Financial Literacy
Test Questions
Course Introduction
Financial Literacy provides students with the foundational knowledge and practical skills needed to make informed and effective decisions regarding personal financial management. The course covers essential topics such as budgeting, saving, investing, credit management, debt reduction, and understanding financial products and services. Students will also explore concepts such as insurance, taxes, and retirement planning, with an emphasis on developing strategies for achieving long-term financial stability and independence. By the end of the course, students will be equipped to navigate real-world financial challenges and make choices that support their personal and professional goals.
Recommended Textbook
Personal Finance 6th Edition by Jeff Madura
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21 Chapters
2466 Verified Questions
2466 Flashcards
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Page 2
Chapter 1: Overview of a Financial Plan
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Sample Questions
Q1) People do not need to determine how much money to set aside for retirement and how those funds should be invested until they near their retirement age.
A)True
B)False
Answer: False
Q2) Which of the following is an example of an opportunity cost?
A) Renting an apartment near school
B) Taking a class instead of working at your part-time job
C) Setting aside money for paying income tax
D) Purchasing automobile insurance
Answer: B
Q3) Which of the following is not a decision that you would probably encounter in managing your budget?
A) What expenses you should anticipate
B) How much money you should attempt to save each month
C) How you will allocate your estate among your heirs
D) How long you will take to pay off a specific loan
Answer: C
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3
Chapter 2: Planning With Personal Financial Statements
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Sample Questions
Q1) List three components of your personal balance sheet and two components of your income statement.
Answer: The balance sheet includes assets,liabilities,and net worth.The income statement includes income and expenses.
Q2) Which of the following is not considered an asset for a family?
A) Cash in a checking account
B) A mortgaged home
C) A leased car
D) Furniture
Answer: C
Q3) One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them.
A)True
B)False
Answer: True
Q4) Your net worth can change even if your net cash flows are zero.
A)True
B)False Answer: True
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Chapter 3: Applying Time Value Concepts
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Sample Questions
Q1) A stream of equal payments either received or paid at equal time intervals is a(n)________.
Answer: annuity
Q2) There are two sets of present and future value tables: one set for lump sums and one set for annuities.
A)True
B)False Answer: True
Q3) The process of obtaining present values is known as discounting.
A)True
B)False
Answer: True
Q4) Describe how present and future values concepts apply to your income and expenses and ultimately your personal budget,income statement,and balance sheet.
Answer: This is basically a subjective answer.Present and future value concepts affect your investing,purchase,and retirement decisions.The results of these decisions will have a positive or negative impact on your personal financial statements.
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Chapter 4: Using Tax Concepts for Planning
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Sample Questions
Q1) The highest tax rate a taxpayer is charged on his or her federal tax return is called the ________ rate.
A) marginal
B) average
C) maximum
D) true
Q2) If you have a salary of $30,000,an IRA deduction of $2,000,a standard deduction of $6,300,and a FICA rate of 7.65 percent,how much did you pay in FICA this year?
A) $1,805
B) $1,958
C) $2,142
D) $2,295
Q3) ________ are specific expenses instead of a standard amount that reduce adjusted gross income.
A) Exemptions
B) Household expenses
C) Itemized deductions
D) Tax credits
Q4) ________ and ________ are both reported on a Schedule B.
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Chapter 5: Banking and Interest Rates
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Sample Questions
Q1) Which of the following is classified as a nondepository institution?
A) Credit union
B) Insurance company
C) Commercial bank
D) Savings institution
Q2) When you invest in a CD that has a maturity of one year,you are guaranteed the interest rate offered on that CD.Your return would be
A) a risk premium.
B) money in the bank.
C) a risk-free return.
D) liquid assets.
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) The risk-free rate on borrowed funds is determined by the ________ and ________ of funds.
Q5) Describe four factors you should consider when choosing a financial institution.
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Chapter 6: Managing Your Money
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Sample Questions
Q1) Which of the following affords you access to a "sweep account"?
