Exam 1-3
By ? Insurance companies decide who will be insured by them
Underwriting
It can be difficult to evaluate the true cost of a ? At the time of purchase
Universal life insurance
Dependent children ? Will usually be covered by your health insurance policy
Up to a stated maximum age
When estimating income for the income and expense statement you should
Use gross income
the policy owner assume the investment risk with a ? Insurance policy
Variable life
A key Determinant of an individual's quality life is his or her
Wealth
The finance charges on two credit cards with the same stated annual percentage rate
Will be determined by the method used to calculate balances
A buydown refers to:
financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short periods
The three key groups in the economic environment are
government, consumers, and business.
Financial planning helps us
have flexibility to handle job loss
The primary purpose of a life insurance plan Is to help
in the protection of the dependents of the insured from financial loss in the event of his or her untimely death.
Your income tax withholding is dependent on
income level and number of withholding allowances you have claimed
An income statement includes
income, expenses and cash surplus or deficit
Medicare is a government sponsored health care plan composed of part A and part B. Part A provides
inpatient hospital services
Stocks, bonds and mutual funds are _____.
intangible assets
the first step in buying property and liability is to develop a
inventory of exposures to loss
an individual receiving health care
is allowed to receive multiple payments from more than one insurance company for this care.
the average age of the american population
is increasing
It pays to comparison shop for insurance policies because of the
large variations in premiums and services
When the interest rate on savings is two times the interest rate on a loan it is
less expensive to borrow to make a purchase
Cash and near-cash resources are known as _____.
liquid assets
Salaries could vary across geographical areas because of
living costs
A borrower who pays his or her account balance in full each month should get a credit card with ____.
long grace period
The settlement option chosen by most policyholders is
lump sum
A budget helps in
monitoring and controlling spending
if you are laid off, your group health insurance
must be continued if you pay the premiums
If you borrow money on a single payment loan and discover that you cannot pay it back when it is due you should
negotiate a rollover
workers' compensation insurance will make compensation payments to an injured worker
only if he has been hurt on the job
a factor that is likely to have the greater effect of automobile insurance is the
owner's driving record
Any credit card purchase will effectively be an interest-free loan if you:
pay off the entire balance on or before the due date.
A progressive tax system is one in which
people at higher-income levels pay tax at a higher rate than people at lower-income levels
a personal liability umbrella is more likely to be opted for by
people with high incomes and high net worth
a ? is a hybird form of health maintenance organization (HMO ) that allows members to go outside of the HMO network for care
point-of-service (POS) plan
Term life insurance is characterized by
premium amounts related to the age of the insureds
Donna, who is single and 30 years old, received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance?
raising her deductible from $250 to $1000
Fredrick purchased a property worth $150,000 on mortgage. He had paid $30,000 as a down payment on this property. However, because of a recent slump in the real estate prices, the property is worth only $110,000, forcing Fredrick to sell the property. Assuming that no mortgage payments have been made by Fredrick, this sale is termed a(an) _____.
real estate short sale
Phil and Christina are recently married and are 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?
renting a home
A check you issued last week has been stolen. You can prevent it from being withdrawn from your account by an unauthorized person by
requesting a stop payment
Earnest money is the sum of money the home buyer deposits with the
seller to indicate intent of purchase
A capital gain is the result of
selling an asset for more than purchase price
Most homeowners get financial benefit from owning a home as it results in
tax savings due to tax shelter.
With a bank credit card, one can often avoid interest charges if:
the account balance is paid in full every month
A life insurance policy can be structured so that the death benefits are paid directly to a named beneficiary which means that
the cash benefits from your life insurance policy cannot be claimed by creditors
The consumer is
the central player the financial planning environment
Which of the following is a fixed auto ownership cost
the cost of automobile insurance
Section 2 of a homeowner's insurance contract covers
the cost of defending the insured
replacement-cost coverage is the reimbursement of
the cost of repairing or replacing damaged structures without deducting physical depreciation.
the purchasing power of income from a long term disability plan is protected by
the cost-of-living adjustment (COLA) provision
Long-term care is a term used to describe
the delivery of medical care to persons with chronic medical conditions in a nursing home
Section 1 of the homeowners insurance policy covers
the dwelling, accompanying structure, and personal property of the insured
when purchasing a long-term policy
the guaranteed renewability is recommended
When insuring property, people need to consider not only replacing and restoring the actual property in the event of a loss, but also
the liability arising from the insured's responsibility for property loss
A loan rollover means that:
the loan is paid off by taking out another loan.
