Personal Finance Final Exam

The rising or falling of prices that causes changes in buying power is referred to as ________ risk. - interest-rate - inflation - income - personal - liquidity

inflation

The difficulty of converting savings and investments to cash is referred to as ________ risk. - interest-rate - inflation - income - personal - liquidity

liquidity

The inability to pay debts when they are due because liabilities far exceed the value of assets is called A) Liabilities. B) Insolvency. C) Net worth. D) Cash flow. E) Liquid assets.

B) Insolvency.

The dealer's cost is also known as the A) Set price. B) Invoice price. C) Residual value. D) Capitalized cost. E) Sticker price.

B) Invoice price.

Which of the following appears as a cash outflow on a cash flow statement? A) Home value B) Loan payment C) Net worth D) Balance of mortgage E) Cash value of life insurance

B) Loan payment

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n) - Insurance prospectus. - Financial plan. - Budget. - Investment forecast. - Statement.

Financial Plan

Items that you own that have a monetary value are referred to as A) Liabilities. B) Variable expenses. C) Net worth. D) Income. E) Assets.

E) Assets.

When Jane researched the brands and prices of refrigerators, she was A) Trade-off shopping. B) Impulse shopping. C) Compulsive shopping. D) Warranty shopping. E) Comparison shopping.

E) Comparison shopping.

The Rule of 72 is: - A tool to determine the number of years until retirement for an employee - Used to estimate how fast prices will double using a given annual inflation rate - The legal code for requiring companies to provide a match on retirement savings - Used to calculate interest rates for savings - The number of steps required to complete a financial plan

Used to estimate how fast prices will double using a given annual inflation rate

Opportunity cost refers to - Money needed for major consumer purchases. - What you give up by making a choice. - The amount paid for taxes when a purchase is made. - Current interest rates. - Evaluating different alternatives for financial decisions.

What you give up by making a choice

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now? - $885 - $889 - $1,000 - $1,030 - $1,040

$889

The saving component of financial planning focuses on long-term security and includes: - A regular savings plan for emergencies - A current will - Bankruptcy counseling - A realistic budget for your current financial situation - Minimizing transportation expenses through careful planning

A regular savings plan for emergencies

Billy accepted a job at a company that specializes in providing money for short-term retail lending. Where did he go to work? A) A credit card company B) A life insurance company C) A finance company D) A payday loan company E) An investment company

A) A credit card company

Harvey needed some cash quickly, so he received a short-term loan based on the value of an old ring. Where did he go? A) A pawnshop B) A payday loan company C) A rent-to-own center D) A commercial bank E) A check-cashing outlet

A) A pawnshop

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension? A) 1040 B) W-2 C) 4868 D) 1099 E) W-4

C) 4868

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go? A) A pawnshop B) A rent-to-own center C) A commercial bank D) A payday loan company E) A check-cashing outlet

C) A commercial bank

All of the following are deposit institutions except A) A mutual savings bank. B) A savings and loan association. C) A finance company. D) A commercial bank. E) A credit union.

C) A finance company.

Take-home pay is also called A) Monthly savings. B) Discretionary income. C) Net pay. D) Gross income. E) Deductions.

C) Net pay.

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the A) Alternative minimum tax. B) Student deduction. C) Withholding credit. D) Itemized deduction credit. E) Earned income credit.

E) Earned income credit.

Fees, tips, and bonuses are forms of A) Passive income. B) Tax-deferred income. C) Tax-exempt income. D) Exclusions from income. E) Earned income.

E) Earned income.

If you deposit $500 into a Certificate of Deposit earning 3%, what would be your earnings after 12 months? - $5.00 - $15.00 - $25.00 - $30.00 - $500.00

$15.00

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar. - $17,460 - $18,000 - $5,727 - $25,000 - $15,000

$17,460

If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period? - $2,000 - $11,970 - $18,000 - $22,054 - $30,500

$22,054

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open? A) A money market account B) An interest-earning checking account C) A regular savings account D) A money market fund E) A certificate of deposit

A) A money market account

Which of the following will likely provide the most expensive loans? A) A payday loan company B) An investment company C) A life insurance company D) A finance company E) A credit card company

A) A payday loan company

The tax based on the total tax due divided by taxable income is called the A) Average tax rate. B) Total tax rate. C) Marginal tax rate. D) Income tax rate. E) AMT.

A) Average tax rate.

The document that would report your current financial position is the A) Balance sheet. B) Cash flow statement. C) Budget. D) Bank statement. E) Credit card statement.

A) Balance sheet.

When Paul completes his taxes, he can include all of the following as exemptions except A) His 20-year-old son who is working full-time and living in an apartment. B) His 22-year-old daughter who is a full-time student. C) His wife. D) Himself. E) His 12-year-old son.

