Chapter 5, Personal finance

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Installment credit exploded on the American scene with the advent of the
A. Airplane
B. Automobile
C. Cell phone
D. Computer
E. Train

B

Which of the following is a valid reason for borrowing?
A. Purchasing a car so a homemaker can return to work
B. Borrowing for a college education
C. Purchasing a home
D. Paying for a medical emergency
E. All of these are valid reasons for borrowing

E

54. Which of the following is NOT a valid reason for borrowing?
A. Purchasing a new dishwasher.
B. Paying for everyday living expenses.
C. Buying a car to start a new job.
D. Paying for a medical emergency.
E. All of these are valid reasons for borrowing.

B

Many people expect
A. Their ability to make payments to get harder over time.
B. Their incomes to increase to make it easier to make payments.
C. Their interest rates to decrease as their credit balances decrease.
D. Their interest payments to increase as their credit balances decrease.
E. Their household expenses to be covered with their mortgage payment.

B

Many people expect
A. Their ability to make payments to get harder over time.
B. Their incomes to increase to make it easier to make payments.
C. Their interest rates to decrease as their credit balances decrease.
D. Their interest payments to increase as their credit balances decrease.
E. Their household expenses to be covered with their mortgage payment.

E

When used effectively, credit can result in
A. Default.
B. Bankruptcy.
C. Loss of creditworthiness.
D. Financial loss.
E. Improved lifestyle.

E

Which of the following is NOT correct?
A. Using credit can result in a greater chance of bankruptcy.
B. Using credit can decrease the amount of money that will be available to spend in the future.
C. Using credit offers convenience when shopping on the Internet.
D. Using credit cards typically offer a "float" of up to 10 days.
E. Using credit allows a consumer to shop without carrying a large amount of cash.

D

Which of the following is NOT correct?
A. Using credit is appropriate to pay for medical emergencies.
B. Using credit can increase the amount of money that will be available to spend in the future.
C. Using credit sometimes occurs automatically, such as for water or electricity usage.
D. Using credit cards usually makes returning merchandise without a receipt easier.
E. Using credit allows consumers to enjoy goods and services now and pay later.

B

A typical grace period for many credit card issuers is
A. 0-10 days.
B. 10-20 days.
C. 20-25 days.
D. 30-40 days.
E. 45-60 days.

C

Many think that perhaps the greatest disadvantage of using credit is
A. The temptation to overspend.
B. The convenience offered instead of using cash.
C. The float from using credit.
D. The increase in total purchasing power.
E. The increased satisfaction during present and future income periods.

A

Which of the following can result from a failure to repay a loan?
A. Bankruptcy.
B. Loss of income.
C. Loss of a good reputation.
D. Damage to family relationships.
E. All of these answers may be a result of the failure to repay a loan.

E

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

Before buying goods and services on credit, a consumer should consider all of the following except
A. Whether the good or service will have lasting value.
B. Whether the good or service will increase personal satisfaction during present income periods.
C. Whether the good or service will increase personal satisfaction during future income periods.
D. Whether current income will continue or increase.
E. Whether the good or service will be worth more because it was purchased with credit instead of cash.

E

Which of the following is an example of closed-end credit?
A. A mortgage loan.
B. A department store credit card.
C. Overdraft protection.
D. A bank line of credit.
E. All of these are examples of closed-end credit.

A

Which of the following is an example of open-end credit?
A. An automobile loan
B. A department store credit card
C. An installment loan for purchasing furniture
D. A mortgage loan
E. Single lump-sum credit

B

A direct loan for personal purposes, home improvements, or vacation expenses is called
A. A credit card.
B. An installment cash credit.
C. A bank line of credit.
D. Open-end credit.
E. Single lump-sum credit.

B

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is
A. A credit card.
B. An installment cash credit.
C. A bank line of credit.
D. Open-end credit.
E. Single lump-sum credit.

E

Molly purchased a $1,500 dishwasher from Best 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 these.

A

A line of credit is
A. The equal payments required for one-time loans.
B. The loan amount for installment cash credit.
C. The maximum loan amount for closed-end credit.
D. The maximum dollar amount of credit the lender has made available.
E. The monthly payment required for single lump-sum credit.

D

A prearranged loan up to a specified amount that a consumer can access by writing a special check is
known as
A. A bank credit card.
B. A revolving check credit.
C. Installment sales credit.
D. Single lump-sum credit.
E. Closed-end credit.

B

The periodic charge for the use of credit is
A. A line of credit.
B. A revolving check credit.
C. Interest.
D. A grace period.
E. Principal.

C

Which of the following is often considered to offer the least expensive loans?
A. Banks.
B. Finance companies.
C. Loan companies.
D. Parents or family members.
E. Savings and loan associations.

D

A cash advance
A. Increases a borrower’s credit limit.
B. Is the cheapest way to obtain money when away from home.
C. Usually is obtained from a bank.
D. Accrues interest charges beginning the day the cash advance is made.
E. Is tax-deductible

D

Home equity loans should be used for
A. Buying dinner at a restaurant.
B. Borrowing money for impulse purchases.
C. Major expenses such as home improvements or education.
D. Getting cash for weekend entertainment.
E. Selling a car

C

Home equity loans
A. Are based on the original purchase price of a home.
B. Have interest that is tax-deductible.
C. Do not have any security attached to the loan.
D. Have a 60-day grace period.
E. Are the most expensive loans available.

B

If you miss payments on a home equity loan, you can lose your
A. Savings account.
B. Car.
C. House.
D. Retirement account.
E. Furnishings.

C

A credit card holder who pays off his balances in full each month is known as
A. An impulsive lender.
B. A convenience user.
C. A home equity holder.
D. A convenience user AND a home equity holder.
E. All of these are correct.

B

Which of the following is NOT associated with credit cards?
A. A grace period
B. A finance charge
C. An annual fee
D. Convenience users and borrowers
E. A down payment on a home

E

Which of the following electronically subtracts money from your savings or checking account to pay for
goods and services?
A. A credit card
B. Closed-end credit
C. A debit card
D. A gift card
E. A home equity loan

C

Bankruptcy courts treat gift cards
A. As illegal loans.
B. As bribes.
C. The same way they handle unsecured debt.
D. As a smart choice.
E. The same as debit cards.

C

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and
still afford the monthly loan payments. This can be determined by
A. Adding up basic monthly expenses then subtracting this total from take-home pay.
B. Asking what you plan to give up to make the monthly loan payment.
C. Multiplying your take-home pay by 50% and subtracting your current loan payments.
D) Adding up basic monthly expenses, subtracting this total from take-home pay, and, if needed, figuring
out what to give up to make the payment.
E. All of these answers are correct.

D

Experts suggest that the debt payments-to-income ratio should be a maximum of
A. 0%
B. 20%
C. 25%
D. 50%
E. 100%

B

If you have reached the upper limit of debt obligations, your debt-to-equity ratio is about
A. 0.
B. 0.2.
C. 0.25.
D. 0.5.
E. 1.

E

When calculating the debt-to-equity ratio, the following is NOT included:
A. Credit card balances.
B. Open-end credit.
C. Auto loan balances.
D. Mortgage balance.
E. All of these are included in the calculation.

D

The question "Will you repay the loan?" relates to
A. Character.
B. Capacity.
C. Capital.
D. Collateral.
E. Conditions.

A

The question "What are your assets and net worth?" relates to
A. Character.
B. Capacity.
C. Capital.
D. Collateral.
E. Conditions

C

The use of property or savings to secure a loan relates to
A. Character.
B. Capacity.
C. Capital.
D. Collateral.
E. Conditions.

D

A loan officer is examining whether or not to will offer you a loan today. Specifically, she is examining
your income and debts. Which of the five Cs is the loan officer reviewing?
A. Character
B. Capacity
C. Capital
D. Collateral
E. Conditions

B

The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on
A. Race.
B. Nationality.
C. Age.
D. Sex.
E. All of these are prohibited.

E

Which of the following is the best scoring technique used in credit applications for consumers with
limited credit histories?
A. CreditHistory
B. CreditReport
C. FICO
D. LimitedCredit
E. VantageScore

E

FICO scores generally range from
A. 100 to 1000.
B. 200 to 700.
C. 350 to 850.
D. 450 to 650.
E. 500 to 1000.

C

Which of the following is NOT a valid credit application question?
A. How much of a loan are you requesting?
B. What is the account number for your checking account?
C. What is the name of the nearest relative not living with you?
D. How many dependents do you have?
E. All of these are valid credit application questions.

E

When evaluating your credit application, a lender may NOT
A. Ask your date of birth.
B. Deny you credit if you receive public assistance.
C. Request a list of the ages of your dependents.
D. Inquire if you ever received credit before from that lender.
E. Ask the income of your spouse if you have a joint application.

B

What step can you take if your credit application is denied?
A. Sue the credit rating agency.
B. File a complaint against the merchant.
C. Ask why you were denied credit.
D. Reapply for credit once 30 days have passed.
E. Borrowers do not have any rights provided by law.

C

If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The
bureau cannot charge a fee for this service as long as you ask to see your files within
A. 10 days.
B. 20 days.
C. 30 days.
D. 60 days.
E. 90 days.

D

A credit report includes
A. Credit history.
B. Assumptions made by credit rating agencies.
C. Credit score.
D. Credit expectations.
E. All of these.

A

Which of the following is NOT a credit bureau?
A. Experian.
B. Equifax.
C. Trans Union.
D. FICO.
E. All of these are credit bureaus.

D

Credit bureaus get their information from all of the following except
A. Banks.
B. Credit card companies.
C. Finance companies.
D. References.
E. Stores

D

Which of the following is the only online source authorized to provide a free credit report each year at
your request?
A. www.annualcreditscore.com
B. www.freecreditreport.com
C. www.onlinecreditreport.com
D. www.freecreditscore.com
E. www.annualcreditreport.com

E

Credit files can include all of the following except
A. Employer, position, and income.
B. Previous address.
C. Spouse’s name, Social Security number, employer, and income.
D. Race or nationality.
E. Checks returned for insufficient funds.

D

Which is NOT true about the Fair Credit Reporting Act?
A. It regulates the use of credit reports.
B. It requires deletion of out-of-date information.
C. It gives consumers access to their files and the right to correct any misinformation.
D. It places limits on who can obtain a report.
E. It gives borrowers the right to know why they are denied credit.

E

Credit reports can be obtained for all of the following reasons except
A. In response to a court order.
B. In connection with a credit transaction.
C. For underwriting of insurance.
D. Inquiry by a neighbor.
E. For some legitimate business need.

D

Information about a personal bankruptcy may be reported in your credit file for
A. 1 year.
B. 3 years.
C. 7 years.
D. 10 years.
E. Permanently.

D

If you are denied credit,
A. You have a legal right to sue the credit bureau.
B. Your parent can purchase a copy of your credit report.
C. You have a legal right to sue the company that denied you credit.
D. The denial will remain in your credit file for 10 years.
E. You are entitled to a free copy of your credit report.

