Consumer Finance
Midterm Exam
Course Introduction
Consumer Finance explores the financial decisions and challenges faced by individuals and households, with an emphasis on personal financial planning, credit management, saving and investing, consumer loans, housing and mortgage choices, insurance, retirement planning, and risk management. The course equips students with essential tools and concepts to make informed decisions about managing income, budgeting, debt, and assets, while also examining the impact of economic policies and market trends on individual financial wellbeing. Through real-world case studies and practical applications, students gain the foundational knowledge needed to navigate the complexities of personal finance and develop strategies for achieving financial goals throughout different stages of life.
Recommended Textbook
Personal Finance 4 4th Edition by Lawrence J. Gitman
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Page 2
Chapter 1: Understanding the Financial Planning Process
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Sample Questions
Q1) Personal financial management is important because it:
A) controls inflation.
B) limits consumption.
C) uses money as an end.
D) makes personal financial goals easier to achieve.
E) lessens economic differences among individuals.
Answer: D
Q2) Defining financial goals is an important first step in personal financial planning process.
A)True
B)False Answer: True
Q3) Short-term goals include things one wants to achieve in a year or less.
A)True
B)False
Answer: True
Q4) Financial assets are paper assets,such as savings accounts and securities.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Using Financial Statements and Budgets
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Sample Questions
Q1) The balance sheet equation is:
A) Total Assets - Total Current Liabilities = Net Worth.
B) Total Assets + Total Long-term Liabilities = Net Worth.
C) Total Assets - Total Liabilities = Net Worth.
D) Total Assets + Total Liabilities = Net Worth.
E) Total Liabilities - Total Current Assets = Net Worth.
Answer: C
Q2) Your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10 years.If you require a 7% return,what is the most you should pay for this investment?
A) $49,179
B) $175,590
C) $201,000
D) $225,682
E) $250,000
Answer: B
Q3) A house and land are examples of real property.
A)True
B)False
Answer: True
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Chapter 3: Preparing Your Taxes
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Sample Questions
Q1) Your marital status [will | will not] have an effect on the amount of social security tax you pay.
Answer: B
Q2) Federal income taxes paid can be deducted in the following year.
A)True
B)False
Answer: False
Q3) One's home must typically be owned at least three years to receive the most favorable capital gains treatment.
A)True
B)False
Answer: False
Q4) George has the following expenses that he wants to include as itemized deductions for the year.His adjusted gross income is $60,000.What is the total itemized deduction he can take?
Answer: 11ea84e6_2e0c_d9a9_abcc_4b0b26905268_TB3853_00_TB3853_00
Q5) [Both you and your employer | Only your employer] will make social security contributions based on your wages.
Answer: A
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Chapter 4: Managing Your Cash and Savings
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Sample Questions
Q1) Gordon and Susan have a regular savings plan and have accumulated $8,000.How much will this be worth in 10 years if they can earn 2% on the money? They are not planning to add to this savings account.(Show all work.Round your answer to the nearest dollar.)
Q2) Which of the following is not a strategy to build your nest egg?
A) Make savings a priority
B) Reinvest interest and dividends
C) Splurge once in a while
D) Set up a retirement plan
E) All the above are not strategies to build nest egg
Q3) Compared to other depository financial institutions,credit unions:
A) are run to benefit their members.
B) pay higher interest on savings.
C) charge lower rates on loans.
D) all of the above are true.
E) none of the above are true.
Q4) [Money market deposit accounts | Money market mutual funds] are protected by the Federal Deposit Insurance Corporation.
Q5) "For deposit only" would indicate a [blank | restricted] endorsement.
Q6) EE savings bonds are also called [War Bonds | Patriot Bonds].
Page 6
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Chapter 5: Making Automobile and Housing Decisions
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Sample Questions
Q1) The first step in the auto-buying process should be:
A) test drive several cars.
B) beginning negotiations.
C) to consider alternative buying strategies.
D) to decide whether to trade in your used car or to sell if yourself.
E) analyzing how much you can afford to spend on the car.
