Introduction to Personal Finance Exam Bank
Course Introduction
Introduction to Personal Finance provides students with a foundational understanding of managing individual and household finances. The course covers essential topics such as budgeting, saving, investing, credit management, debt reduction strategies, insurance, and retirement planning. Through real-world applications and interactive exercises, students learn how to make informed financial decisions, set realistic financial goals, understand banking and credit systems, and build healthy money habits for long-term financial stability.
Recommended Textbook
Personal Finance
2nd Canadian Edition by Jeff Madura
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17 Chapters
2226 Verified Questions
2226 Flashcards
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Chapter 1: Overview of a Financial Plan
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Goals with a time frame of five or more years into the future are called intermediate-term goals.
A)True
B)False
Answer: False
Q2) An example of a short-term goal would be
A)how much of an RRSP contribution to make this year.
B)paying off student loans.
C)saving enough for a 20 percent down payment on a new house.
D)leasing a car.
Answer: A
Q3) The income in your budget is not affected by
A)your education choices.
B)your career decisions.
C)the tax laws.
D)your childhood standard of living.
Answer: D
Q4) List the two things that those in the pre-career stage of financial planning should consider with regards to current financial position.
Answer: Establish good money management habits and establish a credit rating
Page 3
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Chapter 2: Tools for Financial Planning - Applying Time
Value Concepts
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Mary wants to have $150 after four years by depositing $100 today and earning six percent interest compounded annually for the next six years. Can Mary attain her financial goal of having $150 lump sum six years later?
A)Yes, future value is more than $150.
B)Yes, present value is more than $150.
C)No, present value is less than $150.
D)No, future value is less than $150.
Answer: D
Q2) ABC Bank offers term deposits with 8 percent compounded semi-annually, while XYZ Bank offers term deposits with 7.9 percent compounded monthly. We are sure that ABC Bank offers a higher annualized rate of return.
A)True
B)False
Answer: False
Q3) To convert the table from ordinary annuity to annuity due is to multiple the annuity payment by (1+ i).
A)True
B)False
Answer: True
Page 4
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Chapter 3: Tools for Financial Planning - Planning With
Personal Financial Statements
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Should Shane be concerned about his liquidity ratio of 80 percent?
A)No, he is is in good position regarding liquidity.
B)No, this indicates a healthy cash flow.
C)Yes, he may have problems covering upcoming payments.
D)Yes, he may decrease his net worth with too many investments.
Answer: C
Q2) What is a good way to determine the accuracy of your budget?
A)Review your forecast carefully and project it into the future.
B)Be more cautious and reduce your income estimates.
C)Compare your actual inflows and outflows for a recent period to your forecast.
D)Be more cautious and increase your expenses estimates.
Answer: C
Q3) What are net cash flows?
A)All assets minus liabilities
B)All incomes minus living expenses
C)Current assets minus current liabilities
D)After-tax income minus expenses
Answer: D
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Chapter 4: Tools for Financial Planning - Using Tax
Concepts for Planning
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) Students should not file income tax returns because they have to pay sales taxes such as the GST and PST.
A)True
B)False
Q2) GST credit for low-income families and the Working Income Tax Benefit are examples of non-refundable tax credits.
A)True
B)False
Q3) Which of the following incomes are taxed at a lower rate?
A)Award proceeds
B)Interest income
C)Rent received
D)Dividends
Q4) Tax planning involves activities and transactions that will eliminate taxes where possible.
A)True B)False
Q5) RRSP contributions do not reduce the amount of tax you have to pay. A)True
B)False
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Chapter 5: Banking Services and Managing Your Money
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Bank ABM charges may be substantial if you make many transactions monthly at an ABM machine that is not sponsored by your bank.
A)True
B)False
Q2) A series of decisions made over a short-term period regarding cash inflows and outflows is called
A)cash flow.
B)money management.
C)liability management.
D)asset control.
Q3) Which of the following accounts would tend to give you the higher interest combined with access to your funds with a few days notice?
A)Money market funds
B)Chequing account
C)Canada Savings Bond
D)Savings account
Q4) Describe how interest rates affect your personal budget, income statement, and balance sheet. What account groups do they affect? Give two specific examples.
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Chapter 6: Managing Your Liquidity - Assessing,
and Securing Your Credit
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140 Verified Questions
140 Flashcards
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Sample Questions
Q1) A person can be declared insolvent if
A)he or she has no assets.
B)his or her spouse is insolvent as well.
C)he or she owes $1000 and is unable to pay.
D)monthly payments exceed $1000.
Q2) When applying for a credit card, a lender
A)is not interested in collateral because it cannot secure it.
B)is expecting you to use the credit for small investments.
