Finance Exam 2

Avoiding alcoholic beverage while driving is an example or risk reduction True
Commercial banks are generally more selective in granting loans than finance companies True
Life insurance death benefits are not subject to income taxes True
Spreading risk among a large number of people is a major principle of insurance True
Investing is considered a short-term activity that involves the buying and selling of securities False
Borrowing to pay for a college education is a legitimate use of credit True
Stafford loans may be subsidized or unsubsidized True
The basic purpose of insurance is to protect you from the results of accidental losses True
When you stop making premium payments on a whole life policy, the protection is immediately forfeited False
Whole life policies typically provide a high investment rate of return False
A no load, low expense mutual fund is not a smart choice for investing False
You may reinstate your lapsed life insurance policy without answering health related questions again False
One should typically name both primary and contingent beneficiaries for life insurance policies True
If a loan has a prepayment penalty, there will be an additional cost to repay the loan early True
All types of life insurance offer a cash surrender value False
In the long run stocks typically have a higher return rather than that of bonds True
The needs approach to evaluate the right amount of life insurance is the most accurate method to determine the proper amount of death benefits True
Term insurance is generally the most economical form of life insurance for young families True
The cash value of a whole life insurance policy can be used as a source of loan collateral True
Annual percentage rate is equivalent toa) discount methodb) add-on methodc) average loan balance methodd) dollar cost of credit methode) simple intrest method e) simple intrest method
Sometimes it may be better to use savings rather than borrow to make a purchase. This would be recommended when a) the cost of borrowing is greater than the interest earned on the savings b) Intrest rates are fallingc) intrest rates are risingd)the borrower has adequate savingse) interest earned on savings is greater than the interest paid on the loan a) the cost of borrowing is greater than the interest earned
Collision protection pays for damage toa) auto of other party in accidentb) auto of insuredc) all autos in accidentd) non-auto property of others damaged in accidente) non-auto property of insured b) auto of insured
Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as it accrues, if Bob dies before the debt is repaid his beneficiary will receivea) $275,000b) $225,000c) taxable incomed) $25,000e) $250,000 b) $225,000
Which of the following losses is most likely to be covered under your auto liability insurance? a) an auto shop bill for repairs of a car you own due to an accident caused by your negligenceb) a medical bill for your injuries related to an accident that you causedc) an auto repair bill for repairs to the car of a driver who negligently caused an accident with youd) a legal bill incurred by your insurer defending you from a claim related to an accident caused by your negligence e) a medical bill for injuries to a passenger in your car arising from an accident in which you were not at fault d) a legal bill incurred by your insurer defending you from a claim related to an accident caused by your negligence
Besides the finance charge, you should also consider ____ when you shop for a consumer loan. a) repayment loanb) total cost of the loanc) collaterald) loan maturitye) all of the above e) All of the above
Underwriting is a) a method for developing policy wordingb) selling insurance at a premium less than that of the competition c) the determination of which exposures to insured) payment of a claim e) none of these c) the determination of which exposures to insure
The risk/return concept is: a) High risk/high returnb) Low risk/low returnc) Low risk/high returnd) a and be) b and c d) a and b
Suppose a person has a health insurance policy with a $500 calendar year deductible, a $2000 cap, and an 80% coinsurance provision. If this person suffers a $600 covered loss, how much insurance company pay? (Assume no previous losses have occurred) a) $480b) $100c) $600d) $80e) some other amount d) $80
The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be a) $314b) $278c) $344d) $380e) $300 c) $344
Which of the following is accurate concerning 529 college savings plans? a) They have no impact on qualifying for financial aid.b) Contributions are tax deductible for both state and federal income taxesc) Earnings are tax-free when used for qualifying educational expenses d) there is no limit on how much can be contributede) all of the above c) Earnings are tax-free when used for qualifying educational expenses
A personal consumer loan could be used to a) purchase a carb) buy a mobile homec) cover a temporary cash shortfall. d) consolidate several loans into onee) do all these things e) do all these things
The difference between Stafford’s subsidized and unsubsidized loans is: a) Subsidized loans do not have to be paid back. Unsubsidized loans must be paid backb) Subsidized loans accrue interest while in school. Unsubsidized loans do not accrue interest while in school. c) Subsidized loans do not accrue interest while in school. Unsubsidized loans accrue interest while in schoold) Subsidized loans require a down payment. Unsubsidized loans do not require a down payment c) Subsidized loans do not accrue interest while in school. Unsubsidized loans accrue interest while in school
