Principles of Finance
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Course
Introduction
Principles of Finance introduces students to the foundational concepts and tools used in financial management and decision-making within organizations. Topics covered include the time value of money, risk and return analysis, valuation of stocks and bonds, capital budgeting, and the fundamentals of financial markets and institutions. The course emphasizes practical applications, enabling students to analyze financial statements, assess investment opportunities, and understand how financial managers create value for stakeholders. This knowledge is essential for anyone seeking a career in finance, business, or related fields.
Recommended Textbook
Personal Finance 4 4th Edition by Lawrence J. Gitman
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15 Chapters
2587 Verified Questions
2587 Flashcards
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Page 2
Chapter 1: Understanding the Financial Planning Process
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Sample Questions
Q1) Sam and Lele are in their late 20s with 3 young children.Their most important financial planning concerns would probably include all of the following except:
A) asset acquisition planning.
B) liability and insurance planning.
C) retirement and estate planning.
D) savings and investment planning.
E) employee benefit planning.
Answer: C
Q2) Mutual funds are examples of financial assets.
A)True
B)False
Answer: True
Q3) Most people graduate from college with [no | some] debts. Answer: B
Q4) The government employs monetary and fiscal policy to ensure the economy always remains stable.
A)True
B)False Answer: False
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Chapter 2: Using Financial Statements and Budgets
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174 Flashcards
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Sample Questions
Q1) Balance sheets and income statements are most useful if prepared at least annually.
A)True
B)False
Answer: True
Q2) When your liabilities exceed your assets,you are [solvent | insolvent].
Answer: B
Q3) If your liquid assets equal $50,000 and your current debts equal $15,000; your liquidity ratio is:
A) 30%.
B) 70%.
C) 143%.
D) 233%.
E) 333%.
Answer: A
Q4) A [house | certificate of deposit] is an example of a tangible asset.
Answer: A
Q5) A [savings account | retirement account] would be an example of a liquid asset. Answer: A
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Chapter 3: Preparing Your Taxes
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Sample Questions
Q1) Jamil and Vicki have one child,age 3,for which they paid $2,500 in child care expenses this year.If they are eligible for the 20% dependent care credit plus the child tax credit,how much will these two credits reduce their tax liability?
A) $ 500
B) $1,500
C) $2,000
D) $2,500
E) $3,000
Answer: B
Q2) A simplified version of the 1040 form for individual income tax if you have taxable income of less than $100,000 and no itemizing deductions is:
A) Schedule A.
B) Schedule B.
C) 1040S.
D) 1040A.
E) 1040EZ.
Answer: D
Q3) [Alimony | Child support] would be reported as taxable income.
Answer: A
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Page 5
Chapter 4: Managing Your Cash and Savings
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Sample Questions
Q1) The financial services industry continues to evolve because of advanced technology. A)True
B)False
Q2) At maturity,a deposit of $6,000 in certificates of deposit (CD)for 10 years at 3% will be worth: (Select the closest answer)
A) $7,340.
B) $7,800.
C) $8,060.
D) $8,678.
E) $9,005.
Q3) A check you issued last week has been stolen.You can prevent it from being withdrawn from your account by an unauthorized person by:
A) writing a new check.
B) depositing the correct amount of money.
C) requesting a stop payment.
D) tearing up the check.
E) properly endorsing the check.
Q4) Money market deposit accounts [are | are not] federally insured.
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Chapter 5: Making Automobile and Housing Decisions
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Sample Questions
Q1) The purchase price of the house you are buying is $140,000.A loan-to-value ratio of 80% will require a down payment of [$34,000 | $28,000].
Q2) Dick and Jane (and their dog Spot)have just purchased a house and are calculating how much money they will need when the closing day rolls around.The purchase price is $200,000.They will make a 20% down payment,and they must pay 2 points on the loan.Closing costs should be 3% of the purchase price.What is the total dollar amount they will need at closing?
Q3) A loan-to-value ratio of 90 percent would require a buyer to make a 90% down payment.
