PFA Final Review
Which of the following ranges of returns would indicate a less risky, more stable investment?
4% to 1.4%
Comprehensive coverage pays damages to another person's auto in an accident for which you are legally responsible.
False
During the time the policy is in effect, term life insurance has a good savings and investment component.
False
Economic growth, as measured by increases in the gross domestic product (GDP) signals the start of a bull market where stock prices are bound to rise.
False
FICA taxes include two components, which consist of unemployment compensation and disability insurance.
False
Financial institutions provide home equity loans up to a maximum of 70% of the value of the equity in a home.
False
Generally, bonds have maturities between 10 and 30 years and pay interest annually.
False
Homeowner's insurance provides insurance in the event of property damage or personal liability relating to home ownership, but not theft.
False
If you are in an auto accident, you should leave the scene of the accident to go home and call the police from home.
False
If you expect interest rates to rise over time, you should consider investing in bonds with longer maturities.
False
If you have credit problems, you should contact a credit repair service instead of trying to resolve the issues yourself.
False
If you own a home and pay off the mortgage, you will eliminate your housing expenses.
False
If you think interest rates will rise in the near future, you should seek an adjustable rate mortgage (ARM).
False
If your calculated tax is greater than your withholding tax, you will receive a tax refund.
False
In comparing a 15- and 30-year mortgage, over the life of the loan you will have smaller payments but pay more interest with the 15-year mortgage.
False
In general, the more liquid an asset, the higher its return.
False
In order to maximize the resale value you should negotiate the trade-in at the same time as the new purchase of an auto.
False
Income earned from the sale of an asset for more than you paid for it is classified as an income gain.
False
Index stock funds always contain the stock of every company in a particular index.
False
Investing in your human capital is the second-best investment you can make. Investing in your house is the best investment.
False
Most individuals pay for a home with a down payment of 5% or less and then obtain a mortgage to finance the rest.
False
Municipal bonds are most beneficial for investors who reside in a different location from the city that issued the bonds.
False
Obtaining a graduate degree will never harm your personal financial position.
False
Obtaining money, goods, and services are the only reasons for identity theft.
False
Once drivers are labeled as "high risk," they will not be able to get automobile insurance at any price
False
Overdraft protection for a checking account is a low-cost short-term loan.
False
Since rates and fees differ only slightly between all national banks, there is little need to consider these when choosing your financial institution.
False
Since the potential for default is very low for some types of money market securities, it's not necessary to assess the risk before investing your money in one
False
Since there is no limit on how much and how fast adjustable rate mortgages (ARMs) can increase, most homeowners are afraid to take out this kind of loan.
False
Smart investors can find investments that generate high rates of returns with small amounts of risk.
False
Tax credits amount to the same savings as tax deductions.
False
The Fed conducts expansionary monetary policy by buying bonds and decreasing the money supply.
False
The NYSE MKT LLC (formerly called the American Stock Exchange) is the largest of the physical stock exchanges.
False
The highest tax rate a taxpayer is charged on his or her federal tax return is called the effective tax rate.
False
The income statement for a company is like a budget in that it shows how much money the company would like to have made in a given accounting period.
False
The larger the number of payments in an annuity used in determining a future value, the smaller the future value at the end of the period.
False
The longer the time period used in determining a future value, the smaller the future value at the end of the period.
False
The longer you maintain relationships with creditors, the lower will be your credit score.
False
The most up-to-date quotes of stock prices may be found in The Wall Street Journal.
False
The present value of an amount at a fixed interest rate increases as the lump sum amount decreases.
False
The process of obtaining present values is known as compounding.
False
The returns from the previous three years on an investment are the best indicator of future price changes.
False
The simple interest rate includes any fees charged by the creditor.
False
The time period over which you save money has very little impact on its growth.
False
The timing on the sale of an investment asset earning a capital gain makes little or no difference in the amount of taxes that are owed.
False
There is very little risk in an initial public offering (IPO) of stock since returns are positive during the first day.
False
Time value of money is only applied to single dollar amounts.
False
Under the US Department of Education's federal student loan program the US Treasury is your lender.
