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personal finance
personal finance
94
Business
Undergraduate 1
03/04/2007

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Term
In automobile insurance, comprehensive coverage would cover financial losses due to
1. Injuries caused by a driver without insurance
2. Damage to your car in an accident for which you were at fault
3. Damage to your car wind
Definition
ANSWER: 3 wind and hail damage
Term
21. Which form of homeowners' policy provides coverage for the most risk exposures? p323
1. Special
2. Basic
3. Broad
4. Tenants
5. Extended
Definition
ANSWER:1
Term
18. High winds cause damage to trees, shrubs, and other plants. This would be covered under the _______ component of homeowners insurance.
1. Addl living expenses
2. Personal property
3. Building and other struct
4. personal
Definition
ANSWER:3 Building and other structures
Term
17. Which principle is basic to the structure of insurance?
1. Insurable interest
2. Law of supply
3. Law of demand
4. Recovery principle
5. Acceleration principle
Definition
ANSWER:1
Term
11. Most people think of risk management as
1. Risk avoidance
2. Risk pooling
3. Risk reduction
4. Buying insurance
5. Risk assumption
Definition
ANSWER:4
Term
9. Pure risks are
1. Accidental and unintentional
2. Risk exposures too severe to insure
3. Open to either a gain or a loss
4. Speculative
5. Unfounded
Definition
ANSWER:1 accidental and unintentiona
l
Term
6. Peril is defined as p312
1. The refusal by an insurance company to pay for the covered loss
2. The cause of risk
3. The cause of a possible loss
4. An uncertainty as to loss
Definition
ANSWER:3 the cause of risk
Term
5. Risk refers to p. 312
1. Whether or not an insurer will pay for the covered loss
2. The likelihood of loss through some peril
3. The cause of a possible loss
4. The uncertainty as to loss that faces a person or p
Definition
ANSWER:4 uncertainty as to loss
Term
24. Which of the following is usually the largest fixed expense for a new vehicle?
1. Insurance
2. Gasoline
3. Registration, license, and fees
4. Parking
5. Depreciation
Definition
ANSWER:5 depreciation
Term
20. The purpose of the invoice price is to inform customers of the
1. Sales tax on the vehicle
2. Suggested retail price
3. Sticker price
4. Charge for optional extras
5. Dealer’s cost
Definition
ANSWER:5 dealer's cost
Term
The main disadvantage of FHA and VA mortgages can be
1. High risk
2. Long processing time
3. High interest rates
4. Increased monthly payments
5. Down payment requirements
Definition
ANSWER:2 long processing time
Term
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
Definition
ANSWER:5 – mortgage interest on an owned residence is fully tax deductible, thereby reducing the taxable amount by thefull mortgage interest.
Term
3. Renting would be most appropriate for people who p.284
1. Want to reduce their taxes
2. Have difficulty establishing credit
3. Have limited funds currently available
4. Enjoy remodeling their residence
Definition
ANSWER:3 have limited funds available
Term
A government agency designed to provide consumer information and assist with consumer complaints is the
1. Better Business Bureau
2. Consumers Union
3. Underwriters Laboratories
4. Federal Trade Commission
Definition
ANSWER:4 FTC
Term
Pam McNally is planning to use the services of the Better Business Bureau. A major purpose of the BBB is to
1. Recommend reputable companies
2. Resolve consumer complaints
3. Lobby for improved consumer protection laws 4. ev
Definition
ANSWER:2
2. Resolve consumer complaints
Term
7. An example of direct selling would be p248
1. A consumer cooperative
2. Catalog sales
3. A convenience store
4. A factory outlet
5. A hypermarket
Definition
2. Catalog sales
Term
Melissa Morano has a concern about the deceptive advertising aimed at older consumers in her neighborhood. A government agency she might contact about this problem is the
1. Federal Trade Commission
2. Better Business Bureau
3. consum
Definition
1. Federal Trade Commission
Term
If you borrow $250 at 9 percent stated interest and make twelve equal monthly payments, what is the APR you will be paying?
1. 10.32 %
2. 12.15 %
3. 14.90 %
4. 16.62 %
5. 17.37 %
Definition
4. 16.62 percent
ANSWER:4 r= [(2xnxI)/P(N+1)]x100 I=dollar cost ofcredit
Term
In the late 1980s, selected automobiles had an average cost of $12,000. The average cost of those same automobiles is now $15,000. What was the "rate of inflation" for those automobiles between the two time periods?
