Financial Well-being
Midterm Exam
Course Introduction
Financial Well-being explores the essential principles and practical strategies to achieve a secure and fulfilling financial life. The course covers fundamental concepts such as budgeting, saving, investing, debt management, and financial goal-setting, emphasizing their importance in both short-term stability and long-term prosperity. Students will also examine the psychological and societal influences on financial behavior, assessing ways to make informed decisions and build healthy money habits. By the end of the course, participants will be empowered with the knowledge and tools needed to navigate financial challenges, reduce financial stress, and create a personalized plan for enduring financial health.
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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Sample Questions
Q1) Suppose you have just retired,have accumulated many luxury goods over the years,still owe a mortgage on your home,still have unpaid travel expenses on your credit cards,and have helped your adult children financially.Your spouse has recently passed away,and you miss his/her contribution to the household income.Which step in the personal financial planning process have you neglected?
A)Develop your financial health.
B)Define your financial goals.
C)Develop a plan of action.
D)Implement your plan.
E)Review your progress,reevaluate,and revise your plan.
Answer: E
Q2) While each person's financial plan is different,some common factors guide all sound financial plans.Which of the following is one of the common factors?
A)Sustainability
B)Illiquidity
C)Protection
D)Maximization of taxes
Answer: C
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) Current liabilities are those that can typically be paid off in full within 12 months.
A)True
B)False
Answer: True
Q2) Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money emergencies?
A)Liability ratio
B)Debt ratio
C)Long-term debt coverage ratio
D)Current ratio
E)None of the above
Answer: D
Q3) Explain the steps in developing a cash budget.
Answer: First,determine your anticipated income by referring to last year's adjusted income.Next,estimate your level of taxes to determine after-tax income available for living expenses.Add fixed and variable expense estimates together to determine your level of spending.Last,subtract living expenditures from expected take-home pay to calculate income available for savings and investment.
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Chapter 3: Understanding and Appreciating the Time Value of Money
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134 Flashcards
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Sample Questions
Q1) What are some practical uses of present and future values?
Answer: There are basically two practical uses for these values.Present values will tell you how much must be saved or invested annually to achieve a future financial goal.It also works for determining the monthly payment on a loan of a specified amount to be paid back in the future.Future values show the total future accumulated values of specified sums of money saved or invested now and into the future.Budgeting and financial planning would be very difficult if not impossible without the time value of money skills.
Q2) What is the maximum that you would be willing to loan your brother for a $100 IOU if he promises to pay you back at the end of the year? You want to earn an annual rate of return of 12%.
A)$82.00
B)$89.29
C)$92.73
D)$88.00
Answer: B
Q3) A perpetuity is an annuity that continues forever.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Tax Planning and Strategies
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138 Flashcards
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Sample Questions
Q1) You purchased 100 shares of I-Tech stock for $40 per share 3 years ago.If you sold those shares today at the current market price of $150 per share,what would be your capital gain on the sale,ignoring all commissions?
A)$110
B)$3,667
C)$7,333
D)$11,000
E)None of the above
Q2) Why is tax planning so important?
Q3) A regressive tax rate is one that increases as you make more income.
A)True
B)False
Q4) Social Security is a voluntary insurance program administered by the federal government that provides for you and your family in the event of death,disability,health problems,or retirement.
A)True
B)False
Q5) What are two tax advantages of tax-deferred retirement plans?
Q6) Describe the four filing status classifications.
6
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Chapter 5: Cash or Liquid Asset Management
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121 Flashcards
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Sample Questions
Q1) What is the name of an investment company that raises funds from investors,pools the money,and invests in stocks or bonds?
A)Stockbrokerage firm
B)Bond brokerage firm
C)Mutual fund firm
D)Securities fund firm
Q2) Explain the two types of gift,or stored value,cards.
Q3) A money order is typically less liquid than a personal check.
A)True
B)False
Q4) What is involved with proper cash management?
Q5) Brenda White had her bank certify one of her personal checks as being good.Which type of check has been issued?
A)Traveler's check
B)Certified check
C)Cashier's check
D)Money order
E)Audited check
Q6) What are the four questions you should answer when looking for a financial institution?
