Wise Practice Test Corrections
A person buys a Ford Motor Company $1,000, 20-year bond paying 9% interest for his daughter. If he waits the full 20 years to redeem the bond for his daughter, the value of the bond will be
Answer: $1,000. Rationale: $1,000. A corporate bond investor generally has the right to receive semi-annual interest until maturity and the $1,000 principal at the maturity date. This bond will pay 9 percent interest yearly and the $1,000 principal at its maturity date to the bond owner.
A person has renters insurance with replacement value and a $500 deductible. A couch that the person bought for $2,000 was damaged in a fire. The same couch today in a store sells for $3,000. The insurance company agreed to pay the replacement value of the couch. How much will the insurance pay the person?
Answer: $2,500 Rationale: In this case, the cost of replacing the couch is $3,000. The insurance company will give the replacement value of $3,000 less the deductible of $500 resulting in a payment of $2,500. When a person buys a renters policy with replacement value (current value to buy it new today) the insurance company must replace the item stolen or damaged or give the cash to replace the exact item lost or stolen less the deductible.
If a person receives a 3% salary raise and inflation is 5%, the real raise is
Answer: -2%. Rationale: In this case, purchases went up by 5% and the person only received 3%-- which is lower than needed to cover current price increases. The person's salary increase minus the current inflation rate is a negative 2% resulting in the person having insufficient income to buy the same amount of goods and services as last year.
Which purchase of coffee has the lowest unit cost?
Answer: 3 pounds of coffee $9.00 Rationale: The 3-pound bag is the least expensive. By dividing the cost by the weight ($9.00/3 pound=$3.00/per poud) the cost per pound of coffee can be determined. People often think the larger the quantity, the cheaper the cost. However, it is important to do the math or to check store pricing labels since, as in this case, the lowest price is not for the greatest quantity.
A married couple plans to send their daughter to a private college when she graduates high school in twelve years. What type of investment is generally recommended for the couple to save their daughter's college education?
Answer: Aggressive growth. Rationale: Some financial planners believe that investors who have more than ten years until they are going to need the money, consider higher risk instruments. Investments, such as small cap common stocks and growth mutual funds, have a highest potential growth rate and the highest risk of loss. Over a long period, investors can "recover" from drops in the market.
Three of the following statements are true. Which one is NOT?
Answer: All corporations are listed on the New York Stock Exchange (NYSE). Rationale: All the statements are true except that NOT all corporations are listed on the New York Stock Exchange. Some companies are also privately owned and are not listed on any exchange.
Why do banks require a person to provide personal identification, such as a valid photo ID, in order to open an account?
Answer: By law, banks are required to know their customers. Rationale: The bank needs this information because the money earned on interest-bearing accounts is considered income and, therefore, is taxable. The bank must report these earnings to the IRS.
A person wants to start contributing to a Traditional Individual Retirement Account (Traditional IRA). Which of the following statements is true?
Answer: Contributions to a Traditional IRA cannot exceed the legal annual contribution allowed. Rationale: A person can only contribute up to the legal limit set by the government each year. A Traditional IRA serves as a way to save for retirement.
A person reconciling her checking account notices that the balance in her checkbook register does not match the balance on the bank statement. What action is appropriate for the person to take first?
Answer: Determine if all checks issued have cleared. Rationale: Often, the balance reported on a checking account's bank statement differs from the balance in the person's checkbook register. Reasons for that difference may be due to checks that have been written, but they have not been cleared (returned to the bank for payment). Therefore, the person must look at the bank's statement and compare it to his/her checkbook register to see that all checks written have cleared.
Which was the name of the original company that started the FICO credit scoring system?
Answer: Fair Isaac Corporation Rationale: Fair Isaac Corporation is the company that started the FICO credit scoring system. The FICO credit score is generally checked by banks when giving credit.
New coins and currency enter the economy when they are distributed to consumers and businesses by the
Answer: Federal Reserve Banks Rationale: The coins and currency are sent to the Federal Reserve Banks (district offices around the country) which distribute them as needed into the economy.
