim?

spouse age 47, no children

Of the following survivors of a fully insured worker, ____ would not be eligible for social security benefits.

principal portion only.

On the balance sheet, a mortgage loan is recorded as the

True

One can avoid early withdrawal penalties on CDs by purchasing them through brokerage firms.

70

One can maximize the monthly social security benefit amount by delaying taking retirement benefits until age

blue chip stocks.

Only the strongest, most stable and safe-return companies can be called

False

Opened-end mutual funds can be traded on an intraday basis.

True

Opened-end mutual funds typically offer more diversification than an individual security.

True

Opening a traditional IRA would allow you to defer taxes on the earning.

False

Payments from a defined benefits plan will be determined by the investment performance of the retirement funds.

True

Payments under workers compensation are more readily available than are social security disability benefits.

Rent a home

Phil and Christina are recently married and are unsure of where they will be relocated after Christina finishes her residency in 9 months. Based on this information, which of the following housing recommendations would be most appropriate for them?

There is a limit on how much can be borrowed.

Regarding student loans, which of the following is true?

True

Replacement cost coverage is available for renters but requires an extra premium.

$12,000

Russ and Lois have a home valued at $96,000 and an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of market value, how much could they borrow using a home equity loan?

buy installment loans from retailers.

Sales finance companies

all of these.

The needs analysis approach to determining the amount of life insurance considers

False

Social security benefits alone can usually fund a comfortable retirement.

wages and salaries exceed certain limits.

Social security benefits for retirees less than 65 years of age may be reduced if

True

Social security benefits may be available to dependents of the retired, disabled, or deceased worker.

have some form of income.

Student credit cards typically require that one be enrolled in a 2- or 4-year college/university and

attractive returns and active trading.

To most stockholders, the main advantages of common stock investment are

a and c only

To qualify for a Stafford loan, you must

True

Term insurance is generally the most economical form of life insurance for young families.

False

The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

True

The Right of Subrogation allows the insurer to get reimbursed for claims paid.

True

The Veterans Administration guarantees mortgage loans given to qualified veterans

False

The adoption of a child will cause estate transfer costs to change.

True

The amount accumulated in a defined contribution plan will be determined, at least in part, by the investment performance of the retirement funds.

Purchasing power

The amount of goods and services each dollar buys at a given point in time is:

income and current tax rate.

The amount of your social security contribution depends on

False

The best choice for a trustee is a family member.

False

The best way to balance your budget is to increase borrowing.

c and d.

The death benefit of ____ life insurance may go down due to poor investment returns.

True

The federal government regulates securities markets through the Securities and Exchange Commission.

set retirement goals

The first step in retirement planning is to

True

The first step in retirement planning is to identify retirement goals.

all of these

The goal of estate planning is to:

under age 19.

The income shifting tax strategy is least effective when income producing gifts are given to persons

False

The insurance company will provide defense for a covered person against both civil and criminal charges involving her motor vehicle.

term insurance.

The insurance portion of a universal life policy is most analogous to

False

The intent of a Wage Earner Plan is to eliminate most of the debtor's obligations.

fixed-rate mortgage.

The interest rates and monthly mortgage payments will not change over the life of your mortgage; you have a(n)

False

The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.

straight life.

The least expensive form of whole life insurance protection is

True

The liquidity ratio is an indicator of a family's ability to pay current debts if there is an interruption in income

duration of medical treatments

The living will states

True

The most common use of consumer loans is to purchase automobiles.

True

The most important advantage of a mutual fund is pooled diversification.

True

The multiple of earnings approach to evaluating life insurance needs is simplistic but can be unreliable.

True

The personal liability umbrella policy typically includes coverage for liability losses that are in excess of the limits purchased in the comprehensive personal liability coverage provided in the homeowner's policy.

True

The premiums for homeowner's insurance are based on size of deductible, internal limits, and standard coverage.

financial security for dependents in the event of death.

The primary purpose of life insurance is to provide

an insured from collecting more than he lost.

The principle of indemnity would prevent:

risk transfer

The purchase of insurance is a common form of which risk management technique:

provide a basic adequate income to eligible retirees.

The purpose of the social security retirement program is to

False

The rate of return on a Series EE savings bond will be constant over the life of the bond.

False

The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance

False

The three major categories of life insurance are term, straight life, and limited payment.

reduce financial risks and share losses.

Through insurance, society is able to

all of these are methods used

he following are methods used to obtain personal information for identity theft except

b and c

is a fixed auto ownership cost.