Definition
ANSWER:1 (b-a)/a*100
1. 25 percent
Term
Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $60 for this service. Over a period of ten years, how much does Elaine gain from preparing her own tax return? Assume she can earn 6 percent
Definition
5. $790.86

ANSWER:5
Term
16. Ben plans to buy a house for $65,000. If that real estate is expected to increase in value by 5 percent each year, what will its approximate value be seven years from now?
Definition
1. $91,455
Term
15. If you invest $1,000 in a savings account that pays 6 percent interest compounded annually and make no additional deposits or withdrawals, your account balance at the end of four years will be
Definition
2. $1,262.48
Term
14. If you can invest to earn 10 percent compounded annually, approximately how much will you have to invest today to have $300,000 five years from now?
Definition
3. $186,300
Term
If you could buy an annuity of $5,000 to be received at the end of each of the next four years and you required an 8 percent interest rate on your investment, how much would you be willing to pay for it today?
Definition
2. $16,560
Term
If you were offered $1,000 to be received at the end of ten years and required 14 percent annual interest on your investment, how much would you be willing to pay today for this $1,000? Round out if the answer is within 50 cents.
Definition
ANSWER:4 p 646 table A3 .270*1000=270 HP10b enter 1shftx p/yr (1.00) then 10N 14 I/YR –1000FV
Term
What is the APR for a $100 loan when the loan is paid off in twelve monthly payments at the stated annual interest rate of 10 percent?
Definition
3. 18.5 percent
ANSWER: 3 r=[(2xnxI) / P (N+1)]x100 r=APR n=no payments I=dollar cost of credit P=principal N=total no. payments
Term
Which federal credit law protects you against an unauthorized use of your credit card?
1. Fair Credit Reporting Act
2. Fair Credit Billing Act
3. Equal Credit Opportunity Act
4. Fair Debt Collection Practices Ac
Definition
2. Fair Credit Billing Act
Term
The borrower's financial ability to meet credit obligations is called
1. Capacity
2. Capital
3. Character
4. Collateral
5. Conditions
Definition
1. Capacity
Term
One of the following is not a source of data provided to credit bureaus.
1. Banks
2. Finance companies
3. Merchants
4. Court records
5. The Internal Revenue Service
Definition
5. The Internal Revenue Service
Term
Revolving check credit is a
1. Credit arrangement that has no extra costs
2. Prearranged loan for a specified amount that you can use by writing a special check
3. Credit arrangement that has no specific repayment plan
Definition
2. Prearranged loan for a specified amount that you can use by writing a special check
Term
11. A risk premium associated with interest rates refers to
1. The opportunity cost of borrowing
2. Lower consumer prices
3. Higher earnings due to uncertainty
4. A loan with a short maturity
5. Expected l
Definition
ANSWER:3 The interest rate required by a lender must include a premium to compensate for the uncertainty associated with the return of the money and the purchasing power of the funds. This additional premium is what is asked for in this question.
Term
5. Suppose that yours is a typical family. Your annual income is $50,000. Use the easy method to determine your need for life insurance. Your insurance should be in the amount of p378
1. $245,000
2. $300,000
3. $345,000
Definition
ANSWER:1 current income x 7 x .7
1. $245,000
Term
Subject to certain minimums, which life insurance is designed to let you pay premiums at any time in virtually any amount?
1. Whole life insurance
2. Ordinary life insurance
3. Universal life insurance
4.
Definition
ANSWER:3 Universal life insurance – permits wide flexibility of payment of policy premiums
Term
The grace period in life insurance allows _______ days to elapse, during which time the premium may be paid. P390
1. One to ten
2. Ten to twenty
3. Twenty-eight to thirty-one
4. Thirty to sixty
5. Sixt
Definition
3. Twenty-eight to thirty-one
Term
A method of evaluating the cost of life insurance by taking into account the time value of money is called p 395
1. Double indemnity
2. Guaranteed insurability
3. An interest adjusted index
4. The consumer price
Definition
3. An interest adjusted index
Term
5. A decrease in the value of stocks, bonds, or other investments may cause investors to experience _______ risk. P418
1. Inflation
2. Interest rate
3. Business failure
4. Market
5. Income
Definition
4. Market
Term
6. When a bondholder loses money because interest rates in the economy increase, it is an example of _______ risk. P417
1. Market
2. Interest rate
3. Inflation
4. Business failure
5. Current
Definition
2. Interest rate
Term
13. Normally, corporate bondholders receive interest p421
1. Monthly
2. Every three months
3. Every six months
4. Yearly
5. When the bond matures
Definition
3. Every six months
Term
19. The type of stock in which stockholders are assured that omitted dividends will be paid to them before other dividends are paid is _______ stock. P448
1. Common
2. Convertible preferred
3. Participating preferred
Definition
4. Cumulative preferred
Term
3. Nancy Groom owns one $1,000 corporate bond issued by Chevron. The bond pays 8.5 percent. If interest is paid semiannually, what is the amount of the check that Ms. Groom will receive at the end of each six month period?