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Chapter 6: Using Credit Cards: the Role of Open Credit
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167 Flashcards
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Sample Questions
Q1) Having completed a personal finance class,you are now ready to give some advice to your free-spending friends.Which one is unwise?
A)Reduce the credit card balance.
B)Resolve any billing errors.
C)Quit using credit cards altogether.
D)Look for trouble signs in credit card spending.
E)Control your spending through discipline.
Q2) What is the main distinguishing feature(s)for T&E cards?
A)They do not offer revolving credit.
B)The full balance must be paid each month.
C)There is no annual fee.
D)Both A and B above
E)Both A and C above
Q3) If you credit card APR is 20% compounded monthly and you carry a balance your effective rate will be
A)22.74%.
B)21.25%.
C)24.27%.
D)21.94%.
Q4) Briefly describe the three credit card users.
Page 8
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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124 Flashcards
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Sample Questions
Q1) Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases
A)the loan maturity would decrease (other things held constant).
B)the payment amount would decrease (other things held constant).
C)the amortization would increase (other things held constant).
D)the payment amount would increase (other things held constant).
E)none of the above.
Q2) The APR is larger when money is lent under the discount method than when it is lent under the simple interest method.
A)True
B)False
Q3) Calculate the interest on $6,000 borrowed at an annual rate of 9% under the simple interest loan method for 9 months.
A)$270
B)$360
C)$405
D)$450
E)$540
Q4) What is the distinguishing feature of an automobile loan?
Page 9
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) Erin's gross annual salary is $60,000.Using the 28/36 PITI guide,what is the maximum she can afford on the PITI to monthly gross income?
A)$1,388.89
B)$1,400
C)$1,250.00
D)$1,000
Q2) Which should you consider when house hunting?
A)The selling price
B)The neighborhood
C)The school district
D)All of the above
Q3) A loan origination fee is a fee paid to the lender,generally in the $1,200 to $1,300 range,and covers some of their costs of processing and finalizing the loan.
A)True
B)False
Q4) Name six factors that will determine your monthly lease payment.
Q5) Provide the most common one-time or initial costs involved in buying a house.
Q6) Why should you set a goal to eventually be able to put at least 20% down on purchasing a home?
Page 10
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Chapter 9: Life and Health Insurance
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Sample Questions
Q1) The nonforfeiture right gives the policyholder the cash value of the policy in exchange for the policyholder giving up his or her right to a death benefit.
A)True
B)False
Q2) What does HMOs stands for?
A)Home monitoring organizations
B)Health monitoring organizations
C)Home maintenance operations
D)Health maintenance organizations
Q3) Define disability insurance and give the common sources of it.
Q4) Suppose that you wanted to purchase insurance that is sold by a private insurance company that will help bridge the gap in your Medicare coverage.You would purchase what type of insurance?
A)Medicare Additional insurance
B)Medigap insurance
C)Medicare Plus insurance
D)Medicare Bridge insurance
E)None of the above
Q5) Briefly explain the four common settlement options.
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Chapter 10: Property and Liability Insurance
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161 Flashcards
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Sample Questions
Q1) No-fault insurance only pays for your losses if you were not at fault in the accident.
A)True
B)False
Q2) Explain Section I: Property Coverage for HO-2 and HO-3 policies.
Q3) What is it about liability coverage that makes it so important?
A)There is no way to know in advance what your potential liability loss will be.
B)Huge sums of money are handed out in settlements over lawsuits over auto accidents.
C)This coverage will pay all legal costs should you be involved in a civil case arising from an accident.
D)All of the above are correct.
Q4) The replacement value of the house less accumulated depreciation (which is the decline in value over time due to wear and tear)is known as
A)actual cash value.
B)replacement value.
C)market value.
D)depreciation.
E)none of the above.
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12
Chapter 11: Investment Basics
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Sample Questions
Q1) The Internet is full of investment information,and all of it is stringently regulated so you can be sure of its reliability.
A)True
B)False
Q2) Explain the bid and ask price system when trading in stocks.
Q3) Call risk is the risk to bondholders that a bond may be called away from them before maturity.
A)True
B)False
Q4) Real estate investments can be income-producing investments.Which of these would be included as an income-producing real estate investment?
