Personal Finance Exam Two

During the financial crisis of 2008-2009, approximately ________% of subprime mortgages had late payments of at least 30 days. 75 50 25 5

25

If you wish to keep your monthly payments as low and predictable as you can, you should use a 30-year ARM. 15-year ARM. 30-year fixed rate. 15-year fixed rate.

30-year fixed rate.

Financial institutions typically provide home equity loans up to ________ of the value of the equity in a home. 98% 80% 45% 70%

80%

Which of the following is not usually used as collateral for a loan? A car A boat Clothing A house

Clothing

The federal law that allows you to continue health insurance coverage through your former employer's plan for 18 months after you stop work is Medicare. HIPAA. COBRA. Social Security.

COBRA

Which of the following is the most common source of financing for personal loans? Financial institutions Sales finance companies Family and friends Peer-to-peer lending

Financial institutions

Which of the following is the only required coverage if you do not have a lien on your car? Medical payments to others Liability coverage Collision and comprehensive coverage None of the coverages are required

Liability coverage

Auto insurance can be very expensive if you are a male under 25. have not taken a driver training course. have an older car without air bags. have a new subcompact car.

are a male under 25.

The best time to buy a whole life insurance policy in terms of expense is when you are in college. in your retirement. as a child. when you have dependents.

as a child.

Which of the following is usually not offered as part of a benefits package to employees? Auto insurance Retirement benefits Disability insurance Health insurance

auto insurance

When corporate taxes rates are ________, the after-tax earnings of corporations are ________, which means ________ money for shareholders. decreased; increased; more increased; increased; more increased; decreased; more decreased; decreased; less

decreased; increased; more

All of the following are true of the income method of determining life insurance needs except it doesn't figure in savings or investments. does not consider your age. factors in the number of children in your family. is easy to use.

factors in the number of children in your family.

Investing in one of which of the following funds will typically give you the least diversification? Capital appreciation funds Sector funds Equity income funds Growth funds

Sector funds

Sources of disability income do not include employer disability insurance. federal disability insurance. insurance from Social Security. individual disability insurance.

federal disability insurance.

Index funds incur ________ expenses and are ________ managed compared to other funds. fewer; actively more; not actively fewer; not actively more; actively

fewer; not actively

An account that allows employees to use pre-tax income to pay for medical expenses is a HMO. PPO. medical savings account. flexible spending account.

flexible spending account.

One advantage of investing in commercial real estate compared to stock, bonds, and mutual funds is that real estate is less risky than the other investments. is more likely to go up in value. is more marketable. may yield income and tax advantages not available with the other investments.

may yield income and tax advantages not available with the other investments.

In addition to social security tax withholding, wage earners also pay a 1.45% withholding tax on all gross salary and wages for medicaid tax. the supplemental college loan fund. supplemental social security tax. medicare tax.

medicare tax

A disadvantage of whole life policies is that the premiums are not predictable. the face value of the policy can change over time. the cash value is frozen and not available to policyholders. they are much more expensive than term policies.

they are much more expensive than term policies.

The best time to sell stock is when you have achieved 25% return. think the stock price has peaked. need the money. want to purchase another stock.

think the stock price has peaked.

The ________ is the market value of the securities that a mutual fund has purchased minus any liabilities. book value net worth value gross asset value net asset value

net asset value

Stock brokers typically do not recommend no-load funds because the return is lower than on load funds and brokers want to sell only the best funds to their clients. federal law prohibits brokers from selling no-load funds. there is no secondary market for them. no-load funds do not pay a fee to the broker for selling them.

no-load funds do not pay a fee to the broker for selling them.

You can estimate the amount by which your wealth will increase from an investment using discounted range of returns. time value of money. standard deviation. analysis of past returns.

time value of money.

In negotiating a price for the purchase of a home, you should do all of the following, except assess how market conditions affect the value of the home. offer the highest price you can afford first to get the purchase settled quickly. understand that real estate agents are brokers between the buyer and seller. write up a contract

offer the highest price you can afford first to get the purchase settled quickly.

