Consumer Finance
Exam Answer Key
Course Introduction
Consumer Finance explores the principles and practices behind managing personal and household financial activities. The course covers topics such as budgeting, saving, borrowing, credit management, investing, risk management, and retirement planning. Students will learn how to make informed financial decisions, understand consumer credit, evaluate financial products and services, and develop strategies to achieve short- and long-term financial goals. Emphasis is placed on real-world application and the impact of external economic factors on individual financial well-being.
Recommended Textbook PFIN3 3rd Edition by Lawrence J. Gitman
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15 Chapters
2770 Verified Questions
2770 Flashcards
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Page 2
Chapter 1: Understanding the Financial Planning Process
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) The last step in the financial planning process is to
A) develop financial plans and strategies to achieve goals.
B) use financial statements to evaluate results of plans and budgets, taking corrective action as required.
C) implement financial plans and strategies.
D) redefine goals and revise plans and strategies as personal circumstances change E) periodically develop and implement budgets to monitor and control progress toward goals.
Answer: D
Q2) During the expansion phase of the business cycle,the unemployment rate will [increase | decrease].
Answer: B
Q3) The first step in the financial planning process is to develop financial plans and strategies to achieve goals.
A)True
B)False
Answer: False
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Chapter 2: Using Financial Statements and Budgets
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184 Verified Questions
184 Flashcards
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Sample Questions
Q1) Your car has a market value of $4,000 while the balance of the loan against it is now $2,500.You will list this car as net worth of [$4,000 | $1,500].
Answer: B
Q2) Theresa invested $5,000 in an account she expects will earn 7% annually.Approximately how many years will it take for the account to double in value?
A) 8
B) 9
C) 10
D) 11
E) 12
Answer: C
Q3) Net worth is highest for those about [age 65 | age 85].
Answer: A
Q4) Another term sometimes used for net worth is [collateral | equity].
Answer: B
Q5) All assets are recorded on the balance sheet at their original cost.
A)True B)False
Answer: False
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Chapter 3: Preparing Your Taxes
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201 Flashcards
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Sample Questions
Q1) If your AGI is less than $100,000 and you do not itemize deductions,the IRS will compute your taxes for you.
A)True
B)False
Answer: True
Q2) Social Security taxes are paid on earned income and investment income.
A)True
B)False
Answer: False
Q3) If you pay a professional to prepare your taxes,any errors on the return will be [your | the preparer's] responsibility.
Answer: A
Q4) Tax avoidance is a legal means to minimize tax liabilities. A)True
B)False
Answer: True
Q5) Interest you paid on your [vacation home | stereo] loan could be deducted. Answer: A
Q6) Dividends received from stocks are known as [passive | portfolio] income. Answer: B
Page 5
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Chapter 4: Managing Your Cash and Savings
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193 Flashcards
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Sample Questions
Q1) Which of the following would be an appropriate savings vehicle if you expected interest rates to fall over the next few months?
A) money market deposit account
B) money market mutual fund
C) certificate of deposit
D) Series EE US savings bond
E) a and b
Q2) Banks must notify customers [30 | 60] days before lowering rates on deposit accounts or certificates of deposit.
Q3) The annual percentage yield (APY)formula considers compounding when determining an interest rate.
A)True
B)False
Q4) Historically,the primary purpose of savings and loan associations was to
A) provide passbook accounts paying interest above that of commercial banks.
B) compete directly with commercial banks.
C) provide NOW accounts.
D) provide demand deposits.
E) channel savings into mortgages.
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Chapter 5: Making Automobile and Housing Decisions
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222 Verified Questions
222 Flashcards
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Sample Questions
Q1) Most lenders do not want mortgage payments plus other debt payments to exceed ____ percent of your gross monthly income.
A) 10-15
B) 15-18
C) 25-30
D) 30-33
E) 33-38
Q2) Shorter term auto loans offer the benefit of [lower payments | lower interest rate]
Q3) You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
A)True
B)False
Q4) You should secure the trade in value of your current automobile before you start negotiating the final price on the car you are purchasing.
A)True
B)False
Q5) A real estate agent will typically be paid by the [buyer | seller] of the house.
Q6) Terminating a lease early is typically [difficult | easy].
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Chapter 6: Using Credit
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180 Verified Questions
180 Flashcards
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Sample Questions
Q1) The grace period on a credit card starts on the billing date and ends on the date the lender should receive the payment.
A)True
B)False
Q2) Appropriate reasons to use credit include for
A) convenience.
B) durable expenses.
C) investments.
D) emergencies.
E) all of the above
Q3) Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.
A)True
B)False
Q4) Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.
A)True
B)False
Q5) An example of open account credit would be a bank [debit | credit] card.
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Chapter 7: Using Consumer Loans
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161 Flashcards
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Sample Questions
Q1) Long-term financial goals often depend on borrowing funds.The type of loan that does not fulfill the long-term goal achievement is ____ loans.
A) consumer
B) installment
C) automobile
D) mortgage
E) single payment
Q2) If the proceeds from the sale of your repossessed collateral are insufficient to pay the balance due on your loan,the lender usually [can | cannot] collect the deficiency from you.
Q3) If a loan has a prepayment penalty,there will be an additional cost to repay the loan early.
A)True B)False
Q4) Loan repayment of a [PLUS | Stafford] loan would begin a month after the loan is received.
Q5) About one in four student loans are past due. A)True B)False
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Chapter 8: Insuring Your Life
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Group insurance is most likely to be [term | whole life].
Q2) Life insurance policy loans are generally not taxable in the year taken and not deductible in the year repaid.
A)True
B)False
Q3) The needs approach can determine your life insurance requirements with a single step.
A)True
B)False
Q4) The least expensive form of whole life insurance protection is A) term.
B) straight life.
C) limited payment.
