Consumer Finance Practice Questions
Course Introduction
Consumer Finance explores the principles and practices involved in managing personal financial resources, focusing on topics such as budgeting, saving, credit use, consumer loans, investment options, insurance, and retirement planning. The course examines how individuals make financial decisions in the context of changing market conditions and regulatory environments, using analytical tools and case studies to understand risks, rewards, and the impact of consumer behavior on financial well-being. Students will gain practical skills to evaluate financial products, develop effective financial plans, and navigate common challenges faced by consumers in todays financial landscape.
Recommended Textbook
Personal Finance 8th Edition by Arthur J. Keown
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17 Chapters
2679 Verified Questions
2679 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Without recognizing ________ it is impossible to understand compound interest,which allows investments to grow over time.
A)that taxes affect personal finance decisions
B)the time value of money
C)the importance of liquidity
D)that risk and return go hand in hand
Answer: B
Q2) A recent TD Ameritrade survey found what percent of respondents said credit card debt would make them less likely to date a person?
A)74%
B)32%
C)10%
D)44%
Answer: D
Q3) One purpose of financial planning is to help you legally reduce the amount of taxes you have to pay on your earnings.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Measuring Your Financial Health and Making a Plan
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) An expenditure over which you have no control and are obligated to make is a
A)repeating expenditure.
B)fixed expenditure.
C)constant expenditure.
D)long-term expenditure.
E)contractual expenditure.
Answer: B
Q2) Your ________ is found by dividing monetary assets by current liabilities and is a good measure of liquidity.
A)debt ratio
B)current ratio
C)net worth
D)net cash flows
Answer: B
Q3) Your ________ is found by dividing total debt or liabilities by total assets.
A)debt ratio
B)current ratio
C)net worth
D)asset ratio
Answer: A
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Chapter 3: Understanding and Appreciating the Time Value of Money
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) if you can save $10,000 per year for the next 25 years,what annual rate of return would you have to have to turn it into $847,009?
A)11%
B)9%
C)7%
D)14%
Answer: B
Q2) With a 30-year mortgage loan of $100,000 at an annual interest rate of 7 percent,you will pay less $135,000 in interest before your loan ends.
A)True
B)False
Answer: False
Q3) How much did you borrow if your annual payments are $5,000 for the next seven years and the interest rate is 9%?
A)$25,164.76
B)$36,002.17
C)$19,140.20
D)$27,797.84
Answer: A
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Chapter 4: Tax Planning and Strategies
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138 Verified Questions
138 Flashcards
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Sample
Questions
Q1) In chapter 4,Dianne Taylor won a 2016 Honda Accord on "The Price is Right" TV show.She has to pay taxes on her prize.The taxes are based on the car's ________ value.
A)fair market
B)residual
C)manufacturer's suggested retail price
D)invoice
Q2) Currently,the highest tax bracket for taxpayers is 37.5 percent.
A)True
B)False
Q3) Your base income tax liability can be determined by
A)using the alternative minimum tax worksheet,aimed at preventing the wealthy from paying little or no taxes.
B)using the IRS tax tables provided in the instruction booklet.
C)using the IRS rate schedules for taxable incomes greater than $100,000.
D)all of the above.
E)none of the above.
Q4) Tax credits reduce your taxes on a dollar-for-dollar basis.
A)True
B)False
Page 6
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Chapter 5: Cash or Liquid Asset Management
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) What is involved with proper cash management?
Q2) The interest rate earned on a money market deposit account is generally higher than the interest earned on a Bank savings account.
A)True
B)False
Q3) 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
Q4) What recommendations would you give Christopher about his goal of buying a house in five years?
A)You don't have enough income to consider buying a house.
B)You need to develop a savings plan.
C)You need to estimate what a down payment would be.
D)You should switch to a Savings and Loan Association.
E)Both B and C are good answers.
Q5) What is the importance of the APY?
Q6) Name the three Cs of choosing a financial institution.
Page 7
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Chapter 6: Using Credit Cards: the Role of Open Credit
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167 Verified Questions
167 Flashcards
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Sample Questions
Q1) Using the Adjusted Balance Method: If Monty sends in a payment for $1,000,how much will the finance charge be on his remaining balance? (Use the $6,000 balance for your calculations. )
A)$75
B)$90
C)$110
D)There is not enough information to solve this question.
Q2) To a credit user,the perks and benefits are the most important determinant when choosing a credit card.