Mutual funds that sell shares directly to investors and repurchase shares investors want to sell are called ________ funds. open-market open-end fair value closed-end

open-end

If a firm performs strongly over a period of time the impact on its stock price is inversely related. positive. uncertain. unrelated.

positive.

The market for newly issued securities and initial public offerings (IPOs) is the ________ market. secondary original initial primary

primary

You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund. The growth stock fund had an annual return of 15% and expenses of 2%. The index fund had an annual return of 12% and expenses of 1%. Assuming equal risk, you should buy the growth fund. the index fund. some of both. neither; the expenses are too high.

the growth fund.

The risk-return relationship means the lower the risk, the higher the return. risk and return have little or no correlation. the higher the risk, the lower the return. the higher the risk, the higher the return.

the higher the risk, the higher the return.

Nathaniel and Kimberly want to make an offer on a 2,200 square foot home that is priced at $212,000. They research other home prices and find the following information: a 2,400 square foot home sold for $220,000; a 1,800 square foot home sold for $168,000; a 2,000 square foot home sold for $185,000. Based on your analysis, what reasonable offer should Nathaniel and Kimberly make on the house? (Round all computations to the nearest dollar.) $200,400 $212,000 $204,600 $194,000

$204,600

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%. At the end of the first month, the interest owed on $3,000 is $360. $300. $36. $30.

$30

How much of a $2,000 medical bill would you pay if your policy contains a $400 deductible and a 10% coinsurance clause? $200 $160 $560 $400

$560

Your home insurance provides for replacement value for personal property losses. Your china hutch was vandalized and completely destroyed. Your hutch cost $400 four years ago, but a new one will cost you $600. How much will the insurance company pay? $600 $200 $400 Nothing, vandalism is not covered.

$600

What return on investment would you earn if you bought a stock on 1/1/16 for $100, received a 1% per quarter dividend and sold the stock on 1/2/2017 for $107? 12.07% 9% 11% 11.2%

11%

Before buying a house you should do the following. Have your real estate agent complete a market price analysis for comparable properties Check your budget to make sure the home including all associated costs is affordable Have a certified home inspector complete an inspection of the home inside and out A, B and C are all important.

A, B and C are all important.

What should you not consider when selecting a vehicle? All parts are American-made Insurance costs Resale value Personal preferences

All parts are American-made

The yield represents which of the following? Annual return from dividends Earnings per share Market price Dividend payment

Annual return from dividends

The interest rate on an ARM may be adjusted every five years. every three years. once a year. Any of the above depending on the terms of the loan.

Any of the above depending on the terms of the loan.

Of the following, which is not used in measuring a stock's return? Average price of the stock during the period owned Price of the stock at the time of purchase Price of the stock at the time of sale Dividends earned during the period owned

Average price of the stock during the period owned

A personal scheduled property floater should be added to your homeowner's insurance policy if you or your spouse has expensive jewelry or watches you have valuable original art in your home you own an antique car and keep it in your garage Both A and B are correct

Both A and B are correct

In general, insurance companies generate their revenues from investing the proceeds of premiums until the funds are needed to cover losses. receiving payments for policies. the increases in the value of their corporate stock. Both A and B are correct.

Both A and B are correct.

Term life insurance is often available in group policies through employers. less expensive when you renew it. pure insurance with no savings feature. Both A and C are correct

Both A and C are correct

Which of the following is the most risky? Buying from a broker Buying a bond Buying on margin Buying stocks online

Buying on margin

Which of the following is not included in the loan contract? Credit score Amount of the loan Interest rate Loan repayment schedule

Credit Score

Which of the following statements is false concerning term life insurance? The premiums increase as you renew the policy. It has a cash value or savings feature as long as you keep the policy active. It provides the same amount of cash to a beneficiary as whole life policies. It will expire and be of no value if not renewed.

