Principles of Personal Finance Test Questions
Course Introduction
Principles of Personal Finance provides an introduction to the fundamental concepts and strategies necessary for effective management of personal financial resources. The course covers topics such as budgeting, saving, credit and debt management, investing, insurance, taxation, and retirement planning. Students will learn how to set financial goals, make informed financial decisions, and understand the impact of financial choices on long-term financial well-being. Emphasis is placed on developing practical skills and habits that promote financial responsibility and security throughout various stages of life.
Recommended Textbook
Personal Finance 8th Edition by Arthur J. Keown
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17 Chapters
2679 Verified Questions
2679 Flashcards
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Page 2
Chapter 1: The Financial Planning Process
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110 Flashcards
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Sample Questions
Q1) A study conducted by the Society for Human Research Management found what percent of U.S.companies run credit background checks on potential employees.
A)66%
B)15%
C)47%
D)32%
Answer: C
Q2) The amount of current income that you earn today isn't relevant to setting your long term goals for the future.
A)True
B)False
Answer: False
Q3) During which stage of the financial life cycle do many people make their biggest investment,the purchase of a home?
A)Stage 1: wealth accumulation
B)Stage 2: the golden years
C)Stage 3: the retirement years
D)Stage 4: the formative years
Answer: A
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Page 3
Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) According to the Keown book,Mint and Level Money are two of the best smartphone apps for tracking your spending and setting up a budget.
A)True
B)False
Answer: True
Q2) Jorge has a debt ratio of 37 percent and Jose has a ratio of 102 percent.They both have the same take-home pay every month.How can we describe their current financial situation?
A)Jorge is currently solvent.
B)Jose is currently insolvent.
C)Jorge probably has more money available to enjoy every month.
D)Jose probably doesn't have much money available to enjoy every month.
E)All of the above
Answer: E
Q3) Which of the following is not a type of Long-Term Debt?
A)Car loans
B)Credit card debt
C)Student Loans
D)Home Loans
Answer: B
Page 4
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Chapter 3: Understanding and Appreciating the Time Value of Money
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Sample Questions
Q1) When a loan is paid off in equal installments,this is called a(n)________ loan.
A)amortized
B)discounted
C)balloon
D)reverse annuity
E)none of the above
Answer: A
Q2) If your bank pays you interest in the form of an annual rate of return of 10% over each of the next five years,how much will your balance be if you make annual deposits of $400?
A)$2,248.37
B)$2,644.20
C)$2,516.31
D)$2,442.04
Answer: D
Q3) The future value of a current investment earning a positive rate of return is always greater than the present value of the investment.
A)True
B)False
Answer: True
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Chapter 4: Tax Planning and Strategies
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Sample Questions
Q1) Which of the following tax planning strategies could Joseph consider to reduce his future tax bills?
A)Carefully track and maintain records for all itemized deduction categories to insure he is maximizing his itemized deductions.
B)Establish a home equity credit line to finance other consumer credit,such as an auto purchase.
C)Contribute as much as possible to a tax-deferred retirement account,such as his 401(k).
D)Invest in municipal bonds to receive tax-exempt income.
E)All of the above would be strategies available to Joseph to reduce his future taxes.
Q2) Elizabeth currently makes $45,000 per year and is in a 25% tax bracket.If she contributes $2,400 to her 401(k)plan at work,by how much will this lower her taxable income?
A)$7,500
B)$600
C)$2,400
D)$11,250
Q3) What are the five general tax strategies in tax planning?
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Chapter 5: Cash or Liquid Asset Management
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121 Flashcards
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Sample Questions
Q1) How do you compare cash management alternatives to determine which is best for you?
A)Compare returns using comparable interest rates.
B)Take into account their tax status.
C)Consider their safety or risk.
D)All of the above are correct.
Q2) List three cash management resources that are used to electronically transfer money.
Q3) You are considering an MMMF.The fund is taxable and pays 8.5% interest.If your top federal tax bracket is 25% and you live in a state that doesn't impose income taxes,what after-tax return would you realize from this investment?
A)6.38%
B)2.13%
C)7.44%
D)8.25%
Q4) Which of the following characteristics apply to liquid assets?
A)They are characterized by low returns.
B)They involve low risk.
C)The temptation to spend is greater.