False
Universal life insurance does not vary from one insurance company to another and is, therefore, the most common and popular form of life insurance.
False
Unless your identity is stolen by someone out of state, you should only report the crime to local law enforcement.
False
When economic conditions are strong, the demand for most types of investments is low.
False
When homeowners expect that interest rates will rise, they prefer adjustable rate mortgages.
False
With a credit score of over 500, you should have no problem getting approval for credit purchases.
False
With managed care plans, the insured people will not pay any expenses if they select an "out of network" provider.
False
You are in an accident and it's the other driver's fault but he is not insured. There is no type of coverage to protect you from financial loss in this case.
False
You do not need to have a trusted mechanic review your purchase if the used car is listed as "certified."
False
You should be very selective in shredding documents and when in doubt, do not shred them.
False
You should claim itemized deductions if the standard deduction exceeds itemized deductions.
False
You should invest in risky investments instead of paying off your credit card debt because the return might be higher than the cost of financing.
False
You will build equity in the car faster when you finance the purchase for a longer period of time.
False
Your budget is simply a spreadsheet used to track expenses.
False
Your homeowner's insurance deductible should be twice as much as the deductible on your auto insurance.
False
Your utility bill, which varies each month, is an example of an annuity.
False
Which of the following is classified as a non-depository institution?
Insurance companies
You are investigating a financial asset that is expected to increase from $1,000 today to $5,000 in five years. What is the missing variable you need to solve this problem?
Interest Rate
Which of the following is NOT an advantage of a checking account?
Interest earned on balances that exceed the rates offered on CD's
Younger drivers, especially males, between the ages of 16 and 25 are more likely to get in accidents and therefore pay higher insurance premiums.
True
Your credit report can be requested online and should be checked periodically for errors.
True
Your financial plan should include a plan for protecting your assets and income through insurance coverage.
True
a risk-free rate is a return on an investment that is guaranteed for a specific period.
True
liquidity is necessary because there are times during the year when your cash inflows are not adequate to cover your cash outflows
True
An ordinary annuity can be defined as
a series of equal payments received or paid at equal intervals of time at the end of each period.
As the interest rate increases, the present value of the amount
decreases.
The impact of credit ________ saving and ________ spending.
decreases; increases
From the perspective of investors, the most important expense statistic mentioned in the prospectus of a mutual fund is the
expense ratio
When the fed conducts expansionary monetary policy, interest rates will ____ and money supply will ___.
fall;rise
You want to know how much you need to save today to have $5,000 in five years. Which of the following calculations should you complete?
Present value of a single amount.
Which of the following is not a method for computing interest on credit cards?
Present value of future payment method
When negotiating the price of any car, which of the following statements is true?
Sales people are trained to act as if they are giving the car away.
Which of the following describes the opportunity cost of attending an economics class?
The value of the highest valued alternative that must be forgone because of attending the class.
Buying a home may be the single biggest purchase you will ever make, so the decision should be taken very seriously.
True
Capital appreciation funds are mutual funds that focus on stocks that are expected to grow at a very high rate.
True
Closed-end mutual funds have a limited number of shares that are sold when the funds are first created; the shares are then resold over the stock exchanges.
True
Corporate bond funds focus on bonds issued by high-quality firms and, therefore, tend to have a low degree of default risk.
True
Depository institutions are financial institutions that accept deposits (that are insured up to a maximum level) from individuals or firms and provide loans.
True
Depreciation is part of the costs of owning an auto.
True
Different tax rates are associated with each filing status such as single, married filing jointly, and head of household.
True
Disadvantages of term insurance are that it increases in cost when you renew it and that it has no value when it matures or you discontinue your policy.
True
Excessive use of credit can impair your ability to save money.
True
FICA taxes include two components, which consist of Social Security and Medicare contributions.
True
Federal Direct Unsubsidized loans are made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need.
True
Fewer than 10% of millionaires have law or doctoral degrees.
True
Floor traders on the NYSE are willing to trade stocks for others and earn a commission for doing so.
True
Good cash management requires some liquidity, but excessive liquidity has an opportunity cost.