A)True
B)False
Q4) You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
A)True
B)False
Q5) The "rent ratio" has fallen as home prices have fallen.
A)True
B)False
Q6) The term condominium/townhome refers to a type of [architecture | ownership].
Page 7
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Chapter 6: Using Credit
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Sample Questions
Q1) Using credit is the ideal way to provide for financial emergencies.
A)True
B)False
Q2) The decision whether or not to grant you credit will be made by [individual creditors | the credit bureau].
Q3) The key to credit worthiness is to keep your debt safety ratio as high as possible.
A)True
B)False
Q4) When canceling a credit card,you should cut up the card and _____ that you are canceling your account.
A) inform the issuer in writing
B) call the issuer and tell them
C) inform the credit bureau in writing
D) call the credit bureau and tell them
E) all of the above
Q5) Chapter 7 bankruptcies remain in your credit file for 12 years.
A)True B)False
Q6) An improper use of extended credit would be to buy [a car | nondurable goods].
Page 8
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Chapter 7: Using Consumer Loans
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Sample Questions
Q1) The best loan rates for consumer loans are usually from [savings and loan associations | consumer finance companies].
Q2) There is a limit on the [number | dollar amount] of student loans you can have.
Q3) The best loan rates for consumer loans are from consumer finance companies.
A)True
B)False
Q4) If you borrow money on a single-payment loan and discover you cannot pay it back when it is due you should:
A) let the payment become past due.
B) consolidate the loan.
C) pay prepayment penalty.
D) negotiate a rollover.
E) file bankruptcy.
Q5) Which of the following is to be taken into account before considering a student loan? A) Grants
B) Federal student aid
C) Scholarships
D) Personal resources
E) All of the above
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Chapter 8: Insuring Your Life
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Sample Questions
Q1) With traditional universal life policies sold by an agent,it can be difficult to evaluate true cost at time of purchase as the insurance carrier may levy costly fees and charges.
A)True
B)False
Q2) Nonforfeiture rights guarantee that a policy owner will not lose his or her _____.
A) face value.
B) death benefits for survivors.
C) cash value.
D) premium refunds.
E) premium reductions.
Q3) You can learn about the financial strength of an insurance company by checking Best's Insurance Reports and [the SEC | Standard and Poor's] rating system.
Q4) An activity that reduces the chance that a loss will occur is [risk shifting | loss prevention].
Q5) The [lump sum | life income] settlement option is the most commonly selected option.
Q6) If a loss is certain to occur,there is [a | no] risk.
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Page 10
Chapter 9: Insuring Your Health
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Sample Questions
Q1) All Americans are required to have or buy health insurance in 2014 or pay a penalty.
A)True
B)False
Q2) Eating healthy and exercising is an acceptable substitute for comprehensive health care coverage.
A)True
B)False
Q3) Medicare Advantage policies require payment from the policyholder in the form of a(n):
A) deductible.
B) co-insurance.
C) co-payment.
D) excess charge.
E) a and b
Q4) Disability income benefits under social security are automatically adjusted periodically for cost of living increases.
A)True
B)False
Q5) Long-term care [does | does not] have a deductible.
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Chapter 10: Protecting Your Property
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Sample Questions
Q1) Tom visits George at his ranch.Although a novice on horseback,Tom decides to join George in a morning ride.George recommends that Tom ride an unbroken stallion named Satan.While mounting Satan,Tom is thrown headlong through the windshield of Tom's car.The damage to the car is $2,000 and Tom's own insurance pays him $1,500 ($500 deductible).Under what principle could Tom's insurance company sue George for his negligence?
A) Adhesion
B) Indemnity
C) Estoppel
D) Subrogation
E) Misrepresentation
Q2) Umbrella liability insurance is more likely to be needed by [higher | lower] income persons.
Q3) Replacement cost and actual cash value are the same thing.
A)True
B)False
Q4) The most common definition of actual cash value is purchase price less depreciation.