Which federal government agency regulates advertising on buses?
Answer: Federal Trade Commission (FTC) Rationale: The Federal Trade Commission has authority to regulate most types of advertising. The Federal Trade Commission has authority to regulate most types of advertising. The FTC website is an excellent resource for information about advertising and many other consumer topics and issues.
A college student may be eligible for a discount on car insurance for being a
Answer: Full time student who lives in the college campus where a car isn't necessary. Rationale: Most insurance companies offer discounts on car insurance to full time college students that live on campus during the academic year and leave their car at home.
A person's apartment was burglarized, and her TV, computer, and cash were taken. She has renters insurance. The current value of the stolen items is $4,000. Her insurance company, however, only offered her $1,000 on her claim. Why?
Answer: Her renter's insurance has a coverage limit of $1,000 on personal property. Rationale: In this case, the insurance policy coverage limit is $1,000, so the policyholder only received $1,000 and not the full current value of her loss. Most homeowners' insurance policies have a fairly small coverage limit on valuable items such as electronic equipment, cameras, jewelry, antiques, artwork, and collections. The policyholder needs to purchase a special rider (additional coverage) to cover loss or theft of these "portable," expensive items.
Which of the following financial careers are based only on commision?
Answer: Insurance brokers. Rationale: Insurance brokers work on commission, not salary. This means that they are paid a percentage of the sale they make.
Which of the following ways to compute interest on a savings account with $1,000 paying 2% will yield the most money?
Answer: Interest compounded semi-annually. Rationale: The more often the interest is compounded (the shorter the term), the greater the return. Thus, in this case, 2% interest compounded monthly would pay the greatest return.
Generally, how does advertising influence the price of a product?
Answer: It raises the price of the product. Rationale: Advertisements cost money. These costs are passed on to the consumer. This mean that when buying a popularly advertised brand product the price paid includes the costs associated with that advertising.
A person has a $500 balance on each of his two credit cards. Each credit card charges a different interest rate on unpaid balance. What is the best way for him to make payments on these two credit card accounts in order to minimize finance charges?
Answer: Make the minimum payment on the card with the low interest rate and pay the full bill on the card with the high interest rate. Rationale: At least the minimum payment must be made to all credit card companies each month to avoid additional fees. When there is a difference in the interest rate charge, it is best to pay off the credit card with the higher rate as quickly as possible. If possible, paying all cards in full when the credit card bill arrives is the best financially responsible habit to have.
Which of the following is a mandatory federal payroll deduction?
Answer: Medicare Rationale: Federal law states that an employer must withhold Federal Income tax, Medicare tax and Social Security tax from an employee's paychecks. These are referred to as mandatory federal payroll deductions.
What is the result of a person taking a 30-year, fixed-rate mortgage to buy a house or building?
Answer: Monthly mortgage payments remain the same for each year of the loan. Rationale: A fixed-rate mortgage means that the monthly payments remain the same (never change) during the life of the loan.
Dianna has a minor accident with her car hitting another car. Although her insurance would have covered the costs of repairs, she chooses NOT to report the accident. In this situation, what should Dianna know?
Answer: Not reporting an accident that resulted in damage is a violation of the law. Rationale: It is illegal not to report an accident if the car is damaged. Moreover, a person's driving record is one of the factors insurance companies use to determine the level of risk and the cost of the premium for a person. Particularly if the accident is found to be Dianna's fault, she can expect to pay more for her premium.
Which person has the greatest net worth?
Answer: Person 2, because the difference between this person's assets and liabilities is greater. Rationale: In this case person 2 has a higher net worth than person 1. TO determine a person's net worth, subtract liabilities and assets (assets less liabilities = net worth). Assets are things that have monetary value (house, savings, etc.). Liabilities are monetary amounts that are owed (mortgage, etc.).
A woman wants to buy an investment that will pay a fixed dividend, providing a source of steady retirement income. Which investment product best meets her needs?