E

The finance charge for credit includes all of the following except
A. Interest costs.
B. Services charges.
C. Credit-related insurance premiums.
D. Appraisal fees.
E. The amount borrowed.

E

The APR is the percentage cost of credit on a(n) ______________ basis.
A. monthly
B. quarterly
C. semi-annual
D. annual
E. life-of-loan

D

If a loan is being paid in installments instead of all at the end of the loan period, the actual rate of
interest
A. Will be lower than the stated rate.
B. Will be the same as the stated rate.
C. Will be higher than the stated rate.
D. Will be unrelated to the stated rate.
E. Cannot be determined without knowing the length of the loan period

C

Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both
have the same stated rate of interest. Which of the following is true?
A. The principal paid for the one-year loan will be lower than the principal paid for the four-year loan.
B. The principal paid for the one-year loan will be higher than the principal paid for the four-year loan.
C. The interest paid for the one-year loan will be lower than the interest paid for the four-year loan.
D. The interest paid for the one-year loan will be higher than the interest paid for the four-year loan.
E. The interest and principal payments cannot be compared for the two loans.

C

The minimum monthly payment on a credit card is
A. The amount to be paid without paying interest.
B. The interest amount charged for the month.
C. The minimum to be paid to avoid any charges or fees.
D. The smallest amount you can pay and remain a borrower in good standing.
E. The amount needed to pay off the credit card in one year.

D

If you double the monthly payment for a credit card, the loan will be paid off in
A. Half the time.
B. Less than half the time.
C. More than half the time.
D. The additional payment will have no impact.
E. Not enough information is available to answer.

B

Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to make
credit card or revolving credit payments on defective goods, and promptly crediting your payments?
A. Experian Act of 1982
B. Fair Credit Reporting Act of 1971
C. Bills and Disputes Act of 1963
D. Equifax Act of 1979
E. Fair Credit Billing Act of 1975

E

If you think a bill is wrong or you want more information about the bill, then you and your creditor
should follow all of the steps here except
A. You should notify your creditor in writing.
B. You should pay the portion of the bill that is not in question.
C. Your creditor must acknowledge your letter within 30 days.
D. Your creditor must adjust your account or tell you why the bill is correct within two billing cycles.
E. Your creditor must reimburse you for your time spent researching the error.

E

Which of the following is often the first sign of a stolen identity?
A. You receive bills for a credit card account you never opened.
B. You see charges to your account for things you purchased.
C. You receive a phone call from the thief.
D. You receive a duplicate credit card from your credit card company.
E. All of these are typical signs of a stolen identity.

A

If you think your identity has been stolen, which of the following actions does the Federal Trade
Commission recommend you take immediately?
A. Report it to your neighbor.
B. Call 911.
C. Contact your local bank.
D. File a police report.
E. All of these steps should be taken immediately.

D

Which of the following items should be shredded to protect yourself from identity theft?
A. Magazines
B. Papers with personal information
C. Envelopes
D. Privacy notices that are received with credit card statements
E. Newspaper ads

B

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two
checks, her cash, and her debit card were missing. She immediately thought about the increase in identity
theft in her area and decided to take some action. She should take all of the following steps except
A. Stop payment on the missing checks.
B. Cancel her debit card.
C. Get a new debit card with a new personal identification number (PIN).
D. Close her bank account and open a new one.
E. All of these steps are appropriate to take if she suspects identity theft.

E

Who is responsible for a loan repayment?
A. The store granting credit
B. The credit card company
C. The government
D. The cosigner
E. The bank

D

All of the following are consumer credit protection laws except
A. The Truth in Lending and Consumer Leasing Act
B. The Equal Credit Opportunity Act
C. The Fair Credit Billing Act
D. The Credit Lawsuit Act
E. The Consumer Credit Reporting Reform Act

D

If you want to file a complaint against a bank, you
A. Must have an account at the bank.
B. Must have at least $100,000 invested in the bank.
C. Must have a checking or savings account with the bank.
D. Do not need to have an account at the bank.
E. Must have a loan outstanding at the bank.

D

According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting any
billing errors, you have the right to sue for
A. Actual damages.
B. Actual damages plus twice the amount of any finance charges.
C. The amount owed on the item in question.
D. Three times the actual damages.
E. Nothing.

B

All of the following are signs of financial trouble except
A. You use savings to pay for necessities such as food and utilities.
B. You receive second and third payment due notices from creditors.
C. You exceed the credit limits on your credit cards.
D. You pay your credit card bills in full each period.
E. The total balance on your credit cards increases every month.

D

The Consumer Credit Counseling Service
A.Aids families with serious debt problems by helping them to manage their money better and set up a
realistic budget.
B. Is a consolidation firm that will manage bills for a percentage of the total payment due.
C. Provides counseling, usually for a fee.
D. Is a program to wipe out your debts within two years.
E. All of these are correct.

A

Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code?
A. Chapter 7
B. Chapter 11
C. Chapter 13
D. Chapters 7 and 13
E. Chapters 11 and 13

D

Under Chapter 7 of the U.S. bankruptcy code,
A. All debts are forgiven.
B. Alimony and child support debts are released.
C. Certain assets receive some protection.
D. Taxes and fines no longer need to be paid.
E. Debt arising from driving while intoxicated is forgiven.

C

Following the signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,
debtors seeking to erase all debts will have to wait ___ year(s) from their last bankruptcy before they can
file again.
A. one
B. three
C. seven
D. eight
E. ten

D

Rachel Johnson went to the ATM to draw $300 cash with her debit card. She inadvertently pulled out her
credit card instead, not realizing the expenses for cash advances. If her credit card company charges a
cash advance fee of 3% and interest at 24% APR, what are the total fees she will pay for her mistake?
A. $3
B. $6
C. $9
D. $15
E. $24

D

Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with
his Mastercard credit card, he was told that the restaurant accepted only cash or American Express. His
waiter suggested that he use the ATM across the street to withdraw cash using his credit card. Tim did as
suggested and didn’t pay attention to any fees until he received his credit card statement one month later.
He was shocked to see the total fees (3% cash advance), and his APR was increased to 21%. Given the
cost of the meal ($125) plus the associated fees, how much did his meal cost him?
A. $2.19.
B. $3.75.
C. $125.
D. $130.94.
E. $151.25.

D

Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally
Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in
a home equity loan from Acme?
A. $50,000
B. $80,000
C. $110,000
D. $150,000
E. $160,000

C

If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace
period, how much was he required to pay?
A. $3.00
B. $18.00
C. $182.00
D. $200.00
E. $236.00

D

Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a
student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-toincome
ratio?
A. 8%
B. 13%
C. 17%
D. 19%
E. 20%

D

Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, a
student loan payment of $150, a mortgage payment of $1,200, and a credit card minimum payment of
$45. What is his debt-payments-to-income ratio?
A. 13.2%
B. 14.3%
C. 36.7%
D. 42.0%
E. 45.9%

B

Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000.
What is her debt-to-equity ratio?
A. .45
B. .67
C. .75
D. 1.00
E. 1.30

B

Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge?
A. $3.00
B. $20.00
C. $23.00
D. $225.00
E. $248.00

C

Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is
his finance charge?
A. $3.00
B. $20.00
C. $23.00
D. $200.00
E. $223.00

C

Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at once
after one year, what is your average balance?
A. $20
B. $150
C. $160
D. $300
E. $320

D

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula
for this one-year, 9% loan. What is her total interest?
A. $9
B. $45
C. $90
D. $450
E. $1,009

C

Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest
formula for this two-year, 8% loan. What is his total interest?
A. $16
B. $80
C. $112
D. $224
E. $1,416

D

Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year,
what is her cousin’s actual rate of return on the loan?
A. 2%
B. 4%
C. 6%
D. 8%
E. 10%

B

Personal financial planning is the process of managing your money to achieve personal economic satisfaction.

TRUE

A financial plan is an informal report that analyzes past financial decisions.

FALSE

A financial plan is another name for a budget.

FALSE

Financial Plans are only created by financial planners.

FALSE

The life situation of a household has little influence on personal financial planning decisions.

FALSE

The long-term goals for a young single will probably be the same as those for an older couple with no dependent children at home.

FALSE

Inflation is most harmful to people with incomes expected to increase.

FALSE

Inflation reduces the buying power of money.

TRUE

When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.

TRUE

Higher inflation usually results in lower interest rates.

FALSE

Developing a budget is part of the "spending" component of financial planning.

FALSE

Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work.

TRUE

Short-term goals are usually achieved within the next year or so.

TRUE

Intermediate goals are usually achieved within the next year or so.

FALSE

Purchasing a car is an example of a consumable-product goal.

FALSE

Purchasing a car is an example of a durable-product goal.

TRUE

Opportunity costs refer to money already spent.

FALSE

Opportunity costs refer to time, money, and other resources that are given up when a decision is made.

TRUE

Interest earned is calculated by multiplying the principle times the opportunity cost.

FALSE

Risks associated with most financial decisions are easy to measure.

FALSE

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n)
A. Insurance prospectus.
B. Financial plan.
C. Budget.
D. Investment forecast.
E. Statement.

B FINANCIAL PLAN

The major function of a financial plan is to
A. Reduce taxes.
B. Increase savings.
C. Achieve financial goals.
D. Improve your credit rating.
E. Obtain adequate insurance protection.

C ACHIEVE FINANCIAL GOALS

An advantage of personal financial planning is:
A. The use of low-interest savings
B. Increased impulse spending
C. Increased control of financial affairs
D. More credit card debt
E. Less monitoring of investments

C. Increased control of financial affairs

The stages that an individual goes through based on stages in the family and financial needs is called the
A. Financial planning process
B. Budgeting procedure
C. Personal economic cycle
D. Adult life cycle
E. Tax planning process

D. Adult life cycle

Sally Smith’s friends have told her that they think she should consider a visit to a personal financial planner. Why do you think her friends made the suggestion?
A. Sally usually saves 10 percent of her paycheck for long-term goals.
B. Sally has no credit card debt.
C. Sally tracks her investments and makes changes to her allocations once per year.
D. Sally plans to quit her job and volunteer for local organizations.
E. Sally has used a budget for years.

D. Sally plans to quit her job and volunteer for local organizations.

John Jones was laid off of his job two months ago. He just received an offer for a position that pays 2/3 the salary of his old job. Why should he set up a financial plan?
A. To increase the effectiveness of obtaining, using, and protecting his financial resources.
B. To decrease control of his financial affairs regarding debt.
C. To accept the loss of freedom from financial worries due to his new position.
D. To learn how to manage with less savings.
E. To find out why he was laid off.

