FIN190 Midterm 3 Quizes

Pete's health insurance policy specifies that he should pay 45% of expenses associated with a​ long-term illness, and he has a​ stop-loss provision of ​$25,918 in his policy. If Pete incurs expenses of ​$43,400​, how much would he​ owe? Pete would owe ​$_______.

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How does the passive strategy for bond investment​ work? What is the main disadvantage of this​ strategy? In a passive strategy for bond​ investment, ​(Select the best answer​ below.) A. a diversified portfolio of bonds are held for a long period of time. B. an undiversified portfolio of bonds are held for a long period of time. C. an undiversified portfolio of bonds are automatically traded using a criteria program. D. a diversified portfolio of bonds are automatically traded using a criteria program. The main disadvantage of this strategy is that​ it: ​(Select the best answer​ below.) A. does not capitalize on interest rate movements. B. is difficult to understand. C. does not capitalize on inflation rate movements. D. is difficult to implement.

A. a diversified portfolio of bonds are held for a long period of time. A. does not capitalize on interest rate movements.

What type of firm typically pays​ dividends? What are growth​ stocks? What are income​ stocks? Dividends are usually paid by​ older, more established firms that​ have: ​(Select the best answer​ below.) A. less potential for substantial growth. B. more potential for substantial growth. C. a need to provide incentives for new investors. D. an​ inconsistent, but strong revenue stream. Stocks with potential for substantial growth​ are: ​(Select the best answer​ below.) A. income stocks. B. growth stocks. C. ​small-cap stocks. D. ​large-cap stocks. Stocks that deliver large dividends​ are: ​(Select the best answer​ below.) A. income stocks. B. ​large-cap stocks. C. ​small-cap stocks. D. growth stocks.

A. less potential for substantial growth. B. growth stocks. A. income stocks.

Briefly describe some of the term insurance options. A term insurance​ policy: ​(Select the best answer​ below.) A. may have a conversion option allowing you to change the policy type. B. must have a renewability option allowing you to renew for additional terms at a constant premium.. C. must have a conversion option allowing you to change the policy type. D. has decreasing premiums as you get older.

A. may have a conversion option allowing you to change the policy type.

Why are retirement accounts more beneficial than other investments that could be used for​ retirement? Describe an effective strategy for retirement planning. Retirement accounts are more beneficial than other investments that could be used for retirement​ because: ​(Select the best answer​ below.) A. of the tax benefits. B. of the accumulated earnings. C. they are considered additional income. D. they increase your Social Security earnings. Which of the following is not a component of an effective strategy for retirement planning​ investing? ​(Select the best answer​ below.) A. Investing all your disposable income in a traditional savings account. B. Investing the maximum amount in the retirement account established by your employer. C. Investing any residual cash flow you have at the end of each month in annuities or other investments. D. Investing the maximum amount possible in IRAs.

A. of the tax benefits. A. Investing all your disposable income in a traditional savings account.

Compare and contrast private health care fee for service plans and managed health care plans. Indeminity health care​ plans: ​(Select the best answer​ below.) A. reimburse individuals for all or part of the health care expenses they incur from health care providers. B. can be classified as health maintenance organizations (HMOs). C. require individuals to pay only the amount due after the insurance has paid. D. can be classified as preferred provider plans (PPOs).

A. reimburse individuals for all or part of the health care expenses they incur from health care providers.

What are Treasury​ bonds? Describe their key characteristics. Treasury bonds​ are: ​(Select the best answer​ below.) A. ​long-term debt securities issued by the U.S. Treasury. B. ​long-term debt securities issued by the Federal Reserve. C. ​short-term debt securities issued by the U.S. Treasury. D. ​short-term debt securities issued by the Federal Reserve. InterestInterest Interest on Treasury​ bonds: ​(Select the best answer​ below.) A. is subject to federal income tax but exempt from state and local taxes. B. is determined by a fixed formula. C. isis determined by the Federal Reserve. D. is exempt from federal income tax but not exempt from state and local taxes.

