Introduction to Personal Finance Exam Preparation Guide
Course Introduction
Introduction to Personal Finance offers students a foundational understanding of how to effectively manage their personal financial resources. Topics explored include budgeting, saving, banking, credit and debt management, investing fundamentals, understanding insurance, and planning for major financial goals such as education, home ownership, and retirement. The course emphasizes practical skills for making informed financial decisions and developing sound financial habits that promote economic well-being throughout ones life.
Recommended Textbook
Personal Finance
An Integrated Planning Approach 8th Edition by Ralph R Frasca
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16 Chapters
1996 Verified Questions
1996 Flashcards
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Chapter 1: Financial Planning: Why Its Important to You
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) Business cycles are likely to persist in the future.
A)True
B)False
Answer: True
Q2) A building-block approach to financial planning refers to A)pursuing conservative investments and activities first.
B)linking all investments and activities into one plan.
C)a guide for achieving maximum wealth with limited resources.
D)phases of the financial life cycle.
Answer: A
Q3) Sue Hank has just indicated that the extra benefits from getting an A in her personal finance course are not worth the extra effort she must give.Sue used marginal analysis in making her decision.
A)True
B)False
Answer: True
Q4) Debt planning often involves using debt to even our lifelong consumption.
A)True
B)False
Answer: True
Page 3
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Chapter 2:
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Sample Questions
Q1) You will buy a lottery ticket.If you win,you have a choice of receiving $995,000 now or three equal end-of-year payments of $400,000.You should take the payments
A)because $1,200,000 is greater than $995,000.
B)if you earn 20% or more on your investments.
C)if you earn 11% or more on your investments.
D)if you earn less than 10% on your investments.
Answer: D
Q2) The present value of $500 received at the end of each of the next three years is $1,243 (assuming a 10% interest rate).
A)True
B)False Answer: True
Q3) Making goals concrete begins by determining their costs if they were undertaken today.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Financial Statement and Budgets: Where Are
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115 Flashcards
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Sample Questions
Q1) Simple budgeting procedures are often as successful as complex ones.
A)True
B)False Answer: True
Q2) If an income account has a favorable variance,then actual family income is less than budgeted family income.
A)True
B)False Answer: False
Q3) Inflation decreases the purchasing power of money.
A)True
B)False
Answer: True
Q4) The best description of an asset is
A)something you own that has market value.
B)something you either own or control that provides monetary or psychic income.
C)anything of personal value to you.
D)something you own that has market value and is clear of any debt obligation.
Answer: A
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Chapter 4: Taxes: the Governments Share of Your Rewards
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Federal income taxes are determined by your global income.
A)True
B)False
Q2) Michael had a $4,000 loss on the sale of his car.He
A)cannot deduct the capital loss on this personal use asset.
B)can only deduct up to $3,000 of the loss in the initial year of the sale.
C)can deduct the entire $4,000 loss in the year of the sale.
D)can deduct $3,000 in the year of the sale and the remaining loss in a subsequent tax year.
Q3) If your employer is withholding an excessive amount for federal taxes
A)there is nothing you can do about it.
B)you must petition the IRS for a reduction in your withholding rate.
C)you can refile a W-4 with your employer to have the withholding reduced.
D)your employer must reimburse you for any interest you lost on the excess withholdings.
Q4) Which of the following could not be taken as an itemized deduction?
A)Commuting expenses
B)Mortgage interest expenses
C)Medical expenses
D)Property taxes
Page 6
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Chapter 5: Liquidity Management: Managing Current
Assets and Current Liabilities
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97 Flashcards
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Sample Questions
Q1) Monica Bates received a check and endorsed it by simply signing her name on the reverse side of the check.This is called
A)a special endorsement.
B)a deposit endorsement.
C)a restrictive endorsement.
D)a blank endorsement.
Q2) Which of the following is not true of U.S.Series EE bonds?
A)The rate on new issues is set relative to the rates on other Treasury loans.
B)Taxes on on interest can be deferred until the bond is redeemed.
C)The interest income is taxed by states and local governments.
D)Some interest is forfeited if the bonds are redeemed before five years.
Q3) Federal deposit insurance
A)protects each deposit account up to $100,000.
B)protects each depositor up to $100,000.
C)protects both the deposit and depositor up to $1,000,000.
D)is available only by depositor choice and then a small fee must be paid.
