Principles of Personal Finance Question
Bank
Course Introduction
Principles of Personal Finance introduces students to the foundational concepts of managing personal finances effectively in todays world. The course covers essential topics such as budgeting, saving, banking, credit management, investing, insurance, taxes, and retirement planning. Emphasis is placed on developing practical skills and decision-making strategies to help individuals set financial goals, make informed financial decisions, and build long-term financial security. Through real-life scenarios and case studies, students learn to analyze financial options, understand risk and reward, and adopt responsible spending and saving habits.
Recommended Textbook
Personal Finance An Integrated Planning Approach 8th Edition by Ralph R Frasca
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16 Chapters
1996 Verified Questions
1996 Flashcards
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Page 2
Chapter 1: Financial Planning: Why Its Important to You
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66 Verified Questions
66 Flashcards
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Sample Questions
Q1) An example of diminishing marginal satisfaction is
A)enjoying a second pizza more than the first.
B)enjoying both pizzas equally.
C)enjoying the second pizza less than the first.
D)not enjoying either pizza.
Answer: C
Q2) In a recession,college recruiting is often curtailed sharply.
A)True
B)False
Answer: True
Q3) It is likely that achieving financial goals
A)hinders your effort to achieve non-financial goals.
B)helps your effort to achieve non-financial goals.
C)is burdensome and lowers the quality of life.
D)turns people into cynics.
Answer: B
Q4) Debt planning often involves using debt to even our lifelong consumption.
A)True
B)False
Answer: True
Page 3
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Chapter 2: The Time Value of Money: All Dollars Are Not
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Sample Questions
Q1) The future value of $500 invested at the end of each of the next three years is $1,555 (assuming a 10% interest rate).
A)True
B)False
Answer: False
Q2) If the future value of an ordinary annuity is $8,000,the future value of an annuity due is $7,200 given a 10% interest rate.
A)True
B)False
Answer: False
Q3) A savings schedule with a zero ending balance means that A)annual deposits are sufficient to meet all goals.
B)more savings are needed each year.
C)the most desirable schedule has been determined.
D)some goals will not be achieved.
Answer: A
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4
Chapter 3: Financial Statement and Budgets: Where Are
You Now and Where Are You Going
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115 Verified Questions
115 Flashcards
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Sample Questions
Q1) A loan associated with a margin account is classified as a current liability. A)True
B)False Answer: False
Q2) In order to simplify the record-keeping chores of budgeting,you should use cash to pay bills whenever you can.
A)True
B)False Answer: False
Q3) Stacey has a debt service coverage ratio of 1.15.This tells us that
A)Stacey's debt service charges are 1.15% of her take-home pay.
B)Stacey has virtually no debt to service.
C)Stacey has poor debt-carrying capacity and much of her future income will be required to service past debt.
D)Stacey's debt reserves are only 1.15 times greater than her actual debts.
Answer: C
Q4) Asset values on the balance sheet should reflect their acquisition costs.
A)True
B)False Answer: False
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Chapter 4: Taxes: the Governments Share of Your Rewards
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) A $1 tax deduction reduces your tax liability
A)by $1.
B)by the same amount as a $1 tax credit.
C)by more than a $1 tax credit.
D)by less than a $1 tax credit.
Q2) Mortgage interest is an example of an itemized deduction.
A)True
B)False
Q3) Individuals with above average amounts of mortgage interest,medical expenses and property taxes are likely to
A)take both itemized deductions and the standard deduction.
B)take only the standard deduction.
C)take only itemized deductions.
D)take the alternative minimum tax.
Q4) Harry Starr,a college student,earned $4,000 and claimed one personal exemption.Harry's father still can claim Harry as a dependent and also take the exemption.
A)True B)False
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Chapter 5: Liquidity Management: Managing Current
Assets and Current Liabilities
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Sample Questions
Q1) The principle objective in cash management is to minimize your cash balances while maintaining adequate liquidity.
A)True
B)False
Q2) Which of the following is not a characteristic of certificate of deposit (CDs)?
A)You pay a penalty for early redemption.
B)You "lock in" (are guaranteed)the stated interest if you hold the CD until maturity.
C)They are preferred over money market deposits if you expect interest rates to fall.
D)They have a minimum maturity of three years.
