PFP Quiz Answers and Final Exam Review

In order to collect under uninsured motorists coverage, three specific conditions must be in effect. They are:

1) another motorist was at fault 2) this motorist has no available insurance coverage 3) damages were incurred.

An annual fee charged by some mutual funds to cover marketing and distribution expenses is the...

12(b)-1 fee

T/F: Advances in medical technology, prescription drugs, and treatments have substantially reduced the costs of health care in recent decades.

False

T/F: An investment in a financial futures contract would represent a fairly low risk investment.

False

T/F: Antiques, collections, & boats are adequately protected under a standard homeowner's policy.

False

T/F: By itself, Social Security is sufficient to allow a worker and spouse to maintain their pre-retirement standard of living.

False

T/F: Common stocks pay a guaranteed dividend each year.

False

T/F: Installing a sprinkler system in your home to reduce insurance premium costs is an expense of risk transfer.

False

T/F: Interest rate risk is greater for stocks than for bonds.

False

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

False

T/F: Investing requires a fairly large sum such as $5,000 to get started.

False

T/F: Long-term securities are traded in the money market.

False

T/F: Open-ended mutual funds are guaranteed, they cannot lose value.

False

T/F: Prices are rising in bear markets, indicating economic optimism.

False

T/F: Probate property includes only real property.

False

T/F: The Federal Deposit Insurance Corporation insures brokerage firm deposits.

False

T/F: The life insurance needs of beneficiaries are secondary since most proceeds go to living policyholders.

False

T/F? Having a fire extinguisher in your home is an example of loss prevention.

False

Which of the following is a true statement about the Dow Jones Industrial Average?

It is based on 30 industrial stocks.

Which type of broker is most likely to involve an investor trading electronically from his or her personal computer?

Online broker

______ stocks are really purchased as a gamble rather than because they have a proven history of good performance.

Speculative

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

True

T/F: A bond with a yield to maturity that equaled or exceeded an investor's desired rate of return is considered an attractive investment.

True

T/F: A potential estate planning problem is improper distribution of assets.

True

T/F: All securities involve risk of some kind.

True

T/F: An investment is acceptable if the expected rate of return is greater than the desired rate of return.

True

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

True

T/F: Business risk considers the possibility that the firm may fail.

True

T/F: Fire is an example of peril.

True

T/F: Gathering data on all aspects of the family is an important estate planning function.

True

T/F: Getting married will lower your auto insurance premiums.

True

T/F: Increasing the deductible is likely to lower the premium on a comprehensive major medical policy.

True

T/F: Individuals are being forced to assume more and more responsibility for their own retirement.

True

T/F: Investing and speculating are two entirely different activities.

True

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

True

T/F: More damage is done to estates by doing nothing than by doing the wrong thing.

True

T/F: Mutual funds may be classified by the types of securities they purchase.

True

T/F: Mutual funds often sell directly to investors.

True

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

True

T/F: One should make copies of his will and store them in different places.

True

T/F: Owning common stock represents an equity investment.

True

T/F: Risk is uncertainty regarding economic loss.

True

T/F: Socially responsible funds have experienced lower return than other types of funds of similar risk.

True

T/F: Supplemental retirement plans are usually voluntary.

True

T/F: Survivorship (last-to-die) insurance is used primarily to help pay estate taxes.

True

T/F: Taking pictures is a good way to supplement a personal property inventory.

True

T/F: The first step in retirement planning is to identify retirement goals.

True

T/F: The price an investor can sell his shares of an open-end mutual fund share is the net asset value.

True

T/F: The price per share of a closed-end investment fund could be lower than its NAV.

True

T/F: The returns you expect from securities are income and growth.

True

T/F: There is a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it.

True

T/F: Without using margin accounts, common stock holders cannot lose more than they initially invest to the common stock.

True

T/F: Your homeowner's policy will pay for damage to the neighbor's property when your Frisbee goes through her picture window.

True

T/F: self-employer workers pay twice as much for social security coverage compared to employed workers.

True

T/F? A company with low financial risk has little to no long-term debt.

True

T/F? A prospectus describes the firm & the issue of a new security.

