Personal Finance - Exam Review

A person with insurance coverage ends up in the hospital with a broke wrist suffered while playing football with a group of friends. After an X-Ray, MRI, doctor visit, orthopedist visit, and cast, he leaves the hospital with a bill of $9,000. he has $2,000 annual deductible and this is his first visit to a doctor in this calendar year. He also has 20% co pay. The amount that he is responsible for is...

$3,400

if a person earned 50,000 last year and again earns another 50,000 this year, but the rate of inflation is 4%, this year's buying power when compared to last year's

$48,000

a person has a house worth &100,000, a mortgage of $90,000, savings of $5,000, a car valued at $10,000, a $7,000 car loan, and $3,000 in credit card debt. the person's net worth is.... (this requires you to do math!)

( liquid - assets = net worth ) &15,000

a 28 year old earns $54,000 from his job as an illustrator. He also earned another $23,000 doing work for a private clients. In may of this year he got married. His wife, also an illustrator, earned $47,000. They bought a house in June. He has always done his own taxes - filing the 1040EZ and taking standard deductions. What advice should he follow for this year?

Because of all the changes in his life, he should pay a tax professional to complete his taxes and figure out the most beneficial filing status and tax form for him to use

rebecca and eduardo have medical insurance through their employers; rebecca's coverage is through an HMO and Eduardo's is through a PPO. Which of the following is a true statement about the probable difference in coverage each will receive

Eduardo will probably have a larger provider network from which to choose doctors... PPO = larger provider network than HMO

Americans saving for retirement

Fewer than half Americans have a retirement account

a person submitted his claim for reimbursement of medical expenses to his insurance company and his claim was denied. recently he switch insurance coverage. his former insurance company always paid for the injections he received to calm down the arthritis in his knee. What is most likely the reason that the new insurance would not pay for this treatment?

He has family coverage plan and his daughter recently had to go to the doctor with a knee injury from playing soccer and her claim used up the family's coverage

Juanita and jessica work at the same company. each is married and earns $75,000 per year. Juanita is paying more in taxes than jessica. What two factors can help explain why this is true?

Juanita does not have ANY children and does not itemize deductions; Jessica itemizes deductions and has three children therefore pays less

A person had breast cancer while employed by a company. She was treated and has been cancer free for 8 years. She has a wonderful offer for a top position at a new company but she is worried that she will not be able to get health insurance coverage. Should she worry?

No. Workers are protected by law from being denied insurance if they switch jobs even if they have a preexisting condition.

Even though preferred provider organizations (PPOs) usually charge a higher premium for insurance coverage than health maintenance organizations (HMOs), people are often willing to pay the difference because they know...

PPO has greater number of doctors from which the person can select a primary care doctor and specialists

which of the following terms is not correctly matched with its definition? a. principal: the amount borrowed b. terms of the loan: cost of item if it is not being financed c down payment: amount of money the buyer gives towards a purchase d. repayment schedule: # of months needed to repay the entire loan along w the dollar amount of each payment and interest rate

Terms of loan: cost of item if it is not being financed. WRONG

Financial advice on internet

There are a number of valuable sources of information on the internet that can be used for financial planning

A person wins $25,000 on a game show and a trip to costa rica worth $5,700. Does he have any tax obligation from these winnings?

Yes. All these winnings become a part of his gross income.

a young, healthy single person without dependents decides that she is going to buy a whole life policy that is offered where she works. since she is engaged and is hoping to have children within five years, she thinks that buying this insurance is a good move. Is this a wise financial decision?

Yes. She is young and healthy and she will get a good rate on the insurance and will have it when her family may really need it.

which is a true statement about a budget?

a budget should include both fixed and variable expenses

what is a certification?

a certification is recognition that a person has acquired a certain level of knowledge or training in a particular area of study

everyone can obtain a free credit report once a year from each of the three main credit bureaus. It is...

a good idea to obtain the reports and review them for accuracy and file a written complaint if the report contains mistakes.

which decision illustrates the idea the idea that a person's financial decisions are influenced by the overall economy?

a person switches the language she is studying in college from french to spanish after she reads a newspaper article about how the population of the united states is changing.

personal financial planning

a process of mapping decisions for spending, borrowing, and saving and investing in order to achieve financial goals

why should a person be concentrated of sue has been offered a "teaser rate" on a loan?

after a short time the rate will most likely go up

a person finds out that with a bachelor's degree he can expect to earn $55,000 a year as a financial researcher. if he spends two years (full-time) getting an MBA, it will cost him $25,000 a year for his education; however he can expect to earn a minimum of $90,000 a year as a financial analyst. if he decides to take the additional education route, to make up for the financial cost of postponing his career it will take him...

almost 5 years

What is a true statement about insurance?

as the cost of insurance has risen, more companies are cutting back on employer coverage or requiring employees to pay a larger share of the premiums.

a young healthy, athletic woman receives her monthly insurance premium notice. her premium has increased to $350 a month. she decides to drop her insurance, reasoning that she can better spend he money on a gym membership and yoga classes to relieve the stress in her backs she decides that dropping this health insurance will also enable her to start saving money in an IRA. This is a...

bad idea because one bad illness or even a small injury can wipe out all of her savings

a financial plan does not include ....

bankruptcy

a financial plan should...

be evaluated periodically and revised as needed

why do many employers say that a cover letter is as important as the resume that it accompanies?

because the cover letter gives the writer a chance to explain why she believes that her skills and knowledge make her the ideal person for the position

a financial plan is created like a

blueprint for building a house

because of globalization, and individual may have to decide whether to...

buy a pair of jeans made in America at three times the cost of jeans made in china.

