Personal Finance
Exam Review
Course Introduction
Personal Finance explores the fundamental principles and tools necessary for individuals to make informed decisions about their financial resources. The course covers key topics such as budgeting, saving, investing, credit management, insurance, taxes, and retirement planning. Students learn how to set financial goals, develop spending plans, analyze financial products, and understand the impact of economic factors on personal wealth. Through practical case studies and real-world scenarios, the course aims to equip students with lifelong financial skills to achieve stability, avoid common pitfalls, and build a secure financial future.
Recommended Textbook
Personal Finance 4th Edition by Jeff Madura
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21 Chapters
1890 Verified Questions
1890 Flashcards
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Page 2
Chapter 1: Overview of a Financial Plan
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Sample Questions
Q1) A complete financial plan consists of budgeting,taxes,financing,and investing.
A)True
B)False
Answer: False
Q2) Most investments are subject to ________,which is the uncertainty surrounding their potential return.
Answer: risk
Q3) Your net worth will not be increased by which of the following actions?
A)Increasing your savings from 10% to 15% of your earnings
B)A $100 birthday present from your grandmother
C)Buying a new stereo system and putting the entire amount on your credit card
D)Receiving an inheritance
Answer: C
Q4) Opportunity cost refers to
A)money needed for major consumer purchases.
B)what you give up or forego as a result of making a decision.
C)the amount paid for taxes when a purchase is made.
D)evaluating different alternatives for financial decisions.
Answer: B
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Chapter 2: Planning With Personal Financial Statements
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Sample Questions
Q1) Determine if the following are liquid assets or household assets by placing an L or H beside the following. ________ Car
Home
Checking account
Furniture
Cash ________ Savings account
Answer: H Car H Home L Checking account H Furniture L Cash L Savings account
Q2) Another term for your wealth calculated by deducting money that you owe from the value of the things you own is A)gross income.
B)net income.
C)net property.
D)net worth.
Answer: D
Q3) For most people,the first obstacle is to correctly assess their true net income. A)True
B)False
Answer: False
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Chapter 3: Applying Time Value Concepts
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Sample Questions
Q1) The Present Value Interest Factor (PVIF)becomes lower as the number of years increases.
A)True
B)False
Answer: True
Q2) 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
Q3) Future and present values are dependent upon all of the following except A)time.
B)the interest rate.
C)a present or the future value interest factor,depending on the problem.
D)annual income.
Answer: D
Q4) The concept that a dollar received today has more value than a dollar received in the future because of the interest it can earn is called the ________.
Answer: time value of money
Page 5
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Chapter 4: Using Tax Concepts for Planning
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Sample Questions
Q1) The tax method that uses the principle of taxing those more who earn more is called ________ taxation.
A)benefits received
B)payment burden
C)progressive
D)regressive
Q2) Which of the following is not a tax credit mentioned in the chapter?
A)Child tax credit
B)Second income credit
C)College expense credit
D)Earned income credit
Q3) Medicare taxes are 1.45% of your salary,regardless of the salary amount.
A)True
B)False
Q4) If a stock was purchased in January 2009 for $1,000 and sold in December 2010 for $3,000,a ________ of $2,000 results.
A)long-term capital gain
B)short-term capital gain
C)long-term capital loss
D)short-term capital loss
Page 6
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Chapter 5: Banking and Interest Rates
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Sample Questions
Q1) Which of the following is not a fee that financial institutions charge?
A)Checking account service charge
B)ATM usage fee
C)Depository insurance
D)Safety deposit box rental
Q2) Financial institutions that accept deposits (that are insured up to a maximum level)from individuals and provide loans are called
A)finance companies.
B)depository institutions.
C)investment companies.
D)nondepository institutions.
Q3) The ________ is the return on an investment that is guaranteed for a specified period.
A)risk-free rate
B)risk premium
C)specific return
D)fair market return
Q4) Organizations that offer a diverse set of financial services to individuals and firms are ________.
Q5) Describe four factors you should consider when choosing a financial institution.