True

T/F? Health insurance costs have been increasing at a rate greater than the CPI.

True

T/F? One of the main factors causing the rise in medical costs is the rising age of the American population.

True

T/F? The primary purpose of life insurance is to protect family members financially after one's death.

True

The purchase of insurance is a common form of which risk management technique? a) risk transfer b) risk assumption c) risk retention d) risk avoidance e) loss control

a) risk transfer

Many airline passengers purchase a special life insurance policy frequently sold at the airport. This is an example of a(n) _______ policy.

accident

Having money taken automatically from your paycheck and put into a mutual fund is an example of:

an automatic investment plan.

Buying _______ would not be an investment.

an automobile

Collision protection pays for damage to

auto of insured.

Underwriting helps protect life insurance companies from which of the following: a) short-term shocks in investment markets b) adverse selection c) having too many healthy people buy life insurance d) major downturns in the economy e) shifts in the macro-social structure of the population

b) adverse selection

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

blue chip stocks

Which of the following forms of life insurance requires the lowest premium per dollar of initial death benefits? a) variable life b) universal life c) term life d) whole life e) adjustable whole life

c) term life

Corporate ownership is evidenced by

common stock.

Your car is damaged by fire while parked in your garage. Protection would be provided by

comprehensive auto coverage

Funds to finance social security come from...

compulsory contributions from the employee, the employer, and the self-employed.

Stocks whose price movements tend to follow the business cycle are called:

cyclical stocks

From the standpoint of the person buying insurance, the central purpose of insurance should be: a) to reduce payments for the most frequently occurring losses b) to collect for all accidental losses c) to accumulate savings d) to transfer risks of serious losses e) to support the prevention of losses

d) to transfer risk of serious losses

A will is a legal document outlining the plan for...

disposition of your assets

A Roth IRA... a) is funded with after tax dollars b) allows interest or dividends to accrue tax free c) permits you to withdraw your contribution at any time d) provides for tax-free earnings if you hold the account for 5 years and are 59.5 at withdrawal e) all of the above

e) all of the above

Index funds have provided competitive rates of return because... a) their costs are lower than other stock funds b) it is difficult to outperform the market c) they have very low turnover rates d) they are tax efficient e) all of the above

e) all of the above

There are a variety of investment vehicles including which of the following: a) common stock b) bonds c) preferred and convertible securities d) real estate e) all of the above

e) all of the above

When setting retirement goals you should consider... a) what you want to do in retirement b) your expected standard of living c) your proposed level of income d) special retirement activities and projects e) all of these

e) all of these

Insurance is a tool that can lessen ____ risk.

economic

The decedent's personal representative is called a(n):

executor

________ would be a first-level death-related cost.

funeral expenses

Annuities are administered by...

insurance companies

The easiest way to invest in foreign stock is to purchase...

international mutual funds.

The proceeds of a variable annuity are dependent on the...

investment return

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

land

The probability of a loss occurring can be reduced by...

loss prevention

Which of the following bond mutual funds would provide tax-free income?

municipal bond fund

You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in

mutual funds.

The author recommends small investors should stick to...

no-load funds

One of the more appealing features of a common stock is that stock investments

offer ownership with a limited liability.

The majority of employers pay...

part of the premium for workers and dependents

Which of the following is least likely to be an investment objective?

pay monthly bills

A characteristic of defensive stocks is...

price stability in economic decline.

A high inflation rate would result in a high degree of...

purchasing power risk.

Through insurance, society is able to...

reduce financial risks and share losses.

Generally, actual cash value is defined as

replacement cost minus depreciation

Estate planning is closely related to:

retirement and insurance planning

The most common reason given for investing is...

saving for retirement.

In the absence of a valid will, the heir most generally favored would be the...

spouse

During a bull market...

stock prices go up

Which of the following is an order to sell a stock when the market price drops to or below a specified level?

stop loss order

The right of ______ gives the insurance company the right to recover its costs from the at-fault party after the company has paid a claim to its insured.

subrogation

Security investors incur varying degrees of risk. Business risk is related to...

the potential success or failure of the firm.

Worker's compensation is a state program that provides benefits for...

workers suffering injury or illness on the job