Principles of Finance
Textbook Exam Questions
Course Introduction
Principles of Finance introduces students to the foundational concepts and tools essential for understanding the financial mechanisms that drive businesses and economies. The course covers topics such as the time value of money, risk and return, valuation of assets, capital budgeting, financial statement analysis, and the functioning of financial markets. Emphasizing both theory and practical application, students gain insights into decision-making processes regarding investments, financing, and dividends. The course provides a solid groundwork for advanced finance studies and helps students develop analytical skills needed for careers in business, banking, or personal financial management.
Recommended Textbook
Personal Finance Building Your Future 1st Edition by Robert
B. Walker
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Chapter 1: Money Matters: Values, Vision, Mission, and You
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Q1) Income received from investments and savings is called
A) Passive income
B) Financial income
C) Incurred income
D) Non-earned income
Answer: A
Q2) Rebecca has a $400 paycheck.She wants to use the 90-10 rule.How much must she save to achieve this?
A) $340
B) $40
C) $360
D) $50
Answer: B
Q3) Who determines whether you have personal financial success?
A) Wall Street
B) Government
C) Society
D) Yourself
Answer: D
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Page 3
Chapter 2: Time Value of Money
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Sample Questions
Q1) Which best describes compound interest?
A) Interest is added to a deposit
B) Interest is added to your initial deposit and you earn interest on interest
C) You pay double interest
D) You pay two separate interest rates
Answer: B
Q2) Which of the following is the correct formula for computing your annual percentage yield?
A) APY = (1+ r/n)<sup>n</sup> -1
B) APY = (1- r/n)- 1
C) APY = [(1- r)<sup>n</sup>] + 1
D) APY = [(r - n)<sup>r</sup>] - 1
Answer: A
Q3) If you have $3,000 today with a 10% APY,how much will you have one year from now?
A) $3,200
B) $3,300
C) $3,100
D) $3,500
Answer: B
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Page 4
Chapter 3: Planning and Budgeting
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Sample Questions
Q1) Calculate the opportunity cost of one extra year of college if tuition,room and board fees,and spending money is $19,000,and the estimated salary upon graduation is $38,000.
A) $57,000
B) $19,000
C) $38,000
D) $29,000
Answer: A
Q2) What should not be listed in your budget?
A) Fixed monthly expenses
B) Variable monthly expenses
C) Income
D) Extraordinary income
Answer: D
Q3) To create an accurate budget you should
A) Keep a spending journal
B) Use budget templates
C) Discuss budget goals with spouse or housemates
D) All choices are correct
Answer: D
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Chapter 4: Financial Instruments and Institutions
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Sample Questions
Q1) What is a debit card?
A) A card that carries a credit card logo and is tied to a checking account
B) A card known as a bank card or a cash card that does not include a credit card logo
C) A card that has a minimum line of credit
D) A loan card provided by a bank after being approved by a loan officer
Q2) Home equity loans use _________________ as collateral to secure the loan.
A) An automobile
B) A certificate of deposit
C) The value of your 401(k)
D) Your home
Q3) Banks are required by law to send you a statement regarding your checking account.
A)True
B)False
Q4) What is a savings account designed for?
A) Spending money
B) Counting money
C) Saving money
D) Investing money
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Chapter 5: Consumer Credit: Credit Cards and Student Loans
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Sample Questions
Q1) Arbitration is when you will not be held responsible for any charges on your account that are not yours if reported within 60 days of your statement.
A)True
B)False
Q2) The application used to determine financial need is called what?
A) FAFSA
B) SAFSA
C) AFFSA
D) FAASF
Q3) What is the typical interest rate of rent-to-own outlets?
A) 23.99%
B) 99.99%
C) 1,800%
D) 2,000%
Q4) Why can't lenders make interest rates as high as they want?
A) Usury laws
B) Rollover
C) Predatory lending
D) Fair Trading Act
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Chapter 6: Credit Bureau Reports and Identity Theft
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Sample Questions
Q1) Typically,you enter into use of debt during the independent life stage.
A)True
B)False
Q2) What credit score number helps lower the interest rate and speed up credit approval in purchasing a home?
A) 600
B) 500
C) 800
D) 700
Q3) The credit reporting companies provide you an opportunity to post a comment about your account.
