FIN Final Review
Bondholders will receive interest payments after the stockholders receive dividends. T or F
False
By itself, Social Security is sufficient to allow a worker and spouse to maintain their preretirement standard of living. T or F?
False
Common stock pays interest payments on a quarterly basis. T or F
False
Comprehensive major medical simply increases the policy limits of major medical insurance without changing the coverage. T or F
False
Credit life insurance is often a legal requirement when you buy something on credit. T or F
False
Generally speaking, the interest rates on credit cards are lower than any other form of credit. T or F
False
Generally speaking, variable rate loans are desirable if interest rates are expected to increase over the course of the loan. T or F
False
Hospital expense coverage is adequate for long-term or catastrophic medical needs of most people. T or F
False
Risk avoidance means asking an insurance company to take over the risk for a small payment (the premium). T or F
False
The balance sheet equation is assets plus liabilities equals net worth. T or F
False
You can stop payment when you purchase an item with your debit card. T or F
False
You received a stock dividend this year instead of cash. This is taxable income. T or F
False
The balance sheet equation is assets plus liabilities equals net worth. T or F
False Liabilities - Equity = Asset
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions. T or F
True
You received a cash dividend from your stock investment this year. This is taxable income. T or F
True
You should itemize deductions when total itemized deductions exceed the standard deduction. T or F
True
Your savings will grow faster with monthly interest compounding than with quarterly interest compounding. T or F
True
Rebate card work best for those who use the rebates and a. charge large amounts on the card. b. pay the total card balance off monthly. c. carry high monthly balances. d. travel internationally. e. a and b.
e. a and b
Before taking out students loans, all the following should be considered except a. personal resources b. grants c. federal student aid d. scholarships e. all of the above
e. all of the above
A loan from the cash value of your life insurance policy would be characterized by a. increased premiums. b. unchanged death benefits available to beneficiaries. c. increased death benefits to beneficiaries. d. annual percentage rates higher than other sources. e. no specific repayment date.
e. no specific repayment date
The most common reason given for investing is a. Sheltering earnings from taxes b. enhancing current income c. paying for an expensive vacation d.saving for college education e. saving for retirement
e. saving for retirement
A market order to sell would be filled at the highest price available that day. T or F
False
Asset management accounts are offered by most banks and are typically FDIC insured. T or F
False
Marginal tax and average tax rate refer to the same thing
False
Money I loaned to a friend is a liability on my balance sheet. T or F
False
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile. T or F
False
The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500. T or F
False
The personal exemption for a student can be taken both by the parent and by the child. T or F
False
The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance. T or F
False
The term "investment" refers to money placed in some medium where value and level of return are totally unpredictable. T or F
False
When you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill. T or F
False
A balance sheet shows your financial condition as of the time the statement is prepared. T or F
True
A certified check is a personal check that the bank guarantees the funds are available. T or F
True
A charge made on your credit card becomes a liability as soon as the charge is incurred. T or F
True
A significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property. T or F
True
A vested employee has a right to receive benefits from an employer's retirement funds even if he no longer works there. T or F
True
Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant. T or F
True
Avoiding alcoholic beverage while driving is an example of risk reduction. T or F
True
Brokers charge a commission on a security purchases as well as on security sales. T or F
True
Compound interest means that a savings account earns interest on the interest previously earned. T or F
True
Convenience and improved record keeping are two advantages sited for on-line bill payment. T or F
True
Revolving credit lines are often accessed by writing checks. T or F
True
Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay? a. They will pay the same amount of Social Security taxes. b. Ben will pay less Social Security taxes because he is married. c. Jack will pay less Social Security taxes because he is single. d. Jack will pay less Social Security taxes because he is over age 65. e. Ben will pay less Social Security taxes because he has children.
a. They will pay the same amount of Social Security taxes
Interest rates on ____ are typically lower than on any other form of consumer credit. a. home equity loans b. credit cards c. debit cards d. unsecured personal credit e. travel and entertainment cards
a. home equity loans
Both load and no-load funds will always charge a a. management fee b. redemption fee c. fee on the sale of the shares d. 12(b)-1 fee e. transition fee
a. management fee
In the absence of a valid will, the heir most generally favored would be the a. spouse. b. grandchildren. c. parents. d. children. e. All of these are treated as equals.
a. spouse.
