Personal Financial Planning Exam 1
Social security goes based on
40 quarters or 10 years
IPA
Bottom up
____ tends to increase and then decrease over the life cycle.
Debt Income Emergency funds
SKYY is what type of fund
ETF
A budget is a detailed statement of what income and expenses occurred over a past period
False
Index funds are actively managed.
False
There is no limit to the amount of social security tax withheld annually
False
To be eligible for social security retirement benefits, 30 quarters of covered employment are generally needed.
False
To save premium costs, one should decrease her deductible and liability coverage on a homeowners' policy
False
Using credit is the ideal way to provide for financial emergencies
False
Using credit is the ideal way to provide for financial emergencies.
False
When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.
False
When you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill.
False
When you stop making premium payments on a whole life policy, the policy's cash value is forfeited.
False
While ETFs offer many of the benefits of mutual funds, they have the tax-timing disadvantages not present with otherwise comparable mutual funds.
False
Whole life policies typically provide a high investment rate of return.
False
The investment that provides the highest income of the class presented funds:
MYD (Blackrock)
HMO
Top down
Mutual funds are examples of financial assets
True
Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances.
True
Saving is the preferred way to provide for financial emergencies.
True
Secured credit cards require that the cardholder put up collateral in order to get the card.
True
Utility refers to the amount of satisfaction a person gets from buying certain items
True
Variable-rate loans are desirable if interest rates are expected to fall in the future.
True
Wealth can be defined as the total value of all the things you own.
True
When an income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities
True
When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.
True
When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself.
True
With a managed care plan, an insurance company may not be involved.
True
Indemnity
You cannot make a profit from insurance
a budget is
a financial forecast
the four stages of an economic cycle are
expansion, recession, depression , recovery
Vesting
on 401k if they are 5 year vested then you only get 20% of your companies money each year until you hit the 5 years
the last step in financial planning is to
redefine goal, revise plans as circumstances occur
a capital gain is the result of
selling an asset more than its original cost
Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.
true
SPIC does not protect against
your investment going down....only against the firm you use going out of business
The income and expense statement looks forward in time, while a budget is backward looking
False
The income and expense statement looks forward in time, while a budget is backward looking.
False
The insurance company will provide defense for a covered person against both civil and criminal charges involving her motor vehicle.
False
The key to creditworthiness is to keep your debt safety ratio as high as possible.
False
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
False
The minimum denomination for a treasury bills is mow 1000
False
The rate of return on liquid assets is relatively high compared to other types of investments
False
The returns on term life insurance policies receive favorable tax treatment.
False
The size of a mutual fund's management fee is related to the fund's performance.
False
The two main areas of estate planning are asset planning and probate planning.
False
The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.
False
The yields on municipal bonds are usually higher than the returns available from fully taxable issues.
False
There is a penalty for early withdrawl of funds from CD's purchased from brokerage firms
False
There is no limit on the amount of social security taxes withheld annually
False
Three types of bonds
Federal, Municipal, and Corporate
The four stages of an economic cycle
Trough Expansion contraction peak
A $100,000/$300,000 bodily injury liability automobile policy could pay up to $100,000 to one person or up to $300,000 to several people seeking damages.
True
A balance sheet is like a photograph of your financial condition while an income and expense statement is like a motion picture
True
A budget is an orderly estimate of income and expenditures.
True
A callable bond may be retired by the issuer prior to maturity.
True
A cash deficit decreases net worth.
True
A codicil is a simple and convenient legal means of modifying a will.
True
A diversified portfolio is less risky than putting your money into a single security.
True
A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.
True
A house and land are examples of real property
True
A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
True
A life insurance policy's cash value may be collected by terminating the policy.
True
A mutual fund's price per share will increase if its underlying holdings increase in value.
True
A peril is a cause of loss
True
A person with a significant amount of investment income would have a high probability of needing to make estimated tax payments
True
A potential estate planning problem is improper distribution of assets.
True
A preferred provider organization has characteristics of both an IPA and an indemnity plan.
True
A rental car could be a covered auto under your personal auto policy collision section.
True
A round lot consists of multiples of 100 shares of stock.
True
A short sale transaction will be profitable when prices are falling.
True
A short-term capital gain would be taxed at the same rate as your salary
True
A stock's beta is an indication of how responsive the stock is to changes in the overall stock market.