A. ​long-term debt securities issued by the U.S. Treasury. A. is subject to federal income tax but exempt from state and local taxes.

Bart is a college student. Because his plan is to get a job immediately after​ graduation, he determines that he will need about ​$251,400 in life insurance to provide for his future wife and future children​ (Bart is not married yet and does not have any​ children). Bart has obtained a quote over the Internet that would require him to pay $ 171 annually in life insurance premiums. As a college​ student, this is a significant expense for​ Bart, and he would likely have to borrow the money necessary to pay for the insurance premiums. Advise Bart on the timing of his life insurance purchase. How would you advise Bart on the timing of his life insurance​ purchase? ​(Select the best answer​ below.) A. Bart should not wait to purchase life insurance despite the fact that he currently has no medical expenses that are not covered by health insurance. Bart currently has no​ dependents, which would make it easy for him to specify a beneficiary. B. Bart should probably wait to purchase life insurance until he is married​ and/or has children. Bart currently has no​ dependents, which would make it difficult for him to specify a beneficiary. C. Bart should not wait to purchase life insurance until he is married​ and/or has children.

B. Bart should probably wait to purchase life insurance until he is married​ and/or has children. Bart currently has no​ dependents, which would make it difficult for him to specify a beneficiary.

Describe the nonforfeiture and loan clasues of whole life insurance policies. The loan ​clause: ​(Select the best answer​ below.) A. allows the policyholder to borrow against the cash value at a zero interest rate. B. allows the policyholder to borrow at a lower rate than that offered by financial institutions. C. allows the policyholder to borrow at a higher rate than that offered by financial institutions. D. creates a tax liability if the cash value withdrawn exceeds the premiums that were paid.

B. allows the policyholder to borrow at a lower rate than that offered by financial institutions.

Compare and contrast the discount on charge arrangement and the per diem arrangement associated with PPOs. Under a discount on charge arrangement,: ​(Select the best answer​ below.) A. the breakdown of the payments is dictated by the government. B. the breakdown of the payments is dictated by the contract between the PPO and the patient. C. the provider is paid a specific amount for each day the patient is hospitalized. D. none of the above.

B. the breakdown of the payments is dictated by the contract between the PPO and the patient.

What is a​ defined-benefit plan? What is​ vesting? What does it mean to be fully​ vested? A​ defined-benefit plan​ guarantees: ​(Select the best answer​ below.) A. that the employee will only be terminated for specific reasons. B. the employee a specific amount of income when he retires. C. that the employee has specific kinds of insurance. D. that the employee will contribute to a retirement plan. If an employee is​ vested, he: ​(Select the best answer​ below.) A. can make contributions to a retirement plan. B. is guaranteed a pension equal to his Social Security payment. C. can claim all of the retirement money that has been reserved for him. D. can claim a portion of the retirement money that has been reserved for him. If an employee is fully​ vested, ​(Select the best answer​ below.) A. the employee is guaranteed a pension equal to his Social Security payment. B. all money reserved for the employee each year will be maintained in the retirement account. C. all money reserved for the employee each year can be withdrawn. D. the employee can make contributions to a retirement plan.

B. the employee a specific amount of income when he retires. D. can claim a portion of the retirement money that has been reserved for him. B. all money reserved for the employee each year will be maintained in the retirement account.

What factors should you consider when deciding how to invest in your​ defined-contribution retirement​ fund? Factors you should consider when deciding how to invest in your​ defined-contribution retirement fund​ include: ​(Select all that​ apply.) A. The length of time prior to when you intend to retire is important since the shorter your time horizon the more risk you can take. B. As you approach your retirement date you can begin switching your investments to bonds or cash that will give you greater preservation of capital. C. As you approach your retirement date you can begin switching your investments to bonds or income stocks that will give you greater preservation of capital. D. The length of time prior to when you intend to retire is important since the longer your time horizon the more risk you can take. E. You should also consider your individual tolerance for risk.