Commercial banks generally charge lower interest rates than other lending institutions because a. they usually take only the best credit risks. b. depositors require lower rates. c. they get their funds in the open credit market. d. they make secured loans only. e. they make shorter term loans.
a. they usually take only the best credit risks
You are solvent if your a. total assets exceed total liabilities. b. total liabilities exceed net worth. c. total liabilities exceed total assets. d. total assets exceed net worth. e. none of these.
a. total assets exceed total liabilities.
To be a true no-load fund, there can be a maximum ____ load and a maximum ____ 12(b)-1 fee. a. 0%; 0.00% b. 0%; 0.25% c. 0%; 1.00% d. 3%; 0.25% e. 3%; 1.00%
b. 0%; 0.25%
You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the a. discount method. b. double declining balance method. c. add-on method. d. past-due balance method. e. simple interest method.
c. add-on method.
Future fund performance is the real key to investment success with mutual funds. One important element to examine when attempting to predict a fund's future performance is the a. performance of other funds. b. nature of the fund being considered. c. future course of the market. d. fund's past performance. e. all of the above.
c. future course of the market.
Interest will almost always begin to accrue immediately when you use a bank credit card to a. send payments. b. make purchases. c. get cash advances. d. compute finance charges. e. all of these.
c. get cash advances
Besides the finance charge, you should also consider ____ when you shop for a consumer loan. a. collateral b. loan maturity c. repayment penalties d. total cost of the loan e. all of the above
e. all of the above
The needs approach to determining the amount of life insurance considers a. special financial needs. b. paying off debts. c. liquidity. d. family income. e. all of these.
e. all of these.
A characteristic of consumer loans is that they a. are arrived at through a formal process. b. include a repayment schedule. c. are used to purchase big-ticket durable goods and other items. d. include a negotiated contract. e. are all of these.
e. are all of these.
Budgets are a. unnecessary. b. restrictive. c. permanent. d. complicated. e. are forward looking
e. are forward looking
A budget is a a. line of credit. b. financial statement. c. set of personal financial objectives. d. purchase plan. e. detailed financial forecast.
e. detailed financial forecast.
Workers' compensation is a state program that provides benefits for a. unemployed workers. b. workers suffering injury or illness on the job. c. any injury suffered by a worker at any time. d. injuries resulting from employer's negligence. e. only b and d.
e. only b and d
In which of the following type of investment is the most liquidity risk? a. Mutual fund shares b. Land c. Corporate bonds d. Common stock e. Treasury bonds
b. Land
A(n) ____ fund is quite speculative. a. balanced b. growth c. equity income d. aggressive growth e. money market
d. aggressive growth
A closed-end automobile lease is the most popular type of lease. T or F
True
A lender will generally require mortgage insurance if the down payment is less than 20 percent. T or F
True
Credit union members are expected to have some common bond. T or F
True
Debit and ATM card transactions are linked to your checking account. T or F
True
Debit cards look like credit cards, but they work like checks. T or F
True
Group health insurance premiums are usually lower than individual health insurance premiums. T or F
True
Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically. T or F
True
If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate. T or F
True
In insurance terminology, "participation" and "coinsurance" mean the same thing. T or F
True
Interest rate risk is greater for long-term bonds than for short-term bonds. T or F
True
Investing and speculating are two entirely different activities. T or F
True
It is extremely wise to contribute at least as much to a 401(k) plan as one's employer will match. T or F
True
Joint checking accounts typically imply the right of survivorship if one party should die. T or F
