Finance Final Exam

Money management refers to A) preparing personal financial statements. B) day-to-day financial activities. C) trade-offs that occur with financial decisions. D) storing financial records for easy access. E) spending money on current living expenses. B
opportunity cost refers to A) current spending habits. B) changing economic conditions that affect a person’s cost of living. C) storage facilities to make financial documents easily available. D) trade-offs associated with financial decisions. E) avoiding the use of consumer credit. D
A home file should be used for A) storing all financial documents and records. B) financial records for current needs. C) documents that require maximum security. D) obsolete financial documents. E) records that are difficult to replace. B
Which of the following financial documents would most likely be stored in a safe-deposit box? A) W-2 forms B) personal financial statements C) warranties D) savings certificates E) checking account statements D
An example of a personal and employment document is a A) budget. B) passbook. C) Social Security card. D) property tax bill. E) lease. C
A broker statement is an example of a(n) ____________ record. A) investment B) insurance C) estate planning D) tax E) consumer purchase A
Warranties are commonly associated with ____________ purchases. A) investment B) insurance C) credit D) financial service E) consumer E
Which of the following are considered to be personal financial statements? A) Budget and credit card statements B) Balance sheet and cash flow statement C) Checkbook and budget D) Tax returns E) Bank statement and savings passbook B
A personal balance sheet presents A) amounts budgeted for spending. B) income and expenses for a period of time. C) earnings on savings and investments. D) items owned and amounts owed. E) family financial goals. D
The current financial position of an individual or family is best presented with the use of a(n) A) budget. B) cash flow statement. C) balance sheet. D) bank statement. E) time value of money report. C
A family with $45,000 in assets and $22,000 of liabilities would have a net worth of A) $45,000. B) $23,000. C) $22,000. D) $67,000. E) $41,000. B
Items with a monetary worth are referred to as A) liabilities. B) variable expenses. C) net worth. D) income. E) assets. E
Items of value less amounts owed to others equals A) net assets. B) net worth. C) total liabilities. D) total income. E) budgeted expenses. B
liquid assets refer to A) amounts that must be paid soon. B) items that are easily converted to cash. C) total income available to a family for spending. D) the value of investments. E) amounts on which taxes must be paid. B
An individual retirement account is an example of a(n) ____________ asset. A) liquid B) common C) investment D) household E) budgeted C
Liabilities are amounts representing A) debts. B) items of value. C) living expenses. D) taxable income. E) current assets. A
Current liabilities differ from long-term liabilities based on A) the amount owed. B) the financial situation of the creditor. C) the interest rate charged. D) when the debt is due. E) current economic conditions. D
Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future? A) The budget variance B) Investment assets C) Long-term liabilities D) Current assets E) Current liabilities E
Which of the following would be considered a long-term liability? A) A charge account payment B) A mortgage C) An installment loan D) An amount due for taxes E) The amount due on a credit card B
A person’s net worth is computed by A) adding assets and liabilities. B) deducting current living expenses from total assets. C) subtracting total liabilities from total assets. D) subtracting assets from current liabilities. E) adding liabilities and budgeted expenses. C
Which of the following situations is a person who could be insolvent? A) Assets $56,000; annual expenses $60,000 B) Assets $78,000; net worth $22,000 C) Liabilities $45,000; net worth $6,000 D) Assets $40,000; liabilities $45,000 E) Annual cash inflows $45,000; liabilities $50,000 D
A person’s net worth would increase as a result of A) reduced amounts owed to others. B) reduced earnings. C) increased spending for current living expenses. D) decreased value of personal possessions. E) decreased value of investments. A
A cash flow statement reports a person’s or a family’s A) net worth. B) current income and payments. C) plan for spending. D) value of investments. E) balance of savings. B
Which of the following presents a summary of income and outflows for a period of time? A) A balance sheet B) A bank statement C) An investment summary D) A cash flow statement E) An asset report D
Total earnings of a person less deductions for taxes and other items is called A) budgeted income. B) gross pay. C) net worth. D) total revenue. E) take-home pay. E
A common deduction from a person’s paycheck is for A) interest. B) taxes. C) rent. D) unemployment. E) current liabilities. B
Payments that do not vary from month to month are ____________ expenses. A) fixed B) current C) variable D) luxury E) budgeted A
Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate? A) Get a part-time job B) Eat more meals at home than in restaurants C) Find a place to live with a lower rent D) Save more money for the future E) Buy on credit for items than might cost more later C
Which of the following payments would be considered a variable expense? A) Rent B) An installment loan payment C) A mortgage payment D) A monthly parking fee E) A telephone bill E
A decrease in net worth would be the result of A) income greater than expenses for a month. B) expenses greater than income for a month. C) assets greater than expenses. D) increased earnings on the job. E) income and expenses equal for a month. B
During the past month, Jennifer Ernet had income of $3,000 and a decrease in net worth of $200. This means Jennifer’s payments for the month were A) $3,200. B) $3,000. C) $2,800. D) $200. A
Improvements in a person’s financial position are the result of A) increased liabilities. B) reductions in earnings. C) increased savings and investments. D) increased purchases on credit. E) lower amounts deposited in savings. C
To determine a person’s solvency, which financial document should be consulted? A) Cash flow statement B) Budget C) Debt consolidation statement D) Balance sheet E) Credit report D
An example of a long-term goal for a young couple may be A) a new car. B) reduction of amounts owed on credit cards. C) increased savings. D) income for retirement. E) funds for a vacation. D
A major expenditure for most families is A) insurance. B) contributions. C) clothing. D) utilities. E) transportation. E
The payment items that should be budgeted first are A) variable expenses. B) investment funds. C) fixed expenses. D) unplanned living expenses. C
Changes in the cost of living are A) different in various geographic areas. B) the same for different locations. C) constant from month to month. D) the same for all goods and services. E) not a factor when preparing a budget. A
The difference between the amount budgeted and the actual amount is called a A) financial plan. B) current liability. C) change in net worth. D) budget variance. E) variable living expense. D
If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a A) surplus. B) deficit. C) fixed living expense. D) budget reduction. E) contribution to net worth. A
A budget deficit would result when a person’s or family’s A) actual expenses are less than planned expenses. B) actual expenses are greater than planned expenses. C) actual expenses equal planned expenses. D) assets exceed liabilities. E) net worth decreases. B
The Crown family has a difficult time staying on a budget. In an effort to actually see what funds are available for various expenses, a ____________ budget would be most appropriate. A) written B) computerized C) physical D) deficit E) mental C
When it comes to savings, most Americans A) have an adequate emergency fund. B) use several different savings techniques. C) find saving difficult. D) keep substantial amounts in a regular savings account. E) reduce the amount they save during their working life. C
The main purpose of taxes is to A) generate revenue for funding government programs. B) reduce the chances of inflation. C) create jobs. D) discourage use of certain goods and services. E) decrease competition from foreign companies. A
