Introduction to Personal Finance Test Bank
Course Introduction
Introduction to Personal Finance provides students with foundational knowledge and practical skills to effectively manage their financial resources throughout life. This course covers essential topics such as budgeting, saving, banking, investing, credit management, insurance, and retirement planning. Students will learn how to set financial goals, make informed financial decisions, and understand the impact of their choices on long-term financial well-being. Real-world scenarios and tools are used to help students create personal financial plans, develop responsible spending habits, and navigate the complexities of today's financial landscape.
Recommended Textbook
Personal Finance Turning Money into Wealth 6th Edition by Arthur J. Keown
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18 Chapters
2235 Verified Questions
2235 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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73 Verified Questions
73 Flashcards
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Sample Questions
Q1) What should you do with your goals on a frequent basis throughout your lifetime?
A) Prioritize them
B) Modify them
C) Put them in writing
D) All of the above
Answer: D
Q2) A financial plan is only concerned with your future earnings and expenses. An examination of your current financial situation is not so important.
A)True
B)False
Answer: False
Q3) The term that considers having money readily available when you need it is the concept of
A) flexibility.
B) liquidity.
C) equity.
D) solvency.
E) none of the above
Answer: B
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Page 3
Chapter 2: Measuring Your Financial Health and Making a Plan
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) Leroy went shopping today and used his Visa card to buy a new sweater. He wrote a personal check to pay for a new video game. He bought some snack food using cash. Which of these purchases are difficult to track and monitor on his budget?
A) The sweater because it costs more than what he budgeted for clothing this month
B) The video games because he did not add a budget category for electronics.
C) The snacks because cash transactions don't leave a paper trail.
D) all of the above
Answer: C
Q2) An income statement tracks the amount of money you have coming in and going out over some period of time, like a month or a year.
A)True
B)False Answer: True
Q3) To determine your level of net worth, subtract your liabilities from your positive net equity.
A)True
B)False Answer: False
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Chapter 3: Understanding and Appreciating the Time Value of Money
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105 Verified Questions
105 Flashcards
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Sample Questions
Q1) An investment earning twelve percent interest per year should double in value in approximately four years.
A)True
B)False
Answer: False
Q2) Which one of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals?
A) inflation
B) annuity factor
C) simple interest
D) compound frequency
E) none of the above
Answer: A
Q3) The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.
A)True
B)False
Answer: True
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Chapter 4: Tax Planning and Strategies
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Income on which the payment of taxes is postponed until some future date is called
A) tax-delayed
B) tax-deferred
C) tax-postponed
D) tax-tardy
E) none of the above
Q2) Only people in the higher tax brackets pay taxes on capital gains.
A)True
B)False
Q3) The Federal Insurance Contributions Act (FICA) tax deducted from your salary goes to pay for unemployment insurance.
A)True
B)False
Q4) Adjusted gross income is your total gross income adjusted for inflation.
A)True
B)False
Q5) Name the categories of filing status.
Q6) Why is tax planning so important?
Q7) Name the sources of tax-free income.
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Chapter 5: Cash or Liquid Asset Management
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90 Flashcards
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Sample Questions
Q1) What is the importance of the APY?
Q2) The Marshalls have been thinking about the financial principle Pay Yourself First. Being very conservative, they might consider having their bank
A) sell them a risky mutual fund.
B) send them a monthly reminder to make a deposit in their savings.
C) do a direct deposit of John's paycheck into their checking account.
D) do a direct deposit of some of John's paycheck into a savings fund.
E) both C and D above
Q3) With online banking you have access to your accounts, and are able to conduct business transactions through the internet, your mobile phone or some other online device.
A)True
B)False
Q4) The Truth in Savings Act of 1993
A) helps investors compare interest rates on investment options.
B) requires that all institutions publish only annually compounded APRs.
C) ensures that all investments are federally insured.
D) All of the above are correct.
Q5) Why are liquid assets important in cash management?
Q6) Name the three Cs of choosing a financial institution.
Page 7
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Chapter 6: Using Credit Cards: The Role of Open Credit
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Which of the following regarding credit application analysis is incorrect?
A) Bankruptcy remains a mark against you for a period of ten years after it occurs.
B) Credit card issuers normally assign a minimal acceptable credit cutoff score.