A)True
B)False
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Chapter 11: Investment Planning
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Sample Questions
Q1) There are 50 shares in a round lot.
A)True
B)False
Q2) An essential ingredient of an effective investment strategy is:
A) enough money to diversify.
B) a good broker.
C) blue-chip stock selections.
D) high-income securities.
E) a bull market.
Q3) The owner of a bond would expect to receive [steady | variable] annual income.
Q4) The [primary | secondary] market is where new securities are sold to the public.
Q5) The smallest round lot of stocks quoted at 23.25 would cost you (ignoring commissions):
A) $ 23.25.
B) $ 232.50.
C) $ 2,325.00.
D) $ 23,250.00.
E) none of these
Q6) The [bid | ask] price for a stock on the OTC market represents the price you would receive when you sell the stock.
Page 13
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Chapter 12: Investing in Stocks and Bonds
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Sample Questions
Q1) Calculate the earnings per share of a company with the following information?
Q2) When a bond is sold between coupon payment dates,the [buyer pays the seller | seller pays the buyer] for the accrued interest.
Q3) When cash dividends on stock are paid,but the stockholder has these dividends automatically reinvested,what are the federal income tax implications?
A) Taxes must be paid in the year the dividends are paid at ordinary income tax rates.
B) Taxes must be paid in the year the dividends are paid at long-term capital gains rates.
C) Taxes must be paid,but not until the stockholder sells the stock that was purchased through the dividend reinvestment plan.
D) Taxes do not have to be paid on these dividends ever.
E) Either a or c -- it is up to the investor to make the choice.
Q4) A beta of more than one would be expected of a speculative stock.
A)True
B)False
Q5) [General obligation bonds | Revenue bonds] are the least risky municipal bond category.
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Page 14
Chapter 13: Investing in Mutual Funds
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Sample Questions
Q1) Advantages of exchange traded funds over mutual funds include all of the following except:
A) narrow geographic region.
B) single foreign countries.
C) better diversification.
D) industry focus.
E) sector focus.
Q2) Aggressive growth funds typically buy stocks with high PE ratios and stocks with volatile price fluctuations.
A)True
B)False
Q3) Loads are transaction charges for mutual funds.
A)True
B)False
Q4) The [custodian | investment advisor] buys and sells the stocks or bonds and otherwise oversees the portfolio.
Q5) Bond mutual funds are always less risky than stock mutual funds. A)True
B)False
Q6) Mutual funds must value their securities [monthly | daily].
Page 15
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Chapter 14: Planning for Retirement
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Sample Questions
Q1) Once you begin drawing Social Security benefits,you will receive a fixed level of income for the remainder of your life.
A)True
B)False
Q2) Eligibility requirements for pension and retirement plans are typically determined by the employee's age and years of service.
A)True
B)False
Q3) The two most common sources of retirement income for most people are Social Security and pensions.
A)True
B)False
Q4) Of the following survivors of a fully insured worker,_____ would not be eligible for Social Security benefits.
A) spouse age 50,with dependent children
B) spouse age 47,no children
C) spouse age 65,with dependent children
D) spouse age 65,no children
E) spouse age 26,with dependent children
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Chapter 15: Preserving Your Estate
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Sample Questions
Q1) A codicil is a legal method of modifying a will.
A)True
B)False
Q2) Which of the following are requirements of a valid will?
A) Mental capacity
B) Freedom of choice
C) Proper execution
D) All of the above
E) None of the above
Q3) When Jessica gets a divorce,her will leaving everything to her former husband usually will be [nullified | still valid] in most states.
Q4) Updating an estate plan is a critical part of the estate planning process.
A)True
B)False
Q5) Probate property includes only real property.
A)True
B)False
Q6) A letter of last instruction [is | is not] a legally enforceable document.
Q7) If a gift tax has to be paid,the [giver | recipient] of the gift will pay it.
Q8) Legal title to the property in a trust is held by the [grantor | trustee].
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