Foundations of Personal Finance Midterm Exam
Course Introduction
Foundations of Personal Finance introduces students to the essential concepts and practical skills necessary for effective financial decision-making in their personal lives. Topics covered include budgeting, saving, managing credit and debt, understanding banking services, investing basics, insurance, taxes, and planning for major life expenses such as education and retirement. Through real-world examples and interactive activities, students gain the knowledge and confidence to set financial goals, evaluate financial products, and develop responsible money management habits, empowering them to pursue financial well-being and independence.
Recommended Textbook
Personal Finance 8th Edition by Arthur J. Keown
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17 Chapters
2679 Verified Questions
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Page 2
Chapter 1: The Financial Planning Process
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Sample Questions
Q1) The concept that emphasizes that people should not put all their eggs in one basket is
A)the time dimension of investing.
B)the curse of competitive investment markets.
C)diversification reduces risk.
D)the farmers analogy.
E)liquidity is first.
Answer: C
Q2) Based on the Life Cycle of Financial Planning,when would be a good time to review and possibly adjust an effective financial plan?
A)A really effective financial plan doesn't need to be adjusted.
B)When you get married
C)When you have children
D)When the stock market goes up
E)Both B and C are correct answers.
Answer: E
Q3) Diversification allows you to reduce risk.
A)True
B)False
Answer: True
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) ________ can be more than or less than the price you paid for a given asset,depending on what others are willing to pay for that asset today.
A)Net value
B)Fair market value
C)Intrinsic value
D)Sentimental value
Answer: B
Q2) The common thread among investment assets is that
A)they are purchased for the purpose of generating wealth.
B)they are purchased for one's personal use,like a vehicle or residence.
C)they provide the liquidity needed in case of an emergency.
D)they must be easily turned into cash with little or no loss in value.
Answer: A
Q3) Liabilities are best described as
A)monetary items of value that you own.
B)financial debts and obligations that you owe.
C)your net worth.
D)assets that depreciate over time.
E)intangible obligations.
Answer: B
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Chapter 3: Understanding and Appreciating the Time Value of Money
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Sample Questions
Q1) Suppose that you want to create a "college fund" for your newborn child and place $300 in a bank account at the end of each of the next 20 years.If that account earns an annual rate of return of 7%,how much will be in that account at the end of the twentieth year?
A)$13,420.00
B)$12,977.53
C)$13,178.20
D)$11,828.32
E)$12,298.65
Answer: E
Q2) You have been saving toward the purchase of a new mountain bike.Five years ago,you placed $600 in a bank account,and you have since earned an annual rate of return of 12 percent.How much do you now have in your account?
A)$1,057.41
B)$1,293.71
C)$978.70
D)$1,138.70
Answer: A
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Chapter 4: Tax Planning and Strategies
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Sample Questions
Q1) From the list below choose the item that is not a permissible tax deduction.
A)State,local,and real estate taxes
B)Home equity loan interest on debt up to $100,000
C)Auto,truck,or van loan interest
D)Interest on money borrowed to invest,within the IRS limits based on investment income
E)Unreimbursed job-related expenses and tax preparation costs within the IRS limits
Q2) Describe the four filing status classifications.
Q3) The Federal Insurance Contributions Act (FICA)tax deducted from your salary goes to pay for unemployment insurance.
A)True
B)False
Q4) The impact of taxes are an important consideration in most of the financial decisions that you will make.
A)True
B)False
Q5) Would the $10,000 gift the Taylors received from Chuck's parents be shown as income and taxed?
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Chapter 5: Cash or Liquid Asset Management
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Sample Questions
Q1) Money-market mutual funds (MMMFs)provide an alternative to traditional liquid investments offered by financial institutions.What are/is the advantage(s)of an MMMF?
A)High interest rates
B)Check-writing privileges
C)Minimal risk
D)Convenience-deposits made through payroll deductions
E)All of the above are correct.
Q2) It is wise to wait until you are earning a substantial amount of money before you establish a disciplined financial plan for your future.
A)True
B)False
Q3) Because liquid assets can be turned into cash quickly and with little loss,they have little risk associated with them and therefore provide a low rate of return for the consumer.
A)True
B)False
Q4) Briefly describe each of the cash management alternatives discussed in this chapter.
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Chapter 6: Using Credit Cards: the Role of Open Credit
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Sample Questions
Q1) Jerome would be considered a
A)credit user.
B)convenience user.
C)combination credit and convenience user.
D)T&E card user.
