Consumer Finance
Exam Questions
Course Introduction
Consumer Finance explores the principles and practices related to personal financial decision-making. The course covers essential topics such as budgeting, saving, credit management, loans, insurance, mortgages, retirement planning, and investments. It examines how individuals and households manage income, expenses, debt, and risk in various life stages, highlighting the importance of financial literacy for long-term economic well-being. Students will analyze real-world scenarios, develop practical financial skills, and learn to navigate the complex landscape of consumer financial products and services.
Recommended Textbook
Personal Finance Turning Money into Wealth 7th Edition by Arthur J. Keown
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17 Chapters
2509 Verified Questions
2509 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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101 Flashcards
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Sample Questions
Q1) During which stage of the financial life cycle do many people make their biggest investment,the purchase of a home?
A) Stage 1: wealth accumulation
B) Stage 2: the golden years
C) Stage 3: the retirement years
D) Stage 4: the formative years
Answer: A
Q2) According to a resumedoctor.com recruiting survey,the most common mistake made by job interviewees is talking too much.
A)True
B)False
Answer: True
Q3) You need to review your progress and reevaluate and revise your plan (Step 5)because
A) your financial needs change over the course of your life.
B) your employment situation changes over time.
C) your net worth changes over time.
D) your family situation might change over time.
E) all of the above are good reasons to periodically review your financial plan.
Answer: E
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) Bradley went shopping today and used his American Express credit card to buy a new pullover sweater.He used his bank debit card to pay for a video game and bought some snack food with cash.Which of these purchases are difficult to track and monitor on his budget?
A) The pullover sweater is difficult to track because it costs more than what he budgeted for clothing this month.
B) The video games are difficult to track because he did not add a budget category for electronics.
C) The snacks are difficult to track because cash transactions don't leave a paper trail. D) Both A and B
Answer: C
Q2) According to the Keown book,Mint and Level Money are two of the best smartphone apps for tracking your spending and setting up a budget.
A)True
B)False
Answer: True
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Chapter 3: Understanding and Appreciating the Time Value of Money
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) Using the Rule of 72,approximately how long will it take to double your money if you invest it at 8% compounded annually?
A) 6 months
B) 9 months
C) 6 years
D) 9 years
E) It depends on the amount of the initial investment.
Answer: D
Q2) The present value of a financial asset is what you should be willing to pay today for that financial asset.
A)True
B)False
Answer: True
Q3) The discount rate is the interest rate used to bring ________ back to ________.
A) current dollars; present dollars
B) future dollars; present dollars
C) current interest rate; present present interest rate
D) future interest rate; present interest rate
Answer: B
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Chapter 4: Tax Planning and Strategies
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) What is Samuel's total tax liability for 2014?
A) $5,351.25
B) $3,710.25
C) $4,541.25
D) $3,948.75
Q2) The Federal Insurance Contributions Act (FICA)tax deducted from your salary goes to pay for unemployment insurance.
A)True
B)False
Q3) Wilma Rudolph was given a cost of living raise and a merit raise at work this year.Her federal income taxes will be paid at 25% instead of 15%.Wilma has experienced
A) bracket creep.
B) the inflation trap.
C) a capital gain.
D) a higher personal exemption rate.
E) an opportunity to change her filing status.
Q4) What are the five general tax strategies in tax planning?
Q5) Name and describe the four general categories that reduce your taxable income,therefore reducing your tax liability.
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Chapter 5: Cash or Liquid Asset Management
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110 Flashcards
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Sample Questions
Q1) List two ways to pay yourself first.
Q2) How is Christopher doing with his cash management?
A) He is doing pretty well since he has a lot of cash in his checking account.
B) He is doing pretty well since he pays his credit cards in full every month.
C) He is not maximizing his returns on his liquid assets.
D) He has a good checking account.
E) All but C are correct answers.
Q3) With online banking,you are able to access your accounts and conduct business transactions through the Internet,your mobile phone,and devices.
A)True
B)False
Q4) Which of the following is not a common fee arrangement for checking accounts?
A) Monthly fee
B) Minimum balance requirement
C) Variable interest rates to reflect fee activity
D) Charge per check
E) Balance-dependent scaled fees
Q5) List five features available through online and mobile banking.
Q6) Name the three Cs of choosing a financial institution.
Q7) Is EFT always a good thing? List some potential problems with EFT.
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Chapter 6: Using Credit Cards: The Role of Open Credit
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153 Flashcards
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Sample Questions
Q1) The ________ is the interest rate you pay on your balance if you don't make your minimum payments on time.
