Principles of Personal Finance
Question Bank
Course Introduction
Principles of Personal Finance is a foundational course designed to equip students with essential knowledge and skills to effectively manage their personal finances. The course covers key topics such as budgeting, saving, credit management, investing, insurance, taxes, and retirement planning. Students will learn how to make informed financial decisions, set realistic financial goals, and develop strategies for building and maintaining financial security throughout various life stages. Emphasis is placed on practical applications, ethical considerations, and understanding the impact of economic factors on personal financial choices. This course aims to foster financial literacy and empower students to achieve long-term financial well-being.
Recommended Textbook
Personal Finance 10th Edition by Jack R. Kapoor
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Chapter 1: Personal Finance Basics and the Time Value of Money
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Sample Questions
Q1) Higher inflation usually results in lower interest rates.
A)True
B)False
Answer: False
Q2) Time value of money refers to changes in consumer spending when inflation occurs. A)True
B)False
Answer: False
Q3) The financial planning process concludes with efforts to:
A)develop financial goals.
B)create a financial plan of action.
C)analyze your current personal and financial situation.
D)review the financial plan.
E)review and revise your actions.
Answer: E
Q4) Inflation reduces the buying power of money.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Financial Aspects of Career Planning
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Q1) Kyle Burroughs has purchased a suit and has interviewed with three companies through the career placement center at his university.He was surprised by some of the questions asked and does not feel he answered them well.He has developed some answers that he feels are better answers and better reflects his abilities and aptitudes.Which step in the career planning process has Kyle completed?
A)assess and research personal goals and abilities.
B)evaluate the employment market to identify specific employment opportunities.
C)develop a resume and cover letter to apply for specific positions.
D)interview for specific positions and assess the interview performance.
E)evaluate financial and other factors of positions offered.
Answer: D
Q2) Which of the following is the point at which retirement contributions made on your behalf by the company belong to you even if you no longer work for the company?
A)networking
B)vesting
C)a tax deferred benefit
D)a tax exempt benefit
E)break even
Answer: B
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Page 4
Chapter 3: Money Management Strategy: Financial
Statements and Budgeting
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Q1) Katherine Kocher has determined the following information about her own financial situation.Her checking account is worth $850 and her savings account is worth $1,200.She owns her own home that has a market value of $98,000.She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300.She has a car worth $12,500.She has recently purchased a 2-year certificate of deposit worth $5,500 and she has a retirement account worth $38,550.What is the value of her investment assets?
A)$2,050
B)$98,000
C)$27,800
D)$44,050
E)$171,900
Answer: D
Q2) What types of financial records and documents should be kept in a safe deposit box?
Answer: Answers will vary
Q3) Definite financial obligations are referred to as variable expenses.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Planning Your Tax Strategy
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Sample Questions
Q1) Mike Hansen has adjusted gross income of $28,000.During the year,Mike decided he needed a larger home.He purchased a home on a golf course in the same town as his first home.Mike incurred $7,500 in moving expenses.How much of this can he deduct from adjusted gross income?
A)$7,500
B)$6,340
C)$3,750
D)$750
E)$0
Q2) Which one of the following people is least likely to have to file a federal income tax return?
A)a U.S.citizen who is a resident of Puerto Rico
B)a U.S.citizen living and working in a foreign country
C)a person earning less than $9,000
D)a person over age 65
E)a college student
Q3) An office audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return.
A)True
B)False
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Chapter 5: Financial Services: Savings Plans and Payment Accounts
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Sample Questions
Q1) A endorsement is especially useful when you are depositing checks.
A)blank
B)restrictive
C)common
D)special
E)documented
Q2) A savings account earns 4 percent.If the saver is in a 28 percent tax bracket,the after-tax savings rate of return would be ____ percent.
A)28.00
B)16.72
C)4.00
D)2.88
E)1.12
Q3) The rate of return on a savings account is also referred to as:
A)liquidity.
B)compounding.
C)yield.
D)opportunity cost.
E)asset turnover.
Q4) What are the main types of financial institutions used by consumers?
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Chapter 6: Introduction to Consumer Credit
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Sample Questions
Q1) Credit when effectively used,can help you have more and enjoy more.
A)True
B)False
Q2) What can you do if your identity is stolen?
Q3) If you have declared personal bankruptcy,that fact may be reported by credit bureaus for ____________ years.
A)5
B)10
C)15
D)20
E)25
Q4) Which federal law allows consumers to withhold payment for faulty or defective goods or services (within certain limitations)when purchased with a credit card?
