Personal Finance Final Review
If a person earned $50,000 this year, but the rate of inflation is 4%, this years buying power when compared to last years
is $48,000
A person completes her federal 1040EZ form and sees that she paid total quarterly estimated taxes of $12,000. But the calculations show that she should have only paid $9,500 in taxes. What will happen if she sends the IRS this completed form with the necessary supporting documents?
she will receive a $2,500 federal tax refund
Which of the following terms is not correctly matched with its definition?
secured loan: the collateral for the loan is a person's good credit history and her signature on a loan agreement
National economic trends
should impact individual financial planning
Which of the following is a true statement about inflation?
some investments are able to grow at a rate greater than the rate of inflation
How does a person determine her net worth
subtract liabilities from assets
Which of the following statements about taxes is true?
taxes are the major source of revenue for the government
Which of the following terms is NOT correctly matched with its definition?
terms of the loan: cost of the item if it is not being financed
The Occupational Outlook Handbook is a good source for finding information about
the areas that will need more employees in the coming years
Which is the correct order for making financial decisions?
set specific goals, put them in writing, have a plan of action, rethink goals if necessary
What is a sound financial reason for a person to choose an adjustable rate mortgage over a fixed rate mortgage
she expects to move to another city in 3 or 4 years as her career advances
A 21 year old college graduate starting her first full time job wants to buys a home by age 30. Why should she include this goal in her financial plan?
she is more likely to achieve her goal if she starts saving and investing now in order to have the down payment needed to buy the house
Which is a true statement about the relationship between education and a person's earning power?
the average person with an associate's degree can expect to earn 20% more than a high school graduate earns each year
Why do many employers say that a cover letter is as important as the resume that is accompanies
the cover letter gives the writer a chance to explain why she believes that her skills and knowledge made her the ideal person for the job
If a person has a credit card with a limit of $2,000, it means that
the credit card company is loaning him up to $2,000 to make purchases
Usually the least expensive way for a person to obtain health insurance is by
enrolling in an employer provided health care plan
Which is a valid statement about a dependent?
for each dependent a person has, she is able to take a deduction from the amount of taxes she owes when filing her tax return
Phishing is the identity thief technique of
getting information from a person online by asking her to complete a survey or provide certain information to win a free vacation or product
When a person applies for a loan, the lender will review the person's balance sheet in order to find out if he
has enough assets to cover both current liabilities as well as the debt created by the new loan
The purpose of investing money is to
have an asset that will increase in value over time
A person's bank will only make a home equity loan if the loan and his current mortgage do not exceed 80% of the market value of the home. If he has a $200,000 mortgage and his home is appraised at $400,000, how large of a home equity loan can he hope to obtain?
he can expect to obtain a loan of $120,000
Under what circumstance would it make financial sense for a person to make a purchase with an installment loan?
he is offered a job that requires him to have a car, which he can only afford to buy with a loan
Subprime mortgages are
high interest rate mortgages usually made to people with low credit scores
Which of the following is a correct statement?
if cash inflow exceeds cash outflow, a person has a surplus to save or invest
If a person has homeowner's or renter's insurance, it will protect the person
if someone falls in her house and sues her
Why should a person be very careful before agreeing to cosign a loan?
if the borrower defaults on the loan, the lender will expect to receive full payment from the cosigner
Which of the following statements about taxes and financial planning is true?
in most cases it is possible for people to reduce their tax liability by adjusting their financial plan
A person increases his net worth by
increasing assets and decreasing liabilities
A person is collecting his pension and is very happy that his pan has a cost of living increase each year. This feature helps protect the person from
inflation
Why is insurance a good method of managing risk?
insurance limits a person's financial loss if an asset is lost, stolen, or damaged
Which is a true statement about goals?
intermediate term goals are those that can be accomplished in 1 to 5 years
From the following, select the tax that is matched with its correct explanation:
payroll tax: money deducted from a person's salary that is sent to the government by the employer
During a recession, it is noticeable that
people are buying less and there are higher levels of unemployment
The major purpose of the Equal Credit Opportunity Act is to
prohibit creditors from using age, religion, or race to deny credit to a person
The purpose of life insurance is to
provide funds to help a person's beneficiaries maintain a certain standard of living should the policy holder die
The best description of cash inflow is money
received from different sources, such as salary and interest earned on bank accounts
Creating a cash flow statement is a good way for a person to determine how much money the person
receives from various sources over the course of a month
A career that requires a college degree and is expected to grow in employment in the coming years is
registered nurses
A high school student starts a lawn mowing business. His riding lawn mower cost $1,000: gas for the season is $2,000. He spends $500 for gas driving to and from jobs, $300 for supplies and repairs, and $200 for a trimmer. Each of his 20 customers pays $40 a week for 20 week season. What is the outcome of his business venture?