1. $4.25
2.
Definition
2. $42.50
Term
4. The legal conditions for a corporate bond are described in the p484
1. Trustee contract
2. Bondholder’s covenant
3. Corporate charter
4. Bond indenture
5. Bond debenture
Definition
4. Bond indenture
Term
7. A bond that is backed only by the reputation of the issuing corporation is called a(n) _______ bond. P486
1. Debenture
2. Mortgage
3. Indenture
4. Preemptive
5. Treasury
Definition
1. Debenture
Term
12. If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally p490
1. Increase in value
2. Decrease in value
3. Remain unchanged in market value
4. Become worthless
Definition
ANSWER:2
Term
14. The interest amount for a $1,000 bond is 6 percent. If comparable bonds are paying 8 percent, what is the approximate value for the 6 percent bond?
1. $1,000
2. $800
3. $750
4. $600
5. $500
Definition
3. $750
Term
16. A government security issued in minimum units of $1,000 with maturities that range from three months to one year is called a
1. Subordinated bond
2. Treasury bill
3. Treasury note
4. Treasury bond
5.
Definition
2. Treasury bill
Term
18. A bond that is repaid from the income generated by the project it is designed to finance is called a(n) p496
1. Treasury bill
2. Savings bond
3. Revenue bond
4. General obligation bond
5. Agency bond
Definition
3. Revenue bond
Term
19. Assume you are a tax payer in the 28 percent tax bracket. Also, assume that you purchase a tax-exempt bond that pays 8 percent. What is your taxable equivalent yield? P497
1. 8 percent
2. 9 percent
3. 10.25 percent
Definition
ANSWER:5 1-.28= .72, 8%/.72=11.11%
Term
20. June Tavia is trying to calculate the taxable equivalent yield for a municipal bond and she asks for your help. If the bond she owns pays 6.5 percent interest and she is in the 28 percent tax bracket, what is the taxable equivalent yield?
1.
Definition
3. 9.03 percent
Term
21. What is the current yield for a $1,000 corporate bond that pays 9 percent and has a current market value of $750?
1. 8.33 percent
2. 9 percent
3. 10 percent
4. 11 percent
5. 12 percent
Definition
5. 12 percent
ANSWER:5 P502 – 90/750=12% [dollar amt of interest/ current mkt value = CY]
Term
1. A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n) _______ fund. P. 514
1. Closed-end
2. Open-end
3. Load
4. No-load
5. Conver
Definition
2. Open-end
Term
8. The typical marketing and distribution fees that a mutual fund passes on to a shareholder approximately average: p517
1. 0.50 percent of the fund’s assets
2. 1 percent of the fund’s assets on an annual basis
3. 2.5 percent
Definition
2. 1 percent of the fund’s assets on an annual basis
Term
11. A mutual fund that invests in short-term corporate obligations and government securities that offer high interest is called a(n) _______ fund. P522
1. Balanced
2. Growth
3. Industry
4. Income
5. Money
Definition
5. Money market
Term
15. Which type of REIT invests directly in properties? P 550
1. Compound
2. Equity
3. Mortgage
4. Hybrid
5. Simple
Definition
2. Equity
Term
16. Which type of REIT pools money to finance construction loans? P550
1. Compound
2. Equity
3. Mortgage
4. Hybrid
5. Simple
Definition
3. Mortgage
Term
18. If you want risk-proof real estate investments, invest in p552
1. Real estate investment trusts
2. Real estate limited partnerships
3. Participation certificates (PCs)
4. Real estate syndicates
5. Post
Definition
3. Participation certificates (PCs)
Term
19. One of the advantages of being a limited partner in a real estate investment venture is that you have _______ liability. P553
1. No financial
2. Unlimited financial
3. Product
4. Limited financial
5.