D) universal.
E) none of the above.
Q5) An insured can borrow from the [cash | face] value of her life insurance policy.
Q6) Underwriters can predict whether or not you will suffer a loss this year. A)True
B)False
Q7) Smoking [will | will not] be a factor in determining life insurance premiums.
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Chapter 9: Insuring Your Health
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165 Flashcards
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Sample Questions
Q1) Health insurance policies automatically cover all family members.
A)True
B)False
Q2) Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare?
A) Medicare
B) Medicaid
C) Blue Cross/Blue Shield
D) Social Security disability benefits
E) worker's compensation
Q3) Long-term care insurance can cover both nursing home and home health care.
A)True
B)False
Q4) And about [one in five | one in seven] people between the ages of 35 and 65 will become disabled for five years or more.
Q5) The U.S.spends about [17% | 24%] of our economic output on health care.
Q6) Physician's expense insurance [would | would not] pay for the cost of a routine office call.
Q7) The average age of the American population is [decreasing | increasing].
Page 11
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Chapter 10: Protecting Your Property
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Sample Questions
Q1) Your auto liability insurance shows policy limits of $100,000/$300,000.This means
A) $100,000 would be paid to the people in your automobile and the $300,000 to passengers in the other car.
B) $100,000 is the limit per individual with $300,000 divided equally between the remaining passengers.
C) $100,000 limit per individual with a $300,000 limit per accident.
D) $100,000 limit per individual with $300,000 being paid to the driver of the other car.
E) none of the above.
Q2) While you were away on winter vacation,there was a severe snowstorm that caused your roof to cave in causing a $20,000 loss.Your H0-2 policy will cover this loss.
A)True
B)False
Q3) State financial responsibility laws require only auto liability insurance.
A)True
B)False
Q4) Umbrella liability insurance is more likely to be needed by [higher | lower] income persons.
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Chapter 11: Investment Planning
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196 Flashcards
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Sample Questions
Q1) Buying on margin would allow you to purchase securities using borrowed funds.
A)True
B)False
Q2) NYSE Euronext is a part of the broker market totaling about [40% | 80%] of world equity markets.
Q3) Unlisted securities are traded on the A) SEC market.
B) SIPC.
C) OTC market.
D) AMEX.
E) NYSE.
Q4) The most widely followed stock average is the A) Dow Jones Industrial Average.
B) Standard & Poor's Index.
C) New York Stock Exchange Index.
D) American Stock Exchange Index.
E) Wall Street Journal Index.
Q5) A fixed dividend would be received with [common | preferred] stock.
Q6) Investments with high current income typically have [high | low] potential capital appreciation.
Page 13
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Chapter 12: Investing in Stocks and Bonds
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195 Flashcards
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Sample Questions
Q1) Interest rate risk is greater for stocks than for bonds. A)True
B)False
Q2) Calculate the dividend yield on OPQ stock.Earnings per share are $2.75 and the quarterly dividend is 25 cents.The book value is $15.20 per share while the market value is $25.00.(Show all work.)
Q3) The callable feature of a bond protects the issuer when current rates are falling. A)True
B)False
Q4) A bond selling below par value is selling at A) a discount.
B) its coupon value. C) a premium.
D) maturity.
E) the highest effective yield.
Q5) Preferred stockholders will receive their share of company earnings [before | after] bond interest is paid.
Q6) One should look for companies with steadily [increasing | decreasing] book value per share.
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Chapter 13: Investing in Mutual Funds
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) Mutual funds are actually comprised of two or more companies.
A)True
B)False
Q2) In the Wall Street Journal's listing of mutual funds,an "r" after the mutual fund name and before the NAV means that the particular mutual fund has a ____ associated with it.
A) front-end load
B) back-end load
C) 12b-1 fee
D) management fee
E) none of the above
Q3) In the Wall Street Journal's listing of mutual funds,a "t" after the mutual fund name and before the NAV means that the particular mutual fund has a ____ associated with it.
A) front-end load
B) back-end load
C) 12b-1 fee
D) management fee
E) b and c
Q4) [Open-end | Closed-end] mutual funds always redeem shares at NAV.
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Chapter 14: Planning for Retirement
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226 Flashcards
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Sample Questions
Q1) ____ are exclusively for the self-employed person and his/her employees.
A) Keogh plans.
B) SEPs.
C) 401(k) plans.
D) a and b
E) a, b, and c
Q2) If you withdraw funds from a pension plan before age 59 ¹/ ,you will have to pay a ____ federal income tax penalty.
A) 5%.
B) 10%
C) 15%
D) 20%
E) 25%
Q3) Tax-free earnings can be gotten from investments in A) Roth IRAs.
B) Traditional IRAs.
C) SEP plans.
D) 401(k) plans.
E) All of the above
Q4) In a Roth 401(k),contributions [are | are not] tax deductible.
Page 16
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Chapter 15: Preserving Your Estate
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178 Flashcards
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Sample Questions
Q1) Legal title to the property in a trust is held by the [grantor | trustee].
Q2) Estate planning us designed to:
A) administer and distribute assets
B) minimize taxes
C) increase size of estate
D) all of the above
E) none of the above
Q3) If a person dies intestate (without a valid will),the estate is distributed according to established state laws of intestate succession.According to Utah's probate code (as described in Exhibit 15.4 of your textbook),what is the estate distribution for a spouse with no offspring?
Q4) Your [gross | probate] estate consists of your real and personal property that will be transferred at death.
Q5) Requirements for a valid will do not include
A) The testator must be of sound mind.
B) The testator must not be unduly influenced.
C) The will must be properly executed.
D) There must be no fraud in the execution of the will.
E) The will must be drawn up by an attorney.
Q6) An inheritance tax is paid by the [estate | recipient] of the inheritance.
Page 17
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