Which type of tax is imposed on specific goods and services at the time of purchase? A) estate B) inheritance C) excise D) general sales E) value-added C
The ______________ property tax is based on the value of land and buildings. A) personal B) real estate C) direct D) proportional E) regressive B
What type of tax is imposed on the value of an individual’s property at the time of his or her death? A) inheritance B) excise C) gift D) personal property E) estate E
Taxable income is used to compute a person’s A) exemptions. B) income tax. C) deductions. D) capital gains. E) exclusions. B
Which of the following would result in a reduction of taxable income? A) portfolio income B) tax credits C) exclusions D) passive income E) earned income C
Money received by an individual for personal effort is ____________ income. A) passive B) earned C) portfolio D) excluded E) capital gains B
Money received in the form of dividends or interest is ____________ income. A) passive B) earned C) excluded D) capital gain E) investment E
Earnings from a limited partnership would be an example of ____________ income. A) passive B) investment C) portfolio D) earned E) excluded A
An amount not included in gross income is A) a tax credit. B) an exemption. C) an exclusion. D) earned income. E) portfolio income. C
Which of the following would be deducted from gross income to obtain adjusted gross income? A) alimony payments B) mortgage interest C) medical expenses D) foreign income exclusion E) charitable contributions A
George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to an individual retirement account of $1,500, and dividends from mutual funds of $600. George’s adjusted income (AGI) would be A) $33,900. B) $34,000. C) $34,600. D) $34,800. E) $35,400. A
An exclusion affects a person’s taxes by A) reducing the amount of taxable income. B) increasing itemized deductions. C) decreasing itemized deductions. D) lowering a person’s tax rate. E) increasing the number of exemptions a person can claim. A
Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in A) adjusted gross income. B) taxable income. C) earned income. D) passive income. E) total exclusions. A
Tax-deferred retirement plans are a type of A) exemption. B) itemized deduction. C) passive income. D) tax shelter. E) tax credit. D
Which of the following items is a set amount on which no taxes are paid? A) itemized deductions B) the standard deduction C) an earned tax credit D) withholding E) capital gains B
____________ are expenses that a taxpayer is allowed to deduct from adjusted gross income. A) Exemptions B) Exclusions C) Itemized deductions D) Tax credits E) Passive income C
An expense that would be included in the itemized deductions of a taxpayer is A) travel to work. B) life insurance premiums. C) real estate property taxes. D) a driver’s license fee. C
A deduction from adjusted gross income for yourself, your spouse, and qualified dependents is A) the standard deduction. B) a tax credit. C) an itemized deduction. D) an exclusion. E) an exemption. E
Michele Barbour is considering an additional charitable contribution of $2,000 to a tax-deductible charity, bringing her total itemized deductions to $16,000. If Michelle is in a 28 percent tax bracket, how much will this $2,000 contribution reduce her taxes? A) nothing B) $560 C) $1,600 D) $2,000 E) $4,480 B
An exemption affects a person’s tax situation by A) increasing the standard deduction. B) increasing the taxpayer’s marginal tax rate. C) decreasing itemized deductions. D) reducing the taxpayer’s taxable income. E) increasing tax-exempt income. D
Which of the following would qualify a person for an exemption when computing taxable income? A) mortgage interest B) a tax shelter C) a dependent D) charitable contributions E) passive income C
For a dependent to qualify as an exemption, he or she must A) be married. B) be under age 16. C) be registered in school. D) receive more than one half of his or her support from the taxpayer. E) be a relative. D
A tax ____________ is an amount subtracted directly from the amount of taxes owed. A) credit B) exemption C) deduction D) exclusion E) shelter A
Which of the following is an example of a tax credit? A) mortgage interest B) child and dependent care expenses C) individual retirement account contributions D) amounts withheld for social security E) passive investment income B
A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person’s taxes by A) $10. B) $28. C) $14. D) $50. E) $35. D
Most people pay federal income tax by A) paying the total amount owed by April 15. B) filing quarterly tax payments. C) having amounts withheld from income. D) earning tax credits for various deductions. C
Estimated quarterly tax payments must be made by people who A) are employed in a foreign country. B) receive dividends. C) work for the government. D) do not have adequate amounts withheld from income. D
A taxpayer whose spouse recently died is most likely to use the ____________ filing status. A) single B) married filing joint return C) married filing separate return D) head of household E) qualifying widow or widower E
The “head of household” filing status is for people who are A) recently divorced. B) the surviving spouse. C) not living with a spouse and have dependent children. D) married but only one spouse has income. E) married and each spouse makes about the same income. C
Which form would an individual use who has less than $50,000 in taxable income from wages, salaries, tips, unemployment compensation, interest, or dividends, and who is married and does not itemize deductions? A) Form 1040 B) Form 1040EZ C) Form 1040A D) Schedule A C
The Form 1040 is most helpful to a person who A) is single with no other exemptions. B) makes less than $50,000 with no interest or dividends. C) itemizes deductions. D) does not itemize deductions. E) has a simple tax situation. C
Which of the following people is least likely to have to file a federal income tax return? A) a U.S. citizen who is a resident of Puerto Rico B) a U.S. citizen living and working in a foreign country C) a person earning less than $7,050 D) a person over age 65 E) a college student C
Itemized deductions are recorded on A) Form 1040A. B) Schedule A. C) Schedule B. D) Form 2106. B
A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would A) receive a refund of $3,975. B) owe $4,350. C) owe $375. D) receive a refund of $4,350. E) receive a refund of $375. C
Kelly Vernon wants her tax return prepared by a government approved tax expert. Which of the following tax preparers should Kelly use? A) a CPA B) an enrolled agent C) a nationally-certified tax preparer D) a tax attorney E) a local tax preparer B
Which type of tax expert would be of most value when you have a difference of opinion with the IRS? A) an enrolled agent B) a nationally-chartered tax preparer C) a CPA D) a tax accountant E) an attorney E
Which type of audit is the least complicated for taxpayers? A) a field audit B) an office audit C) a research audit D) a correspondence audit E) a documentation audit D
The use of legitimate methods to reduce one’s taxes is tax ____________. A) evasion B) avoidance C) exemptions D) deferred techniques E) reductions B
Union dues, fees for tax return preparation, and other miscellaneous expenses are A) not deductible. B) fully deductible. C) deductible for self-employed individuals only. D) deductible for people in certain income categories. E) deductible for the amount that exceeds two percent of adjusted gross income. E
An example of an itemized deduction is A) interest on a credit card or charge account. B) certain job-related travel expenses. C) the cost of commuting to work. D) life insurance premiums. E) a traffic violation fee. B
For which of the following types of credit plans is the interest tax deductible? A) a home equity loan B) an auto loan C) a credit card D) a life insurance policy cash value loan E) a person cash loan from a credit union A
An example of a tax-exempt investment is A) interest on U.S. savings bonds. B) dividends from corporate stock. C) earnings from a mutual fund. D) interest on municipal bonds. E) interest on corporate bonds. D
Capital gains refer to A) tax-exempt investments. B) retirement accounts. C) profits from the sale of an investment asset. D) earnings from investments such as dividends or interest. E) tax-deferred investments. C