Q2) Patrick would like to know the monthly payments and the total finance charges on the following 2 loans:
a.
$30,000,9%,36 months
b.
$30,000,9%,48 months
Q3) Homeowners may be allowed to deduct _____ on their taxes.
A) homeowners insurance
B) mortgage interest
C) home improvements
D) mortgage principal
Q4) You made a $900 mortgage payment.The interest on the mortgage for this month was $850.You have just experienced [negative | positive] amortization.
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Chapter 6: Using Credit
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Sample Questions
Q1) Bank credit cards represent the most common kind of open account credit.
A)True
B)False
Q2) Rebate credit cards work best for those who use the rebates,charge a lot,and do not carry high monthly balances.
A)True
B)False
Q3) The majority of reduction in consumer indebtedness is due to home and consumer loan defaults.
A)True
B)False
Q4) Revolving credit lines are often accessed by writing checks.
A)True
B)False
Q5) Your credit limit is determined by a number of factors,such as financial position,earning power,etc.
A)True B)False
Q6) A home equity lines of credit is one of the [most | least] expensive forms of consumer credit.
Page 8
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Chapter 7: Using Consumer Loans
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Sample Questions
Q1) When simple interest is used,the stated rate of interest on single-payment loans is equal to the annual percentage rate (APR).
A)True
B)False
Q2) Rebates are almost always more cost effective than the 0percent APR loan offered on automobile loans.
A)True
B)False
Q3) PLUS loans are made to parents or legal guardians rather than to the student.
A)True
B)False
Q4) Consumer finance companies usually charge lower rates of interest than commercial banks.
A)True
B)False
Q5) Using [simple | add-on] interest would be less expensive for the borrower when determining the total to be paid to the lender.
Q6) There are now about [$1 billion | $1 trillion] in student loans outstanding.
Q7) Consolidation loans are generally [inexpensive | expensive].
Page 9
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Chapter 8: Insuring Your Life
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Sample Questions
Q1) Cash value is an important component of whole life,universal life,and variable life but is never a component of term insurance.
A)True
B)False
Q2) [Level premium | annual renewable] term policies have become much more popular in recent years.
Q3) Which of the following companies does NOT rate the financial strength of life insurance companies?
A) A.M.Best
B) Moody's
C) Fitch
D) Weiss
E) Welch's
Q4) The three major categories of life insurance are term,straight life,and limited payment.
A)True
B)False
Q5) The most accurate way to determine how much life insurance you need is to use the [multiple earnings | needs] approach.
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Chapter 9: Insuring Your Health
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Sample Questions
Q1) One difference between health maintenance organizations (HMOs)and individual practice associations (IPAs)is that [HMOs cost much less | IPAs do not provide services from a central location].
Q2) The ["own occupation" | "any occupation"] definition of disability is more restrictive.
Q3) When purchasing a long-term care policy,the [guaranteed renewability | optional renewability] provision is recommended.
Q4) All of the following except a _____ are highly recommended for a long-term disability income policy.
A) guaranteed renewable clause
B) cost-of-living adjustment
C) long duration of benefit
D) short waiting period
E) waiver of premium
Q5) Hospitalization insurance pays daily room and board charges up to a specified number of days and reimburses for ancillary charges up to a specified dollar amount.
A)True
B)False
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Chapter 10: Protecting Your Property
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Sample Questions
Q1) Donna,who is single and 30-years-old,has received several speeding tickets recently and was shocked by the effect on her auto insurance.Donna drives a 2002 Pontiac Firebird.She is currently not covered by health insurance,has an emergency fund of $25,000,an income of $100,000 per year,and an investment portfolio of $230,000.She is trying to reduce the price of her auto insurance.Which of the following actions is most likely to be help Donna reduce the price of her auto insurance?
A) Maintain her liability limits at the current levels.
B) Raise her medical payments coverage.
C) Raise her deductible from $250 to $1,000.
D) Maintain collision-coverage at current levels.
E) Raise her collision coverage by $10,000.
Q2) A captive agent represents many insurance companies.
A)True
B)False
Q3) Section I of a homeowner's insurance policy covers medical payments.
