Consumer Finance
Test Preparation
Course Introduction
Consumer Finance is a course designed to provide students with a comprehensive understanding of financial decision-making from the perspective of individual consumers. The course covers key topics such as budgeting, saving, credit management, borrowing, insurance, investing, and retirement planning. Students will learn how to evaluate financial products and services, understand credit reports and scores, recognize the impact of interest rates and inflation, and make informed choices about loans, mortgages, and personal financial goals. Emphasis is placed on practical strategies for responsible financial management, as well as the social and psychological factors influencing consumer financial behavior. By the end of the course, students will be equipped with the skills and knowledge necessary to make sound financial decisions for lifelong financial well-being.
Recommended Textbook
Personal Finance 6th Edition by Jeff Madura
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21 Chapters
2466 Verified Questions
2466 Flashcards
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Chapter 1: Overview of a Financial Plan
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Sample Questions
Q1) A complete financial plan consists of budgeting,taxes,financing,and investing.
A)True
B)False
Answer: False
Q2) Since career choices affect your income,you should choose the career that
A) that pays the highest salary even if you dislike the work.
B) that will be enjoyable and will suit your skills.
C) that will be the easiest to find employment in.
D) that requires the least amount of training or education so you can begin working as quickly as possible.
Answer: B
Q3) Why is it important to monitor and revise your financial plan from time to time?
A) Your financial position changes over time as does your personal, job and family situation
B) As you get older you will want to lower your goals
C) So that you remember the goals you were striving for
D) You may decide enjoying consumption now is more important than saving for retirement years
Answer: A
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Chapter 2: Planning With Personal Financial Statements
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) household assets
A)a summary of assets, liabilities and net worth
B)the difference between cash inflows and outflows
C)items owned by a household such as a home or car
D)a financial statement that measures cash inflows and outflows
Answer: C
Q2) Student loans,car loans,and housing loans are good examples of A) long-term liabilities.
B) current liabilities.
C) short-term debts.
D) personal obligations.
Answer: A
Q3) Stocks are considered liquid assets since they are easy to sell without a loss in value. A)True
B)False
Answer: False
Q4) If your net cash inflows exceed your net cash outflows,you can increase your net worth by investing the difference in more ________.
Answer: assets
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Chapter 3: Applying Time Value Concepts
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Sample Questions
Q1) Using the Time Value of Money charts provided,answer the following question.(Note to Instructors: Provide the appropriate tables to students from Personal Finance,Sixth Edition,Appendix C: Financial Tables.) Jack is 35 years old and is planning to retire at age 65.Based on a variety of factors,he is planning a retirement of 20 years.Jack determines that he will need $20,000 per year during his 20 years of retirement.If he can invest at 9%,how much will he need to save each year beginning today to reach his goal?
A) $11,428.57
B) $6,086.00
C) $1,339.47
D) $20,000.00
Answer: C
Q2) annuity
A)the process of earning interest on interest
B)a series of equal payments received or paid at equal intervals
C)a factor multiplied by today's savings to determine how the savings will accumulate over time
D)a business calculator that performs PV/FV calculations
Answer: B
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5
Chapter 4: Using Tax Concepts for Planning
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121 Flashcards
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Sample Questions
Q1) The timing on the sale of an investment asset earning a capital gain makes little or no difference in the amount of taxes that are owed.
A)True
B)False
Q2) The filing status that yields the largest standard deduction per taxpayer is
A) married, filing jointly.
B) head of household.
C) single individual.
D) married, filing separately.
Q3) capital gains
A)interest earned from savings and debt securities
B)forms used to report interest and deductions
C)reportable income from any source
D)earnings from stocks
E)selling an asset for more than it cost
Q4) The standard deduction (assuming you are not over 65 or blind)is largest for
A) single filers.
B) head of household filers.
C) married filing jointly.
D) married filing separately.
Page 6
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Chapter 5: Banking and Interest Rates
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Sample Questions
Q1) The one-year loan rate for individuals is usually about the same as the one-year CD rate.
A)True
B)False
Q2) The interest rate is composed of the ________ and the ________.
A) risk-free rate; risk discount
B) risk-free rate; risk premium
C) risk-free rate; default risk premium
D) None of the above.
Q3) Bank fees for use of an automated teller machine (ATM)do not need to be considered when choosing a bank since fees are set by the federal government and are the same for all banks.