As of 2004, a short-term capital gain referred to investments A) made involving small companies. B) not taxed as ordinary income. C) held less than 18 months. D) in foreign companies. E) involving real estate. C
The Roth IRA differs from the regular IRA in that A) earnings on the account are tax free after five years. B) contributions may exceed $2,000. C) deposits must be in federally-insured accounts. D) funds are only to be used for education expenses. E) only self-employed workers can use this account. A
An itemized deduction of $500 with a 36 percent tax rate would reduce a person’s taxes by A) $500. B) $36. C) $464. D) $280. E) $180. E
An IRA, Keogh plan, and 401(k) plan are examples of A) tax-exempt retirement plans. B) tax-deferred retirement plans. C) capital gains. D) self-employment insurance programs. E) job-related expenses that are tax deductible. B
Parents can reduce their taxes by A) filing a joint return. B) decreasing the number of exemptions claim. C) using a child-care tax credit. D) ignoring the standard deduction C
The convenience of using a financial institution with 24-hour banking frequently requires a trade-off with A) safety. B) personal service. C) growth of savings. D) liquidity. E) a lower rate of return. B
A trust has the purpose of A) solving a person’s financial problems. B) obtaining low-interest loans. C) handling daily money management activities. D) managing the assets of a person. E) improving a person’s budgeting skills. D
The storage of funds for future use is the purpose of ____________ services. A) trust B) borrowing C) credit card D) savings E) cash checking D
An all-purpose account that provides several services is a(n) A) NOW account. B) asset management account. C) EFT account. D) mutual fund. E) money market account. B
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n) A) regular savings account. B) interest-bearing checking account. C) five-year certificate of deposit. D) six-month certificate of deposit. E) money market fund C
The purpose of a debit card is to A) obtain a discount on consumer purchases. B) make credit card purchases. C) quickly obtain a cash loan. D) make investments with an investment company. E) transfer money electronically. E
When interest rates are rising, a person would be best served by A) short-term savings instruments. B) long-term savings instruments. C) short-term loans. D) variable-rate loans. A
Checking accounts are frequently referred to as ____________ deposits. A) common B) time C) current D) loan E) demand E
Time deposits consist of A) checking accounts. B) loans and charge accounts. C) savings accounts. D) government securities. E) profits earned by a financial institution. C
Direct deposit and automatic monthly payments are features of A) savings accounts. B) checking accounts. C) electronic banking. D) investments. E) reserve funds. C
Traditionally, the greatest variety of financial services have been offered by a(n) A) credit union. B) investment company. C) mutual savings bank. D) savings and loan association. E) commercial bank. E
To avoid high fees for loans, a person should not borrow from a A) credit union. B) savings and loan association. C) pawnshop. D) commercial bank. E) mutual savings bank. C
The profits from a mutual savings bank go to the A) creditors. B) loan applicants. C) stockholders. D) depositors. E) community in which it operates. D
In recent years, membership in credit unions has A) become more difficult due to higher taxes. B) continued to increase. C) been limited to government employees. D) declined due to poor credit union management. E) stayed at about the same level. B
An advantage credit unions may have over other financial institutions is A) interest-bearing checking accounts. B) low-cost personal loans. C) flexible-rate loans. D) credit cards. E) variable-rate savings plans. B
The major service offered by investment companies is A) interest-bearing checking accounts. B) variable-rate loans. C) credit card accounts. D) savings bonds. E) mutual funds. E
____________ specialize in helping people save money in a manner than provides high liquidity. A) Investment companies B) Life insurance companies C) Commercial banks D) Consumer finance companies E) Credit unions A
A financial institution organized for the main purpose of providing loans to purchase homes is a A) credit union. B) mutual savings bank. C) consumer finance company. D) mortgage company. E) commercial bank. D
The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution. A) safety B) cost C) compounding D) liquidity E) convenience E
A savings account at a credit union is called a ____________ account. A) share B) debit C) club D) certificate E) money market A
A certificate of deposit usually has A) high interest-rate risk. B) low safety for savers. C) limited liquidity. D) a variable rate of return. E) no minimum deposit amount C
A saver will usually earn the highest rate with which of the following types of savings plans? A) certificate of deposit B) debit account C) passbook account D) share account E) demand deposit account A
Which of the following savings plans is not covered by federal deposit insurance? A) a passbook account B) a regular checking account C) a money market account D) a money market fund E) a certificate of deposit D
An advantage of U.S. savings bonds is A) interest earned is exempt from federal income taxes. B) interest earned is deferred for federal tax purposes. C) a constant rate of earnings. D) they can be converted to other types of investments. B
The rate of return on a savings account is also referred to as A) liquidity. B) compounding. C) yield. D) insolvency. E) asset management. C
A $200 savings account that earns $13 interest in a year has a yield of ____________ percent. A) 6 B) 13 C) 7 D) 11. 25 E) 6. 5 E
Savings compounded ____________ would have the highest effective yield. A) daily B) annually C) semi-annually D) monthly E) weekly A
The Truth-in-Savings law requires that financial institutions A) provide insurance for savings accounts. B) send customers monthly bank statements. C) report annual percentage yield on savings. D) offer adjustable rate savings accounts. E) become members of the Federal Reserve System. C
Comparison of earnings for different savings plans can best be accomplished using the A) discounted present value. B) compounded rate of return. C) net present value. D) annual percentage yield. E) after-tax rate of return. D
The Federal Deposit Insurance Corporation provides deposit insurance for A) credit unions and mutual savings banks. B) commercial banks and savings and loan associations. C) investment companies and finance companies. D) insurance companies and credit unions. B
A service designed for people who write only a few checks each month is a(n) ____________ account. A) debit B) regular checking C) share draft D) special or activity D
Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs? A) an interest-earning checking account B) an activity account C) an EFT account D) a share draft account E) a NOW account B
The funds deposited in a checking account can be restricted for use by A) a holding period. B) outstanding checks. C) interest earned. D) service charges. E) electronic banking. A
The purpose of a “special” endorsement is to A) cash a check. B) deposit a check. C) transfer a check to another person. D) withdraw cash from your account. E) reduce the charge for service fees. C
A ____________ endorsement would be used if a person is presenting a check in order to obtain cash. A) restrictive B) common C) special D) blank E) documented D
The first information to be recorded when writing a check is the A) date. B) check stub or check register. C) payee. D) amount. E) signature. B
When preparing a bank reconciliation, outstanding checks should be A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance. B
In the bank reconciliation process, service fees should be A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance. D
Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12, Outstanding checks $145, Interest $3.50, Deposit in transit $80 A) $145 B) $12 C) $157 D) $148. 50 E) $80 A
A personal check with guaranteed payment is called a A) traveler’s check. B) bank draft. C) certified check. D) money order. E) cashier’s check. C
