FIN301 Test 2
Damien plans to buy a share at $120 and hold it for 5 years. During this period, he would receive average annual dividends of $4 a share. He expects to receive $145 at the end of the 5-year period when he sells the share. What are the keystrokes used to calculate the rate of return on the investment? a. N = 5, PV = −145, PMT = −4, FV = 120 b. N = 5, PV = −120, PMT = 4, FV = 145 c. N = 4, PV = 145, PMT = 5, FV = −120 d. N = 4, PV = −120, PMT = 5, FV = 145 e. N = 5, PV = 120, PMT = 4, FV = −145
b. N = 5, PV = −120, PMT = 4, FV = 145
Which of the following statements about risk is true? a. The higher the risk, the lower the maturity value of the investment. b. The higher the risk, the higher the expected return. c. The higher the risk, the lower the return. d. The higher the risk, the lower the risk-free rate. e. The lower the risk, the greater the maturity value of the investment.
b. The higher the risk, the higher the expected return.
Which of the following statements regarding workers' compensation insurance is true? a. Workers' compensation insurance includes only rehabilitation expenses. b. Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes. c. Employees are required to bear half of the entire cost of workers' compensation insurance. d. Employers who file the most claims pay the lowest premiums on the insurance coverage. e. The federal government is responsible for workers' compensation legislation and regulation.
b. Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
A personal liability umbrella policy typically includes: a. subsidies for flood insurance established in cooperation with a private insurance agent. b. added liability coverage for homeowner's and automobile insurance. c. coverage for only other types of vehicles such as mobile homes. d. the basic health and homeowner's protection needed by most families. e. the provision for assessment of liability by the police at the scene of the accident.
b. added liability coverage for homeowner's and automobile insurance.
In a traditional indemnity (fee-for-service) plan, the: a. lower the deductible, the lower the premium. b. health care provider and the insurer are separate. c. insurer always pays directly to the health care provider. d. health care provider contracts with the insured's employee union to provide health insurance benefits. e. insured receives comprehensive health care services from a designated group of doctors only.
b. health care provider and the insurer are separate.
A policy provision ensuring continued insurance coverage for the insured's lifetime as long as the premiums continue to be paid is known as: a. co-insurance. b. renewability. c. a co-payment. d. benefits duration. e. a policy exclusion.
b. renewability.
A liability suit could result against you if: a. your son falls down the stairs of your home. b. your dog bites your neighbor. c. lightning strikes your home. d. smoke from the fireplace fills your house. e. your automobile is stolen.
b. your dog bites your neighbor.
Which of the following statements regarding insurance underwriting is true? a. Insurance underwriters help insurers determine the insurance needs of the potential insured. b. Insurance underwriters lessen the severity of loss after it occurs. c. Insurance underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss. d. Insurance underwriters perform a process used to avoid an act that would create a risk. e. Insurance underwriters perform any activity that reduces the chance that a loss will occur.
c. Insurance underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss.
Which of the following is a characteristic of a stop-loss order? a. The stop-loss order is the quickest way to have an order filled. b. The stop-loss order allows buy orders to be filled at the lowest price. c. The stop-loss order sells a stock when the market price drops below a specified price. d. The stop-loss order is used to buy stocks at a 10% margin. e. The stop-loss order allows stocks to be purchased at the current market price.
c. The stop-loss order sells a stock when the market price drops below a specified price.
An _____ provides financial and descriptive information about a firm's operations in the recent past to the internal and external interested parties. a. annual portfolio report b. annual research report c. annual stockholders' report d. annual tax report e. annual education report
c. annual stockholders' report
Negligence occurs when someone: a. admits an error. b. fails to act as an insured. c. fails to act in a reasonable manner. d. is not insured. e. is more than 18 years of age.
c. fails to act in a reasonable manner.
Underwriting refers to: a. the payment of a claim. b. selling insurance at a premium less than that of the competitors. c. the determination of which exposures to insure. d. restoring the claimant to the financial condition prior to loss. e. a method for developing policy wording.
c. the determination of which exposures to insure.
Which of the following statements regarding private health insurance plans is true? a. In fee-for-service plans, the health care provider is the same as the insurer. b. Group health insurance is a contract between pharmaceutical companies and the health care provider. c. In traditional indemnity plans, the insured pays 80% of the eligible health care expenses. d. In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan. e. In managed care plans, employers contract with the health care service provider.
d. In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
Which of the following statements regarding the Affordable Health Care Act (ACA) is true? a. The ACA limits the total number of surgeries for the insurers. b. The ACA provides major medical insurance with low deductibles to protect against catastrophic illnesses. c. The ACA decides the insurance payments for dependents. d. The ACA eliminates lifetime limits on total health care insurance payments by insurers. e. The ACA requires employers to reimburse the cost of hospital stays of the insured.
d. The ACA eliminates lifetime limits on total health care insurance payments by insurers.
The Securities Investor Protection Corporation (SIPC) provides insurance to protect the investor from: a. declining security prices. b. the company's failure to make dividend payments. c. the loss of the marginal investment on the stock exchange. d. a brokerage firm's financial failure. e. the loss of the security deposit with the broker.
d. a brokerage firm's financial failure.
