Wise test

An individual, who earns $36,000 a year, has total assets of $156,000 and liabilities of $85,000. The net worth of this individual is

$71,000 Net Worth = Assets - Liabilities

By raising the deductible on car insurance coverage for collision from $200 to $400, the premium will be

A lower amount (deductible (the amount you have to pay before the insurance company will help you) and the premium (the amount you pay each month to have insurance) have an INVERSE relationship. If one is high the other is low. So raising my deductible will lower my premiums.)

When a person increases his number of payroll exemptions, he will have

An increase in his net worth (The higher your withholding number is, the less the government will take. )

All effective financial goals should...

Have a target date for achievement

A benefit of using a debit card linked to a checking account without overdraft protection is that a person can

Make purchases without going into debt

A form of payment that is guaranteed to be as good as cash is a a. certificate of deposit (CD) b. personal check c. money order d. Social Security card

Money order

Insurance is frequently described as a method of "sharing the risk"because the insured person shares the risk with the

Other policy holders When you get insurance you are sharing the possibility/risk with everyone else in your group. We all pay for insurance though we don't all use it all the time. When we don't use it our money is put towards those who need it.

A person, without checking account overdraft protection, writes a check for $152 when the checking account balance is $125. The bank will generally take which of these actions.

Return the check because of insufficient funds and charge a fee. (Without overdraft protection (allows you to take out more than is in your account) the bank will not cash a check, allow the debit or atm transaction unless there is enough money to cover it. If you have protection, then you may cash a check or make a debit or atm transaction and you will just pay a penalty but you will be allowed.)

Which of the following choices lists assets from MOST liquid to least liquid?

Savings account, certificate of deposit (CD), real estate

What happens to the interest rate during the life of a ten year bond that a person purchased paying six percent interest?

The interest rate remains the same for the life of the bond (Bonds are a FIXED RATE investments. Fixed, means it will stay the same.)

Why are mutual funds considered a wise investment?

They diversify a person's portfolio among a number of stocks and bonds (A mutual fund is a professionally managed investment that is made up of a pool of funds collected from many investors and invested in stocks, bonds, money markets, and securities. Because mutual funds are are diversified and professionally managed they are considered a wise or lower risk investment.)

A credit union is a...

a non-profit business that operates as a bank and is owned by its members.

A person should have an emergency savings account with deposits of at LEAST a. 6 months of living expenses b. 18 months of living expenses c. double the amount of the person's annual salary d. single the amount of the person's annual salary

a. 6 months of living expenses (An emergency fund should have between 3-6 months of expenses in it to secure your way of life in case of a financial disaster. As more "responsibilities" arise ie: having kids or buying a house the number of months in the fund should increase as well.)

A person with homeowner's insurance had electronic equipment currently worth $2,000 stolen from her apartment. The insurance company approved her $2,000 claim and paid her $1,500. The most likely reason for the insurance company's paying her less than the $2,000 claim is that her insurance policy had a $500 a. Deductible b. Finance charge c. Co-insurance clause d. Premium

a. Deductible

A person's credit report shows a late payment made two years ago on a credit card. Which if these statements is CORRECT? a. If this information is accurate, it can stay on the person's credit report for up to 7 years. b. Negative information will always remain on the person's credit report c. The person can remove information that is more than one year old from his credit report. d. For a fee, the credit reporting agency can remove the information from the person's credit report.

a. If this information is accurate, it can stay on the person's credit report for up to 7 years.

Which statement is true about a whole life insurance policy? a. It accumulates cash value for the policy holderThis answer is correct. b. The annual premium needs to be paid in full in one payment c. The policy holder needs to own a home d. It can only be bought by people under the age of 50

a. It accumulates cash value for the policy holder ( Remember to think of Life Insurance Policies as an "investment in your death" )

One way to establish credit is to a. Take out a small loan using a savings account as collateral and pay it back on time b. Obtain a reference letter from an employer c. Directly deposit a paycheck in a savings account d. Make major purchases with cash rather than using a credit card

a. Take out a small loan using a savings account as collateral and pay it back on time

What might cause the price of a stock to change on a particular day? a. The company announces that it will release a new product b. The president of the company declares an increase or decrease in the price of the stock. c. The corporations' finance committee changes the stock price quarterly. d. Nothing: prices are fixed at the time the stock is issued for sale to the public.

a. The company announces that it will release a new product

Financial planning allows individuals to a. develop strategies for savings and investing b. guarantee income for retirement c. avoid credit scams and identity theft d. eliminate risk on investment

a. develop strategies for savings and investing

A person has a 10 year term life insurance policy. The policy will pay a. the death benefit if the insured dies within the ten years. b. the death benefit if the insured dies after the ten year term c. A cash value of $250,000 at the end of ten years. d. A cash value equal to the premiums paid over the ten years.

a. the death benefit if the insured dies within the ten years.

