Personal Finance

Generally, as income rises, the average propensity to consume: decreases.
Stocks, bonds and mutual funds are _____. intangible assets
Financial plans include setting goal dates that are dates in the future when the goals are expected to be achieved.
The best way to resolve money disputes is to: communicate consistently about it with family and be willing to compromise.
The most important financial planning for young people concerns: career.
Employee benefits may include: pension payments.
Which of the following is true about investments? The length of time for which the money is invested is important.
Ben invests $10,000 at a rate of interest of 5 percent for 40 years. Which of the following is true about the interest received on the investment? Ben will receive a significant amount at the end of the investment period, due to the feature of compounding.
Which of the following practices will help to survive in a financial crisis? Keep investing so your money continues to work toward your goals.
Which of the following is true about the effects of an economic recession? Increase in spending
The three key groups in the economic environment are: government, consumers, and business.
The Government places controls on the personal financial environment by the use of: taxation and regulation.
A strong economy leads to: higher employment.
Inflation refers to: rising prices.
Salaries could vary across geographical areas because of: living costs
The balance sheet describes a family’s financial position: at a certain point in time.
Which of the following is the most common budgeting period? Monthly
The three parts of your balance sheet are your: assets, liabilities, and net worth.
When Phil lists his house on his balance sheet, he should record its: fair market value.
Balance sheet liabilities should be recorded at their: current outstanding balance.
You are solvent if your: total assets exceed total liabilities
An income statement includes: income, expenditure, and cash surplus or deficit
When there is a cash surplus on your income and expense statement, your: investment balance will be increased
If your liquid assets equal $50,000 and your current debts equal $15,000, your liquidity ratio is: 333%.
The _____ ratio indicates your ability to meet current debt payments. liquidity
Mike and Teresa Garza have a monthly gross income of $5,000. They pay $1,000 per month in taxes and $2,000 per month toward various loans. What is their debt service ratio? 40%
A cash budget helps you: monitor and control your finances
The Wilson family’s short-term goals might include: setting up an emergency fund of three months’ income
What can you do if your budget shows an annual budget deficit? Liquidate enough savings and investments to meet the total budget shortfall for the year.
Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.) 10
The federal income tax is: progressive.
A progressive tax system is one in which: higher-income people pay tax at a higher rate than lower-income people.
Henry is married to Lillian, and they have two dependent children. Henry and Lillian want to file separate returns. Which of the following filing statuses can Henry and Lillian use in their tax returns? Married filing separately
Molly and Jason were married. Their only dependent was Spot, their black standard poodle. Jason died in 2013. Assuming Molly does not remarry, in 2014 the only legal filing status for Molly will be: single.
Your take-home pay is what you are left with after subtracting withholdings from your: gross earnings.
Your income tax withholding is dependent on: your income level and number of withholding allowances.
The taxable income is calculated by _____. . subtracting adjustments, the larger of itemized or standard deductions, and the exemptions from gross income
Which of the following is subject to federal income tax? Alimony received
A capital gain is the result of: selling an asset for more than its purchase price.
You purchased and lived in your home for 8 years. Now, you have received an excellent promotion. But, you will have to sell your home and move to another community. The capital gains on the home sold will: be taxable except for the first $250,000 of the gain
The total amount of income tax you owe in one year is your tax: liability.
Tax credits reduce your: tax liability.
A simplified version of the Form 1040 for individual income tax, if you have a taxable income of less than $100,000 from wages only and you are not claiming any itemized deductions or any tax credit, is: Form 1040EZ.
Itemized deductions are listed on Schedule: A
A tax audit is a(n): IRS attempt to verify the accuracy of a return.
Low interest rates are helpful in: reducing the service cost on the national debt.
Cash and near-cash resources are known as _____. liquid assets
Credit unions are: member-owned financial cooperatives.
Funds in commercial banks are protected by the: Federal Deposit Insurance Corporation.
