Life and Money Skills Final
Exam
Course Introduction
Life and Money Skills is a practical course designed to equip students with essential knowledge and strategies for managing personal finances and navigating everyday life challenges. The syllabus covers topics such as budgeting, saving, banking, credit management, investing, understanding insurance, and financial planning for short- and long-term goals. In addition, students learn critical life skills including effective communication, goal setting, time management, and problem-solving. Through real-world scenarios and hands-on activities, the course empowers students to make informed decisions, build financial security, and develop habits that contribute to personal and professional success.
Recommended Textbook
Personal Finance 4th Edition by Jeff Madura
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Chapter 1: Overview of a Financial Plan
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Q1) To increase your savings,
A)income must be increased.
B)expenses must be increased.
C)income must be decreased.
D)net worth must be decreased.
Answer: A
Q2) Goals should be set as high as possible regardless of reality because they may be obtainable.
A)True
B)False
Answer: False
Q3) Which of the following is an example of an opportunity cost?
A)Renting an apartment near school
B)Taking a class instead of working at your part-time job
C)Setting aside money for paying income tax
D)Purchasing automobile insurance
Answer: B
Q4) Your ability to access funds to cover any short-term cash deficiencies is your ________.
Answer: liquidity
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Chapter 2: Planning With Personal Financial Statements
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Q1) If you sell stock from your portfolio to pay off your car loan,your debt ratio of 0.5 will A)increase.
B)decrease.
C)stay the same.
D)More data is needed to determine what affect this action will have.
Answer: B
Q2) A personal balance sheet presents
A)amounts budgeted for spending.
B)income and expenses for a period of time.
C)earnings on savings and investments.
D)items owned and amounts owed.
Answer: D
Q3) If you do not budget for unexpected expenses in a given month,you will likely experience a(n)
A)cash shortage.
B)cash surplus.
C)increase in assets.
D)decrease in liabilities.
Answer: A
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Page 4
Chapter 3: Applying Time Value Concepts
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Sample Questions
Q1) The concept of time value of money is based on A)inflation.
B)taxes.
C)interest earned.
D)the Dow Jones Industrial Average.
Answer: C
Q2) Which of the following decisions would involve the use of the future value of a $1 ordinary annuity table?
A)Your brother buys your car and offers to pay you $500 now or $1,500 in two years
B)You win a lawsuit and are offered a lump sum payment today of $100,000 or $15,000 a year for 20 years
C)Your father and mother wish to deposit enough money on the date of your high school graduation to enable you to take a $7,000 cruise when you graduate from college in 4 years
D)You want to have $1,000,000 in order to retire at age 55,but need to know how much you will need to deposit each year from now until your 55th birthday Answer: D
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Chapter 4: Using Tax Concepts for Planning
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Q1) Which of the following is not a tax filing status option?
A)Single
B)Divorced
C)Married filing jointly
D)Head of household
Q2) Which of the following is the correct method for starting with gross income and computing taxable income?
A)Subtract the standard deduction and exemptions
B)Add the itemized deductions and subtract the exemptions
C)Subtract IRA contributions and add exemptions
D)Subtract adjustments,deductions,and exemptions
Q3) Which of the following gross income is not taxable income?
A)Health insurance reimbursements
B)Interest income
C)Dividends
D)Tips received
Q4) All taxpayers have a large degree of freedom in choosing their filing status.
A)True
B)False
Q5) A(n)________ offsets taxes by subtracting the full amount from the taxes owed.
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Chapter 5: Banking and Interest Rates
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Questions
Q1) Wanda Clark expects interest rates to decline in the next few months.To maximize her earnings,she should put her savings in a
A)two-year certificate of deposit.
B)six-month certificate of deposit.
C)money market account.
D)passbook savings account.
Q2) Securities firms primarily sell insurance to protect individuals from adverse events.
A)True
B)False
Q3) It is illegal for a federally insured financial institution to charge those with poor credit higher interest rates than those with good credit.
