Foundations of Personal Finance Final Exam Questions
Course Introduction
Foundations of Personal Finance introduces students to the essential concepts and skills needed to make informed financial decisions throughout their lives. The course covers topics such as budgeting, saving, investing, managing credit, understanding loans and interest rates, navigating insurance options, planning for retirement, and basic tax principles. Emphasizing practical application, students learn how to set financial goals, track expenses, develop responsible spending habits, and evaluate financial products and services. Through case studies and real-world scenarios, this course empowers students to build a strong personal financial foundation and become financially responsible adults.
Recommended Textbook
Personal Finance 12th Edition by E. Thomas Garman
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17 Chapters
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2
Chapter 1: Understanding Personal Finance
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Sample Questions
Q1) Donald is a college student who has $4,000 in savings that he earned from his summer job.He plans to leave the $4,000 in a 6 percent certificate of deposit (CD)for three years,but his banker has asked Donald whether he wants the interest earned on the CD mailed to him at the end of each year or reinvested in the CD.Approximately how much more will Donald earn if he decides to reinvest the interest rather than withdrawing the interest income each year?
A) $14
B) $44
C) $144
D) $240
Answer: B
Q2) Why do rising interest rates generally depress stock prices?
A) Businesses have to pay higher interest rates to borrow money,thus reducing their profits.
B) Stock investors tend to take their money out of the stock market and invest in interest-paying investments.
C) Future earnings will not be worth as much as today.
D) All of these.
Answer: D
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Page 3
Chapter 2: Career Planning
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Sample Questions
Q1) To assign monetary values to employee benefits,you can place a market value on the benefit or calculate the ____ value of the benefit.
A) present
B) future
C) index
D) physical
Answer: B
Q2) When comparing salary offers from employers in different cities,you should gather information regarding the approximate cost of living in each city.
A)True
B)False
Answer: True
Q3) To advance in your career,you should
A) volunteer for new assignments.
B) stay alert to what is happening in your career field.
C) avoid outside activities such as coaching your child's soccer team.
D) both volunteer for new assignments and stay alert to what is happening in your career field.
Answer: D
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Page 4
Chapter 3: Financial Statements,tools,and Budgets
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Sample Questions
Q1) Refer to Figure 3-1.Calculate Maria and John's current net worth.
A) $26,325
B) $25,025
C) $23,825
D) $16,325
Answer: C
Q2) Eric Jones develops computer software for a major company.Eric's salary and bonuses total $82,000,but he pays $29,233 in income and Social Security taxes.If Eric's annual debt repayments are $33,620,what is his debt -to-income ratio?
A) 41 percent
B) 64 percent
C) 36 percent
D) 77 percent
Answer: A
Q3) There should be enough money in a revolving savings fund to
A) pay all short-term debt.
B) avoid running out of money.
C) pay all fixed expenditures.
D) pay for all long-term goals.
Answer: B
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Chapter 4: Managing Income Taxes
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Sample Questions
Q1) A long-term capital gain (or loss)occurs when the asset is held for over one year.
A)True
B)False
Q2) Many high-income taxpayers must pay a higher alternative minimum tax rather than the tax they owe after taking allowable adjustments and deductions.
A)True
B)False
Q3) Which of the following deductible expenses can be prepaid for tax purposes?
A) Personal property taxes
B) Charitable contributions
C) Medical expenses
D) All of these
Q4) You can file an amended tax return to obtain deserved refunds for the previous five years.
A)True
B)False
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Chapter 5: Managing Checking and Savings Accounts
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Sample Questions
Q1) Which of the following accounts could accurately be called a money market account?
A) Share draft account
B) Asset management account
C) NOW account
D) Series EE savings bond
Q2) When you sign up for electronic banking services,the depository institution must inform you of your rights and responsibilities in a written disclosure statement.
A)True
B)False
Q3) Funds on deposit in a savings account are considered time deposits rather than demand deposits.
A)True
B)False
Q4) Deposits in credit unions with federal charters are insured through the National Credit Union Share Insurance Fund (NCUSIF).