A. To increase the effectiveness of obtaining, using, and protecting his financial resources.

The consumer price index reflects:
A. The prices of products and services in the United States
B. The prices of products and services around the world
C. The change in prices of products and services of urban consumers
D. The change in prices of products and services around the world
E. None of the above

C. The change in prices of products and services of urban consumers

The inflation rate for a household will be:
A. Greater than the inflation rate as reported by the CPI since the index excludes the product or service with the highest inflation rate for the past 12 months
B. Lower than the inflation rate as reported by the CPI since the index excludes the product or service with the lowest inflation rate for the past 12 months
C. Equal to the inflation rate as reported by the CPI since it includes all products and services whether or not the prices have changed in the past 12 months
D. Either greater than or less than the inflation rate as reported by the CPI depending on the household’s "basket" of goods and services purchased
E. Zero since the CPI does not measure consumer price changes

D. Either greater than or less than the inflation rate as reported by the CPI depending on the household’s "basket" of goods and services purchased

The Rule of 72 is:
A. A tool to determine the number of years until retirement for an employee
B. Used to estimate how long it takes for prices to double using a given annual inflation rate
C. The legal code for requiring companies to provide a match on retirement savings
D. Used to calculate interest rates for savings
E. The number of steps required to complete a financial plan

B. Used to estimate how long it takes for prices to double using a given annual inflation rate

Who is most likely to benefit by inflation?
A. Retired people
B. Lenders
C. Borrowers
D. Low-income consumers
E. Government

C. Borrowers

Higher consumer prices are likely to be accompanied by
A. Lower union wages
B. Lower interest rates
C. Lower production costs
D. Higher interest rates
E. Higher exports

D. Higher interest rates

An investor should expect to receive a risk premium for
A. Expanded exports
B. Lower consumer prices
C. Higher potential earnings due to uncertainty
D. Reduced availability of investments
E. Expected lower inflation

C. Higher potential earnings due to uncertainty

Which of the following would increase the interest rate for a loan?
A. Poor credit rating
B. Higher down payment
C. Constant interest rates
D. Lower consumer prices
E. Short time to maturity

A. Poor credit rating

Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so?
A. General interest rates are very low
B. His credit rating is poor because of his late payments
C. He already has a student loan outstanding
D. Recent graduates are not allowed to have more than $25,000 in debt outstanding
E. Interest rates must be tied to the CPI

B. His credit rating is poor because of his late payments

Attempts to increase income are part of the _____________ component of financial planning.
A. Obtaining
B. Planning
C. Saving
D. Borrowing
E. Spending

A. Obtaining

The ‘borrowing’ activity in a financial plan relates to
A. Acquiring adequate insurance coverage
B. Investing for long-term growth
C. Setting up a budget
D. Obtaining financial resources from employment, investments or ownership
E. Maintaining control of credit-buying habits

E. Maintaining control of credit-buying habits

The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning.
A. Sharing
B. Savings
C. Obtaining
D. Borrowing
E. Protecting

D. Borrowing

A question associated with the saving component of financial planning is:
A. Do you have an adequate emergency fund?
B. Is your will current?
C. Is your investment program appropriate to your income and tax situation?
D. Do you have a realistic budget for your current financial situation?
E. Are your transportation expenses minimized through careful planning?

A. Do you have an adequate emergency fund?

Which of the following short-term goals is stated most clearly?
A. Buy a car for less than $17,000 within 6 months
B. Retire at age 65 with $2,000,000 in my 401(k) account
C. Purchase a house with a mortgage no greater than $150,000 within 5 years
D. Set up an emergency fund
E. Invest $50 per month for the next 18 years for my nephew’s college fund

A. Buy a car for less than $17,000 within 6 months

Which of the following long-term goals is stated most clearly?
A. Buy a car for less than $17,000 within 6 months
B. Retire at age 65
C. Purchase a house with a mortgage no greater than $150,000 within 3 years
D. Set up an emergency fund
E. Invest $50 per month for the next 18 years for my nephew’s college fund

E. Invest $50 per month for the next 18 years for my nephew’s college fund

Which of the following intermediate goals is stated most clearly?
A. Buy a car for less than $17,000 within 6 months
B. Retire at age 65 with $2,000,000 in my 401(k) account
C. Purchase a house with a mortgage no greater than $150,000 within 3 years
D. Set up an emergency fund
E. Invest $50 per month for the next 18 years for my nephew’s college fund

C. Purchase a house with a mortgage no greater than $150,000 within 3 years

Which of the following goals would be the easiest to implement and measure?
A. Invest $2,000 a year for retirement.
B. Reduce our debt payments.
C. Save funds for an annual vacation.
D. Save $100 a month to create a $4,000 emergency fund.
E. Spend less each month.

D. Save $100 a month to create a $4,000 emergency fund.

The goal of investing $50 per month for the next 18 years for your nephew’s college fund is a(n) __________ goal.
A. Short-term
B. Intermediate
C. Long-term
D. Intangible
E. Durable

C. Long-term

Many Americans have money problems because of
A. Poor planning and weak money management habits
B. Too many clearly defined goals
C. Proper use of credit
D. Not enough advertising to make effective decisions
E. Controlled spending

A. Poor planning and weak money management habits

Fran Gardner has a goal of "saving $25 per month for a TV." Fran’s goal lacks
A. Measurable terms
B. A realistic perspective
C. Specific actions
D. A tangible end
E. A time frame

E. A time frame

Which of the following is correct?
A. A home purchase is a consumable-product goal
B. Entertainment is a durable-product goal
C. Appliances and sporting equipment are intangible-purchase goals
D. Leisure and education are durable-product goals
E. Food and clothing are consumable-product goals

E. Food and clothing are consumable-product goals

_________ goals relate to infrequently purchased, expensive items.
A. Short-term
B. Intangible-purchase
C. Durable-product
D. Consumable-products
E. Intermediate

C. Durable-product

To develop a financial plan, one should
A. Set several general goals for the short-term
B. Only set long-term goals after short-term goals have been accomplished
C. Focus on intermediate goals first
D. Identify specific, realistic goals along with the time frame and an action plan
E. Not worry about whether or not the goals can be achieved based on one’s income and life situation

D. Identify specific, realistic goals along with the time frame and an action plan

The goal of purchasing a long-term care insurance policy would be most appropriate for
A. A young couple without children.
B. A single mother with a preschool daughter.
C. A recent college graduate.
D. A single adult nearing retirement age.
E. An extremely wealthy executive.

D. A single adult nearing retirement age.

Opportunity cost refers to
A. Money needed for major consumer purchases.
B. The trade-off of a decision.
C. The amount paid for taxes when a purchase is made.
D. Current interest rates.
E. Evaluating different alternatives for financial decisions.

B. The trade-off of a decision.

Rob Redbird is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finds a substitute for his shift so he can attend the concert, what kind of cost is he incurring?
A. Fixed
B. Opportunity
C. Unexpected
D. Unavoidable
E. Tangible

B. Opportunity

Which of the following is an example of opportunity cost?
A. Renting an apartment near school
B. Saving money instead of taking a vacation
C. Organizing income tax records
D. Purchasing automobile insurance
E. Using a personal computer for financial planning

B. Saving money instead of taking a vacation

An example of a personal opportunity cost would be
A. Interest lost by using savings to make a purchase.
B. Higher earnings on savings that must be kept on deposit a minimum of six months.
C. Lost wages due to continuing as a full-time student.
D. Time comparing several brands of personal computers.
E. Having to pay a tax penalty due to not having enough withheld from your monthly salary.

D. Time comparing several brands of personal computers.

The time value of money refers to
A. Personal opportunity costs such as time lost on an activity.
B. Financial decisions that require borrowing funds from a financial institution.
C. Changes in interest rates due to changes in the supply and demand for money in our economy.
D. Increases in an amount of money as a result of interest earned.
E. Changing demographic trends in our society.

D. Increases in an amount of money as a result of interest earned.

Because of interest that can be earned, if I can invest a dollar today, it should be worth _________ in the future.
A. Less
B. The same as
C. More
D. Either less or the same as
E. Either the same as or more

C. MORE

To calculate the time value of money, we need to consider all except the
A. Payments.
B. Annual interest rate.
C. Length of time the money is invested.
D. Type of investment.
E. Principal.

D. TYPE OF INVESTMENT

Future value computations are also referred to as
A. Discounting.
B. Add-on interest.
C. Compounding.
D. Simple interest.
E. An annuity.

C. COMPOUNDING

Present value computations are also referred to as
A. Discounting.
B. Add-on interest.
C. Compounding.
D. Simple interest.
E. An annuity.

A. DISCOUNTING

Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 years so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase?
A. Present value of a single amount
B. Future value of a single amount
C. Simple interest
D. Present value of an annuity
E. Future value of an annuity

E. Future value of an annuity

Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?
A. Present value of a single amount
B. Future value of a single amount
C. Simple interest
D. Present value of an annuity
E. Future value of an annuity

D. Present value of an annuity

Tim Calibe received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house he plans to purchase in 3 years. What type of computation should he use?
A. Present value of a single amount
B. Future value of a single amount
C. Simple interest
D. Present value of an annuity
E. Future value of an annuity

B. Future value of a single amount

Rebecca Gladyn plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school and she wants to save money each month to reach her goal. What type of computation should she use?
A. Present value of a single amount
B. Future value of a single amount
C. Simple interest
D. Present value of an annuity
E. Future value of an annuity

E. Future value of an annuity

Paul Jacoby wants to deposit money today for a vacation he plans to take to Asia after he graduates from Grad School. Which formula should he use to determine the amount of money he will have available for his vacation?
A. Present value of a single amount
B. Future value of a single amount
C. Simple interest
D. Present value of an annuity
E. Future value of an annuity

A. Present value of a single amount

The first step of the financial planning process is to
A. Develop financial goals.
B. Implement the financial plan.
C. Analyze your current personal and financial situation.
D. Evaluate and revise your actions.
E. Create a financial plan of action.

C. Analyze your current personal and financial situation.

Financial decisions related to income include all except the following
A. Spending
B. Saving
C. Sharing
D. Taking
E. All of these are financial decisions

D. TAKING

Place the following steps for a personal financial plan in the proper order:
1. Review and revise your plan
2. Identify alternative courses of action
3. Create and implement your financial action plan
4. Determine your current financial situation
5. Evaluate your alternatives
6. Develop your financial goals
A. 6, 1, 2, 5, 3, 4
B. 4, 2, 6, 5, 3, 1
C. 3, 6, 4, 2, 5, 1
D. 4, 6, 2, 5, 3, 1
E. 6, 2, 5, 4, 1, 3

D. 4, 6, 2, 5, 3, 1

The uncertainty associated with decision making is referred to as
A. Opportunity cost.
B. Selection of alternatives.
C. Financial goals.
D. Personal values.
E. Risk.

E. RISK

The changing cost of money is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. personal

A. interest-rate

The rising of prices that causes changes in buying power is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. personal

B. INFLATION

The loss of a job is referred to as ____________ risk.
A. interest-rate
B. inflation
C. income
D. trade-off
E. personal

C. INCOME

The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. personal

E. PERSONAL

The potential for difficulty to convert an investment to cash is referred to as ____________ risk.
A. interest-rate
B. inflation
C. economic
D. trade-off
E. liquidity

E. LIQUIDITY

Changes in income, values, and family situation make it necessary to
A. Evaluate and revise your actions.
B. Implement the financial plan.
C. Develop financial goals.
D. Analyze your current personal and financial situation.
E. Create a financial plan of action.