Q3) Ian's records show a cash balance of $2,000 while the bank statement shows a balance of $1,800.The difference is most likely explained by
A)unrecorded interest earned on the account.
B)deposits made after the statement period.
C)checks not cleared during the statement period.
D)a statement period less than one month.
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7
Chapter 6: Short-Term Credit Management: Consumer Credit
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138 Flashcards
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Sample Questions
Q1) A credit card that carries the name of a sponsoring organization is called a(n)
A)affinity card.
B)copyrighted card.
C)trademark card.
D)marketing card.
Q2) Home equity loans have been unpopular because interest on this loan is not tax-deductible.
A)True
B)False
Q3) The Rule of 78 is sometime used to calculate the A)interest refunded on early repayment of a loan.
B)term of the loan.
C)monthly payment on the loan.
D)balloon payment at the end of the loan.
Q4) In applying for credit,you should omit all data having to do with your net worth since lenders may wish to attach it as collateral.
A)True
B)False
Page 8
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Chapter 7: Consumer Durables: the Personal Auto
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Sample Questions
Q1) The Consumer Leasing Act of 1977
A)places a statutory limit on your monthly payments.
B)prohibits open-end leases.
C)requires the leasing company to disclose specific information about the lease in writing.
D)Does all of the above.
Q2) The FTC found that dealer financing was often only an advertising gimmick providing the buyer with no real cost savings.
A)True
B)False
Q3) The Federal Trade Commission has found that low-interest dealer financing
A)usually benefits the consumer.
B)violates federal credit laws.
C)has often been denied single females.
D)is often provided in place of the typical dealer discount.
Q4) The statement,"This is the best buy in town," is an example of
A)a limited warranty.
B)a full warranty.
C)an express warranty.
D)puffery.
Page 9
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Chapter 8: Housing: the Cost of Shelter
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Real estate agents are generally paid a flat predetermined fee.
A)True
B)False
Q2) Additional points on a home mortgage will
A)lower the APR.
B)lower the required earnest money.
C)move interest payments to the front of the mortgage.
D)decrease the required down payment on the home.
Q3) When calculating their tax liability,renters may deduct property taxes paid by the landlord.
A)True
B)False
Q4) The initial contract rate on adjustable-rate loans is typically above that on fixed-rate loans.
A)True B)False
Q5) Loans insured by the FHA are said to be "conventionally" financed.
A)True
B)False
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Chapter 9: Financial Markets and Instruments: Learning the Investment Environment
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117 Verified Questions
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Sample Questions
Q1) If you purchase a stock put,the put allows you to
A)buy stock at a stated price.
B)buy stock at the current market price.
C)sell stock at a stated price.
D)sell stock at the current market price.
Q2) A full-service stockbroker is best distinguished from a discount broker on which of the following characteristics?
I.commissions
II.research
III.range of investment products offered
IV.quality of order execution
A)I only
B)I,II
C)I,II,III
D)I,II,III,IV.
Q3) There is no specific disadvantage in dealing odd lots.
A)True
B)False
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Chapter 10: Investment Basics: Understanding Risk and Return
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Sample Questions
Q1) Financial risk is associated with business firms that borrow heavily to finance their operations.
A)True
B)False
Q2) Comparing a stock's required return (RR)to its expected return (ER),we can say
A)the stock is a good buy when they are equal.
B)that each represents a different concept and,so,they may have quite different values.
C)they are simply different perspectives on the same concept and,so,they should have the same value.
D)the stock is a good buy only when RR is greater than ER.
Q3) Over the period 1970 through 2006,the average annual return on stocks was about 11%.
A)True B)False
Q4) To reduce risk,you should look for assets with highly positively correlated related returns.
A)True B)False
Page 12
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Chapter 11: Stocks and Bonds: Your Most Common Investments
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186 Flashcards
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Sample Questions
Q1) A company's book value is determined by dividing its earnings by the number of shares of common stock outstanding.
A)True
B)False
Q2) A likely example of a growth stock is
A)General Motors.
B)Meadwestvaco.
C)Microsoft.
D)the U.S.Postal Service.
Q3) If ACR's expected total return is 25% and its required rate of return is 20%,you should
A)buy the stock.
B)not buy the stock.
C)buy the stock,but only if its dividend yield is 5% or greater.