A liability suit could result against you if
your dog bites your neighbor
The liquidity ratio is designed to show the percentage of ? you can cover with your current assets
Annual credit obligations
Which of the following will lead to a poor credit rating
Applying for a long-term loan and occasionally being late with a payment
If your ? Your net worth on the balance sheet will increase from one period To the next
Assets increase and liabilities remain constant
Which of the following calculation methods would produce more interest income for a person who uses his or her credit card Very frequently
Average daily balance including new purchases
The Rule of 78s is used to calculate the ________ when an installment loan is paid off early.
Balance due
You should consider your ? Before you take on a large consumer loan
Budgeted expenses
financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period
Buydown
Funds in commercial banks are protected by the
Federal deposit insurance Corporation (FDIC)
The insurance designed to help with nursing home or in-home care due to chronic illness is called
Long-term care
Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paid off as quickly as possible and wants to roll the balance onto a new credit card. She now uses a credit card only for emergencies. What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card?
Low annual percentage rate
Group health insurance premiums are
Lower than an employer's health insurance plan premiums
Henry is married to Lillian and they have two dependent children both of them want to file their own tax returns. Reporting only his or her income deductions and exemptions . The filing status Henry and Lillian in their tax return is
Married filing separately
The ? Method is the most accurate method of determining the amount of life insurance coverage needed for an individual
Needs analysis
Which of the following savings vehicles is free of state and local income tax
Savings bond
A ? Would most likely have to pay estimated taxes
Self-employed plumber
The Wilson short term goals might include
Setting up an emergency plumber three months income
The annual percentage rate APR is equivalent to the stated rate of interest when the ? Is used to calculate finance charges
Simple interest method
Funds for Medicare benefits come from:
Social Security taxes paid by covered workers and their employers
You can learn about the financial strength of an insurance company by checking ? Rating system
Standard & poor
If you do not wish to itemize deductions the other deduction you can take is the
Standard deduction
If you are expecting difficulties in making your payment it is recommended that you
Talk to the creditors
It costs financial institutions more if their customers perform
Teller transactions
Which of the following types of insurance policies provide temporary coverage for a set period
Term life insurance policy
You are preparing your own tax return. Least costly source for getting your questions answered would be
The IRS office toll-free number
Which of the following is true of a good insurance agent
The agent is recommended by professionals like bankers and attorneys.
Which of the following is a reason for a decrease in the average propensity to consume with an increase in income
The cost of necessities represents only a small portion of income
Which of the following about setting long-term goals
The goals should be realistic
The more frequently A bank compounds interest, ? For a given nominal rate will be
The higher the effective rate
Which of the following is a feature of a home equity loan
The interest paid on a home equity loan is tax deductible.
Which of the following is true about investments
The length of time for which money is invested is important
When comparing two installment loan with the same principle and annual percentage rate APR the loan with
The longer maturity will have the lowest monthly payment and higher total costs
Which of the following is true of loan maturity
The longer the loan maturity the higher amount of interest paid
Insurance companies use actuarial date to measure
The risk of loss of a given population
The real estate agent's commission is generally paid by
The seller
Cash surplus on an income and expense statement prepared on a cash basis indicates that
The total expense is less than the total income
? Involves some type of debt restructuring by establishing a debt repayment schedule
The wage earner plan
Which following is true of safe deposit boxes offered by banks
They can be used as a storage place for important documents
Which of the following statements is true of credit Unions
They provide installment loans to their members
A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a
Lien
The biggest fixed cost of owning a car is likely to be the
Loan payments
Using ? To Handle financial emergencies is recommended
Savings
The maximum coverage under most dental policies is often in the range of ? Per patient
$1000 to $2500
Marilyn Simms died with a $200,000 life insurance policy. Her husband jack is the primary beneficiary and their children Mimi (age 24) and Ann (age 30) are the contingent beneficiaries. All three survive Marilyn. How will the policy proceeds be distributed
$200,000 to Jack
a $100,000/$300,000 bodily injury liability automobile policy could pay up to a total of ? to all insured victims in one accident
$300,000
Assume that your total income for the current year is $35,000 your total expense including taxes of $5000 is 30,000 your savings ratio is
16.7%
You are likely to have financial difficulties if your personal credit obligations exceed ? Of your take-home pay
20%
A taxpayer can file for an automatic extension of ___ months.
