Personal Finance Final Review

If a person earned $50,000 this year, but the rate of inflation is 4%, this years buying power when compared to last years

is $48,000

A person completes her federal 1040EZ form and sees that she paid total quarterly estimated taxes of $12,000. But the calculations show that she should have only 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 $2,500 federal tax refund

Which of the following terms is not correctly matched with its definition?

secured loan: the collateral for the loan is a person's good credit history and her signature on a loan agreement

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

How does a person determine her net worth

subtract liabilities from assets

Which of the following statements about taxes is true?

taxes are the major source of revenue for the government

Which of the following terms is NOT correctly matched with its definition?

terms of the loan: cost of the item if it is not being financed

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

the areas that will need more employees in the coming years

Which is the correct order for making financial decisions?

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

What is a sound financial reason for a person to choose an adjustable rate mortgage over a fixed rate mortgage

she expects to move to another city in 3 or 4 years as her career advances

A 21 year old college graduate starting her first full time job wants to buys 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

Which is a true statement about the relationship between education and a person's earning power?

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

Why do many employers say that a cover letter is as important as the resume that is accompanies

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

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

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

enrolling in an employer provided health care plan

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 thief technique of

getting information from a person online by asking her to complete a survey or provide certain information to win 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

A person's bank will only make a home equity loan if the loan and his current mortgage do not exceed 80% of the market value of the home. If he has a $200,000 mortgage and his home is appraised at $400,000, how large of a home equity loan can he hope to obtain?

he can expect to obtain a loan of $120,000

Under what circumstance would it 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

Subprime mortgages are

high interest rate mortgages usually made to people with low credit scores

Which of the following is a correct statement?

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

If a person has homeowner's or renter's insurance, it will protect the person

if someone falls in her house and sues her

Why should a person be very careful before agreeing to cosign a loan?

if the borrower defaults on the loan, the lender will expect to receive full payment from the cosigner

Which of the 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 pan has a cost of living increase each year. This feature helps protect the person from

inflation

Why is insurance a good 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 1 to 5 years

From the following, select the tax that is matched with its correct explanation:

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

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 policy holder 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

receives 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

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 pays $40 a week for 20 week season. What is the outcome of his business venture?

$12,000 profit

A person has a house worth $100,000, a mortgage of $90,000, savings of $5,000, a car valued at $10,00, a $7,000 car loan, and $3,000 in credit card debt. This person's net wroth is

$15,000

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

$3,400

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 and the work will cost $7,500. Her insurance company says that this is cosmetic work and therefore is not covered. If she goes ahead with the dental work, she will have to pay

$7,500, the full amount

Which person's goal is correctly matched with a sound financial plan to achieve the goal?

Buying a new computer for college in the fall: depositing 25% or more of weekly takehome pay in a bank savings account

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

A high school senior whose family is very poor wants to go to college, but the family cannot afford to pay. To help finance her education, she should try to obtain the type of loan that is beneficial and available for individuals with extreme financial need. This type of financing is known as a

Federal Perkins Loan

Which is a true statement about Americans saving for retirement?

Fewer than half of Americans have a retirement account

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 2 factors can help to explain why this is true?

Juanita doesn't have an children and doesn't itemize deductions; Jessica itemizes deductions and has 3 children

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

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 SS and Medicare are for old people, and the money should be returned to him. Is he right?

No. The money he is contributing to SS and Medicare is paying the benefits for today's older people

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 of these winnings become part of his gross income

Which is a true statement about a budget?

a budget should include both fixed and variable expenses

Which of the following is a true statement?

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 3 main credit bureaus. It is

a good idea to obtain the reports and review them for accuracy

What is a business cycle?

a period of economic growth followed by a period in which the economy shrinks

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

a person switches the langauge she is studying in college to Spanish after reading a newspaper article about how the US population is changing

The BEST definition of personal financial planning is

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

Why should a person be concerned if she 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 2 years (full time) getting a MBA, it will cost him $25,000 a year for his education; however, he can then 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 for the financial cost of postponing his career it will take him

almost 5 years

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 her money on a gym membership and yoga classes to relieve the stress in her back. 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 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

A financial plan is created like a

blueprint for building a house

Because of globalization, an individual may have to decide whether to

buy a pair of jeans made in America at 3 times the cost of jeans made in China

Which asset is correctly matched with its description?

car: household asset

Which of the following does not show a correct match?

cash inflow: interest paid on loan

The best way to protect against identity theft is to

check credit bureau credit reports regularly and keep SS card and PIN info 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 is true that a term life insurance policy expires at the end of the term and there are no accumulated savings, why would a single father of 3 children 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

Which of the following shows, in the 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

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

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

A personal 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

Which of the following statements about adjusted gross income is true?

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 the most

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

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

A person increases liquidity when he

makes weekly deposits in a bank savings account

As a result of gloalization

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

If a person is selfemployed and earns $70,000 annually, the person

must pay estimated income taxes

Another name for take home pay is

net pay

When we say that a person with a home that is valued at $300,000 and who has an outstanding mortgage of $100,000 has a lot of equity in her home, we mean that she

owns a large fraction of her home

FICO scored are based on a model created by the Fair Issac Corporation and weigh 5 major factors to determine the score. The action that would have the greatest negative impact on a person's score is

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

A person's cash outflow includes

payments by a person to a retirement account

If the real GDP is going up, it is a sign that

the economy is gaining strength

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

the graying of American

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

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

the injections are not a covered procedure under his new plan

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

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

The following statement about financial advice on the internet is true

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

Why might a person decide to take advantage of a noninstallment credit offer?

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

How do economists 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

A disadvantage of paying for a car with a long term loan is that

toward the end of the loan, it is possible to owe more on the car loan than what the car is worth

The best definition of economics 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 full amount owed

If a person does not have renter's insurance and her laptop computer is stolen from her apartment, she

will have to replace the laptop computer at her own expense

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 5 years, she thinks that buying this insurance is a good move. Is this a wise financial decision?

yes. She is young and healthy and will get a good rate on the insurance and will have it when her family really needs it.