Q4) Money market deposit accounts and money market mutual funds are identical financial products.
A)True
B)False
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Chapter 6: Short-Term Credit Management: Consumer Credit
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) You may review your credit report held by a credit bureau
A)only if you have been denied credit within the past year.
B)only if you have been denied employment because of your credit record.
C)only if you have been denied a home mortgage in the past year.
D)for any reason,including just curiosity.
Q2) The "Rule of 78" allows lender to earn interest at a quicker pace than that determined by the simple interest method.
A)True
B)False
Q3) Under the discount method for calculating monthly payments on a consumer loan,
A)the lender deducts the interest to be paid on the loan from the credit extended you at the beginning of the loan.
B)you deduct the down payment on the sale from the final monthly payment.
C)the lender reduces the monthly payments by the sale price reduction.
D)you reduce the amount owed by interest income from an escrow account.
Q4) Under the "Rule of 78," the interest earned by the lender is
A)disproportionately pushed to the front of the loan period.
B)calculated using the simple interest method.
C)uniformly spread over the life of the loan.
D)a miscellaneous deduction on your federal tax form.
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Chapter 7: Consumer Durables: the Personal Auto
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109 Flashcards
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Sample Questions
Q1) The cost of operations is a sunk cost.
A)True
B)False
Q2) If you rent a garage to house your car,this should be included as a cost of ownership.
A)True
B)False
Q3) Puffery such as,"This is a great product!" provides an implied warranty.
A)True
B)False
Q4) Your chances of coming out of arbitration with a better offer than previously provided by the dealer or manufacturer are almost 90%.
A)True
B)False
Q5) If a used car is still covered by a manufacturer's warranty,then the dealer who sold you the used car will be responsible for fulfilling the terms of the warranty.
A)True
B)False
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Chapter 8: Housing: the Cost of Shelter
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152 Flashcards
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Sample Questions
Q1) Mortgages with a low down payment may require an escrow account.
A)True
B)False
Q2) Additional points on a home mortgage will
A)lower the APR.
B)lower the required earnest money.
C)move interest payments to the front of the mortgage.
D)decrease the required down payment on the home.
Q3) A written document transferring ownership of the home to the buyer is known as the A)title.
B)listing agreement.
C)offer to purchase.
D)deed.
Q4) A decline in the Housing Affordability Index indicates that housing
A)prices and family income have declined.
B)prices and family income have increased.
C)prices have declined and family income has increased.
D)is now more difficult for the typical family to purchase and finance.
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10
Chapter 9: Financial Markets and Instruments: Learning the Investment Environment
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Sample Questions
Q1) An order for 1,850 shares of stock involves
A)one block lot,8 round lots,and one odd lot.
B)one block lot and one odd lot.
C)18 round lots and one odd lot.
D)one round lot and one odd lot.
Q2) Pooling arrangements would not include A)mutual funds.
B)investment trusts.
C)warrants and rights.
D)limited partnerships.
Q3) On the New York Stock Exchange,the function of maintaining an orderly and continuous market is performed by
A)commission brokers.
B)floor brokers.
C)specialists.
D)floor traders.
Q4) There is no specific disadvantage in dealing odd lots.
A)True
B)False
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Chapter 10: Investment Basics: Understanding Risk and Return
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Sample Questions
Q1) To reduce risk,you should look for assets with highly positively correlated related returns.
A)True
B)False
Q2) A stock with a 1.5 beta would have 50% more risk than the overall market.
A)True
B)False
Q3) Given the data below,which is the correct ranking of securities (best to worst)in terms of their relative appeal?
Security A B C
Expected return 8% 20% 40%
Required return 14% 8% 30%
A)A,C,B
B)B,C,A
C)C,B,A
D)C,A,B
Q4) Given the longer an asset is held,the greater the potential range of returns. A)True
B)False
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Chapter 11: Stocks and Bonds: Your Most Common Investments
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Sample Questions
Q1) Preferred stock is called a hybrid security because
A)it is most frequently issued by hybrid seed-producing companies.
B)it has the same features as common stock but offers a greater dividend.
C)it has characteristics of both common stock and bonds.
D)it has the same features as bonds but offers a share in the issuer's earnings.