Definition
4. Limited financial
Term
2. Your first step in retirement planning is to p572
1. Estimate your spending needs
2. Analyze your current assets and liabilities
3. Adjust your spending needs for inflation
4. Evaluate your planned retirement inc
Definition
2. Analyze your current assets and liabilities
Term
14. Which retirement plan is specifically designed for self-employed individuals and their employees? P590
1. SEP-IRA
2. IRA
3. Defined contribution plan
4. Keogh plan
5. Defined benefit plan
Definition
4. Keogh plan
Term
16. Which type of annuity gives more income per dollar of outlay than any other type? P596
1. Installment refund annuity
2. Life annuity with installment certain
3. Straight life annuity
4. Impure annuity
Definition
3. Straight life annuity
Term
15. An annuity in which you receive an income for the rest of your life, but no payments are made to anyone after your death is called p596
1. Straight life annuity
2. Life annuity with installment certain
3. Installment ref
Definition
1. Straight life annuity
Term
17. Which of the following is not an advantage of the Social Security retirement income? P584
1. Earned income partially offsets benefits
2. Forced savings
3. Portable from job to job
4. Cost shared with employer
Definition
1. Earned income partially offsets benefits
Term
18. Reduced Social Security benefits are available to the retiree at age p582
1. 55
2. 60
3. 62
4. 65
5. 70
Definition
3. 62
Term
8. A person who assumes the responsibilities of providing the children with personal care and managing the estate for them is called a(n) p616
1. Beneficiary
2. Executor
3. Trustee
4. Guardian
5. Executrix
Definition
4. Guardian
Term
*14. A trust established by your will that becomes effective upon your death is called a(n) ________ trust. P.622
1. Testamentary
2. Living
3. Revocable
4. Irrevocable
5. Insurance
Definition
1. Testamentary
Term
15. Under what type of ownership is the property considered equally owned for estate tax purposes and passed automatically to your spouse at your death? P625
1. Tenants in common
2. Tenancy by the entirety
3. Joint tenants wi
Definition
3. Joint tenants with the right of survivorship
Term
15. Under what type of ownership is the property considered equally owned for estate tax purposes and passed automatically to your spouse at your death? P625
1. Tenants in common
2. Tenancy by the entirety
3. Joint tenants wi
Definition
3. Joint tenants with the right of survivorship
Term
*16. In what type of ownership is each individual considered to own a proportionate share for tax purposes with only their own share being included in their estate? P626
1. Tenancy by default
2. Tenancy by the entirety
3. Ten
Definition
3. Tenancy in common
Term
* 19. In what type of joint ownership may neither spouse sell the property without the consent of the other? P626
1. Tenancy in default
2. Tenancy by the entirety
3. Tenancy in common
4. Tenancy by trust
Definition
2. Tenancy by the entirety
Term
14. Higher interest rates can be caused by p. 16
1. A lower money supply
2. An increase in the money supply
3. A decrease in consumer borrowing
4. Lower government spending
5. Increased saving and investin
Definition
1. A lower money supply
Term
17. To determine a person’s insolvency, which financial document should be consulted? P. 77
1. Cash flow statement
2. Budget
3. Debt consolidation statement
4. Balance sheet
5. Credit report
Definition
4. Balance sheet
Term
4. Which of the following items is a set amount on which no taxes are paid?
1. Itemized deductions
2. The standard deduction
3. An earned tax credit
4. Withholding
5. Capital gains
Definition
2. The standard deduction
Term
1. The first step of the consumer buying process is p.239
1. Gathering information
2. Evaluating alternatives
3. Identifying the problem
4. Researching alternatives
5. Selecting the buying location
Definition
3. Identifying the problem
Term
An implied warranty exists as a result of p.250
1. A stated intent of the seller
2. Actions by consumers
3. The intended use of the product
4. Rulings of federal consumer agencies
5. A written statement fr
Definition
3. The intended use of the product
Term
10. Which of the following is an example of a conventional mortgage? P.297
1. Mortgage insured by FHA
2. Fixed rate mortgage with no mortgage insurance or guarantee
3. Buy down
4. Shared appreciation mortgage
Definition
2. Fixed rate mortgage with no mortgage insurance or guarantee
Term
18. A vehicle sold "as is" has p.263
1. A limited warranty
2. No express warranty
3. A thirty-day guarantee
4. A full warranty on parts but not labor
5. No implied warranties
Definition
2. No express warranty
Term
Risk refers to
1. Whether or not an insurer will pay for the covered loss
2. The likelihood of loss through some peril
3. The cause of a possible loss
4. The uncertainty as to loss that faces a person or property c
Definition
4. The uncertainty as to loss that faces a person or property covered by
Term
Possible losses due to negligence resulting in bodily harm or property damage to others are called _______ risks.