Which of the following best describes the personal articles floater? a) a specialized inland marine policy covering boats and trailers used with boatsb) an endorsement providing coverage for items of expensive personal property not adequately covered under the standard homeowners policyc) an addition to the automobile policy intended to cover items of personal property that are often in or upon a covered automobiled) a liability policy that covers against liability caused by ownership or use of items of personal propertye) none of the above b) an endorsement providing coverage for items of expensive personal property not adequately covered under the standard homeowners policy
You want to borrow $1000 at an interest rate of 10%. The most expensive method of calculating the cost of the interest on this installment loan will be thea) simple interest methodb) discount methodc) double declining balance methodd) past-due balance methode) add-on method e) add-on method
If you have an outstanding loan on your car, the contract will require you to carry _____ insurancea) bodily injury liabilityb) property damage liability c) collision and comprehensived) medical paymentse) all of these c) collision and comprehensive
The deductible on a standard homeowners’ policy applies to a) coverage on the houseb) coverage on personal propertyc) liability coveraged) a and be) a, b, and c d) a and b
A loan from the cash value of your life insurance policy would be characterized by a) increased premiumsb) annual percentage rates higher than other sourcesc) no specific repayment dated) increased death benefits to beneficiaries e) unchanged death benefits available to beneficiaries c) no specific repayment date
Homeowners insurance premiums are determined bya) deductibles chosenb) perils covered c) policy limitsd) all of thesee) none of these d) all of these
Which of the following events would probably increase your auto premiums? a) Increasing your collision deductibleb) your 25th birthdayc) Trading in your 1999 Mercedes for a 2000 ford Escortd) you get marriede) None of the above would increase your premium e) none of the above would increase your premium
Which of the following is not a smart negotiating technique? a) Letting the dealer know how much you like the carb) Sticking to your guns regardless of the factsc) Telling the dealer what your bottom line isd) Attaching yourself to only one care) All of the above e) all of the above
Your car is damaged by fire while parked in your garage. Protection would be provided by a) homeowners’ personal property coverage b) homeowners dwelling unit coverage c) comprehensive auto coveraged) auto collision coverage e) property damage liability coverage c) comprehensive auto coverage
The annual percentage rate (APR) on a single payment loan for $1000 at a simple interest rate of 12%a) 18%b) 12%c) 10%d) 24%e) 15% b) 12%
When the simple interest method is used to determine finance charges, the interest is calculated based on a) ending balance of the loanb) beginning balance of the loanc) actual balance of the loand) average outstanding balancee) none of these c) actual balance of the loan
In the short run, stocks compared to bonds generally have: a) Bonds are illegal b) Much more riskc) no return on investmentd) Much less risk b) much more risk
You have been offered an opportunity to buy shares of a diversified collection of securities you will be investing ina) bondsb) common stockc) real estated) mutual fundse) stock options d) mutual funds
Your son left his skateboard at the bottom of the basement stairs. While going downstairs to change a broken lightbulb, you step on the skateboard and break your ankle during the fall. Medical damages total $1,455. How much will your $140,000 homeowners’ insurance policy pay for this accident? The policy has $100,000 comprehensive liability coverage and medical payments of $1000/persona) $1455b $0 c) $1000d) $250e) $500 b) $0
Given a $250 annual deductible, a $5000 lid on the coinsurance, 80/20 coinsurance, and a $250,000 policy limit, how much of the $27500 will be paid by the insured? a) $5250b) $250 c) $5000d) $5450e) $5700 a) $5250
After packing up to return home for the fall semester, Tex stopped at Double T bookstore to sell textbooks. After collecting $25, he headed back to his pickup truck only to find a broken window, the truck broken into, and all his suitcases and personal property gone. The loss of his personal property and suitcases would be covered bya) property damage liability auto coverageb) umbrella liability insurance c) personal property off premises (homeowners coverage) d) property damage to the property of others (homeowners’ coverage) e) comprehensive (other than collision) auto coverage c) personal property off premises (homeowners coverage)
Your auto liability insurance shows policy limits of $100,000 /$300,000. This meansa) $100,000 would be payed to the people in your automobile and the $300,000 to passengers in the other carb) $100,000 is the limit per individual with $300,000 divided equally between the remaining passengersc) $100,000 limit per individual with a $300,000 limit per accidentd) $100,000 limit per individual with $300,000 being paid to the driver of the other care) none of these c) $100,000 limit per individual with a $300,000 limit per accident
During a bull marketa) investments are pessimistic b) prices go upc) prices go downd) cattle future perform welle) prices remain stable b) prices go up
Auto insurance premiums would be affected by a) business usageb) auto body typec) commuting over 50 miles dailyd) auto engine sizee) all of these e) all of these

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