Consumer credit A) is a privilege of the affluent. B) dates back to colonial times. C) carries no finance charge. D) is not a major force in our economy. E) use has been declining in recent years. B
Another name for closed-end credit is A) a line of credit. B) convenience credit. C) revolving credit. D) installment credit. E) bank card credit. D
Kathy purchased a $2,000 digital TV from Young’s Appliances. She will make 12 equal payments over the next year to pay for it. She is using. A) closed-end credit B) Open-end credit C) Revolving check credit D) a line of credit E) none of the above A
A good example of a closed-end credit is A) a credit card issued by a department store. B) a credit card issued by VISA or MasterCard. C) using overdraft protection at a bank. D) using a cashier’s check to pay for a purchase. E) a mortgage loan. E
Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of A) a line of credit. B) a credit card loan. C) open-end credit. D) closed-end credit. E) convenience credit. D
Another name for open-end credit is A) revolving credit. B) a line of credit. C) convenience credit. D) installment credit. E) a single lump-sum credit. A
The maximum amount of credit you are allowed by a creditor is called a(n) A) revolving credit. B) line of credit. C) convenience credit. D) installment cash credit. E) single lump-sum credit. B
A good example of an open-end credit is A) the use of a bank credit card to make a purchase. B) the mortgage loan from a savings and loan institution. C) automobile loan from a credit union. D) installment loan from a furniture store. E) installment loan for purchasing a major appliance. A
Installment sales credit is a A) direct loan of money for personal purposes. B) direct loan of money for home improvement. C) loan that allows you to receive merchandise such as a refrigerator or furniture. D) direct loan for vacation purposes. E) synonym for a single lump-sum credit. C
Karen is notified by her credit card company that credit limit on her credit card has just been increased to $10,000. This is one example of: A) open-end credit B) close-end credit C) a line of credit D) installment sales credit E) none of the above C
Installment cash credit is a A) loan that must be repaid in total on a specified day. B) direct loan of money for personal purposes. C) loan that allows the consumer to receive merchandise, such as a refrigerator. D) down payment made on a purchase. E) synonym for a single lump-sum credit. B
Revolving check credit is a A) credit arrangement that has no extra costs. B) prearranged loan for a specified amount that you can use by writing a special check. C) credit arrangement that has no specific repayment plan. D) synonym for installment cash credit. E) synonym for single lump-sum credit. B
Which is often the source of the least expensive loan? A) parents or family members B) banks C) savings and loan associations D) finance companies E) loan sharks A
One of the drawbacks of borrowing from parents or family members is that such loans are A) more expensive. B) never obtainable. C) family troublemakers. D) the least expensive. E) illegal under the IRS code. C
You can often obtain medium-priced loans from A) parents or family members. B) American Express. C) Diners Club. D) finance companies. E) commercial banks and credit unions. E
The most expensive loans are available from A) parents. B) friends. C) banks. D) finance companies. E) credit unions. D
If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments? A) $200 B) $300 C) $400 D) $500 E) $600 B
What would be the maximum limit for an individual’s debt-to-equity ratio, excluding the home mortgage? A) 0.5 B) 0.33 C) 1.00 D) 2.00 E) none of the above C
Debt payments-to-income ratio is A) calculated by dividing total liabilities by net worth. B) calculated by dividing monthly debt payments (not including house payments) by net monthly income. C) determined by dividing your assets into liabilities. D) a useless ratio for determining your credit capacity. E) rarely used by creditors in determining credit worthiness. B
Debt-to-equity ratio is A) calculated by dividing total liabilities by net worth. B) calculated by dividing monthly debt payments by net monthly income. C) determined by dividing your assets by liabilities. D) a useless ratio for determining your credit capacity. E) rarely used by creditors in determining credit worthiness. A
Dave’s take home pay per month is $2200. What is the maximum dollar amount of debt payments he should have? A) $880 B) $440 C) $330 D) $220 E) $0 B
The borrower’s attitude toward his or her credit obligations is called A) capacity. B) capital. C) character. D) collateral. E) conditions. C
A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5Cs of lending? A) character B) capacity C) collateral D) capital E) conditions A
The borrower’s financial ability to meet credit obligations is called A) capacity. B) character. C) capital. D) collateral. E) conditions. A
A term that refers to the borrower’s assets or net worth is called A) capacity. B) character. C) capital. D) collateral. E) conditions. C
A valuable asset pledged to assure loan payments and subject to seizure upon default is called A) capacity. B) character. C) capital. D) collateral. E) conditions. D
A loan officer is examining your income and the amount of your existing debt payments in deciding whether to make a loan to you today. Which aspect of the 5Cs of lending is loan officer most likely looking at? A) Character B) Capacity C) Capital D) Collateral E) Conditions B
In evaluating your credit application, a lender may A) ask your age. B) want to know if you are on public assistance. C) require your marriage certificate. D) ask if you are married or divorced. E) ask your race and nationality. A
If your credit application is denied, you A) can sue the credit rating agency. B) can file a complaint against the merchant. C) don’t have any rights provided by law. D) are entitled to know the specific information. E) can reapply for credit after 30 days. D
The total dollar amount you pay to use credit is called the A) finance charge. B) annual percentage rate. C) price of the good/service purchased. D) amortized rebate. A
If you borrow $100 at 10 percent simple annual interest and repay it in one lump sum at the end of one year, you will have to pay A) $100. B) $105. C) $110. D) $115. E) $120. C
What is the APR for a $100 loan when the loan is paid off in 12 equal monthly payments at the stated annual interest rate of 10 percent? A) 10 percent B) 15 percent C) 18.5 percent D) 20.5 percent E) 25 percent C
When you complain about your billing error, the creditor must acknowledge your letter within ____________ days. A) 10 B) 20 C) 30 D) 60 E) 90 C
While you are resolving a billing dispute, a creditor may A) not threaten your credit rating. B) send this information to a credit bureau. C) require you to pay the bill in full and then credit your account if the error is found. D) start the collection process. E) demand that you surrender the credit card. A
What should you do if your identity is stolen? A) Contact the fraud departments of each of the 3 major credit bureaus. B) Ignore it and hope that it will go away. C) Throw away all records dealing with the problem D) Keep your bank accounts and credit card accounts open for one year. E) All of the above. A
If you have a complaint about consumer credit, you should first A) try to solve your problem directly with the creditor. B) contact your attorney. C) file a complaint with the Better Business Bureau. D) report it to the state consumer protection agency. E) complain to the Federal Reserve Bank in your district. A
Which federal law protects you by requiring credit bureaus to furnish correct and complete information to creditors? A) Fair Credit Reporting Act B) Truth in Lending Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act A
Which federal consumer credit law prohibits credit discrimination based on sex and marital status? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act D
Which federal law limits a cardholder’s liability for unauthorized use of a card to $50? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act A
If you have trouble paying your bills, A) skip the town and hope for the best. B) turn to a company that claims to offer assistance in solving debt problems. C) check with your local Better Business Bureau for help. D) seek assistance from a collection agency. E) try to solve the problem with your creditor. E