Q2) Huge federal government deficits have made put many Treasury bonds in default. A)True
B)False
Q3) Most analysts prefer to use future EPS,rather than past EPS,in valuing a stock. A)True
B)False
Q4) The PEG ratio is equal to a company's P/E ratio divided by its growth rate. A)True
B)False
Q5) A dividend payable in stock (a stock dividend)
A)is better than a cash dividend because you receive more shares of stock.
B)is usually associated with a company in bankruptcy.
C)has little impact on your net worth;although you receive additional shares,the market value of each share you own decreases.
D)allows you to exchange shares of common stock for shares of preferred stock.
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Chapter 12: Mutual Fundsother Pooling Arrangements:
Simplifying, Maybe Improving Investment Performance
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Sample Questions
Q1) Which item below is not a characteristic of investment clubs?
A)Small monthly dues,in the $25 range
B)Reinvestment of dividends and capital gains
C)Reliance upon stockbrokers for research and advice
D)An opportunity for diversification
Q2) A constant ratio plan adjusts a portfolio by
A)investing a constant amount of money each period.
B)maintaining a constant dividend yield.
C)adjusting asset holdings to restore the initial target weights.
D)maintaining a constant ratio of assets to the owner's wealth.
Q3) For a fee a HOLR can be converted into the underlying shares.
A)True
B)False
Q4) A mutual fund's net asset value (NAV)reflects
A)the market value of all its holdings.
B)the amount distributed to shareholders each year.
C)its revenues minus its expenses.
D)its per-share value in a bankruptcy liquidation.
Page 14
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Chapter 13: Property and Liability Insurance: Protecting Your Lifestyle Assets
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) You should self-insure against major financial risks.
A)True
B)False
Q2) If those who are in ill health purchase health insurance and this raises the premiums for all of the insureds,this would be an example of
A)a non-insurable interest.
B)adverse selection.
C)moral suasion.
D)pure risk.
Q3) The most widely purchased homeowners' insurance providing all risks coverage on the dwelling and named perils coverage on personal property is
A)Basic Format HO-1.
B)Broad Form HO-2.
C)Special Form HO-3.
D)Comprehensive Form HO-5.
Q4) Medical payments coverage under a homeowner's policy generally has low policy limits.
A)True
B)False
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Chapter 14: Health Care and Disability Insurance: Protecting Your Earning Capacity
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Sample Questions
Q1) Major medical coverage usually begins only after your health care expenditures exceed a rather large deductible.
A)True
B)False
Q2) Only those with dependents need disability income protection.
A)True
B)False
Q3) The preexisting conditions clause in a health insurance policy
A)ensures that illness that occurred before coverage began will be covered by the policy.
B)ensures that injures that occurred before coverage began will be covered by the policy.
C)ensures that both illnesses and injuries that occurred before the coverage began will be covered by the policy.
D)excludes from coverage certain types of injuries and illnesses that began before the policy was issued.
Q4) Basic health care insurance typically covers unskilled custodial nursing care.
A)True
B)False
Page 16
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Chapter 15: Life Insurance and Estate Planning: Protecting Your Dependents
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Sample Questions
Q1) Taxes on the death estate are known as probate costs.
A)True
B)False
Q2) Interest earned on the cash component of a life insurance policy is not taxes at the time it is credited to the cash component.
A)True
B)False
Q3) You must pay income taxes on the dividends received from participating life policies.
A)True
B)False
Q4) Probate costs are associated with the validation of your will and the transfer of your estate.
A)True
B)False
Q5) The most important reason for having life insurance is that it is a tax advantaged source of savings.
A)True
B)False
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Chapter 16: Retirement Planning: Planning for Your
Long-Term Needs
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Sample Questions
Q1) If you marginal tax rate is likely to be lower in your retirement years,you should
A)prefer a tax-deductible IRA to Roth IRA.
B)prefer a Roth IRA to a tax-deductible IRA.
C)be indifferent between investing in a tax-deductible IRA or a Roth IRA.
D)prefer a non-tax advantaged investment to either a tax-deductible IRA or a Roth IRA.
Q2) Which one of the following investment programs invests the savings fund almost entirely in the sponsoring company's stock?
A)ESOP
B)SEP
C)IRA
D)SRA
Q3) The Social Security system provides for reduced benefits at an early retirement age.
A)True
B)False
Q4) You can borrow from your IRA,thus avoiding early withdrawal penalties.
A)True
B)False
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