A)An apartment complex
B)A shopping mall
C)Your personal home
D)All of the above
E)Only A and B above
Q5) Stock can only be purchased in round lots. A)True
B)False
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) Using the stock valuation formula calculate the value of a share of stock if it is expected to pay $5 in dividends,in addition the dividends are expected to grow at a rate of 4 percent forever,and the investor's required rate of return is 12 percent.
A)$18.75
B)$39.75
C)$62.50
D)$68.50
Q2) Which feature of common stock ownership allows a stockholder to share in the company's earnings after the creditors are paid?
A)Limited liability
B)Claim on income
C)Claims on assets
D)Voting rights
Q3) Income stocks pay relatively low dividends,and offer a high potential for capital appreciation.
A)True
B)False
Q4) Briefly describe the SWOT analysis.
Q5) Explain the purpose and value of the dividend yield ratio.
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Chapter 13: Investing in Bonds and Other Alternatives
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Sample Questions
Q1) An unsecured long-term bond is known as a(n)
A)bondenture.
B)indenture.
C)debenture.
D)abdenture.
Q2) You hold in your hands a legal document that provides the specific terms of the loan agreement,including a description of the bond,as well as the rights of the bondholder.You have a(n)
A)agency contract.
B)bond signatory.
C)signatory contract.
D)indenture.
E)debenture.
Q3) Provide an explanation of the basic bond terminology and features.
Q4) A share of preferred stock pays dividends of $12 per year.What is the value to you if you require a 9.5% rate of return?
A)$12.63
B)$15.62
C)$126.32
D)$1,263.16
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Chapter
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141 Flashcards
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Sample Questions
Q1) Money market mutual funds have check writing privileges.
A)True
B)False
Q2) Explain how sales loads and fund expenses can negatively impact your return on investment in a mutual fund.
Q3) Mutual fund fees and expenses will negatively affect the return you receive on your investment.
A)True
B)False
Q4) "Classes" of mutual funds have different fee arrangements attached to them.
A)True
B)False
Q5) What sources of information does Art Keown,your textbook author,recommend when researching mutual fund investing?
A)Yahoo! Finance
B)The Wall Street Journal
C)MoneyCentral
D)Morningstar Mutual Funds
E)All of the above
Q6) What are the advantages of index funds?
Page 16
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Chapter 15: Retirement Planning
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Sample Questions
Q1) Burt Reynolds has changed jobs.His last retirement plan's contributions depended on how well the company performed and he shared in the earnings.His present employer allows him ownership in the firm,although this is the riskiest plan.Burt's former plan was a(n)________ and his current plan is a(n)________.
A)ESOP;money purchase plan
B)profit-sharing plan;ESOP
C)ESOP;401(k)
D)profit-sharing plan;thrift and savings plan
E)ESOP;profit sharing plan
Q2) Why have employers switched to defined-contribution plans instead of defined-benefits plans for most companies?
A)They remove the financial risk for future pension costs away from the company and pass it on to the employee.
B)The employer doesn't want to do any bookkeeping for the retirement plan.
C)Employers care deeply about what employees eventually receive from their plan.
D)All of the above are correct.
E)Only A and B are correct.
Q3) If your employer offers a 401(k)or 403(b)plan,why should you participate?
Q4) Relate the 7 steps to funding your retirement needs.What is the hardest part?
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) The main purpose of probate is to make sure the beneficiaries are treated equally.
A)True
B)False
Q2) A ________ is a trust that distributes income according to need,as determined by the discretion of the trustee rather than according to some preset formula.
A)family trust
B)sprinkling trust
C)needs distribution trust
D)compassion trust
E)none of the above
Q3) Describe the typical funeral and administrative expenses.
Q4) John Kennedy Jr.and his wife Caroline both perished in the same plane crash.Which of the following clauses would identify who is assumed to have perished first?
A)Appointment clause
B)Common disaster clause
C)Attestation clause
D)Witness clause
E)Bimodal death clause
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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Sample Questions
Q1) On average,married men earn 26% more money than unmarried men.
A)True
B)False
Q2) When you get married,by law you must have joint credit card accounts instead of individual accounts.
A)True
B)False
Q3) Medical insurance can keep medical expenses from becoming a catastrophic financial event.
A)True
B)False
Q4) 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
Q5) Discuss why it is important to keep a clean credit record.
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