It has a cash value or savings feature as long as you keep the policy active.

Which of the following bond mutual funds has both the highest default risk and the highest interest rate risk? Short-term Ginnie Mae Long-term Treasury Short-term corporate Long-term high-yield

Long-term high-yield

Most newly public companies list their IPO shares on the NYSE MKT LLC. Over the Counter market. NYSE. NASDAQ.

NASDAQ.

You currently have a 5 year adjustable variable rate mortgage which is 4 years into the adjustment period. The current interest rate is 3.5% per annum, and the rate is indexed to the 10 year Treasury note which is currently yielding 2.15%. Most financial forecasters are anticipating rate increases over the 2016-2017 period, but there is no consensus on the total amount of the increases. Given the interest rate environment, what would be the best course of action for your mortgage? Refinance into a 1 year ARM so that when rates decrease you will be in a better position. Refinance at the conventional 30 year fixed rate currently offered at 3.75%. Double up on payments and pay it off in half of the term. Stick with your existing mortgage since it is currently 3.5% and below the offered fixed rate.

Refinance at the conventional 30 year fixed rate currently offered at 3.75%.

________ insurance is life insurance that is provided over a specified time period and does not build cash value. Variable life Universal life Whole life Term

Term

Which of the following best explains why approximately one-third of households in the United States do not have life insurance? People don't want to think about it. There is no immediate financial benefit. People don't want to make the periodic payments. People like to focus on more enjoyable events.

There is no immediate financial benefit.

Which of the following characteristics is not true of closed-end funds? They do not repurchase shares from investors. They can be load or no-load funds. They are bought and sold on stock exchanges. They may sell above or below NAV.

They can be load or no-load funds

Which of the following types of insurance is intended to provide a limited choice of investments and an insurance component in the event of death? Whole life Mortgage life Universal life Term insurance

Universal life

Which of the following is not true regarding government regulations to allow individuals who change jobs to maintain health insurance coverage? Even if you retire, you may continue coverage for 18 months unless you qualify for Medicare. You may continue your health insurance provided through an employer's plan for 18 months after you stop working for that employer. If you change jobs, a new insurance company cannot deny you coverage based on your health, medical condition, previous claims, or disability. When changing jobs, you are allowed to stop and start health care plans whenever you need to and still be guaranteed insurance coverage by a new provider.

When changing jobs, you are allowed to stop and start health care plans whenever you need to and still be guaranteed insurance coverage by a new provider.

Which of the following is true of renter's insurance? Because premiums are small, most people who need it have renter's insurance. Your renter's insurance covers only your own property, not the property of your landlord. You only need to buy it if you have possessions of considerable value. It will not cover your liability if a picture falls off the wall and injures a guest in your apartment.

Your renter's insurance covers only your own property, not the property of your landlord.

Stocks would be most favorably affected by an increase in interest rates and a decline in inflation. a decline in interest rates and a decline in inflation. an increase in interest rates and an increase in inflation. a decline in interest rates and an increase in inflation.

a decline in interest rates and a decline in inflation.

When the global financial forecast calls for recession in China and Europe, you should consider investing in a domestic large cap fund. an international fund. a global bond fund. a global fund.

a domestic large cap fund

If you believe that a firm will grow rapidly in the future, you should buy its notes. bonds. preferred stock. common stock.

common stock.

One of the most commonly used measures of inflation is the gross domestic product. inflation factor. fiscal policy. consumer price index.

consumer price index.

In making the purchase versus leasing decision, it is important to remember that leasing is less expensive that a purchase. dealers may impose an additional mileage cost. you won't be required to pay maintenance costs on the leased car. leasing is less risky than a purchase.

dealers may impose an additional mileage cost.

If economic conditions deteriorate, stock prices are likely to increase. decrease. stay the same. not be directly affected by changes in economic conditions.

decrease.