A)Truth in Lending Act
B)Fair Credit Reporting Act
C)Fair Credit Billing Act
D)Equal Credit Opportunity Act
E)Fair Debt Collection Practices Act
Q5) What are the three most common types of closed-end credit?
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Chapter 7: Choosing a Source of Credit: The Costs of Credit
Alternatives
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Sample Questions
Q1) Membership in credit unions has been:
A)growing steadily.
B)declining gradually.
C)statiC.
D)restricted by the Tax Reform Act of 1986.
E)restricted by state laws.
Q2) In a straight bankruptcy,many,but not all,debts are forgiven.
A)True
B)False
Q3) Chapter 7 bankruptcy is also known as straight bankruptcy.
A)True
B)False
Q4) A person filing for relief under the bankruptcy code is called a bankrupt,not a debtor. A)True
B)False
Q5) The annual percentage rate is the percentage cost of credit on a yearly basis. A)True
B)False
Q6) Explain choices available in declaring bankruptcy.
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Chapter 8: Consumer Purchasing Strategies and Legal Protection
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Q1) Representation by a lawyer is usually required in small claims court.
A)True
B)False
Q2) Brad Hayden has a piece of paper that guarantees the conditions,under which he can return,replace,or repair an item that he has purchased.What is it he most likely has?
A)coupon
B)rebate
C)warranty
D)rain check
E)class action suit
Q3) Most consumer complaints are resolved by:
A)legal action.
B)assistance from a government agency.
C)contacting a company's headquarters.
D)returning to the place of purchase.
E)obtaining help from an action linE.
Q4) What are the main sources of consumer information?
Q5) What legal actions are available when assistance is needed to resolve a consumer problem?
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Chapter 9: The Housing Decision: Factors and Finances
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Q1) A deed is the document that transfers ownership of the property from one person to another.
A)True
B)False
Q2) Explain what amortization is and how a down payment and loan duration impact it.
Q3) Noelle and Larry have decided to perform the landscaping of their new home by themselves.They also plan to take a do-it-yourself class at a local home store so they can replace the tile in the master bathroom without using a contractor.The effect of performing these tasks themselves will result in an increase in their:
A)principal.
B)contingencies.
C)escrow account.
D)sweat equity.
E)buy-down.
Q4) The purpose of a rate cap in an adjustable rate mortgage is to limit the amount by which the interest rate can vary.
A)True
B)False
Q5) What factors influence the type of housing a family will select?
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Chapter 10: Property and Motor Vehicle Insurance
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Q1) William Bennett owns a home in Oviedo,Florida.There was a fire in his home and he and his family had to move to a motel until his home could be fixed.What part of his homeowner's insurance policy would cover the cost of the motel?
A)buildings and other structures
B)additional living expenses
C)personal property
D)personal liability
E)specialized coverage
Q2) Tara Guest owns a home in Edmond,Oklahoma.She is worried about a tornado causing damage to her home.The tornado is an example of a:
A)peril.
B)hazard.
C)risk.
D)premium.
E)liability.
Q3) Self-insurance is the process of establishing a monetary fund that can be used to cover the cost of a loss.
A)True
B)False
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Page 12
Chapter 11: Health, Disability, and Long-Term Care Insurance
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Q1) Which type of health insurance pays for physician's care that does not involve surgery?
A)surgical expense
B)hospital expense
C)physician's expense
D)long-term care
E)Medicare Part B
Q2) Medicaid is administered by each state within certain broad federal requirements and guidelines.
A)True
B)False
Q3) Which type of insurance is usually bought in combination with hospital and surgical insurance?
A)disability income
B)comprehensive major medical
C)umbrella
D)hospital indemnity
E)physician's expense
Q4) What is disability income insurance? What are the major sources of disability income insurance?
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Chapter 12: Life Insurance
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Q1) Industrial life insurance is the most popular form of insurance today.
A)True
B)False
Q2) An annuity is a financial contract written by an insurance company to provide you with a regular income.
A)True
B)False
Q3) Subject to certain minimums,which life insurance is designed to let you pay premiums at any time in virtually any amount?
A)whole life
B)ordinary life
C)universal life
D)adjustable life
E)variable life
Q4) The DINK method assumes that:
A)you have only two children.
B)your spouse does not work.
C)your insurance needs are complex.
D)your spouse will continue to work after your death.
E)your spouse is in an occupation with an uncertain futurE.
Page 14
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Chapter 13: Investing Fundamentals
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Q1) Which one of the following is a true statement?
A)Professional management is an especially important factor for investors purchasing a mutual fund.
B)The only reason investors purchase mutual funds is interest rate risk.
C)With mutual funds may experience loss,your original investment is guaranteed.