A)True
B)False
Q3) Describe the three primary methods used to determine interest charges on an unpaid credit card balance.
Q4) A company that gathers and sells consumers' financial history to creditors is a A)credit card company.
B)credit bureau.
C)credit investigation bureau.
D)credit recovery firm.
E)credit issuance firm.
Q5) List five signs that you have the credit card habit.
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Debt consolidation loans are very appealing because
A)they offer liquidation to those who are in good standing with their creditors.
B)they offer hope to those who can't keep up with their current payment schedules.
C)they offer relinquishment of all debts and financial obligations to those who can't keep up with their current payment schedules.
D)all of the above
Q2) Name the four common loans available for college students.
Q3) What is the distinguishing feature of an automobile loan?
Q4) What are the risks to the borrower with adjustable-rate loans?
A)During times of inflation your salary may increase during the term of the loan.
B)That the market rates of interest may increase during the term of the loan.
C)It is harder to budget for loan payments that may increase during the term of the loan.
D)Both B and C are correct.
Q5) List examples of loans or loan sources that fit into the categories of inexpensive,more expensive,and most expensive.
Q6) Describe the four major parts of a typical loan contract.
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Chapter 8: The Home and Automobile Decision
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217 Verified Questions
217 Flashcards
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Sample Questions
Q1) You have just obtained a mortgage to purchase your home.The ________ that you paid to obtain the loan are charges that must be paid at the time of the sale and serve to raise the effective cost of the loan.
A)points
B)closing fees
C)escrow fees
D)security fees
E)none of the above
Q2) What are the common options for housing?
Q3) Candice is purchasing a new Jeep.She has the price negotiated down to what she thought was the lowest possible price until she heard that her Jeep has a holdback amount of 3%.Is it fair for Candice to ask the dealership to take the holdback amount off her final sales price?
A)Absolutely,this would decrease the mark up price of the Jeep and save Candice additional dollars.
B)No.The dealership would most likely lose money on the sale.
Q4) Provide the most common one-time or initial costs involved in buying a house.
Q5) List the four steps in the automobile decision.
Q6) Give the major financial advantages of home ownership.
Page 10
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Chapter 9: Life and Health Insurance
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224 Verified Questions
224 Flashcards
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Sample Questions
Q1) The money that the policy holder is entitled to if the policy is terminated is known as the face value.
A)True
B)False
Q2) Cash-value insurance is any policy that provides both a death benefit and an opportunity to accumulate cash value.
A)True B)False
Q3) Currently only 10% of Americans receive some type of government health care entitlements such as Medicaid or Medicare.
A)True
B)False
Q4) Practically all insurance contracts include a suicide clause stating that the insurance company won't pay off for suicide deaths that occur within the first five years of the contract.
A)True B)False
Q5) List the plans and payment percentages offered in the Health Insurance Marketplace.
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Chapter 10: Property and Liability Insurance
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Lisa and Eric were notified that replacement cost coverage is in effect on a home owner's policy only if the home is insured for at least 80% of its replacement cost.This provision is known as the
A)Replacement Cost Rule.
B)80 Percent Rule.
C)Replacement Cost Provision.
D)none of the above.
Q2) You want to make an informed choice in buying auto insurance.You have studied the major cost determinants.Write a report in first person telling how they will affect you.
Q3) A lower insurance credit score generally results in lower homeowner's insurance rates.
A)True
B)False
Q4) Which of the following statements is true?
A)The lower your insurance credit score,the higher your homeowner's insurance rate will be.
B)The higher your insurance credit score,the higher your homeowner's insurance rate will be.
Q5) Describe the difference between actual cash value and replacement value.
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Chapter 11: Investment Basics
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325 Verified Questions
325 Flashcards
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Sample Questions
Q1) Securities are generally sold in the primary markets with the help of a(n)________ serving as a(n)________.
A)individual investor;underwriter
B)corporation;investment banker
C)regulatory commission;individual investor
D)underwriter;regulatory commission
E)investment banker;underwriter
Q2) A young investor who is averse to risk should invest their money in government bonds.
A)True
B)False
Q3) You purchase shares of BH Inc.at the beginning of the year for $30 per share.After receiving dividends of $4 per share,you sell at the end of the year for $20 per share.What is your one year rate of return?
A)20%
B)-20%
C)-46.66%
D)70%
Q4) How does the principle of diversification work?
Q5) Explain the bid and ask price system when trading in stocks.