A)True
B)False
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Page 7
Chapter 6: Building and Maintaining Good Credit
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Sample Questions
Q1) Maxine used her bank credit card to make a three-day reservation at a fancy hotel.When she tried to charge another purchase to the same credit card,Maxine was surprised to learn that her credit limit had been reached.What probably caused this?
A) Credit card blocking
B) Bad checks charged against the Visa card
C) Chargeback of transactions
D) Tiered pricing
Q2) Pay-day lenders are businesses that grant credit when they honor a personal check but agree not to deposit the check for a week or longer.
A)True
B)False
Q3) You may still owe money after repossession if there is a
A) deficiency balance.
B) contingency clause in your contract.
C) foreclosure agreement.
D) Chapter 7 bankruptcy.
Q4) Lenders pay a fee for each credit report requested.
A)True
B)False
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Chapter 7: Credit Cards and Consumer Loans
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Sample Questions
Q1) The declining-balance method is widely used to calculate interest on installment loans made by
A) savings and loan associations.
B) credit unions.
C) consumer finance companies.
D) both savings and loan associations and credit unions.
Q2) Most credit cards have a grace period only if
A) you made the minimum payment the previous month.
B) you paid the full finance charge the previous month.
C) you paid the balance in full the previous month.
D) you made no additional charges since the previous billing.
Q3) Which of the following is an example of an unsecured debt?
A) auto loan
B) second mortgage
C) signature loan
D) first mortgage
Q4) A retail credit card allows the holder to make purchases at numerous businesses.
A)True
B)False
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Chapter 8: Vehicles and Other Major Purchases
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Sample Questions
Q1) Same as cash offers often carry the risk that
A) your interest rate will be increased.
B) all prior interest will be owed if full payment is not made within the agreed time period.
C) you will be insolvent.
D) you will lose a tax deduction for the interest owed.
Q2) Negotiating becomes easier for the buyer when there are multiple variables such as price,trade-in product and financing options in the overall deal.
A)True
B)False
Q3) ____ should be completed before interacting with sellers.
A) Distinguishing between needs and wants
B) Preshopping research
C) Fitting the budget
D) All of these
Q4) If you plan to purchase the vehicle at the end of the lease period,you would pay the residual value if your lease was open-ended.
A)True
B)False
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10
Chapter 9: Obtaining Affordable Housing
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Sample Questions
Q1) Jillian wants to rent an apartment that has monthly rent payments of $850 and requires a $400 security deposit and a $500 damage deposit.In order to move in,Jillian will probably be required to pay
A) $850.
B) $1250.
C) $1750.
D) $2100.
Q2) Homeowners may find it advantageous to refinance a mortgage when interest rates rise.
A)True
B)False
Q3) The term cooperative describes a method of ownership for housing rather than a type of building.
A)True
B)False
Q4) Homeowner's fees on condominiums do not include funds to pay
A) monthly mortgage payments of property owners.
B) maintenance of the common areas.
C) insurance covering the exterior of the building(s).
D) maintenance of the building(s).
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Chapter 10: Managing Property and Liability Risk
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Sample Questions
Q1) The large-loss principle recommends that you insure the losses you can afford to suffer and assume the losses that you cannot afford to suffer.
A)True
B)False
Q2) Property insurance does not take effect until after the application has been accepted by the insurance company even if payment has been made to an agent.
A)True
B)False
Q3) Comprehensive automobile insurance protects against property damage losses caused by perils.Which one of the following is not a covered peril?
A) Fire
B) Theft
C) Rollover
D) Hail
Q4) Coverage that appears to be provided in one part of an insurance policy may be denied elsewhere in the same policy.
A)True
B)False
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Page 12
Chapter 11: Managing Health Expenses
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Sample Questions
Q1) A ____ power of attorney takes effect when a incapacitating medical condition occurs.
A) limited
B) durable
C) special
D) partial
Q2) Traditional health insurance provides protection against financial loss resulting from the perils of illness and injury.
A)True
B)False
Q3) Your waiting period on disability income insurance can be ____ if you have some savings set aside as an emergency fund.
A) shortened
B) lengthened
C) costly
D) risky
Q4) Open-enrollment periods are common in group health care plans.
A)True B)False
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Chapter 12: Life Insurance Planning
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Sample Questions
Q1) ____ provide the basic descriptive information about the insured person or property,the premium to be paid,the time period of the coverage,and the policy limits.