C. As you approach your retirement date you can begin switching your investments to bonds or income stocks that will give you greater preservation of capital. D. The length of time prior to when you intend to retire is important since the longer your time horizon the more risk you can take. E. You should also consider your individual tolerance for risk.

Describe common investment mistakes made by individuals. Which of the following is not a common investment mistake made by​ individuals? ​(Select the best answer​ below.) A. Taking excessive risks to recover their losses. B. Taking more risk when losses are not substantial. C. Filing for bankruptcy in order to salvage certain investments. D. Investing money that could have been used to pay an existing loan.

C. Filing for bankruptcy in order to salvage certain investments.

What is a​ bond's yield to​ maturity? How does the price paid for a bond affect its yield to​ maturity? A​ bond's yield to maturity is the​ bond's: ​(Select the best answer​ below.) A. coupon rate plus the annualized return if it is held to maturity. B. coupon rate minus the annualized return if it is held to maturity. C. annualized return if it is held to maturity. D. periodic return if it is held to maturity. ​If the selling price of the bond is greater than its par value, ​(Select the best answer​ below.) A. then the yield to maturity will be less than its coupon rate. B. then the yield to maturity will be equal to the coupon rate. C. then the yield to maturity will be more than the coupon rate. D. the annualized return will equal the periodic return.

C. annualized return if it is held to maturity. A. then the yield to maturity will be less than its coupon rate.

What is a call feature on a​ bond? How will a call feature affect investor interest in purchasing the​ bond? A call feature on a bond allows the bond issuer​ to: ​(Select the best answer​ below.) A. sell the bond to another investor at maturity. B. sell the bond to another investor before maturity. C. buy back the bond from the investor before maturity. D. buy back the bond from the investor at maturity. Investors are only willing to purchase bonds with a call feature if the bonds offer​ a: ​(Select the best answer​ below.) A. return equal to bonds without a call feature. B. slightly lower return than bonds without a call feature. C. slightly higher return than bonds without a call feature. D. fixed return.

C. buy back the bond from the investor before maturity. C. slightly higher return than bonds without a call feature.

Why do investors measure​ risk? Describe the two common measures of risk. Investors want to measure risk to understand​ the: ​(Select the best answer​ below.) A. calculation of exact future profits. B. estimation of​ long-term profits. C. degree of uncertainty surrounding their future returns. D. degree of volatility surrounding their future returns. Two terms that measure risk​ are: ​(Select the best answer​ below.) A. volatility index and degrees of return. B. return range and standard degrees of volatility. C. high range and low range. D. range of return and standard deviation of the returns.

C. degree of uncertainty surrounding their future returns. D. range of return and standard deviation of the returns.

Types of Investors. Classify and describe the two types of investors. What are day​ traders? Two types of investors​ are: ​(Select the best answer​ below.) A. individual investors and day traders. B. institutional investors and certified professional investors. C. institutional investors and individual investors. D. individual investors and​ FDIC-certified investors. Day traders are investors​ who: ​(Select the best answer​ below.) A. collect dividends from stock nearly every day. B. buy and sell stock the same day. C. make a profit from short selling currency on the same day. D. make a profit on the​ long-term movements in stock prices.

C. institutional investors and individual investors. B. buy and sell stock the same day.

What is private health​ insurance? Briefly describe some types of private health insurance coverage. Private health insurance refers to health​ insurance: ​(Select the best answer​ below.) A. that can be purchased from private employers. B. in which the information is only available by approved written request. C. that can be purchased from private insurance companies. D. in which the information cannot be accessed by current or future employers. Which of the following is true about private health insurance​ plans? ​(Select the best answer​ below.) A. Surgical insurance provides coverage for a consultation. B. Hospital insurance provides coverage for individuals who require care from a hospital with no specified limit. C. Surgical insurance provides coverage for specific operations. D. Physician insurance provides coverage for various forms of physician's medical care comma such as hospitalization.

C. that can be purchased from private insurance companies. C. Surgical insurance provides coverage for specific operations.