D)All of the above are correct.
Page 7
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Chapter 6: Using Credit Cards: the Role of Open Credit
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Sample Questions
Q1) Credit card companies send out a whopping 6 billion credit card offers annually-roughly 60 offers per U.S.household!
A)True
B)False
Q2) There is no cash advance fee when you use your credit card at an ATM machine.
A)True
B)False
Q3) Jessica always thought the grace-period feature of her credit card was a wonderful idea because her charges were interest-free during the grace period.After taking Dr.Art Keown's personal finance course,she learned this startling truth about grace periods.
A)Grace periods are actually beneficial to the credit card company.
B)There are higher fees associated with grace periods.
C)Most banks eliminate their grace period on new purchases if you don't pay your balance in full.
D)All credit cards carry a grace period.
Q4) Cash advances generally require an upfront fee of 4 to 6 percent of the amount advanced.
A)True
B)False
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Chapter 7: Student and Consumer Loans: the Role of Planned Borrowing
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Unsecured loans are generally less risky to lenders than secured loans.Therefore secured loans typically charge a higher APR than unsecured loans.
A)True
B)False
Q2) Variable-rate loans
A)usually have rate caps that prevent them from varying too much.
B)always adjust every month.
C)are never a better option than fixed-rate loans.
D)all of the above.
Q3) Debt consolidation loans are very appealing because
A)they offer liquidation to those who are in good standing with their creditors.
B)they offer hope to those who can't keep up with their current payment schedules.
C)they offer relinquishment of all debts and financial obligations to those who can't keep up with their current payment schedules.
D)all of the above
Q4) Defaulting on a secured loan may lead to the collateral being repossessed.
A)True
B)False
Page 9
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) August's gross monthly income is $4,600.If according to the rule of 36 he can afford a maximum PITI of $1,125,what must his monthly consumer credit debt be?
A)$531
B)$163
C)$417
D)$383
Q2) A ________ typically originates mortgage loans with funds from other investors,such as pension funds.
A)mortgage banker
B)mortgage broker
C)mortgagee
D)mortgagor
E)none of the above
Q3) ________ is a publication that provides unbiased ratings and recommendations for a host of products and services.
A)USA Consumer
B)Consumer Reports
C)People Magazine
D)Bloomberg Weekly
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Page 10
Chapter 9: Life and Health Insurance
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Sample Questions
Q1) Sylvester and JoAnn have both been laid off work during the last year and are now very poor.They found out that needy families can receive medical benefits through Medicaid.In addition,JoAnn found out that Medicaid can be used
A)by the aged.
B)by the blind.
C)by disabled persons.
D)for Medicare premiums,deductibles,and co-payments.
E)all of the above.
Q2) Your agent argues in favor of cash-value life insurance.You counteract with term to
A)have a larger policy and keep things simple.
B)enjoy a relatively low cost per each $1,000 of coverage.
C)have a lot of insurance at affordable prices when you need it the most.
D)save the difference you would pay,invest it,and come out ahead.
E)all of the above.
Q3) Using the earnings multiple approach is determining the present value of an annuity as a means to determine the face value of the insurance policy one needs to purchase.
A)True
B)False
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Chapter 10: Property and Liability Insurance
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) Your apartment building burned down while you were on vacation.Fortunately,you have renter's insurance.What will your policy cover?
A)Any damages to the building structure
B)Your neighbor's personal property
C)Your hotel and additional expenses based on a percentage of your property coverage
D)All of the above are correct.
E)None of the above are correct.
Q2) Supplemental coverage for homeowner's insurance is available through endorsements.Which one of the following is not a common form of additional coverage?
A)Personal articles floaters
B)Earthquake coverage
C)Flood protection
D)Medical payments
E)Inflation guard
Q3) List the most common automobile insurance discounts.
Q4) Briefly describe the most common automobile insurance discounts.
Q5) Pretend you are an insurance agent.Explain the coinsurance and 80 percent rule to a client.
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Chapter 11: Investment Basics
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325 Flashcards
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Sample Questions
Q1) A ________ is an order that specifies a securities trade is to be made only at a certain price or better.
A)day order
B)market order
C)limit order
D)GTC order
E)none of the above
Q2) Much of the day-to-day regulation of the market is left to the securities industry and is performed by the exchanges and the
A)SRC.