Money market deposit accounts: are federally insured
Christina works at a company that offers to directly deposit her paycheck into her personal bank account. This service is called: an electronic funds transfer system (EFTS) service
You have $450 in your checking account when your ATM card and PIN are stolen. You could lose up to _____ if you report the lost ATM card within 2 business days. $50
A(n) _____ is a rented drawer in a bank’s vault. safe-deposit box
Factors typically influencing the choice of where to maintain a checking account are: convenience, services, and cost.
You are going on an overseas trip, and you want to carry checks. You should purchase: traveler’s checks.
The more frequently a bank compounds interest, _____ will be. the higher the effective rate
Harry just received $2,000 for graduating. He plans to invest this money for five years at 8%, compounded annually. If he accomplishes this, Harry will have an ending balance of: (Use time value tables or a financial calculator. Select the closest answer.) $2,938.
The minimum denomination of T-bills is: $100.
Higher interest rates on certificates of deposit are associated with: longer maturities.
Funds invested in a _____ should not be withdrawn for a stated period in order to avoid an interest penalty. certificate of deposit
The loss in the value of an automobile over time is called: depreciation
Which of the following is true of buying a used car as compared to a new car? Purchasing a used car will be less expensive as compared to purchasing a new car.
When shopping for a lease, you want: a low capitalized cost.
Phil and Christina are recently married and are unsure of where they will be relocated after Christina finishes her residency in 9 months. Based on this information, which of the following housing recommendations would be most appropriate for them? Renting a home
_____ is a situation where homeowners owe more to lenders than what their properties are worth. A negative equity
As home prices have fallen in recent years, the rent ratio: and rent affordability have decreased.
If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ as a result of the size of the down payment. mortgage insurance
An escrow account is used to collect _____ from one’s monthly mortgage payment. real estate taxes
The majority of each monthly payment at the beginning of the loan goes to pay the interest
Which of the following are tax deductible if one itemizes deductions? Interest, insurance, and real estate taxes
For most homeowners, the most important financial benefit from owning a home is that it is: a tax shelter.
_____ are the up-front, one-time costs of home ownership. Closing costs
A lender will usually require a loan-to-value ratio of _____ or less for you to avoid having to pay private mortgage insurance (PMI). 80%
A real estate sales contract will include: the amount you have paid as an earnest money deposit.
Barb and Bob want to purchase a new home but don’t know how much mortgage they can qualify for. The lender requires that the total installment loan payments do not exceed 35% of the monthly income. Based on Barb and Bob’s financial data given below, what is the maximum monthly mortgage payment for which they can qualify?Monthly Gross Income $4,000Car payment $350Student loan payment $200 . $850
Which of the following is an appropriate reason for using a credit card? Shopping convenience
Which of the following is an improper use of credit? Buying a short-lived service
To establish creditworthiness and to have a good credit score, one should probably first: open savings and checking accounts
Which of the following will lead to poor credit rating? Applying for a long-term loan and occasionally being late with a payment
As a percent of take-home pay, monthly consumer credit payments should not exceed _____. 20%
With a bank credit card, one can often avoid interest charges if: the account balance is paid in full every month.
Interest will usually begin to accrue immediately when you use a bank credit card to: get cash advances.
Sheldon has a home valued at $108,000 with an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of the market value, how much can Sheldon borrow using a home equity loan? $16,400
A(n) _____ is an agency that provides credit information about individual borrowers to lenders. credit bureau
If the information on your credit report is in dispute, you are entitled to: provide your own explanation about the dispute.
Which of the following is true about credit scoring systems? Scoring systems are based on statistical studies.
What does a lender look at before granting credit? Assessment of your creditworthiness
When canceling a credit card, you should cut up the card and _____ that you are canceling your account. inform the issuer in writing
Chapter 7 bankruptcy will: eliminate most of the financial obligations of the borrower
Which of the following modes of identity theft involves thieves obtaining your personal information from financial institutions and other sources under false pretenses? Pretexting
The most popular use of consumer loans is to: purchase a car.
Consumers whose debt burden has become very heavy might apply for a(n): consolidation loan.
