Wise test personal finance
A woman has just received a very expensive piece of jewelry. The woman has homeowner's insurance. Which statement would it be most appropriate for her to make to her insurance agent?
"I think I need a personal property floater." (A personal floater is additional property insurance, which is available within a homeowner?s policy, to cover damage or loss of a specific item of value.)
Buying a treasury bill (T-bill) is best for investors who are looking for
a secure, low risk investment. (These bills are backed by the full faith and credit of the US government, therefore considered relatively risk free.)
The "Rule of 72" is an easy way to:
Calculate how fast your savings will double in value at given interest rates (The Rule of 72 is a formula to approximate the time it will take for a given amount of money to double at a given compound interest rate. The formula is 72 divided by the interest rate earned. In a little over seven years, $100 will double at a compound annual rate of 10 percent (72/10 = 7.2 years).)
Consumer Credit Counseling Services (CCCS) offer:
Debt repayment plans (There are hundreds of local Consumer Credit Counseling Services (CCCS) across the country that counsel people about how to get out of debt and manage their money. They also work out debt repayment plans with a consumer's creditors in which the consumer gives CCCS part of each paycheck to pay creditors.)
A pharmacy is to drugs as the American Stock Exchange is to
Securities (A pharmacy, run by a licensed pharmacist, is authorized by a state government to fill prescription orders. A stock or bond exchange is where registered stockbrokers buy and sell securities such as stocks or bonds (fill orders) for investors. Exchanges are similar to other marketplaces in that the prices of the goods (equities) change based upon the basic laws of supply and demand.)
Joan wants to open a checking account and wonders if checking accounts pay interest. How would you answer her question?
Some types of checking accounts pay interest (Regular checking accounts do not earn interest. NOW (negotiable order of withdrawal) accounts do earn interest but tend to have higher minimum balance requirements than regular checking accounts and often limit the number of checks that can be written each month without a fee.)
Jami lost her debit card. She did not report it missing for 3 months. If an unauthorized person used her debit card, her maximum liability is:
Unlimited liability (According to the Electronic Fund Transfer Act, if a consumer reports the theft or loss of an ATM or debit card to the issuing financial institution within two business days, he/she is liable for not more than $50 of unauthorized purchases. If reported within 60 days, the consumer is liable for up to $500 of unauthorized purchases. If reported after 60 days or not reported, the consumer may be liable for the entire amount of unauthorized purchases.)
The interest earned on United States Series EE Savings Bonds is
exempt from state and local taxes. (The interest rate on US savings bonds is exempt from state and local taxes.)
A high school student has begun to investigate the field of finance as a career choice. In deciding about the field, the student should focus on which question first?
Will I find a balance between financial rewards and personal satisfaction from work? (It is important to investigate a career with the idea of not only getting a sense of earning potential, types of positions available and the training necessary to acquire these positions but what are the chances that the individual will enjoy working in this field.)
A man budgeted $200 a month for clothing. This month the man spent $150 on clothing therefore that budget item is considered to have
a budget variance. (The difference between the amount of money budgeted for items ($200 for clothing) and the actual amount of money spent for those items ($150 for clothing) is called a budget variance.)
For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive
a calculated amount of money which includes the premiums paid as well as the interest on that money. (The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.)
When a person brings an item to a pawnshop to obtain cash, the transaction is considered
a collateralized loan (Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.)
In terms of their finances, when a couple has a baby, they will
receive an additional tax exemption because of the baby. (When a baby is born, the baby is considered a qualified dependent. A separate deduction or tax exemption is allowed from the parent?s(s?) adjusted gross income for this qualified dependent. The parent must provide more than ? the support of the dependent and the dependent must live with the parent (s).)
In creating her budget, Ann realizes that her expenses exceed her income. Ann should immediately try to:
reduce or eliminate some expenses (Once you have estimated your income and fixed and variable expenses, the next step in the budgeting process is to balance the budget. Total your projected income for a month. Then, subtract all of your projected expenses for the same month. If projected expenses are greater than projected income, you need to adjust some of the projected expenses so that total income equals or is greater than total expenses. Extra income can be added to savings.)
After five years of owning a Roth Individual Retirement Account (IRA), a person wants to buy his first home, the person can withdraw money from the Roth IRA
tax and penalty free. (Under normal circumstances, withdrawals from a Roth IRA before retirement age are subject to both taxes and a penalty. However, use of funds for education, purchase of a first home and medical emergencies are three situations which permit the holder of the IRA to use savings in the funds without incurring a penalty or paying taxes on the amount withdrawn.)
An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split
80 shares of the stock and the price of each share is $40. (A stock split is when the existing stock divides into a larger number of shares and the price of each share is then reduced accordingly, i.e., a 2-for-1 split on 40 shares that is worth $80 would result in 80 shares at $40 at the time of the split. Among other reasons, companies often decide to declare a stock split when they want to bring in more investors and do not want to issue more stock. Or, they believe that by bringing down the price of the stock through a stock split, that they will increase activity and interest in the corporation?s stock.)