A)True
B)False
Q4) ________ are nondepository institutions that provide insurance to protect individuals or firms against possible adverse events.
A) Finance companies
B) Securities firms
C) Insurance companies
D) Investment companies
Page 7
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Chapter 6: Managing Your Money
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104 Flashcards
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Sample Questions
Q1) A(n)________ account acts as a traditional checking account except that it pays interest.
Q2) Which of the following is not a characteristic of money market funds (MMFs)?
A) They pool money provided by individuals to invest.
B) They invest in securities with short-term maturities.
C) They are high-risk investments.
D) They allow limited check writing.
Q3) An advantage of a NOW account over a traditional checking account is that your money is more readily available to you.
A)True
B)False
Q4) Describe the type of checking account you have or plan to have.List the advantages and disadvantages of your choice.
Q5) Overdraft protection for a checking account is a low-cost short-term loan. A)True B)False
Q6) Describe three types of risk associated with various money market instruments.
Q7) Debt securities issued by the U.S.Treasury that are due in one year or less are called
Page 8
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Chapter 7: Assessing and Securing Your Credit
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) The ability to save funds is ________ when credit payments are ________.
A) increased; small
B) reduced; small
C) reduced; large
D) Both A and C are correct.
Q2) Funds provided by a borrower that will be repaid in the future,with interest,is credit.
A)True
B)False
Q3) The personal cost of identity theft is difficult to measure,but calculating the financial cost is an easier task.
A)True
B)False
Q4) Which of the following will not be included on your credit report?
A) Social Security number
B) FICO score
C) Unpaid accounts
D) Companies that have recently accessed your report
Q5) A ________ extends credit by providing a service and billing for the service at the end of the time period.
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Chapter 8: Managing Your Credit
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Sample Questions
Q1) Advantages of using credit include the ability to make purchases without cash and the convenience of not carrying checks.
A)True
B)False
Q2) APR means
A) actual percentage rate.
B) applied percentage rate.
C) annual percentage rate.
D) all-banks percentage rate.
Q3) Because credit card interest rates are usually quite high,you should pay off your credit card balances before you invest funds anywhere else.
A)True
B)False
Q4) Credit cards have all of the following advantages except
A) they allow you to borrow cash interest free for 60 days.
B) make purchases without carrying cash.
C) obtain free financing until the bill is due.
D) itemized monthly statement.
Q5) Describe the advantages and disadvantages of credit cards.
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Chapter 9: Personal Loans
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Sample Questions
Q1) The ________ the maturity of a loan,the ________ the payments.
A) longer; smaller
B) shorter; larger
C) shorter; smaller
D) Both A and B are correct
Q2) Having a longer term loan
A) costs you more interest and therefore increases the cost of your loan.
B) makes your monthly payments larger.
C) is almost always the best alternative for credit users.
D) gives you access to additional sources of financing.
Q3) You have a home with a market value of $200,000.Your total equity in the home is $40,000.The maximum home equity loan available if the bank will loan 80% based on equity invested is
A) $28,000.
B) $32,000.
C) $112,000.
D) $128,000.
Q4) What does the Truth-in-Lending Act of 1969 require lenders to do? What is the APR,and how does it fulfill the purpose of the Act?
Q5) List four components of a loan contract
Page 11
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Chapter 10: Purchasing and Financing a Home
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131 Flashcards
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Sample Questions
Q1) You should consider the school system near a home only if you have or are likely to have school-aged children.
A)True
B)False
Q2) In negotiating a price for the purchase of a home,you should do all of the following,except
A) offer the highest price you can afford first to get the purchase settled quickly.
B) write up a contract.
C) assess how market conditions affect the value of the home.
D) understand that real estate agents are brokers between the buyer and seller.
Q3) There are a number of different mortgage types to choose from in financing a house or condominium,such as fixed or variable loans for 15 or 30 years.
A)True B)False
Q4) The specific location of your home can influence the amount of property taxes and insurance you will pay.
A)True
B)False
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Chapter 11: Auto and Homeowners Insurance
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136 Flashcards
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Sample Questions
Q1) The bodily injury liability coverage of your automobile policy will not pay for
A) medical expenses of those in the other car for an accident that you caused.
B) lost wages of those in the other car for an accident that you caused.