Page 7
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Chapter 6: Managing Your Money
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Sample Questions
Q1) What would be the annualized return to an investor who purchases a one-year $10,000 T-bill for $9,600 and sells it on the secondary market 90 days after the purchase for $9,750? (Round to the nearest one hundredth of a percent.)
(a)3.5 percent
(b)6.34 percent
(c)10.14 percent
(d)16.22 percent
Q2) Generally,yields are ________ for securities that are exposed to ________ liquidity risk.
A)higher; more B)higher; less C)lower; less
D)Both A and C are correct.
Q3) Maurice purchased a $10,000,90-day CD that pays 8 percent.How much will Maurice receive when the CD matures? (Round answer to the nearest dollar.)
A)$10,800
B)$10,197
C)$10,200
D)$10,267
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Page 8
Chapter 7: Assessing and Securing Your Credit
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Sample Questions
Q1) With a credit rating of over 500,you should have no problem getting approval for credit purchases.
A)True
B)False
Q2) Identity thieves that obtain your information from the magnetic strip on your credit card are using a technique known as
A)shoulder surfing.
B)dumpster diving.
C)pretexting.
D)skimming.
Q3) Name and briefly discuss three tactics that an identity thief may use.
Q4) Manipulating e-mail viruses and host files to redirect users from legitimate commercial Web sites to bogus Web sites to obtain log-in names and passwords is referred to as A)pharming.
B)phishing.
C)skimming.
D)trolling.
Q5) Discuss at least two ways that you can protect yourself from identity theft.
Q6) Discuss the reasons why someone would wish to steal your identity.
Page 9
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Chapter 8: Managing Your Credit
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Sample Questions
Q1) Cash advances on credit cards normally cost you interest from the date of the advance and also a transaction fee of 1 to 2 percent.
A)True
B)False
Q2) On a credit card,a finance charge is applied to
A)any purchase.
B)any balance not previously paid.
C)current purchases.
D)future purchases.
Q3) One advantage of credit cards is that you can receive free financing if you pay off your balance each month.
A)True
B)False
Q4) It is good financial planning to pay only the minimum credit card payment and thus maintain a balance since interest rates are low on credit cards.
A)True
B)False
Q5) Describe the advantages and disadvantages of credit cards.
Q6) The ________ is usually about 20 days after the credit card statement is closed.
Page 10
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Chapter 9: Personal Loans
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Sample Questions
Q1) In the past you have purchased cars that you have driven for over 10 years or more.The mileage on these vehicles usually exceeded 100,000 and therefore you just give them to one of your teenage nieces/nephews or your grandchildren.Based on this history,your primary financial selection criteria will be
A)resale value.
B)financing rate.
C)repair expense.
D)personal preference.
Q2) Which of the following is a true statement about student loans?
A)All student loans are provided directly to the student.
B)All student loans are provided to parents of students.
C)Interest payments are often deferred until the students graduate and enter the workforce.
D)Interest is tax-free to those in all income levels.
Q3) In making the purchase versus leasing decision,it is important to remember that A)dealers may impose an additional mileage cost.
B)leasing is less risky than a purchase.
C)leasing is less expensive that a purchase.
D)you won't be required to pay maintenance costs on the leased car.
Q4) List four components of a loan contract.
Page 11
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Chapter 10: Purchasing and Financing a Home
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Sample Questions
Q1) For a long-term home loan,such as 30 years,the amount of principle you pay on your loan during the first few years is quite small.
A)True
B)False
Q2) 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.
Q3) The first step in the home-buying process should be to
A)identify the specific home you want to purchase.
B)determine a realistic price range of homes you can afford.
C)compare the cost of buying to renting.
D)find a good realtor.
Q4) Your monthly payments for a house are likely to be as high as rent when you factor in mortgage payments,property taxes,homeowner's insurance,and home repairs.
A)True
B)False
Q5) Is purchasing a home an expense,an investment,or both?
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Chapter 11: Auto and Homeowners Insurance
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Sample Questions
Q1) What do policy limits of 200/300/100 on an automobile insurance policy mean?
Q2) 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
Q3) People are more willing to purchase or increase their insurance coverage when
A)economic conditions are favorable and incomes are lower.