The Federal Trade Commission enforces the A) Truth in Lending Act. B) Equal Credit Opportunity Act. C) Fair Credit Billing Act. D) Fair Debt Collection Practices Act. E) Fair Credit Reporting Act. D
What is (are) the signal(s) of potential debt problems? A) paying only the minimum balance each month B) missing payments or paying late C) using savings to pay normal bills D) depending on overtime to meet normal expenses E) All of the above are the danger signals. E
Which one of the following is one of 16 danger signals of potential debt problems? A) paying maximum balance due each month B) receiving the first notice of delinquency from creditors C) using savings to pay for major purchases D) borrowing money to pay old debts E) occasionally working overtime and moonlighting D
A Consumer Credit Counseling Service (CCCS) is affiliated with the A) National Foundation for Consumer Credit. B) Federal Trade Commission. C) Better Business Bureau. D) U.S. Consumer Protection Agency. E) Federal Reserve Banks. A
Which of the following is a local organization affiliated with the National Foundation for Consumer Credit that provides debt counseling services for families and individuals? A) Credit Bureau B) Chamber of Commerce C) Consumer Credit Counseling Service D) Internal Revenue Service E) None of the above. C
The CCCS is basically concerned with A) lending the money to destitute people. B) giving debtors food and shelter. C) helping destitute debtors to relocate in less expensive areas. D) preventing and solving the problems related to credit overextension. D
The CCCS aids families by A) setting up a budget for them. B) paying off their loans. C) providing free basic necessities. D) providing one month free shelter. E) relocating them in less expensive areas. A
The CCCS counseling is A) quite costly. B) usually free. C) often useless. D) fraught with red tape. E) available only if you declare a bankruptcy. B
The CCCS sometimes charges a fee if it A) administers a debt repayment plan. B) helps families manage their debts better. C) sets up a realistic budget for them. D) provides education to needy families. A
In addition to the counseling services of the CCCS, nonprofit services are sometimes provided by A) universities. B) military bases. C) credit unions. D) state and federal authorities. E) All of them may provide such services. E
An organization that provides financial counseling is A) Creditors Anonymous. B) Alcoholics Anonymous. C) Consumer Credit Counseling Service. D) Dependents Anonymous. E) The Internal Revenue Service. C
A Consumer Credit Counseling Service (CCCS) is a A) charity organization. B) lending institution of last resort. C) local, non-profit organization that provides debt counseling services. D) governmental agency. E) legal institution. C
In a Chapter 7 bankruptcy, a person filing for relief is called a A) bankrupt. B) debtor. C) dependent. D) criminal. B
Which bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time? A) Chapter 7 B) Chapter 11 C) Chapter 13 D) Chapter 15 C
During the past fifteen years, the personal bankruptcy rate has A) remained constant. B) increased annually. C) decreased annually. D) forced creditors to sharply curtail the number of loans. B
The Bankruptcy Act of 1978 A) was aimed to protect the creditors. B) was later declared unconstitutional by the U.S. Supreme Court. C) prevents dishonest people from declaring bankruptcy. D) made personal bankruptcy easier. E) made personal bankruptcy difficult. D
In a Chapter 7 bankruptcy, a debtor A) is required to draw up a petition listing all assets and liabilities. B) does not have to pay a filing fee. C) is called a “bankrupt.” D) is absolved of alimony and child support payments. E) does not have to repay educational loans. A
Renting is more advantageous than buying a home for A) lower short-term living costs. B) financial benefits. C) long-term investment purposes. D) receiving tax benefits. E) permanence of residence. A
A common opportunity cost associated with renting is A) interest lost on the down payment. B) interest lost on closing costs. C) property taxes. D) maintenance costs. E) interest lost on the security deposit. E
A cost associated with home buying would be A) renter’s insurance. B) the security deposit. C) annual appreciation of the property. D) property taxes. E) interest lost on the security deposit. D
Renting would be most appropriate for people who A) want to reduce their taxes. B) have difficulty establishing credit. C) have limited funds currently available. D) enjoy remodeling their residence. E) desire the financial benefits of increased equity. C
Brenda Williams plans to rent instead of buy her housing. What advantage of renting will Brenda encounter? A) tax advantages B) lower initial costs C) community pride D) financial benefits E) home improvement flexibility B
The main financial benefit of renting is A) tax deductions. B) increased equity. C) investment value growth. D) lower initial costs. D
The legal document involved in renting an apartment is called a(n) A) service contract. B) mortgage. C) lease. D) security deposit. E) escrow account. C
What is the purpose of subletting an apartment? A) to increase the rent B) to lower maintenance costs C) to convert the units to condominiums D) to meet certain government housing regulations E) to obtain another tenant to complete a lease period E
The purpose of a security deposit is to A) pay for potential damages. B) cover the costs of utilities. C) pay for the tenant’s portion of real estate property taxes. D) cover increases in monthly rent. E) meet government housing regulations for a safe building. A
A condominium involves A) renting a mobile home. B) part ownership of a building by a nonprofit organization. C) ownership of an individual living unit. D) government-subsidized housing. E) renting a house with the option to buy. C
Ownership of an individual housing unit in a building is commonly called A) a cooperative. B) modular housing. C) manufactured housing. D) a condominium. E) zoned housing. D
A cooperative housing arrangement involves A) government-supported rental units. B) a nonprofit organization. C) individual ownership of a living unit in a building. D) factory built and on-site assembly. E) housing units owned by a real estate developer. B
Otto Putman rents a living unit as a result of his membership in a nonprofit housing organization. What name is commonly used for this type of housing? A) modular housing B) government-supported housing C) cooperative housing D) a condominium E) zoned housing C
Prefabricated housing refers to A) nonprofit ownership. B) government leasing of living units. C) rental units available to government employees. D) ownership available to low-income individuals. E) partially assembled housing in factories. E
A common financial benefit of home ownership is A) a low security deposit. B) tax deductibility of the down payment. C) amortization of the growth of equity. D) increased property value. D
Lonette and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction would reduce their taxable income by A) $1,000. B) $2,240. C) $3,000. D) $4,000. E) $8,000. E
A common financial risk of home ownership is that A) interest rates may change with a conventional mortgage. B) property values may decrease. C) mortgage interest is not tax deductible. D) only a portion of real estate taxes are tax deductible. B
Which of the following would increase the amount that a person could afford to spend on a home? A) increased family income B) increased interest rates C) decreased down payment D) many other financial obligations E) high monthly living expenses A
The most commonly considered factor when selecting a home is the A) size of the home. B) condition of the home. C) location of the home. D) local zoning laws. E) current interest rates. C
As Wally Quinten conducts an investigation of property value factors, most real estate experts tell him that ____________ most influences the housing values in an area. A) community pride B) style of homes C) zoning laws D) age of neighborhood E) quality of schools E
The purpose of zoning laws is to A) restrict property use. B) encourage new housing development. C) minimize people moving from an area. D) reduce real estate property taxes. E) assist real estate agents in finding homes for sale. A