1. Speculative
2. Liability
3. Property
4. Personal commercial
Definition
2. Liability
Term
Which of these is a type of major medical insurance that has a very low deductible amount and is offered without any separate basic plan? P.351
1. Comprehensive major medical insurance
2. Major medical expense insurance
3. Ph
Definition
1. Comprehensive major medical insurance
Term
Your first step in determining a life insurance program should be to p377
1. Consult a local insurance company agent
2. Buy as much life insurance as you can afford
3. Estimate your life insurance requirements
4. De
Definition
4. Determine your life insurance objectives
Term
Perhaps the most widely used option in a life insurance program is
1. Lump-sum payment
2. Limited installment payment
3. Life income option
4. Proceeds left with the company to earn interest
Definition
1. Lump-sum payment
Term
4. Bad products or poor financial management may result in investors experiencing _______ risk. P418
1. Inflation
2. Interest rate
3. Business failure
4. Market
5. Income
Definition
3. Business failure
Term
15. Becky Martinez owns stock in IMB Corporation. The IMB stock has a market value of $50 a share. If Becky receives $4.50 a year in dividends, what is the current yield? P457
Definition
3. 9 percent
Term
If the bond she owns pays 6.5 percent interest and she is in the 28 percent tax bracket, what is the taxable equivalent yield?
Definition
3. 9.03 percent
Term
7. The management fee for most mutual funds ranges between p517
1. 0.25 to 1 percent
2. 1 to 2 percent
3. 2 to 4 percent
4. 5 to 6 percent
5. 7 to 8.5 percent
Definition
1. 0.25 to 1 percent
Term
24. REITs, Ginnie Maes, and Freddie Macs are examples of _______ real estate investments. P547
1. Direct
2. Indirect
3. Safe
4. Risky
5. Speculative
Definition
2. Indirect
Term
Which of the following is the most widely used source of retirement income?
1. IRAs
2. Keogh plans
3. Social Security
4. Company pension plans
5. Union pension plans
Definition
3. Social Security
Term
If you die without a valid will
1. The IRS taxes fifty percent of your property
2. The federal court decides how the property should be distributed
3. Your relatives share equally in the proceeds from your estate
4.
Definition
5. The state’s law of descent and distribution becomes your effective will
Term
A trust established by your will that becomes effective upon your death is called a(n) ________ trust
1. Testamentary
2. Living
3. Revocable
4. Irrevocable
5. Insurance
Definition
1. Testamentary
Term
A disadvantage of leasing an automobile:
1. Unexpected costs with a closed-end lease
2. Responsibility for repair costs
3. Poor expense records for tax purposes
4. Limited mileage in the lease agreement
Definition
4. Limited mileage in the lease agreement
Term
type of insurance protects against the large expenses of serious injury or a long illness?
1. Disability income
2. Major medical expense
3. Hospital indemnity
4. Physician’s expense
5. Interim medical
Definition
2. Major medical expense
Term
plan provides hospital care benefits on essentially a "service type" basis?
1. Blue Cross
2. Blue Shield
3. Managed care
4. Medicare
5. Medicaid
Definition
1. Blue Cross
Term
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?
1. Blue Cross
2. Blue Shield
3. Medicare
Definition
5. HMO
Term
Hospital insurance (Part A) and medical insurance (Part B) are characteristics of
1. Blue Cross
2. Blue Shield
3. HMO
4. Medicare
5. Medicaid
Definition
4. Medicare
Term
each individual is considered to own a proportionate share for tax purposes with only their own share being included in their estate?
1. Tenancy by default
2. Tenancy by the entirety
3. Tenancy in common
4. JT/WROS
Definition
3. Tenancy in common
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