B)FDIC.
C)OTC.
D)SIPC.
E)FINRA.
Q3) Although some bonds are traded on the NYSE,most of the buying and selling of bonds doesn't occur on organized exchanges.
A)True
B)False
Q4) Compare and contrast lending and ownership investments.
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.
A)dividend reinvestment
B)stock split
C)stock repurchase
D)stock reissue
E)none of the above
Q2) Some firms have negative earnings per share numbers.
A)True
B)False
Q3) Technical analysis focuses on supply and demand,using charts and computer programs to project stock trends.
A)True
B)False
Q4) The price/earnings ratio is an indication of how much investors are willing to pay for a dollar of the company's earnings.
A)True
B)False
Q5) Discuss four reasons to invest in stocks.
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Chapter 13: Investing in Bonds and Other Alternatives
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149 Flashcards
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Sample Questions
Q1) A bond's yield is always exactly the same as its coupon interest rate.
A)True
B)False
Q2) It is possible to make fortunes dealing in collectibles.
A)True
B)False
Q3) A share of preferred stock pays an annual dividend of $22 per year.If you require a 12.5% return,what is the value of one share to you today?
A)$1,760.00
B)$17.60
C)$220.00
D)$176.00
Q4) Karyn wants to evaluate some bonds she is contemplating buying.In order to adequately evaluate them,she should check the bond yields,read the bond quotes in a paper,and check the A)par values.
B)bond ratings.
C)company rating.
D)company's performance.
Q5) Your friend wants you to seriously consider investing in bonds like she did.Why?
Page 15
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Sample Questions
Q1) Which of the following are passed on to fund share holders through 12b-1 fees?
A)Commissions
B)Advertising expenses
C)Promotional fees
D)Only B and C
E)All of the above
Q2) Bond funds differ from individual bond purchases in that
A)bond funds offer less liquidity than individual bonds.
B)with a bond fund,you don't get professional management.
C)the bond fund doesn't mature as individual bonds do.
D)all of the above.
Q3) Shares in open-end mutual funds are actively traded in secondary markets.
A)True
B)False
Q4) A unit investment trust is a fixed pool of securities,generally municipal bonds,with each unit representing a proportionate ownership in that pool.
A)True
B)False
Q5) Briefly describe the cost involved in mutual funds.
Q6) What are the four choices for purchasing a mutual fund?
Page 16
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Chapter 15: Retirement Planning
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Sample Questions
Q1) How does Uncle Sam determine our Social Security monthly retirement check for all practical purposes?
Q2) Under the annuity for life policy your payments will continue to your beneficiaries upon your passing up until a specified time.
A)True
B)False
Q3) Erica works for a company with a 401(k)plan.The company matches at $0.50 on the dollar the first 6% of the employee's salary contributed to the 401(k).If Erica earns $90,000 and contributes 12% of her salary,how much will the employer match be in dollars for the year?
A)$1,400
B)$2,700
C)$3,500
D)$6,200
Q4) The size of your Social Security benefits are determined by your number of years of earnings,your average level of earnings,and an adjustment for inflation.
A)True
B)False
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) 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
Q2) Someone who receives assets or money from a person after death is called the deceased's
A)receptor.
B)receptee.
C)obtainee.
D)beneficiary.
E)none of the above.
Q3) A ________ is a trust that distributes income according to need,as determined by the discretion of the trustee rather than according to some preset formula.
A)family trust
B)sprinkling trust
C)needs distribution trust
D)compassion trust
E)none of the above
Q4) Identify three advantages and three disadvantages of revocable living trusts.
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Chapter 17: Financial Life Eventsfitting the Pieces Together
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Sample Questions
Q1) The earlier you start saving for your retirement,the easier it will be to reach your financial goals.
A)True
B)False
Q2) How can someone plan for a major illness?
Q3) If you and your spouse have different money management styles,it may be wise to maintain separate checking accounts.
A)True
B)False
Q4) Medical insurance can keep medical expenses from becoming a catastrophic financial event.
A)True
B)False
Q5) Discuss the results of having debt marketed to adults the same way toys are marketed to children.
Q6) Discuss what is involved in Life Event 1: Getting started.
Q7) Tracking your spending for a month or so will help you plan savings.
A)True
B)False
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