The best investment strategy is to buy only one or two stock mutual funds. buy individual stocks in one sector and bonds of companies in a different sector. hold only bond mutual funds with bonds from U.S. corporations. diversify across stock and bond mutual funds with different objectives.

diversify across stock and bond mutual funds with different objectives.

Computer systems that match up purchases and sales of stocks even at night when the other exchanges are closed are the NASDAQ. electronic communication networks. the regional stock exchanges. the over-the-counter (OTC) markets.

electronic communication networks.

Collateral.... is used on unsecured loans. increases the interest rate on loans. gives the lender additional recourse if the payments are not made. is required on all loans.

gives the lender additional recourse if the payments are not made.

A replacement cost rider is important to add to your homeowner's policy because it will pay you depreciated value plus inflation for your property loss. it replaces property that breaks or otherwise stops working. in the event of a loss, your property is valued at the cost of replacement regardless of age or depreciation. it is not important and is an expensive but low value rider

in the event of a loss, your property is valued at the cost of replacement regardless of age or depreciation.

An amortization schedule shows all but the beginning and ending balances. principal portion of the payment. interest portion of the payment. increase in market value.

increase in market value.

A universal life policy gives policyholders the right to select their ________ which is a right that whole life policyholders do not have. savings investments term amount

investments

Regarding the definition of disability, the meaning can change over the life of your disability policy. it is the same for all disability policies. it varies from one disability policy to another. the same definition is used by the insurance industry and Social Security.

it varies from one disability policy to another.

Auto insurance discounts might be given for all of the following, except alarms. airbags. antilock brakes. leather seats.

leather seats.

You could reduce the size of your monthly payments by: lengthening the maturity of the loan. borrowing the same amount of money but for a shorter period of time. agreeing to a higher interest rate. borrowing more money initially for the same period of time.

lengthening the maturity of the loan.

Under a discount on charge arrangement, the provider receives less than what it would normally charge for a particular service. more than what it would normally charge for a particular service. an amount equal to the charge for the service. a flat fee.

less than what it would normally charge for a particular service.

The primary function of insurance is to insure you against all types of risk. become wealthy from the claims you file. give you peace of mind. maintain your existing level of wealth.

maintain your existing level of wealth.

The cost of health care has risen dramatically in recent years due to all of the following, except the high cost of technology in health care. the bureaucratic processes of reimbursement and claim handling. people living longer and requiring attention for longer periods of time. reduced litigation costs.

reduced litigation costs.

The largest market where existing securities are sold is called the ________ market. primary secondary third fourth

secondary

As a result of the financial crisis of 2008-2009, some financial institutions accepted a(n) ________ arrangements in which the lender accepted the proceeds of the sale of a home as full payment on the debt owed even though the proceeds were less than the debt owed. foreclosure refinancing mortgage modification short-sale

short-sale

The income method, used to calculate your life insurance coverage, multiplies your current annual income by the number of your dependents. your expenses per month. some arbitrary number, such as 10. your life expectancy.

some arbitrary number, such as 10.

Regarding dividends paid on common stock, newer firms in growth industries tend to pay higher dividends. some firms don't pay any dividends at all. older, established firms tend to pay lower dividends. a firm with high dividends is likely to have high stock price appreciation.

some firms don't pay any dividends at all.

When buying a home, all of the following are economic factors one should consider, except taxes. resale value. the existing interior paint colors. maintenance.

the existing interior paint colors.

The cost of leasing a car versus purchasing one is less. is more. is about the same. varies depending on a multitude of factors.

varies depending on a multitude of factors.

Fees charged by brokerage firms are set by the National Association of Securities Dealers. are set by the NYSE. are set by the Federal Reserve. vary according to the services offered.

vary according to the services offered.

The comprehensive and collision premium of a Rolls-Royce in relationship to a Chevy will be lower because Rolls-Royce drivers will be more careful. will be higher because a Rolls-Royce costs more than a Chevy. depends on the insurance rate structure of the state in which the car is insured. is a poor investment.

will be higher because a Rolls-Royce costs more than a Chevy.