Answer: Preferred stock. Rationale: Preferred stock is issued with a fixed dividend per share. The regular dividend payments appeal to retired investors and others who desire a reliable stream of income.
The government agency that regulates the organizations that trade stocks and bonds is the
Answer: Securities and Exchange Commission (SEC) Rationale: The Securities and Exchange Commission (SEC) is the federal agency that protects the interest of investors by regulating companies that sell stock or bonds (securities). The SEC requires these companies to publicly disclose honest and accurate information about their financial health. The SEC also oversees the activities of stock exchanges, over the counter (OTC) markets, investment advisers, and anyone else who is involved in the buying and selling of securities.
Which of the following statements is FALSE?
Answer: Stock dividends are paid every year to investors by public corporations. Rationale: Stock dividends are paid by some corporations, not by all public corporations.
What is the face value of a bond?
Answer: The amount the bondholder receives when the bond matures. Rationale: The face value of a bond is the amount the bondholder receives at the bond's maturity (the end date of the bond's term). Almost all bonds are issued with a $1,000 face value. As long as an investors owns a bond (up to the maturity date), he or she earns interest (generally on a semi-annual basis). Whoever owns the bond on the maturity date receives the last interest payment and the $1,000 face value.
What is true about loans?
Answer: The larger the down payment, the lower the amount of the loan. Rationale: The larger the down payment, the lower the amount of the loan and the lower the dollar amount of the monthly payments. So, when a person buys a car or a house, it helps to remember that a high down payment lowers the amount of the loan.
There are 190 million shares outstanding of the ABC Corporation. What does this statement tell us?
Answer: The number of shares held by the investors/shareholders in this company. Rationale: Outstanding stock is shares issued by a corporation that are currently held by investors. ABC Corporation does not own the 190 million shares, instead this portion of the company is public or comprised of outstanding shares. Investors/shareholders own these 190 million shares and can sell them at any time.
What is one benefit of paying the total credit card bill on or before the due date?
Answer: There will be no interest charged or late fee on the credit card bill next month. Rationale: When a person pays credit card bills in full and on time, there is no interest or late fee charged. Avoiding these fees helps a person save money.
Which of the following statements about money orders is accurate?
Answer: They are purchased at a post office to be used as a form of payment. Rationale: A money order can be purchased by a person to be used as a form of payment for a specific amount. They are generally a safe and convenient way to send payment through the mail as an alternative to personal checks or cash. Money orders which can be purchased at a U.S. Post Office are called Postal Money Orders. Private companies, such as banks, credit unions, supermarkets, convenience stores, and drug stores, also sell money orders for a fee. Money orders checks can be counterfeit.
A consumer is protected from credit card fraud or abuse through the
Answer: Truth in Lending Act. Rationale: The Truth in Lending Act (TILA) of 1968 is United States federal law designed to promote the informed use consumer credit, by requiring disclosures about its terms ad cost. It standardizes the manner in which costs associated with borrowing are calculated and disclosed
A consumer is protected from credit card fraud or abuse through the
Answer: Truth in Lending Act. Rationale: The Truth in Lending Act (TILA) of 1968 is a United States federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost. It standardizes the manner in which costs associated with borrowing are calculated and disclosed.
A person found an error on her credit report. What should she do?
Answer: Write immediately to the credit reporting agency to explain the mistake. Rationale: To dispute the accuracy of information in her credit report, the person should send a letter/email to the credit reporting agency and to the company that furnished the wrong information. Both the credit reporting agency and the furnisher of information are legally obligated to investigate a dispute.
When going to most Consumer Credit Counseling Services (CCCS), the person can be expected to be charged
Answer: a fee for setting up and overseeing a debt repayment plan. Rationale: Consumer Credit Counseling Services charge a fee for services such as helping clients pay down their debt by creating a plan that can last several years, negotiating for clients with creditors, and making monthly payments to creditors for their clients.
