Personal Finance
Final Exam Questions
Course Introduction
Personal Finance is a foundational course designed to equip students with practical knowledge and essential skills for managing personal economic activities. The course covers topics such as budgeting, saving, banking, credit management, investing, insurance, taxes, retirement planning, and financial decision-making. Through real-life scenarios and interactive exercises, students learn how to set financial goals, understand the impact of financial choices, and develop strategies for building wealth and achieving financial security. Emphasis is placed on fostering responsible money habits and preparing students to navigate the complexities of personal financial management in an ever-changing economic landscape.
Recommended Textbook
Personal Finance 4th Edition by Jeff Madura
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21 Chapters
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Page 2
Chapter 1: Overview of a Financial Plan
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Q1) Which of the following statements is not true regarding education and financial position?
A)Your financial position is highly influenced by the amount of education you pursue
B)Higher education always guarantees a higher income
C)The more education you have,the higher your earnings will likely be
D)Before you choose a major,you should consider your skills,interests,and the career paths that will be available to you
Answer: B
Q2) Most Americans will never be able to understand and develop a personal financial plan.
A)True
B)False
Answer: False
Q3) Which of the following goals would be easiest to measure?
A)Reduce debt payments
B)Save funds for an annual vacation
C)Save $100 a month to create a $4,000 emergency fund
D)Invest for a comfortable retirement
Answer: C
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Page 3
Chapter 2: Planning With Personal Financial Statements
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Q1) A high debt ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems.
A)True
B)False
Answer: True
Q2) If your cash outflows are $600 and your cash inflows are $1,000,you can increase your net worth by:
(a)$1,000.
(b)$600.
(c)$1,600.
(d)$400.
Answer: (d)$1,000 ± $600 = $400
Q3) If your net cash inflows exceed your net cash outflows,you can increase your net worth by investing the difference in more ________.
Answer: assets
Q4) 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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Q1) How many years will it take for $500 to grow to $1,039.50 if invested at 5 percent compounded annually?
A)15
B)14
C)13
D)12
Answer: A
Q2) The process of obtaining present values is also called compounding.
A)True
B)False
Answer: False
Q3) It is better to spend your money today than wait a year because you will be able to buy more with it today than in one year.
A)True
B)False
Answer: True
Q4) The same tables can be used to figure future values and present values of $1.
A)True
B)False
Answer: True
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Chapter 4: Using Tax Concepts for Planning
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Q1) Which of the following taxes is only paid on the first $102,000 of your salary?
A)Federal Income Tax
B)Social Security Tax
C)Medicare Tax
D)All of the above.
Q2) The standard deduction (assuming you are not over 65 or blind)is largest for
A)single filers.
B)head of household filers.
C)married filing jointly.
D)married filing separately.
Q3) If a stock was purchased for $5,000 in January 2010 and is 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
Q4) ________ and ________ are both reported on a Schedule B.
Q5) Medicare taxes are 1.45% of your salary,regardless of the salary amount.
A)True
B)False
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Chapter 5: Banking and Interest Rates
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Q1) The interest rate is composed of the ________ and the ________.
A)risk-free rate; risk discount
B)risk-free rate; risk premium
C)risk-free rate; default risk premium
D)None of the above.
Q2) You have $3,000 that you may need any day to replace the furnace in your house.Which of the following would be the best place to put the $3,000?
A)A one-year CD earning 4%
B)A common stock mutual fund earning 9%
C)A savings account earning 2%
D)Shares of stock in a high tech company that could double in 6 months
Q3) Which of the following should not affect your choice of a financial institution?
A)Convenience
B)Whether it is state or federally chartered
C)Deposit rates and insurance
D)Fees
Q4) Financial institutions offering traditional checking and savings accounts as well as providing loans to both individuals and firms are called ________.
Q5) Describe four factors you should consider when choosing a financial institution.
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Chapter 6: Managing Your Money
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Q1) Stopping payment on a check should be used if you paid to have your bathroom remodeled and the job was not completed.
A)True
B)False
Q2) ________ risk is the risk that a borrower may not repay on a timely basis.
A)Credit
B)Interest rate
C)Liquidity
D)Asset
Q3) An asset management account combines
A)assets and expenses.
B)deposit accounts with a brokerage account.
C)a savings account with a brokerage account.
D)a savings account with long-term investments.
Q4) If you lose your checkbook,the bank will not charge you for stopping payment on any unused blank checks.
A)True
B)False
Q5) A(n)________ account acts as a traditional checking account except that it pays interest.
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Chapter 7: Assessing and Securing Your Credit
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Sample Questions
Q1) The safest way to obtain new checks is to
A)have them mailed first class to your house.
B)have them mailed first class to your work.
C)have them sent via United Parcel Service.
D)pick them up at the bank.
Q2) Of the following statements,which is not a disadvantage of using credit?
