Consumer Finance
Mock Exam
Course Introduction
Consumer Finance explores how individuals and households manage their financial resources over the life cycle, focusing on topics such as budgeting, borrowing, saving, investing, insurance, and retirement planning. The course examines the principles and practices behind personal financial decision-making, the use of credit and debt, and the impact of financial products and institutions on consumer well-being. Students will learn to analyze financial information, develop sound financial strategies, and understand the broader economic, legal, and ethical contexts of consumer finance.
Recommended Textbook
Personal Financial Planning 1st Edition by Lewis Altfest
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20 Chapters
651 Verified Questions
651 Flashcards
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Page 2
Chapter 1: Introduction to PFP
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Sample Questions
Q1) Similar to a medical doctor, a financial planner:
A) Is typically compensated through an insurance company.
B) Must be familiar with the overall state of the client's financial health, regardless of the service being provided.
C) Must specialize in one area.
D) All of the above.
E) None of the above.
Answer: B
Q2) Capital is best defined as:
A) The places where tangible goods and financial instruments like stocks and bonds are bought and sold.
B) The economic operation of the organization based on the cash it generates.
C) The real, financial, and human related assets that are generated by individuals and organizations or bought and sold in the marketplace.
D) None of the above.
E) All of the above.
Answer: C
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Chapter 2: Time Value of Money
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Sample Questions
Q1) What is the present value of $100,500 to be received 23 years from now if the interest rate is 7.5 percent?
A) $19,044.58
B) $163,565.44
C) $16,447.34
D) $26,200.30
E) None of the above.
Answer: A
Q2) What is the present value of $25,250,300 to be received 73 years from now if the interest rate is 22.5 percent?
A) $10,454,550.25
B) $9.30
C) $12,566.60
D) $8,987,000.45
E) $8,500,000.25
Answer: B
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4
Chapter 3: Beginning the Planning Process
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Sample Questions
Q1) Which of the following statements is applicable to financial planners?
A) They may view themselves as assisting people in making their decisions.
B) They may be extremely sensitive to people's needs with financial rules taking a backseat.
C) They may view themselves as experts whose advice is correct and should be followed in all instances.
D) All of the above statements may be applicable to financial planners, with the degree of applicability depending on personality.
E) None of the above statements are applicable to financial planners.
Answer: D
Q2) Life cycle stages include:
A) Young, middle aged, and senior.
B) Child, adult, and elderly.
C) Student, employed, unemployed, retired.
D) Infant, child, adolescent, young adult, adult, elderly.
E) None of the above.
Answer: A
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Page 5
Chapter 4: Household Finance
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Sample Questions
Q1) Which of the following best characterizes the household enterprise?
A) It attempts to earn as much money as possible.
B) It attempts to minimize pleasurable activities so as to maximize revenue-generating opportunities.
C) It attempts to maximize pleasurable activities so as to minimize time-wasting activities.
D) It attempts to run the household as efficiently as possible in order to provide as much time and money as possible for pleasurable activities.
E) None of the above.
Q2) Into which of the following categories do personal support costs such as eating, non-business clothing, and personal care belong?
A) Maintenance costs.
B) Overhead costs.
C) Leisure outlays
D) All of the above.
E) Both a and b.
Q3) Please provide a breakdown of alternative household structures and their effect on financial, legal, and tax matters.
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Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) What is household equity?
A) The household's net worth.
B) The household's assets minus its liabilities.
C) The household's liabilities minus its assets.
D) Both a and b above.
E) None of the above.
Q2) Why are retirement assets listed separately on the balance sheet?
A) Retirement assets often cannot be turned into cash immediately without penalty.
B) Normal withdrawals from pensions are taxable.
C) Normal withdrawals from pensions are nontaxable.
D) Retirement assets have low cash value relative to their face amount.
E) Both a and b above.
Q3) Which assets are not usually placed on balance sheets?
A) Human-related assets.
B) Marketable investments.
C) Human assets.
D) All of the above.
E) Both a and c.
Q4) How are each of the following items recorded according to GAAP business?
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Chapter 6: Cash Flow Planning
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Sample Questions
Q1) Which of the following is not a recommended solution if the comparison of projected cash flows with goals identifies a shortfall?
A) Find additional income.
B) Utilize the emergency fund.
C) Cut back costs.
D) Change goals.
E) All of the above are recommended solutions.
Q2) Informal budgeting involves:
A) Less detailed ways of planning.
B) Listing expenses but not sources of revenues.
C) Listing expenses but not sources of revenues
D) Creating a detailed household budget that is not shown to the client.
E) None of the above.
Q3) The capacity to find a seller or buyer of an asset at its current value is:
A) Liquidity.
B) Liquidity substitute.
C) Marketability.
D) Emergency substitute.
E) None of the above.
Q4) Please list and describe eight different reasons for savings.
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Chapter 7: Debt
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Sample Questions
Q1) Which of the following is true when the mortgage loan is an amortizing loan?
A) At the beginning of the term of the loan the largest part of the payment is a paydown of principal, but a payments progress a rising portion is applied to interest payments.
B) Interest payments and paydown of principal remain constant during the loan.