A) His 20-year-old son who is working full-time and living in an apartment.

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with? A) Life insurance company. B) Credit card company. C) Finance company. D) Investment company. E) Payday loan company.

A) Life insurance company.

Home equity loans should be used for A) Major expenses such as home improvements or education. B) Selling a car. C) Getting cash for weekend entertainment. D) Buying dinner at a restaurant. E) Borrowing money for impulse purchases.

A) Major expenses such as home improvements or education.

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a A) Personal balance sheet. B) Bank statement. C) Budget. D) Cash flow statement. E) Time value of money report.

A) Personal balance sheet.

The tax that is a major source of revenue for local governments is called a(n) A) Real estate property tax. B) Income tax. C) Estate tax. D) Gift tax. E) Sales tax.

A) Real estate property tax.

The expected value of a vehicle at the end of a lease is called the A) Residual value. B) Set price. C) Capitalized cost. D) Invoice price. E) Sticker price.

A) Residual value.

Common stock and bond brokerage statements are an example of a(n) ________ record. A) investment B) insurance C) estate planning D) tax E) consumer purchase

A) investment

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of A) $20,000. B) $40,000. C) $60,000. D) $100,000. E) $160,000.

B) $40,000.

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for? A) $25. B) $50. C) $0. D) $173. E) $500.

B) $50.

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a A) W-4. B) 1099. C) Schedule A. D) 1040. E) W-2.

B) 1099.

A typical grace period offered by many credit card issuers is A) 10-20 days. B) 20-25 days. C) 0-10 days. D) 45-60 days. E) 30-40 days.

B) 20-25 days.

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use? A) A trust. B) A savings account. C) A credit card. D) A loan. E) A home mortgage.

B) A savings account.

A direct loan for personal purposes, home improvements, or vacation expenses is called A) Single lump-sum credit. B) An installment cash credit. C) A credit card. D) Open-end credit. E) A bank line of credit.

B) An installment cash credit.

How long should you keep documents relating to investments? A) No need to since the broker probably has a copy. B) As long as you own these items. C) Seven years. D) Ten years. E) Permanently.

B) As long as you own these items.

The document that would tell you what you received and spent over the past month is the A) Balance sheet. B) Cash flow statement. C) Budget. D) Bank statement. E) Credit card statement.

B) Cash flow statement.

Mike bought a new car. His new car warranty probably included all of the following except A) Corrosion warranty. B) Extended coverage for air conditioning. C) Power train coverage. D) Possibility to transfer the warranty to other owners of the car (additional charges may apply). E) Coverage of basic parts against defects.

B) Extended coverage for air conditioning.

Home equity loans A) Are based on the original purchase price of a home. B) Have interest that is tax-deductible. C) Require you to be a member of a credit union. D) Will cause you to lose your car if the loan is not repaid. E) Charge high interest rates ranging from 12 to 25%.

B) Have interest that is tax-deductible.

These products are sold by one chain of stores and are low-cost alternatives to famous-name products. A) Counterfeit brands. B) Private-label or store brands. C) National brands. D) Replacement brands. E) All of these are correct.

B) Private-label or store brands.

A cash advance A) On some cards has a lower interest rate than on purchases. B) Requires you to pay interest every day until you repay the cash advance. C) Is less expensive than charging a purchase to your credit card. D) Is a loan billed to your bank account. E) Involves a grace period on most cards.

B) Requires you to pay interest every day until you repay the cash advance.

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is A) An installment cash credit. B) Single lump-sum credit. C) A bank line of credit. D) Open-end credit. E) A credit card.

B) Single lump-sum credit.

Disposable income equals A) Gross income. B) The amount a person or household has to spend. C) Money left over after paying for housing, food, and other necessities. D) Social Security taxes. E) The amount being saved each month.

B) The amount a person or household has to spend.

The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning. - Sharing - Savings - Obtaining - Borrowing - Protecting

Borrowing

Which of the following usually offers money market mutual funds? A) A payday loan company B) A credit card company C) An investment company D) A life insurance company E) A finance company

C) An investment company

The document that would be most useful to plan spending and saving to achieve financial goals is the A) Balance sheet. B) Monthly investment brokerage statement. C) Budget. D) Bank statement. E) Credit card statement.

C) Budget.

Which of the following will increase the net worth of a household? A) Decrease saving by $50 per month B) Increase the amount borrowed for major purchases C) Decrease spending by $5 per day D) Invest in possessions whose values do not increase E) Increase spending by $5 per day

C) Decrease spending by $5 per day

Most products come with some guarantee of quality. Which of the following is usually in written form, created by the seller or manufacturer, and has two forms? A) Limited warranty B) "As-is" warranty C) Express warranty D) Full warranty E) Implied warranty

C) Express warranty

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts. A) Full warranty B) Express warranty C) Limited warranty D) "As-is" warranty E) Implied warranty

C) Limited warranty

The lowest payment does not necessarily mean the best credit plan. If your car loan is a long period of time, you may end up owing more than the car is worth, which is called A) Low-interest loan. B) Low monthly payments. C) Negative equity. D) Loan preapproval. E) All of these are potential problems.