Restrictions on how property in an area can be used are A) cooperative agreements. B) zoning laws. C) common areas. D) title insurance provisions. E) refinancing clauses. B
A real estate agent can best assist a homebuyer by A) obtaining funds for a down payment. B) setting the purchase price. C) offering new home warranties. D) assisting in getting a mortgage. D
The purpose of a counteroffer is to A) negotiate the purchase price. B) reduce mortgage payments. C) lower real estate property taxes. D) avoid paying points at closing. E) avoid paying the real estate agent’s commission. A
Earnest money has the purpose of A) paying real estate property taxes. B) reducing the mortgage interest rate. C) serving as good faith by a homebuyer. D) paying the real estate agent’s commission. E) being a mortgage application fee. C
The amount of mortgage a person is eligible for would be increased by A) higher interest rates. B) a lower down payment. C) high debt obligations. D) a low family income. E) lower interest rates. E
Which of the following would increase the speed of equity growth for a homebuyer? A) making a down payment of 10 percent instead of 20 percent B) obtaining a mortgage interest rate of 9 percent instead of 8 percent C) obtaining a 15-year mortgage instead of a 30-year mortgage D) making larger deposits to the escrow account C
What is prepaid interest charged by a mortgage company? A) escrow B) points C) origination fee D) title fee E) deed B
Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment? A) 6 B) 10 C) 18 D) 25 E) 48 D
A conventional mortgage usually involves A) a variable interest rate. B) a government guarantee. C) a balloon payment. D) equal payments. E) a payment cap. D
Which of the following is an example of a conventional mortgage? A) an FHA mortgage B) a buy down C) a fixed rate mortgage D) a shared appreciation mortgage E) a home equity loan C
A VA-guaranteed loan program provides assistance to A) military veterans. B) recent college graduates. C) low-income homebuyers. D) government employees. E) the elderly. A
A possible disadvantage of FHA and VA mortgages can be A) high risk. B) a longer processing time. C) high interest rates. D) increased monthly payments. E) down payment requirements. B
The purpose of a rate cap with an adjustable rate mortgage is to A) minimize interest costs. B) prevent changes in the amount of the monthly payment. C) increase negative amortization. D) restrict the amount by which the interest rate can increase. E) lower the escrow account. D
Negative amortization is the result of A) a lower amount owed on the mortgage. B) a higher amount owed on the mortgage. C) a lower escrow account. D) lower interest rates. E) a lower down payment. B
Fran Laurel expects her income to rise every few years as she gains experience in her career. Which mortgage has payments that rise to different levels every 5 or 10 years? A) buy down B) shared appreciation mortgage C) growing equity mortgage D) balloon mortgage E) graduated payment E
A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer? A) FHA-insured loan B) balloon mortgage C) buy down D) shared appreciation mortgage E) growing equity mortgage C
A short-term mortgage with a very large final payment is called a ____________ mortgage. A) balloon B) graduated payment C) growing equity D) shared appreciation E) negative amortization A
A home equity loan is also referred to as a ____________ mortgage. A) shared appreciation B) graduated payment C) growing equity D) second E) buy down D
Refinancing of a mortgage is recommended when A) interest rates rise. B) interest rates fall. C) the escrow account balance declines. D) two or more points are required by the lender at the time of closing. B
Which of the following is an example of a closing cost? A) origination fee B) mortgage application fee C) earnest money D) title insurance E) down payment D
The purpose of title insurance is to A) transfer ownership of property. B) reduce the chance of a decrease in property value. C) guarantee the boundaries of the property. D) protect an owner from changes in mortgage interest rates. E) cover the closing costs of a real estate transaction. C
Which document is used to transfer ownership of property from one party to another? A) title B) escrow account C) settlement statement D) appraisal E) deed E
Which of the following expenses is paid from an escrow account? A) title insurance B) property insurance C) points D) loan application fee E) real estate agent’s commission B
The purpose of an appraisal is to A) estimate the current value of a home. B) reduce the amount paid for property taxes. C) qualify for a reduced mortgage rate. D) eliminate the need for home insurance. A
If you sell your home without the use of a real estate agent, you should still make use of a A) broker. B) insurance agent. C) lawyer. D) contractor. E) rental agent. C
The most common service provided by a real estate agent when selling your home is A) providing legal advice. B) qualifying buyers for a mortgage. C) screening potential buyers. D) making needed repairs. C
Peril is defined as A) the refusal by an insurance company to pay for the covered loss. B) the cause of risk. C) the cause of a possible loss. D) an uncertainty as to loss. C
Defective house wiring is an example of a A) hazard. B) peril. C) risk. D) speculation. A
The uncertainties of direct and indirect losses to personal or real property due to fire, wind, accident, theft, etc., are called ____________ risks. A) personal B) business C) property D) liability E) speculative C
Possible losses due to negligence resulting in bodily harm or property damage to others are called ____________ risks. A) speculative B) liability C) property D) personal E) commercial B
Starting a small business that may or may not succeed is an example of ___________ risk. A) speculative B) pure C) commercial D) personal E) liability A
Using a home security system is an example of ____________ risk. A) shifting B) accepting C) reducing D) sharing E) transferring C
Wearing a seat belt in an automobile to protect yourself against injury is an example of ____________ risk. A) reducing B) assuming C) pooling D) shifting E) avoiding A
Which of the following would be covered by a home insurance policy? A) hospital expenses for surgery B) damage to another person’s car when driving C) accidental injury to a coworker on the job D) wind damage to your roof E) theft of business supplies from your office D
The legal responsibility for the financial cost of another person’s losses or injuries is referred to as A) theft. B) robbery. C) liability. D) assigned risk. E) collusion. C
If a homeowner leaves toys on stairs that results in injury to a delivery person, this may be ruled as A) vicarious liability. B) negligence. C) assigned risk. D) umbrella coverage. E) coinsurance. B
Negligence refers to A) failure to take ordinary and reasonable care. B) cancellation of insurance. C) property damage. D) high risk insurance coverage. E) common hazards in our society. A
While cleaning your home, a worker damages some furniture. You take action against the worker’s employer to cover the cost of the damage. This is an example of a (n) ____________. A) hazard B) risk C) deductible D) peril E) liability E
High winds cause damage to trees, shrubs, and other plants. This insurance claim would be covered under the ____________ component of homeowner’s insurance. A) additional living expenses B) personal property C) building and other structures D) personal liability E) property damage C
The additional living expenses component of a home insurance policy is designed to A) pay for temporary housing while your home is repaired. B) cover damage to property while away from home. C) reimburse a homeowner for damage done by a visitor. D) pay for medical expenses of people injured on your property. E) pay for repairs caused by fire or other hazards. A
Which of the following is considered personal property for home insurance coverage? A) an automobile B) a garage C) furniture D) a house E) trees and shrubs C
Georgette Valentine has expensive photography equipment for use in her hobby. Which of the following coverage would pay for damage or theft of this equipment? A) an umbrella policy B) a household inventory C) additional living expense coverage D) a personal property floater E) a coinsurance floater D