Insurance is a tool that can reduce your _____ risk. a. accident b. mental c. exposure d. economic e. social
d. economic
Insurance underwriting is best described as: a. a set of activities used to identify the risk and rewards of investing an insured's funds on marketable securities. b. a process of developing taxing structures for insurance policies. c. production-related activities performed primarily by agents on the field. d. the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums. e. a function most often performed by an actuary.
d. the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
The primary purpose of life insurance is to provide: a. tax-advantaged investments for your family. b. high-yield investments for you and your family. c. liquidity to expand your business operations. d. protection from creditors and lawsuits before your death. e. financial security for your dependents after your death.
e. financial security for your dependents after your death.
A bull market is characterized by: a. lack of growth. b. falling stock prices. c. economic slowdown. d. low returns. e. investor optimism.
e. investor optimism.
The basic purpose of insurance is to: a. supplement the income of you and your family. b. shield you and your family from bad decisions. c. protect you and your family from nonfinancial losses. d. protect the health of you and your family. e. protect you and your family from economic losses.
e. protect you and your family from economic losses.
When you buy 300 shares of a company, you have purchased a(n): a. combined lot. b. odd lot. c. even lot. d. prime lot. e. round lot.
e. round lot.
Long-term care is a term used to describe: a. an extended period of hospital stay due to a serious illness or accident. b. the coverage for a serious illness or accident that prevents an insured person from working for an extended period. c. compensation provided to workers who are injured on the job or become ill through work-related causes. d. the inflation protection riders in the insurance policy. e. the delivery of medical and personal care to persons with chronic medical conditions who are not in a hospital.
e. the delivery of medical and personal care to persons with chronic medical conditions who are not in a hospital.
A personal property floater and a personal liability umbrella policy offer similar coverage. True or False?
False
A retired couple can probably bear more risk in their portfolio than a young investor with a secure job. True or False?
False
Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades. True or False?
False
Blue Cross/Blue Shield payments for health care services are made directly to the subscriber rather than the hospital or physician. True or False?
False
Bonds typically have higher long-term returns when compared to stocks. True or False?
False
Capital gains are paid at specified times, e.g., quarterly or semiannually. True or False?
False
Floods are covered under most homeowner's insurance policies. True or False?
False
Low price/earnings ratios indicate high investor confidence. True or False?
False
Security selection to satisfy an asset allocation plan is final. True or False?
False
The cost of workers' compensation insurance is usually paid by the employees. True or False?
False
Uninsured motorists protection usually provides protection to the insured's car if a hit-and-run incident occurs. True or False?
False
Compound interest is a very important consideration when evaluating the return on an investment you plan to hold for a long time. True or False?
True
Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes. True or False?
True
Living a healthy lifestyle is an example of loss prevention and control. True or False?
True
Net profit margin is a key measure of profitability that relates the net profits of a firm to its sales. True or False?
True
Suppose you carelessly, but unintentionally, knocked someone down a flight of stairs in your home. You would be covered by your homeowner's insurance. True or False?
True
The need for life insurance increases with children. True or False?
True
The premiums for homeowner's insurance policies are affected by the type of structure and its location. True or False?
True
The returns you expect from securities are income and growth. True or False?
True
The value of a stock at any time depends on its expected stream of future earnings. True or False?
True
There is generally a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it. True or False?
True
Your need for additional life insurance can be determined by looking at the difference between your family's available financial resources after your death and your family's total economic needs. True or False?
True
The federal government regulates the disclosure of information about securities through the: a. Securities and Exchange Commission. b. Federal Reserve System. c. Federal Securities Agency. d. Department of Commerce. e. National Association of Securities Dealers.
a. Securities and Exchange Commission.
An example of event risk is: a. a corporate takeover. b. changing seasons. c. capital growth. d. a newspaper article about the economy. e. inflation.
a. a corporate takeover.
A market order is transacted at the: a. best price when the order is entered. b. price quoted by the broker. c. average price of the stock on the transaction day. d. lowest price of the day. e. limit price.
a. best price when the order is entered.
Comprehensive automobile coverage refers to: a. coverage for damage to an insured automobile from perils (with a few exceptions) other than collision. b. coverage for bodily injuries suffered in an automobile accident. c. complete coverage including liability, medical payments, and damage to the automobile. d. coverage that adds items of personal property, such as CB radios and telephones, that are ordinarily excluded. e. coverage for damage due to a multi-car collision.
a. coverage for damage to an insured automobile from perils (with a few exceptions) other than collision.
Insurance companies make profit by: a. paying out less than the sum of the premiums and the earnings on them. b. avoiding the risk of loss of the insured. c. giving less than the amount mentioned in the policy to the insured. d. charging underwriting fees from insurance agents. e. charging consultation fees to the insured.
a. paying out less than the sum of the premiums and the earnings on them.
The personal property floater: a. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy. b. is an additional amount of insurance equal to a specified percentage of the replacement value of the property. c. is a specialized inland marine policy covering boats and trailers used with boats. d. covers against liability caused by the ownership or use of items of personal property. e. is available to meet the needs of "innocent" victims of accidents who are negligently injured by uninsured, underinsured, or hit-and-run motorists.
a. provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy.