Personal Finance Final Exam Study Guide

Which of the following might qualify Amy Farmer for a premium discount on her automobile insurance? A. She has completed a driver's training program B. She is a straight A student in college C. She has installed an alarm system in her car D. All of the choices would likely qualify her for a premium discount

D. All of the choices would likely qualify her for a premium discount

Which of the following situations is a person who could be insolvent? A. Assets $56,000; annual expenses $60,000 B. Assets $78,000; net worth $22,000 C. Liabilities $45,000; net worth $6,000 D. Assets $40,000; liabilities $45,000

D. Assets $40,000; liabilities $45,000

To determine a person's solvency, which financial document should be consulted? A. Cash flow statement B. Budget C. Debt consolidation statement D. Balance sheet

D. Balance sheet

Brett Johnson owns a home in Yukon, Oklahoma. A babysitter he hires breaks her leg when she trips over the dog. What part of his homeowner's insurance would cover this loss? A. Buildings and other structures B. Additional living expenses C. Personal property D. Personal liability

D. Personal liability

If you have a car loan the lender will require what kind of insurance? A. Liabiliy B. Liability, comprehensive, and collision coverage C. Extended warranty D. Rider

D. Rider

The purpose of a rate cap with an adjustable rate mortgage is to: A. minimize interest costs. B. prevent changes in the amount of the monthly payment. C. increase negative amortization. D. restrict the amount by which the interest rate can increase.

D. restrict the amount by which the interest rate can increase.

The uncertainty associated with decision making is referred to as A. opportunity cost. B. selection of alternatives. C. financial goals. D. risk.

D. risk.

If you have incorrect information in your credit file: A. you can't really do much about it. B. you have no legal remedies. C. credit bureaus are not required to change it. D. there are legal remedies available to you.

D. there are legal remedies available to you.

Which of the following is an example of a closing cost? A. origination fee B. mortgage application fee C. earnest money D. title insurance

D. title insurance

Current liabilities differ from long-term liabilities based on: A. the amount owed. B. the financial situation of the creditor. C. the interest rate charged. D. when the debt is due.

D. when the debt is due.

Who is most likely to benefit from inflation? A. retired people B. lenders C. borrowers D. low-income consumers E. government

C. borrowers

A term that refers to the borrower's assets or net worth is called: A. capacity. B. character. C. capital. D. collateral.

C. capital.

Jamie McFarland has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000 and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long-term liabilities is $98,000. What is the total value of her assets? A. $267,500 B. $105,500 C. $162,000 D. $205,500

A. $267,500

How many days notice is usually required by apartment for vacating a unit? A. 30-60 B. 90 C. 15 D. None of the above

A. 30-60

Most of the information in your credit file may be reported for only ______ years. A. 7 B. 9 C. 11 D. 13

A. 7

What is the first step in the auto purchasing process? A. Analyzing needs vs. wants B. Do your homework C. Determining what you can afford D. Comparison shopping

A. Analyzing needs vs. wants

Renting would be most appropriate for people who: A. want to reduce their taxes. B. have difficulty establishing credit. C. have limited funds currently available. D. enjoy remodeling their residence.

C. have limited funds currently available.

What should you do if your identity is stolen? A. Contact the fraud departments of each of the 3 major credit bureaus. B. Ignore it and hope that it will go away. C. Throw away all records dealing with the problem D. Keep your bank accounts and credit card accounts open for one year.

A. Contact the fraud departments of each of the 3 major credit bureaus.

A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5Cs of lending? A. character B. capacity C. collateral D. capital

A. character

The debit card: A. debits your account at the moment you buy goods or services. B. credits your account at the moment you buy goods or services. C. is a new type of a credit card issued by VISA International. D. is really like a travel and entertainment card.

A. debits your account at the moment you buy goods or services.

Negligence refers to: A. failure to take ordinary and reasonable care. B. cancellation of insurance. C. property damage. D. high risk insurance coverage.

A. failure to take ordinary and reasonable care.

Payments that do not vary from month to month are ____________ expenses. A. fixed B. current C. variable D. luxury

A. fixed

Which of the following would increase the amount that a person could afford to spend on a home? A. increased family income B. increased interest rates C. decreased down payment D. many other financial obligations

A. increased family income

Another name for open-end credit is: A. revolving credit. B. a box of credit. C. convenience credit. D. installment credit.

A. revolving credit.

Total earnings of a person minus the deductions for taxes and other items is called: A. take-home pay. B. gross pay. C. net worth. D. total revenue.

A. take-home pay.

Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay? A. $250 B. $350 C. $450 D. $600

B. $350

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases. A. 10 B. 20 C. 30 D. 40

B. 20

The most popular type of home ownership is: A. A condominium B. A single family dwelling C. A cooperative D. A prefabricated home

B. A single family dwelling

A loan officer is examining your income and the amount of your existing debt payments in deciding whether to make a loan to you today. Which aspect of the 5Cs of lending is the loan officer most likely looking at? A. Character B. Capacity C. Capital D. Collateral

B. Capacity

The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be? A. General sales tax B. Excise tax C. Personal property tax D. Income tax

B. Excise tax

Jerry Allison needs to store the title to his car and his house. Where is the most appropriate place for Jerry to store this information? A. His home file cabinet B. His safe deposit box C. His personal computer D. His best friend's house

B. His safe deposit box

The transfer of a lease agreement to a new tenant is known as a(n): A. Mortgage B. Sublease C. Equity distribution D. All of the choices are incorrect

B. Sublease

How much of a down payment do lenders recommend when purchasing a car? A. 10% B. 15% C. 20% D. 40%

C. 20%

Which of the following would be an example of the driver classification category that determines insurance rates? A. John Brown has a 2005 Mazda Miata Convertible B. Harry Anderson lives in Boca Raton, Florida C. Charlie Purciful is 22 years old D. Charlotte Webb has her vehicle in a locked garage

C. Charlie Purciful is 22 years old

Kevin Bacon is thinking about buying an investment. The investment option that he is thinking about buying is a written pledge by a corporation to repay a specified amount of money. It also pays interest payments every 6 months until it matures. What investment is Kevin thinking about purchasing? A. Common Stock B. Preferred Stock C. Corporate Bond D. Real Estate

C. Corporate Bond

Nick Boss has a savings account with $550 in it. He knows that he can withdraw this money from his savings account whenever he wishes. This would be an example of: A. Money management B. An opportunity cost C. A balance sheet D. A liquid asset

D. A liquid asset

Nick Rodr owns a home in Edmond, Oklahoma and pays $665 per year in insurance on the home. The $665 is an example of: A. A peril B. A hazard C. A risk D. A premium

D. A premium

Garrett Jennings is thinking about buying an investment. The investment option that he is thinking about buying represents the most basic form of ownership and pays a dividend. The dividend on this investment is paid after all other payments and dividends have been made. What investment is Garrett thinking about purchasing? A. Common Stock B. Preferred Stock C. Corporate Bond D. Real Estate

A. Common Stock

A question associated with the saving component of financial planning is: A. Do you have an adequate emergency fund? B. Is your will current? C. Is your investment program appropriate to your income and tax situation? D. Do you have a realistic budget for your current financial situation?

A. Do you have an adequate emergency fund?

Car lease payments are usually: A. Lower than loan payments B. Higher than loan payments C. Never a good investment D. About the same as loan payments

A. Lower than loan payments

Maryann Lawrence wants to get a loan in just her name. She knows the creditor cannot: A. Refuse her credit if she is creditworthy B. Consider income from her part time job C. Consider the payment history of all her joint accounts D. Consider alimony payments she receives from her ex-husband

A. Refuse her credit if she is creditworthy

Which federal consumer credit law regulates the advertising of credit terms? A. Truth in Lending Act B. Equal Credit Opportunity Act C. Fair Credit Billing Act D. Fair Credit Reporting Act

A. Truth in Lending Act

The Hernandez family budgets $420 a month for food. Last month they spent $413, which creates A. a budget surplus of $7. B. a budget deficit of $7. C. a budget surplus of $420. D. a budget deficit of $413.

A. a budget surplus of $7.

Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in: A. adjusted gross income. B. taxable income. C. earned income. D. passive income.

A. adjusted gross income.

Which of the following factors is used to determine a person's driver classification? A. age B. type and age of vehicle C. claims in your geographic area D. insurance company claim processing costs

A. age

The main purpose of taxes is to: A. generate revenue for funding government programs. B. reduce the chances of inflation. C. create jobs. D. discourage use of certain goods and services.