A) Asset management account
B) NOW account
C) MMDA account
D) MMF
Q2) Because most regular checking accounts do not pay interest,you should keep only enough funds in your account to cover anticipated expenses with a small reserve for unanticipated expenses.
A)True
B)False
Q3) ________ management is a series of decisions made over a short-term period regarding cash inflows and outflows.
A) Cash
B) Money
C) Liabilities
D) Both A and B are correct.
Q4) Risk management of money market investments involves assessing the risk exhibited by the investment.
A)True
B)False
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Chapter 7: Assessing and Securing Your Credit
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Sample Questions
Q1) Using a shredder to destroy personal data will protect you from shoulder surfing.
A)True
B)False
Q2) The average credit card balance of undergraduate students including those with a zero balance is between
A) $200 and $700.
B) $1,000 and $3,000.
C) $5,000 and $8,000.
D) $12,000 and $15,000.
Q3) If you receive a phone call that seeks to verify or update personal information you should
A) ask several questions of the solicitor to verify the person's authenticity.
B) ask to speak to a supervisor.
C) obtain the person's name and address in case you need to contact him or her in the future.
D) obtain the person's name and phone number and call the company to verify his or her credentials.
Q4) Discuss the factors that are used in determining credit scoring in the FICO model.
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Chapter 8: Managing Your Credit
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Sample Questions
Q1) When applying for a credit card,the amount of savings that you have will not be a factor in the credit card company's decision.
A)True
B)False
Q2) The interest you pay when using credit cards can have a major impact on the total amount you owe.
A)True
B)False
Q3) Which of the following statements is not true of prepaid cards?
A) Many fees may be associated with them.
B) Some prepaid cards can be used to withdraw cash from ATM's.
C) They can be useful in rebuilding an individual's credit record.
D) They offer less protection against theft than standard credit cards.
Q4) Describe the advantages and disadvantages of credit cards.
Q5) If you have exhausted all efforts to resolve an excessive credit card balance,personal bankruptcy may be your only option.
A)True B)False
Q6) Discuss how many credit cards you think you should have and why.
Page 10
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Chapter 9: Personal Loans
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Sample Questions
Q1) The APR measures the finance expenses (including interest and all other expenses)on a loan on a(n)
A) quarterly basis.
B) annualized basis.
C) monthly basis.
D) daily basis.
Q2) Lucky Louie applied for a $5,000 loan payable in one year and was provided the following data; interest due at payoff of $750,application fee $100,credit check $75,processing fee $75.What is the APR of Louie's loan?
A) 20%
B) 17.5%
C) 22.5%
D) There is not enough information to determine the answer.
Q3) You obtain a loan of $3,000 to be repaid over one year.Assume you are charged 12% interest based on the add-on method.You monthly payments would be A) $280.
B) $300.
C) $360.
D) $270.
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Chapter 10: Purchasing and Financing a Home
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Sample Questions
Q1) If you obtain an FHA or VA loan you will make additional payments each month to cover your home insurance and property taxes that will be placed in an account called a(n)
A) insurance account.
B) appraisal account.
C) escrow account.
D) default prevention account.
Q2) A market analysis is not
A) an estimate of the price of a home.
B) a guarantee of the price you will receive when selling a home.
C) based on similar homes in the area.
D) determined by multiplying the number of square feet in the home by the average price per square foot of comparable homes.
Q3) All the following information,except ________,can be found on a variety of Web sites about mortgages.
A) projected rate increases
B) loan rates, length of loan, and principal
C) loan applications
D) background on different mortgage companies
Q4) Is purchasing a home an expense,an investment,or both?
Page 12
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Chapter 11: Auto and Homeowners Insurance
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Sample Questions
Q1) All other things being equal,which of the following factors could lower a person's auto insurance rates?
A) Living in a small town
B) Driving the car to work rather than for pleasure only
C) Receiving a parking ticket
D) having a poor credit history
Q2) The insurance that will cover your possessions if you lease an apartment is called ________.