C) Lenders may not discriminate on the basis of age.
D) You are entitled to one free copy of your credit report each year from the three major credit bureaus.
E) None of the above statements is incorrect; all of the above are true statements.
Q2) Due to compounding frequency, the actual interest rate or APY you pay is higher than the advertised interest rate or APR.
A)True B)False
Q3) Why is it important for young people to establish a good credit history as soon as possible?
Q4) A secured credit card is a good tool to help establish credit.
A)True
B)False
Q5) What can you do if you cannot pay your credit card bills?
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Page 8
Chapter 7: Using Consumer Loans: The Role of Planned
Borrowing
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Sample Questions
Q1) Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral.
A)True
B)False
Q2) Student loans are a smart source of financing for school because you pay part of the interest charges and the rest is subsidized by
A) the bank or lender.
B) the state government.
C) the educational institution.
D) the federal government.
Q3) Under a Stafford Loan, parents borrow money for their child's education.
A)True
B)False
Q4) If your before-tax cost of a home equity loan is twelve percent and you are in the thirty percent marginal tax bracket, your after-tax cost of the home equity loan is nine percent.
A)True
B)False
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) Being able to move with minimum inconvenience is an appealing aspect of buying a home.
A)True
B)False
Q2) A condominium is a good choice of housing for someone seeking an affordable, low-maintenance situation with some shared amenities.
A)True
B)False
Q3) When making a smart purchase you don't need to consider such charges as delivery fees, installation fees or service costs as these are already included in the purchase price.
A)True
B)False
Q4) In evaluating your financial history, lenders generally focus on which of the following?
A) your income
B) your credit report
C) your FICO score
D) All of the above.
Q5) What are the common mortgage loan options?
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Chapter 9: Life and Health Insurance
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210 Verified Questions
210 Flashcards
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Sample Questions
Q1) Which of the following does not offer some form of disability insurance?
A) employer benefit package
B) individual health policy
C) Medicare
D) Worker's Comp
E) Social Security
Q2) An HSA is a good form of health care coverage for young, healthy people who rarely get sick.
A)True
B)False
Q3) The main disadvantage of a flexible spending plan is that you may lose any money remaining in the account at the end of the fiscal year.
A)True
B)False
Q4) The needs approach attempts to determine the amount of funds necessary to meet the needs of a family after the death of the primary breadwinner. Name the seven common family needs.
Q5) Provide seven tips on shopping for any health care insurance.
Q6) Compare and contrast fee-for-service and managed health care plans.
Page 11
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Chapter 10: Property and Liability Insurance
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132 Flashcards
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Sample Questions
Q1) ________ auto insurance pays for your losses and the losses suffered by your passengers, while the other driver's insurance would pay for his or her losses. This arrangement is made to keep insurance costs down, especially for settling claims.
A) Comprehensive
B) No-fault
C) Your fault
D) PAP
E) PIP
Q2) You plan to purchase a personal automobile policy on your new car. You want to be able to understand the four basic parts, which are:
Q3) Your home and property have a market value of $200,000. Since you want to make sure that you meet the coinsurance provisions, you should have at least ________ of insurance.
A) $160,000
B) $180,000
C) $200,000
D) $220,000
E) none of the above
Q4) Describe each of the six HO packaged policies. Which one is the most common?
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Chapter 11: Investment Basics
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Sample Questions
Q1) Principle 8, Risk and Return go hand in hand, tells us that you ________ as the length of the investment horizon ________.
A) can afford to take on additional risk; increases B) can afford to take on additional risk; decreases C) cannot afford not to take on additional risk; shortens D) cannot afford to take on additional risk; increases
Q2) Rank the historical rates of return of the common investments discussed in this chapter from highest to lowest.
Q3) Long-term capital gains have favorable tax treatment over earned income.
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) How does the principle of diversification work?
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Chapter 12: Securities Markets
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Sample Questions
Q1) A prospectus is an advertisement placed in a newspaper or magazine that provides a listing of the underwriting syndicate involved in the new offering, in addition to basic information on the offering.
A)True
B)False
Q2) Most of the bonds that are bought and sold are not transacted on the organized exchanges. They are bought and sold through bond dealers who do not sell many ________ bonds but do trade many ________ bonds in the secondary market.
