Personal Finance Exam 2

A market order is transacted at the:

best price when the order is entered

The returns you would expect from your investments could be

capital gains and current income

If life insurance is convertible, the policy can be

changed to another type of life insurance

Risk and return are _______________ related

directly

Insurance is a tool that can lessen ____ risk.

economic

Insurance is a tool that can reduce your _____ risk.

economic

The primary purpose of life insurance is to provide:

financial security for your dependents after your death

In a traditional indemnity (fee-for-service) plan, the:

health care provider and the insurer are separate.

Insurance companies make profit by:

paying out less than the sum of the premiums and the earnings on them.

Term life insurance is characterized by

premium amounts related to age

The basic purpose of insurance is to

protect you from losses

A policy provision ensuring continued insurance coverage for the insured's lifetime as long as the premiums continue to be paid is known as:

renewability

____ is a common provision in many term policies

renewable clause

What term bests describes a day trader

speculator

Long-term care is a term used to describe:

the delivery of medical and personal care to persons with chronic medical conditions who are not in a hospital.

Underwriting refers to:

the determination of which exposure to insure

Underwriting is

the determination of which exposures to insure

Insurance underwriting is best described as:

the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums

The basic purpose of insurance is to:

to protect yourself and family from economic loses

In order to qualify for disability insurance under social security, a person must be

unable to carry out the duties of any job

With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for at least ____% of the first year's premium and at least ____% of total premiums paid over the life of the policy

100, 20

The medicare coinsurance payment is usually

20%

Sarah has the following consolidated federal student loans: Loan 1, $5,000 @ 5.2%, Loan 2, $15,000 @6.8%. Calculate her weighted-average interest rate.

6.4%

The Securities Investor Protection Corporation (SIPC) provides insurance to protect the investor from:

A brokerage firm's financial failure

An _____ provides financial and descriptive information about a firm's operations in the recent past to the internal and external interested parties.

Annual stockholders report

An example of event risk is:

Cooperate Takeover

Meredith wants to buy a new car, but she has two offers on the same car from Lewis Motors and Edmonds Auto. Lewis offered her a down payment of $3,250 and a monthly payment of $275 for 36 months. Edmonds offered her a down payment of $2,500 and a monthly payment of $380 for 24 months. Which is the better deal?

Edmonds Auto

True or False: A retired couple can probably bear more risk in their portfolio than a young investor with a secure job.

False

True or False: Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades.

False

True or False: Blue Cross/Blue Shield payments for health care services are made directly to the subscriber rather than the hospital or physician.

False

True or False: Bonds typically have higher long-term returns when compared to stocks.

False

True or False: Capital gains are paid at specified times, e.g., quarterly or semiannually

False

True or False: Low price/earnings ratios indicate high investor confidence.

False

True or False: MSRP stand for manufacture's suggested real price

False

True or False: Parent loans (PLUS) are the responsibility of the parents and the rate is determined by their child's credit score

False

True or False: Security selection to satisfy an asset allocation plan is final.

False

True or False: The cost of workers' compensation insurance is usually paid by the employees.

False

True or False: The trade-in value of a car given to you by the dealer is always the most fair value

False

True or False: Two prerequisites to investing are above average risk and clear understanding of market direction

False

True or False: the major reason most people invest is to shelter current income from taxes

False

True or False: the term "investment" refers to money placed in some medium where value and level of return are totally unpredictable

False

Statement about risk

Higher the risk, higher the return

Which of the following statements regarding private health insurance plans is true?

In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.

Which of the following statements regarding insurance underwriting is true?

Insurance underwriters design rate classification schedules so that people pay premiums that reflect their chance of loss

A bull market is characterized by:

Investor Optimism

In which of the following type of investment is the most liquidity risk

Land

The settlement option chosen by most beneficiaries is

Lump sum

Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare

Medicaid

Damien plans to buy a share at $120 and hold it for 5 years. During this period, he would receive average annual dividends of $4 a share. He expects to receive $145 at the end of the 5-year period when he sells the share. What are the keystrokes used to calculate the rate of return on the investment?

N = 5, PV = −120, PMT = 4, FV = 145

A collection of investments is called

Portfolio

What are the components of the Four Square model for buying a car

Price, Trade-in, Monthly payment, Down payment

Which of the following terms descries a 12 oz can of tuna fish is 3 times the price of a 6 oz can of tuna fish?

Quantity surcharge

An unmarried investor with few responsibilities should be able to accept ____ better than two people who are married with young children.

Risk

When you buy 300 shares of a company, you have purchased a(n):

Round lot

The federal government regulates the disclosure of information about securities through the:

Securities and Exchange Commission (SEC)

Which of the following statements regarding the Affordable Health Care Act (ACA) is true?

The ACA eliminates lifetime limits on total health care insurance payments by insurers.

What is a characteristic of a stop-loss order?

The stop-loss order sells a stock when the market price drops below a specified price

True or False: Cash value is an important component of whole life, universal life, and variable life but is never a component of term insurance

True

True or False: Compound interest is a very important consideration when evaluating the return on an investment you plan to hold for a long time.

True

True or False: Investing and speculating are two entirely different activities

True

True or False: Life insurance death benefits are not subject to income taxes

True

True or False: Life insurance proceeds paid to your heirs are not usually subject to state or federal income taxes.

True

True or False: Living a healthy lifestyle is an example of loss prevention and control.

True

True or False: Net profit margin is a key measure of profitability that relates the net profits of a firm to its sales.

True

True or False: Steve was told that the government would be paying the interest on his Stafford loan while he was in school, which is a subsidized loan

True

True or False: The basic purpose of insurance is to protect you from accidental losses

True

True or False: The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs

True

True or False: The need for life insurance increases with children.

True

True or False: The returns you expect from securities are income and growth

True

True or False: The value of a stock at any time depends on its expected stream of future earnings.

True

True or False: There is generally a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it.

True

True or False: With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for between 20% to 25% of total premiums paid over the life of the policy

True

True or False: Your eligibility and rate on a private loan is determined by your credit score

True

True or False: Your need for additional life insurance can be determined by looking at the difference between your family's available financial resources after your death and your family's total economic needs.

True

What is a statement regarding workers' compensation insurance?

Workers' compensation insurance compensates workers who are injured on the job or become ill through work-related causes.

Most people do not need protection against

a specific dread disease

Underwriting is best described as

activities related to selecting acceptable risks so that general insurer objectives are met