Personal Finance Exam
True / False Questions
1. Inflation reduces the buying power of money. TRUE
2. When prices are increasing at a rate of 6 percent, the cost of products would double in about
12 years. TRUE
3. Short-term goals are usually achieved within the next year or so. TRUE
4. Opportunity costs refer to what a person gives up when making a decision. TRUE
Multiple Choice Questions
5. The main goal of personal financial planning is:
A. saving and investing for future needs.
B. reducing a person's tax liability.
C. achieving personal economic satisfaction
D. spending to achieve financial objectives.
E. saving, spending, and borrowing based on current needs.
6. With an inflation rate of 9 percent, prices would double in about ___________ years.
A. 4
B. 6
C. 8
D. 10
E. 12
7. The ability to convert financial resources into usable cash with ease is referred to as:
A. bankruptcy.
B. liquidity.
C. investing.
D. saving.
E. opportunity cost.
8. As Jean Tyler plans to set aside funds for her young children's college education, she is setting
a(n) ____________ goal.
A. intermediate
B. long-term
C. short-term
D. intangible
E. durable
9. Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks:
A. measurable terms.
B. a realistic perspective.
C. specific terms.
D. the type of action to be taken.
E. a time frame.
10. Opportunity cost refers to:
A. money needed for major consumer purchases.
B. what a person gives up by making a choice.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.
11. If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type
of computation?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
12. Which type of computation would a person use to determine current value of a desired
amount for the future?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
13. If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how
long will it take your salary to double?
A. 30 years
B. 24 years
C. 18 years
D. 12 years
E. It would never double
14. If you put $1,000 in a saving account and make no further deposits, what type of calculation
would provide you with the value of the account in 20 years?
A. future value of a single amount
B. simple interest
C. present value of a single amount
D. present value of a series of deposits
E. future value of a series of deposits
15. The first step of the financial planning process is to:
A. develop financial goals.
B. implement the financial plan.
C. analyze your current personal and financial situation.
D. evaluate and revise your actions.
E. create a financial plan of action.
16. Which of the following is an example of opportunity cost?
A. renting an apartment near school
B. saving money instead of taking a vacation
C. setting aside money for paying income tax
D. purchasing automobile insurance
E. using a personal computer for financial planning
17. 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.
18. If you desire your money to double in 6 years, what rate of return would you need to earn?
A. 6 percent
B. 8 percent
C. 9 percent
D. 10 percent
E. 12 percent
True / False Questions
19. A tax-exempt employee benefit is usually more advantageous than a tax-deferred benefit.
TRUE
20. A job tends to have less of a long-term commitment to a field than a career. TRUE
21. Financial records that may need to be referred to on a regular basis should be kept in a safedeposit box. FALSE
22. A personal balance sheet reports your income and expenses. FALSE
23. A person's net worth is the difference between the value of the items owned and the amounts
owed to others. TRUE
24. Furniture, jewelry, and an automobile are examples of liquid assets. FALSE
25. Current liabilities are amounts that must be paid within a short period of time, usually less
than a year. TRUE
26. A personal cash flow statement presents income and outflows of cash for a given time period,
such as a month. TRUE
27. Medical expenses, clothing, and telephone are examples of fixed expenses. FALSE
28. If expenses for a month are greater than income, an increase in net worth will result.
FALSE
Multiple Choice Questions
29. Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value
of $500 would have a tax-equivalent value of:
A. $694.
B. $528.
C. $500.
D. $360.
E. $140.
30. A home file should be used for:
A. storing all financial documents and records.
B. financial records for current needs.
C. documents that require maximum security.
D. obsolete financial documents.
E. records that are difficult to replace.
31. A personal balance sheet presents:
A. amounts budgeted for spending.
B. income and expenses for a period of time.
C. earnings on savings and investments.
D. items owned and amounts owed.
E. family financial goals.
32. A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:
A. $45,000.
B. $23,000.
C. $22,000.
D. $67,000.
E. $41,000.
33. Items that you own with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.
34. Items of value minus the amounts owed to others equals:
A. net assets.
B. net worth.
C. total liabilities.
D. total income.
E. budgeted expenses.
35. Liabilities are amounts representing:
A. debts.
B. items of value.
C. living expenses.
D. taxable income.
E. current assets.
36. A person's net worth is computed by:
A. adding assets and liabilities.
B. deducting current living expenses from total assets.
C. subtracting total liabilities from total assets.
D. subtracting assets from current liabilities.
E. adding liabilities and budgeted expenses.
37. A person's net worth would increase as a result of:
A. reduced amounts owed to others.
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. decreased value of investments.