The purpose of a household inventory is to A) reduce insurance costs. B) document owned property. C) obtain personal property floater coverage. D) increase liability coverage. E) lower the chance of negligence. B
The ____________ coverage of a home insurance policy would cover accidental damage to another person’s property by a member of your family. A) supplementary B) personal property C) medical payments D) additional living expenses E) personal liability A
An umbrella policy is designed to cover A) expensive personal property. B) additional buildings on your property. C) property when traveling away from home. D) major personal liability suits. E) flood damage. D
Most home insurance policies provide coverage for A) earthquake damage. B) flood damage. C) an umbrella liability. D) personal property floaters. E) medical payments. E
Renter’s insurance would include coverage for A) flood damage. B) personal property. C) building and other structures. D) umbrella liability. E) earthquake damage. B
Which of the following are not covered by renter’s insurance? A) medical expenses for injuries to visitors B) fire damage of the building’s roof C) additional living expenses D) accidental damage to the property of others E) cost of legal action due to personal liability B
Which form of homeowner’s policy provides coverage for the most risks? A) special B) basic C) broad D) tenants E) modified coverage A
Ainsley and Garret recently purchased a new home and desire coverage for all causes of loss or damage except those specially excluded by the policy. They should obtain the ____________ form of homeowner’s policy. A) basic B) broad C) special D) modified coverage E) condominium C
The ____________ form of homeowner’s insurance is designed to cover the personal property of renters against the risks listed in the policy. A) basic B) broad C) condominium D) tenant’s E) special D
Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay? A) $100 B) $150 C) $200 D) $350 E) $400 E
Which of the following does not affect home insurance costs? A) location of home B) type of structure C) the number of people occupying a home D) coverage amount and policy type E) company differences C
The ____________ method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation. A) replacement value B) actual cash value C) umbrella D) endorsement E) personal property floater B
Home insurance costs are affected most directly by A) the profits of the insurance company. B) insurance agents’ commission. C) government regulations that set premiums. D) processing costs of claims. E) the number of claims in an area. E
Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay? A) $250 B) $350 C) $450 D) $600 E) not able to determine from this information B
The purpose of financial responsibility laws is to A) reduce auto insurance costs. B) assist poor drivers in getting insurance coverage. C) protect the public from financial losses due to auto accidents. D) require uninsured motorists coverage. E) pay for high medical costs of auto accident victims. C
____________ provides coverage for the risk of financial loss due to legal expenses, medical expenses, lost wages, and other expenses associated with injuries caused by an automobile accident for which you were responsible. A) Medical payments B) Bodily injury liability C) Uninsured motorists’ protection D) No-fault insurance E) Comprehensive insurance B
The 100 in 100/300/50 refers to A) property damage liability coverage. B) the amount of the deductible. C) collision coverage. D) the total coverage for an accident. E) the limit for bodily injury claims that can be paid to one person. E
Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry’s medical expenses would be covered by A) medical payments. B) collision. C) bodily injury liability. D) uninsured motorists’ protection. E) no-fault coverage. D
Which of the following coverage would pay for medical care for people who were injured in your automobile? A) medical payments B) bodily injury liability C) collision D) comprehensive E) no-fault insurance A
Which of the following is a system in which drivers involved in an accident collect medical expenses, lost wages, and related injury costs from their own insurance company? A) assigned risk pool B) financial responsibility coverage C) comprehensive system D) no-fault insurance E) uninsured motorists’ protection D
____________ protects you against financial loss when your car damages the property of others. A) Collision B) Comprehensive physical damage C) Property damage liability D) No-fault insurance E) Assigned risk coverage C
The 25 in 50/100/25 refers to ____________ coverage. A) collision B) bodily injury liability C) comprehensive physical damage D) medical payments E) property damage liability E
Which of the following coverage would pay for damage to your automobile in an accident for which you were at fault? A) property damage liability B) collision C) comprehensive physical damage D) no-fault insurance E) assigned risk pool coverage B
Comprehensive coverage would cover financial losses due to A) injuries caused by a driver without insurance. B) damage to your car in an accident for which you were at fault. C) damage to your car caused by wind or hail. D) legal action against you for an accident. E) damage to a neighbor’s tree with your car. C
____________ coverage would pay for damage to your vehicle in an accident for which another driver with insurance was legally at fault. A) Property damage liability B) Collision C) Comprehensive physical damage D) Uninsured motorists’ protection E) Assigned risk A
Which coverage pays for mechanical assistance in the event that your vehicle breaks down? A) Rental reimbursement B) wage loss insurance C) emergency road service D) No-fault insurance E) Collision insurance C
Your geographic location is a major factor in determining the ____________ used to calculate your automobile insurance premiums. A) driver classification B) assigned risk pool C) coverage level D) legal responsibilities E) rating territory E
Driver classification is not based on: A) age B) sex C) marital status D) driving record E) rating territory E
Which of the following refers to a category based on age, sex, marital status, and driving habits that is used to set automobile insurance premiums? A) rating territory B) assigned risk pool C) no-fault system D) driver classification D
Which of the following factors is used to determine a person’s driver classification? A) age B) type and age of vehicle C) claims in your geographic area D) insurance company claim processing costs E) state insurance premium regulations A
The purpose of an assigned risk pool is to A) provide insurance for poor drivers who can’t get motor vehicle insurance. B) reduce medical costs associated with auto accidents. C) take unsafe drivers off the road. D) reduce auto insurance premiums with state regulation. E) offer premium discounts to safe drivers. A
A system that requires each insurance company operating in a state to provide coverage to several individuals with poor driving records is referred to as A) no-fault insurance. B) an assigned risk pool. C) premium discounts. D) comprehensive coverage. B
Most health insurance policies in the United States are sold to A) victims of communicable diseases. B) individuals with families. C) single individuals with no dependents. D) Employees and their dependents. E) Employers, who in turn offer the benefits to employees. E
Which health insurance coverage requires careful shopping because coverage and cost vary from company to company? A) group health B) individual health C) hospital expense D) surgical expense E) physician’s expense B
Which type of insurance provides for the partial replacement of income lost by employees as a result of an accident, illness, etc.? A) Comprehensive major medical B) major medical expense C) physician’s expense D) Disability income E) surgical expense D
Which type of health insurance pays part or all of hospital bills for room, board, and other charges? A) surgical expense B) hospital expense C) physician’s expense D) Basic health E) major medical B
Which type of health insurance pays part or all of the surgeon’s fee for an operation? A) surgical expense B) hospital expense C) physician’s expense D) Basic expense E) major medical expense A