A person did not make two consecutive payments on her automobile loan. The creditor has the legal right to seize and sell the person's car. This is because the auto loan lender has
Answer: a lien on the car Rationale: When the person took out a loan to purchase her car, she signed an agreement that gave the lender a title lien on the car that is being used as collateral to secure the loan. Therefore, the lender has the right to hold the title on the car until the debt is paid in full, as well as the right to seize and sell the car in the event that the person defaulted on the loan.
A person receives a credit card bill of $1,000 with a minimum payment due of $250. The person mails a check for $300 on the due date. As a result, the credit card company will
Answer: accept the $300 and charge a late fee for receiving payment after the due date Rationale: Credit card companies must post receipt of payment on or before the due date. Mailing the payment on the due date will result in the card company receiving the payment late and will result in the cardholder being charged a late fee.
The cash value on a whole life insurance policy is the
Answer: accumulation of a portion of premiums paid plus interest earned. Rationale: The cash value is a portion of the premium that is saved and earns interest. It is described as a savings program that accumulates interest. While alive, the insured person can borrow against the cash value. Cash value is a feature of whole life and universal life insurance policies.
When a person deposits $2,500 into a Traditional Individual Retirement Account (IRA), that money is reported on the person's federal income tax return as
Answer: an allowable deduction. Rationale: A contribution up to the maximum allowed by law, is reported on a person's tax return as an allowable deduction which reduces gross pay and therefore lowers the amount of tax that the person has to pay to the government on earned income.
What is the website address where you can request a free credit report each year from all of the three leading credit reporting agencies?
Answer: annualcreditreport.com Rationale: Only ONE website is authorized to fill orders for the free annual credit report that people are entitled to under law: annualcreditreport.com. The law allows each person to order one free copy of their credit report from each of the 3 leading credit reporting companies every 12 months. Some banks provide credit scores to existing credit card customers for free
A person has several open department store charge cards she has not used in two years. There are no credit balances on these accounts. These charge cards may impact her application for a loan because they
Answer: are open accounts which could be considered by a lender reviewing an application for credit. Rationale: The person could use these open accounts, and this will be considered in any application for credit. If the maximum credit on the unused accounts together with maximum credit on her active accounts add up to more than she is likely to pay, it could be difficult for her to get a loan.
A person has good financial health when he has
Answer: assets worth more than liabilities. Rationale: A person has good financial health/wellness when he has a positive net worth. his, his assets (things that have monetary value) total more than his liabilities (debts). Assets can include, but are not limited to, money, stocks, bonds and real estate.
Justin decided to spend $40 treating his friends to dinner and a movie instead of going to a high school basketball game. The opportunity cost for Justin is
Answer: attending the basketball game. Rationale: Attending the basketball game was the opportunity cost for Justin. An opportunity cost is described a what a person "gives up" when choosing one alternative over another.
If a person has a choice of getting a loan from a bank or a consumer finance company, the person should generally choose the
Answer: bank, because it charges lower interest rates on loans than consumer finance companies. Rationale: Banks will charge lower rates tan consumer finance companies because they mostly lend money to individuals with strong credit histories and solid equity. Consumer finance companies know that many of their borrowers do not have sufficient equity to secure their loans or may have a lower credit rating and, as a result, the finance company charges the consumer a higher interest rate since the loan is viewed as having a greater risk of not being repaid.
If a person has been denied credit because of information on his credit report, he has the legal right to
Answer: be given the contact information for the responsible agency that provided the credit report. Rationale: If a person's credit application is turned down because of information of his credit report, the person must be given information needed to contact the credit bureau that provided the credit report. The person has the right to contact the credit bureau within 60 days of the credit denial to get a free copy of that credit bureau's report. If there is something wrong in his credit report, he has the right to dispute it and request a correction.
Negative information on a credit report will
Answer: be on the credit report for seven years. Rationale: In general, negative information will stay on a credit report for seven years from the date of last activity. Late payments on an account that is still active will be removed from a credit report seven years from the start of the delinquency.