C)wants to see your cash flow statement.
D)will rely only on the reports from the credit agencies.
Q3) The item that receives the most weight in the BEACON credit scoring system is
A)the amount of credit used each month.
B)credit payment history.
C)credit use.
D)debt to equity ratio.
Q4) The appropriate use of credit
A)means always going for the highest credit limit possible.
B)means always making the minimum payment.
C)requires the full limit of your monthly cash flow and liquidity.
D)should increase your credit score.
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Chapter 7: Personal Financing - Personal Loans
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Advantages to leasing a car rather than buying one are that you need less of a down payment and that you do not need to worry about finding a buyer for your car when the lease is over.
A)True
B)False
Q2) If the interest rates are the same, a loan using add-on interest will have higher payments and interest charges than a loan using simple interest.
A)True
B)False
Q3) What are the repayment terms when a part-time students takes a student loan?
A)They must pay principal and interest while studying.
B)They must pay interest only while studying.
C)They must principal and interest as soon as studies are completed.
D)They must pay principal and interest as soon as soon as full time work is secured.
Q4) In securing personal loans from family members or friends, the loan agreement should be verbal or just consist of a "gentleman's understanding."
A)True
B)False
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Page 9
Chapter 8: Personal Financing - Purchasing and Financing a Home
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121 Verified Questions
121 Flashcards
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Sample Questions
Q1) Which would be the best mortgage option if you anticipate a windfall in the next year or two?
A)A one-year closed fixed-rate mortgage
B)A closed convertible five-year VRM
C)An open variable-rate mortgage
D)A closed two-year VRM
Q2) Which of the following should not be considered when selecting a condominium?
A)Availability of companies that perform maintenance and repair services in the area B)Taxes
C)Resale value
D)The present and future cost of condominium maintenance fees
Q3) Condominium monthly maintenance costs generally include water, sewer, garbage, and maintenance or other amenities such as a pool, clubhouse, and tennis court.
A)True
B)False
Q4) Discuss several reasons why you might want to own the cheapest house in an expensive community as opposed to the most expensive house in a lower-valued community.
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Chapter 9: Protecting Your Wealth - Auto and Homeowners Insurance
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) You are in an accident which causes $3000 in damages to your car, and your policy has a $500 deductible for Collision and $300 for Comprehensive. If the other driver is at fault, what happens with the deductible?
A)You pay $500 deductible and claim it from the other driver's insurance company.
B)You pay $300 deductible and claim it from the other driver's insurance company.
C)You do not have to pay the deductible.
D)You have to pay the deductible and can claim it back from an umbrella policy.
Q2) The best way to reduce your homeowner's insurance premiums is to A)insure your home for only 60 percent of its value, since it is unlikely to be completely destroyed.
B)drop coverage for medical payments.
C)increase deductibles.
D)eliminate liability coverage.
Q3) Independent insurance agents are those that work for one particular company.
A)True
B)False
Q4) List four ways to reduce your automobile insurance premiums.
Q5) List two ways to reduce your homeowner's insurance premiums.
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Chapter 10: Protecting Your Wealth - Health and Life Insurance
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191 Verified Questions
191 Flashcards
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Sample Questions
Q1) The only reason a person would buy life insurance is to eliminate or substantially reduce the financial consequences of that person's death by providing income to his or her dependants.
A)True
B)False
Q2) Tom purchased disability insurance that will provide $1400 per month in benefits. His employer carries a disability policy on Tom that will provide an additional $600 per month in benefits. If Tom's monthly budget is $2500 and Tom is anticipating no additional disability benefits from any other source, what is Tom estimating as his work-related monthly expenditures?
A)Tom will be paying a total of $500 in income tax, lunches at work, and employment transportation.
B)Tom will be paying a total of $500 in RRSP contributions, income tax, and gas and oil.
C)Tom is calculating his work-related expenses to be the $600 employer benefit.
D)Tom's work-related expenses are $400.
Q3) What are the three most popular types of life insurance? Describe the differences and specific uses of each of them.
Q4) Describe the two methods used to determine the life insurance amount.
Page 12
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Chapter 11: Personal Investing - Investing Fundamentals
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140 Flashcards
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Sample Questions
Q1) An investment that has the potential to rise substantially in value also has the potential to decline substantially in value. If you cannot afford the possible loss, you should not make that investment.
A)True
B)False
Q2) A stock with larger standard deviations of returns has higher risk than a stock with lower standard deviations.
A)True
B)False
Q3) If you invest $1000 in stock that pays no dividends and sell the stock exactly one year later for $1100, what will be your return? (Ignore commissions and trading fees.)