C) injuries to others in your car due to an accident that you caused.
D) pain and suffering awards to those in the other car for an accident that you caused.
Q2) Which of the following is not covered in a standard homeowner's policy?
A) Lightning hits your house and it burns to the ground.
B) Your house is broken into and all the furniture is stolen.
C) The river near your house overflows its bank and washes your house away.
D) A hailstorm damages the roof of your house.
Q3) If you have a poor driving record,you may be forced to do all of the following except
A) accept the premium of any insurance company willing to insure you.
B) prove over several years that you have improved your driving habits.
C) refrain from filing a claim until your driving record has improved.
D) pay higher insurance premiums.
Q4) What do policy limits of 200/300/100 on an automobile insurance policy mean?
Q5) List four ways to reduce your auto insurance premiums.
Q6) List two ways to reduce your homeowner's insurance premiums.
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Chapter 12: Health and Disability Insurance
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Sample Questions
Q1) Which of the following is an advantage of a PPO compared to an HMO?
A) The premiums are lower.
B) There are more choices of specialized health care providers.
C) There are no out-of-pocket expenses.
D) No approval is needed to see a specialist.
Q2) Certain federal regulations ensure that individuals can maintain continuous health care coverage.
A)True
B)False
Q3) Health care providers who are part of an HMO are paid a predetermined amount of compensation per month for each patient who participates in the plan.
A)True
B)False
Q4) Under a discount on charge arrangement,the provider receives
A) a flat fee.
B) more than what it would normally charge for a particular service.
C) less than what it would normally charge for a particular service.
D) an amount equal to the charge for the service.
Q5) What steps would you take to evaluate and choose health care insurance options?
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Chapter 13: Life Insurance
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112 Flashcards
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Sample Questions
Q1) The budget method of estimating life insurance needs considers all of the following,except
A) the amount of debt you owe.
B) your annual income.
C) the value of your existing savings.
D) special expenses you will incur.
Q2) decreasing-term insurance
A)cash value and benefits to the beneficiary
B)combination of term insurance and a savings plan
C)premiums constant with reduced benefits
D)term insurance with a variable investment portion
Q3) The least expensive form of life insurance is
A) term.
B) whole life.
C) universal life.
D) variable life.
Q4) Using the budget method of determining life insurance needs,a family's future expected expenses are considered.
A)True
B)False
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Chapter 14: Investing Fundamentals
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Sample Questions
Q1) Common stockholders have the right to vote on key corporate issues,but also have the last right to the assets or profits of a company.
A)True
B)False
Q2) What would be the annual compound return on a stock purchased at $20 per share,held for 5 years,and sold for $32.22? Ignore brokerage commissions and tax implications and assume the stock paid no dividends during the holding period.Round to the nearest whole percent if necessary.
A) 3%
B) 10%
C) 15%
D) 16%
Q3) The return you will earn on certain stocks and bonds is uncertain because specific prices are not guaranteed.
A)True
B)False
Q4) Stocks that provide investors with steady income in the form of large dividends are classified as ________.
Q5) Name three applications of present and future value concepts to stocks.
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Chapter 15: Investing in Stocks
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Sample Questions
Q1) Companies A and B are both in the same industry and generally compete against each other in the marketplace.Stock A has a P/E ratio of 15 while Stock B's P/E is 21.Which of the following is not true about the relative positioning of Stock A and Stock B?
A) Stock B has lower perceived risk.
B) Investor's are willing to pay a higher price for shares in Company B.
C) Company A business performance is probably not as strong as Company B performance.
D) All of the statements are correct.
Q2) The income statement for a company is like a budget in that it shows how much money the company would like to have made in a given accounting period.
A)True
B)False
Q3) The CPI is used as part of the ________ analysis.
A) economic
B) industry
C) firm
D) government
Q4) The largest stock exchange in the United States is the ________.
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Chapter 16: Investing in Bonds
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Sample Questions
Q1) The possibility that a bond will be called by the corporation prior to its maturity is an example of ________ risk.
Q2) Another name for high-yield bonds is
A) corporate bonds.
B) federal agency bonds.
C) T-bills.
D) junk bonds.
Q3) As an investor,why should you consider investing in bonds?
Q4) On the secondary bond market,
A) only new bonds can be sold.
B) bonds are guaranteed to bring at least par value.