38. A cash flow statement reports a person's or a family's:
A. net worth.
B. current income and payments.
C. plan for spending.
D. value of investments.
E. balance of savings.
39. Payments that do not vary from month to month are ____________ expenses.
A. fixed
B. current
C. variable
D. luxury
E. budgeted
40. During the past month, Jennifer Ernet had income of $3,000 and during the month, her net
worth declined by $200. If no other financial activities occurred, this means Jennifer's payments
for the month were:
A. $3,200.
B. $3,000.
C. $2,800.
D. $200.
41. Kyle Burroughs has decided to put $25 more per week in his savings account. He knows this
will reduce his ability to go out to eat each week but thinks building his savings is important.
This would be an example of:
A. A budget variance
B. An opportunity cost
C. A balance sheet
D. A liquid asset
E. Net worth
42. Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of
her real estate is $128,000, the value of her personal possessions is $62,000 and the value of her
investment assets is $73,000. She has also determined the value of her current liabilities is
$7,500 and the value of her long term liabilities is $98,000. What is Jamie's net worth?
A. $267,500
B. $105,500
C. $162,000
D. $205,500
E. $132,000
43. In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950,
resulting
A. a balanced budget.
B. a surplus of $150.
C. a deficit of $150.
D. a surplus of $3,100.
E. a deficit of $2,950.
44. Allen Arnold has determined that the amount of money he spends on his mortgage payment,
car insurance payment, and cable bill totals $1,200 each month. What type of expenses has Allen
determined with this calculation?
A. Current Liabilities
B. Long Term Liabilities
C. Net worth
D. Variable Expenses
E. Fixed Expenses
True / False Questions
45. Taxes are only considered as financial planning activities in April. FALSE
46. Taxable income is the total earnings of a person. FALSE
47. An exclusion is earnings not included in taxable income. TRUE
48. Exemptions are deductions for yourself, your spouse and qualified dependents that you can
deduct from adjusted gross income. TRUE
Multiple Choice Questions
49. A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an
average tax rate of ____ percent.
A. 8.6
B. 10.3
C. 12.3
D. 14.2
E. 16.7
50. An amount included in gross income is:
A. a tax credit.
B. an exemption.
C. an exclusion.
D. earned income.
E. portfolio income.
51. Which of the following would be deducted from gross income to obtain adjusted gross
income?
A. alimony payments
B. mortgage interest
C. medical expenses
D. foreign income exclusion
E. charitable contributions
52. A deduction from adjusted gross income for yourself, your spouse, and qualified dependents
is:
A. the standard deduction.
B. a tax credit.
C. an itemized deduction.
D. an exclusion.
E. an exemption.
53. A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by:
A. $10.
B. $28.
C. $14.
D. $50.
E. $35.
54. A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975
would:
A. receive a refund of $3,975.
B. owe $4,350.
C. owe $375.
D. receive a refund of $4,350.
E. receive a refund of $375.
True / False Questions
1. A "free" checking account with a minimum balance of $500 has an opportunity cost of lost
interest. TRUE
2. Savers should always attempt to obtain an interest rate that is less than the inflation rate.
FALSE
3. Using a "debit" card is basically the same as writing a check. TRUE
4. A certificate of deposit is usually considered to be very liquid. FALSE
5. The liquidity of a savings account refers to the rate of earning a person will receive.
FALSE
6. The more frequent the compounding, the less a person will earn on a savings account.
FALSE
7. When preparing a bank reconciliation, interest earned on your checking account is added to
the bank statement balance. FALSE
Multiple Choice Questions
8. Joan Zemke expects interest rates to decline over the next few months. To maximize her
earnings she should use a(n):