A sound financial plan to achieve goal

buying a new computer for college in the fall: depositing 25% or more of weekly take-home pa in a bank savings account

what is an example of a household asset?

car: household asset

which one of the following does not show a correct match? a. cash inflow: scholarship award b. cash inflow: interest paid on a loan c. cash outflow: insurance premiums d. cash outflow: tuition

cash inflow: interest paid on a loan

the best way to protect against identity theft is to...

check credit bureau personal credit reports regularly and keep social security card and PIN information in a safe place

When a person decides to use the services of a certified financial planner, the person will...

check in regularly with the planner to review investment decisions

Since it's true that a term life insurance policy expires at the end of the term and there are no accumulated savings, why would a single 38 year old father of three children under the age of five decide to buy a 20 year term policy instead of a whole life policy?

compared to whole life insurance, he can buy much more coverage for his children in case of his death for a relatively low price

which of the following shows, in correct order, the steps a person should take to organize his financial life?

create a personal cash flow statement, create a budget, develop a personal balance sheet

a person's resume should NOT INCLUDE

current salary

which of the following people does not have a financially sound reason for taking a personal loan?

david needs to borrow $1,000 so that he can buy season tickets to see the yankees play

in deciding whether to pursue additional education and training for a job, a person decides to do a cost/benefit analysis. This is a good idea because it will help her to...

decide whether the benefits she believes she will have in a certain job and career are worth the financial and quality of life costs associated with gaining the necessary skills and education

as a first step in selecting a career path, a person should

determine which career areas interest him or her

the purpose of the IRS is to...

enforce tax laws and carry out the federal tax system

usually the least expensive way for a person to obtain health insurance is by

enrolling in an employer-provided health care plan

which insurance term is not correctly match with its description? Inaccurate description of family coverage...

family coverage: the policyholder pays a lower premium in order to obtain coverage for all members of the family as long as they live at home. WRONGGG.

which is a valid statement about a dependent?

for each dependent a person has, she is able to take a deduction from the amount of taxes she owes when filing her tax return

"phishing" is the identity theft technique of...

getting information from a person online by asking her to complete a survey or provide certain information to in a free vacation or product

when a person applies for a loan, the lender will review the person's balance sheet in order to find out if he...

has enough assets to cover both current liabilities as well as the debt created by the new loan

the purpose of investing money is to...

have an asset that will increase in value over time

under what circumstance would is make financial sense for a person to make a purchase with an installment loan?

he is offered a job that requires him to have a car, which he can only afford to buy with a loan

a high school student starts a lawn mowing business. His riding lawn mower cost $1,000; gas for the season is $2,000. He spends $500 for gas driving to and from jobs, $300 for supplies and repairs, and $200 for a trimmer. Each of his 20 customers pay $40 a week for 20-week season. What is the outcome of this business venture?

he makes $12,000 profit.

which of the following is a correct statement?

if cash inflow exceeds cash outflow, a person has a surplus to save or invest

which of following statements about taxes and financial planning is true?

in most cases it is possible for people to reduce their tax liability by adjusting their financial plan.

a person increases his net worth by

increasing assets and decreasing liabilities

a person is collecting his pension and is very happy that his plan has "cost of living" increase each year. This feature helps the person from feeling the full impact of what?

inflation

why is insurance a method of managing risk?

insurance limits a person's financial loss if an asset is lost, stolen, or damaged

which is a true statement about goals?

intermediate- term goals are those that can be accomplished in one to five years

a person balance sheet...

is a picture of a person's financial well-being at a point in time

what is the purpose of a loan contract?

it is a legally binding agreement that explains the charges to be paid by the buyer and the obligations of the seller

what is a business cycle?

it is a period of economic growth followed by a period in which the economy is shrinking

a person is trying to decide between buying term life insurance and whole life insurance when someone suggests that he consider buying a universal life policy. What is an advantage of universal life that attracts many people to this financial product?

it is considered the most flexible type of life insurance because it combines the ability to accumulate savings and extend the policy's term.

which of the following statements about adjusted gross income is true? adjusted gross income...?

it is the amount used to determine what a person actually has to pay in taxes

which of the following is a true statement about the US job market?

jobs in health care occupations are expected to grow more than most over the next several years

the reason that a person buys health or life insurance is to

limit the amount of financial loss of there is an illness, injury, or loss of life

a person increases liquidity when they...