6
When you lease your apartment from the corporation that owns the building and you own a share of the nonprofit corporation you own
A cooperative apartment
If the insurance rates and monthly mortgage payments do not change over the life of your mortgage you have
A fixed rate mortgage
? Would be considered part of your taxable income
A gain from the sale of your assets
Is a situation where homeowners owe more to the lenders than what their property's are worth
A negative equity
Which of the following represents a disadvantage of a whole life insurance policy
A whole life insurance policy often provides lower yields than other investment vehicles.
Which of the following is subject to federal income tax
Alimony received
Joe Gustafson is a very busy person who likes to handle all his financial services needs with one account if possible. Which of the following types of accounts would best serve this need?
An asset management account
? Will be listed as a liability on your balance sheet
An education loan
Financial planning for young people primarily concerns
Career
A life insurance agent who takes her profession seriously is likely to have earned a professional certification like the
Chartered Life Underwriter
At the end of your car lease period you intend to turn in The car and you will not pay extra at the time based on the residual value of the car you have a ? Lease
Closed end
Are the expenses that borrowers pay when a mortgage is closed and They receive title to the purchased property
Closing costs
An economy experiences ? After a peak
Contraction
There is a need for budget adjustments when
Count deficits are more than surpluses
A ? Is an agency that provides credit information about individual borrowers to lenders
Credit bureau
Which of the following sources of consumer loans often has the most favorable terms for borrowers
Credit unions
Loan should be recorded as a liability on the balance sheet at their
Current outstanding balance
Financial plans include setting goal dates which are
Dates in the future when the goals are expected to be achieved
The Federal deposit insurance Corporation insures each ? Up to a stated maximum dollar amount at any given financial institution
Depositor
Which of the following is true asset management accounts
Deposits are protected by the security investor protection corporation (SIPC)
Christina's bank allows her employees to directly deposit her paycheck into her personal bank account the service provided by Christina's bank is called a
Electronica funds transfer system (EFTS) service
Tex practitioners who are Federally licensed are called
Enrolled agents
Tax ? Is an illegal practice
Evasion
The stage in which the economy hits a peak is called
Expansion
When Phil lists house his balance sheet he should record its
Fair market value
A simplified version of form 1040 for individual income taxIf you have a taxable income of less than $100,000 from wages only and you do not claim any itemize deductions or any tax credit is
Form 1040 EZ
You made an error when you filed your tax return last year you can correct this error by filing
Form 1040 X
A single payment loan is advantageous to borrow only if
Funds are expected to be available in the future to repay the loan in a lump sum
Are loans offering low payments for the first few years gradually increasing until year three or five and then remaining fixed
Graduated payment mortgage
Your take-home pay is what you were left with after subtracting withholding from your
Gross earnings
The total amount of salary you earn before taxes are deducted is your
Gross pay
Employers often provide ? Life insurance as a fringe benefit for their employees
Group
A strong economy leads to
High employment opportunities
A ? Is an example of a tangible asset
House
Medicare is a government sponsored health care plan composed of part A and part B. Part B provides
Imaging laboratory tests and prosthetic devices
The federal government revenue from ? Tax
Income
Inflation refers to
Increasing prices
The decision about whether or not to grant you credit will be made by
Individual creditors
A ? Loan is a loan that is repaid in a series of fixed scheduled payments rather than in a lump sum
Installment
Which of the following is true of installment loans
Installment loans, like home equity loans, offer the benefit of tax deductibility on the interest paid on them.
The majority of each monthly payment at the beginning of the loan goes to pay the:
Interest
The ? On a student loan is (are) sometimes tax deductible
Interest paid
A tax audit is a
Internal revenue service (IRS) attempt verify the accuracy of a return
The total amount of income tax you owe in one year is your tax
Liability
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card?