A)True
B)False
Q4) Debt is an important tool to tap at different points in your life.
A)True
B)False
Q5) All individuals are subject to identity theft if they have a Social Security number.
A)True
B)False
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Chapter 7: Auto and Home Loans
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Sample Questions
Q1) Calculate the affordable monthly car payment for a person who has a monthly income of $2,185 and who already has $300 worth of debt.
A) $680.00
B) $686.60
C) $486.60
D) $480.00
Q2) What does LTV stand for when buying a home?
A) Lease to value
B) Loan times vestment
C) Loan to value
D) Lowered time value
Q3) What role does a realtor have in brokering the sale of a home?
Q4) Why might you have to pay private mortgage insurance (PMI)?
A) You had more than three traffic violations in the past year
B) You put down less than 20% on your home
C) You live in a high-risk neighborhood
D) You have a history of defaults
Q5) Explain what a home equity loan is.
Q6) When does it make sense to refinance your home?
Q7) Who is protected when PMI is purchased?
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Chapter 8: Debt, Foreclosure, and Bankruptcy
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Sample Questions
Q1) If a lender agrees to new loan terms in an attempt to help a homeowner,and the terms of the new agreement are met,this constitutes a:
A) Foreclosure
B) Reinstatement
C) Forbearance
D) Cramdown
Q2) What is the first step of digging out of debt?
A) Create a realistic budget
B) Make payments on time
C) Stop using credit cards
D) Don't try to buy stuff you can't afford
Q3) The deed-in-lieu of foreclosure forgives the balance of your mortgage and gives the property to the lender.
A)True
B)False
Q4) What debts are not discharged in a Chapter 7 bankruptcy?
Q5) What are some tips for stopping little leaks?
Q6) List the yellow flag warnings that indicate that your spending is out of control and leading to a financial disaster.
10
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Chapter 9: Tax Management
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Sample Questions
Q1) Form 1040EZ is targeted for people who have only wages and a little bank interest income.
A)True
B)False
Q2) How many marginal federal tax rate brackets are there?
A) 5
B) 6
C) 7
D) 9
Q3) Which of the following is not included in a cafeteria plan?
A) Accident benefits
B) Car care
C) Dependent care
D) Adoption assistance
Q4) What is the extra tax paid on top of regular income tax?
A) Gift tax
B) Alternative minimum tax
C) Retirement tax
D) Audit tax
Q5) What are some of the differences between a progressive tax and a regressive tax?
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Chapter 10: Insurance: Covering Your Assets
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Q1) When borrowing money for a vehicle,who is typically the lien holder and loss payee on the insurance?
A) The primary driver of the car
B) The owner as noted on the title of the vehicle
C) The lending financial institution
D) The payer of the insurance
Q2) What is the coverage of a 20/40/15 policy?
A) $20,000 for personal property liability/$40,000 bodily injury liability for all people injured in an accident/$15,000 for additional auto liability
B) $20,000 for personal property liability/$40,000 bodily injury liability for all people injured in an accident/$15,000 car rental rider
C) $20,000 for bodily injury liability for one person in an accident/$40,000 bodily injury liability for all people injured in an accident/$15,000 personal property liability
D) $20,000 for uninsured coverage/$40,000 bodily injury liability for all people injured in an accident/$15,000 personal property liability
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Chapter 11: Investment Basics
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Sample Questions
Q1) Where should Elena put her graduation gift money of $5,000 if she plans to use it to help fund a European trip in four years?
A) In a short-term,safe,insured,guaranteed investment
B) In an index mutual fund
C) In gold or other precious metals
D) Under her mattress
Q2) If you are managing your own portfolio,you need to re-evaluate your investment goals,risk tolerance,portfolio returns,and asset allocation on at least _________________ basis.
A) A monthly
B) An every-other-month
C) An every-6-months
D) An annual
Q3) _________________ is an outlay of money for a profit,where the risk exists that either some or the entire original amount may be lost.
A) An investment
B) Savings
C) Discipline
D) Risk premium
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Page 13
Chapter 12: Mutual Funds
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Q1) A _________________ mutual fund is a fund in which the companies market their funds online (no sales force or financial planners)and do not charge a fee.