C) At the beginning of the term of the loan the largest part of the payment is interest, but a payments progress a rising portion is applied to the paydown of principal.
D) Paydown of principal occurs at the end of the loan.
E) None of the above.
Q2) Which of the following types of borrowers are constantly seeking more funds and may have to take any payment terms offered?
A) Unrational borrowers.
B) Rational borrowers.
C) Discrete borrowers.
D) Surplus borrowers.
E) None of the above.
Q3) What are the advantages and disadvantages associated with fixed rate and variable rate mortgages?
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Chapter 8: Non Financial Investments
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Sample Questions
Q1) Which of the following household assets are for future use?
A) Real estate.
B) Durable goods.
C) Financial.
D) All of the above.
E) Both a and c.
Q2) Which of the following is never used as an alternative name for real assets?
A) Tangible assets.
B) Physical assets.
C) Hard assets.
D) All of the above are alternative names.
E) Only a and c are alternative names.
Q3) Which of the following is not a reason to purchase a durable good?
A) To take advantage of a technological improvement with the potential to make household maintenance more time-efficient.
B) Physical wear and tear that results in an existing durable having reached the end of its useful life.
C) A change in circumstances.
D) To attempt to minimize risk.
E) All of the above are reasons to purchase a durable good.
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Chapter 9: Financial Investments
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Sample Questions
Q1) Why can investments be viewed as a delivery mechanism?
A) Because they increase the household's risk level.
B) Because they help create sufficient assets to fund our goals.
C) Because they transform current savings into future spending.
D) Because they transform future income into current spending.
E) Investments are not viewed as delivery mechanism.
Q2) A fund that attempts to duplicate market performance and keeps costs low by using computerized programs to purchase holdings is called:
A) An actively managed fund.
B) An index fund.
C) A high-tech fund.
D) A defensive fund.
E) A cyclical fund.
Q3) Which of the following characterizes a defensive stock?
A) The company grows more rapidly in sales and earnings than the overall economy.
B) The company is less affected by cyclical business conditions.
C) The company grows at average or below-average rates.
D) Both a and b.
E) Both b and c.
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Page 11
Chapter 10: Risk Management
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Sample Questions
Q1) Criteria to consider when determining the quality of a company that offers insurance include:
A) Financial strength.
B) Operating sense.
C) Size of the company.
D) All of the above.
E) Both a and b.
Q2) Tangible assets that the household owns are:
A) Real assets.
B) Human assets.
C) Financial assets.
D) All of the above.
E) None of the above.
Q3) The feature that allows an insured to swap a term policy in the future for a whole life policy is designated:
A) Convertible term.
B) Swap term.
C) Flexible swap.
D) Convertible swap.
E) None of the above.
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Chapter 11: Other Insurance
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Sample Questions
Q1) Which of the following is used to set maximum reimbursement in the event of loss of an asset that you own equal to the value of the item?
A) Indemnity.
B) Screening of applicants.
C) Segregation of applicants.
D) Insurable interest.
E) None of the above.
Q2) Which of the following is not an example of property and liability insurance?
A) Liability to others.
B) Umbrella insurance.
C) Homeowner's insurance.
D) All of the above are examples of property and liability insurance.
E) None of the above is an example of property and liability insurance.
Q3) The actions of stockholder-owned insurance companies:
A) May conflict with the interests of policyholders.
B) Never conflict with the interests of policyholders.
C) Always conflict with the interests of stockholders.
D) Both a and c.
E) None of the above.
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Chapter 12: Retirement Planning
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Sample Questions
Q1) Which of the following is not an advantage of a mutual fund versus a variable annuity?
A) Favorable capital gains rates on equity fund, appreciation and dividends.
B) Higher total expense ratios and a redemption charge for annuities.
C) Limitation on investment choice for annuities.
D) All of the above are advantages of a mutual fund versus a variable annuity.
E) None of the above is an advantage of a mutual fund versus a variable annuity.
Q2) Which of the following is not type of risk associated with planning for retirement?
A) Investment risk.
B) Inflation risk.
C) Longevity risk.
D) Health risk.
E) All of the above are types of risk associated with planning for retirement.
Q3) What is the normal retirement age for an individual born in 1942?
A) 65 + 10 months
B) 66 + 10 months
C) 65 + 2 months
D) 66 + 10 months.
E) None of the above.
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Page 14
Chapter 13: Educational Planning
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Sample Questions
Q1) In practice, what is financial literacy?
A) Working to understand personal financial terms.
B) Making sure to read the business section of the newspaper on a frequent basis.
C) Being able to make financial decisions capably.
D) All of the above.
E) None of the above.
Q2) Private school payments for the period before college are:
A) Eligible for Coverdells if student is a minor when attending private school.
B) Eligible for Coverdells.
C) Ineligible for Coverdells.
D) Ineligible for Coverdells if student is a minor when attending private school.
E) None of the above.
Q3) UGMAs are:
A) Unrestricted.
B) Restricted to financial assets as investment vehicles.
C) Restricted to limited partnerships as investment vehicles.
D) Restricted to real estate as investment vehicles.
E) Both c and d.