True
A systematic investment routine involves investing similar sums in regular intervals.
True
A trampoline in your back yard is an example of a hazard.
True
A will is revoked if a second legitimate will is created.
True
A will may be invalid if the testator was under undue influence of another person.
True
ATM transactions require the use of a PIN
True
Actual cash value is defined as replacement cost minus depreciation.
True
Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price fluctuations.
True
Alimony received is included in gross income for the receiver and deducted from gross income for the payer
True
All contributions to Roth 401(k) plans are made in after-tax dollars.
True
All mutual funds have management fees.
True
All securities involve risk of some kind.
True
An elimination period is the number of days that must pass before disability policies pay proceeds.
True
An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation
True
An investment is acceptable if the expected rate of return is greater than the desired rate of return.
True
An investment must be owned over one year in order to qualify for long-term capital gain treatment
True
An open-end investment company is commonly known as a mutual fund.
True
Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.
True
As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
True
Being late on credit payments only 2-3 times per year may label you a "late payer" in your credit file.
True
Bonds can be used conservatively by investors seeking current income and aggressively by investors seeking capital gains.
True
Borrowing to pay for a college education is a legitimate use of credit.
True
Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
True
Collateral is an item of value used to secure the principal portion of a loan.
True
College costs have been escalating faster than the overall rate of inflation.
True
Commercial banks are generally more selective in granting loans than finance companies.
True
Common stock generally allows the stockholder an equal vote in electing the management of the corporation.
True
Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.
True
Condominiums are generally less costly than single-family, detached homes.
True
Covered liability perils do not include claims for libel, slander, or character defamation.
True
Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.
True
Credit union typically pay higher rates of return on savings and loans association
True
Current consumption affects future consumption
True
Debit and ATM card transactions are linked to your checking account
True
Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.
True
Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.
True
Even the best retirement plan needs to be reviewed every few years.
True
Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.
True
Financial planning is a dynamic process.
True
For most workers, participation in the social security system is mandatory.
True
Gasoline is a variable cost of automobile ownership.
True
Group life insurance is often provided as a fringe benefit by employers.
True
Group life insurance is usually term life insurance.
True
Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.
True
Having an accurate current income and expenditures statement would be very useful when calculating retirement needs.
True
Housing prices vary widely from on part of the country to another.
True
If a gift is so large that taxes are due, the money used to pay the taxes is removed from the estate.
True
If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.
True
If your insurance company makes a payment to you, subrogation is the right of the company to collect from the person causing the accident or from his/her insurance company.
True
In insurance terminology, "participation" and "co-insurance" mean the same thing.
True
In most investments, there is a risk-return tradeoff.
True
Installment loans are typically repaid in monthly payments.
True
Interest on corporate bonds is paid semiannually.
True
Intestacy results from dying without a valid will.
True
Investing and speculating are two entirely different activities.
True
Jewelry, furniture, and computers are examples of personal property
True
Jewelry, furniture, and computers are examples of personal property.
True
John and Mary Smith own 500 shares of ABE stock. After the company pays a 6 percent stock dividend, John and Mary will own 530 shares of ABE stock.
True
Less rapid depreciation is one advantage of buying a used car rather than a new car
True
Less rapid depreciation is one advantage of buying a used car rather than a new car.
True
Liability claims may result from alleged negligent acts.
True
Life insurance needs change dramatically over one's lifetime
True
Life insurance needs change dramatically over one's lifetime.
True
Liquidity is important in an estate to pay for death costs and possible taxes.
True
Living a healthy lifestyle is an example of loss prevention and control.
True
Loans against a life insurance policy do not have to be paid back
True
Long-term care insurance can cover both nursing home and home health care.
True
Losing your job triggers a "qualifying life event" that allows you to obtain new insurance outside the normal enrollment window.
True
Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.
True
More damage is done to estates by doing nothing than by doing the wrong thing.
True
Most surgical expense plans fully reimburse the cost of second opinions.
True
Mutual funds may be classified by the types of securities they purchase.
True
Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.
True
Nearly all life insurance policies have a two-year suicide clause.
True
One can expect to earn a higher rate of interest on a COD than a checking account
True
One should typically name both primary and contingent beneficiaries for life insurance policies.