B)economic conditions are favorable and incomes are higher.
C)economic conditions are weak and incomes are lower.
D)None of the above.
Q4) You can use the Internet to obtain
A)estimates on auto insurance rates.
B)new car prices.
C)blue book values on used vehicles.
D)All of the above.
Q5) List two ways to reduce your homeowner's insurance premiums.
Q6) What three insurance components do automobile and homeowner's policies usually have in common?
Q7) List four ways to reduce your automobile insurance premiums.
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Chapter 12: Health and Disability Insurance
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Sample Questions
Q1) The cost of health care has risen dramatically in recent years due to all except A)people living longer and requiring attention for longer periods of time.
B)the high cost of technology in health care.
C)reduced litigation costs.
D)the bureaucratic processes of reimbursement and claim handling.
Q2) One of the newest types of health care insurance is ________ insurance,which provides coverage to those in a nursing home,assisted living facility,or at home.
Q3) Buying health insurance through employer-sponsored plans is somewhat more expensive than buying your own policy individually.
A)True
B)False
Q4) Technological advances are one of the things helping to keep the cost of health care from escalating further.
A)True
B)False
Q5) Social Security is the easiest disability coverage to qualify for benefits.
A)True
B)False
Q6) 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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Sample Questions
Q1) During the time the policy is in effect,term life insurance has a good savings and investment component.
A)True
B)False
Q2) A person earning $75,000 per year has term life insurance at their place of employment equal to their annual income.Using the income method with a factor of 5,how much additional life insurance will s/he need?
(a)$375,000
(b)$300,000
(c)$75,000
(d)$50,000
Q3) Universal life insurance is similar to whole life,but allows the policyholder more choices of how the savings portion of their premiums are invested.
A)True
B)False
Q4) The premiums charged on life insurance will be higher if the individual is more likely to ________ in the near future.
Q5) What are three types of settlement options?
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Chapter 14: Investing Fundamentals
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Sample Questions
Q1) Name three applications of present and future value concepts to stocks.
Q2) Stock prices are characterized by all of the following except they
A)can plummet with poor economic conditions.
B)have a set lower limit.
C)can be affected by negative earnings.
D)can be increased through the company repurchasing the shares.
Q3) Which of the following statements is not true regarding individual investors?
A)They commonly invest a portion of the money earned from their jobs.
B)They invest in stocks to earn a reasonable return on their investments.
C)They expect their money to grow by the time they wish to use it to make purchases.
D)The number of individual investors has decreased in the last 20 years.
Q4) It is December 30th and you have stock in Zero Corporation,which you bought on March 1st that has lost $2,000 in value.You have already sold other stock that you bought this year for a gain.From a tax standpoint,what should you do with the Zero stock?
A)Sell it today
B)Sell it on January 2nd next year
C)Wait until after next March 1st and sell it then
D)Keep the stock and hope that it goes up in value
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Page 16
Chapter 15: Investing in Stocks
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Sample Questions
Q1) A ________ order is an order to execute a transaction to buy or sell a stock at its prevailing price.
A)limit
B)stock
C)market
D)written
Q2) Which of the following actions of the U.S.government could not be considered part of fiscal policy?
A)Federal Reserve open market operations
B)The Tax Relief Act of 2001
C)Operation Enduring Freedom
D)Creating the Department of Homeland Security
Q3) A ________ symbol is used to identify a stock for trading purposes.
A)company
B)ticker
C)graphic
D)numeric
Q4) ________ is a measure of economic growth that measures the total value of all products and services produced in the country.
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Chapter 16: Investing in Bonds
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Sample Questions
Q1) Last yield is calculated by
A)annual interest/par.
B)annual interest/market price.
C)annual interest/$1,000.
D)par value times 100.
Q2) A convertible bond allows the investor to exchange that bond for another issue of bonds within the convertible period.
A)True
B)False
Q3) The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.
A)True
B)False
Q4) A bond's yield to maturity is the annualized percentage return of both interest and capital gains or losses if the bond were held until it matured.