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Chapter 14: Tax Planning
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Sample Questions
Q1) Do Roth IRAs provide tax deferral?
A) Yes.
B) No.
C) Yes, for contributions less than $1,000.
D) No, for contributions greater than $500.
E) None of the above.
Q2) Which of the following is the average tax bracket?
A) Tax on next dollar earned/Next dollar earned.
B) Total income tax outlays/Taxable income.
C) Next dollar earned/Tax on next dollar earned.
D) Taxable income/Total income tax outlays.
E) None of the above.
Q3) Purchasing municipal bonds in the state in which you reside is an example of: A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.
Q4) Please list and explain eight tax planning strategies.
Q5) Please detail the principal components of the tax return.
Page 16
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Chapter 15: Estate Planning
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Sample Questions
Q1) What is intestate?
A) Dying without a will.
B) Preparing a will that applies to only a single state.
C) Preparing a will that applies across a number of states.
D) Dying with a will that you prepared without a lawyer.
E) None of the above.
Q2) Legal documents that allow one to plan for incapacity include:
A) Letter of instruction.
B) Medical powers of attorney.
C) Powers of attorney.
D) Both a and b.
E) Both b and c.
Q3) Which of the following is incorrect?
A) The letter of instruction is a legal document.
B) The letter of instruction can indicate where the will and other important papers are located.
C) The letter of instruction can discuss sensitive family matters that an executor may find helpful.
D) The letter of instruction can include burial wishes.
E) All of the above are correct.
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) For each of the following types of fund loads, please describe the fund's front-end charge, annual sales charge, redemption charge, and 12b-1 fees characteristics.
(1) A type load.
(2) B type load.
(3) C type load.
(4) No load.
Q2) The amount due at bond maturity is called the:
A) Par value.
B) Face value.
C) Maturity value.
D) All of the above.
E) None of the above.
Q3) Of the following bond ratings, which are classified as medium quality?
A) B.
B) BBB.
C) A.
D) Both a and b.
E) Both b and c.
Q4) List and provide a detailed explanation for nine types of bond funds.
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Chapter 17: Background Topics
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Sample Questions
Q1) Which of the following is an advantage associated with increased government spending?
A) The government is relatively assured that the money will result in a change in economic output.
B) The government is relatively assured that the money will not result in a change in economic output.
C) Implementation is often delayed.
D) Implementation is rarely delayed.
E) None of the above.
Q2) What is a fiduciary?
A) An officer of the law.
B) A trusted party who acts as an agent for another person.
C) A lawyer designated by the courts.
D) All of the above.
E) None of the above.
Q3) For each of the following types of business organizations, detail the organization's economic, taxation, legal, and life cycle characteristics.
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Chapter 18: Capital Needs Analysis
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Sample Questions
Q1) For which of the following steps associated with retirement needs calculations is the inflation rate used?
A) To bring current cash shortfall to future period.
B) To establish lump sum shortfall from the amount of payouts.
C) To bring current investment sum to future period
D) Both a and b.
E) Both b and c.
Q2) Please detail the steps associated with retirement needs calculations, and indicate whether the investment rate, inflation rate, or real rate is used in the step.
Q3) Can Total Portfolio Management be used to determine asset selection alone?
A) Yes.
B) No.
C) Only when assets and liabilities are correlated.
D) Only when assets and liabilities are not correlated.
E) None of the above.
Q4) Please indicate whether Monte Carlo simulation and Total Portfolio Management includes each of the following:
Q5) Please list the 11 steps associated with a retirement needs analysis.
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Chapter 19: Behavioral Financial Planning
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Sample Questions
Q1) What is satisficing?
A) A method by which individuals seek satisfactory solution only if it is optimal as well.
B) A method by which individuals seek a satisfactory solution, not an optimal one.
C) A heuristic that leads individuals to sacrifice satisfying solutions in order to search for optimal solutions.
D) Both a and b.
E) Both b and c.
Q2) Which of the following is not a criticism of behavioral finance?
A) It has no scientific underpinning.
B) Its generalizations come from laboratory experiments and questionnaires.
C) Its generalizations come from how people act in real life.
D) All of the above are criticisms.
E) None of the above is a criticism.
Q3) What are the strengths and weaknesses of behavioral finance relative when compared to classical finance?
Q4) Please list and describe six common heuristics.
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Chapter 20: Completing the Process
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Sample Questions
Q1) Which of the following is not a key to a successful financial plan?
A) A specific statement is made indicating whether the goals are doable and the current household course is financially consistent with those goals.
B) Steps have been taken to help with any human shortcomings and nonfinancial goals are given.
C) Before completing the plan, a review process has been undertaken that confirms that the financial figures and recommendations make sense and are attainable, given the personalities of the individuals.
D) None of the above are key to a successful financial plan.
E) All of the above are key to a successful financial plan.
Q2) Why is there a need for the financial plan to integrate all financial actions?
A) Due to the possibility that the justification for some actions may be forgotten.
B) Due to the limited resources households have.
C) To satisfy certain regulation that financial planners must follow.
D) All of the above.
E) None of the above.
Q3) Please list 8 distinguishing features of personal financial planning theory, and describe the benefit of each.
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22