C) Negative equity.

Which of the following is NOT a valid reason for borrowing? A) Paying for a medical emergency B) Buying a car so a homemaker can return to work C) Paying for everyday living expenses D) Borrowing for a college education E) All of these are valid reasons for borrowing

C) Paying for everyday living expenses

George has never bought a new car before. Which of the following techniques should he use to get the best deal? A) Leave a deposit to hold the vehicle B) Lowballing C) Research the dealer cost and begin negotiations from that point D) Tell the dealer the highest monthly payment he can afford E) Highballing

C) Research the dealer cost and begin negotiations from that point

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired. A) Coupon B) Unit pricing C) Warranty D) Rebate E) Open dating

C) Warranty

What is the unit price of a 32 ounce box of brown sugar that costs $3.20? A) $0.10 per pound. B) $1.60 per ounce. C) $6.40 per pound. D) $0.10 per ounce. E) $3.20 per pound.

D) $0.10 per ounce.

Experts suggest that the debt payments-to-income ratio should be a maximum of A) 15% B) 25% C) 100% D) 20% E) 50%

D) 20%

Which of the following is an example of closed-end credit? A) A department store credit card. B) Overdraft protection. C) Travel and entertainment cards. D) A mortgage loan. E) All of these are examples of closed-end credit.

D) A mortgage loan.

Claudette's grandchildren are 7 and 9 years old. When Claudette passed away, her grandchildren inherited her money. However, the will stipulated that they should not get control of the money until age 25. Which of the following should be set up to provide for the management and control of the funds? A) A savings account B) A certificate of deposit C) A checking account D) A trust E) A loan

D) A trust

Gross income less Adjustments to Income equals A) Earned income. B) Tax-deferred income. C) Exclusions from income. D) Adjusted gross income. E) Tax-exempt income.

D) Adjusted gross income.

When calculating federal income taxes, what increases "gross income"? A) Tax-exempt income B) Tax deductions C) Tax-deferred income D) Alimony received E) Exclusions

D) Alimony received

An example of a fixed expense is A) Medical expenses. B) Gifts. C) Utilities. D) Home rental payment. E) Recreation.

D) Home rental payment.

While Paul was shopping for a new chainsaw, he found a great deal on a new drill and bought it. This is an example of A) Warranty shopping. B) Compulsive shopping. C) Trade-off shopping. D) Impulse shopping. E) Comparison shopping.

D) Impulse shopping.

Which of the following is a cash inflow? A) Payment for rent B) Purchase of groceries C) Payment for loan D) Income from employment E) Payment for medical expenses

D) Income from employment

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A) Real estate property tax B) Sales tax C) Excise tax D) Income tax E) Estate tax

D) Income tax

A variable operating cost for a vehicle is A) Insurance. B) Interest on an auto loan. C) Depreciation. D) Maintenance and repairs. E) License and registration

D) Maintenance and repairs.

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe FOREVER? A) W-2 forms B) Personal financial statements C) Warranties D) Marriage certificates E) Bank statements

D) Marriage certificates

Discretionary income equals A) Gross income. B) Take-home pay. C) The amount being saved each month. D) Money left over after paying for housing, food, and other necessities. E) Social Security taxes.

D) Money left over after paying for housing, food, and other necessities.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns? A) Until you receive your refund B) Until the end of the current year C) Three years D) Seven-Ten years E) Permanently

D) Seven-Ten years

Income that is not subject to tax is called A) Passive income. B) Tax-deferred income. C) Earned income. D) Tax-exempt income. E) Adjusted gross income.

D) Tax-exempt income.

The first step of the financial planning process is to - Develop financial goals. - Implement the financial plan. - Determine your current financial situation. - Evaluate and revise the financial plan. - Create a financial action plan.

Determine your current financial situation

________ goals relate to infrequently purchased, expensive tangible items. - Short-term - Intangible-purchase - Durable-product - Consumable-products - Intermediate

Durable-product

When creating a budget, it is important to A) Save the amount you have left at the end of the month. B) Set aside savings after your variable expenses are paid. C) Save an amount no more than 3% of your annual income in an emergency fund. D) Spend the amount of money you have budgeted in each category. E) "Pay yourself first" by setting aside savings before other expenses are budgeted.

E) "Pay yourself first" by setting aside savings before other expenses are budgeted.