A. Evaluate and revise your actions.

The step in the personal financial planning process that follows "Create and implement your financial action plan" is
A. Review and revise your plan
B. Identify alternative courses of action
C. Determine your current financial situation
D. Evaluate your alternatives
E. Develop your financial goals

A. Review and revise your plan

Using the services of financial institutions or specialists (such as insurance agents or investment brokers) will be most evident in your effort to
A. Develop financial goals.
B. Evaluate and revise your actions.
C. Analyze your current personal and financial situation.
D. Implement the financial plan.
E. Create a financial plan of action.

D. Implement the financial plan.

If inflation is expected to be 8 percent, how long will it take for prices to double?
A. 6 years
B. 8 years
C. 9 years
D. 12 years
E. 18 years

C. 9 YEARS

If a $10,000 investment increases to $10,090 in one year, what is its rate of return?
A. .9 percent
B. 1.09 percent
C. 9 percent
D. 90 percent
E. 109 percent

A. .9 PERCENT

If a $10,000 investment earns a 9% annual return, what should its value be after one year?
A. $9,000
B. $9,100
C. $10,000
D. $10,090
E. $10,900

E. $10,900

If a $10,000 investment earns a 9% annual return, what should its value be after 7 years?
A. $547
B. $5,033
C. $9,200
D. $18,280
E. $18,380

D. $18,280

If Patty Shoemaker estimates that her $75 weekly grocery bill will increase at an annual inflation rate of 3%, what should her weekly grocery bill be in 5 years?
A. $64.73
B. $82.85
C. $86.93
D. $343.50
E. $398.18

C. $86.93

Annual earnings on a $2,000 Certificate of Deposit earning 3.15% would be
A. $31
B. $63
C. $126
D. $2000
E. $2630

B. 63

Randy Hill wants to retire in 40 years with $2,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal?
A. $4,518
B. $5,000
C. $44,190
D. $50,000
E. None of the above

D. $50,000

Inflation reduces the buying power of money

TRUE

Opportunity costs refer to what a person gives up when making a decision.

TRUE

Analyzing your current financial position is a part of the first stage of the financial planning process.

TRUE

With an inflation rate of 9 percent, prices would double in about ___________ years.
A. 4
B. 6
C. 8
D. 10
E. 12

C.8

The stages that an individual goes through based on age, financial needs, and family situation is called the:
A. financial planning process.
B. budgeting procedure.
C. personal economic cycle.
D. adult life cycle.
E. tax planning process.

D. adult life cycle.

The ability to convert financial resources into usable cash with ease is referred to as:
A. bankruptcy.
B. liquidity.
C. investing.
D. saving.
E. opportunity cost.

B. LIQUIDITY

As Jean Tyler plans to set aside funds for her young children’s college education, she is setting a(n) ____________ goal.
A. intermediate
B. long-term
C. short-term
D. intangible
E. durable

B. LONG-TERM

Opportunity cost refers to:
A. money needed for major consumer purchases.
B. what a person gives up by making a choice.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.

B. what a person gives up by making a choice.

If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type of computation?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits

C. future value of a series of deposits

Which type of computation would a person use to determine current value of a desired amount for the future?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits

D. present value of a single amount

If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how long will it take your salary to double?
A. 30 years
B. 24 years
C. 18 years
D. 12 years
E. 6 years

B. 24 YEARS

If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years?
A. future value of a single amount
B. simple interest
C. present value of a single amount
D. present value of a series of deposits
E. future value of a series of deposits

A. future value of a single amount

Which of the following is an example of opportunity cost?
A. renting an apartment near school
B. saving money instead of taking a vacation
C. setting aside money for paying income tax
D. purchasing automobile insurance
E. using a personal computer for financial planning

B. saving money instead of taking a vacation

The financial planning process concludes with efforts to:
A. develop financial goals.
B. create a financial plan of action.
C. analyze your current personal and financial situation.
D. review the financial plan.
E. review and revise your actions.

E. review and revise your actions.

When prices are rising at a rate of 3 percent, the cost of products and services would double in ______ years.
A. 3
B. 6
C. 12
D. 24
E. 36

D. 24

The annual price increase for consumer goods and services measured by the Bureau of Labor Statistics is referred called ________.
A. deflation
B. inflation
C. the consumer price index
D. the price calculator
E. goods and all of the above

C. the consumer price index

Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value of $500 would have a tax-equivalent value of:
A. $694.
B. $528.
C. $500.
D. $360.
E. $140.

A. $694.

Federal tax-deferred employee benefits are:
A. not subject to federal income tax.
B. not subject to state income tax.
C. taxed at some future time.
D. are taxed at a special rate.
E. only available to union employees.

C. taxed at some future time.

Caroline lives in City A and earns $50,000 per year. The cost of living index in City A is .8. She is considering a move to City B which has a cost of living index of .9. How large a salary will she require in City B to maintain her current standard of living?
A. $44,444
B. $40,000
C. $56,250
D. $45,000
E. $50,000

C. $56,250

Joseph is eligible for a nontaxable life insurance benefit with an annual premium of $400 paid entirely by his employer. Assuming Joseph is in a 25% bracket, how much would he have to earn to pay for this benefit with after-tax dollars?
A. $425.00
B. $533.33
C. $433.33
D. $500.00
E. $400.00

B. $533.33

Financial records that are referred to on a regular basis should be kept in a safe-deposit box.

FALSE

A budget is a specific plan of how a person or family expects to spend their money.

TRUE

A personal balance sheet reports your income and expenses.

FALSE

A person’s net worth is the difference between the value of the items owned and the amounts owed to others.

TRUE

If expenses for a month are greater than income, an increase in net worth will result.

FALSE

Opportunity costs refer 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. trade-offs associated with financial decisions.

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. balance sheet and cash flow statement

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. items owned and amounts owed.

The current financial position (including net worth) 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. balance sheet.

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. $23,000.

Items that you own with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.

E. assets.

Liabilities are amounts representing:
A. debts.
B. items of value.
C. living expenses.
D. taxable income.
E. current assets.

A. DEBTS

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. reduced amounts owed to others.

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. current income and payments.

Total earnings of a person minus the 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. take-home pay.

Payments that do not vary from month to month are ____________ expenses.
A. fixed
B. usage
C. variable
D. luxury
E. output

A. FIXED

During the past month, Jennifer Ernet had income of $3,000. During the month, her net worth declined by $200. If no other financial activities occurred, this means Jennifer’s payments for the month were:
A. $3,200.
B. $3,000.
C. $2,800.
D. $200.
E. $0.

A. 3,200

Which one of the following should be budgeted first?
A. variable expenses
B. vacation expenses
C. fixed expenses
D. unplanned living expenses
E. recreation expenses

C. fixed expenses

If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a:
A. variance.
B. deficit.
C. fixed living expense.
D. budget reduction.
E. contribution to net worth.

A. VARIANCE

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. actual expenses are greater than planned expenses.

Kyle Burroughs has decided to put $25 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his savings is important. This would be an example of:
A. a budget variance.
B. an opportunity cost.
C. a balance sheet.
D. an accounting error.
E. a budget anomaly.

B. an opportunity cost.

Karen Price has created a financial statement for herself that lists all of the assets she owns as well as the debts she owes. This would be an example of:
A. money management.
B. opportunity cost analysis.
C. a balance sheet.
D. a liquidation exercise.
E. a budget variance.

C. BALANCE SHEET

Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000, and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Patricia’s net worth?
A. $267,500
B. $105,500
C. $162,000
D. $205,500
E. $132,000

C. $162,000

A family has a net worth of $156,000 and liabilities of $167,000, what is the amount of their assets?
A. $11,000
B. $156,000
C. $167,000
D. $323,000
E. $452,000

D. $323,000

This month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting in a
A. balanced budget.
B. surplus of $150.
C. deficit of $150.
D. surplus of $3,100.
E. deficit of $2,950.

B. surplus of $150.

Allen Arnold has determined that the amount of money he spends on his mortgage payment, car insurance payment, and cable bill totals $1,200 each month. What type of expenses has Allen determined with this calculation?
A. current liabilities
B. long Term liabilities
C. net worth
D. variable expenses
E. fixed expenses

E. fixed expenses

For January, Bethany DeWeese had cash inflows of $4,200 and cash outflows of $4,750, resulting in a
A. balanced budget.
B. surplus of $550.
C. deficit of $550.
D. surplus of $8,950.
E. deficit of $4,750.

C. deficit of $550.

A state may impose a personal property tax.

TRUE

An estate tax is imposed on the value of an individual’s property at the time of his or her death.

TRUE

An exclusion is earnings not included in taxable income.

TRUE

Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income.

TRUE

A tax credit is an amount subtracted directly from the amount of taxes owed.

TRUE

Taxable income is used to compute a person’s:
A. exemptions.
B. income tax.
C. deductions.
D. capital gains.
E. exclusions.

B. INCOME TAX

A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent.
A. 8.6
B. 10.3
C. 12.3
D. 14.2
E. 16.7

C. 12.3

Which one of the following is not included in gross income?
A. Tax credit.
B. Exemption.
C. Exclusion.
D. Earned income.
E. Portfolio income.

C. EXCLUSION

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. alimony payments

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. an exemption.

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.

D. receive more than one half of his or her support from the taxpayer.

A tax ____________ is an amount subtracted directly from the amount of taxes owed.
A. credit
B. exemption
C. deduction
D. exclusion
E. shelter

A. CREDIT

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. 50

The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be?
A. general sales tax
B. excise tax
C. personal property tax
D. income tax
E. estate tax

B. EXCISE TAX

In which city are coins made?

A. Saint Louis

B. Philadelphia

C. New York

D. Washington, D.C.

B. Philadelphia

Paper money is produced by the _________________.

A. Federal Reserve Bank

B. United States Treasury

C. Bureau of Engraving and Printing

D. Fort Knox Mint

C

What gives money its value?

A. Supply and demand

B. Backed by gold

C. Backed by silver

D. Present values

A

What two cities are currently producing coins?

A. Denver and Philadelphia

B. Philadelphia and San Francisco

C. Denver and San Francisco

D. Fort Worth and Washington, D.C.

A

What is paper money backed by?

A. Gold

B. Gold and silver

C. The full faith and credit of the U.S. government and the Federal Reserve Bank

D. Silver

C

Which of the following is paper money backed by?

A. The U.S. president

B. The full faith and credit of the U.S. government and the Federal Reserve Bank

C. The Federal Reserve Bank

D. The Bureau of Engraving and Printing and the Federal Reserve Bank

B

Where is one place where paper money is printed?

A. San Francisco

B. Washington, D.C.

C. Denver

D. Philadelphia

B

What gives paper currency value?

A. Having a high supply and high demand

B. Having a high supply and low demand

C. Having a limited supply and relatively high demand

D. Having a low supply and low demand

C

Paper money is backed by the credit and faith of the U.S. government and _________________.

A. Wells Fargo

B. The Federal Union

C. The USDA

D. The Federal Reserve

D

Currently, which two U.S. cities produce coins for circulation?

A. New York and Washington, D.C.

B. Atlanta and Seattle

C. Philadelphia and Denver

D. Boston and Houston

C

What is the money in the United States backed by?