The LOWEST interest rate loans generally:

are given to people who have high credit scores

What should an employee know when deciding whether or not to contribute to his company's 401(k) retirement plan? a. Money in the retirement account can be withdrawn by the employee for any purpose, at any age, without penalty. b. The earlier the employee contributes to the retirement account, the greater the amount of money available for use during retirement. c. Employee contributions to the retirement account are backed 100% by the federal government d. The more money an employee contributes to the retirement accounts, the less money the employee will collect from Social Security

b. The earlier the employee contributes to the retirement account, the greater the amount of money available for use during retirement. (We have seen this idea of "time value of money" many times in this test, and here it is again. It is always true that the earlier you invest the more time you have to earn interest, so you will earn more interest when you invest early. )

One ADVANTAGE of giving someone a gift card is that the person a. has to pay to renew the card each year. b. may forget to use the card often, resulting in a monthly inactivity fee after 12 months c. is not required to make purchases for the exact value that is on the card. d. has to pay a fee when using the card

c. is not required to make purchases for the exact value that is on the card.

What is an advantage for a person to have his paycheck deposited directly into his bank account? a. check cashing stores only cash personal checks not paychecks b. paycheck funds will only be spent on budgeted items c. paycheck funds are available faster than if the person brings the paycheck to the bank d. taxes deducted from gross pay are lower if the paycheck is sent directly to the bank

c. paycheck funds are available faster than if the person brings the paycheck to the bank

A person pawns his watch and receives $100 from the pawnshop. A month, later the person pays $120 to get his watch back. The additional $20 paid is considered. a. A dividend b. A fine c. A premium d. Interest on the loan

d. Interest on the loan

When a credit card company increases a person's line of credit, it may a. Help the person pay his outstanding debt on that credit card b. Discourage the person from using that credit card to make a small purchase c. Prevent the person from paying more than the monthly minimum balance due on the credit card d. Encourage the person to use that credit card to buy more than he can afford

d. Encourage the person to use that credit card to buy more than he can afford (A line of credit is another way of saying: how much you are allowed to spend. if you increase a line of credit, you are allowing that customer to spend more than previously allowed.)

Buying insurance is a way to a. Avoid losses associated with an investment in stocks b. Postpone income tax payments until retirement c. Protect one's purchasing power d. Protect against the risks associated with potential losses

d. Protect against the risks associated with potential losses

Why do investors diversify their investments? a. To reduce capital gains b. To decrease liquidity c. To protect savings d. To lower portfolio risk

d. To lower portfolio risk (Diversify means to spread around. So a person who will diversify their investments means they will invest in the stock market, bonds, goals, CDs and other types. This is important because if one type of investment crashes (for example the stock market) the other areas are still safe. In other words, they are lowering the risk of their portfolio. )

When a person has a balanced budget the a. Net income = disposable income b. Total income = Total expenses - savings c. Total expenses = savings d. Total expenses + savings = total income

d. Total expenses + savings = total income

What is the advantage of investing in stocks over a twenty year period? a. After twenty years, stocks are protected against loss in value by the Federal Reserve Bank (FED) b. Over a long time, money invested in stock is insured by the Federal Deposit Insurance Corportation (FDIC) unlike money in savings c. The longer the investor owns a stock, the lower the investment risk. d. When stocks are held for a long time, the money invested generally makes more than money in a savings account earning interest.

d. When stocks are held for a long time, the money invested generally makes more than money in a savings account earning interest.

When considering purchasing renters insurance. a person should know that the

purpose is to cover monetary losses related to fire, theft, and personal injury (The purpose of all insurance is to cover monetary losses. Renters insurance protects against all things that can happen to your rented property. Premiums of all insurance is based off of how risky you are as a customer. The more claims you make, the riskier you are. Income has nothing to do with it. Landlord insurance will protect them from loss, it will do nothing for their renters. Also, landlords can demand that you have insurance but they do not get a say in anything else about it. They do not get to approve the policy, insurance company or coverage.)