A) Insuring agreements
B) Endorsements
C) Declarations
D) Conditions
Q2) A living benefit clause provides
A) a cash-value loan to the policyholder.
B) dollar benefits to the insured prior to death if the insured is terminally ill.
C) cash dividends to the policyholder.
D) income for life.
Q3) A young,healthy person may be able to buy term life insurance privately at lower premiums than through a group policy.
A)True
B)False
Q4) If one is adequately insured,there is no need for a multiple indemnity clause.
A)True
B)False
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Chapter 13: Investment Fundamentals
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Sample Questions
Q1) Investors in securities can diversify within an investment medium,such as different stocks in one industry,or across alternatives,such as in stocks,bonds,and mutual funds.
A)True
B)False
Q2) Total risk comprises random risk and market risk.
A)True
B)False
Q3) Financial risk relates to the possibility that the investment will fail to pay a return to the investor.
A)True
B)False
Q4) Which of the following is the most diversified investment portfolio?
A) Equal amounts of stock in IBM,Intel,and Microsoft
B) Municipal bonds issued by New York,Houston,and Chicago
C) One-year,five-year,and ten-year certificates of deposit
D) 100 shares of Wal-Mart stock,an IBM bond,and a two-year certificate of deposit
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Page 15
Chapter 14: Investing in Stocks and Bonds
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Sample Questions
Q1) The yield on Treasury bills is commonly considered a zero real rate of return.
A)True
B)False
Q2) The shortest-term Treasury issue is called a
A) U.S.Series EE savings bond.
B) Treasury bond.
C) Treasury bill.
D) Treasury note.
Q3) Refer to Figure 14-3.What was QPZ's closing price on December 12?
$25)00 per share
A) $44.75 per share
B) $44.25 per share
C) $43.38 per share
D) $25.00 per share
Q4) Stock selection takes time because there are more than 8,000 public companies available.
A)True
B)False
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Chapter 15: Investing Through Mutual Funds
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Sample Questions
Q1) Periodic,systematic investment in mutual funds is very much like ______ when buying stocks.
A) switching privileges
B) systematic withdrawal
C) dollar-cost averaging
D) exchange trading
Q2) Open-end mutual funds
A) are sold only through brokers.
B) make up about 75 percent of all mutual funds.
C) are sold at their current net asset value.
D) are sold to other investors on a secondary market.
Q3) A mutual fund is an investment company that pools funds obtained by selling shares to investors and makes investments to achieve the financial goal of income or growth,or both.
A)True
B)False
Q4) A 12b-1 fee is imposed if the investor redeems shares within a specified number of years after purchase.
A)True
B)False
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Chapter 16: Real Estate and High-Risk Investments
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Sample Questions
Q1) Paul's marginal tax bracket is 28 percent.He has taxable income of $5,000 on his real estate investment.His tax liability on this income is
A) $0.
B) $1,400.
C) $1,500.
D) $3,200.
Q2) ____ is a repair expense for rental property rather than a capital improvement.
A) Painting the kitchen
B) Remodeling the garage into a game room
C) Adding a new patio
D) Building a sidewalk
Q3) The discounted cash-flow method is an effective way to estimate the value or selling price of a real estate investment.
A)True
B)False
Q4) Scams and frauds abound with collectibles as investments.
A)True
B)False
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Chapter 17: Retirement Planning
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Sample Questions
Q1) There are a few situations in which the IRS imposes no penalty for early withdrawals from an IRA account.
A)True
B)False
Q2) Which of the following statements regarding Keogh accounts is true?
A) The annual limitation on contributions to Keogh accounts is lower than the annual limitation on IRAs.
B) One must have net self-employment income to contribute to a Keogh account.
C) Earnings on Keogh investments are taxed deferred,but contributions are not tax-deductible.
D) One can contribute to either an IRA or a Keogh,but not both in the same year.
Q3) One can create a trust without an attorney.
A)True B)False
Q4) The maximum yearly contribution you may make to an IRA is $5,500.
A)True B)False
Q5) Through the Social Security system,current workers support current retirees.
A)True
B)False
19
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