make weekly deposits in a bank savings account

as a result of globalization...

more goods sold in America are produced in other parts of the world

if a person is self employed and earns $70,000 annually, the person

must pay estimated income taxes every quarter

Money in an emergency fund should be used to pay for

necessary expenses when a person loses a job or is unable to work because of illness or injury

another name for take home pay is

net pay!!!

a person looks over his pay stub and sees that in addition to paying state and federal personal income taxes, he is paying other personal taxes such as social security and medicare. he is only age 20, so he is sure that his employer has made a mistake since social security and medicare are for old people, and the money should be returned to him. Is he right?

no. the money he is contributing to social security and medicare is paying the benefits FOR today's older people

FICO scores are based on a model created by Fair Isaac Corporation and weight five major factors to determine the score. The action that would have the greatest negative impact on changing a person's FICO score is...

paying almost bills on time and paying the minimum required each month

a person's cash outflow includes...

payments by a person to a retirement account

from the following, select the tax that is matched with its correct explanation: what is payroll tax?

payroll tax: money deducted from a person's salary that is sent to the government by the employer

during a recession, it is noticeable that...

people are buying less and there are higher levels of unemployment

as protection from identity theft, many people do not want to receive mail or phone calls offering pre approved credit card offers because it...

prevents a thief from collecting valuable personal information

the major purpose of the Equal Credit Opportunity Act is to...

prohibit creditors from using age, religion, or race to deny credit to a person

The purpose of life insurance is to...

provide funds to help a person's beneficiaries maintain a certain standard of living should the policyholder die.

the best description of cash inflow is money...

received from different sources, such as salary and interest earned on bank accounts

creating a cash flow statement is a good way for a person to determine how much money the person...

received from various sources over the course of a month

a career that requires a college degree and is expected to grow in employment in the coming years is...

registered nurses

which is the correct order for making financial decisions?

set specific goals, put goals in writing, have a plan of action, rethinking goals if necessary

a 21 year old college graduate starting her first full time job wants to buy a home by age 30. why should she include this goal in her financial plan?

she is more likely to achieve her goal if she starts saving and investing now in order to have the down payment needed to buy the house

a person completed her federal 1040EZ form and sees that she paid total quarterly estimated taxes of $12,000. But the calculations show that she should only have paid $9,500 in taxes. What will happen if she sends the IRS this completed form with the necessary supporting documents?

she will receive a federal tax refund of $2,500

national economic trends

should impact individual financial planning

which of the following is a true statement about inflation?

some investments are able to grow at a rate greater than the rate of inflation; these investments however may carry greater risks

how does a person determine her net worth?

subtract liabilities from assets

a person finds the computer she need on sale for $900. She can pay for the computer using her credit card and pay the amount borrowed over the course of many months, or she can take advantage of the store's offer to her to pay for the computer within 30 days, which will be the same as buying the computer for cash. She knows that she will receive her $1,200 salary bonus in her next paycheck. As a financially savvy costumer she should...

take advantage of the stores non-installment credit option so she does not have to pay interest on the loan.

which of the following statements about taxes is true?

taxes are the major source of revenue for the government

why is it possible that the interest rate advertised for a loan is very different from the annual percentage rate (APR) on the loan?

the APR includes fees associated with application, credit report check, and closing costs in addition to annual interest

The *Occupational Outlook Handbook* is a good source for finding information about

the areas that will need more employees in the coming years

Relationship between education and a person's earning power

the average person with an associates degree can expect to earn 20% more than a high school graduate earns each year

if a person has a credit card with a limit of $2,000, it means that...

the credit card company is loaning him up to $2,000 to make purchases. He can pay the entire credit card balance each month or pay part of the bill and pay interest on the rest.

if the real gross domestic product (GDP) is going up, it is a sign thay

the economy is gaining strength

a person decides that she needs braces to correct her teeth. her orthodontist agrees and tells her that it will take about 18 months to correct her teeth completely and the work will cost $7,500. Her insurance company says that this is cosmetic work and therefore not covered by her plan. If she goes ahead with this dental work, she will have to pay

the full amou t

the demographic trend that helps explain why there has been an increase in demand for health care workers is

the graying of america

Why does a lender want information about a person's current cash inflow and outflow?

the information helps the lender make a decision on the person's ability to pay back the loan

the information collected by credit bureaus such as Experian is accessible to...

the person's potential employers, landlords, and lenders

if a college or university offers a nationally accredited nursing program, it most likely means that...

the program has been cited by a nationally recognized nursing professional organization as meeting certain standards

a person decides to bike to school rather than drive his car. The opportunity cost related to this decision is

the time that might be saved by driving the car

why might a person decide to take advantage of a non-installment credit offer?

there is no interest charged on the loan if it is paid back within a very short time.

how do economics measure inflation?

they compare the costs of a standard group of goods and services bought today to how much those goods cost a year ago

the best definition of economics is that it is the study of

unlimited wants versus limited resources.

"good credit management" means

using credit to make purchases when the buyer knows she can quickly pay the amount owed