Which of the following is true of fixed-rate loans Fixed-rate loans are preferable when interest rates are expected to rise.
_____ loans do not have to be repaid until after you graduate from college. Stafford and Perkins
The highest interest rate installment loans are usually made by: consumer finance companies
Credit unions lend money to qualified people who are: members.
Which of the following sources of consumer loans often has the most favorable terms? Credit unions
Jenny’s monthly take-home pay is $5,000 and her total monthly payments are $1,000. Which of the following is Jenny’s debt safety ratio? 20%
A single-payment loan: usually matures in one year or less.
When the simple interest method is used to determine finance charges, the interest is calculated based on the: actual balance of the loan.
A legal claim that allows creditors to liquidate a loan collateral is a: . lien.
Which of the following is a feature of a home equity loan? The interest paid on a home equity loan is tax deductible.
Which of the following is true of installment loans? Installment loans offer the benefit of tax deductibility of the interest paid on them.
Sometimes it may be better to use one’s savings rather than borrowing to make a purchase. This would be recommended when: the cost of borrowing is greater than the interest earned on the savings.
The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be: $344.
The basic purpose of insurance is to _____. protect yourself from economic losses
The purchase of insurance is a common form of _____ by the insured risk transfer
Insurance underwriting is best described as: the process used by insurers to decide who can be insured and to determine applicable rates that will be charged for premiums.
The probability of a loss occurring can be reduced by_____. loss prevention
The primary purpose of life insurance is to provide: financial security for dependents in the event of death
Actuarial data is used to measure: the risk of loss for a population.
_____ is an activity that reduces the chance that a loss will occur. . Loss prevention
The single most valuable technique in personal risk management to assist an individual in determining how much life insurance is needed is: assessing the family’s total economic needs and subtracting the financial resources available to meet those needs.
Identify a true statement about the multiple-of-earnings method. The multiple-of-earnings method considers the insurance coverage to be 5 to 10 times the annual income.
Term life insurance is characterized by _____. premium amounts related to age
If a term life insurance is convertible, the policy can be: converted to a comparable whole life policy.
Henry must make set premium payments on his insurance policy until he dies, and if he cancels the policy, he will receive the cash value. His plan is a _____ policy. whole life
Employers often provide _____ life insurance as a fringe benefit for their employees. group
A grace period permits the policy holder to retain insurance even though the premium has not been paid for: 31 days.
Nonforfeiture rights guarantee that a policy owner will not lose his or her _____. cash value
Advances in medical technology, drug prescriptions, and treatments have substantially reduced the cost of health care in recent decades. False
You would have a better chance of choosing your own doctor with a PPO than with an HMO. True
A preferred provider organization has characteristics of both Individual practice association (IPA) and an indemnity plan. True
Generally, insurance is more reasonably priced through group plans than as individual policies. true
Living a healthy lifestyle is an example of loss prevention and control. true
During the past few decades, the percentage of our income spent on health care: has increased due to an aging U.S. population.
Which of the following is true of the workers’ compensation insurance? Workers’ compensation insurance compensates workers who are injured on the job or become ill through work-related causes.
Which of the following is true of the health care industry? In a traditional indemnity plan, the premium cost is low if it is a high-deductible plan.
Group health insurance premiums are _____. lower than individual health insurance premiums
One of the key goals of the Affordable Health Care Act of 2010 is _____. to reduce the number of uninsured citizens in the country
Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare? Medicaid
Employees should consider risk assumption for certain health risks as: they are required to pay additional insurance premium to cover the lapse of insurance coverage for them.
Long-term care is a term used to describe _____. the delivery of medical care to persons with chronic medical conditions in a nursing home
In order to qualify for disability insurance under social security, a person must be: unable to carry out the duties of any job.
Dependent children will usually be covered under your health insurance up to age 26.
Negligence results when someone: fails to act as a “reasonable person”.
The principle of indemnity would prevent an insured from collecting more than he or she lost.