A. regular savings account.
B. interest-bearing checking account.
C. five-year certificate of deposit.
D. six-month certificate of deposit.
E. money market fund
9. The purpose of a debit card is to:
A. obtain a discount on consumer purchases.
B. make credit card purchases.
C. quickly obtain a cash loan.
D. make investments with an investment company.
E. transfer money electronically.
10. When interest rates are rising, a person would be served by:
A. short-term savings instruments.
B. long-term savings instruments.
C. short-term loans.
D. variable-rate loans.
11. What is the difference between a lost debit card and a lost credit card?
A. A credit card carries more risk of loss to the cardholder.
B. A debit card carries more risk of loss to the cardholder.
C. There is no cardholder liability if either type of card is lost.
D. There is no difference in liability.
12. To avoid high fees for loans, a person should borrow from a:
A. credit union.
B. savings and loan association.
C. pawnshop.
D. commercial bank.
E. mutual savings bank.
13. A certificate of deposit usually has:
A. high interest-rate risk.
B. low safety for savers.
C. limited liquidity.
D. a variable rate of return.
E. no minimum deposit amount
14. A $200 savings account that earns $13 interest in a year has a yield of ____________
percent.
A. 6
B. 13
C. 7
D. 11.25
E. 6.5
15. Savings compounded ____________ would have the highest effective yield.
A. daily
B. annually
C. semi-annually
D. monthly
E. weekly
16. When preparing a bank reconciliation, outstanding checks should be:
A. added to the bank statement balance.
B. subtracted from the bank statement balance.
C. added to the checkbook balance.
D. subtracted from the checkbook balance.
17. In the bank reconciliation process, service fees should be:
A. added to the bank statement balance.
B. subtracted from the bank statement balance.
C. added to the checkbook balance.
D. subtracted from the checkbook balance.
18.
Based on the following information, what amount would be SUBTRACTED from the
BANK BALANCE side of a checking account reconciliation? Service charge $12; Outstanding
checks $145; Interest $3.50; Deposit in transit $80
A. $145
B. $12
C. $157
D. $148.50
E. $80
19. A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate
of ____ percent.
A. 33
B. 27.5
C. 20
D. 5.5
E. 2.75
20. A person borrows $200 from a payday loan company, paying $10 interest for two weeks.
This would result in an annual interest rate of approximately ___ percent.
A. 260
B. 130
C. 40
D. 20
E. 5
21. Your bank statement shows a balance of $670. Your checkbook register shows a balance of
$462. You earned interest of $2, and had a service charge of $4. What is the amount of
outstanding checks?
A. $210
B. $208
C. $180
D. $12
E. $6
True / False Questions
22. There are very few valid reasons for using credit. FALSE
23. College students are not a prime target for credit card issuers. FALSE
24. With an open-end credit, you pay back one-time loans in a specified period of time in equal
amounts. FALSE
25. Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.
FALSE
26. You should sign your new credit cards as soon as they arrive. TRUE
27. The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net
worth. FALSE
28. The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
FALSE
29. When you cosign a loan, you are being asked to guarantee this debt. TRUE
30. In the 5Cs of credit, capacity refers to the borrower's attitude toward his or her credit
obligations. FALSE
Multiple Choice Questions
31. By paying cash for a purchase, you:
A. forgo the opportunity to keep the cash in an interest-bearing account.
B. always get a cash discount.
C. can build a better credit rating.
D. get better personal service from store employees.
E. have a better selection of goods than if you use credit.
32. Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal
payments over the next year to pay for it. She is using:
