Personal Finance
Chapter Exam Questions
Course Introduction
Personal Finance is a foundational course designed to equip students with the knowledge and practical skills necessary to effectively manage their individual financial resources. The course covers key topics such as budgeting, saving, investing, credit management, debt reduction, taxes, insurance, retirement planning, and financial goal setting. Emphasis is placed on developing sound financial decision-making abilities and understanding the impact of economic and lifestyle choices on long-term financial well-being. Through real-life case studies and hands-on exercises, students will learn strategies to achieve financial stability, security, and independence.
Recommended Textbook
Personal Finance Turning Money into Wealth 7th Edition by Arthur J. Keown
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Chapter 1: The Financial Planning Process
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Q1) What elements are included in a solid financial plan?
Answer: A solid personal financial plan includes an informed and controlled budget,outlines your investment strategy,and reflects your unique personal and financial goals.
Q2) Leticia is twenty-two years old and she has all of her savings in a Certificate of Deposit (CD)at the bank that currently pays an annual 1.5 percent yield.The account is protected by the FDIC so it is virtually risk free.She hopes to use her savings for a down payment on a new house in ten years.Inflation in house prices in her area has averaged 4 percent per year.What financial principle does she need to pay better attention to?
A) Nothing happens without a plan.
B) Waste not, want not, smart spending matters.
C) Risk and return go hand in hand.
D) All of the above are correct.
Answer: C
Q3) The economic downturn that began in 2008 demonstrated that many Americans have sufficient emergency funds.
A)True
B)False
Answer: False
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) In some cases insolvency can lead to bankruptcy.
A)True
B)False
Answer: True
Q2) Which type of expenditure would probably be the hardest for an individual to track?
A) Credit card
B) Cash
C) Checks written
D) Automatic payments
E) Direct deposits
Answer: B
Q3) Does your use of debt affect your net worth?
Answer: Yes,although this depends on how you use credit.If you use credit to buy tangible assets like home furnishings,cars,and real estate,then you will have equity in these assets as you pay down your debt.If you use debt for daily living expenses,travel,and entertainment,then you have nothing of value to offset your debt or liabilities.
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Chapter 3: Understanding and Appreciating the Time Value of Money
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Sample Questions
Q1) It is not realistic for a 20-year-old to accumulate $1 million by the age of 65.
A)True
B)False Answer: False
Q2) A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow.
A)True
B)False Answer: True
Q3) Small changes in the interest rate can have a dramatic impact on future values. A)True
B)False Answer: True
Q4) The earlier you begin saving for your retirement,the easier it will be to reach your financial goals for retirement.
A)True
B)False Answer: True
Page 5
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Chapter 4: Tax Planning and Strategies
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Sample Questions
Q1) Although Richard and Katarina are a happily married couple,they joke that they could not possibly remarry for at least two years following the year of the death of the other spouse because
A) the surviving spouse would lose the tax advantage of married filing jointly status, assuming at least one child was still a dependent and the surviving spouse was paying more than half the cost of keeping up the home.
B) the surviving spouse would lose the exemption amount for the deceased spouse.
C) the surviving spouse would have to file as head of household.
D) neither spouse has sufficient life insurance to provide for the family.
Q2) Bracket creep refers to an increase in marginal taxes caused by the impact of inflation.
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) Explain how to calculate your taxable income,and how to determine the need for a tax payment or refund.
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Chapter 5: Cash or Liquid Asset Management
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Sample Questions
Q1) Which of the following financial institutions is a not-for-profit organization that is open only to members of that institution and tends to offer more favorable interest rates to borrowers and savers?
A) Savings bank
B) Commercial bank
C) Savings and loan association
D) Credit union
E) None of the above are correct.
Q2) What is the importance of the APY?
Q3) A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called a
A) demand deposit.
B) negotiable order of withdrawal deposit.
C) term deposit.
D) certificate of deposit.
E) None of the above are correct.
Q4) What is involved with proper cash management?
Q5) Describe the disadvantages of online and mobile banking.
Q6) List one advantage to paying bills automatically.
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Chapter 6: Using Credit Cards: The Role of Open Credit
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Sample Questions
Q1) For the convenience credit card user the interest rate is
A) irresistible.
B) irrelevant.
C) irregular.