True
Open account credit is a form of credit extended to a consumer in advance of any transaction.
True
Personal financial planning involves translating financial goals into action plans
True
Personal financial statements help you identify potential financial problems.
True
Profit-sharing plans allow flexible employer contributions to the plan.
True
Protection for personal property both at home and away from home is a provision of the homeowners' policy.
True
Social Security represents about 38% of total retiree income.
True
Social security benefits are often available resources to the family after the death of a family member
True
Social security benefits are often available resources to the family after the death of a family member.
True
Spreading risk among a large number of people is a major principle of insurance.
True
Standard of living is defined as the necessities, comforts, and luxuries desired by an individual family
True
Stocks with betas of less than 1.0 will have relatively stable prices.
True
Supplementary medical insurance (SMI) is a voluntary participatory program, commonly known as Medicare Part B.
True
Tax credits are dollar-for-dollar reductions in taxes due
True
Te heart of sound financial planning is improved standard of living.
True
Term insurance is generally the most economical form of life insurance for young families.
True
Terms of payment and terms of coverage are two sets of provisions that should be carefully scrutinized when evaluating an insurance program.
True
The "other-insurance clause" helps prevent the violation of the principle of indemnity.
True
The Medicare portion of FICA tax is paid on 100% of earnings
True
The SEP is designed for self-employed individuals.
True
The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.
True
The cash value of a life insurance policy can be used as a source of loan collateral.
True
The current trend in retirement plans is toward contributory plans.
True
The difference between the market value of your home and the balance of the mortgage is your equity in the property.
True
The federal government regulates securities markets through the Securities and Exchange Commission.
True
The federal personal income tax is a progressive tax
True
The fees on annuities tend to be high compared to mutual funds.
True
The first step in retirement planning is to identify retirement goals
True
The higher a stock's beta, the riskier the stock.
True
The margin requirement for common stock is 50%.
True
The most common forms of open account credit are bank credit cards and retail charge cards.
True
The most effective way to achieve financial objectives is through financial planning.
True
The most important advantage of a mutual fund is pooled diversification.
True
The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.
True
The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.
True
The net asset value (NAV) per share is found by dividing the market value of the fund's securities less the fund's liabilities by the number of shares outstanding.
True
The primary investment objective of bond funds is income.
True
The purpose of a credit report is to evaluate the kind of risk you pose to the lender.
True
The right of subrogation allows the insurer to get reimbursed for claims paid.
True
The risk-free rate of return is often measured by the return on U.S. Treasury bills.
True
The student loans with the best loan terms are the Stafford and Perkins loans.
True
The value of any investment is a function of the return it is expected to produce relative to the amount of perceived risk involved in the investment.
True
There is an inverse relationship between bond prices and market interest rates.
True
To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the conditions of your offer.
True
Treasury bills are sold at a discount of their maturity value
True
Treasury notes, bills, and bonds represent loans to the federal government.
True
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
True
Your auto loan payments would be listed as an expense on the income and expense statement.
True
Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.
True
Your health insurance has an 80% co-insurance clause. Once the deductible is satisfied, your insurance company will pay 80% of your covered losses up to the stated limits.
True
Your house is an example of a tangible asset.
True
Your personal value system will shape your attitude toward money and wealth accumulation.
True
Your ____ is an example of a liquid asset.
checking account
generally, as income rises, the average propensity to consume ...
decreases
the 3 key groups in the economic environment are
government, consumers and businesses
A strong economy leads to
higher employment
on the balance sheet a mortgage loan is recorded as the
the principal balance
You are solvent if your
total assets exceed total liabilities.
A closed-end investment company can create an unlimited number of shares.
False
A long-term capital gain is taxed at the same rate as ordinary income
False
A savings account may be a useful tool in managing everyday household transactions
False
Actual cash value provides coverage at the current market value of your property.
False
Advances in medical technology, prescriptions drugs, and treatments have substantially reduced health care costs in recent decades.
False
All disability occurs only when someone is completely incapable of doing any type of work.
False
All types of life insurance offer a cash surrender value.
False
Always paying cash is helpful in establishing a high level of creditworthiness.
False
An 80 percent co-insurance clause requires the insured to carry insurance protection equal to 80% of the original cost of the home.
False
Approximately 50 percent of Americans prepare a detailed household budget
False
Average propensity to consume refers to how much of your money you plan to save in your financial plan.
