P/F Questions and Answers

If you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be (use time value tables or financial calculator) A: $104.08. B: $108.00. C: $108.16. D: $112.12. E: none of these.

C: $108.16.

Which of the following is not a strategy to building your savings? A: Pay yourself first. B: Reinvest interest and dividends. C: Splurge once in a while. D: Set up a retirement plan. E: All the above are strategies.

?? NOT C

Mr. and Mrs. Gonzalez have three children ages 3, 6, and 13. Their financial matters for 2014 are as follows: Adjusted gross income $75,000 Unreimbursed medical expenses 6,000 ​How much would the Gonzalezes' medical expenses contribute to their total itemized deductions? A: $0 B: $450 C: $1,500 D: $3,000 E: $6,000

?? Not B

Itemized non-business expenses do not include A: charitable contributions. B: state income taxes. C: residential mortgage interest. D: medical expenses. E: life insurance premiums.

?? Not D

Pat and Joy are considering contributing $5,000 to their church. This contribution will bring their total itemized deductions to $10,000. Assuming they are in the 15% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to their church? A: $0 B: $150 C: $300 D: $500 E: $1,000

A: $0

The most popular mortgage loan for financing a home purchase is a A: 30-year fixed-rate mortgage. B: 15-year fixed rate mortgage. C: convertible ARM. D: two-step ARM. E: growing equity mortgage.

A: 30-year fixed-rate mortgage.

Jacque's total monthly loan payments are $1,020 while her gross income is $3,000 per month. What is her debt service ratio? A: 34% B: 43% C: 50% D: 75% E: 82%

A: 34%

Phil and Christina are recently married and 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? A: Rent an apartment. B: Buy a condominium. C: Buy a single-family dwelling. D: Buy a cooperative apartment. E: Buy a manufactured home.

A: Rent an apartment.

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 61) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay? A: They will pay the same amount of Social Security taxes. B: Ben will pay less Social Security taxes because he is married. C: Ben will pay less Social Security taxes because he has children. D: Jack will pay less Social Security taxes because he is single. E: Jack will pay less Social Security taxes because he is over age 60.

A: They will pay the same amount of Social Security taxes.

You have no employer provided pension plan; your IRA contributions are treated as A: an adjustment to gross income. B: an additional personal exemption. C: part of the standard deduction. D: an itemized deduction. E: a tax credit.

A: an adjustment to gross income.

Estate planning involves A: considering how your wealth can be most effectively passed on to heirs. B: payment of all back taxes. C: dissolution of all privately held corporations. D: valuation and auctioning of your valuables. E: planning retirement.

A: considering how your wealth can be most effectively passed on to heirs.

Your take-home pay is what you are left with after subtracting withholdings from your A: gross earnings. B: net earnings. C: taxable income. D: adjusted gross income. E: tax exempt income.

A: gross earnings.

A declining rent ratio indicates A: lower housing prices relative to renting B: lower rent relative to housing prices C: higher housing prices relative to renting D: none of the above

A: lower housing prices relative to renting

The financial crisis of 2008 and 2009 is best characterized as a A: recession. B: depression. C: downturn. D: business trough. E: meltdown.

A: recession.

Inflation refers to A: rising prices. B: declining interest rates. C: the opposite of wealth. D: the opposite of stagflation. E: declining prices.

A: rising prices.

The Wilson family's short-term goals might include A: setting up an emergency fund of three months' income B: buying a house C: sending the kids to college D: planning to retire at age 60 E: all of these

A: setting up an emergency fund of three months' income

____ would be an example of a fixed expense. A: Food B: Vacation C: Utilities D: Taxes E: None of these

E: None of these

Which of the following can be adjustment(s) to gross income on the 1040 form? A: Health insurance premiums paid by self-employed individuals B: Alimony paid C: Moving expenses D: a and b only E: a, b, and c

E: a, b, and c

The ____ would be included in a rental contract or lease agreement. A: amount of the monthly payment B: payment date C: length of lease agreement D: deposit required E: all of these

E: all of these

Which of the following are legal methods of reducing your current tax liability? A: not reporting taxable income you receive B: investing in a tax deferred annuity C: shifting income to your children D: writing off deductions above the actual amount(s) spent E: b and c

E: b and c

For the first 15 years of a 30-year mortgage, the majority of each monthly payment goes to A: principal. B: interest. C: real estate taxes. D: homeowner's insurance. E: private mortgage insurance.