A. generate revenue for funding government programs.

Maryellen Epplin worked in Poland for part of the year and earned $50,000 while she was there. This income will not be included in her income for the year. This represents: A. A deduction B. An exclusion C. An exemption D. A tax credit

B. An exclusion

____________ provides coverage for the risk of financial loss due to legal expenses, medical expenses, lost wages, and other expenses associated with injuries caused by an automobile accident for which you were responsible. A. Medical payments B. Bodily injury liability C. Uninsured motorists protection D. No-fault insurance

B. Bodily injury liability

The information in your credit report is most likely used to: A. Calculate your debt to equity ratio B. Calculate your FICO credit score C. Calculate your debt payment to income ratio D. Calculate your liquidity ratio

B. Calculate your FICO credit score

Alice Cooper makes sure to contribute ten percent of her monthly earnings to her 401(k) plan at work. Her 401(k) plan allows her to invest in several different types of mutual funds and her employer matches up to 5% of her salary. Which suggestion for obtaining money she needs for investing is she following? A. Paying herself first B. Taking advantage of employer-sponsored retirement programs C. Participating in an elective savings program D. Making a special effort once or twice a year to save

B. Taking advantage of employer-sponsored retirement programs

What should you do when you shop on-line using your credit card? A. Delete immediately all records of your transactions B. Use a secure browser C. Give out your private information to anyone who requests it on-line D. Make sure to open and download all files sent you by strangers

B. Use a secure browser

The ____________ method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation. A. replacement value B. actual cash value C. umbrella D. endorsement

B. actual cash value

Which of the following investments offers the greatest growth potential? A. bank accounts B. common stock C. corporate bonds D. government bonds

B. common stock

Which document is used to transfer ownership of property from one party to another? A. title B. deed C. settlement statement D. appraisal

B. deed

Although credit permits more immediate satisfaction of needs and desires, it: A. does increase total purchasing power. B. does not increase total purchasing power. C. does not diminish your ability to buy more goods and services on credit. D. has no opportunity costs attached to it.

B. does not increase total purchasing power.

Money received in the form of dividends or interest is ____________ income. A. passive B. investment C. excluded D. capital gain

B. investment

As an individual plans to set aside funds for her young children's college education, she is setting a(n) ____________ goal. A. intermediate B. long-term C. short-term D. intangible

B. long-term

Renter's insurance would include coverage for: A. flood damage. B. personal property. C. building and other structures. D. umbrella liability.

B. personal property.

The ______________ property tax is based on the value of land and buildings at some point in time. A. personal B. real estate C. direct D. proportional

B. real estate

A personal balance sheet: A. predicts income and expenses. B. reports what an individual or a family owes and owns. C. reports income and expenses or an individual or a family. D. predicts net worth of an economic entity.

B. reports what an individual or a family owes and owns.

What does it mean to sublet an apartment? A. to increase the rent B. to obtain another tenant to complete a lease period C. to convert the units to condominiums D. to meet certain government housing regulations

B. to obtain another tenant to complete a lease period

Restrictions on how property in an area can be used are: A. cooperative agreements. B. zoning laws. C. common areas. D. title insurance provisions.

B. zoning laws.

Joan Sanchez is single and earns $40,000 in taxable income. She uses the following tax rate schedule to calculate the taxes she owes. Joan has calculated that she owes $6,747.50 in taxes. What is Joan's marginal tax rate? A. 10% B. 15% C. 25% D. 28%

C. 25%

Connie just graduated from college and got her first job. The job pays well but promotions may require her to relocate. What is the best option for Connie if she wants to find a home? A. Buy a small home in her current city B. Buy a large home in the city with potential promotions C. Rent a home that meets her needs in her current city D. Rent a small home in the city in which she may get promoted

C. Rent a home that meets her needs in her current city

An example of a personal and employment document is a A. budget. B. passbook. C. Social Security card. D. property tax bill.

C. Social Security card.

When an individual makes a purchase without considering the financial consequences of that purchase, they are ignoring the aspect of financial planning. A. Borrowing B. Risk Management C. Spending D. Retirement and Estate Planning

C. Spending

Which of the following is an advantage of using credit? A. The use of credit can lead to court action and bankruptcy B. The use of credit can lead to overspending C. The use of credit allows for the purchase of goods even when funds are low D. The use of credit ties up the use of future income

C. The use of credit allows for the purchase of goods even when funds are low

What is the disadvantage to buying a home? A. The value of your house may increase B. Eventually you will be able to live payment-free C. The value of your house may decrease D. You will gain equity by paying down your mortgage

C. The value of your house may decrease

Which of the following would qualify a person for an exemption when computing taxable income? A. mortgage interest B. a tax shelter C. a dependent D. charitable contributions

C. a dependent

The main goal of personal financial planning is: A. saving and investing for future needs. B. reducing a person's tax liability. C. achieving personal economic satisfaction D. spending to achieve financial objectives.