False
Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.
False
Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
False
ETFs often distribute large capital gains to their shareholders.
False
Earthquakes are covered under most homeowner's policies.
False
Estate planning usually occurs during the last ten years of a person's life.
False
Exchange-traded mutual funds are actually closed-end mutual funds.
False
FDIC covers stocks, bonds, and mutual funds purchased at banks
False
Generally speaking, the interest rates on credit cards are lower than any other form of credit.
False
Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan.
False
Growth funds are mutual funds designed for short-term investing.
False
Health insurance policies automatically cover all family members.
False
If Lois has 2,000 in checking, 50,000 in mutual funds, and 75,000 in COD's, her accounts will be insured for 71,000 by FDIC
False
Newly issued securities are sold to the public in the secondary market.
False
One's marginal tax rate is typically lower than one's average tax rate
False
One's marginal tax rate is typically lower than one's average tax rate.
False
Open-ended mutual funds can be traded on an intraday basis.
False
Over the long run, gaining an extra two percent on an investment makes little difference in earnings generated.
False
Owning common stock represents a debt investment.
False
Preferred stocks are the common stocks of ultra blue-chip companies.
False
Prices are rising in bear markets, indicating economic optimism.
False
Probate property includes only real property.
False
Purchasing power risk is of most concern during economic recession.
False
Savings accounts are sometimes referred to as demand deposits
False
Social Security taxes are deducted from all wages and salaries earned in a year
False
Social Security taxes are deductible from all wages and salaries earned in a year
False
The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time
False
The Standard and Poor's Index is based on 30 industrial stocks.
False
The average propensity to consume refers to how much of your money you plan to save in your financial plan
False
The equity in your home is the difference between the loan balance and purchase price
False
If Wristwatch Arm Corporation (WAC) has assets of $10 million, liabilities of $5 million, and preferred stock of $1 million, its book value is $6 million.
False
If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed.
False
If you are married, you can legally file a single tax return
False
If you're married, you can legally file a single tax return
False
Inflation generally has little effect on personal financial planning.
False
Interest rate risk is greater for short-term bonds than for long-term bonds.
False
Interest you earned on your savings account would be an entry on your personal balance sheet
False
Internet-only banks typically pay lower interest rates on savings than traditional banks
False
Investing is considered a short-term activity that involves the buying and selling of securities.
False
Buy on Margin
Borrowing money to buy stock, can only do 50% and causes more risk
How do you make money on investments
Capital appreciation and Dividends
It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.
False
It really makes little difference whether you start retirement savings at age 25 or at age 45.
False
Loans are available from term life insurance policies.
False
Minors can handle large sums of money and property.
False
MYD is what type of Fund
Closed End Fund
Money market mutual funds are insured up to 250,000 by FDIC if purchased at an insured bank
False
In which of the following types of investment is the most liquidity risk?
Land
MEIAX is what type of fund
Loaded mutual Fund
Marginal vs. Average tax rates
Marginal is the graduated while average is the actual % of your money you end up paying
Money market vs Money Market Deposit
Money market is not insured Money Market Deposit is
PSDTX is what type of fund
No load mutual fund
Beta
Over 1 more risky than S&P 500 Less than 1 less risky than S&P 500
Which security has the lowest fee structure according to the presentations in class?
PSDTX
Balance Sheet is like a
Picture at a moment in time
what is lowballing
Purposefully giving a price lower than what you expect to pay so negotiations can slowly creep up from there
for tax purposes, head of households, refers to
a single person with a dependence
A cash budget should help you to
achieve your short-term financial goals. implement disciplined spending. Eliminate needless spending allocate funds to savings and investments
The primary function of financial statements is to provide a picture of your [actual or projected] financial position.
actual
typical adjustments to gross income on form 1040 would be.
alimony, moving expense, health insurance for self employed
a cash budget should help you to
allocate funds to savings and investments
investments are distinguished from savings on the basis of
level of risk and respected return
Using balance sheet information, what ratio indicates your ability to meet current debt payments
liquidity ratio
Income statement is like a
moving picture
over 75% of the revenue received by the federal government is from
social security and income tax
if you do not wish to itemize your deductions you can use the
standard deduction
the term most closely associated with quality of life is
standard of living