B: interest.

Using personal balance sheet information, the ____ ratio indicates your ability to meet current debt payments. A: solvency B: liquidity C: cash D: savings E: debt service

B: liquidity

A financial advantage of renting compared to purchasing housing is A: income tax treatment. B: no need for a down payment. C: required security deposit. D: the legal obligation. E: stable monthly payments.

B: no need for a down payment.

The income and expense statement examines your financial A: level. B: performance. C: position. D: assets. E: objectives.

B: performance.

Lower interest rates on certificates of deposit are associated with A: higher account balances. B: shorter time periods. C: longer time periods. D: both a and b. E: both a and c.

B: shorter time periods.

A progressive tax system is one in which higher-income people pay ____ than lower-income people. A: a higher dollar amount in taxes B: tax at a higher rate C: a lower dollar amount in taxes D: tax at a lower rate E: tax at the same rate

B: tax at a higher rate

Government places controls on the personal financial environment by use of A: taxation and fiscal policy. B: taxation and regulation. C: taxation and competition. D: regulation and competition. E: regulation and fiscal policy.

B: taxation and regulation.

You are solvent if your A: total liabilities exceed total assets. B: total assets exceed total liabilities. C: total assets exceed net worth. D: total liabilities exceed net worth. E: none of these.

B: total assets exceed total liabilities.

Businesses provide A: stores. B: money payments. C: land and capital. D: labor. E: goods and services.

E: goods and services.

A(n) ____ would not be listed as an asset on your balance sheet. A: mortgaged home B: savings account C: owned automobile D: checking account E: leased automobile

E: leased automobile

The primary reason people use financial advisors is A: unhappiness with results of managing their own finances. B: saving for their children's college education. C: tax issues. D: estate and inheritance planning. E: retirement needs.

E: retirement needs.

The four stages of an economic cycle would not include A: trough. B: expansion. C: contraction. D: peak. E: stagnation.

E: stagnation.

Utility refers to A: the satisfaction you receive from purchasing something. B: how much money you receive during the year. C: the total of your spending for the year. D: the value of your investments at any given time. E: none of these.

A: the satisfaction you receive from purchasing something.

____ is(are) an up-front, one-time cost of home ownership. A: The down payment B: Closing costs C: Property taxes D: Insurance E: Both a and b

B: Closing costs

_____ is an example of a variable expense. A: Mortgage payment B: Food C: Car payment D: Monthly insurance premium E: Professional dues

B: Food

The income and expense statement is specific to A: one point in time. B: a specific period of time. C: last year. D: next year. E: none of these.

B: a specific period of time.

Money market deposit accounts A: allow unlimited check writing. B: are typically federally insured. C: have stated maturity dates. D: are offered only by credit unions. E: all of these.

B: are typically federally insured.

Whenever you write a check or make a deposit, an entry should be made in your A: deposit slip. B: checkbook ledger. C: check. D: ATM account. E: personal check.

B: checkbook ledger.

The tax rate on capital gains for most people is A: the same as on regular income. B: dependent on the time the asset was owned. C: dependent on the amount of profit earned. D: higher than the rate on regular income. E: none of these.

B: dependent on the time the asset was owned.

Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet? A: $200,000 asset and $55,000 liability B: $200,000 asset and $90,000 liability C: $175,000 asset and $55,000 liability D: $175,000 asset and $90,000 liability E: $100,000 asset and $55,000 liability

C: $175,000 asset and $55,000 liability

A lump sum deposit of $8,000 left in the bank for 12 years at 9% compounded annually will result in an ending balance of (select the closest answer) A: $11,600. B: $16,640. C: $22,500. D: $52,938. E: $96,000.