C. achieving personal economic satisfaction

The first step of the financial planning process is to: A. develop financial goals. B. implement the financial plan. C. analyze your current personal and financial situation. D. evaluate and revise your actions.

C. analyze your current personal and financial situation.

Comprehensive coverage would cover financial losses due to: A. injuries caused by a driver without insurance. B. damage to your car in an accident for which you were at fault. C. damage to your car caused by wind or hail. D. legal action against you for an accident.

C. damage to your car caused by wind or hail.

Which of the following is considered personal property for home insurance coverage? A. an automobile B. a garage C. furniture D. a house

C. furniture

Most people pay federal income tax by: A. paying the total amount owed by April 15. B. filing quarterly tax payments. C. having amounts withheld from income. D. earning tax credits for various deductions.

C. having amounts withheld from income.

An example of ____________ risk occurs when an investment does not keep up with prices that are increasing in the overall economy. A. market B. interest C. inflation D. business failure

C. inflation

The legal responsibility for the financial cost of another person's losses or injuries is referred to as: A. theft. B. robbery. C. liability. D. assigned risk.

C. liability.

The amount of mortgage a person is eligible for would be increased by: A. higher interest rates. B. a lower down payment. C. lower interest rates. D. a low family income.

C. lower interest rates.

The Fed refers to: A. government regulation of business. B. Congress. C. the Federal Reserve System. D. the Federal Deposit Insurance Corporation.

C. the Federal Reserve System.

If you cosign a loan: A. you are not being asked to guarantee the debt. B. it is not your legal responsibility to pay the debt. C. you'll have to pay up to the full amount of the debt if the borrower does not pay. D. the creditor must first try to collect from the borrower.

C. you'll have to pay up to the full amount of the debt if the borrower does not pay.

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to: A. Inflation risk B. Interest rate risk C. Income risk D. Liquidity Risk

D. Liquidity Risk

What are the last two steps in the auto purchase process? A. Analyze needs vs. wants and do your homework B. Comparison shop and negotiate a deal C. Do your homework and comparison shop D. Shop for financing and close the deal

D. Shop for financing and close the deal

Which is not an advantage of renting? A. Someone else is responsible for repairs B. There are no unexpected home repair bills C. There is no risk of losing money on your investment D. The landlord can make inspections

D. The landlord can make inspections

One disadvantage to renting is _________________ A. You are able to move easily B. Its low initial cost C. You gain equity as you pay D. You do not gain any equity in the rented property

D. You do not gain any equity in the rented property

If your credit application is denied, you: A. can sue the credit rating agency. B. can file a complaint against the merchant. C. don't have any rights provided by law. D. are entitled to know the specific reason you were denied credit.

D. are entitled to know the specific reason you were denied credit.

The difference between the amount budgeted and the actual amount is called a: A. financial plan. B. current liability. C. change in net worth. D. budget variance.

D. budget variance.

The time value of money refers to: A. personal opportunity costs such as time lost on an activity. B. financial decisions that require borrowing funds from a financial institution. C. changes in interest rates due to changes in the supply and demand for money in our economy. D. increases in an amount of money as a result of interest.

D. increases in an amount of money as a result of interest.

An example of a tax-exempt investment is: A. interest on U.S. savings bonds. B. dividends from corporate stock. C. earnings from a mutual fund. D. interest on municipal bonds.

D. interest on municipal bonds.

Which of the following is usually considered a long-term financial strategy? A. creating a budget B. using savings to pay off a loan early C. renting an apartment to save for the purchase of a home D. investing in a growth mutual fund to accumulate retirement funds

D. investing in a growth mutual fund to accumulate retirement funds

A personal balance sheet presents: A. amounts budgeted for spending. B. income and expenses for a period of time. C. earnings on savings and investments. D. items owned and amounts owed.

D. items owned and amounts owed.

Which of the following is a system in which drivers involved in an accident collect medical expenses, lost wages, and related injury costs from their own insurance company? A. assigned risk pool B. financial responsibility coverage C. comprehensive system D. no-fault insurance

D. no-fault insurance