A. Gold

B. Silver

C. The full faith and credit of the U.S government

D. The president’s oath of office

E. The Chinese yen

C

Who controls the circulation of money in the United States?

A. Coin mints

B. The Bureau of Engraving and Printing

C. The Federal Reserve

D. The president of the United States

C

The _________________ frequently interest is compounded, the _________________ the yield.

A. More; lower

B. More; higher

C. Less; higher

D. Less; same

B

What is the average amount of a credit card’s late fee?
A. $2 0
B. $26
C. $30
D. $36

B- 26$

Your previous balance is $100; you charge $100 more on January 2 nd and your month-end balance is $200. What method would cost the most with 12% APR?
A. Adjusted balance method
B. Average daily balance method
C. Minimum finance charge
D. Both the adjusted balance method and the average da

A. Adjusted balance method

You used your clothing store credit card this month and your bill arrived in the mail 12 days ago. If you pay your bill today, this is referred to as a(n)
A. Credit report
B. Grace period
C. Interest charge
D. Minimum charge

B. Grace period

Today Bob Jones purchased an investment grade gold coin for $50,000. He expects the coin to increase in value at a rate of 12% compounded annually for the next 5 years. How much will the coin be worth at the end of the fifth year if his expectations are correct?
a. $89,792.82
b. $6691 1.28
c. $88,117.08
d. $89,542.38
e. None of the above

c. $88,117.08

To choose the right type of financial instrument, which of the following should you consider?
A. Fee’s
B. Locations and hours
C. Interest rates
D. All of these

D-All of these

Anna recently opened a savings account and made three deposits in the amounts of $100,000, $65,000, and $200,000. If the Great Depression was to occur again and the bank closed, how much money would Anna be insured for?
A. $365, 000
B. $200,000
C. $250,000
D. $100,000

C

_________________ were established for people who have a common bond.
A. Commercial bonds
B. Credit bureaus
C. Stockholders
D. Credit unions

D

Which of the following financial institutions qualify as a financial intermediary?
A commercial bank
B. A credit union
C. A savings institution
D. All of these

D

Which financial institution would be the best fit for a college-aged student who needs a checking account?
A. Commercial bank
B. Credit union
C. Savings institution
D. All of these

A

Higher returns on savings will usually result in less liquidity.

TRUE

A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest.

TRUE

A certificate of deposit is usually considered to be very liquid

FALSE

The more frequent the compounding, the less a person will earn on a savings account.

FALSE

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

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.
E. certificates of deposit.

A

Which of the following statements regarding debit and credit card liability is correct?
A. A credit card carries more risk of loss to the cardholder.
B. A debit card carries more risk of loss to the cardholder.
C. There is no cardholder liability if either type of card is lost.
D. The Federal Government insures losses on credit but not debit cards.
E. The Federal Government insures losses on debit but not credit cards.

B

To avoid high fees for loans, a person should avoid borrowing from a:
A. credit union.
B. savings and loan association.
C. pawnshop.
D. commercial bank.
E. mutual savings bank.

C

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

The rate of return on a savings account is also referred to as:
A. liquidity.
B. compounding.
C. yield.
D. opportunity cost.
E. asset turnover.

C

A $200 savings account that earns $13 interest in a year has a yield of ____________ percent.
A. 6.00
B. 13.00
C. 7.00
D. 11.25
E. 6.50

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

Which of the following is an effective strategy in times of falling interest rates?
A. Use long-term loans to take advantage of current low rates.
B. Use short-term loans to take advantage of lower rates when you refinance the loans.
C. Select short-term savings instruments to take advantage of higher rates when they mature.
D. Select short-term savings instruments to lock-in earnings at current high rates.
E. Select long-term savings instruments to lock-in earnings at current low rates.

B

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

Which of the following institutions makes loans based on the value of tangibles possessions, such as jewelry and collectibles?
A. life insurance company
B. finance company
C. mortgage company
D. pawnshop
E. investment company

D

What type of account would be considered the most liquid?
A. certificate of deposit
B. checking account
C. money market account

B

A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent. Ignore compounding.
A. 33.00
B. 27.50
C. 20.00
D. 5.50
E. 2.75

A

A person borrows $200 from a payday loan company, and pays $10 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore compounding.
A. 260
B. 130
C. 40
D. 20
E. 5

B

A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent.
A. 28.00
B. 16.72
C. 4.00
D. 2.88
E. 1.12

D

Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.

TRUE

Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.

TRUE

Most consumers have only one choice in financing current purchases

FALSE

Credit when effectively used, can help you have more and enjoy more.

TRUE

Perhaps the greatest disadvantage of using credit is the temptation to overspend

TRUE

With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.

FALSE

Interest is a periodic charge for the use of credit, or other finance charges.

TRUE

You should sign your new credit cards as soon as they arrive

TRUE

The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.

FALSE

When you cosign a loan, you are being asked to guarantee this debt.

TRUE

Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records.

TRUE

Your friends and neighbors can get credit information about you.

FALSE

In the 5 Cs of credit, capital refers to your assets or net worth.

TRUE

In the 5 Cs of credit, capital refers to your financial ability to meet credit obligations.

FALSE

A good example of closed-end credit is:
A. a credit card issued by a department store.
B. a credit card issued by VISA or MasterCard.
C. the use of overdraft protection at a bank.
D. the use of a cashier’s check to pay for a purchase.
E. a mortgage loan.

E

Another name for open-end credit is:
A. revolving credit.
B. a box of credit.
C. convenience credit.
D. installment credit.
E. single lump-sum credit.

A

A debit card:
A. immediately deducts the cost of your purchase from your bank account.
B. sends money directly to Dr. Basford’s account.
C. is a new type of a credit card issued by VISA International.
D. is another name for a travel and entertainment card.
E. typically has a credit limit of $1,000.

A

Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50

B

If you cosign a loan:
A. you are only responsible for half of the debt obligation.
B. you will be asked, but not required, to pay the loan if full if the borrower fails to pay.
C. you will be required to pay the loan in full if the borrower defaults on the payments.
D. the creditor must first try to collect from the borrower.
E. the creditor is prohibited from garnishing your wages if you refuse to pay the loan in full.

C

Most of the information in your credit file may be reported for only ______ years.
A. 7
B. 9
C. 11
D. 13
E. 15

A

The 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 by your liabilities.
D. a useless ratio for determining your credit capacity.
E. rarely used by creditors in determining credit worthiness.

B

The 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 your liabilities.
D. a useless ratio for determining your credit capacity.
E. rarely used by creditors in determining credit worthiness.

A

If you have declared personal bankruptcy, that fact may be reported by credit bureaus for ____________ years.
A. 5
B. 10
C. 15
D. 20
E. 25

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 term that refers to the borrower’s assets or net worth is called:
A. capacity.
B. character.
C. capital.
D. collateral.
E. conditions.

C

If your credit application is denied, you:
A. should sue the credit rating agency.
B. should file a complaint against the merchant.
C. have no legal right to know why.
D. are entitled to know the specific reason you were denied credit.
E. can reapply for credit after 30 days.

D

The best way to maintain your credit rating is to:
A. use credit sparingly.
B. pay cash for your purchases.
C. repay your debts on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.

C

Affan Chawdry has monthly net income of $1,050. He has a house payment of $450 per month, a car loan with payments of $250 per month, a Visa card with payments of $50 per month, and a credit card with a local department store with payments of $100 per month. What is Affan’s debt payments-to-income ratio?
A. 2.63
B. 1.24
C. 0.81
D. 0.38
E. 0.50

D

Karen Price has determined that her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and $15,000 on a car loan. What is Karen’s debt-to-equity ratio?
A. 3.2
B. 2.0
C. 0.5
D. 2.7
E. 0.3

C

The information in your credit report is primarily used by the credit bureau to compute your
A. debt to equity ratio
B. FICO score
C. debt payment to income ratio
D. liquidity ratio
E. long term capitalization ratio

B

Buying on credit is almost always cheaper than paying cash

FALSE

Parents or family members are often the source of the least expensive loans.

TRUE

Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate.

TRUE

The annual percentage rate is the percentage cost of credit on a yearly basis

TRUE

If you want to take advantage of a grace period on your credit card, you must pay your bill in full every month.

TRUE

You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy

TRUE

Which one of the following 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:
A. tend to be more expensive than other types of loans.
B. must be interest-free.
C. may create tension within the family.
D. are limited to oral agreements.
E. are legally prohibited from establishing repayment dates and terms.

C

If you borrow $100 at 10 percent simple annual interest (APR) and repay it in one lump-sum at the end of one year, you will repay:
A. $100.
B. $105.
C. $110.
D. $115.
E. $120.

C

Which lender is likely to ask you to write a check for $115 before granting you a $100 loan?
A. credit union
B. payday advance company
C. finance company
D. department store
E. commercial bank

B

Payday, cash advance, check advance, and post- dated checks are _________ loans.
A. inexpensive
B. medium-priced
C. expensive
D. low APR
E. variable APR

C

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10, what is her total cost of credit?
A. $10
B. $12
C. $24
D. $34
E. $42

D

One way that leads a person to earn additional income is for the person to
A. discuss financial goals with her supervisor.
B. increase budgeted monthly expenses.
C. increase her knowledge or improve skills.
D. volunteer at a successful corporation

C

Entrepreneurs who start a new business with the hope of making a profit are
A. working fewer hours than people who have an employer.
B. earning higher wages than most people.
C. taking advantage of government protection against financial loss.
D. accepting the risk of financial loss if unsuccessful

D

Income can be earned or unearned. Which of the following is an example of unearned income?
A. Money from a part-time second job.
B. Tips from customers.
C. Interest from bank accounts.
D. Paid vacation days from work.

C

Which of the following terms is correctly matched?
A. Capital Gains – Scholarships.
B. Rent – Tax free income.
C. Gross Income – Salary before taxes.
D. Deductions – Earned Income.

C

What strategy is an effective way to build adequate financial resources for a family to pay for college tuition?
A. Opening a 529 College Savings Plan in the first year of a child’s birth.
B. Taking a greater risk by purchasing speculative stocks until a child is age 16.
C. Reducing taxes by investing money in mutual funds.
D. Increasing contributions to Social Security.

A

Which of the following factors, other than job performance, will result in higher wages being given to many workers?
A. An increase in the number of vacation days per year. B. A decrease in corporate borrowing.
C. A higher number of college graduates who have the same major.
D. A low number of available qualified workers looking for a job.

D

Read the information below about the profiles of individuals regarding their federal income tax

Mr. Chu – Married with two children, contributes to a retirement plan Mr. Ortiz – Single, age 35, rents an apartment Ms. Lalio – Single, age 58, contributes to a Roth IRA Ms. Feldman – Married, no children, rents a house.

Which person listed above is likely to have the greatest number of payroll tax exemptions which lowers taxable income?
A. Mr. Chu.
B. Mr. Ortiz.
C. Ms. Lalio.
D. Ms. Feldman

A

The terms "job" and "career" are often used interchangeably. However, there is a major difference in the meaning of the terms. A career is characterized as
A. responsibilities without risk because it involves different tasks.
B. responsibilities that result in earning income from an hourly wage.
C. a profession or vocation requiring special education or training.
D. work that includes the benefit of short hours or little responsibility.