A liability suit could result against you when: your dog bites the neighbor
Which homeowners’ policy is best suited for a renter of an apartment? HO-4
A personal property floater: provides coverage for items of expensive personal property not adequately covered under the standard homeowner’s policy.
Section I of the homeowner’s insurance policy covers: hospitalization cost provided to the insured.
Section II of the homeowner’s insurance contract covers the cost of defending the insured.
A higher home insurance cost may result from: low credit scores of the insured.
Replacement cost coverage is the reimbursement of: the cost of repairing or replacing damaged structures without deducting physical depreciation.
Donna, who is single and 30-years-old, has received several speeding tickets recently and was shocked by the effect they had on her auto insurance. Donna drives a 2002 Pontiac Firebird. She is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000. She is trying to reduce the price of her auto insurance. Which of the following actions is most likely to help Donna reduce the price of her auto insurance? Raising her deductible from $250 to $1,000
A homeowner’s policy does not provide protection for the personal property of: tenants.
Auto insurance is needed primarily: as protection against potential liability claims.
Liability coverage provides payment to: the non-family members involved in the accident.
Comprehensive automobile coverage refers to: complete coverage including liability, medical payments, and damage to the automobile.
A personal liability umbrella policy typically includes: coverage for auto related liability losses in excess of the limits purchased in the automobile insurance.
A bull market is characterized by: investor optimism.
A bear market condition is associated with declining securities prices.
The new securities sold in primary markets are handled by a(n): investment banker.
The federal government regulates securities markets through the: Securities and Exchange Commission.
Which of the following types of brokers is most likely to involve an investor trading electronically from his or her personal computer? An online broker
Which of the following is an order to sell a stock when the market price drops to or below a specified level? A stop loss order
Stockbrokers are also known as: account executives.
When you buy 300 shares of a company, you have purchased: a round lot.
Discount brokers will: execute orders.
A market order is transacted at the best price when the order is entered.
Instructing your broker to buy or sell a stock at a particular price is a: limit order
The _____ provides financial and descriptive information about a firm’s operations in the recent past to the internal and external interested parties. annual stockholders’ report
A collection of investments is called: a portfolio.
A diversified securities portfolio is characterized by: dissimilar risk and return characteristics of the securities.
_____ is a portfolio characteristic which leads to reduced risk with good return. Diversification
Changes in the general level of prices within an economy produce: purchasing power risk.
An example of event risk would be: a corporate takeover.
Cash dividends on common stock are most often paid: quarterly.
Only the common stocks of strongest, most stable, and safe-return companies can be called: blue-chip stocks.
Stocks whose earnings have increased at an above-average level over time are called: growth stocks.
Stocks whose price movements tend to follow the business cycle are called: cyclical stocks.
Suppose the earnings per share of a stock is $2 and the current price to earnings ratio is 10. What is the current price of the stock? $20
The _____ of a stock reflects stockholders’ confidence. price/earnings ratio
When evaluating a stock as a possible investment, one must consider: the net profit margin.
Advantages of a dividend reinvestment plan include: stock sold at a discount.
Return on equity is calculated by: dividing net income by shareholder’s equity.
A bond selling below par value is selling at: a discount.
Positive aspects about bonds include: low risk
When the market interest rate of a bond decreases, its price increases
Bonds are issued: by corporations, state, local, and federal governments.
A(n) _____ actually runs the portfolio and makes the buy and sell decisions. investment advisor
The current market value of all the securities a mutual fund owns, less any liabilities, on a per share basis is known as the fund’s: net asset value.
An annual fee charged by some mutual funds to cover marketing and selling expenses is the: 12(b)-1 fee.
Both load and no-load funds will always charge a: management fee.
The fund that buys and holds a portfolio of stocks equivalent to those in a market index is known as a(n) _____ fund. index
_____ funds are highly speculative and seek large profits from capital gains. Aggressive growth
A fund that invests only in a particular industry would be a _____ fund. sector
Which of the following bond mutual funds provides tax-free income? Municipal bond funds
If you are a mutual fund investor who needs steady income, you might take advantage of a fund’s: systematic withdrawal plans.