Which statement best describes the relationship between a person's educational level and that person's potential earning power?
A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school (There is a direct relationship between educational level and potential earning power. A person with a professional degree, for example, is likely to earn at least four times as much per year as a person who never completed high school.)
What is meant by an uncollateralized loan?
A personal loan without assets to cover the loan amount. (?Collateral? is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an ?uncollateralized loan? is one that does not have an asset to support the loan.)
Which financial product may pay a dividend?
Common stock (All of these types of accounts and financial products except for common stock earn interest. Some companies declare and pay dividends to their common stock shareholders.)
Interest earned on interest is known as:
Compounded interest (Compound interest enables the saver to earn interest on the interest that was earned earlier.)
Which of the following is considered to be open-end credit?
Department store charge cards. (Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.)
The amount a lender charges to borrow money is called the:
Finance charge (The finance charge is the amount charged by the lender for any kind of credit. Finance charge = principal x stated interest rate x time (in years). The finance charge is used to calculate the annual percentage rate (APR).)
Travelers checks, often used for vacations:
Function as cash and are easily replaced if lost (Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it.)
Which of the following careers would be possible choices for someone interested in money and finance?
Insurance actuary (An insurance agent or insurance actuary has a career related to money and finance.)
When Jessie needs health care, she must first go to her primary care physician who coordinates her care and decides whether Jessie should see a specialist. Jessie pays $10 as the co-pay when she sees her primary care doctor. Jessie has which type of health insurance?
Managed care health plan (A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. While differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-payments. )
Which of the following does the Federal Reserve use to regulate the nation's money supply?
Monetary policy (The Federal Reserve uses monetary policy to regulate the nation's money supply. Monetary policy is directed at expanding or contracting the supply of money and credit in the U.S. economy. In theory, if there is too little money in circulation, consumers will spend less, interest rates will be high, and unemployment will rise. In this situation, the Fed can deliberately increase the amount of money in circulation, leading to lower interest rates, increases in consumer spending, and higher employment rates. If there is too much money in circulation, however, prices rise and the value of the dollar decreases (inflation).)
Goals:
Need to be realistic, have a target date, and, if possible, an associated cost (Goals usually differ for individual and family. Goals change as we achieve some and set new ones, as we move into new life stages, and as we experience major changes such as marriage, birth of a child, divorce, layoff, or retirement. Goals also need to be clearly stated with target dates. Short-term goals change most frequently. Long-term goals usually change the least over time.)
What is the largest equities market in the world?
New York Stock Exchange (NYSE) (The largestof these markets is the New York Stock Exchange. It was founded in 1792 under a tree on Wall Street. Also known as the "Big Board" and "the Exchange." the NYSE has the most stringent listing requirements and is governed by a board of directors. Recent events have led the NYSE to develop and enforce stricter rules of corporate governance.)
A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take?
Notify the credit card companies in order to negotiate a new payment plan. (When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.)
The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are:
Salaries, wages, and tips (The primary sources of income for most people between the ages of 20 and 35 are salaries, wages, and tips from their employment, also known as earned income. Earned income is also the primary source of income for most other age groups. Very few people have sufficient unearned income - dividends, interest, rents, or profits - to live on without holding a job or running a business.)
A bank Certificate of Deposit is a
Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals (A certificate of deposit (CD) is a savings instrument that requires a deposit for a period of time (term) during which the saver cannot withdraw money from the plan without a penalty. CDs are issued with terms from 31 days up to eight years. The longer the consumer agrees to loan the money to the bank or credit union, generally the higher the interest rate. It is considered a form of savings because the consumer is paid interest based on the dollar amount and term of the CD. If the consumer does not collect his/her money at the end of the term, the money may be rolled over into another CD.)
Before the Kiss Corporation can issue stocks or bonds, it must register the issue with:
The Securities and Exchange Commission (SEC) (Before a company can raise capital by issuing stocks or bonds, it must register the stock or bond issue with the Securities and Exchange Commission (SEC). An investment banking firm assists the corporation in completing the registration forms and serves as an intermediary between the issuing corporation and the initial investors.)
When a borrower fails to repay a loan and there is a co-signer on the loan, the most likely result will be
The co-signer will be held responsible for the repayment of the entire loan plus fees or penalties. (If the borrower does not pay the debt, the co-signer has the obligation to pay it.)
Money received today is worth more than the same amount of money received sometime in the future is:
The time value of money (The time value of money is the concept that money received today is worth more than the same amount of money received in the future. If you receive $100 today, you can put it to work immediately through savings or investing immediately.)