Discuss some of the concerns about the future of Social Security. One concern about the future of Social Security​ is: ​(Select the best answer​ below.) A. there will be more workers in the future with fewer retirees. B. individuals are relying less on Social Security for their retirement income. C. that the program will not be able to support retirees in the future. D. many retirees have their own retirement programs.

C. that the program will not be able to support retirees in the future.

List the information provided in corporate bond quotations. Bond quotations​ include: ​(Select the best answer​ below.) A. the interest​ rate, maturity, current​ yield, volume, opening​ price, and the gross change in price from the previous trading week. B. the coupon​ rate, maturity, accumulated​ yield, volume, closing​ price, and the net change in price from the previous trading week. C. the coupon​ rate, maturity, current​ yield, volume, closing​ price, and the net change in price from the previous trading day. D. the interest​ rate, maturity, current​ yield, volume, opening​ price, and the net change in price from the previous trading day.

C. the coupon​ rate, maturity, current​ yield, volume, closing​ price, and the net change in price from the previous trading day.

What questions should you ask when considering an HMO or​ PPO? When considering an HMO or PPO you should ask​ about: ​(Select the best answer​ below.) A. the hospitalization rate of patients. B. the average age of the doctors. C. the maximum out of pocket expenses per year. D. how long patients stay in a hospital.

C. the maximum out of pocket expenses per year.

Describe the​ return-risk trade-offs among​ bonds, mutual​ funds, and real estate investments. Which one of the following is an example of a​ high-risk return scenario for bonds in the event that the economy​ deteriorates? ​(Select the best answer​ below.) A. Many firms that issued bonds do not experience financial problems and continue to make coupon payments. B. The primary risk is that the bonds held by mutual funds are returned to the​ investor, but money cannot be lost. C. A stock mutual fund may perform better. D. Firms may be unable to pay its coupon payment. Which one of the following is an example of a risk for real estate​ investments? ​(Select the best answer​ below.) A. Tenants may miss several monthly payments. B. There may be only a slight increase in the real estate values. C. If a fully occupied office building is​ purchased, there could be a loss if the real estate market declines. D. None of the above.

D. Firms may be unable to pay its coupon payment. A. Tenants may miss several monthly payments.

What is universal life​ insurance? How does it differ from term life and whole​ life? Universal life​ insurance: ​(Select the best answer​ below.) A. is a combination of whole insurance and a death benefit. B. is classified as a term life insurance policy. C. has a savings component like term life insurance. D. provides insurance over a specified term like term life insurance. Universal life insurance differs from whole life insurance in​ that: ​(Select the best answer​ below.) A. it is only offered through employers. B. it allows policyholders to alter their payments over time. C. it allows the insured to choose how the difference is invested. D. it does not allow policyholders to skip premium payments.

D. provides insurance over a specified term like term life insurance. C. it allows the insured to choose how the difference is invested.

What is term​ insurance? What factors determine the premium for term​ insurance? What is​ decreasing-term insurance? Term​ insurance: ​(Select the best answer​ below.) A. provides insurance for the term of employment. B. provides insurance for the term of the investment. C. serves as an investment. D. provides protection over the specified period. The factors that determine the premium for term insurance​ include: ​(Select the best answer​ below.) A. gender. B. religious affiliation. C. educational level. D. geographic location. With​ decreasing-term insurance,: ​(Select the best answer​ below.) A. the term is adjusted by age. B. a relatively high level of insurance is provided in the earlier years when it is most needed. C. the term decreases with age. D. the amount of benefits to the beneficiary is constant over time.

D. provides protection over the specified period. A. gender. B. a relatively high level of insurance is provided in the earlier years when it is most needed.

When estimating the future value of a set of annual​ investments, what factors will affect the amount of funds available to you at​ retirement? One factor that will not affect the amount of funds available to you at retirement​ is: ​(Select the best answer​ below.) A. the annual return on the investments. B. the number of years of saving until retirement. C. the size of the annual investments. D. the number of jobs you have worked.