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Chapter 12: Investing in Stocks
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190 Verified Questions
190 Flashcards
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Sample Questions
Q1) This equation,dividends next year/required rate of return minus growth rate tells us the stock's
A)dividend yield.
B)earnings per share.
C)value.
D)growth potential.
E)book-to-price ratio.
Q2) In the event of a corporate bankruptcy,bondholder's claims are paid before shareholders' claims are paid.
A)True
B)False
Q3) The ________ the firm's earnings growth rate,the ________ the firm's P/E ratio and the ________ the investor's required rate of return,the ________ the P/E ratio. A)higher;higher;higher;higher B)higher;higher;higher;lower C)higher;higher;lower;lower D)higher;lower;lower;lower
E)lower;lower;lower;lower
Q4) Briefly describe the SWOT analysis.
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Chapter 13: Investing in Bonds and Other Alternatives
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) Why does preferred stock not have the potential for capital gains like common stock does?
Q2) The yield to maturity for a bond with eight years to maturity,with a face value of $1,000,pays 10 percent annual coupon and currently sells for $1,950,is 5 percent.
A)True
B)False
Q3) According to the Morgan Stanley REIT Index,REITs fell by about ________ between March 2007 and March 2009.Then between March 2009 and March 2017,the Morgan Stanley REIT Index rose by more than two and a half times,but REITs were still down ________ from their 2007 high.
A)15 percent;45 percent
B)50 percent;50 percent
C)75 percent;30 percent
D)95 percent;5 percent
Q4) Make a list and check it twice to tell how to select a good bond.
Q5) Bonds which are very low rated,yet high yielding bonds are known as junk bonds.
A)True B)False
Q6) How can you improve your chances when investing in bonds?
Page 15
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Chapter
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Explain how sales loads and fund expenses can negatively impact your return on investment in a mutual fund.
Q2) By law,all mutual funds must be broadly diversified.
A)True
B)False
Q3) Compare the investment vehicles and tax treatment of tax-exempt and government securities money market mutual funds.
Q4) You purchased 100 shares of a fund for $15.50 per share.Its current NAV is 20.75 per share.There were no distributions.What is your total return?
A)33.87%
B)22.33%
C)79.67%
D)25.51%
Q5) The process of buying a mutual fund involves determining your investment goals,identifying funds that meet your objectives,and evaluating those funds. A)True
B)False
Q6) What are ETFs and what are their advantages?
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Chapter 15: Retirement Planning
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) How is the size of a person's Social Security retirement benefits determined?
A)It depends on the number of credits earned in a person's lifetime.
B)It depends on the average level of earning over a person's lifetime.
C)It depends on the number of years a person has paid Social Security taxes.
D)All of the above are correct.
E)Only B and C are correct.
Q2) One of the best things about retirement is that retirees don't have to pay income taxes once they retire.
A)True
B)False
Q3) A(n)________ is a pension plan in which you and your employer or your employer alone contribute funds directly to a retirement account set aside specifically for you.
A)defined-benefit plan
B)cash balance plan
C)defined-contribution plan
D)percentage plus inflation plan
E)none of the above
Q4) If your employer offers a 401(k)or 403(b)plan,why should you participate?
Q5) Discuss the basic considerations when facing retirement.
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Provide some common sense approaches to estate planning.
Q2) If you die without one,your state will "write one for you" based on intestacy laws.
A)True
B)False
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
Q4) The unified tax credit effectively nullifies the taxes on the first $5.49 million of one's estate.
A)True
B)False
Q5) Outline the steps in calculating estate taxes.
Q6) A living will is a directive to a physician that allows you to state your wishes regarding medical treatment in the event you are unable to make decisions for yourself. A)True
B)False
Page 18
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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85 Flashcards
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Sample Questions
Q1) List the main "life events" as discussed in your textbook.
Q2) Molly just received a $5,000 inheritance.She wants to open an IRA for retirement,40 years from today.If she can earn 11% per year in her IRA,how much will she be able to take out annually for 20 years in retirement?
A)$16,250
B)$40,812
C)$24,182
D)$35,041
Q3) Why is it important for someone twenty five years old to start planning for retirement?
Q4) Part of the getting started stage is to begin saving for your goals.What are the critical steps to doing so?
A)Make savings automatic.
B)Live within your means.
C)Catch your matches.
D)All of the above are correct.
E)Only A and C are correct.
Q5) Discuss the results of having debt marketed to adults the same way toys are marketed to children.
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