A) Front-end load
B) Back-end load
C) No load
D) Exclusive
Q2) Which of the following are among the fund manager's responsibilities?
A) Buy and sell assets
B) Maximize the growth of the fund given the specific investment objective
C) Minimize the losses of the fund
D) All options are correct
Q3) The _________________ the turnover,the more you will pay in transaction fees (incorporated in the expense ratio),and the more you will pay in capital gains when the assets are sold._________________ turnover funds will have lower transaction costs and lower capital gains.
A) Higher; low
B) Lower; high
C) Higher; high
D) Lower; low
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Page 14
Chapter 13: Stocks
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Q1) A _________________ tells the broker to buy or sell stock at the current price.
A) Market order
B) Limit order
C) Stop order
D) Day order
Q2) Even though the process of buying,selling,and evaluating stocks takes a considerable amount of research and time,people are always better off investing in stocks over mutual funds.
A)True
B)False
Q3) The rights of common stock allow you to _________________.
A) Veto the board of directors' vote
B) Attend the annual shareholders meeting
C) Trump the vote of bondholders
D) Receive an SEC annual report
Q4) Explain how dividends work.
Q5) Government officials and investors watch the stock market for signs of how businesses are doing and for a reading on consumer confidence.
A)True
B)False
Page 15
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Chapter 14: Bonds
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Sample Questions
Q1) The higher the rating on the bond,the _________________.
A) Higher the interest rate the issuer has to pay
B) Higher the risk of default on the bond
C) Lower the risk of default on the bond
D) None of the choices are correct; the rating has no effect on the interest rate and does not rate the risk of a bond
Q2) If you expect interest rates to go up,buy _________________.
A) Long-term bonds
B) Short-term bonds
C) Intermediate-term bonds
D) Bond mutual funds
Q3) Bond rating agencies classify bonds based on the _________________.
A) Creditworthiness of the issuer
B) Potential for growth and success of the issuer
C) Personal guarantee of the corporate officers and board of directors
D) Stock value of the corporation
Q4) When TIPS mature,you are paid the adjusted principal or original principal,whichever is greater.
A)True
B)False
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Chapter 15: Real Estate Investments
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Sample Questions
Q1) Which of the following activities can a landlord not do?
A) Ask for a reference
B) Talk to a tenant's previous landlord
C) Run a credit check
D) Be selective about which candidates he or she screens
Q2) What is the ROI on an empty lot purchased for $10,000 that is taxed at a rate of $100/year for five years and then sold for $25,000?
A) 18%
B) 28%
C) 38%
D) 58%
Q3) What are the two types of REITs?
A) Business and personal property
B) Equity and mortgage
C) Equity and home
D) Agriculture and personal property
Q4) How are people able to give away their house to an essay winner and come out better than or equal to selling their home?
Q5) What are the steps to flipping real estate?
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Chapter 16: Retirement and Estate Planning
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Q1) What is a retirement plan that a small business employer or self-employed individual can establish?
A) 401(k)
B) SEP
C) IRA
D) All of the options are correct
Q2) Which of the following is not an example of an individual retirement account?
A) Roth 401(k)plan
B) Traditional IRA
C) Roth IRA
D) Spousal IRA
Q3) When calculating retirement income and Social Security,_________________.
A) Count on Social Security covering your retirement expenses
B) If you have a working spouse,you should both file for Social Security at the same time
C) If you have a working spouse,you should have the spouse with the higher income draw his or her Social Security last
D) If you have a working spouse,you should both file for Social Security as soon as you can while there is still money in the fund
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Chapter 17: Financial Planning for Life
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Sample Questions
Q1) What is the purpose of reviewing your budget monthly?
Q2) Who is in control of your destination?
Q3) When finding a balance with your own financial wellness,which aspect involves eliminating the nonessentials?
A) Minimize
B) Organize
C) Economize
D) Energize
Q4) It is important to prioritize,minimize,organize,and economize things that exhaust you in your life.
A)True
B)False
Q5) To be successful in executing your financial plan,set aside specific times to reassess where you are and where you want to go,such as _________________.
A) Schedule an annual budget review
B) When you complete your taxes,reassess your investments
C) On your birthday and at major life events,review your car,life,and health insurance needs
D) All of the options are correct
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