A) penalty rate
B) late rate
C) cash advance rate
D) over-the-limit rate
Q2) What can you do if you cannot pay your credit card bills?
Q3) The choice of a credit card is a matter of personal credit card philosophy.If you are a credit user,the most important decision factor is the card's
A) length of grace period.
B) annual fee.
C) APR on the unpaid balance.
D) minimum payment.
E) late payment fee.
Q4) The lowest FICO a consumer can achieve is
A) 250.
B) 300.
C) 400.
D) 505.
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Chapter 7: Student and Consumer Loans: The Role of Planned Borrowing
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) In driving around town one day,you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods.Why do you think this is so?
A) The rent on these locations is less expensive.
B) Payday lenders tend to focus on less experienced borrowers who typically don't make a lot of money.
C) Because their terms are so affordable people with low incomes really take advantage of them.
D) There are zoning laws that require these types of locations for these types of services.
Q2) What is the name of the interest rate banks charge to their most creditworthy customers?
A) Main rate
B) Blue chip rate
C) Prime rate
D) Premier rate
E) None of the above
Q3) Name the advantages and disadvantages of an unsecured loan.
Q4) Name the four common loans available for college students.
Page 9
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) Thomas took a new job in Iowa.He is buying his first home.He has qualified for an APR of 4.6%.He plans on making payments for the next 20 years.He anticipates that he can afford a payment of $550.00.How much of a mortgage will Thomas qualify for?
A) $56,990
B) $75,210
C) $86,199
D) $110,224
Q2) The best time to get an ARM is when the market rates of interest are high.
A)True
B)False
Q3) The typical down payment is 20% for traditional mortgage loans.
A)True
B)False
Q4) Mortgage bankers originate mortgage loans,sell them to banks,pension funds,and insurance companies,and service or collect all the monthly mortgage payments.
A)True
B)False
Q5) How does smart buying improve your standard of living?
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Chapter 9: Life and Health Insurance
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212 Verified Questions
212 Flashcards
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Sample Questions
Q1) If your employer doesn't provide them,then it might not be a financially wise decision to purchase dental and eye insurance.
A)True
B)False
Q2) Roxanne has been stricken with a muscular degeneration disease that may potentially shorten her life span.However,she chose a renewable term insurance policy because she is able to be continually renew the policy for an agreed-upon period,regardless of her deteriorating condition.
A)True
B)False
Q3) How does the concept of "opting out" work?
Q4) Which of the following does not offer some form of disability insurance?
A) Employer benefit package
B) Individual health policy
C) Medicare
D) Worker's Comp
E) Social Security
Q5) Define policy rider and describe the purpose of the five basic ones.
Q6) What factors should be considered when selecting a life insurance policy?
Page 11
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Chapter 10: Property and Liability Insurance
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147 Flashcards
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Sample Questions
Q1) If you wanted to obtain an endorsement that automatically updates the level of property coverage based on an index of replacement costs that continually updates the cost of building a home,you would ask for a(n)
A) inflation guard.
B) automatic adjustment policy.
C) replacement cost index.
D) continual adjustment policy.
E) none of the above.
Q2) You were standing on the sidewalk waiting for a bus when a car lost control,jumped the curb,and hit you in the leg causing medical injuries.Which of the following provides reimbursement for your medical expenses?
A) The driver's collision coverage.
B) The driver's liability coverage.
C) Your comprehensive physical damages coverage.
D) Your medical expenses coverage
E) Both B and D are correct.
Q3) Provide an explanation of Section II: Personal Liability Coverage.
Q4) Explain Section I: Property Coverage for HO-2 and HO-3 policies.
Q5) List the most common automobile insurance discounts.
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Chapter 11: Investment Basics
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309 Verified Questions
309 Flashcards
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Sample Questions
Q1) Asset allocation and diversification are not related concepts.
A)True
B)False
Q2) A circuit breaker protects individual investors from losing money on their investments.
A)True
B)False
Q3) A sale of a security in the primary markets is the only time the issuing company receives the proceeds from the sale.
A)True
B)False
Q4) An investor with a low propensity for risk would avoid investments with high risk premiums.
A)True
B)False
Q5) Tell how your understanding of efficient markets helps with investing.
Q6) For the international investor,exchange rate risk is simply another layer of risk.
A)True
B)False
Page 13
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) When the market becomes too bullish,the average P/E ratio will fall.
