Personal finance

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?

115,000

Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth today?

133,823

529 Plans are the newest type of student loans.

False

A budget is a detailed statement of what income and expenses occurred over a past period

False

A long-term capital gain is taxed at the same rate as ordinary income

False

A person making $35,000 and spending $30,800 has an average propensity to consume of 80%.

False

A savings account may be a useful tool in managing everyday household transactions

False

Actual cash value provides coverage at the current market value of your property.

False

Always paying cash is helpful in establishing a high level of creditworthiness.

False

Approximately 50 percent of Americans prepare a detailed household budget

False

Because no written contract is usually required, borrowing from friends and relatives is advisable.

False

Bondholders will receive interest payments only after stockholders receive dividends.

False

Closed-end mutual funds can trade at either a discount or a premium from their net asset value.

False

Earnings per share (EPS) tell the stockholder the amount of dividend to be paid.

False

Exchange-traded mutual funds are actually closed-end mutual funds.

False

FDIC covers stocks, bonds, and mutual funds purchased at banks

False

Generally speaking, the interest rates on credit cards are lower than any other form of credit.

False

Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan.

False

Household expenses usually increase after retirement.

False

If Lois has 2,000 in checking, 50,000 in mutual funds, and 75,000 in COD's, her accounts will be insured for 71,000 by FDIC

False

If Wristwatch Arm Corporation (WAC) has assets of $10 million, liabilities of $5 million, and preferred stock of $1 million, its book value is $6 million.

False

If you are married, you can legally file a single tax return

False

If you're married, you can legally file a single tax return

False

Index funds are actively managed.

False

Inflation generally has little effect on personal financial planning.

False

Interest rate risk is greater for short-term bonds than for long-term bonds.

False

Interest you earned on your savings account would be an entry on your personal balance sheet

False

Internet-only banks typically pay lower interest rates on savings than traditional banks

False

Investing is considered a short-term activity that involves the buying and selling of securities.

False

It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.

False

Loans are available from term life insurance policies.

False

Low-load funds do not charge a commission upon initial purchase.

False

Lowballing is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a different, more expensive vehicle.

False

Money market mutual funds are insured up to 250,000 by FDIC if purchased at an insured bank

False

Newly issued securities are sold to the public in the secondary market.

False

One's marginal tax rate is typically lower than one's average tax rate

False

One's marginal tax rate is typically lower than one's average tax rate.

False

Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.

False

Probate property includes only real property.

False

Savings accounts are sometimes referred to as demand deposits

False

Social Security taxes are deducted from all wages and salaries earned in a year

False

Social Security taxes are deductible from all wages and salaries earned in a year

False

Stock dividends are taxed at long-term capital gains rates.

False

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

False

The Standard and Poor's Index is based on 30 industrial stocks.

False

The equity in your home is the difference between the loan balance and purchase price

False

The income and expense statement looks forward in time, while a budget is backward looking

False

The minimum denomination for a treasury bills is mow 1000

False

The rate of return on liquid assets is relatively high compared to other types of investments

False

The returns on term life insurance policies receive favorable tax treatment.

False

The yields on municipal bonds are usually higher than the returns available from fully taxable issues.

False

There is a penalty for early withdrawl of funds from CD's purchased from brokerage firms

False

There is no limit on the amount of social security taxes withheld annually

False

There is no limit to the amount of social security tax withheld annually

False

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

False

When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.

False

Whole life policies typically provide a high investment rate of return.

False

You are covered through the SIPC for losses you incur due to the inept advice you receive from a brokerage firm.

False

The four stages of an economic cycle would not include

Stagnation

A $100,000/$300,000 bodily injury liability automobile policy could pay up to $100,000 to one person or up to $300,000 to several people seeking damages.

True

A balance sheet is like a photograph of your financial condition while an income and expense statement is like a motion picture

True

A cash deficit decreases net worth.

True

A codicil is a simple and convenient legal means of modifying a will.

True

A diversified portfolio is less risky than putting your money into a single security.

True

A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.

True

A house and land are examples of real property

True

A house and land are examples of real property.

True

A house with a replacement value of $110,000 is currently insured for $90,000. The house has suffered a $15,000 loss from windstorm damage. The insurance company will pay the full $15,000 less the deductible.

True

A life insurance policy's cash value may be collected by terminating the policy.

True

A mutual fund prospectus is required to fully disclose all fund fees and expenses.

True

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

True

A peril is a cause of loss.

True

A person who has $2,000 monthly income and spends $1,800 monthly has an average propensity to consume of 90%

True

A personal balance sheet shows your financial condition as of the time the statement is prepared.

True

A potential estate planning problem is improper distribution of assets.

