Personal Finance Exam 2

the cash value of a whole life insurance policy can be used as a source of loan collateral T
borrowing to pay for a college education is a legitimate use of credit T
commercial banks are generally more selective in granting loans than finance companies T
if a loan has a prepayment penalty, there will be an additional cost to repay the loan early T
the basic purpose of insurance is to protect you from the results of accidental losses T
spreading risk among a large number of people is a major principle of insurance T
Avoiding alcoholic beverage while driving is an example of risk reduction T
the needs approach to evaluate the right amount of life insurance is the most accurate method to determine the proper amount of death benefits T
term insurance is generally the most economical form of line insurance for young families T
when you stop making premium payments on a whole life policy, the protection is immediately fortified. F
whole life policies typically provides a high investment rate of return F
one should typically name both primary and contingent beneficiares for life insurance policies T
you may reinstated your lapsed life insurance policy without answering health related questions again F
all types of life insurance offer a cash surrender value F
life insurance death benefits are not subject to income taxes T
in the long run stocks typically have a higher return rate than that of bonds T
a no load, low expense mutual fund is not a smart choice for investing F
stafford loans amy be subsidized or unsubsidezed T
investing is considered a short-term activity that involves the buying and selling of securites F
a personal consumer loan could be used to consolidate several loans into one, purchase a car, covers temporary cash shortfall, buy a mobile home
which of the following is accurate concerning 529 college savings plan earnings are tax-free when used for qualifying educational expenses
a loan from the cash value of your life insurance policy would be characterized by no specific repayment date
bob shockey borrowed $25k from his $250k cash value life insurance policy to send to his daughter to private college. assuming he pays interest as it accrues, if bob died before the debt is repaid his beneficiary will receive $225k
besides the financial charge, you should also consider ___ when you shop for a consumer loan loan maturity, total cost of the loan, collateral, and repayment penalties
when the simple interest method is used to determine financial charges, the interest is calculated based on the actual balance of the loan
annual percentage rate is equivalent to simple interest method
the annual percentage rate (APR) on a single payment loan for $1000 at a simple interest rate of 12% is 12%
you want to borrow $1000 at an interest rate of 10%. the most expensive method of calculating the collar cost of the interest on this installment loan will be the add-on method
the monthly payment on a 8%, 36 moth, add-on loan for $10,000 would be $344
sometimes it may be better to use savings rather than borrow to make a purchase. this would be recommended when the cost of borrowing is greater than the interest earned on the savings
underwriting is the determination of which exposures to insure
in the short run, stocks compared to bonds generally have much more risk
the risk/return concept is high risk/high return, low risk/low return
the difference between stafford’s subsidized and unsubsidized loans is subsidized loans do not accrue interest while in school. unsubsidized loans accrue interest while in school
which of the following is not a smart negotiating technique? letting the dealer know how much you like the car, telling the dealer what your bottom line is, sticking to your guns regardless of the facts, attaching yourself to only one car
during a bull market prices go up
you have been offered an opportunity to buy shares of a diversified collection of securities. you will be investing in mutual funds
suppose a person has a healthy insurance policy with a $500 calendar year deductible, a $2000 out-of-pocket cap, and a 80% coinsurance provision. if this person suffers a $600 covered loss, how much will the insurance company pay? $80
given a $250 annual deductible, a $5000 lid on a coinsurance 80/20 coinsurance, and a $250k policy limit, how much of a $27,500 medical bill will be paid by the insured? $5,250
which of the following best describes the personal articles floater? `an endorsement providing coverage for items of expensive personal property not adequately covered under the standard homeowners policy
the deductible on a standard home owners policy applies to coverage on the house, coverage on personal property, and liability coverage
homeowners insurance premiums are determined by policy limits, perils covered, and deductibles chosen
your son left his skateboard at the bottom of the basement stairs. while going downstairs to change a broken lightbulb, you step on the skateboard and break your ankle during the fall .medical damages total $1,455. how much will your $140k homeowners insurance policy pay for this accident? the policy has a $100,000 comprehensive liability coverage and medical payments of $1,000/person $0
which of the following losses is most likely to be covered under your auto liability insurance? a legal bill incurred by your insurer defending you from a claim related to an accident caused by your negligence
your auto liability insurance shows policy limits of $100k/$300k. this means $100k limit per individual with $300k limit per accident
collision protection pays for damage to auto of insured
your car is damaged by fire while parked in your garage. protection would be provided by comprehensive auto coverage
after packing up to return home for the holidays after the fall semester, Tex stopped at Double T bookstore to sell textbooks. after collecting $25, he headed back to his pickup to only find a broken window, the truck broken into, and all his suitcases and personal property gone. the loss of his personal property and suitcases would be covered by personal property off premises (homeowners’ coverage)
auto insurance premiums would be affected by auto body type, auto engine size, business usage, and commuting over 50 miles daily.
if you have an outstanding loan on your car, the contract will require you to carry ___ insurance collision and comprehensive insurance

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