$12,000 profit
A person has a house worth $100,000, a mortgage of $90,000, savings of $5,000, a car valued at $10,00, a $7,000 car loan, and $3,000 in credit card debt. This person's net wroth is
$15,000
A person with insurance coverage ends up in the hospital with a broken wrist suffered while playing football with a group of friends. After an xray, MRI, doctor visit, orthopedist visit, and cast, he leaves the hospital with a bill for $9,000. He has a $2,000 annual deductible and this is his first visit to a doctor. He also has a 20% co pay. The amount that he is responsible for paying is
$3,400
A person decides that she needs braces to correct her teeth. Her orthodontist agrees and tells her that it will take about 18 months to correct her teeth and the work will cost $7,500. Her insurance company says that this is cosmetic work and therefore is not covered. If she goes ahead with the dental work, she will have to pay
$7,500, the full amount
Which person's goal is correctly matched with a sound financial plan to achieve the goal?
Buying a new computer for college in the fall: depositing 25% or more of weekly takehome pay in a bank savings account
Which of the following people does not have a financially sound reason for taking a personal loan?
David needs to borrow $1,000 so that he can buy season tickets to see the Yankees
A high school senior whose family is very poor wants to go to college, but the family cannot afford to pay. To help finance her education, she should try to obtain the type of loan that is beneficial and available for individuals with extreme financial need. This type of financing is known as a
Federal Perkins Loan
Which is a true statement about Americans saving for retirement?
Fewer than half of Americans have a retirement account
Juanita and Jessica work at the same company. Each is married and earns $75,000 per year. Juanita is paying more in taxes than Jessica. What 2 factors can help to explain why this is true?
Juanita doesn't have an children and doesn't itemize deductions; Jessica itemizes deductions and has 3 children
Money in an emergency fund should be used to pay for
Necessary expenses when a person loses a job or is unable to work because of illness
A person looks over his pay stub and sees that in addition to paying state and federal personal income taxes, he is paying other personal taxes such as Social Security and Medicare. He is only age 20, so he is sure that his employer has made a mistake since SS and Medicare are for old people, and the money should be returned to him. Is he right?
No. The money he is contributing to SS and Medicare is paying the benefits for today's older people
A person wins $25,000 on a game show and a trip to Costa Rica worth $5,700. Does he have any tax obligation from these winnings?
Yes. All of these winnings become part of his gross income
Which is a true statement about a budget?
a budget should include both fixed and variable expenses
Which of the following is a true statement?
a certification is recognition that a person has acquired a certain level of knowledge or training in a particular area of study
Everyone can obtain a free credit report once a year from each of the 3 main credit bureaus. It is
a good idea to obtain the reports and review them for accuracy
What is a business cycle?
a period of economic growth followed by a period in which the economy shrinks
Which decision illustrates the idea that a person's financial decisions are influenced by the overall economy?
a person switches the langauge she is studying in college to Spanish after reading a newspaper article about how the US population is changing
The BEST definition of personal financial planning is
a process of mapping decisions for spending, borrowing, and saving and investing in order to achieve financial goals
Why should a person be concerned if she has been offered a teaser rate on a loan?
after a short time the rate will most likely go up
A person finds out that with a bachelor's degree he can expect to earn $55,000 a year as a financial researcher, If he spends 2 years (full time) getting a MBA, it will cost him $25,000 a year for his education; however, he can then expect to earn a minimum of $90,000 a year as a financial analyst. If he decides to take the additional education route, to make for the financial cost of postponing his career it will take him
almost 5 years
A young, healthy, athletic woman receives her monthly insurance premium notice. Her premium has increased to $350 a month. She decides to drop her insurance, reasoning that she can better spend her money on a gym membership and yoga classes to relieve the stress in her back. She decides that dropping this health insurance will also enable her to start saving money in an IRA. This is a
bad idea because one bad illness or small injury can wipe out all of her savings
A financial plan does not include
bankruptcy
A financial plan should
be evaluated periodically and revised as needed
A financial plan is created like a
blueprint for building a house
Because of globalization, an individual may have to decide whether to
buy a pair of jeans made in America at 3 times the cost of jeans made in China
Which asset is correctly matched with its description?