True

A preferred provider organization has characteristics of both an IPA and an indemnity plan.

True

A round lot consists of multiples of 100 shares of stock.

True

A short sale transaction will be profitable when prices are falling.

True

A short-term capital gain would be taxed at the same rate as your salary

True

A stock's beta is an indication of how responsive the stock is to changes in the overall stock market.

True

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

True

A trampoline in your back yard is an example of a hazard.

True

A will is revoked if a second legitimate will is created.

True

ATM transactions require the use of a PIN

True

Actual cash value is defined as replacement cost minus depreciation.

True

Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price fluctuations.

True

Alimony received is included in gross income for the receiver and deducted from gross income for the payer

True

All contributions to Roth 401(k) plans are made in after-tax dollars.

True

All securities involve risk of some kind.

True

An elimination period is the number of days that must pass before disability policies pay proceeds.

True

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

True

An investment must be owned over one year in order to qualify for long-term capital gain treatment

True

An open-end investment company is commonly known as a mutual fund.

True

Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.

True

As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.

True

Average propensity to consume refers to how much of your money you plan to save in your financial plan.

True

Bank credit cards represent the most common kind of open account credit.

True

Being late on credit payments only 2-3 times per year may label you a "late payer" in your credit file.

True

Bonds can be used conservatively by investors seeking current income and aggressively by investors seeking capital gains.

True

Borrowing to pay for a college education is a legitimate use of credit.

True

Changes in the value of securities due to social, political, or economic factors are referred to as market risk.

True

College costs have been escalating faster than the overall rate of inflation.

True

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

True

Common stock generally allows the stockholder an equal vote in electing the management of the corporation.

True

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

True

Convertible securities provide the fixed income features of bonds while offering the price appreciation potential of common stock.

True

Covered liability perils do not include claims for libel, slander, or character defamation.

True

Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.

True

Credit union typically pay higher rates of return on savings and loans association

True

Current consumption affects future consumption

True

Debit and ATM card transactions are linked to your checking account

True

Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.

True

Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.

True

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

True

For most workers, participation in the social security system is mandatory.

True

From a financial planning perspective when considering a consumer loan, you should ask yourself how the purchase fits into long-term financial plans.

True

Gasoline is a variable cost of automobile ownership.

True

Group life insurance is often provided as a fringe benefit by employers.

True

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

True

Growth stocks generally pay little or nothing in dividends.

True

Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.

True

HO-4 and HO-6 are for renters and owners of condominiums, respectively.

True

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

True

Health insurance policies automatically cover all family members.

True

If a gift is so large that taxes are due, the money used to pay the taxes is removed from the estate.

True

If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.

True

In most investments, there is a risk-return tradeoff.

True

In short-term retirement planning, you estimate the required level of retirement income as a percentage of current income, fund that amount, and then adjust that number every 3 to 5 years.

True

Installment loans are typically repaid in monthly payments.

True

Interest on corporate bonds is paid semiannually.

True

Intestacy results from dying without a valid will.

True

Investing and speculating are two entirely different activities.

True

It really makes little difference whether you start retirement savings at age 25 or at age 45.

True

Jewelry, furniture, and computers are examples of personal property

True

Less rapid depreciation is one advantage of buying a used car rather than a new car.

True

Liability claims may result from alleged negligent acts.

True

Liability insurance generally provides some coverage for legal fees.

True

Life insurance needs change dramatically over one's lifetime.

True

Liquidity is important in an estate to pay for death costs and possible taxes.

True

Living a healthy lifestyle is an example of loss prevention and control.

True

Loans against a life insurance policy do not have to be paid back.

True

Loans are available from term life insurance policies.

True

Losing your job triggers a "qualifying life event" that allows you to obtain new insurance outside the normal enrollment window.

True

More damage is done to estates by doing nothing than by doing the wrong thing.

True

Most surgical expense plans fully reimburse the cost of second opinions.

True

Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.

True

Nearly 35% of Americans say retirement planning is their most pressing financial concern.

True

Nearly all life insurance policies have a two-year suicide clause.

True

One can expect to earn a higher rate of interest on a COD than a checking account

True

One should typically name both primary and contingent beneficiaries for life insurance policies.

True

Personal financial planning involves translating financial goals into action plans

True

Profit-sharing plans allow flexible employer contributions to the plan.

True

Protection for personal property both at home and away from home is a provision of the homeowners' policy.

True

Saving is the preferred way to provide for financial emergencies.

True

Secured credit cards require that the cardholder put up collateral in order to get the card.

True

Social Security represents about 38% of total retiree income.

True

Social security benefits are often available resources to the family after the death of a family member.

True

Spreading risk among a large number of people is a major principle of insurance.