D)Mutual funds are all designed to appeal to conservative investors with no investment goals.
E)Professional market timers will always choose the right mutual fund for a particular individual.
Q2) Garrett Jennings is thinking about buying an investment that represents the most basic form of business ownership and pays a dividend.The dividend on this investment is paid after all other payments and dividends have been made.Which investment is Garrett thinking about purchasing?
A)common stock
B)preferred stock
C)corporate bond
D)option
E)mutual fund
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Chapter 14: Investing in Stocks
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Sample Questions
Q1) ABC Corporation has assets that total $12 million and liabilities that total $4 million.It also has 500,000 shares of stock outstanding.What is the ABC's book value per share?
A)$32
B)$24
C)$16
D)$8
E)$0
Q2) The Arnold Fertilizer Company's stock is selling for $55 in the market and its earnings per share is $5.The company is projected to grow at a rate of 22% over the next year.What is this company's price/earnings to growth (PEG)ratio?
A)11.00
B)9.09
C)0.50
D)50.00
E)22.73
Q3) A blue-chip stock is too speculative for most investors.
A)True
B)False
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Chapter 15: Investing in Bonds
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Q1) A corporate bond that is secured by various assets of the issuing firm is called a(n)____________ bond.
A)debenture
B)mortgage
C)indenture
D)preemptive
E)treasury
Q2) What is the approximate market value of a $1,000 corporate bond that pays 8 percent interest when comparable bonds are paying 9 percent interest?
A)$80
B)$90
C)$889
D)$1,000
E)$1,125
Q3) Bond interest payments are a tax-deductible business expense.
A)True
B)False
Q4) How do interest rates in the economy affect the price of a corporate bond?
Q5) In what ways can a bond investor make money?
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Chapter 16: Investing in Mutual Funds
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Q1) When an investor purchases shares in a load fund,the average sales charge is usually between ____________ percent.
A)0.5 to 2
B)1 and 3
C)3 and 5
D)5 and 7
E)4 and 6
Q2) In a newspaper quotation,NAV stands for "not accessible value."
A)True
B)False
Q3) Which one of the following publications does not provide readers with information about mutual funds?
A)Business Week
B)Current Business Survey
C)Forbes
D)Kiplinger's Personal Finance Magazine
E)Money
Q4) Why do investors purchase mutual funds instead of purchasing stocks,bonds,or other investments on their own?
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Chapter 17: Investing in Real Estate and Other Investment
Alternatives
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Q1) Presently you are required to use which method of depreciation in real estate investments?
A)sum-of-the-digits
B)straight-line
C)rule of 78s
D)Last In First Out (LIFO)
E)First in First Out (FIFO)
Q2) Financial leverage is a disadvantage when property values and incomes are rising.
A)True
B)False
Q3) One needs at least $25,000 to indirectly invest in participation certificates.
A)True
B)False
Q4) Which of the following is a possible disadvantage of real estate investments?
A)lack of involvement in property maintenance
B)hedge against inflation
C)illiquidity
D)lack of financial risk
E)capital requirements for total venture may be high
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Chapter 18: Starting Early: Retirement Planning
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Q1) In a Roth IRA,contributions are not tax-deductible,but earnings can accumulate tax free.
A)True
B)False
Q2) It is vital to engage in basic retirement planning activities throughout your working years.
A)True
B)False
Q3) When a lender uses your house as collateral to buy an annuity for you from a life insurance company,it is called:
A)an obverse annuity mortgage.
B)a reverse annuity mortgage.
C)mortgage life insurance.
D)a level-premium annuity.
E)whole life insurancE.
Q4) Most people can qualify for reduced Social Security retirement benefits at age 62. A)True
B)False
Q5) What are the possible sources of income for retirees?
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Chapter 19: Estate Planning
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Q1) Gary Ruhle has assets worth $2,400,000.Since he plans to travel and does not want to oversee these assets,he has created a legal arrangement so tee assets can be managed by an officer of his local bank.What type of legal arrangement has he most likely made?
A)guardianship
B)statutory will
C)trust agreement
D)living will
E)letter of instruction
Q2) Which of the following is true if you are an unmarried couple?
A)A partner has the same legal rights as a spouse.
B)Unmarried couples can use the marital deduction.
C)Unmarried couples have less need for estate planning than married couples.
D)Unmarried couples face formidable retirement and estate planning challenges.
E)All of the other answers are true about unmarried couples.
Q3) Estate planning is a definite plan for the administration and disposition of one's property during one's lifetime and at one's death.
A)True
B)False
Q4) What are some common reasons for setting up a trust?
Page 21
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