A)It can be costly to use
B)It can be difficult to repay if overused
C)It is more difficult to obtain than repay
D)It may tempt you to make impulse purchases
Q3) Which of the following will not be included on your credit report?
A)Social Security number
B)FICO score
C)Unpaid accounts
D)Companies that have recently accessed your report
Q4) You should be very selective in shredding documents and when in doubt,do not shred them.
A)True
B)False
Q5) You should review your credit report at least ________.
Page 9
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Chapter 8: Managing Your Credit
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Q1) The annual percentage rate (APR)on credit is the simple interest rate after including any fees (such as an application processing fee)imposed by the creditor.
A)True
B)False
Q2) By reviewing your credit card statement,you can determine all of the following except
A)total purchases made year-to-date.
B)your available credit remaining.
C)if a payment can be made that will avoid interest charges.
D)how much time you have to make a payment.
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) When applying for a credit card,the amount of savings that you have will not be a factor in the credit card company's decision.
A)True
B)False
Q5) Discuss how many credit cards you think you should have and why.
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Chapter 9: Personal Loans
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Sample Questions
Q1) You have a home with a market value of $200,000.Your total equity in the home is $40,000.The maximum home equity loan available if the bank will loan 80 percent based on equity invested is
(a)$28,000.
(b)$32,000.
(c)$112,000.
(d)$128,000.
Q2) Advantages of leasing a vehicle include all of the following except A)no substantial down payment.
B)don't have to worry about resale of the car when you are finished with it.
C)less hassle than purchasing a vehicle.
D)no maintenance costs.
Q3) Buying a new car online is just about as efficient as buying an airline ticket or a book. A)True B)False
Q4) If you were to apply for and obtain a student loan,list the advantages and disadvantages of paying for your education on credit.
Q5) List four components of a loan contract.
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Chapter 10: Purchasing and Financing a Home
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Sample Questions
Q1) Buying a home may be the single biggest investment you will ever make,so the decision should be taken very seriously.
A)True
B)False
Q2) The term ARM stands for
A)alliance rated mortgage.
B)adjustable-rate mortgage.
C)American Realty Mortgage.
D)American rated mortgage.
Q3) The selection of a home's school system is only applicable if you have or are likely to have school-aged children.
A)True
B)False
Q4) In the decision to rent or purchase a home the ________ of any security deposit that you would put down on a rental home must be part of the decision.
Q5) If the interest rate on your home mortgage will not change over the life of the loan you have a(n)________.
Q6) 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) You have cash value coverage for your personal property on your homeowner's policy.A camera that cost you $300 eight years ago had a life expectancy of 10 years.The camera was stolen,and a new one will cost only $200.How much will the insurance company pay?
A)$60
B)$100
C)$200
D)$300
Q2) Which of the following is not a characteristic of an umbrella policy?
A)It provides additional liability insurance
B)It replaces other policies
C)It protects wealth
D)It is optional coverage
Q3) Auto insurance rates are based upon
A)whether you keep your car in the garage or not.
B)your marital status.
C)the number of miles and the type of driving you do each year.
D)the condition of your vehicle.
Q4) List two ways to reduce your homeowner's insurance premiums.
Q5) List four ways to reduce your automobile insurance premiums.
Page 13
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Chapter 12: Health and Disability Insurance
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Sample Questions
Q1) Disability income is
A)taxed at the long-term capital gains rate.
B)taxed as ordinary income.
C)tax-free.
D)taxed at the short-term capital gains rate.
Q2) Since health insurance is expensive
A)most employers pay for the entire cost as an employee benefit.
B)employees are usually required to pay the entire cost of the insurance.
C)the employer and employee typically share the cost of the health insurance.
D)the government along with the employer helps to subsidize employee health insurance costs.
Q3) Usually plans such as dental insurance and vision insurance are good deals if they are offered through employers.
A)True
B)False
Q4) The best disability plans pay you if you are not able to work at any job,not just your regular job.
A)True
B)False
Q5) 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) The easiest method of estimating your life insurance needs is the
A)life cycle approach.
B)budget approach.
C)financial approach.
D)income approach.
Q2) If no one else relies on your income,life insurance may not be necessary.
A)True
B)False
Q3) 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.
Q4) In comparison to an equivalent amount of term insurance,mortgage life insurance
A)costs less.
B)costs the same.
C)costs more.
D)the cost depends on the age of the house.
Q5) What are three types of settlement options?
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Chapter 14: Investing Fundamentals
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Q1) You can estimate the amount by which your wealth will increase from an investment using
A)standard deviation.
B)discounted range of returns.
C)time value of money.
D)analysis of past returns.
Q2) The higher the dividend paid by a firm,the lower its potential stock price appreciation.
A)True
B)False
Q3) It would be very difficult and expensive for an individual investor to benefit from holding all 500 stocks of the Standard and Poor's 500 Index.