A)True
B)False
Q2) Because of her children's immediate financial needs,your aunt Marsha has decided to switch some of her money to high-grade utility company stocks.Her reasoning is that these ________ stocks generally pay relatively high dividends that she will be able to give to her children as they need assistance.
A) growth
B) blue-chip
C) income
D) cyclical
E) safe
Q3) Every company must pay dividends as a portion of the company's profits to its stockholders.
A)True
B)False
Q4) Both capital gains and dividends are guaranteed with common stock.
A)True
B)False
Q5) What are the three factors that explain why stock values fluctuate?
Page 14
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Chapter 13: Investing in Bonds and Other Alternatives
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Sample Questions
Q1) Peter must read the ________,or legal agreement between the firm issuing the bond and the bond trustee who represents the bondholders.
A) contract
B) indenture
C) provisions
D) debenture
E) prospectus
Q2) A bond has a par value of $1,000,a market price of $300,and a 9% coupon rate.It will mature in 5 years.What is the current yield of the bond?
A) 18.89%
B) 19.00%
C) 21.75%
D) 48.27%
E) 44.96%
Q3) The biggest single payer in the bond market is the U.S.Government.
A)True
B)False
Q4) What,if any,are the pros and cons of speculating in precious metals,precious gems,and collectibles?
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Chapter
Funds:
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136 Flashcards
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Sample Questions
Q1) The investor services that most mutual funds offer include
A) bookkeeping services.
B) checking accounts.
C) automatic systems to add to or withdraw from your account.
D) All of the above are correct.
E) All but B are correct
Q2) When you own shares in a mutual fund,you directly own shares of the companies that make up the fund.
A)True
B)False
Q3) What are the differences between an ETF and a mutual fund?
A) An ETF can be traded like a share of common stock.
B) An ETF can be purchased on margin or sold short like a share of common stock.
C) An ETF is more tax-efficient than most mutual funds.
D) All of the above are correct.
E) Only A and C are correct.
Q4) Why would someone want to give serious attention to investing in mutual funds? At the same time,why would you not invest in them?
Q5) What are the tax liabilities concerning investing in a mutual fund?
Q6) What are ETFs and what are their advantages?
Page 16
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Chapter 15: Retirement Planning
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Sample Questions
Q1) Suppose that you have estimated that,to provide for your retirement income,you will need $2,250,000 on deposit in your retirement account when you retire.You believe that you will earn an average of 11% on your retirement investments until you retire in 35 years.What must your annual deposits be to accumulate this total?
A) $21,991.14
B) $6,586.85
C) $5,904.84
D) $6,878.77
E) None of the above
Q2) Alicia works two jobs and still makes very little income.Why is the Saver's Tax Credit a good idea for her?
A) Because it will possibly increase her tax refund
B) Because it will possibly reduce the amount of income tax that she owes
C) It allows her to offset part of the first $2,000 that she can contribute to an IRA or a 401(k) plan.
D) All of the above are correct.
E) Only A and B are correct.
Q3) What are the advantages and disadvantages of a defined-contribution plan like a 401k?
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Page 17
Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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106 Flashcards
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Sample Questions
Q1) Madonna is a famous singer;as such,she may select to settle her estate through a trust because of which reason(s)?
A) Trusts are harder to challenge.
B) Trusts reduce estate taxes.
C) Trusts provide confidentiality.
D) Trusts allow for professional management.
E) All of the above
Q2) John Kennedy Jr.and his wife Caroline both perished in the same plane crash.Which of the following clauses would identify who is assumed to have perished first?
A) Appointment clause
B) Common disaster clause
C) Attestation clause
D) Witness clause
E) Bimodal death clause
Q3) If a family has young children,or there are children from a previous marriage,then a trust is probably the best way to go for estate planning.
A)True
B)False
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Chapter 17: Financial Life Events Fitting the Pieces Together
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Sample Questions
Q1) Roxanne began saving for retirement at age 23 when she graduated college.She wants to have $2.3 million dollars in her retirement account when she reaches age 55.If she deposits $9,000 each year in an account earning an 11% Annual Rate of Return,will she achieve her goal in time?
A) Yes, she will have over $2.3 million dollars in the account.
B) No, she will have less than $2.3 million dollars in the account.
Q2) List the six keys to successful debt management.
Q3) Women are more likely to have a pension than men.
A)True
B)False
Q4) Suppose that you want to purchase a home.Your lender has told you that the standard limit for your total debt limit ratio is ________ including your mortgage debt.
A) 24%
B) 36%
C) 38%
D) 40%
E) none of the above
Q5) Why is it important for someone twenty five years old to start planning for retirement?
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