A group of funds managed by a single company which offers conversion privileges is called a: fund family
Having money taken at regular intervals from your paycheck and put into a mutual fund is an example of: an automatic investment plan.
The exchange traded funds (ETFs), as compared to mutual funds,: accommodate investors pursuing narrow market segments.
What type of real estate investment trust (REIT) is most attractive to income-oriented investors? Mortgage
Which of the following is true of real estate investments? Real estate investments lead to lower taxes due to tax shelter.
Investment in real estate is attractive to investors because: it permits a high degree of financial leverage.
One of the biggest financial benefits of starting your retirement fund early is related to: compound interest
Retirement planning starts with: the setting of retirement goals.
Planning for retirement over short-run time frames requires: a revision and update of plans every three to five years.
A $3,000 annual contribution to a retirement account earning 6% will be worth approximately _____ in 20 years. (Round off to the nearest tens place.) $110,360
Gordon and Lisa estimate that they will need $1,875,000 in 40 years for their retirement years. If they can earn 8% annually on their funds, how much do they need to save annually? (Round off to the nearest units place.) $7,238
The funds to finance Social Security benefits come from: compulsory contributions from the employee, the employer, and the self-employed.
The purpose of the Social Security retirement program is to: provide a basic and adequate income to eligible retirees.
Which of the following is a requirement for an individual to qualify for full retirement benefits under the Social Security system? The individual must be employed in a job covered by Social Security for at least 40 quarters, or 10 years, which need not be consecutive.
The Employee Retirement Income Security Act (ERISA) provides: protection to employees participating in the private employer retirement plans.
. Which of the following types of retirement plans is becoming less common? Traditional defined benefit
If you are gradually vested in a retirement plan over a 6-year period, the plan is a: graded plan.
Bill has worked for White Drywall for 4 years. During this period, White Drywall has contributed $25,000 to his retirement plan. Assuming the company uses graded vesting, how much will Bill be able to roll into an IRA if he leaves White Drywall at the end of 4 years? $15,000
The employer retirement plan that is intended to promote employee productivity and allows the employer to vary the amount of annual contributions is a _____. profit-sharing plan
In order to avoid penalties, a person who is not gainfully employed must typically start taking minimum distributions from Keogh retirement accounts by age _____. 70½
The period during which premiums are paid for the purchase of an annuity is called the _____. accumulation period
_____ would be a first-level death-related cost. Funeral expenses
Which of the following leads to the break up of an estate? Death related costs
Which of the following is true about the review of estate plans? Periodic review and revision is required to update the plan.
Estate planning is designed to: minimize the taxes involved in the transfer of assets.
One of the aspects of disposition of property consists of: the distribution of residual assets after specific gifts have been made.
A written and legally enforceable document expressing how a person’s property should be distributed upon his or her death is known as a(n) _____. will
A form of joint ownership that may exist only between husband and wife is: tenancy by the entirety.
Which of the following best describes a situation of intestacy? Dying without a valid will
A trust that provides continuity and management of assets and allows assets to bypass probate, but which provides no income or estate tax advantages is a(n) _____ trust. revocable living
A “grantor” is also called the: settlor
The applicable exclusion amount from estate tax for 2015 is: $5,430,000
Which of the following is a reason for making gifts? Marital deduction allows gifts to be tax free
Your gross estate is reduced by the _____ to determine the adjusted gross estate. funeral and administrative expenses
In 2015, James gave his son John a $5,000,000 term life insurance policy taken on James’ life. At the time of the gift, James was in good health, and the value of the term insurance policy for gift tax purposes was less than the $14,000 annual exclusion amount. However, James died in the year 2017. Which of the following statements is true? In 2017, the $5,000,000 gift is included in the gross estate of James, for the estate tax purpose.
The transfer of an estate (after death) to which of the following individuals will result in the most favorable tax treatments? Spouse of the individual

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