A strategy to reduce the balance on a college loan is to
Answer: begin regular interest payments on the loan while in college. Rationale: If a college student begins to pay the interest on the loan while still in college, it will reduce the amount of money owed after graduation.
A prepaid cash card is a card that
Answer: can be obtained without a bank account. Rationale: Prepaid cards can be purchased without having a bank account. It is good for someone without a bank account, a person with bad credit or a person who is unable to get a credit card. Prepaid cash cards are issued by companies like Visa, MasterCard, and Discovery and can be purchased in many different stores or at a bank.
A person has two credit cards. When he fails to make a payment on one credit card, the second credit card company
Answer: cannot raise the APR automatically Rationale: The Credit CARD Act of 2009 states that credit card issuers are not allowed to increase the interest rate on a credit card when the cardholder is late on another credit payment.
A person bought 200 shares of General Electric at $18 per share. She sold them for $28 per share realizing a
Answer: capital gain of $2,000 Rationale: When stock is sold for a higher price than it was purchased, the profit is called a capital gain. In this case, the purchase price was $3,600 ($18/share x 200 shares) and the sale price was $5,600 ($28/share x 200 shares). The investor's capital gain was $2,000 ($5,500-$3,600).
Investors may hold a security for more than a year because
Answer: capital gains on the investment will be taxed at a lower rate. Rationale: Capital gains are profits made from the sale of capital assets such as stocks and bonds. Taxes have to be paid on capital gains. If the investment is held for more than one year, the capital gains are taxed at a lower rate because they are considered a long-term capital gain. Short-term capital gains, profits made on the sales of an investment held one year or less, are taxed at a higher rate. Capital gains are reported on a person's income tax return.
A person receives a credit card bill of $1,000 with a minimum payment of $250. The person sends the company a check for $100 before the due date. As a result, the credit card company will
Answer: charge a late fee on the account Rationale: If the entire amount of the minimum amount due on a credit card bill is not made, a late fee as well as interest on the remaining balance will be charged.
A person was approved for a loan that combines all her debts into one loan with a lower payment based on a longer repayment period or lower APR. This type of loan is a
Answer: consolidated loan. Rationale: Consolidation loans combine all consumer debt into one loan so a borrower will only need to make one monthly payment. Consolidation loans, however, often cost more in total finance charges because the borrower is taking more time to pay the debt. Consumers often apply for this type of loan when they have more debt than they can afford and are unable to make payments on their debt.
One responsibility of the Federal Reserve System (Fed) is to
Answer: control inflation. Rationale: The power to regulate the national money supply enables the Fed to control inflation.
When considering a life insurance policy, the amount of insurance that a person should purchase is based on
Answer: current budget and future needs. Rationale: When considering life insurance, a person needs to determine how much insurance needs to be purchased to make sure the family can afford to cover current and future needs.
The price paid to a lender for borrowing money is called the
Answer: finance charge Rationale: The finance charge is the dollar amount paid to the lender. It is the interest (price) for borrowing someone else's money.
The role of a mortgage broker is to
Answer: find a lender for a person needing to borrow. Rationale: A mortgage broker exists to find lenders, with money to lend, for borrowers seeking money to purchase property.
It is advisable to avoid lending money to a friend or relative unless the person
Answer: has a promissory note signed by the borrower in the presence of a witness. Rationale: When lending money to a friend, it is critical to get the promise to repay in writing, the amount owed, how much interest is being charged, and when payments start. This is called a promissory note and it should be notarized. Having it in writing prevents any misunderstandings and serves as a legal document.
A person with a credit score under 600 is looking for a mortgage loan to purchase a home. His interest rate on the mortgage will most likely be
Answer: higher than average Rationale: Interest rates vary based on the credit score of the person borrowing. The higher the score, the lower the interest charged. Thus, a low score of 600 will result in a higher than average interest being charged.