C

Which of the following is the best advice for a student with college loans?
A. After graduation, have a budget that includes money for paying more on the loan than is required monthly.
B. Get a full time job with a large company that has a tuition reimbursement policy for its employees.
C. Refinance the loan by transferring the amount of money owed to a credit card with a low-interest rate.
D. After five years of working, if the loan is not fully repaid apply for personal bankruptcy

A

A person is age 16 and looking for part-time work at a restaurant that is part of a national chain. Which of the following is the employer allowed to ask for on a job application?
A. Copy of a major credit card.
B. Social Security number.
C. Parents’ occupations.
D. List of medical problems.

B

What is the opportunity cost of a person selling her stocks and bonds worth $5,000 to spend on a winter vacation?
A. Loss of the ability to go out of town during the cold weather.
B. Loss of the chance for the money to grow in value.
C. Ability to have a balanced budget.
D. There is none since they are equal opportunities.

B

Which of the following will help to create discretionary income?
A. Having payroll taxes deducted from each paycheck.
B. Contributing to a emergency savings account.
C. Spending less than total income each month.
D. Paying credit card bills at the end of the month.

C

When a consumer is disappointed with the quality of a product purchased, which of the following should the person try to do first?
A. Return the product with a receipt.
B. Write to the manufacturer complaining about the product.
C. Try to sell the product online.
D. Use social media to post comments about the product.

A

An example of a change in a person’s life situation requiring a review of their financial goals and plans is
A. graduating from middle school.
B. purchasing a new car.
C. buying life insurance.
D. becoming a parent.

D

An important responsibility for young adults living independently is to
A. purchase cell phone product insurance.
B. pay the principal if they have a mortgage.
C. purchase vacation homes.
D. monitor credit card expenses and debt.

D

A college student wants to buy a bike to ride from a rented apartment to the college campus. Which of the following should be part of the research?
A. Finding out which is the most popular bike sold in the area.
B. Determining which bike is safe and affordable for the intended user.
C. Comparing the cost of a repair and an accessory from three bike shops.
D. Checking to see if the bicycle was made in America.

B

When selecting a financial planner for advice, it is important to know the
A. person’s age.
B. whether the person has a license or certification.
C. credit history of the person.
D. discount being offered by the person to new clients.

B

An individual or family should consult with a lawyer when A. deciding between term or whole life/universal life insurance policies.
B. establishing a 529 College Education Fund.
C. estate planning that includes a will.
D. receiving an inheritance or windfall income.

C

Which of the following can cause a person to become a victim of consumer fraud?
A. Having accounts at more than one bank.
B. Responding to an email from an unknown sender.
C. Filing income taxes online.
D. Registering for the "Do Not Call" list.

B

For the past two years, the price of gasoline increased 10%, while incomes did not increase. Which of the following will impact the monthly budget and financial plans of most people as a result of this price increase?
A. Insurance premiums.
B. Property taxes.
C. Use of an automobile.
D. Automobile repairs.

C

A highly successful high school student applied to public and private colleges and he was accepted to all of them, including one very prestigious university. The tuition at these colleges ranges from $15,000 to $55,000 a year. His mother lost her job. What is the first thing the family should do to address this situation?
A. Use their emergency fund to pay for tuition.
B. Charge the cost of the son’s first semester tuition on a low-interest rate credit card.
C. Have the son postpone going to college for one year. D. Contact all of the colleges to explain the current financial situation to see if they can help.

D

Which of the following types of personal information should never be sent in an email or text message?
A. Birthdate.
B. Credit or Debit card number.
C. Name of high school or college the person attended.
D. Name of the town where the person lives.

B

When making a will, a person will choose a trusted individual to make sure that the will is carried out as intended. This individual is the
A. beneficiary.
B. executor.
C. proxy.
D. probate lawyer

B

A person who owns a house needs to reduce her monthly expenses. Which of the following is good advice to help her save money?
A. Buy environmentally safe cleaning products for home use.
B. Make purchases for home products online.
C. Lower the thermostat for heat when no one is home.
D. Pay home repair bills with a debit card.

C

A suggested amount of savings in order to pay for emergencies is
A. 10% of assets.
B. 1 month of variable expenses.
C. 2 to 3 months of fixed expenses.
D. 3 to 9 months of living expenses.

D

An example of a tax that raises the price of a product to reduce its popularity is
A. an excise tax on tobacco.
B. federal payroll tax on salary.
C. state income tax.
D. property tax.

A

Impulse shopping usually results in
A. an increase in personal debt.
B. a decrease in the buying of goods at department stores.
C. an increase in credit scores.
D. a decrease in the number of items purchased online.

A

A risk of using a debit card for buying goods and services is that
A. there may be insufficient funds in the bank account.
B. there may be a hidden fee for each purchase.
C. the card may have expired.
D. the repayment period may be shorter than thirty days.

A

The result of 4% inflation on the value of money when bank interest rates are 2% is that
A. the value of the money increases at a faster rate.
B. consumers are able to buy more than they did last year.
C. the value of money doubles at a faster rate.
D. consumers will have less money for spending

D

Which of the following is included when determining a person’s net worth?
A. Rented apartment.
B. Health insurance.
C. Gold coins.
D. Bank safe deposit box.

C

Which of the following is generally considered a tax deduction and may reduce a person’s federal income taxes?
A. A donation to a charitable organization.
B. Insurance premiums.
C. Heating expense.
D. The fees credit card company charge.

A

Maintaining organized records for income and expenses is important in order for a person to know where her money is going. What is an effective strategy?
A. Request a free annual report from the Internal Revenue Service.
B. Track monthly income and spending in a notebook or spreadsheet.
C. Get help by hiring someone.
D. Open a checking account at a bank and review the monthly statements.

B

People in the U.S. spend 5.5% of their income on food consumed in the home and spend 4.5% of their income on food outside of the home. What does this say about how they spend their money?
A. They have little value for healthy food.
B. Eating out is less expensive than making food at home.
C. They value eating out.
D. Food prices are high since supermarkets are profitable.

C

Which of the following is an advantage of people increasing their personal savings?
A. The economy grows faster when people save money rather than spend it.
B. The government benefits from taxes on savings.
C. People are better able to afford items such as a future down payment on a home.
D. Banks can use the money from deposits to make profits on loans to the public.

C

Which of the following risks can a person cover by having insurance to protect against financial loss?
A. A flood in a home.
B. A traffic violation.
C. A divorce.
D. Losing a job.

A

What is an acceptable way for people to lower the cost of their automobile insurance?
A. Cancel their insurance after their car is registered.
B. Use the car for work as well as for pleasure.
C. Have their car inspected by a mechanic certified by the state.
D. Increase the amount of the deductible.

D

When making online transactions, it is important to minimize the threat of identity theft by
A. using a unique password and changing it frequently.
B. using a desktop computer instead of a mobile device. C. shutting down the computer and erasing the memory each day.
D. doing all online transactions from home using Wi-Fi.

A

The premium of a person’s life insurance policy is likely to be more expensive as a result of
A. traveling.
B. smoking.
C. where the person lives.
D. the person’s net worth.

B

What kind of insurance is extremely important for a single 25-year-old person to buy?
A. Renters insurance.
B. Long term care insurance.
C. Health insurance.
D. Life insurance

C

Which of the following is an example of insurance fraud?
A. A person’s claim that another car hit his car causing an injury that existed before the accident.
B. A person with his own insurance drives a rented car.
C. A person installs a radar detector in his car.
D. A person excludes his daughter living at college out-of-state as a driver on his car insurance policy.

A

To reduce the cost of homeowners or renters insurance, policy holders should
A. install an alarm system for fire and burglary.
B. recycle paper and plastic trash daily in the same trash bin.
C. keep emergency numbers for police, fire, and ambulance on the refrigerator.
D. install a backup generator for electric power.

A

Which of the following is included in a standard homeowners or renters policy?
A. Disability insurance.
B. Appliance repairs.
C. Theft of personal property.
D. Damage from earthquake.

C

Which of the following is likely to DECREASE the auto insurance premium on a policy?
A. Taking a drivers education course.
B. Having a car accident.
C. Adding a driver to an existing policy.
D. Getting a parking ticket.

A

A woman parked her car and went shopping. When she returned she discovered that her car was damaged while it was parked. When filing a claim, what does she have to provide to her insurance company?
A. The name of the person who damaged the car.
B. The Social Security number of the person who damaged the car.
C. Proof that she has enough money to pay for the deductible.
D. A copy of the police report that she got from the police department.

D

Which of the following government programs would provide partial income to support someone who is permanently disabled?
A. Affordable Care Act.
B. Americans with Disabilities Act.
C. Social Security.
D. Meals on Wheels.

C

The purpose of long-term care insurance policies is to pay for
A. catastrophic medical conditions after age 85.
B. funeral expenses.
C. medicine for people age 65 and older.
D. assisted living and nursing care costs.

D

Banks and other companies are willing to issue credit cards because these financial institutions
A. make money on the interest they charge on unpaid balances.
B. own credit counseling agencies.
C. are required by recent laws to make money available. D. are responsible for keeping inflation low.

A

"I pay my credit card bill in full five-to-seven days before the due date each month!" Someone who does this is likely to have
A. a very high interest rate.
B. adequate insurance coverage.
C. monthly dividends from bonds.
D. an excellent credit score.

D

Ms. Jones graduated from college when she was age 30. She had a $10,000 college loan. She did not pay back the loan and still owes $8,000. Now she is 60 years old. Ms. Jones needs to know that
A. if a student loan is unpaid, it may result in the borrower not being able to get Social Security retirement checks.
B. many people do not pay the full amount of their student loans because they filed for personal bankruptcy.
C. since this happened more than ten years ago, the loan does not have to be repaid.
D. the government will require monies in an investment account be used to repay the loan.

A

A person has three credit cards with a total of $15,000 owed and a credit score of 500. She does not have a savings account and wants to improve her credit score and decrease her debt. What is the first thing she should do to address her problem?
A. Ask her employer for a payday loan to help pay the outstanding debts.
B. Choose the credit card with the highest interest rate and only pay that card’s invoice monthly.
C. File for bankruptcy if she is less than 30 years old.
D. Contact credit card companies to negotiate a lower interest rate and a repayment plan.

D

A person’s credit report includes his
A. medical history and driving record.
B. history of loans and credit activities.
C. retirement and savings account balances.
D. cost of insurance premiums and amount of federal tax refunds.

B

Negative or inaccurate information on a person’s credit report will make it difficult for a person to
A. travel.
B. retire.
C. get a home mortgage.
D. apply for life insurance.

C

Which of the following federal laws protects borrowers? A. Social Security Act.
B. National Privacy Act.
C. Truth in Lending Act.
D. Homeland Security Act.

C

Which of the following is an example of collateral?
A. Real estate.
B. Personal check.
C. Bank credit card.
D. Term life insurance.