A)True
B)False
Q5) List and describe three strategies to invest in bonds.
Q6) Name and explain two risks involved with bonds.
Page 18
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Chapter 17: Investing in Mutual Funds
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Sample Questions
Q1) High yield bond funds have a ________ potential return and ________ risk.
A)high; low
B)high; high
C)low; high
D)low; low
Q2) What would be the return on a $1,000 investment in a mutual fund whose NAV is $20? The fund has a 3 percent front-end load and during the holding period,$400 of fund distributions are reinvested at a NAV of $25 (no load applied to reinvestments).The fund is ultimately sold at a NAV of $24.(Round to the nearest tenth of a percent.)
(a)14.8 percent
(b)10.5 percent
(c)15.3 percent
(d)10.8 percent
Q3) Some mutual funds have much higher expenses or expense ratios than others,and this expense can affect your overall returns.
A)True
B)False
Q4) List five considerations or characteristics when purchasing a mutual fund.
Q5) The price of shares in a mutual fund is referred to as the ________.
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Chapter 18: Asset Allocation
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Sample Questions
Q1) Investors who are 30 to 50 years old tend to focus their allocation on ________ because they can afford the risk.
A)life insurance
B)stocks
C)bonds
D)a house
Q2) In reality,many stocks are influenced by ________ the stock market overall. A)different conditions than B)the same conditions as C)other conditions than D)unrelated conditions to
Q3) The purchasing of stocks in different industries,bonds,and several mutual funds would be a way to ________ your portfolio.
Q4) A portfolio can reduce risk when its
A)investments do not move in tandem.
B)investments move in tandem.
C)returns of individual investments are similar.
D)investments are from similar industries.
Q5) The stocks,bonds,and mutual funds that an investor owns comprise his/her
20
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Chapter 19: Retirement Planning
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Sample Questions
Q1) A traditional IRA requires an individual to make withdrawals after age 70-1/2,whereas a Roth IRA does not.
A)True
B)False
Q2) Your Social Security retirement benefits are determined primarily by the amount
A)of current contributions by other employees.
B)of savings you have.
C)you contributed to Social Security over the years.
D)of the prime interest rate.
Q3) The quality and timing of your retirement depends mainly on the quality of your employer's retirement plan.
A)True
B)False
Q4) Under a defined-contribution plan,there are specific guidelines for all but
A)how much you can contribute to your retirement fund.
B)how much your employer can contribute to your retirement fund.
C)early withdrawal penalties.
D)estimating how much you will receive monthly at retirement.
Q5) List three sources of income when you retire.
Q6) Name two types of retirement plans available to the self-employed.
Page 21
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Chapter 20: Estate Planning
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Sample Questions
Q1) Which of the following is not a duty of the executor of an estate?
A)Collect money owed the estate
B)Decide how the assets will be distributed
C)Pay debts of the estate
D)Sell specific assets of the estate if necessary
Q2) The value of the estate is calculated using A)cost.
B)market value.
C)cost plus inflation.
D)the consumer price index.
Q3) A tax-free gift of up to ________ per year can be given to another person.
A)$1,000
B)$5,000
C)$13,000
D)$20,000
Q4) Two key goals of estate planning are to ensure that your estate passes to the proper beneficiaries and to ensure that your estate may be insulated from taxes.
A)True
B)False
Q5) The assets less liabilities of a deceased individual are called a(n)________.
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Chapter 21: Integrating the Components of a Financial Plan
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Sample Questions
Q1) Which of the following will increase your net worth over time?
A)Leasing a car
B)Renting a house
C)Buying a house
D)All of the above.
Q2) Which of the following assets will not increase your liquidity?
A)Checking account
B)Money market mutual fund
C)Cash in a Roth IRA
D)Cash in your wallet
Q3) As time passes,your financial position and goals are likely to change so you will need to revise your financial plan.
A)True
B)False
Q4) The purpose of insurance is to protect your
A)liabilities and expenses.
B)assets and liabilities.
C)assets and net worth.
D)income and expenses.
Q5) You should invest in ________ if you need periodic income.
Page 23
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