A)True
B)False
Q4) Which of the following is not true regarding certificates of deposit (CDs)?
A)The longer the term,the higher the interest rate paid
B)All banks offer the same rates on CDs
C)Early withdrawals of money are subject to a penalty
D)The investment of large amounts will pay higher interest than lower amounts
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Chapter 6: Managing Your Money
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Q1) All of the following are true of money market deposit accounts (MMDA)except
A)a minimum balance is required.
B)the account pays higher interest.
C)a limited number of checks may be written monthly.
D)they are the same regardless of the depository institution offering them.
Q2) ________ risk is the potential loss of converting an investment into cash.
A)Credit
B)Interest rate
C)Liquidity
D)Asset
Q3) Your ability to cover any short-term cash deficiencies is called A)solvency.
B)wealth.
C)liquidity.
D)cash planning.
Q4) An advantage of a NOW account over a traditional checking account is that your money is more readily available to you.
A)True
B)False
Q5) Describe three types of risk associated with various money market instruments.
Page 8
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Chapter 7: Assessing and Securing Your Credit
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Sample Questions
Q1) Using more credit than can be repaid is a primary cause of individual bankruptcies.
A)True
B)False
Q2) An advantage to credit is it eliminates the need for writing checks.
A)True
B)False
Q3) Which of the following is not a disadvantage of using credit?
A)Makes it easier to save
B)The potential high cost
C)The difficulty in paying back loans
D)The potential for personal bankruptcy
Q4) If you receive a phone call that seeks to verify or update personal information you should
A)ask several questions of the solicitor to verify their authenticity.
B)ask to speak to a supervisor.
C)obtain their name and address in case you need to contact them in the future.
D)obtain their name and phone number and call them back to verify their credentials.
Q5) Name and briefly discuss three tactics that an identity thief may use.
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Chapter 8: Managing Your Credit
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Q1) Which of the following is not a method for computing interest on credit cards?
A)Previous balance method
B)Average daily balance method
C)Present value of future payment method
D)Adjusted balance method
Q2) If you pay your total credit card amount before the grace period,you are not normally charged any interest.
A)True
B)False
Q3) Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder?
A)Previous balance method
B)Ending balance method
C)Average daily balance method
D)Adjusted balance method
Q4) Credit cards have all of the following advantages except
A)they allow you to borrow cash interest free for 60 days.
B)make purchases without carrying cash.
C)obtain free financing until the bill is due.
D)itemized monthly statement.
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Chapter 9: Personal Loans
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Q1) You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12 percent,or 1 percent a month.If the first payment is $300,how much is the principal portion of the payment?
(a)$27
(b)$270
(c)$280
(d)$295
Q2) Which of the following statements about student loans is not true?
A)If you don't complete your education,you will not have to pay back your student loan.
B)A school's financial aid office is one of the best sources of information on student loans.
C)Both the federal government and financial institutions participate in the student loan program.
D)Interest is often deferred and there are some tax savings on the interest paid on student loans.
Q3) If the lender has the right to take certain specified assets of the borrower in the event of a default on the loan,the loan is a(n)________ loan.
Q4) List four components of a loan contract.
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Page 11
Chapter 10: Purchasing and Financing a Home
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Q1) When buying a home,the seller pays the realtor commission,so you pay no fee for realtor services except in the form of a higher purchase price.
A)True
B)False
Q2) When purchasing a home,which of the following costs will you not incur?
A)Origination fee
B)Realtor's commission
C)Application fee
D)Appraisal fee
Q3) Which of the following is false about condominiums?
A)Association dues are required.
B)An individual owner may mow the grass or make any repairs to the common areas when needed.
C)They share common areas such as a pool,tennis court,and club house.
D)They combine funds for maintenance.
Q4) To determine how much home you can afford to purchase,you should not consider
A)finding a good Internet page that has a mortgage calculator.
B)looking at your budget,balance sheet,and income statement.
C)possible future raises you will receive.
D)consulting a loan officer.