Redlining is illegal because it
Answer: is a discriminatory practice. Rationale: Redlining is against the law because it is a discriminatory practice involving lenders who refuse to lend money or extend credit to borrowers in certain "struggling" areas of town. It is against the law to discriminate against borrowers based on gender, race or income level.
If a public corporation wants to raise capital but NOT create debt, it can
Answer: issue common stock. Rationale: A public corporation raises capital (money) when it issues stock, a share in the ownership of th company. Issuing stock does not create debt. Issuing bonds or borrowing money from a financial institution or the government does create debt for the company.
When a person buys a corporate bond, the person is
Answer: lending money to the corporation. Rationale: A bond is an interest-bearing or discounted government or corporate security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the loan at maturity. Bondholders have an IOU from the issuer, but no corporate ownership privileges, as stockholders do. The bond investor can sell the bond to another investor prior to the maturity date.
John has a store charge credit card that is different than most credit cards because it
Answer: must be paid in full each month. Rationale: Charge cards are designed to offer the person the convenience of not having to carry around a large amount of cash or to keep large sums of money in a checking account in order to make a purchase. However, the purchases made with a charge card must be paid in full by the bill's due date. Purchases on most credit cards may be paid over time as long as the person making the purchases is willing to pay interest charges on their loan from the credit card company.
An investment company puts money from investors into an investment product that includes stocks, bonds, or other securities. This investment product is called a
Answer: mutual fund. Rationale: A mutual fund typically holds between 100 and 200 different types of investment products, including stocks, bonds, and money market securities. It can be just a variety of the same investment product such as 100 stocks or 100 bonds. The diversification reduces the investor's risk. A mutual fund is managed by a professional fund manager.
A person is planning to go away to college next year. The person should open a personal bank account since it is
Answer: needed for depositing grant and loan funds. Rationale: It is strongly recommended that college students open bank savings and or checking accounts so that their grants and loans as well as parental support can be transferred directly into their account.
A person bought a credit union one-year certificate of deposit (CD) six months ago. Yesterday, she withdrew her money from the CD. As a result, the credit union generally will
Answer: not give the full amount of interest earned due to the penalty for early withdrawal. Rationale: If the person fails to keep the certificate for its entire term, she will be charged an early withdrawal fee equal to three-to-six-months' interest.
A person was told by her insurance agent that she needs renters insurance to cover the potential loss
Answer: of personal items as a result of a fire Rationale: Tenants who rent need renters insurance to cover catastrophic damage, caused by fire, theft, or vandalism. Personal belongings such as a couch, camera, computer equipment, are covered in the apartment or away from home. Walls and floors of an apartment are the responsibility of the landlord.
Banks and credit unions may use money deposited in customer accounts to
Answer: offer different kinds of loans to customers Rationale: Banks and credit unions usually use the money on deposit to make loans to their customers. A bank or credit union charges interest and/or fees to customers who take loans using their money. The money they make, in turn, helps them pay interest to their depositors, though at a lower rate of interest than they charged to the customers taking out the loan. It is one way banks make money.
A replacement value renters insurance policy is more expensive than a regular renters insurance policy because it
Answer: reimburses today's current value of property damaged or stolen. Rationale: If the renter buys a renter's policy with replacement value (current value to buy today) the insurance company must replace the item stolen or damaged or give cash for paying to replace the exact item lost or stolen today. Renter's insurance with replacement value is more expensive. Without a replacement value clause, the insurance company will only pay the depreciated value of the property damaged or stolen less the deductible.
If the price of a bond increases, the interest that the bond pays will
Answer: remain the same Rationale: The interest on a bond does not change. Therefore, it is not affected when the price of a bond increases or decreases
Buying a treasury bill (T-bill) is best for investors who are looking for a/an
Answer: secure, low risk investment Rationale: Treasury bills are backed by the U.S. government, and, therefore, are considered to be relatively risk free. Another benefit is that T-bills are short term generally for 26 or 52 weeks. They can be purchased in amounts starting at $1,000. T-bills generally pay a higher interest rate than a regular savings account.
