Personal Financial Planning Final Review

The returns on term life insurance policies receive favorable tax treatment. (T/F)

False

A house and land are examples of real property

True

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

True

All living trusts are revocable.

False

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

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

To be eligible for social security retirement benefits, 30 quarters of covered employment are generally needed.

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. (T/F)

False

Using credit is the ideal way to provide for financial emergencies. (T/F)

False

When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs. (T/F)

False

When you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill. (T/F)

False

When you stop making premium payments on a whole life policy, the policy's cash value is forfeited. (T/F)

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

403(b) and 457 plans are similar to 401(k) plans, but they are for employees of public, non-profit organizations.

True

Saving is the preferred way to provide for financial emergencies.

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

Variable-rate loans are desirable if interest rates are expected to fall in the future. (T/F)

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 comparing two installment loans with the same principal and APR, the loan with the longer maturity will have the lower monthly payment and the higher total costs. (T/F)

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. (T/F)

True

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

True

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

False

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

False

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

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 waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness. (T/F)

False

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

False

Whole life policies typically provide a high investment rate of return. (T/F)

False

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

False

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 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. (T/F)

True

A group HMO employs a group of doctors to provide healthcare services to members in a central facility. (T/F)

True

A life insurance policy's cash value may be collected by terminating the policy. (T/F)

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 with a significant amount of investment income would have a high probability of needing to make estimated tax payments

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. (T/F)

True

A rental car could be a covered auto under your personal auto policy collision section.

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 technology fund is an example of a sector fund.

True

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

True

A will may be invalid if the testator was under undue influence of another person.

True

ATM transactions require the use of a PIN

True

Actual cash value is defined as replacement cost minus depreciation.

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 mutual funds have management fees.

True

An elimination period is the number of days that must pass before disability policies pay proceeds. (T/F)

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

Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant. (T/F)

True

Bank credit cards represent the most common kind of open account credit. (T/F)

True

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

True

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

True

College costs have been escalating faster than the overall rate of inflation. (T/F)

True

Commercial banks are generally more selective in granting loans than finance companies. (T/F)

True

Comprehensive major medical insurance provides the most complete coverage available. (T/F)

True

Condominiums are generally less costly than single-family, detached homes. (T/F)

True

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

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. (T/F)

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 (T/F)

True

Gift giving can reduce estate tax liability.

True

Group life insurance is often provided as a fringe benefit by employers. (T/F)

True

Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically. (T/F)

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 lenders specify a loan-to-value ratio of 80 percent, then a buyer must make a 20% down payment on the purchase of a home (T/F)

True

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

True

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.

True

In insurance terminology, "participation" and "co-insurance" mean the same thing. (T/F)

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

Investing and speculating are two entirely different activities.

True

Jewelry, furniture, and computers are examples of personal property

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.

True

Less rapid depreciation is one advantage of buying a used car rather than a new car. (T/F)

True

Life insurance needs change dramatically over one's lifetime (T/F)

True

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

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. (T/F)

True

Long-term care insurance can cover both nursing home and home health care.(T/F)

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. (T/F)

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. (T/F)

True

Mutual funds may be classified by the types of securities they purchase.

True

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

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. (T/F)

True

Open account credit is a form of credit extended to a consumer in advance of any transaction. (T/F)

True

Paying a loan off much quicker than scheduled is one way to build a good credit rating. (T/F)

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

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. (T/F)

True

Spreading risk among a large number of people is a major principle of insurance. (T/F)

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

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

True

Term insurance is generally the most economical form of life insurance for young families. (T/F)

True

The "other-insurance clause" helps prevent the violation of the principle of indemnity.

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. (T/F)

True

The cost of a title search and title insurance are typically part of the closing costs on a housing transaction. (T/F)

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 fees on annuities tend to be high compared to mutual funds.

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. (T/F)

True

The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy. (T/F)

True

The purpose of a credit report is to evaluate the kind of risk you pose to the lender. (T/F)

True

The right of subrogation allows the insurer to get reimbursed for claims paid.

True

To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the conditions of your offer. (T/F)

True

To the issuing company, bonds are liabilities.

True

Treasury bills are sold at a discount of their maturity value

True

When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself. (T/F)

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

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 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

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

True

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 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

Advances in medical technology, prescriptions drugs, and treatments have substantially reduced health care costs in recent decades. (T/F)

False

All disability occurs only when someone is completely incapable of doing any type of work. (T/F)

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

Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle. (T/F)

False

Because no written contract is usually required, borrowing from friends and relatives is advisable. (T/F)

False

Bondholders will receive interest payments only after stockholders receive dividends.

False

Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions. (T/F)

False

Depreciation is not an important consideration since it is not a recurring out-of-pocket cost. (T/F)

False

Disability benefits are almost always taxable, so you typically need to purchase coverage that will replace gross pay. (T/F)

False

ETFs often distribute large capital gains to their shareholders.

False

Estate planning usually occurs during the last ten years of a person's life.

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. (T/F)

False

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

False

Health insurance policies automatically cover all family members.

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

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

Owning common stock represents a debt investment.

False

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

False

Probate property includes only real property.

False

Publicly traded issues are only available to qualified investors.

False

Purchasing power risk is of most concern during economic recession.

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

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

False

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

False

The greatest fixed cost involved with owning an automobile is usually the auto insurance payments. (T/F)

False

If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed.

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

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. (T/F)

False

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

False

Loans are available from term life insurance policies. (T/F)

False

Market risk considers the possibility that the firm may fail.

False

Minors can handle large sums of money and property.

False

A will is a legal document outlining the plan for

Disposition of assets

In which of the following types of investment is the most liquidity risk?

Land