A person buys a flat screen, plasma, theater-like television. The person has homeowner?s insurance. Why would it be appropriate to add a personal property floater to that insurance?
To cover the cost of replacement should the television get damaged or stolen. (An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or ?floater? to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the ?floater? coverage.)
If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the
US Treasury Department. (In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains)
Ben's truck is crushed by a hit-and-run driver. Scott is hit by an uninsured driver. How will they receive payments?
Uninsured or no-fault motorist coverage (Uninsured or no-fault motorist's protection covers the cost of injuries to the policyholder and family members. Uninsured or no-fault motorist's protection also covers car repairs, financial losses due to injuries, car damage caused by a hit-and-run driver, or the cost of other people's injuries by a driver who has insufficient coverage.)
A person's debt ratio shows the relationship between debt and net worth. The lower the ratio the
better off financially the person is. (Since the debt ratio is calculated by dividing liabilities by net worth, the lower the debt ratio the better; that is the better off the person is financially.)
Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the
brokerage firm is lending the investor 50% of the money. (Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.)
One of the benefits of holding an investment for over a year rather than selling it in less than a year is that the
capital gains on the investment will be taxed at a lower rate. (Capital gains are profits made from the sale of capital assets such as stocks and bonds and are tax deferred until the asset is sold. Capital assets that are held over one year are considered long-term capital gains and are taxed at a lower tax rate or in some cases are not taxed at all.)
When a person declares bankruptcy that fact will appear on the person?s credit report
for a 10 year period.(Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years.)
To qualify for a Federal Housing Administration (FHA) loan, a person must generally
fulfill income guidelines. (The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.)
An important consideration when saving money for emergencies is:
high degree of safety and liquidity (An emergency fund account needs to have a high degree of safety and liquidity. High safety means that there is very little chance of losing the principal (dollar amount in the account). High liquidity means it is easy to get cash out of the account quickly.)
A publicly held corporation announces it is planning to merge with another publicly held corporation. Based on this information, an investor should be aware that the price of the stock
is unpredictable. (Since the price of a stock is determined by demand, it will depend on why the merger occurs and how the merger is perceived by the public. If demand is high the price will increase. If demand for the stock of the merged company is low, the price will drop. Therefore, with the limited amount of information given, no predictions can be made.)
A person owns a stock that pays a $2.00 a share dividend. If the person chooses to reinvest that dividend, this means that the $2.00 will go toward buying
more of the same stock. (A dividend reinvestment plan is designed to help the shareholder acquire additional shares (or partial shares if there is not enough money) of the stock by immediately reinvesting the dividend in the same company?s stock as soon as the dividend is declared. The shareholder is still responsible for paying taxes on the dividends earned.)
The financial planning process:
needs to be adjusted for changing needs and goals in different stages of life (Financial planning is the process of developing and implementing a coordinated series of actions to achieve financial success. Financial plans need to be reviewed and adjusted from time to time to accommodate changing needs and goals annually. They also need to be adjusted when an individual or family moves from one life stage into another, or when an event changes an individual's or family's financial conditions (for example, marriage, birth of a child, divorce, layoff, major disability, or retirement).)
As an investment, a person decides to buy a small house that has three rental apartments. The profits from this investment may be lower then expected if the
one of the apartments is not rented. (The investor regards the house as a small business. Any time that any apartment is not rented, the investor is losing income and therefore profits on the investment.)
A person complains about how expensive it is to be a cigarette smoker. One of the reasons cigarettes are so expensive is that
the government imposes an excise tax on them. (The government may impose a tax on specific goods and services such as alcohol, cigarettes, gasoline, and airline services, which are called excise taxes. These taxes produce revenue for the government and are usually placed on items not considered necessities. Often, as in the case of alcohol and cigarettes, these taxes are also levied as away to try to deter certain behaviors. As a result, these taxes have become known as ?sin taxes.?)
To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and
the rate of inflation. (The ?time value of money? is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person?s earning power. For example, it may not seem as though depositing $100 a month in a retirement account when someone is 23 makes a whole lot of sense; why not wait until age 40 when it will probably be a lot easier to deposit $250 or $300 a month in the account. However, because of the miracle of compounding interest, that $100 will be worth a lot more when the person is older than the money that is deposited at age 40. However, the other factor to consider in making deposits to a regular savings account is the rate of interest as compared to the rate of inflation. If the annual rate of inflation is 03% and the interest earned on money is 01%, the deposit is actually going to have less purchasing power at the end of the year than it did at the start.)
A company offers a defined-contribution pension plan which means that upon retirement the employee will receive
the total amount of money contributed plus investment earnings. (A defined-contribution plan has an individual account for each employee. The document that explains the plan indicates how much the employer will contribute and does not promise any particular benefit. On retirement, or when the individual becomes eligible for benefits, the benefit is the total amount in the participant?s account, including investment earnings on the funds in the account.)