Q3) In general,the cost of comprehensive and collision insurance is the most expensive part of your automobile policy and represents about 60% of the cost.
A)True
B)False
Q4) In general,insurance companies generate their revenues from A) receiving payments for policies.
B) investing the proceeds of premiums until the funds are needed to cover losses.
C) the increases in the value of their corporate stock.
D) Both A and B are correct.
Q5) 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 one of the following benefits is most often available through an employer?
A) Disability insurance
B) Health insurance
C) Dental insurance
D) Vision insurance
Q2) The definition of disability can be defined as all of the following,except
A) you are unable to perform the duties required of your occupation.
B) you cannot perform the duties of any job that fits your education and experience.
C) you are unable to perform the duties of your job due to a work-related injury.
D) you are unable to do your job for an initial period.
Q3) The Affordable Care Act allows young adults to continue on a parent's health insurance plan until age 19 at which time they must obtain their own coverage.
A)True
B)False
Q4) You must have Parts A and B of Medicare in order to qualify for Part D.
A)True
B)False
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14
Chapter 13: Life Insurance
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Sample Questions
Q1) A disadvantage of whole life policies is that
A) the premiums are not predictable.
B) they are much more expensive than term policies.
C) the face value of the policy can change over time.
D) the cash value is frozen and not available to policyholders.
Q2) If a policyholder with a universal life insurance policy skips a payment,then the insurance company
A) terminates the policy.
B) refunds the amount paid and terminates the policy.
C) uses an amount from savings to pay the premium.
D) increases the premium.
Q3) Whole life policies are the least expensive way to meet your life insurance needs.
A)True
B)False
Q4) A limited payment option on a whole life policy pays a smaller share of the policy face value to beneficiaries during the first five years of the policy.
A)True
B)False
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Chapter 14: Investing Fundamentals
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Sample Questions
Q1) Money you set aside for a "rainy day fund" should be invested in ________,while money you are saving for retirement in 20 years should be invested in ________.
A) mutual funds; bond funds
B) money market funds; growth oriented stock mutual funds
C) three year bank CD's; 20 year bank CD's
D) preferred stock; common stock
Q2) In the secondary market,stock prices are
A) determined by supply and demand.
B) stable.
C) easy to predict.
D) less expensive than on the primary market.
Q3) If you have $1,000 to invest,but will need the money in one month to pay bills,you should
A) put the money in a money market savings account.
B) buy a one-year CD.
C) buy stocks of relatively stable firms that have low risk.
D) invest in a diversified stock mutual fund.
Q4) When a corporation goes from being a private to a public firm it will sell stock in what is called a(n)________.
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Chapter 15: Investing in Stocks
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Sample Questions
Q1) You bought IBM stock at $70 per share.It is now $120 a share.You think it could go higher but you are nervous that it could go down and you would lose your gains.To protect your gains but still give yourself the chance to make future profits you could place a
A) market order.
B) sell stop order at $100 a share.
C) buy stop order at $100 a share.
D) sell stop order at $150 a share.
Q2) Which of the following is not a reason some investors never purchase stock?
A) They are afraid of the risk.
B) They lack the knowledge.
C) They like safe investments such as CDs.
D) They don't want to make better returns.
Q3) market order
A)a brokerage firm that provides advice plus transaction services
B)a brokerage firm that executes transactions without giving advice
C)purchasing stock with funds borrowed from a brokerage firm
D)an order to buy or sell at the prevailing market price
E)an order to sell stock when the price falls to a specified level
Q4) Is investing on margin what the average investor should do?
Page 17
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Chapter 16: Investing in Bonds
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Sample Questions
Q1) Another name for the par value of a bond is its ________.
Q2) If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100,the taxable income you would have realized over the two year period is
A) $100 long term capital gain.
B) $160 ordinary income gain.
C) $60 ordinary income and $100 short term capital gain.
D) $60 ordinary income and $100 long term capital gain.