C: $22,500.

If you invest $1,200 per year at the end of each year for 40 years at an 8% rate of return, you will have accumulated (use time value table or financial calculator) A: $ 48,000. B: $ 51,840. C: $310,862. D: $379,000. E: $384,000.

C: $310,862.

Elena purchased a stamp collection for $5,000 thirty years ago. If it appreciated 8% annually, what is it worth today? A: $17,000 B: $36,400 C: $50,313 D: $123,023 E: $150,000

C: $50,313

Janice Sanders plans on saving $12,000 for 3 years until she returns to college for her master's degree in personal financial planning. She would like to receive a fixed rate of return over that period. Which of the following would you recommend? A: money market deposit account B: 1-year certificate of deposit C: 3-year certificate of deposit D: Series EE US savings bond E: b or c

C: 3-year certificate of deposit

A taxpayer can file for an automatic extension of ___ months. A: 2 B: 4 C: 6 D: 9 E: 12

C: 6

A ____ is a designation earned by financial planners after completing required courses of study. A: MBA B: LUTCF C: CFP D: E.A. E: CLU

C: CFP

Which of the following is a potential advantage of online bill payment systems? A: Privacy B: FDIC insurance C: Time and postage savings D: Efficient startup E: Use of float

C: Time and postage savings

The personal balance sheet equation is A: Total Assets / Total Liabilities = Net Worth. B: Total Assets × Total Liabilities = Net Worth. C: Total Assets − Total Liabilities = Net Worth. D: Total Assets + Total Liabilities = Net Worth. E: Total Liabilities − Total Assets = Net Worth.

C: Total Assets − Total Liabilities = Net Worth.

The time period covered by an income and expense statement is usually A: a week or a month. B: a month or a quarter. C: a month or a year. D: one to two years. E: one to five years.

C: a month or a year.

The type of mortgage that will most likely need to be refinanced is the ____ mortgage. A: fixed-rate B: adjustable-rate C: balloon-payment D: graduated-payment E: growing-equity

C: balloon-payment

When reporting errors or unauthorized transactions, it is best to notify your bank A: by telephone. B: by letter, keeping a copy for your files. C: by telephone and follow-up letter, keeping a copy for your files. D: by none of the above.

C: by telephone and follow-up letter, keeping a copy for your files.

A strong economy leads to A: lower inflation. B: lower interest rates. C: higher employment. D: lower productivity. E: higher unemployment.

C: higher employment.

Reasons why auto leasing is so popular include all of the following except A: lower monthly payments B: lower down payment C: lower total cost D: getting more expensive car for the same monthly payment E: rising new car prices

C: lower total cost

Federal income taxes are A: regressive. B: flat. C: progressive. D: none of these.

C: progressive.

If you do not wish to itemize deductions, you can use the A: pay-as-you-go amount. B: bracket deduction. C: standard deduction. D: exemption. E: withholding allowance.

C: standard deduction.

The income-shifting tax strategy is least effective when income-producing gifts are given to persons A: over age 65. B: over age 50. C: under age 19. D: under age 25. E: Age is not an issue.

C: under age 19.

Murray (age 68, single) just sold his home of 35 years so that he could relocate nearer to his grandchildren. He realized a $400,000 capital gain on the home. On how much of this gain will Murray have to pay taxes? A: $400,000 B: $300,000 C: $250,000 D: $150,000 E: $0

D: $150,000

Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diana owe on those gains? A: $10,500 B: $8,400 C: $6,000 D: $4,500 E: $1,500

D: $4,500

Kim's net worth is $85,000 and her total assets are $100,000. What is Kim's solvency ratio? A: 15% B: 25% C: 65% D: 85% E: 100%

D: 85%

Maria started a successful business in college and has grown it to millionaire status. Maria would be considered to have predominantly which type of attitude toward money? A: Spender B: Giver C: Saver D: Builder E: None of these

D: Builder

A declaration of estimated taxes is made by filing A: Schedule B. B: Form 1040 EZ. C: Schedule Z. D: Form 1040 ES. E: Form 1040 A.