Q2) Most credit cards offer a 31- to 35-day grace period from the date of the bill to make payments.
A)True
B)False
Q3) ________ occurs when someone,without your knowledge or consent,uses your name,address,Social Security number,bank or credit card account number,or other identifying information to commit fraud or other crimes.
A)Phishing
B)Dumpster diving
C)Identity theft
D)Data breach
Q4) Teaser rates are very low.How long do they last? Is there any real benefit in them?
Q5) Compare and contrast the average,previous,and adjusted balance methods.
Q6) Describe four ways to prevent identity theft.
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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Sample Questions
Q1) What is the name of the interest rate banks charge to their most creditworthy customers?
A)Main rate
B)Blue chip rate
C)Prime rate
D)Premier rate
E)None of the above
Q2) Student loans are a smart source of financing for school because you only pay part of the interest charges and the rest is subsidized by the lender.
A)True
B)False
Q3) The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines.
A)True
B)False
Q4) What are the advantages of a home equity line,and what,if any,are the disadvantages?
Q5) Describe the four major parts of a typical loan contract.
Q6) Describe the four types of student-loan repayment plans.
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) Smart buying means enjoying the highest standard of living that you can based on your income and budget.
A)True
B)False
Q2) How can you benefit from following the smart buying steps?
A)Smart buying allows a higher standard of living because you make smarter purchases.
B)Smart buying allows you to buy what you want when you want it.
C)Smart buying helps you maintain your budget.
D)Both A and C are correct.
Q3) List the four steps in the automobile decision.
Q4) Describe the keys to obtaining a "good" lease.
Q5) For most cars,the manufacturer's warranty extends through the first seven years of ownership or the first 70,000 miles,whichever comes first.
A)True
B)False
Q6) Give at least six tips on smart buying.
Q7) What are some factors that determine whether a homeowner should refinance?
Q8) Explain why the 28/36 percent rule is so important to understand.
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Chapter 9: Life and Health Insurance
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Sample Questions
Q1) Explain the advantages and disadvantages of medical reimbursement accounts.
Q2) Policies define people as disabled if they can't perform
A)the duties of their own occupation.
B)the duties of any occupation for which they are reasonably suited.
C)their own occupation for the first two years of their disability,and thereafter if they can't perform any occupation for which they are reasonably suited.
D)All of the above could be correct,it varies with the policy.
Q3) How does the concept of "opting out" work?
Q4) In dealing with risk,one can either avoid it,manage it,or transfer it for a fee.
A)True
B)False
Q5) What are the disadvantages of group term insurance?
A)The premiums are usually subsidized by the employer.
B)The cost to covert from group coverage to individual coverage if you leave the company may be cost prohibitive.
C)Relying on group insurance may hinder your decision to leave the company.
D)Both B and C are correct.
Q6) What factors should be considered when selecting a life insurance policy?
Q7) Tell how a PPO is different from a fee-for-service or HMO plan.
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Chapter 10: Property and Liability Insurance
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Sample Questions
Q1) Toldae and Natasha were driving their friends home when they rear-ended another car.They are worried about paying for the medical bills and possibly getting sued.Who will be covered under their Part B: Medical expense coverage?
A)Toldae,Natasha,and the people in the car they hit
B)Toldae,Natasha,and their friends
C)Their friends and the people in the other car
D)The driver and their friends
E)The driver and the people in the other car
Q2) The personal automobile policy (PAP)provides broad coverage,but there are a number of standard exceptions.Give five of them here.
Q3) To effectively collect on a loss when filing a homeowner's claim,the first step should be
A)to make temporary repairs to protect your property.
B)confirm the adjuster's estimate.
C)make a detailed list of everything lost or damaged.
D)maintain records of the insurance settlement process,especially expenses.
E)report your loss to your insurance agent,and the police if applicable.
Q4) List seven general ways you can keep your automobile insurance rates down while ensuring complete coverage.
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Chapter 11: Investment Basics
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Sample Questions
Q1) As a young college graduate,your biggest investment ally is A)leverage.
B)the amount of investment.
C)tax-free investments.
D)time.
E)the class of investments.
Q2) During the economic downturn that occurred between the fall of 2007 and spring of 2009,stocks declined in price.This period is known as a(n) A)hare market.
B)tortoise market.
C)bull market.
D)bear market.
Q3) Placing a market order exposes the buyer to more risk than placing a limit order.
A)True
B)False
Q4) Investing in bonds is generally less risky than investing in stocks.