Q3) Which of the following statements is not true of corporate bonds?
A) They are debt securities issued by large companies.
B) They have long-term maturity dates.
C) They are very secure and almost never default.
D) They can offer a predictable source of income.
Q4) You should consider investing in bonds rather than stock if you
A) are willing to take more risk.
B) wish to receive income from your investment.
C) are willing to tie up your investment for a long period.
D) think interest rates will increase significantly in the near future.
Q5) If an investor purchases a diversified portfolio of bonds and holds them until maturity,the investor is employing the ________ strategy of bond investing.
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Chapter 17: Investing in Mutual Funds
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Sample Questions
Q1) Which of the following is not a characteristic of a closed-end mutual fund?
A) Once the fund closes the shares of the fund trade on the stock market just like a stock.
B) The shares may sell above NAV on the secondary market.
C) Investors can easily sell their share back to the fund on a daily basis at NAV.
D) The shares may sell below NAV on the secondary market.
Q2) ________ mutual funds invest in both foreign bonds and U.S.bonds.
A) International bond
B) Index
C) Treasury bond
D) Global bond
Q3) Index funds are popular for all of the following reasons except
A) their performance relative to other mutual funds.
B) they incur low expenses.
C) they are not actively managed.
D) performance is frequently lower than that of actively managed portfolios.
Q4) In assessing different mutual funds,the returns vary,but the expenses are fixed.
A)True
B)False
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Chapter 18: Asset Allocation
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Sample Questions
Q1) ________ risk is the risk that a stock is susceptible to poor performance due to weak stock market conditions.
A) Business
B) Market
C) Default
D) Management
Q2) The main benefit of diversification is that it reduces the exposure of your investments to the adverse effects of any individual stock.
A)True
B)False
Q3) A trust that invests in loans to help finance the development of properties is called a(n)
A) equity REIT.
B) real estate REIT
C) mortgage REIT.
D) option REIT.
Q4) A good asset allocation plan changes over time.How does it change from mid-life to retirement?
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) The tax characteristics of a Roth IRA and a traditional IRA differ in terms of initial contributions and withdrawals after retirement.
A)True
B)False
Q2) Contributions to a Roth IRA are not tax deductible initially and,therefore,very few people are interested in using a Roth IRA.
A)True
B)False
Q3) Describe two types of annuities.
Q4) 401(k)plan
A)a defined contribution plan for small firms (1 - 10 employees)
B)a retirement plan in which the employer contributes its own stock to the employee's retirement account
C)a defined contribution plan in which the employer contributes to employee retirement accounts based on a specified profit formula
D)a defined contribution plan that allows employees to contribute up to $18,000 per year in 2015 on a pre-tax basis
Q5) Name two types of retirement plans available to the self-employed.
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Chapter 20: Estate Planning
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Sample Questions
Q1) A will's key components may include all of the following except
A) distribution of the estate.
B) naming of the executor.
C) appointing of a guardian.
D) spelling out funeral arrangements.
Q2) A marital share will is most appropriate for married couples with large estates.
A)True
B)False
Q3) A(n)________ is a document that specifies changes in an existing will.
A) letter of instruction
B) codicil
C) amendment
D) secondary will
Q4) Minor changes to a will can be made with a simple document called a codicil.
A)True
B)False
Q5) The only reason for having a valid will is to have your estate distributed according to your plans.
A)True
B)False
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Chapter 21: Integrating the Components of a Financial Plan
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Q1) You may want to make additional loan payments to pay off your loan faster if the interest rate you are paying is higher than you could obtain from an investment.
A)True
B)False
Q2) ________ should be kept in a safe at home or in a safety deposit box at a bank.
Q3) What are four types of financial investment balances that you should monitor?
Q4) Liquid assets usually generate
A) high returns.
B) returns like stocks.
C) returns like bonds.
D) lower returns.
Q5) 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
Q6) Name three ways to protect and maintain your wealth and assets and maintain your standard of living.
Page 23
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