True
Health insurance protects net worth by minimizing the chance that you will have to reduce savings or incur debt when you require medical attention.
True
If a bond's value rises above its par value during its life, interest rates have declined.
True
If you are a victim of identity theft, you may be turned down for employment as a result of incorrect background information.
True
If you have exhausted all efforts to resolve an excessive credit card balance, personal bankruptcy may be your only option.
True
In addition to the interest earned on a bond, it is also possible that the actual bond will increase in value over time.
True
In general, insurance companies generate their revenue from the payments received for policies and from the return earned from investing the payments until the funds are needed to cover claims.
True
In the context of insurance, the term liability is used to mean that you may be required to pay other individuals for damages that you caused to them or their property.
True
Indemnity plans are also called fee for service plans.
True
Index mutual funds tend to have lower expenses than other types of mutual funds.
True
It is important to buy a car that is not over your budget and to finance the car properly. The more money needed to cover the car payments, the less you can add to your savings or other investments.
True
Junk bonds offer a relatively high rate of return, but they are more likely to default than other bonds.
True
Life insurance is critical to protect a family's financial situation in the event that a main income earner dies.
True
Life insurance may not be that important for a couple who both work full-time and who could each be self-sufficient without the other person's income.
True
Maintenance and insurance are both part of the costs of auto ownership.
True
Most people obtain health insurance through group plans offered by employers.
True
Most states have financial responsibility laws that require individuals who drive cars to purchase a minimum amount of liability insurance.
True
Municipal bond funds have tax advantages over other kinds of mutual funds.
True
New cars average 15-25% depreciation each year.
True
Non-depository institutions are financial institutions that provide various financial services, but their deposits are not federally insured.
True
On a fixed rate mortgage, the monthly payment remains constant and interest rate stays the same.
True
One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them.
True
One of the six components of your financial plan should be financing your large purchases.
True
Only the income that remains after deductions and exemptions are subtracted from adjusted gross income is taxable.
True
Paying points is the same as buying a lower interest rate.
True
Private health insurance plans contain hospital insurance, physician insurance, and surgical insurance
True
Proximity to schools can increase home values, while increased distance from schools often lowers home values.
True
Since insurance companies rely mostly on their premiums to cover claims, they price their insurance policies to reflect the probability of a claim and the size of the claim
True
Since insurance companies rely mostly on their premiums to cover claims, they price their insurance policies to reflect the probability of a claim and the size of the claim.
True
Since interest rates vary widely between lenders, you should obtain at least two quotes when selecting an auto finance company.
True
Technical analysis and fundamental analysis are methods commonly used by investors to value stocks.
True
The decision to purchase versus lease a car is highly dependent on the estimated market value of the car at the end of the lease period.
True
The most popular forms of insurance for individuals are property and casualty, life insurance, and health insurance.
True
The present value of an amount at a fixed interest rate decreases as the lump sum amount decreases.
True
The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.
True
The smaller the amount used in determining a future value, the smaller the future value at the end of the period.
True
The standard deviation of returns is one measure an investment's risk.
True
There are limits on how much a student can borrow through federal student loans, so many students also have to obtain private loans from financial institutions.
True
There is no Social Security tax on income beyond a certain level.
True
UM coverage is only available when you carry Automobile Bodily Injury Liability Coverage (BI) on your policy.
True
Universal life insurance is similar to whole life, but allows the policyholder more choices of how the savings portion of the premiums is invested.
True
When creating credit scores, credit bureaus rely on a model created by the Fair Isaac Corporation.
True
While not all mutual funds have loads or commissions, they all have management fees and expenses that are charged to the mutual fund shareholders.
True
Existing shares of closed-end mutual fund companies are purchased
from other investors in the stock market.
A one-year CD has a ________ return and ________ liquidity than a checking account.
higher; lower
The opportunity cost of building a park in your hometown would be the
highest valued bundle of other goods and services that must be forgone because of the park construction.