D) intimidating.
Q2) Non-profit Credit Counselors should be avoided due to their high fees.
A)True
B)False
Q3) The ________ is the interest rate you pay on your balance if you don't make your minimum payments on time.
A) penalty rate
B) late rate
C) cash advance rate
D) over-the-limit rate
Q4) Getting a credit card while a college student is an excellent idea because
A) it helps you learn about credit.
B) you can shop online and make reservations.
C) it works well for emergencies.
D) when used correctly it allows you to build up a solid credit history.
E) all of the above.
Page 8
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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) Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases
A) the loan maturity would decrease (other things held constant).
B) the payment amount would decrease (other things held constant).
C) the amoritization would increase (other things held constant).
D) the payment amount would increase (other things held constant).
E) none of the above.
Q3) Which statement is false regarding consumer loans?
A) Consumer loans are usually used for bigger purchases.
B) Consumer loans can range from open credit to credit cards.
C) Consumer loans are sometimes called "planned borrowing."
D) Consumer loans can range from single-payment loans to installment loans.
Q4) List three reasons why a student-loan borrower may be granted a deferment.
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) You are considering obtaining a mortgage of $220,000.A lower APR is available,but you must pay 2 points to buy the rate down.How much must you pay in dollars?
A) $1,100
B) $2,200
C) $3,300
D) $4,400
E) $6,600
Q2) When planning your budget to determine how much your home will cost you every month,which of the following should you include in your planning?
A) Closing costs
B) PITI
C) Discount points
D) All of the above
Q3) An appraisal is an estimate of what your home and property are worth.
A)True
B)False
Q4) An attorney will draw up a contract for the purchase of a house.What provisions should you have in it?
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Chapter 9: Life and Health Insurance
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Sample Questions
Q1) Define policy rider and describe the purpose of the five basic ones.
Q2) Choose the option(s)available in the nonforfeiture clause of a cash-value life policy.
A) Exchange the policy for a paid-up term policy of equal face value.
B) Receive the policy's cash value.
C) Retain rights to a death benefit.
D) Exchange the policy's cash value for a paid-up policy with a reduced face value.
E) A, B, and D above
Q3) With term life insurance,the beneficiary receives a fixed death benefit.
A)True
B)False
Q4) What is the major advantage of universal life insurance at any age?
Q5) Your agent argues in favor of cash-value life insurance.You counteract with term to A) have a larger policy and keep things simple.
B) enjoy a relatively low cost per each $1,000 of coverage.
C) have a lot of insurance at affordable prices when you need it the most.
D) save the difference you would pay, invest it, and come out ahead.
E) all of the above.
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Page 11
Chapter 10: Property and Liability Insurance
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Sample Questions
Q1) Your boyfriend is living in an apartment complex that has had a recent rash of robberies.He has $5,000 worth of rare coins.What should he do to protect himself in case of a robbery?
A) Take a written and video tape inventory of his property.
B) Add a personal articles floater to his policy.
C) Take out personal property replacement cost coverage.
D) Only B and C above
E) A, B, and C above
Q2) Property insurance protects you from the financial risk associated with property losses.
A)True
B)False
Q3) What type of auto insurance protects you in the case of accident regardless of who caused the accident?
A) No-cause insurance
B) No-fault insurance
C) No-litigation insurance
D) Cause-free insurance
E) None of the above
Q4) Briefly describe the most common automobile insurance discounts.
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Chapter 11: Investment Basics
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Sample Questions
Q1) The higher your marginal tax bracket,the less attractive tax-free investments become.
A)True
B)False
Q2) A security whose value is based solely on the value of other assets is called a ________ security.
A) capital option
B) hedging
C) derivative
D) alternative asset
E) none of the above
Q3) When market interest rates go up investors demand ________ returns on other types of investments and when market interest rates go down,the return investors demand on other types of investments ________.
A) lower; goes down
B) higher; goes down
C) lower; goes up
D) higher return; goes up
Q4) Which organization would handle frequently traded OTC stock,bonds,and foreign stock?
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) The market price of the stock is a reflection of the potential earnings per share of the firm.
A)True
B)False
Q2) Compared to other investment options,we can safely say that investing in stocks
A) has equal risk.
B) has greater risk.
C) has less risk.