No annual fee and long grace period
Which of the following is a characteristic of a universal life insurance policy
No choice in how the accumulation account is invested
Which of the following is an illegal method of reducing your current tax liability
Not reporting the taxable income you receive
Which of the following leads to the payment of a higher insurance premium by the potential individual
Obesity of the potential insured
A check you wrote to buy shoes last week has not yet been processed by the bank. It is said to be
Outstanding
Which of the following portions of a mortgage loan is recorded as a liability on the balance sheet
Outstanding principal portion only
The average propensity to consume refers to the
Percentage of income spent for current consumption
The income and expense statement examines your financial
Performance
At which of following stages does an individual tend to have the highest income?
Pre- retirement
? Value is the value today Of an amount to be received in the future
Present
Which of the following modes of identity theft involves thieves obtaining your personal information from financial institutions and other sources under false pretenses?
Pretexting
Are ongoing cost of home ownership
Property tax and insurance
The most popular use customer loans is to
Purchase a car
If you don't have much down payment money a ? Can effectively act cheapest source of down payment
Rebate
The last step in the financial planning process is to
Redefined goals and revise plans and strategies as personal circumstances change
A bank customer with drawls funds by writing checks from his or her negotiable order of withdraw (NOW) account and
Regular checking account
Borrowing from ? Is seldom recommended by financial advisors
Relatives
A ? Is a common provision in many term policies
Renewable clause
Which of the following statements is true of retail charge cards
Retail charge cards are issued by retailers that allow customers to charge goods and services up to a preestablished amount.
A frequent flyer card can be aptly classified as a(n)
Reward card
Which of the following is true of risk avoidance
Risk avoidance is any activity that helps evade an act that creates a risk.
Which of the following is true of the workers; compensation insurance?
Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes
What can you do if your budget shows an annual budget deficit?
You can Liquidate investments to meet the total budget shortfall for the year
you record ? on an income and expense statement
Your charitable payments
An exclusive provider organization (EPO) is _____.
a managed care plan that reimburses members only when affiliated providers are used
When doing an account reconciliation Interest earned on your account should be
added to your checkbook ledger
money market mutual funds
allow check writing above a stipulated minimum amount
auto insurance is needed primarily
as protection against potential liability claims
Ideally, retirement planning should begin:
as soon as one starts earning
Jane is a college student who withdraws cash at least five times a week to meet her everyday expenses. Jane should have a checking account with good:
automated teller machine facilities.
The price of the car you are leasing is called the
capitalized cost
Which of the following statements is true about cash advances that the holder of a bank credit card can obtain from participating banks
cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account.
People who do not have checking accounts often use
cashier's check
Which of the following is listed as an asset on an individuals balance sheet
checking accounts
an insurance company assigns more complex loss cases to a
claims adjustor
Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan.
collateral
Factors typically influencing the choice of where to maintain a checking account are:
convenience, services, and cost
a personal liability policy typically includes
coverage for auto-related liability losses in excess of the limits purchased in the automobile insurance
a payment made using ___ is equivalent to paying by cash
debit card
an increase in the amount of the deductible will
decrease the amount of insurance premiums
In account reconciliation One of the steps in calculating adjusted bank balance is
deducting total withdrawals still outstanding from bank balance
The loss in the value of An automobile over time is called
depreciation
some employers providing health insurance as an employee benefit offer only one plan and pay
either all or part of the health care insurance premiums
Negligence occurs when someone:
fails to act in a reasonable manner
the liability under a personal automobile policy is provided to
the non-family members involved in the accident
a homeowner's policy does not provide protection for
the personal property of tenants
at the scene of an accident, the police are only responsible for assessing
the probability of a law violation
Which of the following can be excluded from a monthly credit card statement
the type of goods purchased
which of he following is true of companies that sell insurance directly to consumers?
their premiums are lower than for companies that sell insurance through agents
Connie is a 20 year old college student who earned $8,000 and spent it all on her support during the year. Her parents may claim her as a tax dependent as long as
they contribute more than half her support for the year
Employees should consider risk assumption for certain health risks because
they would rather pay small amounts from savings than higher premiums to cover them.
The first step in the auto-buying process should be
to analyze how much you can afford to spend on the car
One of the key goals of the Affordable Health Care Act of 2010 is:
to reduce the number of uninsured citizens in the country
You are solvent if your
total assets exceed your total liabilities
You are going on an overseas trip and you want to carry checks you should purchase
traveler's checks