A) corporate; government
B) government; corporate
C) high par value; corporate
D) government; low par value
E) corporate; firm-specific bonds
Q3) With short selling you are hoping for the stock price to fall.
A)True
B)False
Q4) Name the major organizations regulating the stock market and tell why they came about.
Q5) Explain the purpose of a brokerage account and the 3 types of brokers.
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Chapter 13: Investing in Stocks
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160 Flashcards
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Sample Questions
Q1) The Dow Jones Industrial Average has been an index since what year?
A) 1796
B) 1896
C) 1996
D) 2006
Q2) Abby previously owned 200 shares of NEWAGE stock at $25 per share. Today the company split the stock in a 3:1 split. Now what is the value of Abby's stock?
A) $5,000
B) $6,000
C) $2,500
D) $200
Q3) The following equation, (net income preferred stock dividends)/number of shares of common stock outstanding, allows us to calculate the ________ and this information is necessary to calculate the ________ ratio.
A) dividend yield; dividend
B) earnings per share; P/E
C) market-to-book ratio; book-to-market
D) stock growth: P/E
E) price-to-book ratio; market-to-book
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Page 15
Chapter 14: Investing in Bonds and Other Alternatives
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Sample Questions
Q1) Because there is no default or call risk associated with government bonds, they generally pay ________ rate of interest than other bonds.
A) a higher
B) a lower C) the same
D) 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) The biggest single payer in the bond market is the U.S. Government
A)True
B)False
Q4) In comparing municipal bonds to other taxable bonds, the comparison must be between equivalent taxable yields.
A)True
B)False
Q5) Why does preferred stock not have the potential for capital gains like common stock does?
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Chapter 15: Mutual Funds: An Easy Way to Diversify
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) One of the advantages of municipal bond funds is that ________.
A) they may be exempt from state taxes
B) the interest is generally exempt from federal taxes
C) they are all no-load funds
D) Both A and B are correct
Q2) A mutual fund's expense ratio compares the fund's expenses to its total assets.
A)True
B)False
Q3) Most small investors don't have the time, expertise, or desire to do the research necessary to invest in individual stocks therefore mutual funds are a good solution. A)True
B)False
Q4) You may be charged a small transaction fee when you buy no load funds through a "mutual fund supermarket."
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 16: Retirement Planning
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Sample Questions
Q1) Which of the following is a problem associated with many defined-benefits programs?
A) lack of portability
B) failure to adjust for inflation once payments begin
C) many are unfunded
D) All of the above
E) A and C only
Q2) The main advantage of the Roth IRA over the traditional IRA is the employer matching funds.
A)True
B)False
Q3) When planning the retirement payout, there are several options from which to choose. With the ________ option the annuity provides payments over the life of both you and your spouse.
A) single life annuity
B) lump sum annuity
C) joint and survivor annuity
D) annuity for life
E) combination annuity
Q4) Relate the pros and cons of defined-benefit plans.
Page 18
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Chapter 17: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) A durable power of attorney means that the attorney who wrote the will for you is your legal guardian in case you become incapacitated and can't make decisions yourself.
A)True
B)False
Q2) What methods exist to avoid probate, or to establish non-probate property?
A) gifts
B) trusts
C) contracts like life insurance and retirement plans
D) joint ownership
E) all of the above
Q3) If you give $13,000 as a gift to someone who is not a blood relative, you will pay taxes on these funds and so will the recipient.
A)True
B)False
Q4) A trust is created when a grantor transfers property to a trustee for the benefit of one or more people.
A)True
B)False
Page 19
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Chapter 18: Financial Life Events Fitting the Pieces Together
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Sample Questions
Q1) Living below your means deals with buying what you need versus buying what you want.
A)True
B)False
Q2) If you and your spouse have different money management styles, it may be wise to maintain separate checking accounts.
A)True
B)False
Q3) Which of the following is one of the "keys to financial success" as outlined in Chapter 18 of your textbook?
A) Live Below Your Means
B) Hide Your Plastic
C) Realize You Aren't Indestructible
D) all of the above
Q4) Estate planning is much less important for married people than for single people.
A)True
B)False
Q5) Why are stocks risky, but not as risky as not investing in them?
Q6) Why is it more challenging for women to become financially security?
Page 20
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