D: Form 1040 ES.

____ would not be a long-term financial goal. A: Purchasing a new car B: Providing adequate life insurance C: Reducing income taxes D: Paying your phone bill E: Planning for retirement

D: Paying your phone bill

____ would not be listed as a liability on your personal balance sheet. A: Taxes owed B: Loan balances C: Bank credit card charges D: Savings accounts E: Rent due

D: Savings accounts

____ tends to increase and then decrease over the life cycle. A: Debt B: Income C: Emergency funds D: a and b E: a, b, and c

D: a and b

Employee benefits may include A: retirement plans. B: health insurance. C: employee discounts. D: tuition reimbursements. D: all of these.

D: all of these.

Your income is directly related to A: your geographic location. B: your age. C: your education. D: all of these. E: none of these.

D: all of these.

What policies can the government utilize to help stabilize the economy? A: Price stabilization policy B: Monetary policy C: Fiscal policy D: b and c E: a, b, and c

D: b and c

In order to minimize the difficulty associated with meeting monthly loan payments, the debt service ratio should be A: above 50%. B: below 50%. C: at 35%. D: below 35%. E: above 20%.

D: below 35%.

All of the following are stages in preparing a cash A: budget except B: forecasting income. C: forecasting expenses. D: calculating the future value of the cash surplus. E: finalizing the cash budget.

D: calculating the future value of the cash surplus.

Saving for a child's education is an example of A: accumulating wealth. B: a tangible asset. C: estate planning. D: deferred spending. E: propensity to consume.

D: deferred spending.

On an income and expense statement covering January 1 to June 30, ____ would not be included as income. A: wages and salaries received in that six months B: interest received on June 30 C: auto sold with payment received May 15 D: inheritance granted in April, to be paid in September E: income tax refund received April 14

D: inheritance granted in April, to be paid in September

The main purpose of a budget is to A: develop goals. B: develop a financial plan. C: give feedback to the plan. D: monitor and control financial outcomes. E: revise goals.

D: monitor and control financial outcomes.

Mandi and Thomas were married and had one child, age 7. Mandi died in 2013 leaving Thomas a single parent. In 2014, the most favorable filing status for Thomas would be A: single. B: married filing separately. C: head of household. D: qualifying widow(er). E: any of the above.

D: qualifying widow(er).

As the rate of inflation increases, A: the cost of living goes down. B: interest rates decrease. C: paychecks decrease. D: retirement plans have more difficulty meeting their goals. E: purchasing power of a dollar increases.

D: retirement plans have more difficulty meeting their goals.

Barney Smith has only one itemized deduction item, the $4,400 he gave to his church. His standard deduction this year is $6,200, and he is in the 15% marginal tax bracket. How much will his contribution to the church save Barney in taxes this year? A: $4,400 B: $3,000 C: $660 D: $450 E: $0

E: $0

Maria and Ed just sold their home of 20 years so that they could purchase a smaller home. They realized a $400,000 capital gain on the home. On how much of this gain will Maria and Ed have to pay taxes? A: $400,000 B: $300,000 C: $250,000 D: $100,000 E: $0

E: $0

Which of the following offer tax preparation services? A: National and local tax services B: Certified public accountants (CPAs) C: Enrolled agents (EAs) D: Tax attorneys E: All of the above

E: All of the above

Which of the following contributes to quality of life? A: House B: Clothing C: Education D: Music E: All of these

E: All of these

Which of the following questions should you ask yourself when developing your financial goals? A: How important is money to me? B: Am I a risk taker? C: What do I like to buy? D: Does money make me feel secure? E: All of these

E: All of these

____ is a reason for preferring to rent rather than to buy. A: Flexibility B: No maintenance worries C: Lower monthly cash flows D: Down payment money better used elsewhere E: All of these

E: All of these