True
Low-balling 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. T or F
True
Mortgage interest and paid home property taxes are both itemized deduction items. T or F
True
One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents. T or F
True
Social security benefits are often available resources to the family after the death of a family member. T or F
True
Social security is meant to be a retirement income supplement. T or F
True
State income taxes and real estate taxes are both itemized deduction items. T or F
True
The amount accumulated in a defined contribution plan will be determined, at least in part, by the investment performance of the retirement funds. T or F
True
The basic purpose of insurance is to protect you from the results of accidental losses. T or F
True
The difference between the market value of your home and the balance of the mortgage is your equity in the property. T or F
True
The returns you expect from securities are income and growth T or F
True
A 5 percent down payment will result in larger monthly mortgage payments than a 10 percent down payment on the same house for the same maturity mortgage. T or F
True
The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be a. $344 b. $300 c. $314 d. $278 e. $380
a. $344
Suppose a person has a health insurance policy with a $500 calendar year deductible, a $2,000 out-of-pocket cap, and an 80% coinsurance provision. If this person suffers a $600 covered loss, how much will the insurance company pay? (Assume no previous losses have occurred.) a. $100 b. $ 80 c. $600 d. $480 e. some other amount
b. $ 80
U-Need-This has $12 million liabilities, $12 million preferred stock, 10 million shares of common stock outstanding, and $39 million in total assets. The book value is a. $4.10 per share. b. $1.50 per share. c. $4.30 per share. d. $2.00 per share. e. none of the above.
b. $1.50 per share.
All of the following are useful ways to build a strong credit rating except a. Make payments on time. b. Apply for a long-term loan and occasionally be late with a payment. c. Talk with the lender if you foresee difficulty in making a payment. d. Open checking and savings accounts. e. Open and use a charge account.
b. Apply for a long-term loan and occasionally be late with a payment.
Ben's health coverage charges a low ($15) deductible each time he visits the doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben must go to the health care providers listed by the provider of the health coverage. If he goes to a provider that is not on the list, there is very little coverage. Which of the following types of entity most likely provides Abe's health coverage? a. commercial insurer (major medical) b. HMO c. PPO d. fee-for-service indemnity plan e. Blue Cross/Blue Shield association
b. HMO
An estate plan would be least likely to need revision when a. people moved from one state to another. b. a son graduated from college. c. a spouse became disabled. d. the tax laws changed. e. a child was born.
b. a son graduated from college.
The income statement is specific to a. last year. b. a specific period of time. c. one point in time. d. next year. e. none of these
b. a specific period of time.
You would typically not include ____ in your gross income. a. interest and dividends b. life insurance death benefit payments c. gambling winnings d. pension income e. wages and salaries
b. life insurance death benefit payments
Which of the following bond mutual funds would provide tax-free income? a. government bond fund b. municipal bond-fund c. convertible bond fund d. mortgage-backed bond fund e. all of the above
b. municipal bond-fund
You have been offered an opportunity to buy shares of diversified collection of securities. You will be investing in a. bonds b. mutual funds c. real estate d. stock opt ions e. common stock
b. mutual funds
The federal income tax is a. flat rate. b. progressive. c. integrative. d. regressive. e. none of the above.
b. progressive.
Annual percentage rate is equivalent to a. add-on method. b. simple interest method. c. dollar cost of credit method. d. discount method. e. average loan balance method.
b. simple interest method.
