Chapter 1: The Financial Planning Process
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Q1) A solid understanding of personal finance will
A)enable you to protect yourself from an incompetent investment advisor.
B)allow you to take advantage of changes in the economy.
C)give you the ability to make intelligent investments.
D)help you understand the importance of planning for your financial future.
E)all of the above.
Answer: E
Q2) 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
Q3) Which step has you to identify what you are saving and what you need to save?
A)Step 1
B)Step 2
C)Step 3
D)Step 4
Answer: B
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Q1) If the people below,with their respective current ratios,were to lose their jobs today,which one would have more time and more choices until he or she found another job?
A)Christy has a current ratio of 0.85 times.
B)Rick has a current ratio of 2.5 times.
C)Andrew has a current ratio of 1 time.
D)There is not enough information to answer this question.
Answer: B
Q2) According to the Keown book,what are the three primary reasons for maintaining financial records?
Answer: First,without adequate records,it is extremely difficult to prepare taxes.Second,a strong record-keeping system allows you to track expenses in order to know exactly how much you're spending and where you're spending it.Without that knowledge,you will not have control over your finances.Third,organized record-keeping makes it easier for someone else to step in during an emergency and understand your financial situation.
Q3) Insolvency results from earning more than you spend.
A)True
B)False
Answer: False
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Chapter 3: Understanding and Appreciating the Time Value of Money
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Q1) Suppose that you placed $500 in a bank account at the end of each year for the next 10 years.How much would be in that account at the end of the tenth year if the deposits earned an annual rate of return of 8% each year?
A)$8,079.46
B)$5,400.00
C)$7,243.28
D)$6,355.04
E)$7,774.51
Answer: C
Q2) An investment earning 12 percent interest per year should double in value in approximately four years.
A)True
B)False
Answer: False
Q3) A compound interest table is useful in solving a time value of money problem.Name the variables involved.
Answer: The interest rate,the period of time involved,the sum of money involved,and the frequency of compounding are variables to consider when using a compound interest table.
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Chapter 4: Tax Planning and Strategies
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Q1) The movement into a higher tax bracket as a result of inflation increasing wages is called
A)bracket climbing.
B)bracket migration.
C)bracket creep.
D)bracket shifting.
Q2) For most tax payers,their average tax rate is lower than their marginal tax rate.
A)True
B)False
Q3) In 2017,the IRS audited what percent of all tax returns?
A)2%
B)5%
C).7%
D)8%
Q4) What is Samuel's total tax liability for 2014?
A)$5,351.25
B)$3,710.25
C)$4,541.25
D)$3,948.75
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Chapter 5: Cash or Liquid Asset Management
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Q1) Why are liquid assets important in cash management?
Q2) Because liquid assets can be turned into cash quickly and with little loss,they have little risk associated with them and therefore provide a low rate of return for the consumer.
A)True
B)False
Q3) One of the advantages of T-Bills is that they are exempt from federal taxes but subject to state income taxes.
A)True
B)False
Q4) 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.
Q5) Describe the advantages of online and mobile banking.
Q6) List two ways to pay yourself first.
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Chapter 6: Using Credit Cards: the Role of Open Credit
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Q1) Cedrick's credit card was stolen,and he did not realize that it was stolen until he received his most recent billing statement.He contacted the credit card company immediately after he read his statement.Fraudulent charges were as follows: $250 for a Blue-ray player,$600 for a new set of tires,$200 cash withdrawal,and $40 in interest charges on the above items.He did not carry credit card insurance.How much is Cedrick's potential maximum liability?
A)$40.00
B)$50.00
C)$850.00
D)$1,050.00
E)$1,090.00
Q2) If Bradley buys a new game console for $560 this month and sends in a credit card payment of $950 when he gets his statement,how much interest will he pay on the game console for the month?
A)21 percent
B)1.75 percent
C)3 percent
D)None,since he paid for the game console in full during the grace period.
Q3) Compare and contrast the average,previous,and adjusted balance methods.
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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Q1) 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 amortization would increase (other things held constant).
D)the payment amount would increase (other things held constant).
E)none of the above.
Q2) A loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n)
A)fully amortized loan.
B)balloon loan.
C)installment loan.
D)secured loan.
E)none of the above.
Q3) Direct subsidized loans are made only to undergraduates who demonstrate financial need.
A)True
B)False
Q4) Describe the four major parts of a typical loan contract.
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Chapter 8: The Home and Automobile Decision
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Q1) The advantages of a fixed-rate mortgage over an ARM include
A)no private mortgage insurance required.
B)fixed payments that are easier to budget for.
C)less worry about the loan reaching the rate and payment caps.
D)none of the above.
E)both B and C.
Q2) As a rule of thumb,your PITI costs shouldn't exceed ________ of your pretax monthly income.
A)8 percent
B)18 percent
C)28 percent
D)48 percent
Q3) Juanita has determined that the PITI on the house she would like to purchase will be $1,260 per month.What is the minimum gross salary she will need to qualify for a mortgage from a reputable lender?
A)$6,300 per month
B)$4,500 per month
C)$3,500 per month
D)$5,040 per month
Q4) Are there any advantages in government-backed loans? Any disadvantages?
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Chapter 9: Life and Health Insurance
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Q1) The ________ is the entity who designates the beneficiary of the insurance policy.
A)beneficiary
B)policy owner
C)insured
D)actuaries
Q2) You are considering the need for insurance.You desire a policy that provides permanent protection,has a fixed premium,and provides a fixed death benefit.What type of policy would you purchase?
A)Term insurance
B)Fixed premium insurance
C)Whole life insurance
D)Universal life insurance
E)None of the above
Q3) Long-term care insurance may not be a good buy for people under the age of 40.