D) is not worth the risk.
Q3) When you got home after work,you saw on the news that the S&P was down by 20 points.Which of the following is true?
A) All of your stocks' market prices must have declined by 20 points.
B) Some of your stocks' market prices may have increased.
C) Some of your stocks' market prices may have decreased.
D) Both B and C are correct.
Q4) Publicly traded stocks listed on a major exchange are not very liquid investments.
A)True
B)False
Q5) Is a positive stock split good for the current share holders?
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Chapter 13: Investing in Bonds and Other Alternatives
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Q1) Which of the following is not an example of speculative investing as outlined in the text?
A) Gold
B) Silver
C) Stocks
D) Precious stones
E) Collectibles
Q2) The ________ is the face value of a bond,and the amount that is returned to the bondholder at maturity.
A) return price
B) par value
C) dead price
D) market price
E) none of the above
Q3) Provide a list of direct and indirect real estate investments.Which one is best for the average investor?
Q4) Coupon interest is usually paid in quarterly installments.
A)True
B)False
Q5) What is the purpose of the call provision on some bonds?
Page 15
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Chapter
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Sample Questions
Q1) Donel is investing in a mutual fund that really is not as diversified as other funds.It may enjoy good capital gains but is also much riskier when it comes to unsystematic risk.This fund is called a(n)________ fund.
A) growth-and-income
B) sector
C) life cycle
D) asset allocation
E) bond
Q2) Which of the following will affect your capital gains liability?
A) Turnover ratio
B) Changes in net asset value
C) Expense ratio
D) All of the above are correct.
E) Only A and B are correct.
Q3) Why are stock mutual funds so popular? Briefly outline the highlights of each type of fund.
Q4) An aggressive growth fund is an appropriate choice for an investor looking for capital gains.
A)True
B)False
Page 16
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Chapter 15: Retirement Planning
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Q1) Valerie works as a free-lance artist.Her financial advisor suggested she establish a Keogh plan for her retirement.Is this an appropriate suggestion for her?
A) Yes
B) No
Q2) Lucius starts saving $100 per month at age 25 and averages 6% per year compounded monthly.Hector starts saving $1,215.22 per month at age 55 and averages 6% per year compounded monthly.Who will be better off at age 65 assuming neither had in money in their account when they started?
A) Lucius will have $15,476.20 and Hector will have $16,017.57 at age 65.
B) Lucius will have $199,149.07 and Hector will have $163,879.34 at age 65.
C) They both will have the same amount of money in their accounts at age 65.
D) Not enough information available.
Q3) Anyone can open up an IRA account but not everyone may get tax-advantages from it because there are income limitations.
A)True
B)False
Q4) If your employer offers a 401(k)or 403(b)plan,why should you participate?
Q5) Why is it a wise idea to have 3 retirement plans in place?
Q6) What is the purpose of a rollover when it comes to retirement plans?
Page 17
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Q1) The introductory statement of a will identifies whose will it is and revokes any prior wills.
A)True
B)False
Q2) Carey is a widow with two teenagers,Brenda age 13 and Terry age 15.Her health has declined and she knows that a will should be drafted.Which of the following statements is not an important reason to have a will?
A) Without a will the court will choose Brenda's and Terry's guardian(s).
B) Without a will the court will appoint an administrator for the estate.
C) The children's best interests may not be served without a will.
D) Without a will, the estate administration fees may cost more, thus leaving less to heirs.
E) All of the above are reasons Carey should have a will.
Q3) 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
Q4) How can you use the unlimited marital deduction to your advantage?
Page 18
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Chapter 17: Financial Life Events Fitting the Pieces Together
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Q1) Why is it more challenging for women to become financially security?
Q2) According to your text,is it recommended that couples have a joint credit card or not?
A) No, it is best for couples to have their own credit cards.
B) Yes, it is important for couples to have joint credit cards.
Q3) Understanding key personal finance topics can prevent you from being a victim to fraud and self-interested behaviors of sales people and financial advisors.
A)True
B)False
Q4) How should a family plan for having children from a personal financial perspective?
Q5) The key to keeping the cost of home and auto insurance down is to keep your deductibles as high as you can afford.
A)True
B)False
Q6) Only people 40 years or older should max out their retirement contributions at work.
A)True
B)False
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