D. the number of jobs you have worked.

How does your retirement age impact the amount of Social Security benefits you will​ receive? Your retirement age impacts the amount of Social Security benefits you will receive​ because: ​(Select the best answer​ below.) A. you can receive Social Security benefits starting at age 62 but the benefits will be reduced for every month that is prior to full retirement age. You only receive full benefits if you wait until you turn 65 for those born after 1990. Postponing retirement until your 70th birthday will increase your retirement benefits even more. B. you can receive Social Security benefits starting at age 62 but the benefits will be reduced for every year that is prior to full retirement age. You only receive full benefits if you wait until you turn 70 for those born after 1960. Postponing retirement until your 75th birthday will increase your retirement benefits even more. C. you can receive Social Security benefits starting at age 65 but the benefits will be reduced for every year that is prior to full retirement age. You only receive full benefits if you wait until you turn 67 for those born after 1960. Postponing retirement until your 80th birthday will increase your retirement benefits even more. D. you can receive Social Security benefits starting at age 62 but the benefits will be reduced for every month that is prior to full retirement age. You only receive full benefits if you wait until you turn 67 for those born after 1960. Postponing retirement until your 70th birthday will increase your retirement benefits even more.

D. you can receive Social Security benefits starting at age 62 but the benefits will be reduced for every month that is prior to full retirement age. You only receive full benefits if you wait until you turn 67 for those born after 1960. Postponing retirement until your 70th birthday will increase your retirement benefits even more.

How is interest rate risk affected by a​ bond's maturity? How can investors use expectations of interest rate movements to their​ advantage? If interest rates were to​ rise, the price of​ a: ​(Select the best answer​ below.) A. ​20-year bond and a​ 1-year bond would rise relatively the same. B. ​1-year bond would fall to a greater extent than the price of a​ 20-year bond. C. ​20-year bond and a​ 1-year bond would fall relatively the same. D. ​20-year bond would fall to a greater extent than the price of a​ 1-year bond. If an investor expects interest rates will decline over​ time, he should invest​ in: ​(Select the best answer​ below.) A. ​longer-term maturity bonds. B. some​ long-term and some​ short-term maturity bonds. C. ​shorter-term maturity bonds. D. stocks.

D. ​20-year bond would fall to a greater extent than the price of a​ 1-year bond. A. ​longer-term maturity bonds.

How does Social Security fit into retirement​ planning? How does an individual qualify for Social Security​ benefits? When do you receive​ benefits? Social Security is a ______ program that taxes individuals while they are working and provides them income during retirement. Social Security is a source of income during retirement. Usually it _______ enough to live on comfortably. Individuals must​ earn: ​(Select the best answer​ below.) A. ​$1,220 each year that he or she works to qualify for Social Security. B. ​$40 each year that he or she works to qualify for Social Security. C. ​1,220 credits to qualify for Social Security. D. 40 credits to qualify for Social Security. Benefits can be received​ when: ​(Select the best answer​ below.) A. you survive the breadwinner of the household. B. you become disabled. C. you retire. D. All of the above.

federal not enough D. 40 credits to qualify for Social Security. D. All of the above.

Susan recently quit working for a local firm and has yet to find a new job. She knows she can maintain her health insurance from her old employer due to COBRA. How much will it likely cost her for health insurance if she previously paid ​$200 per month and her employer paid an additional ​$400 per month for her health​ coverage? The amount Susan will pay for her health coverage is ​$______.

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Discuss the differences between common stock and preferred stock. Common stock is _______ and ________ than preferred stock.

more volatile; more risky

Describe the process of valuing a bond. A​ bond's value is the _______ value of the​ bond's cash flows discounted back to today using a _______ rate that reflects the​ bond's risk. Bond cash flows are easy to determine since they are simply the periodic _________ (an annuity) and the maturity value of the bond which is typically ________. The discount rate can be found by looking up the coupon rate of ______ risk bonds that are being issued now.

present; discount; coupon payments; $1,000; similar