A)True
B)False
Q4) A renters' policy typically [does | does not] provide protection against liability claims.
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Page 12
Chapter 11: Investment Planning
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Sample Questions
Q1) [Speculating | Investing] is considered to be a long-term activity.
Q2) The total return of a portfolio is influenced far more by specific security selection than asset allocation in the long run.
A)True
B)False
Q3) Publicly traded corporations [are required to | may choose to] provide annual reports to their stockholders.
Q4) Short term securities are traded in the [money | capital] market.
Q5) The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included provisions to improve [accountability | sustainability].
Q6) There are a variety of investment vehicles including which of the following?
A) Common stock.
B) Bonds.
C) Preferred and convertible securities.
D) Real estate.
E) All of the above are investment vehicles
Q7) Ownership in a corporation would be represented by [stock | bonds].
Q8) Fifty shares of stock would constitute [an odd lot | a round lot].
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Q9) The [primary | secondary] market is where new securities are sold to the public.
Chapter 12: Investing in Stocks and Bonds
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Sample Questions
Q1) Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.
A)True
B)False
Q2) If the value of the underlying stock dropped drastically,the owner of a convertible bond [would still receive $1,000 | would receive the market value of the stock] at maturity.
Q3) To most stockholders,the main advantages of common stock investment are:
A) attractive returns and active trading.
B) guaranteed returns and voting rights.
C) high interest and active trading.
D) high risk and guaranteed returns.
E) high risk and attractive returns.
Q4) The approximate yield-to-maturity of a bond is greater than the stated rate of interest when:
A) purchased at face value.
B) purchased at a discount.
C) purchased at a premium.
D) market rates of interest decline.
E) market rates of interest are constant.
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Chapter 13: Investing in Mutual Funds
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Sample Questions
Q1) Back-end loaded mutual funds are most appropriate for:
A) an investor with a short time horizon.
B) an investor with a long time horizon.
C) an investor who wants to purchase a no-load product.
D) all investors.
E) none of the above
Q2) [Open-end | Closed-end] mutual funds always redeem shares at NAV.
Q3) Investors select and purchase securities held within mutual funds.
A)True
B)False
Q4) Which of the following is not a source of mutual fund returns?
A) Dividend income
B) Capital gains
C) Changes in NAV
D) Changes in IDB
E) All of the above are sources of mutual fund returns
Q5) A fund's prospectus would provide information about a fund's fee structure.
A)True
B)False
Q6) Value funds look for stocks with relatively [high | low] dividend yields.
Page 15
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Chapter 14: Planning for Retirement
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Sample Questions
Q1) When setting retirement goals you should consider:
A) what you want to do in retirement.
B) your expected standard of living.
C) your proposed level of income.
D) special retirement activities and projects.
E) all of these
Q2) Marcia works for Telephonic Industries and participates in its thrift and savings plan.For every $1.00 Marcia contributes to the plan,up to 4 percent of her salary,the company contributes $0.50.Which of the following accurately describe this plan?
A) It's a defined benefit plan.
B) It's a non-contributory plan.
C) It's a cash balance plan.
D) It's a matching plan.
E) It's a profit-sharing plan.
Q3) Government assistance,primarily Social Security,is the largest single source of income for the average retiree.
A)True
B)False
Q4) In a Roth 401(k),contributions [are | are not] tax deductible.
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Chapter 15: Preserving Your Estate
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Sample Questions
Q1) The best choice for a trustee is a family member.
A)True
B)False
Q2) A tenancy by the entirety consists of:
A) husband and wife only.
B) immediate family members.
C) immediate and extended family members.
D) extended family members.
E) none of the above
Q3) Gift giving can reduce estate tax liability.
A)True
B)False
Q4) Gift tax liability could be incurred on this transaction:
A) providing rent-free apartment for mother.
B) 1,000 hours of babysitting for grandchild.
C) son's deposit into husband-wife joint checking account.
D) setting up a revocable trust.
E) $35,000 given to son.
Q5) You need to make a minor revision in your will.You could write a [codicil | new will].
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