A

One example of using credit responsibly is
A. charging an expensive item that is on sale for one day when cash will be available next week.
B. paying less than the minimum balance on a monthly bill.
C. buying a leather coat with the intention of paying the cost over four years.
D. charging wanted items by purchasing them online.

A

Credit card transactions are considered a form of borrowing because
A. consumers need to sign the receipt given by the store.
B. credit results in the money charged being immediately deducted from a bank account.
C. the credit limit is based on a person’s ability to repay debt.
D. someone else’s money is being used in exchange for the promise of repaying in the future.

D

In order to be sure that the checking or savings account linked to the account owner’s debit card has sufficient funds for purchases, banks offer "easy-access" credit as an option. Which of the following explains how "easy access" credit works?
A. A person monitors his bank account balances and can use a computer to transfer funds.
B. The bank provides a line of credit to automatically replenish bank account balances.
C. The bank sends a text message to the debit card holder when the linked account balance is low.
D. A person has all of her credit cards linked together and, therefore, money is always available.

B

A major difference between leasing and borrowing to buy is that
A. Leasing is less expensive for the consumer.
B. Leasing does not require that the consumer give a down payment.
C. Borrowing requires the consumer to be at least age 25. D. Borrowing requires the consumer to make monthly payments with interest.

D

A credit card offers a grace period of 21 days, which mean that the card holder
A. needs to have the payment posted by the 21st day or a late fee will be charged.
B. can miss one payment per year if all other monthly payments that year are made by the 21st day.
C. receives rewards points if the bill is paid before the 21st day.
D. can have cash advances that are interest-free during the 21 days

A

When a credit card company contacts a person’s employer or asks for a copy of a school transcript with grades, they are generally evaluating a person’s
A. capacity.
B. character.
C. collateral.
D. conditions.

B

The feature of a fixed-rate mortgage loan that is it different from an adjustable-rate mortgage loan is that the fixed-rate mortgage has
A. a down payment on the loan is 30% of the selling price of the home.
B. a down payment on the loan is only 5% of the selling price of the home.
C. an interest rate that remains the same throughout the length of the loan.
D. an interest rate that changes annually throughout the length of the loan.

C

How does having a loan to pay for a college education affect a person’s net worth?
A. Education is an investment in the future which increases net worth.
B. Only the amount of interest affects net worth.
C. Private bank loans decrease net worth while federal loans do not.
D. Net worth decreases by the amount of the total loan plus interest.

D

A neighborhood restaurant wants to add a place for outdoor dining. In order to do this, the owners need a loan of $50,000. Which of the following can influence getting a new loan approved?
A. Using a personal three- year car loan as collateral for a business loan.
B. Asking for a loan from family and friends.
C. Using a good credit history from a business credit card to get a business loan.
D. Getting a cosigner on the loan.

C

Anthony’s friend Donald asks to borrow Anthony’s computer for the weekend while Donald’s computer is being repaired. What is most important for Anthony to consider before allowing Donald to borrow the computer?
A. The length of time Donald and Anthony have been friends.
B. Donald’s credit score.
C. The items that Donald has that Anthony might need to borrow.
D. Donald’s level of responsibility and honesty.

D

Lilia borrows a diamond necklace from her friend Jane for a special event. The necklace is very expensive and is insured on Jane’s parents’ homeowner’s policy. When the necklace is returned, Jane notices that a diamond is missing. Jane should handle this situation by
A. calling the insurance company and filing a claim.
B. telling her parents that she lost the diamond somewhere in their home.
C. informing Lilia that she is responsible and asking Lilia to have the necklace repaired.
D. using Lilia’s ATM pin to withdraw money from Lila’s account to replace the missing diamond.

C

The Fair Credit Reporting Act (FCRA) is a major law that protects consumers who apply for loans and people using credit. Which of the following is one of the major rights of consumers under this law?
A. Consumers must be told why their loan application was denied.
B. Consumers cannot be denied loans because of their criminal record.
C. Credit card companies cannot charge fees in excess of $50.
D. Credit can only be issued to citizens of the US.

A

One of the reasons lenders review the credit history of individuals applying for credit and loans is to determine
A. place of residence.
B. the amount of life insurance coverage.
C. how much is owed.
D. health history.

C

A person received a free copy of her credit report and found inaccurate information. What should she do?
A. Contact her employer about the mistake
B. Inform the Consumer Financial Protection Bureau (CFPB).
C. Send a letter to the Internal Revenue Service (IRS) about her problem.
D. Write to the credit-reporting agency about the mistake

D

The purpose of bankruptcy laws is to
A. teach people who cannot control their spending a lesson.
B. to help those in financial trouble with government money.
C. protect people from losing all of their property to creditors.
D. separate "good debt" from "bad debt."

C

The Federal Trade Commission provides information to consumers about
A. interest rates.
B. international trade laws.
C. identity theft.
D. bankruptcy

C

How does credit help borrowers?
A. Borrowing is not on a person’s credit report until all payments are made.
B. A person can buy a big ticket item on credit and use it while paying for it.
C. Buying on credit helps a person to increases her credit score.
D. A person who borrows can satisfy her wants and needs without concern.

B

Which of the following is an agency that helps people with credit problems or debt?
A. Chamber of Commerce.
B. Governor’s Office.
C. Consumer Protection Agency.
D. Small Business Administration.

C

A young man owes $6,000 in income taxes that was due three years ago. To collect this debt, the Internal Revenue Service is able to
A. take possession of property equal to the unpaid balance.
B. notify the police to make a citizen’s arrest.
C. garnish his salary.
D. suspend voting rights.

C

Four friends each deposited $1,000 in a savings account at their local bank on the same day. After two years, from the date of deposit, the friend who had the most amount of money is the one whose bank compounded interest
A. daily.
B. weekly.
C. monthly.
D. yearly.

A

A person bought 100 shares of stock for $6,000. After selling these 100 shares for $10,000, the investor is
A. prohibited from buying stocks for a period of six months.
B. required to report the sale to the Securities and Exchange Commission (SEC).
C. responsible to report the $4,000 profit on his federal tax return.
D. unable to collect the money until a broker finds a buyer.

C

Boy: Age 10 Deposited $1,000 earning 4% Interest Value at age 20 = $1,492.00
Boy: Age 17 Deposited $1,000 earning 6% Interest Value at age 20 = $1,197.00
The ten-year-old boy has more money in his savings account because the money was deposited
A. in an insured bank account.
B. at an earlier age.
C. in an account with a higher interest rate.
D. in an account at a credit union.

B

An individual with a high tolerance for risk and volatility in financial markets would be most comfortable with more than 50% of his investments in which of the following?
A. Insured bank savings accounts.
B. Government bonds.
C. Mutual Funds.
D. Common stocks

D

Which of the following is an example of how a stock may provide income?
A. Insurance.
B. Dividends.
C. Principal.
D. Premium.

B

An investor bought 100 shares of stock in a technology company for $3,000 and three years later, sold all the shares for $4,000. The $1,000 profit is known as
A. diversification.
B. a yield.
C. a capital gain.
D. dollar cost averaging

C

The amount of savings in a bank account that is protected by the Federal Deposit Insurance Corporation (FDIC) is
A. $ 50,000.
B. $100,000.
C. $250,000.
D. $500,000.

C

A woman invested $10,000 in a corporate bond offered by a technology company. The interest rate on the bond is 6% and the bond matures in seven years. The company went bankrupt three years after the bond was bought. What happened to her investment?
A. She probably lost most of the $10,000 because corporate bonds are not insured.
B. She was paid interest for the full seven years because the bond was bought through a broker.
C. The bond was probably converted into stocks.
D. $10,000 was deposited in a retirement account.

A

Which of the following people can take the greatest amount of investment risk?
A. A married couple who have teenage children and a high-interest mortgage loan on their new home.
B. A single person with a full time job earning minimum wage.
C. An elderly married couple whose only income is social security.
D. A young college graduate who is single and has a leadership position in a profit making company.

D

An investor who is interested in diversifying his stock portfolio should buy
A. speculative stocks, such as new companies without a history of profits.
B. stocks in different sectors, such as health care, finance and technology.
C. stocks offering a fixed rate of return.
D. stocks with high dividends.

B

Investment education help investors avoid scams and protect themselves against fraud. Which statement is a red flag that something is wrong?
A. The stocks being recommended all have some risk.
B. Do research before purchasing an investment product.
C. This investment is guaranteed to make a profit.
D. The return on this investment may be high.

C

When people invest money in stocks, bonds, or real estate, they are
A. insuring that they get a steady source of future income.
B. letting their assets work for them to create more money.
C. preventing an increase in inflation.
D. taking advantage of another person’s wealth.

B

Which of the following is a correct calculation of simple interest on $1,000 at the end of one year?
A. 3% = $30 or $1,030.00
B. 4% = $400 or $1,400.00
C. 5% = $150 or $1,150.00
D. 6% = $ 600 or $1,600.00

A

When an employee is vested in his retirement plan, it means that the employee is now entitled to
A. all of the money contributed by the employer to the pension.
B. only the money that he contributed to the pension.
C. contribute any amount of income to the pension.
D. begin to collect pension checks in ten years.

A

What is the difference between a stock and a bond?
A. Stockholders have voting rights and bondholders do not.
B. Bondholders own part of the company and stockholders do not.
C. Stocks can be sold if owned for 30 days and bonds cannot.
D. Interest is paid on bonds daily and on stocks quarterly.

A

In addition to a Social Security number or taxpayer ID, which of the following documents will a bank require to open a new account?
A. Driver’s license and a copy of a recent credit report.
B. Proof of citizenship and a recent medical examination.
C. Photo identification and proof of address.
D. Name of employer and a character reference.

C

In 2010, the U.S. Congress established The Consumer Financial Protection Bureau (CFPB). The purpose of this organization is to
A. protect consumers against abusive credit practices, promote financial education, and research financial behavior.
B. set annual interest rates to prevent inflation, regulate banks nationally, and protect against identity theft.
C. insure stocks against loss, investigate investor complaints, and certify stockbrokers.
D. enforce bank regulations, advocate loans for the poor, and audit bank records.

A

How are stocks on the secondary market bought and sold?
A. For every stock that is bought there needs to be a seller of the stock.
B. The New York Stock Exchange does the processing for all stock purchases.
C. Stocks can only be bought and sold in a package costing a minimum of $10,000.
D. Stocks are sold after the investor gets permission from the public company

A

Which of the following is an important benefit of long-term investing in the stock market?
A. Getting to know a financial advisor well over many years.
B. Historically, investing in stocks for a long period of time generates higher returns than savings accounts.
C. There are no fees for investments held for longer than five years.
D. After ten years, profits on investments in the stock market are protected from price fluctuations.

B

What is the main function of the Securities and Exchange Commission (SEC)?
A. To combat investment fraud and protect investors.
B. To regulate the credit industry.
C. To stop identity theft and computer hacking.
D. To collect taxes on the profits people receive from selling their stocks.