Page 12
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Chapter 11: Auto and Homeowners Insurance
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Q1) Of the following statements,which is not true regarding no-fault insurance?
A)Not all states have no-fault insurance
B)It helps determine which driver is at fault and which has no-fault
C)It is intended to avoid costly legal battles
D)It penalizes drivers who cause accidents
Q2) In general,the cost of comprehensive and collision insurance is the most expensive part of your automobile policy representing about 60% of the costs.
A)True
B)False
Q3) Independent insurance agents
A)work for just one insurance company.
B)represent many different insurance companies.
C)work for only two or three companies.
D)are self-employed and represent their own companies.
Q4) What do policy limits of 200/300/100 on an automobile insurance policy mean?
Q5) Which of the following is not covered in a standard homeowner's policy?
A)Lightening hits your house and it burns to the ground
B)Your house is broken into and all the furniture is stolen
C)The river you live near overflows its bank and washes your house away
D)Hailstorm damages the roof of your house
Page 13
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Chapter 12: Health and Disability Insurance
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Q1) Compared to indemnity plans,what is an advantage of managed health care plans?
A)You will have lower insurance premiums.
B)There are no out-of-pocket expenses required.
C)You have greater choices of health care providers.
D)They are very efficient in their handling of paperwork.
Q2) What would be the out-of-pocket cost to an individual whose health care policy includes a 20 percent co-pay for all long-term illnesses.The policy has a stop loss provision of $40,000.A current long-term illness has resulted in total expenses of $250,000.
(a)$8,000
(b)$40,000
(c)$50,000
(d)$210,000
Q3) Which of the following is usually not offered as part of a benefits package to employees?
A)Auto insurance
B)Health insurance
C)Retirement benefits
D)Disability insurance
Q4) What steps would you take to evaluate and choose health care insurance options?
Page 14
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Chapter 13: Life Insurance
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Q1) Life insurance may be obtained through all of the following except
A)financial institutions.
B)private insurance companies.
C)the federal government.
D)your employer.
Q2) Which of the following is not a method of settlement options for life insurance?
A)Lump-sum settlement
B)Deferred-value settlement
C)Installment payments settlement
D)Interest payments settlement
Q3) Life insurance is critical to protect a family's financial situation in the event that a breadwinner dies.
A)True
B)False
Q4) The job marketability of your spouse
A)would be a factor considered in the budget method of determining life insurance needs.
B)is used in the income method of determining life insurance needs.
C)is really not that important in determining life insurance needs.
D)is the main factor in determining whether or not you even need life insurance.
Page 15
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Chapter 14: Investing Fundamentals
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Q1) The stocks of well-known companies are referred to as "preferred stock."
A)True
B)False
Q2) The timing on the sale of a stock could make a big difference in the amount of taxes that are due on the profits.
A)True
B)False
Q3) Before you start an investment program,you should ensure liquidity by having money in financial institutions or in money market securities.
A)True
B)False
Q4) 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
Q5) Individuals who buy and sell stock on a very short-term basis as a career are called ________.
Q6) Newly issued securities are traded in the ________.
Page 16
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Chapter 15: Investing in Stocks
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Q1) An increased demand for stock ________ the price.
A)has no effect on
B)increases
C)decreases
D)stabilizes
Q2) Interest rates can affect economic growth and therefore have a direct impact on stock prices.
A)True
B)False
Q3) The largest stock exchange in the United States is the ________.
Q4) A ________ is an order for a brokerage firm to sell a stock when the price falls to a specified level.
A)stop order
B)buy stop order
C)sell stop order
D)go order
Q5) Technical analysis and fundamental analysis are methods commonly used by investors to value stocks.
A)True
B)False
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Chapter 16: Investing in Bonds
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Q1) If a bond's price were lower than the principal amount,its yield to maturity would be ________ than the coupon rate.
A)less
B)more
C)equal to
D)no relation to
Q2) If you buy a corporate bond for $970 and sell it six months later for $1,050,you will have
A)interest income of $80.