A)True
B)False
Q4) The risk-return relationship means
A)the lower the risk,the higher the return.
B)the higher the risk,the lower the return.
C)the higher the risk,the higher the return.
D)risk and return have little or no correlation.
Q5) Newly issued securities are traded in the ________.
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Chapter 15: Investing in Stocks
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Q1) Limit orders can only be placed for a short period of time,usually a week or less.
A)True
B)False
Q2) An investment in stock requires all but A)cash.
B)time.
C)risk.
D)luck.
Q3) The ________ is a measure of inflation that represents prices of products such as coal,lumber,and metals that are used to produce other products.
A)CPI
B)PPI
C)inflation index
D)cost of living index
Q4) Where or how can you obtain a corporate annual report and additional investment analysis?
Q5) The largest stock exchange in the United States is the ________.
Q6) Compare and contrast a full-service brokerage firm to a discount brokerage firm.
Q7) Is investing on margin what the average investor should do?
Page 17
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Chapter 16: Investing in Bonds
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Q1) 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
Q2) Bonds with ________ terms to maturity are ________ sensitive to interest rate movements than bonds that have short terms remaining until maturity.
A)middle; less B)longer; less C)longer; more D)longer; equally
Q3) The possibility that a bond will be called by the corporation prior to its maturity is an example of a(n)________ risk.
Q4) Bonds are equity investments issued by corporations or government agencies.
A)True
B)False
Q5) The City of Chicago would issue ________ if they wished to borrow money.
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Chapter 17: Investing in Mutual Funds
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Q1) A mutual fund that buys only the stocks of gold mining companies is a good example of a sector fund.
A)True
B)False
Q2) If a mutual fund's performance is the result of factors in the general stock market,the fund is being impacted by the ________ risk.
Q3) Studies on mutual funds have found that load funds perform better than no-load funds.
A)True
B)False
Q4) Hedge funds,which are not regulated by the Securities and Exchange Commission,are only available to wealthy investors and are less risky than ordinary mutual funds.
A)True
B)False
Q5) Municipal bond funds have tax advantages over other kinds of mutual funds.
A)True
B)False
Q6) The price of shares in a mutual fund is referred to as the ________.
Page 19
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Chapter 18: Asset Allocation
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Q1) If your portfolio consists of 100 shares of Dell,100 shares of IBM,and 100 shares of Gateway,the following would be true of your portfolio.
A)It is well diversified by industry
B)It is well diversified by type of asset
C)It has poor diversification
D)It has no diversification
Q2) In order to add real estate to your investment portfolio,you may buy houses or other real estate directly or you may purchase real estate investment trusts (REITs).
A)True
B)False
Q3) 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.
Q4) Asset allocation uses what to reduce your risk from investing?
Q5) The purchasing of stocks in different industries,bonds,and several mutual funds would be a way to ________ your portfolio.
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Chapter 19: Retirement Planning
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Q1) If your retirement plan has no vesting requirement then it is not a
A)defined-benefit plan.
B)defined-contribution plan.
C)traditional IRA.
D)Keogh plan.
Q2) Once you leave a job with an employer,you will probably forfeit your retirement account unless you have been with the company for 15 or more years.
A)True
B)False
Q3) A ________ is established to transfer assets tax-free from a company retirement plan.
A)SEP
B)traditional IRA
C)rollover IRA
D)Keogh
Q4) When you contribute to a defined-contribution retirement plan,your employer often puts in money too,and you are able to defer taxes on these contributions.
A)True
B)False
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Chapter 20: Estate Planning
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Q1) Estate planning commonly involves trusts,gifts,and contributions for the purpose of avoiding estate taxes.
A)True
B)False
Q2) Which of the following is not necessary for a will to be valid?
A)All heirs must agree to the terms of the will
B)The will must be dated
C)The will must be signed
D)The person writing the will must be sober at the time the will is written
Q3) A married couple with four children may give gifts up to ________ each year to their children.
A)$44,000
B)$66,000
C)$88,000
D)$104,000
Q4) Which of the following statements about the letter of last instruction is false?
A)It should provide current information on the estate.
B)It should provide current financial advisors.
C)It should legally determine your heirs.
D)It should explain your rationale of the bequests.
Page 22
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Chapter 21: Integrating the Components of a Financial Plan
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Q1) What are three types of financing you have studied?
Q2) Even average people can accumulate wealth by A)spending less than they make.
B)spending more than they make.
C)eating out less often.
D)winning the lottery.
Q3) Monitoring liquidity does not include tracking A)bank account balances.
B)money market securities.
C)certificates of deposit.
D)bond mutual funds.
Q4) Monitoring financing includes evaluating all of the following balances except A)credit cards.
B)mortgage loans.
C)personal loans.
D)Roth IRA.
Q5) 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
23
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