True

Standard of living is defined as the necessities, comforts, and luxuries desired by an individual family

True

Supplementary medical insurance (SMI) is a voluntary participatory program, commonly known as Medicare Part B.

True

Tax credits are dollar-for-dollar reductions in taxes due

True

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

True

The Medicare portion of FICA tax is paid on 100% of earnings

True

The SEP is designed for self-employed individuals.

True

The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.

True

The cash value of a life insurance policy can be used as a source of loan collateral.

True

The current trend in retirement plans is toward contributory plans.

True

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

True

The federal personal income tax is a progressive tax

True

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

True

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.

True

The heart of sound financial planning is improved standard of living.

True

The higher a stock's beta, the riskier the stock.

True

The income and expense statement is a summary of actual income earned and expenses made over a specific point of time.

True

The key to creditworthiness is to keep your debt safety ratio as high as possible.

True

The margin requirement for common stock is 50%.

True

The median income of a person with a master's degree is more than double that of a person with only a high school diploma.

True

The most common forms of open account credit are bank credit cards and retail charge cards.

True

The most effective way to achieve financial objectives is through financial planning.

True

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

True

The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.

True

The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.

True

The net asset value (NAV) per share is found by dividing the market value of the fund's securities less the fund's liabilities by the number of shares outstanding.

True

The primary investment objective of bond funds is income.

True

The purpose of a credit report is to evaluate the kind of risk you pose to the lender.

True

The risk-free rate of return is often measured by the return on U.S. Treasury bills.

True

The value of any investment is a function of the return it is expected to produce relative to the amount of perceived risk involved in the investment.

True

The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.

True

There is an inverse relationship between bond prices and market interest rates.

True

To the issuing company, bonds are liabilities.

True

Trading on margin can magnify both losses and profits.

True

Treasury bills are sold at a discount of their maturity value

True

Treasury notes, bills, and bonds represent loans to the federal government.

True

Utility refers to the amount of satisfaction a person gets from buying certain items

True

Variable annuities are usually better choices than fixed annuities for risk tolerant investors during the withdrawal phase of the annuity.

True

When an income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities

True

When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.

True

When the market interest rate goes up, the rate on variable-rate loans goes up.

True

When you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill.

True

When you stop making premium payments on a whole life policy, the policy's cash value is forfeited.

True

When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself.

True

With a COLA (Cost of Living Adjustment) provision, the monthly long-term disability benefit is adjusted upward each year, often in line with the CPI.

True

With a managed care plan, an insurance company may not be involved.

True

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.

True

Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.

True

Your personal value system will shape your attitude toward money and wealth accumulation.

True

Decreasing term insurance usually has a decreasing face value and

a level of premium

A cash budget should help you to

achieve your short-term financial goals. implement disciplined spending. eliminate impulse spending allocate funds to savings and investments. do all of these

Net worth is measured by

assets minus liabilities

Your ____ is an example of a liquid asset.

checking account

A budget is a

detailed financial forecast

A will is a legal document outlining the plan for

disposition of your assets

A closed-end investment company can create an unlimited number of shares.

false

Advances in medical technology, prescriptions drugs, and treatments have substantially reduced health care costs in recent decades.

false

All disability occurs only when someone is completely incapable of doing any type of work.

false

All living trusts are revocable.

false

Earthquakes are covered under most homeowner's policies.

false

If your insurance company makes a payment to you, subrogation is the right of the company to collect from the person causing the accident or from his/her insurance company.

false

Interest rate risk is greater for short-term bonds than for long-term bonds.

false

Minors can handle large sums of money and property.

false

Open-ended mutual funds can be traded on an intraday basis.

false

Owning common stock represents a debt investment.

false

Prices are rising in bear markets, indicating economic optimism.

false

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

false

The size of a mutual fund's management fee is related to the fund's performance.

false

The two main areas of estate planning are asset planning and probate planning.

false

To save premium costs, one should decrease her deductible and liability coverage on a homeowners' policy.

false

Typically group health insurance plans provide substantially less comprehensive coverage than the average individually underwritten policy.

false

While ETFs offer many of the benefits of mutual funds, they have the tax-timing disadvantages not present with otherwise comparable mutual funds.

false

A strong economy leads to

higher employment

Inflation refers to

rising prices

You are solvent if your

total assets exceed total liabilities

In insurance terminology, "participation" and "co-insurance" mean the same thing.

true

Like standard homeowners' policies, a renters' policy liability coverage includes coverage away from home.

true

Your health insurance has an 80% co-insurance clause. Once the deductible is satisfied, your insurance company will pay 80% of your covered losses up to the stated limits.

true