B)a short-term capital gain of $80.
C)a long-term capital gain of $80.
D)non-taxable income of $80.
Q3) If a company's stock price is expected to increase substantially over the next few years,which of the following may entice potential bondholders to accept a lower coupon rate?
A)Par value
B)Call feature
C)Convertibility
D)Reserve feature
Q4) Another name for the par value of a bond is its ________.
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Chapter 17: Investing in Mutual Funds
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Q1) Which of the following is not included in the prospectus?
A)Redemption fee or back-end load
B)Expenses including management fees
C)Expenses including advertising and marketing fees
D)Advice on when to buy and sell
Q2) Because a mutual fund is already diversified with perhaps 100 or more different investments,further diversification is not recommended or necessary.
A)True
B)False
Q3) Two advantages of investing in mutual funds are diversification and professional management.
A)True
B)False
Q4) A stock mutual fund that pays higher than normal dividends is called a growth fund.
A)True
B)False
Q5) If a mutual fund's performance is the result of factors in the general stock market,the fund is being impacted by the ________ risk.
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Chapter 18: Asset Allocation
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Q1) Selling options on stock you already own
A)is illegal under federal law.
B)cannot benefit you financially.
C)is called a covered call strategy.
D)is not a very good idea.
Q2) List two considerations that affect your asset allocation decision.
Q3) In general,the ________ the proportion of your portfolio that is allocated to bonds,the ________ will be your portfolio's overall risk.
A)larger; lower
B)smaller; lower
C)larger; higher
D)None of the above.
Q4) As you allocate more of your investment portfolio to bonds,you reduce your exposure to interest rate risk,but increase your exposure to market risk.
A)True
B)False
Q5) In constructing a portfolio,you should diversify across several investments. A)True
B)False
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Chapter 19: Retirement Planning
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Q1) Defined-contribution employer-sponsored retirement plans provide you a specific amount of income when you retire,based on factors such as your salary and years of employment.
A)True
B)False
Q2) A(n)________ is a financial contract that provides annual payments until a specified year or until one's death.
A)savings account
B)annuity
C)mortgage
D)trust
Q3) What is the difference between a SEP and a Keogh retirement plan?
A)A Keogh plan does not allow early withdrawals without a penalty
B)Under a SEP,there is a maximum contribution of up to $42,000 allowed
C)Under a Keogh plan,a contribution of up to 25 percent of net income is allowed
D)A Keogh plan is always individually funded
Q4) More than 80 percent of all employers offering 401(k)plans match a portion or all of an employee's contributions.
A)True
B)False
Page 21
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Chapter 20: Estate Planning
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Q1) A ________ is a legal document granting a person the power to make specific decisions for you in the event that you are incapable.
A)letter of instruction
B)power of attorney
C)will
D)trust
Q2) Estate taxes may be levied by
A)the federal government only.
B)state governments only.
C)both federal and state governments.
D)foreign governments only.
Q3) If you wish to be cremated when you die,this request should be included in a A)simple will.
B)letter of last instruction.
C)codicil.
D)probate.
Q4) A trust that is created by the terms of the will is called a(n)________ trust.
Q5) A marital share will is most appropriate for married couples with large estates.
A)True
B)False
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Chapter 21: Integrating the Components of a Financial Plan
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Q1) As a result of the ________,the more you spend the less money you will have for liquidity or investments.
Q2) You are single and live in a furnished apartment.Which of the following are you most likely to need?
A)Stockbroker
B)Life insurance
C)A will
D)A budget
Q3) Budgeting allows you to forecast how much money you will have at the end of each month so that you can determine how much you will be able to invest in assets.
A)True
B)False
Q4) Some retirement plans,such as Roth IRAs,are more liquid than other plans.
A)True
B)False
Q5) Name three ways to protect and maintain your wealth.
Q6) What are four types of financial investment balances that you should monitor?
Q7) You should invest in ________ if you need periodic income.
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Q8) ________ should be kept in a safe at home or in a safety deposit box at a bank.