Before you start to invest, you should ensure liquidity by owning
money market securities
Money received today is worth more than the same amount of money received in the future. This is true because
money received today can grow at a compounded rate
A disadvantage of whole life policies is that
they are much more expensive that term policies
You can estimate the amount by which your wealth will increase from an investment using
time value of money
By reviewing your credit card statement, you can determine all of the following except
total purchases made year-to-date
Growth stocks tend to
offer great opportunities for capital appreciation
In negotiating a price for the purchase of a home, you should do all of the following, except
offer the highest price you can afford first to get the purchase settled quickly.
If you want recommendations you can
open an account at a full-service brokerage firm
When the Federal Reserve buys or sells Treasury securities to affect the money supply, it uses
open market operations.
On a fixed rate mortgage, the monthly
payment remains constant and interest rate stays the same.
Risk management of money market investments involves all of the following EXCEPT...
potential for default when backed by the federal government.
The ____ method charges interest based on the balance at the beginning of the new billing period.
previous balance
The longer the time period used in determining a future value,
the greater the future value at the end of the period.
The smaller amount used in determining a future value,
the smaller the value at the end of the period.
Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC).
$250,000
When evaluating mutual funds which are investing in the same types of securities/markets, you should compare
All of these factors should be considered.
The yield represents which of the following?
Annual return from dividends
Which of the following includes coverage for medical and death benefits?
Basic personal injury protection
In negotiating for the purchase of a home, which of the following is unlikely to be included in the negotiating process?
Cost of moving the buyer's possessions into the home
Which of the following federal student loans requires financial need to be demonstrated for eligibility?
Direct Subsidized
Which of the following items should not be removed from your wallet?
Driver's License
A 7 year ARM means the mortgage must be paid in full within 7 years.
False
A credit card statement will not show the method of calculating finance charges.
False
A good strategy to avoid identity theft is to carry all important financial documents with you to prevent them from being stolen at home.
False
A stock's yield is the annualized dividend payment.
False
Although indemnity plans are less flexible than managed care plans, they charge lower rates.
False
An 80/20 coinsurance means the insurance company pays 80% of the bill while the provider pays the remaining 20%.
False
An annuity is a stream of equal payments that are received or paid at random periods of time.
False
An international stock mutual fund is one that owns shares in companies from the United States and other countries.
False
As interest rates rise, the market price of your bond is also likely to rise.
False
Because interest is usually tax deductible and payments are deferred until you graduate, it is good advice to take out the maximum student loan for which you qualify.
False
Because of potential security concerns, it is unlikely that you will find a financial institution that offers mobile applications.
False
Before investing in a mutual fund, you should request and evaluate the fund's prospectus, which is available for a small charge.
False
Bonds are financial instruments representing partial ownership of a firm.
False
Buying health insurance through employer-sponsored plans is somewhat more expensive than buying your own policy individually.
False
Certificates of deposit are highly liquid and pay the highest investment returns.
False
You want to put $200 per month into an individual retirement account at 15% for forty years. What are you solving for?
Future Value
To determine how long it would take an investment to double at 10% interest, which interest rate calculation would you use?
Future value of a lump sum
________ mutual funds invest in both foreign bonds and U.S. bonds.
Global bond
Which of the following statements is NOT true regarding education and financial position?
Higher education always guarantees a higher income.
Which of the following statements about student loans is not true?
If you don't complete your education, you will not have to pay back your student loan.
Which of the following statements is true with regard to the risk of investments?
If you prefer less risk, purchase a bond issued by a successful and established firm.
_____ is NOT a suggested risk management method.
Ignoring risks
Which of the following is a characteristic of corporate bonds?
Issued as long-term debt securities
The stock exchange that is the largest in terms of dollar volume is the
NYSE
You are opening a new savings account today that pays 3% annual interest and want it to grow to $500 in 2 years. What is the missing variable you need to solve this problem?
Payment
Which of following would NOT be contacted in all cases of identity theft?
Postal Inspection Service
You want to know how much you need to save today to have $5,000 in 5 years at a 7% interest rate. Which of the following calculations should you complete?
Present value of a lump sum
What is the core purpose of buying insurance?
Protect your wealth and assets.
Which of the following is a disadvantage of using credit?