A)1 percent
B)5 percent
C)10 percent
D)100 percent
Q4) The risk of an investment comes from the uncertainty surrounding its return.
A)True
B)False
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Chapter 12: Personal Investing - Investing in Stocks
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) If you wish to evaluate the liquidity of a firm, you could look at the A)current ratio.
B)debt ratio.
C)inventory turnover.
D)return on net assets.
Q2) How much should a share of stock be worth for a firm whose earnings per share are $4 if the industry's average P/E is 11?
A)$40
B)$44
C)$48
D)$88
Q3) You wish to own stock while keeping your risk as low as possible. Which of the following actions would accomplish this goal?
A)Purchasing a stock mutual fund
B)Purchasing shares of Exxon and GM
C)Purchasing shares of Exxon and GM on margin
D)Purchasing U.S. Treasury securities
Q4) Discuss investing on margin, illustrating the positives and negatives of this investing technique.
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Chapter 13: Personal Investing - Investing in Bonds
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131 Verified Questions
131 Flashcards
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Sample Questions
Q1) The contractual rate of interest on a bond is always stated as a(n)
A)daily rate.
B)monthly rate.
C)semi-annual rate.
D)annual rate.
Q2) The maturity matching strategy of investing in bonds is the surest way to have money available to meet a specific goal.
A)True
B)False
Q3) Current bond yield is valued at market rates by
A)annual interest divided by par.
B)annual interest divided by market price.
C)interest to maturity divided by par.
D)interest to maturity divided by market price.
Q4) Bonds with a high degree of default risk are most susceptible to default when economic conditions are
A)strong.
B)weak.
C)stable.
D)expanding.
Page 15
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Chapter 14: Personal Investing - Investing in Mutual Funds
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund. The growth stocks fund had a five year average annual return of 11 percent with MER of 2.6 percent. The index fund had a five year average annual return of 11 percent with MER of 1.1 percent. Assuming equal risk, you should buy
A)the index fund.
B)the growth fund.
C)some of both, for diversification, as they performed equally.
D)neither, since the expenses are too high for funds of this type.
Q2) The difference between the performances of two equity mutual funds during a particular period may be attributed to ________ rather than to the ________.
A)the sector, skills of the fund's manager
B)interest rates, skills of the fund's manager
C)dividend returns, skills of the fund's manager
D)some good news, skills of the fund's manager
Q3) Segregated funds are different than mutual funds in that they offer a death benefit.
A)True
B)False
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Page 16
Chapter 15: Retirement and Estate Planning - Retirement Planning
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Use of Financial Calculator TI BA II Plus required. You want to save $400 000 to supplement your pension income to retire early at age 60. You have 26 years to accomplish this. Quite knowledgeable about investments, you anticipate an eight percent return. How much should you set aside each month to reach this goal?
A)$409
B)$384
C)$417
D)$5003
Q2) By the end of the year in which you turn 71, you must either ________ your RRSP or ________ your RRSP assets into an income-producing plan.
A)cash in, continue to contribute
B)contribute to contribute to, cash in
C)continue to contribute to, transfer
D)cash in, transfer
Q3) John is now 57 years old and he still has a minimum of three years before receiving his OAS.
A)True
B)False
Q4) List three sources of income when you retire.
Page 17
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Chapter 16: Retirement and Estate Planning - Estate Planning
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117 Flashcards
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Sample Questions
Q1) An executor may
A)account for newborn children if not included as beneficiaries.
B)arbitrarily calculate the preferential share.
C)be a beneficiary of the will.
D)determine the value for the assets.
Q2) Once you have a positive net worth to be distributed upon your death, you should consider creating a will.
A)True
B)False
Q3) The only reason for having a valid will is to have your estate distributed according to your plans.
A)True
B)False
Q4) Which of the following statements about the letter of last instruction is correct?
A)It should provide changes you wanted made to the will.
B)It should provide the calculation of the preferential share.
C)It should provide the desired funeral arrangements.
D)It should declare your intention to create an inter vivos trust.
Q5) Estate planning decisions are affected by what five areas?
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Chapter 17: Synthesis of Financial Planning - Integrating the Components of
a Financial Plan
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Paying off loans is advisable when the after-tax return on investments is more than the interest rate on the loan.
A)True
B)False
Q2) RRSPs can contribute to net worth by making withdrawals to purchase a home.
A)True
B)False
Q3) Insurance planning is the key to building your wealth over time.
A)True
B)False
Q4) You need life insurance, car insurance, and property insurance to protect your family, car, and property.
A)True B)False
Q5) It is important to consider your goals before putting money into your investments or retirement accounts.
A)True B)False
Q6) What are three types of financing you have studied?
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