C) bond prices vary with interest rate movement and other factors.
D) bonds usually take several days to sell.
Q5) Which of the following is not always a true statement?
A) The par value of a bond is its face value.
B) The par value of a bond is its market value.
C) The par value of a bond will be paid to the bondholder at maturity.
D) The par value multiplied by the coupon rate equals the interest paid to investors annually.
Page 18
Q6) Name and explain two risks involved with bonds.
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Chapter 17: Investing in Mutual Funds
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Sample Questions
Q1) Investors can earn a return on an investment in a stock mutual fund in all of the following ways except
A) interest distributions.
B) dividend distributions.
C) capital gains distributions.
D) redeeming shares.
Q2) Which of the following statements about hedge funds is not true?
A) They sell shares to wealthy individuals and financial institutions.
B) They charge high management fees.
C) They require a large initial investment.
D) They are exposed to very little risk.
Q3) The amount by which a closed-end fund's share price in the secondary market is below the fund's NAV is called the
A) market value.
B) premium.
C) discount.
D) par value.
Q4) List five considerations or characteristics when purchasing a mutual fund.
Q5) The price of shares in a mutual fund is referred to as the ________.
Q6) Mutual funds that are traded on stock exchanges are called ________.
Page 19
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Chapter 18: Asset Allocation
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Sample Questions
Q1) ________ increase risk while ________ decrease risk in a portfolio.
A) Stocks; bonds
B) Bonds; mutual funds
C) Bonds; REITs
D) Mutual funds; stocks
Q2) An investor purchases a call option in a stock that is currently selling for $50 per share on January 3,2016. He pays $6 per share for the option with an exercise price of $57 and an expiration date of April 17,2016. On April 16,2016 the stock is selling for $58 and the investor exercises the option and immediately sells the stock.How much total gain or loss did the investor realize?
A) - $500
B) $100
C) Breakeven
D) $700
Q3) The price at which an option allows you to purchase or sell shares of stock is the ________ price.
Q4) The purchasing of stocks in different industries,bonds,and several mutual funds would be a way to ________ your portfolio.
Q5) Asset allocation uses what to reduce your risk from investing?
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Chapter 19: Retirement Planning
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Sample Questions
Q1) When you contribute to an employer sponsored retirement account,it is usually with ________ dollars.
A) after-tax
B) pre-tax
C) optional
D) discretionary
Q2) Individuals normally incur a tax penalty if funds are drawn from a traditional IRA before the age of 59 1/2.
A)True
B)False
Q3) How much could a self employed individual earning $187,000 per year accumulate in a SEP plan if the individual invests the maximum allowed for 20 years at a return of 9%? Round to the nearest dollar if needed.
A) $2,148,678
B) $2,391,736
C) $840,000
D) $935,000
Q4) Name two types of retirement plans available to the self-employed.
Q5) Describe two types of annuities.
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Chapter 20: Estate Planning
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Sample Questions
Q1) A revocable living trust cannot be changed during the grantor's lifetime.
A)True
B)False
Q2) A power of attorney can give someone you designate the power to make all of the following decisions except
A) sell stock in your portfolio.
B) authorize expenditures to make your house suitable for you when you become incapacitated.
C) decide who gets your coin collection after you die.
D) select a nursing home for you to live in.
Q3) If you are married,have a small estate,and have no children,a(n)________ will probably serve your needs.
Q4) Which of the following is not a type of trust?
A) Revocable living trust
B) Living trust
C) Standard family trust
D) Income trust
Q5) In order to be valid,a will must be dated,signed,and witnessed.
A)True
B)False
22
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Chapter 21: Integrating the Components of a Financial Plan
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Sample Questions
Q1) A term life policy is the least expensive way to
A) build a big estate when you die.
B) insure your life and provide for your responsibilities in the event of unexpected death.
C) save for your retirement years as the policy builds cash value.
D) insure your health, ability to work and your life all in one policy.
Q2) Which of the following should you do first?
A) Invest in liquid assets
B) Pay off loans
C) Buy insurance
D) Make investments
Q3) What are four types of financial investment balances that you should monitor?
Q4) What is the disadvantage of investments in retirement accounts compared to other investments?
A) Low returns
B) Low liquidity
C) High risk
D) Low risk
Q5) Name three ways to protect and maintain your wealth and assets and maintain your standard of living.
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