One role of the Federal Reserve System (Fed) is
Answer: setting reserve requirements for banking deposits. Rationale: The Federal Reserve System (Fed) sets the reserve banking deposits requirements which means they tell their member banks how much money they need to have on hand each day to do business.
Contributing to a 401(k) is usually a good way to save for retirement because
Answer: some employers match the amount of money employees contribute to the plan. Rationale: Employee contributions to a 401(k) plan may be matched by an employer. This is an important benefit or gift from the employer. It means that the employer will match a percentage of the dollar amount the employee contributes to his/her retirement account.
Generally, the responsibility for an employee when her company is offering health insurance is to pay
Answer: some of the premium from salary. Rationale: If a person works for a company that has health insurance for employees, she will most likely have to pay a portion of her health insurance premium that is usually deducted from gross pay.
The Credit CARD Act of 2009 requires credit card companies to
Answer: stay at least 1,000 feet away from a college campus. Rationale: The Credit CARD Act of 2009 protects underage consumers against incurring debt that may not be able to repay by requiring companies to stay at least 1,000 feet away from college campuses.
When interest rates are low, it is a good time to
Answer: take out a fixed-rate car loan. Rationale: When interest rates are low, it is generally a good idea to borrow for large purchases like a car, or a home. The price for using other people's money is low which also means that the cost of buying these large items (real cost = price plus interest) is less. If a person waits until interest rates get higher, the real cost for these same large items will be higher.
A person buys a tax deferred investment. Tax deferred means that
Answer: taxes are paid when the money is withdrawn from the investment. Rationale: Tax deferred means that paying taxes on the investment is postponed until money is withdrawn from the investment. When the money is withdrawn, the investor needs to pay taxes on the amount withdrawn.
There is a high risk that a stock will become worthless when
Answer: the company foes bankrupt Rationale: A public company that is about to declare bankruptcy is in financial trouble. If the company goes bankrupt and is out of business, the company's shares become worthless.
There is a high risk for a stock to lose value when
Answer: the corporation that issued the stock declares bankruptcy. Rationale: Typically, the price of a public corporation's common stock decreases if they declare bankruptcy since this indicates that the company is having financial problems.
A person should AVOID renting furniture EXCEPT when
Answer: the need for furniture is for a short time or for an emergency. Rationale: The only instance in which it is advisable to rent furniture is when the furniture is needed for a short period of time or for an emergency. Over time the payments made on rental furniture will be higher than the cost of purchasing that item. There are also hidden costs and fees.
The cash value on a whole life insurance policy is
Answer: the savings portion of the policy. Rationale: The cash value is a portion of the premium that is saved and earns interest. It is often described as a savings program that accumulates interest. While alive, the insured person can borrow against the cash value. Cash value is a feature of whole life and universal life insurance policies.
A person told her friends that an advantage of having a money market account at an investment firm, is that it
Answer: usually offers check writing privileges Rationale: A money market account at an investment firm is a savings account that earns interest and has check-writing privileges. Money market fund interest rates are typically determined by the performance of the investments that the fund owns. Money can be deposited or withdrawn at any time. IF the account is with a securities firm, the money is not insured by the federal government and has risk.
If a person has to pay $30 a year in interest on each $100 he borrows, the cost is considered
Answer: very high. Rationale: This person is paying 30% interest, which is considered a high rate. This means that if the person borrowed $1,000 and takes a year to pay it off, that $1,000 will cost him $1,300 ($300 in interest).
A public corporation announces it is planning to merge with another public corporation. Based on this information, and investor should be aware that generally the price of the stock for the targeted company
Answer: will rise. Rationale: When a public company announces a plan to purchase another public corporation, the stock price of the public company that is targeted to be purchased generally goes up.
It is usually less expensive for a policyholder to pay an insurance premium
Answer: yearly Rationale: People can choose to pay the premium once a year (annually), semi-annually, quarterly (every 3 months), or monthly. Generally, it is less expensive because there is no fee when a person pays the premium once a year.