A)True
B)False
Q5) How does the time dimension of investing relate to the concept of liquidity?
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) The term "bear" stems from the fact that bears raise their paws upward when they attack.
A)True
B)False
Q2) You are looking at the stock quotes in your newspaper and you see that your stock closed up 5% yesterday.Where would you look to see how it has been doing over the last year?
A)Prior day's close
B)P/E ratio
C)52-week high and low
D)Market cap
Q3) You have just discovered one reason not to invest in stocks.What do you think it is?
A)Stocks reduce risk through diversification.
B)Your tolerance of risk is low.
C)Over time,common stocks outperform all other investments.
D)Stocks are liquid.
E)Growth is determined by more than just interest rates.
Q4) Why is using the P/E ratio a very popular valuation tool?
Q5) Briefly describe the SWOT analysis.
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Chapter 13: Investing in Bonds and Other Alternatives
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Sample Questions
Q1) State or municipal bonds that have interest and par value paid for with funds from a designated project or specific tax are known as ________ bonds.
A)Series EE
B)life cycle
C)revenue
D)general obligation
E)none of the above
Q2) Governments issue savings bonds such as the Series EE bonds in an attempt to meet the investing needs of the small investor.
A)True
B)False
Q3) Provide a list of direct and indirect real estate investments.Which one is best for the average investor?
Q4) What risks are you assuming with preferred stock that you would not have with common stock and bonds? Be specific.
Q5) Coupon interest is usually paid in quarterly installments.
A)True B)False
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Chapter
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Sample Questions
Q1) Suppose that the current value of all of a mutual fund's holdings is determined to be $750 million.The fund's liabilities are $125 million and it grew at 20% from last year.It currently has 45 million shares outstanding.What is the fund's NAV?
A)$12.00 per share
B)$13.89 per share
C)$14.40 per share
D)$16.80 per share
Q2) One disadvantage of mutual fund investments is that they are illiquid. A)True B)False
Q3) There are dissimilarities between U.S.government,GNMA,municipal,and corporate bond funds.Please point them out.
Q4) Tax-exempt money market mutual funds invest in only very short-term municipal debt. A)True B)False
Q5) The most common and popular form of mutual fund is an open-end mutual fund. A)True B)False
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Chapter 15: Retirement Planning
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Sample Questions
Q1) The Federal Insurance Contributions Act isn't an investment,but rather a mandatory insurance plan that one pays into through salary deductions.
A)True
B)False
Q2) Why might one want to select the lump-sum payment option for one's retirement funds?
A)Taking the lump-sum can be a hedge against inflation.
B)The lump-sum option provides greater flexibility than other options.
C)You can invest the funds and perhaps earn a higher return.
D)Having access to the funds provides money for emergencies.
E)All of the above
Q3) Two of the most important considerations when saving for retirement is the time you have to save and the return you earn on your savings.
A)True
B)False
Q4) Are retirement plans different for the self-employed and employees of small businesses? Do you have to work full-time to qualify for one?
Q5) Relate the pros and cons of defined-benefit plans.
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) Identify three advantages and three disadvantages of irrevocable living trusts.
Q2) Herbert's will is missing the section revoking any earlier wills.A young lawyer prepared the will and made this oversight.What dangers are present because of this omission?
A)There may be a prior conflicting will.
B)Multiple wills make a mess out of the probate process.
C)The probate process will slow down tremendously.
D)It could be many years before the heirs receive their inheritance.
E)All of the above
Q3) Pat and John want to reduce the size of their by gifting their four grandchildren and two children the maximum tax free amount per year for the next five years.How much can they reduce their taxable estate by over this five years?
A)$420,000
B)$140,000
C)$840,000
D)$70,000
Q4) Outline the steps in calculating estate taxes.
Q5) Provide a description of the basic features and clauses found in a will.What might invalidate your will?
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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Sample Questions
Q1) Tracking your spending for a month or so will help you plan savings.
A)True
B)False
Q2) According to U.S.News and World Reports,the required investment for a medium income family to raise and support a child for 22 years is approximately
A)$52,000.
B)$197,704.
C)$1,000,000.
D)$1,450,000.
E)$3,000,000.
Q3) It is never a good idea for both spouses to be actively involved in and aware of the family's finances.This can lead to arguments.
A)True
B)False
Q4) According to the Keown book,in 2017,the average interest rate on a credit card was around 15.1 percent-expensive borrowing,to be sure.
A)True
B)False
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