A)True
B)False
Q4) The primary advantage of term insurance is a flexible premium.
A)True
B)False
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Chapter 10: Property and Liability Insurance
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Q1) Other than collision loss is also known as
A)uninsured motorist's protection.
B)liability.
C)comprehensive physical damage.
D)split-limit coverage.
Q2) In 2014,at least 26 percent of all auto collisions involved cell phones.
A)True
B)False
Q3) Your home was damaged by a hail storm.This will require a police report in order for you to file a claim.
A)True
B)False
Q4) Valerie was very angry at her soon to be exhusband and when she found his expensive sports car at his girlfriend's home she rammed into it with her pickup truck.Will her insurance policy cover the damage to her vehicle?
A)Yes,she has full coverage.
B)No,one of the exclusions on her policy says it will not cover if the damage was intentional.
Q5) Provide an explanation of Section II: Personal Liability Coverage.
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Chapter 11: Investment Basics
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Q1) If you bought a 20-year bond issued by the government,with a par value of $1,000 and an interest rate of 8%.At maturity you will be returned the principal of
A)$80.
B)$500.
C)$800.
D)$1,000.
E)$1,600.
Q2) Explain the concept of liquidity relating to personal financial planning.
Q3) Why does it cost so much to trade with a full service broker?
A)Full service brokers offer stock research and investment advice.
B)Full service brokers offer many different customer services.
C)Full service brokers provide a one-on-one personal relationship with the customer.
D)All of the above are correct.
Q4) As the length of your investment horizon increases,you can assume greater risks with your investing.
A)True
B)False
Q5) Describe the sources of risk in the risk-return trade off.
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Chapter 12: Investing in Stocks
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Q1) When a corporation engages in a stock repurchase,each remaining shareholder owns a smaller proportion of the firm.
A)True
B)False
Q2) What are the four basic investment questions a potential investor should answer before investing?
Q3) The net income of the firm is $4 million dollars.The firm will pay $500,000 in dividends to the preferred shareholders.There are currently 1 million shares of common stock outstanding.What are the earnings per share for this firm?
A)$4.00
B)$3.50
C)$4.50
D)$3.00
Q4) The dividend yield is calculated by dividing the dividend by?
A)EPS
B)Book Value
C)Income
D)Market price
Q5) Briefly describe the SWOT analysis.
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Chapter 13: Investing in Bonds and Other Alternatives
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Q1) Which of the following is true regarding fluctuations in the prices of bonds?
A)When interest rates go up,bond prices go up.
B)When interest rates go down,you want to purchase very short-term bonds.
C)As interest rates rise,investors demand a higher return on bonds.
D)all of the above
E)only A and B
Q2) Alice recently bought dozens of collectable Barbie dolls.What ultimately will determine the investment value of Alice's Barbies when she goes to resell them?
A)Its return
B)Its cost
C)Book value
D)Supply and demand
E)None of the above
Q3) Coupon interest is usually paid in quarterly installments.
A)True
B)False
Q4) If you are the owners of a share of preferred stock then you have voting rights.
A)True
B)False
Q5) Provide an explanation of the basic bond terminology and features.
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Q1) Once you open a mutual fund account,you can use EFT to have money directly withdrawn from your bank account to pay yourself first.
A)True
B)False
Q2) Money market mutual funds
A)are very risky investments.
B)require significant investments,so are out of reach of the common investor.
C)carry no loads.
D)None of the above.
E)Both A and B are correct.
Q3) Compare and contrast open-end and closed-end mutual funds.
Q4) What are the two broad types of risks that are associated with investing? Can you avoid them by investing in Mutual Funds?
Q5) When you own shares of a mutual fund,you can choose to have the dividend and capital gains distributions paid directly to you in the form of cash or you can choose to have them reinvested into additional shares of the fund itself.
A)True B)False
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Chapter 15: Retirement Planning
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Q1) Why have employers switched to defined-contribution plans instead of defined-benefits plans for most companies?
A)They remove the financial risk for future pension costs away from the company and pass it on to the employee.
B)The employer doesn't want to do any bookkeeping for the retirement plan.
C)Employers care deeply about what employees eventually receive from their plan.
D)All of the above are correct.
E)Only A and B are correct.
Q2) A defined benefit retirement plan is also known as a/an
A)401 (k)plan.
B)pension plan.
C)403(b)plan.
D)IRA.
Q3) If your employer offers a 401(k)or 403(b)plan,why should you participate?
Q4) 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
Q5) Why is it a wise idea to have 3 retirement plans in place?
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Q1) Estate planning is important because it protects your family against major catastrophes and helps keep taxes to a minimum.
A)True
B)False
Q2) The process of determining what your heirs will receive from your estate occurs in which step of the estate planning process?
A)Step 1
B)Step 2
C)Step 3
D)Step 4
E)Step 5
Q3) Giving assets away as a gift reduces the value of your estate and allows you to help your heirs while you're still alive.
A)True
B)False
Q4) The law allows you to give $25,000 per year tax free in 2017 to as many people as you'd like.
A)True
B)False
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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Q1) Discuss why budgeting is so critical to financial success and what it forces you to do.
Q2) According to your text,which of the following is true regarding employment in today's world?
A)Your history with the company is all that matters.
B)Working at a company for many years ensures that you will keep your job.
C)Reinventing and upgrading your skills is a necessity in today's business world.
D)None of the above.
Q3) Only people 40 years or older should max out their retirement contributions at work.
A)True
B)False
Q4) Estate planning is much less important for married people than for single people.
A)True
B)False
Q5) Women are more likely to have a pension than men.
A)True
B)False
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