car: household asset
Which of the following does not show a correct match?
cash inflow: interest paid on loan
The best way to protect against identity theft is to
check credit bureau credit reports regularly and keep SS card and PIN info in a safe place
When a person decides to use the services of a certified financial planner, the person will
check in regularly with the planner to review investment decisions
Since it is true that a term life insurance policy expires at the end of the term and there are no accumulated savings, why would a single father of 3 children decide to buy a 20 year term policy instead of a whole life policy?
compared to whole life insurance, he can buy much more coverage for his children in case of his death
Which of the following shows, in the correct order, the steps a person should take to organize his financial life?
create a personal cash flow statement, create a budget, develop a personal balance sheet
A person's resume should not include
current salary
In deciding whether to pursue additional education and training for a job, a person decides to do a cost/benefit analysis. This is a good idea because it will help her to
decide whether the benefits she believes she will have in a certain job and career are worth the financial and quality of life costs associated with gaining the necessary skills
As a first step in selecting a career path, a person should
determine which career areas interest him or her
The purpose of the IRS is to
enforce tax laws and carry out the federal tax system
A personal balance sheet
is a picture of a person's financial well being at a point in time
What is the purpose of a loan contract?
it is a legally binding agreement that explains the charges to be paid
Which of the following statements about adjusted gross income is true?
it is the amount used to determine what a person actually has to pay in taxes
Which of the following is a true statement about the US job market?
jobs in health care occupations are expected to grow the most
The reason that a person buys health or life insurance is to
limit the amount of financial loss if there is an illness, injury, or loss of life
A person increases liquidity when he
makes weekly deposits in a bank savings account
As a result of gloalization
more goods sold in America are produced in other parts of the world
If a person is selfemployed and earns $70,000 annually, the person
must pay estimated income taxes
Another name for take home pay is
net pay
When we say that a person with a home that is valued at $300,000 and who has an outstanding mortgage of $100,000 has a lot of equity in her home, we mean that she
owns a large fraction of her home
FICO scored are based on a model created by the Fair Issac Corporation and weigh 5 major factors to determine the score. The action that would have the greatest negative impact on a person's score is
paying some bills on time and paying the minimum required each month
A person's cash outflow includes
payments by a person to a retirement account
If the real GDP is going up, it is a sign that
the economy is gaining strength
The demographic trend that helps explain why there has been an increase in demand for health care workers is
the graying of American
Why does a lender want information about a person's current cash inflow and outflow?
the information helps the lender make a decision on the person's ability to pay back the loan
A person submitted his claim for reimbursement of medical expenses to his insurance company and his claim was denied. Recently he switched insurance coverage. His former insurance company always paid for the injections he received to calm down the arthritis in his knee. What is the most likely reason that the new insurance would not pay for his treatment?
the injections are not a covered procedure under his new plan
The information collected by credit bureaus such as Experian is accessible to
the person's potential employers, landlords, and lenders
If a college or university offers a nationally accredited nursing program, it most likely means that
the program has been cited by a nationally recognized nursing professional organization
A person decides to bike to school rather than drive his car. The opportunity cost related to this decision is
the time that might be saved by driving the car
The following statement about financial advice on the internet is true
there are a number of valuable sources of information on the internet that can be used for financial planning
Why might a person decide to take advantage of a noninstallment credit offer?
there is no interest charged on the loan if it is paid back within a very short time
How do economists measure inflation?
they compare the costs of a standard group of goods and services bought today to how much those goods cost a year ago
A disadvantage of paying for a car with a long term loan is that
toward the end of the loan, it is possible to owe more on the car loan than what the car is worth
The best definition of economics is the study of
unlimited wants versus limited resources
Good credit management means
using credit to make purchases when the buyer knows she can quickly pay the full amount owed
If a person does not have renter's insurance and her laptop computer is stolen from her apartment, she
will have to replace the laptop computer at her own expense
A young, healthy single person without dependents decides that she is going to buy a whole life policy that is offered where she works. Since she is engaged and is hoping to have children within 5 years, she thinks that buying this insurance is a good move. Is this a wise financial decision?
yes. She is young and healthy and will get a good rate on the insurance and will have it when her family really needs it.