Slowing of progress toward financial goals
A company has a choice of whether to distribute dividends to common shareholders or to keep its profits in the company as retained earnings.
True
A credit card statement lists purchases that were made with the credit card as well as any balance carried forward from the previous statement.
True
A dollar's worth of tax credits is more valuable than a dollar's worth of deductions.
True
A good strategy to prevent identity theft is to close browser tabs after visiting financial web sites.
True
A long-term capital gain results from profit on the sale of capital assets that were held longer than 12 months.
True
A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level.
True
A person with a college degree is likely to earn over $1 million more in lifetime earnings than a person with only a high school degree.
True
A risk premium is the amount of interest you might receive over and above the risk-free return insured by the federal government.
True
A shorter financing period will reduce the total interest you pay for an auto.
True
All taxpayers have a choice of whether to take the standard deduction or itemize deductions.
True
Anything you do to increase your knowledge and skills is called investment in human capital.
True
Because most regular checking accounts do not pay interest, you should keep only enough funds in your account to cover anticipated expenses with a small reserve for unanticipated expenses.
True
Before you start an investment program, you should ensure liquidity by having money in financial institutions or in money market securities.
True
Which one thing do you always have with common stock?
Voting rights
Why is health insurance one of the most effective kinds of insurance?
You usually will not know when you will need healthcare and you will not know how much it will cost.
Which of the following decisions would require calculating the future value of an ordinary annuity?
You want to have $1,000,000 in order to retire at age 70, but need to know how much you will need to deposit each year from now until your 70th birthday.
Income earned from the sale of an asset for more than you paid for it is classified as...
a capital gain
A family of mutual funds is
a number of funds with different objectives operated by one investment company
Reductions of gross income for such items as individual retirement accounts (IRAs), moving expenses, and student loan interest payments will result in
adjusted gross income
The schedule that discloses the monthly payment that you will make, based on a specific mortgage amount, a fixed interest rate level, and maturity is called
an amortization table
Present and future values concepts are applied in all of the following decisions EXCEPT...
annual cash inflows
Generally, the ________ the credit history, the ________ the credit limit.
better;higher
In making the purchase versus leasing decision, it is important to remember that
dealers may impose an additional mileage cost.
If a bond's value rises above its face value during its life, interest rates have
decreased
The opportunity cost of an activity...
depends on the individual's subjective values and opinions
The time value of money can be applied to all of the following EXCEPT:
determining the amount of taxes owed on income this year
You want to know how much savings you would accumulate in 15 years if you save $2,000 per year and earn 4% per year. You need to determine the
future value of an annuity.
You want to know how much savings you would accumulate in 15 years if you save $2,000 per year and earn 4% per year. You need to determine the...
future value of an annuity.
Credit scores in the 500-600 range will likely result in
higher interest rates
Generally, yields are ________ for securities that are exposed to ________ liquidity risk.
higher/more; lower/less
As the lump sum amount increases, the present value of the amount at a fixed interest rate...
increases
You should claim itemized deductions if...
itemized deductions exceed the standard deduction
Another name for high-yield bonds is
junk bondss
If a stock was purchased in January 2014 for $1,000 and sold in December 2015 for $3,000, a ________ of $2,000 results.
long-term capital gain
When obtaining a mortgage you should
maintain some funds for liquidity purposes to cover unanticipated bills.
The highest tax rate a taxpayer is charged on his or her federal tax return is called the ____ fee
marginal
Before investing in a mutual fund the very least you should do is
read the prospectus.
The cost of health care has risen dramatically in recent years due to all of the following, except
reduced litigation costs
If you have a poor driving record, you may be forced to do all of the following except
refrain from filing a claim until your driving record has improved.
Interest income would come from earnings on
savings accounts
The largest market where existing securities are sold is called the ________ market.
secondary
If a stock was purchased in March 2016 for $10,000 and sold in December 2016 for $13,000, a ________ of $3,000 results.
short-term capital gain
Life insurance may be obtained through all of the following EXCEPT:
the federal government
Refinancing a home is usually worthwhile when
you will live in your home long enough to recoup the closing costs.