D)sell the stock,if you already own it.
Q4) The longer the maturity of a bond,
A)the less its price sensitivity.
B)the lower its coupon rate.
C)the less its price sensitivity and the lower its coupon rate.
D)the greater its price sensitivity.
13
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Chapter 12: Mutual Fundsother Pooling Arrangements:
Simplifying, Maybe Improving Investment Performance
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Sample Questions
Q1) The Redux Fund has issued 500,000 shares to its investors,and it holds 100,000 shares of various companies worth $3 million.Therefore,the fund's NAV is $30 a share.
A)True
B)False
Q2) A fund that attempts to match the overall market's performance is
A)a sector fund.
B)a maximum capital appreciation fund.
C)an index fund.
D)a matching fund.
Q3) Which item below is usually not a characteristic of a limited partnership?
A)They have limited investment appeal.
B)Loss-limitation rules of the tax code do not apply to them.
C)Partnership interests may be difficult to sell.
D)They have poor liquidity.
Q4) A sector fund invests in
A)one industry.
B)one kind of security stocks or bonds.
C)one foreign country,such as Spain.
D)one large company,such as Microsoft.
Page 14
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Chapter 13: Property and Liability Insurance: Protecting Your Lifestyle Assets
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154 Verified Questions
154 Flashcards
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Sample Questions
Q1) You should self-insure against major financial risks. A)True
B)False
Q2) Uninsured motorists' coverage pays only for property damage.
A)True B)False
Q3) Actual cash value is equal to replacement cost minus depreciation.
A)True B)False
Q4) When you keep a fire extinguisher in the kitchen you are engaging in risk avoidance. A)True B)False
Q5) Underinsured motorists' coverage protects you when the at-fault motorist has inadequate coverage.
A)True B)False
Q6) Homeowners' insurance only covers owners of homes.It does not cover renters. A)True B)False
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Chapter 14: Health Care and Disability Insurance: Protecting Your Earning Capacity
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) The waiting period for health care insurance is the period between
A)when you apply for membership and when you are admitted into the plan.
B)when you pay your first premium and your plan coverage begins.
C)when you enter an insurance plan and when the costs of a pre-existing illness are covered.
D)when you incur a medical expense and you receive reimbursement for the expense.
Q2) Dental insurance generally covers
A)only dental surgery.
B)the cost of preventive care with co-insurance on nonroutine dental work.
C)all dental care with little or no deductibles.
D)only nonpreventive dental care such as filling cavities.
Q3) Only those with dependents need disability income protection.
A)True
B)False
Q4) You are more likely to receive private disability benefits than Social Security disability benefits for a given illness or injury.
A)True
B)False
Page 16
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Chapter 15: Life Insurance and Estate Planning: Protecting Your Dependents
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) A guaranteed insurability rider
A)allows you to increase the face amount of the insurance policy without an additional medical examination.
B)allows you to increase the face amount of insurance protection if you pass an additional medical examination.
C)allows you to extend your current coverage without a medical examination.
D)allows you to extend your current coverage at the same premium.However,a medical examination may be required.
Q2) A contingent beneficiary
A)will always share in the insurance pay-out.
B)will share in the insurance pay-out only if he or she satisfies certain conditions set out in the will.
C)will share in the insurance pay-out only if the primary beneficiary is not alive.
D)will share in the insurance pay-out only if the primary and secondary beneficiaries are not alive.
Q3) Only the grantor of a trust can change the terms of an irrevocable trust.
A)True
B)False
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Chapter 16: Retirement Planning: Planning for Your
Long-Term Needs
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Sample Questions
Q1) When deciding how much to save for your retirement years the author suggests you A)save as much as you possibly can because the future is highly uncertain.
B)first take care of your present needs,because the future has a way of taking care of itself.
C)consult a professional planner to find out how much you must presently save.
D)carefully weigh the marginal benefit of an additional dollars worth of present consumption versus the marginal benefit of an additional dollars worth of consumption in your retirement years.
Q2) Social Security normal retirement age is set to increase for future retirees.
A)True
B)False
Q3) In the 28% marginal tax bracket,a $1,000 tax-deductible contribution to a pension account will reduce your taxes in the year of the contribution by A)$0.
B)$280.
C)$720.
D)$1,000.
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Page 18