Which type of health insurance pays for physician’s care that does not involve surgery? A) surgical expense B) hospital expense C) physician’s expense D) Basic expense E) major medical expense C
Which type of insurance is usually bought in combination with hospital and surgical insurance? A) Disability income B) Comprehensive major medical C) major medical expense D) hospital indemnity E) physician’s expense E
Which type of insurance protects against the large expenses of a serious injury or a long illness? A) Disability income B) major medical expense C) hospital indemnity D) physician’s expense E) interim medical B
Which one of the following provisions requires that the policyholder pay a basic amount before the policy benefits begin? A) Coinsurance B) stop loss C) Deductible D) self insurance E) incontestable C
Which health insurance policy pays benefits only when you are hospitalized, but pays these benefits in cash which you can use as you like? A) hospital indemnity B) interim or short-term C) Disability income D) Comprehensive major medical E) major medical expense A
Dental expense insurance provides reimbursement for A) oral examinations. B) fillings. C) Extractions. D) oral surgery. E) All of the above provide reimbursement. E
According to your textbook, dread disease policies A) are almost always excellent buys. B) should never be purchased. C) play upon unrealistic fears. D) should be purchased only by older people. E) are meant for couples with two or three children. C
Which type of health insurance is illegal in many states? A) Individual health insurance B) Group health insurance C) Dread disease policy D) Dental insurance E) Vision insurance C
In choosing health insurance, ideally, you should A) get a basic plan and a major supplementary plan. B) get dental and vision plans. C) buy dread disease and cancer insurance plans. D) purchase nursing home insurance. E) purchase accident insurance. A
Which plan provides benefits for surgical and medical services performed by physicians? A) Blue Cross B) Blue Shield C) Medicare D) Medicaid E) HMO B
Health insurance is available from A) private insurance companies. B) Blue Cross and Blue Shield. C) HMOs. D) PPOs. E) All of the above offer health insurance. E
Most private insurance companies sell health insurance policies to A) individuals. B) families. C) Employers. D) Employees. C
Which statewide health plan provides hospital care benefits to millions of Americans? A) Blue Cross B) Blue Shield C) managed care D) Medicare E) Medicaid A
Which statewide health plan provides benefits for surgical and medical services performed by physicians? A) Blue Cross B) Blue Shield C) home health agencies D) home health associations B
Which health care institution directly employs or contracts with selected medical care specialists to give you health care services in exchange for a fixed, prepaid monthly premium? A) Blue Cross B) Blue Shield C) Medicare D) Medicaid E) HMO E
Which health care program is perhaps the best-known government health program? A) Blue Cross B) Blue Shield C) Medicare D) Medicaid E) HMO C
Hospital insurance Part A and medical insurance Part B is characteristics of A) Blue Cross. B) Blue Shield. C) Medicare. D) Medicaid. E) HMO. C
What is covered by Medicare? A) intermediate and custodial nursing care B) out-of-hospital prescription drugs C) private-duty nursing D) physician charges above Medicare’s approved amount E) None of the above is covered. E
Which health care plan is administered by each state within certain broad federal requirements and guidelines? A) Blue Cross B) Blue Shield C) Medicare D) Medicaid E) HMO D
Hospital insurance Part A. of Medicare is financed from part of the ____________ taxes. A) state income B) federal excise C) individual income D) Corporate income E) Social Security payroll E
Medigap is sold or serviced by A) Medicare. B) Medicaid. C) private insurance companies. D) Health Care Financing Administration. E) National Institutes of Health. C
Which one of the following is a source of government health insurance? A) Blue Cross B) Blue Shield C) Medicare D) HMO E) PPO C
Which one of the following is a source of government health insurance? A) Blue Cross B) Blue Shield C) National Institutes of Health D) HMO E) Medicaid E
Hospital insurance is which part of Medicare? A) Part A B) Part B C) Part C D) Part D E) None of the above A
Medical insurance is which part of Medicare? A) Part A B) Part B C) Part C D) Part D E) None of the above B
Which one of the following is not covered by Medicare? A) Care in a skilled nursing facility B) Intermediate and custodial nursing care as would be needed in a nursing home. C) Private duty nursing D) Out-of-hospital prescription drugs E) All of the above would not be covered by Medicare. E
Hospital insurance (Part A) of Medicare helps pay for A) inpatient hospital care B) inpatient care in a skilled nursing facility. C) home health care. D) hospice care. E) all of the above. E
Medicare medical insurance (Part B) helps pay for A) inpatient hospital care B) doctors’ services and other medical services and supplies not covered by hospital insurance. C) home health care. D) hospice care. E) none of the above. B
Medicare medical insurance (Part B) for people 65 or over is A) mandatory B) financed by corporations. C) voluntary, and individuals must pay for it. D) state supported and partially funded by the National Institutes of Health. E) None of the above. C
Which of the following is correct about Medigap or MedSup insurance? A) It is sold and serviced by the federal government. B) It is sold and serviced by the state government. C) It is sold and serviced by both the federal and state governments. D) Private insurance companies sell Medicap Insurance policies. E) None of the above. D
Which of the following statement is correct about Medicaid A) Medicaid coverage is very comprehensive. B) Medicaid is a program of medical assistance to certain low-income individuals and families. C) Medicaid is administered by each state within certain federal guidelines. D) Medicaid if financed by both state and federal funds. E) All of the statements are correct. E
Which of the following statements is correct about Medicaid? A) Many members of the Medicaid population are also covered by Medicare. B) Once eligible, Medicaid provides more benefits than does Medicare. C) Medicaid coverage is so comprehensive, people using it do not need to purchase supplemental insurance. D) Medicaid is financed by both state and federal funds. E) All of the above. E
Which type of insurance is probably the most ignored form of available insurance protection? A) life B) liability C) Disability D) Car E) home and property C
Definition of disability A) is universally accepted. B) varies. C) is standardized by American Council of Life Insurance. D) is provided by the Insurance Information Institute. B
Good disability plans pay when you are A) unable to work at your regular job. B) unable to work at any job. C) on an extended vacation. D) ill even for a short period. E) fired from your regular job. A
With disability income insurance, benefits usually begin A) on the first day of disability. B) Between 30 and 90 days after the disability occurs. C) on the 10th day of disability. D) one year after the start of the disability. B
The waiting period in disability income insurance is called ____________ period. A) Exclusion B) no benefit C) Coverage D) trade-off E) Elimination E
Generally, disability income policies with longer waiting periods A) have higher premiums. B) have lower premiums. C) have about the same premium. D) Are issued by smaller insurance companies. E) Are issued by larger insurance companies. B
The premium for non-cancelable and guaranteed renewable disability income insurance is higher, A) therefore, younger people should skip these coverage. B) hence, the insurance companies enjoy better profit margins. C) therefore, very few older workers should carry these coverage. D) But the coverage is well worth the extra cost. D
In most employer-sponsored disability income insurance plans, A) your employer pays part or all of the cost. B) you pay all the cost. C) your union pays all the cost. D) the Social Security Administration pays most of the premium. E) the Veterans Administration foots the bill. A

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