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for? A) $0 B) $188 C) $500 D) $50 E) $238

E) $238

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about A) 0.5. B) 0.25. C) 0. D) 0.2. E) 1.

E) 1.

All of the following are non-deposit institutions except A) A life insurance company. B) An investment company. C) A credit card company. D) A finance company. E) A credit union.

E) A credit union.

Which of the following is an example of open-end credit? A) Single lump-sum credit B) A mortgage loan C) An automobile loan D) An installment loan for purchasing furniture E) A department store credit card

E) A department store credit card

Which of the following can result from a failure to repay a loan? A) Bankruptcy. B) Damage to family relationships. C) Loss of income or valuable property. D) Loss of a good reputation. E) All of the above may result from the failure to repay a loan.

E) All of the above may result from the failure to repay a loan.

While evaluating alternatives, all of the following are appropriate questions you could ask before making a major purchase except A) Is it possible to delay the purchase or to do without the item? B) Should I pay for the item with cash or buy it on credit? C) How do the price, quality, and service compare at different stores? D) Which brands should I consider? E) All of these are questions that should be asked.

E) All of these are questions that should be asked.

Which of the following questions is NOT needed before deciding how and when to make a major purchase? A) Could I use the credit I need for this purchase in some better way? B) Could I postpone the purchase? C) Do I have the cash I need for the down payment? D) Does the purchase fit my budget? E) All of these questions should be considered.

E) All of these questions should be considered.

An example of a variable expense is a(n) A) Mortgage or rent payment. B) Installment loan payment. C) Monthly train ticket for commuting to work. D) Monthly allocation for life insurance. E) Electric bill.

E) Electric bill.

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time. A) Limited warranty B) Implied warranty C) "As-is" warranty D) Express warranty E) Full warranty

E) Full warranty

Most products come with some guarantee of quality. This type of warranty covers the product's intended use or other basic understandings that are not in writing. A) Limited warranty B) Express warranty C) Full warranty D) "As-is" warranty E) Implied warranty

E) Implied warranty

Adolph has a low income and cannot afford his own attorney. He needs legal assistance and should make use of (a) A) Small claims court. B) Mediator. C) Lawyer. D) Class action lawsuit. E) Legal aid society.

E) Legal aid society.

These products are highly advertised and available at many stores. A) Generic items B) Private-label brands C) Store brands D) Regional brands E) National brands

E) National brands

Which of the following is often considered to offer the least expensive loans (loans with low interest)? A) Banks. B) Loan companies. C) Finance companies. D) Savings and loan associations. E) Parents or family members.

E) Parents or family members.

If you have a problem whose remedy will be between $1,500 and $3,000, the appropriate tool to use would be (a) A) Lawyer. B) Class-action lawsuit. C) Legal aid society. D) Prepaid legal services. E) Small claims court.

E) Small claims court.

The amount printed on a label with the suggested retail price that is posted on a vehicle is called the A) Residual value. B) Capitalized cost. C) Set price. D) Invoice price. E) Sticker price.

E) Sticker price.

Income that is taxed at a later date is A) Earned income. B) Tax-exempt income. C) Adjusted gross income. D) Exclusions from income. E) Tax-deferred income.

E) Tax-deferred income.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a A) W-4. B) 1040. C) 1099. D) Schedule A. E) W-2.

E) W-2.

Which of the following is correct? - A car purchase is a consumable-product goal. - Entertainment is a durable-product goal. - Appliances and sporting equipment are intangible-purchase goals. - Leisure and education are durable-product goals. - Food and clothing are consumable-product goals.

Food and clothing are consumable-product goals.

An investor should expect to receive a risk premium for - Higher interest rates - Lower consumer prices - Higher uncertainty about getting his/her money back - Reduced credit ratings - Expected lower inflation

Higher uncertainty about getting his/her money back

An advantage of effective personal financial planning is: - The use of low-interest savings - Increased impulse spending - Increased control of financial affairs - More credit card debt - Less monitoring of investments

Increased control of financial affairs

Which of the following best describes the concept of the time value of money? - Personal opportunity costs such as time lost on an activity. - Financial decisions that require borrowing funds from a financial institution. - Changes in interest rates due to changes in the supply and demand for money in our economy. - Increases in an amount of money as a result of interest earned. - Changing demographic trends in our society

Increases in an amount of money as a result of interest earned

The goal of investing $50 per month for the next 12 years for your nephew's college fund is a(n) ________ goal. - Short-term - Intermediate - Long-term - Intangible - Durable

Long-term

Attempts to increase income through employment are part of the ________ component of financial planning. - Obtaining - Planning - Saving - Borrowing - Spending

Obtaining

Which of the following would increase the interest rate for a loan? - Poor credit rating - Higher down payment - Expected lower inflation - Lower consumer prices - Short time to maturity

Poor credit rating