Personal Finance

In a co-op, the buyer receives title to a unit and joint ownership of the common areas.

False

Nondepository institutions are referred to as banks

False

Since 2011, a surviving spouse cannot use the unused unified transfer tax (UTT) credit of the deceased spouse.

False

Tax credits are dollar-for-dollar reductions in taxable income

False

Tax preparers must be licensed by either the state or the federal government.

False

The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions

False

The add-on method is less expensive than the simple interest method when the stated rates of interest are identical

False

The best way to balance your annual budget is to increase borrowing to cover shortages

False

The cost of workers' compensation insurance is usually paid by the employees.

False

The preparation of an income and expense statement is the first step in the personal financial planning process.

False

Uninsured motorists protection usually provides protection to the insured's car if a hit-and-run incident occurs.

False

Workers who elect to retire early—at age 72—will receive reduced Social Security retirement benefits.

False

Funds in commercial banks are protected by the:

Federal Deposit Insurance Corporation (FDIC)

A trust that provides for management continuity and income flow even after the grantor's death and allows assets to bypass probate, but which provides no income or estate tax advantages, is a(n) _____ trust.

revocable living

A _____ would most likely have to pay estimated taxes

self-employed plumber

When an individual gives his or her child an income-producing asset, he or she is:

shifting his or her income

Payments under the provisions of the Federal Insurance Contributions Act (FICA) are also known as:

Social Security tax

Which of the following is the correct formula for calculating the debt safety ratio?

the account balance is paid in full every month

Long-term care is a term used to describe

the delivery of medical and personal care to persons with chronic medical conditions who are not in a hospital

Underwriting refers to

the determination of which exposures to insure

Russ and Lois were married on December 30. Even though they were single for most of the year, they can legally file as married filing jointly taxpayers in the year of the wedding

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

Tax avoidance is legal, whereas tax evasion is illegal

True

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases.

True

The need for life insurance increases with children.

True

The premiums for homeowner's insurance policies are affected by the type of structure and its location.

True

The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender

True

Visa and MasterCard issue debit cards linked to your checking account

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

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate.

True

Many people tend to be too conservative when investing their retirement funds.

Truw

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:

if the lender wants to recover part of the full interest that would have been earned

A letter of last instructions is a(n):

informal memorandum that is separate from a will and contains suggestions or recommendations for carrying out a decedent's wishes.

Variable auto ownership costs are dependent on the:

miles covered by the automobile.

A budget helps in:

monitoring and controlling spending

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n)

negative amortization

Insurance companies make profit by

paying out less than the sum of the premiums and the earnings on them

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:

prequalification

The personal property floater:

provides either blanket or scheduled coverage of items that are not covered adequately in a standard homeowner's policy

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):

real estate short sale

A policy provision ensuring continued insurance coverage for the insured's lifetime as long as the premiums continue to be paid is known as

renewability

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when:

the mileage limits are exceeded.

Insurance underwriting is best described as

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premium

Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they have adjusted gross income (AGI) of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is

$250

Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement fund. If they can earn 8% annually on their funds, how much do they need to save annually? (Round to the nearest whole dollar.)

$7,238

Which of the following statements regarding a consumer loan is true?

A consumer loan is used to finance the purchase of very expensive items

A payment made using a(n) _____ is equivalent to paying by cash

A debit card

Home equity loans are similar to home equity credit lines because they are also not secured with any collateral

False

Which of the following will lead to a poor credit rating?

Applying for a long-term loan and occasionally being late with a payment

Which of the following statements regarding budgets is true?

Budgets are forward looking

Which of the following statements regarding loan collateral is true?

Collateral is an item of value used to secure the principal portion of a loan

If your debt safety ratio works out to 10%, you are relying too heavily on credit.

False

A personal property floater and a personal liability umbrella policy offer similar coverage.

False

A trustee is the person who writes a will.

False

Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades.

False

All taxpayers have an equal probability of having their tax returns audited.

False

Always paying cash helps in establishing a high level of creditworthiness

False

Blue Cross/Blue Shield payments for health care services are made directly to the subscriber rather than the hospital or physician.

False

Budgeting and record keeping are the same

False

Cash is the only kind of liquid asset.

False

Extremely low interest rates favor investors and boost the incentive to save

False

Floods are covered under most homeowner's insurance policies.

False

Melissa's retirement plan is described in her employee handbook as follows:NoncontributoryCliff vesting (100%) after 3 years of full-time employmentMonthly retirement benefits based on average salary over the last 3 years of employment and the total number of years worked for the companyWhich of the following statements about this retirement plan is true?

If Melissa leaves this company before working full time for 3 years, she will not receive any benefits.

Which of the following statements regarding private health insurance plans is true?

In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan

Which of the following statements regarding a budget is true?

It is a detailed financial report that looks forward

Which of the following is an interest-bearing checking account?

Negotiable order of withdrawal (NOW) account

In a traditional indemnity (fee-for-service) plan, the

health care provider and the insurer are separate

Which of the following statements regarding the Affordable Health Care Act (ACA) is true?

The ACA eliminates lifetime limits on total health care insurance payments by insurers

The basic purpose of insurance is to:

The basic purpose of insurance is to

Which of the following is the biggest fixed auto ownership cost?

The cost of installment loan payments

Which of the following statements regarding tax credits is true?

They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.

A chattel mortgage is an instrument that gives lenders title to movable personal property in the event of default

True

A credit card application requests information that is routinely used to predict creditworthiness.

True

An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her total expenditures for the year.

True

Arranging for and fully repaying a small loan helps improve creditworthiness

True

Compound interest means that a savings account earns interest on the interest previously earned

True

Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items

True

Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.

True

Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes.

True

Living a healthy lifestyle is an example of loss prevention and control

True

Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement

True

Paying a loan on schedule is one way to build a good credit history

True

Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans

True

Which of the following statements regarding insurance underwriting is true?

Which of the following statements regarding insurance underwriting is true?

Which of the following statements regarding workers' compensation insurance is true?

Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes.

When the simple interest method is used to determine finance charges, the interest is calculated based on the:

actual balance of the loan

A personal liability umbrella policy typically includes:

added liability coverage for homeowner's and automobile insurance.

One of the biggest financial benefits of starting early to save for your retirement fund is related to:

compound interest.

Social Security benefits (cash benefits) are funded by:

compulsory contributions from employees, employers, and self-employed people.

Comprehensive automobile coverage refers to:

coverage for damage to an insured automobile from perils (with a few exceptions) other than collision

The loss in the value of an automobile that occurs over its period of ownership is called:

depreciation

Insurance is a tool that can reduce your _____ risk.

economic

Negligence occurs when someone:

fails to act in a reasonable manner

A balance sheet describes your:

financial position at a given point in time

The primary purpose of life insurance is to provide

financial security for your dependents after your death

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

fixed-rate mortgage

Commercial banks are able to charge lower interest rates than other lending institutions because:

they usually take only the best credit risks

A liability suit could result against you if:

your dog bites your neighbor.