A

A person, who is reluctant to invest in stocks because she has a low tolerance for risk, should consider
A. trading stocks frequently to avoid taxes.
B. buying on margin by borrowing from the brokerage firm.
C. choosing speculative stocks since they pay interest.
D. buying mutual funds because they are professionally managed

D

Which of the following is an advantage of opening a Roth Individual Retirement Account (IRA) as a young person with a full time job?
A. The money in the account can be used to pay income taxes.
B. It is a convenient way to save money for a vacation.
C. The money can be used to pay credit card debt if monthly expenses are high.
D. Some of the money can be used for buying a qualified first-time home.

D

Which of the following investments provides the greatest amount of liquidity?
A. Mutual Funds.
B. Real Estate.
C. Certificate of Deposit (CD).
D. Collectibles.

C

One reason that young people benefit from having a tax advantaged Traditional Individual Retirement Account (IRA) savings account for retirement is that
A. Their income is generally lower during retirement years resulting in a lower tax bracket.
B. They can deposit any amount of their income into these accounts while working.
C. They generally get a debit card for withdrawals.
D. The management fees for these accounts are lower during their retirement years

A

The process whereby the value of an investment increases exponentially over time is called the _________________.

A. Annual percentage rate

B. Time value

C. Annual percentage yield

D. Compounding

D

What is the compounding of interest?

A. The initial deposit

B. Money in a savings account

C. Interest found in a savings account

D. Interest on interest added to an initial deposit

D

The annual percentage yield indicates:

A. How much interest is earned in a year if allowed to compound

B. the total amount of money invested plus interest

C. The interest rate

D. All of these

A

What is compounding?

A. Depositing money in the bank

B. When interest is added to your initial deposit and you begin to earn interest on interest

C. Your initial deposit

D. The amount of interest you pay on a loan

B

If you invest $100 and receive a 12% APR (annual percentage rate), what will your balance be at the end of the year?

A. $121.12

B. $121.00

C. $112.00

D. $100.12

C

When interest is added to your initial deposit and you begin to earn interest on interest, this is known as

A. The annual percentage rate

B. The time value of money

C. Compounding

D. The future value of money

C

If you have $3,000 today with a 10% APY, how much will you have one year from now?

A. $3,200

B. $3,300

C. $3,100

D. $3,500

B

Anna is going to deposit $500 into an account that has an annual interest rate of 8% compounded quarterly. How much will she have at the end of one year?

A. $541.22

B. $537.68

C. $546.93

D. $538.15

A

Therese made an investment of $1,000 into an account that pays a 10% annual interest rate which is compounded quarterly. At the end of the 12-month period, Therese earned $103.81 in interest on her $1,000 investment. She calculates her annual percentage yield (APY) to be 10.38%. This is an example of how interest is:

A. Compounded

B. The same as the annual percentage rate (APR)

C. Effected by the annual percentage yield (APY)

D. Part of the Truth in Savings Act

A

What is (1+ r/n)n -1?

A. Future value (FV)

B. Annual percentage rate (APR)

C. Annual percentage yield (APY)

D. Compound percentage interest (CPI)

C

Which best describes compound interest?

A. Interest is added to a deposit

B. Interest is added to your initial deposit and you earn interest on interest

C. You pay double interest

D. You pay two separate interest rates

B

What is earning interest on interest?

A. Compounding

B. APR (annual percentage rate)

C. Savings

D. Investing

A

Which act helped eliminate investor confusion with compounding interest and the related yields?

A. The Truth in Savings Act

B. The Compound Interest Act

C. The Interest and Yield Act

D. The Sarbanes Oxley Act

A

Which is not a component of the formula APY = (1 + r/n) n – 1?

A. N – 1 = Compound minus interest rate

B. R = Stated annual interest rate

C. N = Number of times you’ll compound every year

D. APY = Annual percentage pate

A

Which of the following is the correct formula for computing your annual percentage yield?

A. APY = (1+ r/n)n -1

B. APY = (1- r/n) – 1

C. APY = [(1- r) n] + 1

D. APY = [(r – n) r] – 1

A

Which example indicates discounting?

A. Looking for less inexpensive options when shopping

B. Figuring out how much money to invest now to have a certain amount in the future

C. Shoplifting

D. All of these

B

The Truth in Savings Act

A. Provides formulas so people can calculate the APY on investments

B. Requires that banks must disclose the fees, the APR, and the APY on interest-bearing accounts

C. Requires that banks must disclose the fees, the APR, and the APY on loans

D. Provides formulas so people can calculate the APY on loans

B

All of the following are related to the time value of money except:

A. FVIF

B. PVIFI

C. PVIF

D. FVIFA

B

What is a lump sum?

A. A single, one-time payment

B. Monthly payments

C. Yearly payments

D. Money in your savings account

A

You have a long-term goal of paying off your school loans in five years. You will graduate with a loan debt of $20,000 and an interest rate of 6%. How much will you need to pay each month to have the debt paid off in five years?

A. $386.66

B. $400.00

C. $390.17

D. $368.08

A

If Phil has a $100,000 bond with a 7% interest rate, compounded annually, how much will he have in 8 years?

A. $163,452.83

B. $170,978.42

C. $149,867.49

D. $171,818.62

D

What do you call a stream of equal payments received or paid at equal intervals in time?

A. A lump sum

B. An annuity

C. Discounting

D. Future value

B

If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually, how much will you have in your college savings fund on your 18th birthday?

A. $36,099.29

B. $83,398.76

C. $162,520.59

D. $50,795.32

B

A stream of equal payments that occurs at the end of a period is called

A. An ordinary annuity

B. Compounding

C. An annuity due

D. An end annuity

A

An ordinary annuity is a

A. Stream of unequal payments that occurs at the end of a period

B. Stream of equal payments that occurs at the end of a period

C. Stream of equal payments that occurs at the beginning of a period

D. Stream of unequal payments that occurs at the beginning of a period

B

Using mathematical formulas, financial tables, or a financial calculator, you can find the

A. Future value of an amount invested today

B. Present value of an amount you will receive in the future

C. Future value of an amount you deposit annually

D. Present value of an amount if you make annual payments

E. All of these

E

What is the difference between an annuity and an annuity due?

A. There are no payments in an annuity due.

B. Payments are at the beginning of the month for an annuity and at the end of the month for an annuity due.

C. Payments are at the beginning of the month for an annuity due and at the end of the month for an annuity.

D. There is no difference.

C

Which of the following correctly defines future value?

A. The current value of a said future amount based on the interest rate and time in the account.

B. The value of an amount at a future date based on the interest rate and time in the account.

C. A single, one-time payment.

D. A series of equal payments that are made at equal intervals over time.

B

If you put $1,000 into an account earning 5% interest annually, how much will you have in five years?

A. $5,000.00

B. $1,276.28

C. $1,050.50

D. $1,500.00

B

If you are investing a stream of equal payments that occur at the beginning of each month, what type of investing is this called?

A. Lump sum

B. Annuity due

C. Discounting

D. Ordinary annuity

B

Calculate the future value when PV = $1,600, the interest rate is 8%, and there are 10 periods.

A. $7,030.26

B. $3,620.37

C. $3,370.60

D. $3,454.28

D

Using the present value long-hand method, how much money would need to be deposited to earn $5,000 in five years with a 5% interest rate compounded annually?

A. $3,917.63

B. $3,917.00

C. $3,918.63

D. $3,918.00

A

The government has an unlimited supply of money.

FALSE

Each dollar bill has a serial number starting with the letter or the district in which it was printed.

TRUE

Paper money is backed by the full faith of the U.S. government and the Federal Reserve Bank.

TRUE

You put your $100 in a savings account and earn 12% APR. At the end of one year, you earned $12.00 in interest. This is an example of simple interest.

TRUE

The annual percentage yield (APY) is the effective monthly rate of return taking into account the effect of compounding interest.

FALSE

The APY earned on $10,000 at 12% interest compounded monthly over the course of one year is the same rate as if compounded daily.

FALSE

The time value of money is most commonly applied to two types of cash flows: lump sum and annuity.

TRUE

You can use the future value interest factor (FVIF) table to calculate the future amount of a lump sum.

TRUE

The process of discounting involves knowing how much money you would have had to deposit yesterday in order to have a specific amount today.

FALSE

In which of the following markets may a lender sell a loan that a mortgage banker has previously originated?
A) primary market
B) secondary market
C) mortgage market
D) consumer market

B

Which of the following is considered a conventional loan?
A) FHA insured
B) VA guaranteed
C) commercial bank’s ARM loan
D) contract for deed

C

Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan?
A) interest rate
B) monthly payments
C) finance charge
D) annual rate

B

All of the following are true of conventional loans except what?
A) They are made to the buyer without governmental insurance or guarantee
B) The policy requiremets of the lender are not uniform
C) The requirements to qualify are uniformly fixed by state law
D) They require a higher down payment than non-conventional loans

C

A buyer wants to take out an FHA loan. The broker should refer the buyer directly to:

A) any approved lending institution such as a bank or savings and loan association
B) an FHA appraiser in the area
C) the Federal Housing Administration Office
D) the Federal National Mortgage Association

A

Which type of loan will result in the largest reduction of the principal balance most quickly?A) 10% over 30 years
B) 11% over 20 years
C) 13% over 15 years
D)14% over 20 years

C

Which transaction requires a securities license?
A) leasing a commercial building
B) selling a commercial warehouse
C) selling shares in Fannie Mae
D) arranging a sale-leaseback on a commercial property

C

Who is NOT an originator of primary loans?
A) savings and loans
B) credit unions
C) commercial banks
D) FHA

D

It is not difficult to find a credit card company that is eager to extend credit to you.

TRUE

Credit cards are commonly used for purchases such as clothing, car repairs, or the purchase of a new car.

FALSE

One advantage of credit cards is that you can receive free financing if you pay off your balance each month.

TRUE

A disadvantage to credit cards is that there is no way to keep track of individual expenditures.

FALSE

Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks.

TRUE

Credit cards can eliminate the need for carrying large amounts of cash.

TRUE

When applying for a credit card, the amount of savings that you have will not be a factor in the credit card company’s decision.

FALSE

Because of the short-term nature of credit card lending, the condition of the economy is not considered.

FALSE

One of the disadvantages of credit cards is that they allow you to spend beyond your means.

TRUE

One advantage of using a credit card is that you receive a list of your purchases, which enables you to keep track of your spending.

TRUE

The easiest way to establish credit is to
A) purchase a new car with a car loan.
B) purchase a house with a mortgage.
C) apply for a credit card.
D) pay cash for all your purchases.

C

In applying for a credit card, the potential creditor will look at which of the following as a source of future debt payments if necessary?
A) Cash outflows
B) Credit history
C) Potential inheritances
D) Balances in savings accounts

D

Credit cards are generally used for such purchases as
A) cars.
B) homes.
C) meals, clothing, and groceries.
D) stocks.

C

Credit cards have all of the following advantages except
A) they allow you to borrow cash interest free for 60 days.
B) make purchases without carrying cash.
C) obtain free financing until the bill is due.
D) itemized monthly statement.

A

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