Marilyn Simms died with a $200,000 life insurance policy. Her husband, Jack, was the primary beneficiary and their children, Mimi (age 24) and Ann (age 30), were the contingent beneficiaries. All three survived Marilyn. How would the policy proceeds be distributed? a. $100,000 to Jack and $50,000 each to Mimi and Ann b. $66,666 each to Jack, Mimi, and Ann c. $200,000 to Jack d. $100,000 each to Mimi and Ann e. $150,000 to Jack and $25,000 each to Mimi and Ann
c. $200,000 to Jack
The NAV of an open-ended mutual fund priced at $10 be if the load is 4%? a. $10.00 b. $9.20 c. $9.60 d.$9.40 e.$10.40
c. $9.60
An annual fee charged by some mutual funds to cover marketing and distribution expenses is the a. transaction fee b. back-end load c. 12(b)-1 fee d. low-load e. management fee
c. 12(b)-1 fee
A mutual fund allows investors to a. Trade stocks on the NASDAQ b. Instruct the purchase of specific securities c. Become owners of a widely diversified portfolio of securities d. Deduct unrealized losses from their taxes e. All of the above
c. Become owners of a widely diversified portfolio of securities
The federal government gets the majority of its revenue from the ____ tax. a. property b. sales c. income d. excise e. estate
c. income
A legal claim that allows creditors to liquidate loan collateral is a a. loan. b. note. c. lien. d. security claim. e. none of these.
c. lien.
A characteristic of dental insurance is a. lack of orthodontic coverage. b. high deductible limits. c. low maximum limits. d. high cost. e. dentist financing.
c. low maximum limits.
During a bull market a. prices go down b. investments are pessimistic c. prices go up d. cattle futures perform well e. prices remain stable
c. prices go up
The person who writes a will is called the a. grantor. b. probater. c. testator. d. estate planner. e. attorney.
c. testator.
Nick has a comprehensive health care policy with a $250 per calendar year deductible and 80%-20% with a maximum $1,000 copayment cap per calendar year. In January, Nick had a $600 claim which the insurance company paid $280. Nick experiences another unrelated claim in October resulting in total bills of $5,000. How much will Nick have to pay for the second claim? a. $3,930. b. $1,800. c. $5,000. d. $ 930. e. none of the above.
d. $ 930.
Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities? a. $142,200 b. $167,200 c. $165,000 d. $115,000
d. $115,000 net work - total assets
The Smith family owns 200 shares of Elta stock. The company declared a 5% stock dividend. The Smiths now own a. 420 shares. b. 205 shares. c. 410 shares. d. 210 shares. e. 200 shares
d. 210 shares.
Most mutual funds allow investors to participate in a. Automatic reinvestment plans b. Automatic investment plans c. DRIP plans d. a and b above e. e and c above
d. a and b above
For tax purposes, head-of-household refers to a. the person with the larger income when a couple is filing a joint return. b. the spouse who has the only income for a couple filing a joint return. c. a single individual who owns a home. d. a single individual with dependents. e. a widow(er) with no dependents but with debts from death of spouse three years earlier.
d. a single individual with dependents.
The probate estate consists of a. real property b. personal property c. regulated by interstate laws if you have no valid will d. all of the above e. none of the above
d. all of the above
Which of the following are requirements of a valid will a. freedom of choice b. proper execution c. mental capacity d. all of the above e. none of the above
d. all of the above
The current market value of all the securities a mutual fund owns is called the a. book value b. market value c. liquidation value d. net asset value e. par value
d. net asset value
The ____ of a stock reflects stockholder confidence. a. par value b. face value c. dividend yield d. price/earnings ratio e. book value
d. price/earnings ratio
Cash dividends on common stock are most often paid a. weekly b. semi-annually c. monthly d. quarterly e. annually
d. quarterly
Which of the following forms of life insurance requires the lowest premium per dollar of initial death benefits? a. whole life b. adjustable whole life c. universal life d. term life e. variable life
d. term life
The SIPC provides protection to the investor from a. Low or missing dividend payments b. declining security prices c. brokerage firm failure d. using margin requirements e. none of these
d. using margin requirements
As a percent of take-home pay, monthly consumer credit payments should not exceed a. 5%. b. 25%. c. 15%. d. 10%. e. 20%.
e. 20%.
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card? a. No annual fee and short grace period b. Low annual fee and short grace period c. High annual fee and low interest rate d. Low annual fee and low interest rate e. No annual fee and long grace period
e. No annual fee and long grace period
______ is a short-term investment activity. a. Buying life insurance b. Saving c. Investing in common stock d. Buying bonds e. Speculating in common stock
e. Speculating in common stock