A. closed-end credit
B. Open-end credit
C. Revolving check credit
D. a line of credit
E. none of the choices
33. Experts suggest that you spend no more than ____________ percent of your net income on
credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50
34. If you have declared personal bankruptcy, that fact may be reported to credit bureaus for:
____________ years.
A. 5
B. 10
C. 15
D. 20
E. 25
35. The borrower's attitude toward his or her credit obligations is called:
A. capacity.
B. capital.
C. character.
D. collateral.
E. conditions.
36. If your credit application is denied, you:
A. can sue the credit rating agency.
B. can file a complaint against the merchant.
C. don't have any rights provided by law.
D. are entitled to know the specific reason you were denied credit.
E. can reapply for credit after 30 days.
37. The way to maintain your credit rating is to:
A. use credit sparingly.
B. pay cash for your purchases.
C. repay your debts on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.
38. Which of the following is a credit bureau?
A. The Federal Reserve System
B. The Federal Trade Commission
C. Better Business Bureau
D. Experian
E. None of the choices are credit bureaus
True / False Questions
39. Buying on credit is almost always cheaper than paying cash. FALSE
40. With collateral, you'll probably pay a higher interest rate on your loan. FALSE
41. The two most common methods of calculating interest are compound and simple interest
formulas. TRUE
42. If you want to take advantage of the interest-free period on your credit card, you must pay
your bill in full every month. TRUE
43. In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property.
TRUE
Multiple Choice Questions
44. Which is often the source of the expensive loan?
A. parents or family members
B. banks
C. savings and loan associations
D. finance companies
E. loan sharks
45. Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts
charging your interest on cash advances immediately. You get a cash advance of $600 on the
first day of the month. You get your credit card bill at the end of the month. What is the total
finance charge you will pay on this cash advance for the month?
A. $12
B. $9
C. $21
D. $0
E. None of the choices.
46. If you borrow $100 at 10 percent simple annual interest and repay it in one lump sum at the
end of one year, you will have to pay:
A. $100.
B. $105.
C. $110.
D. $115.
E. $120.
47. Which one of the following is one of 16 danger signals of potential debt problems?
A. paying maximum balance due each month
B. receiving notice of prompt payment from creditors
C. using savings to pay for major purchases
D. borrowing money to pay old debts
E. occasionally working overtime and moonlighting
48. Most people who are in debt over their heads are:
A. criminals who take advantage of creditors.
B. living in the poverty-stricken areas.
C. expected to declare Chapter 11 bankruptcy.
D. basically dishonest people.
E. basically honest people.
True / False Questions
1. Overspending is a common cause of financial difficulties. TRUE
2. The opportunity costs associated with consumer purchases refer to the cost of an item and any
finance charges if the item was purchased on credit. FALSE
3.
The most consistent quality is usually found with nationally known, brand-name products.
TRUE
4. An implied warranty is usually in written form. FALSE
5. Most consumer complaints need legal action to be resolved. FALSE
6.
Representation by a lawyer is usually required in small claims court. FALSE
7. A class action suit allows many people with the same complaint to take action as a group.
TRUE
8. Unit pricing uses a standard unit of measurement to compare prices of packages of different
sizes. TRUE
9. A limited warranty covers all aspects of the product and does not require the buyer to incur
any of the costs for shipping and repairs. FALSE
Multiple Choice Questions
10. A personal opportunity cost associated with a consumer purchase refers to:
A. buying on credit.
B. selecting a commonly known brand.
C. the influence of advertising on consumers.
D. time used to compare prices.
E. government regulation of deceptive business-government activities in an effort to prevent
consumer fraud.
11. Impulse buying refers to:
A. evaluating alternatives.
B. gathering information.
C. comparison shopping.
D. selecting the least desirable alternative.
E. unplanned purchasing.
12. The highest consistency of quality is associated with ____________ brand items.
A. generic
B. national
C. regional
D. store
E. manufacturer
13. A 32-ounce package selling for $1.60 would have a unit price of:
A. $1.60.
B. $2.00 a pound.
C. 5¢ an ounce.
D. 80¢ a quart.
E. 12¢ an ounce.
14. Which of the following types of warranties is a specific agreement created by the seller or
manufacturer?
A. express
B. implied
C. full
D. contingent
E. limited
15. Howard Ramsell recently became aware of implied warranties that exist for consumer
purchases. An implied warranty exists as a result of:
A. a stated intent of the seller.
B. actions by consumers.
C. the intended use of a product.
D. rulings of federal consumer agencies.
E. a written statement from the manufacturer.
16. The major criticism of service contracts is:
A. poor service from repair companies.
B. limited coverage of repairs.
C. weak government regulation of service contract companies.
D. high costs and a low chance of need.
E. that few places are available for repairs.
. 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.
18. ____________ is the settlement of a difference by a third party whose decision is legally
binding.
A. A legal aid society
B. Mediation
C. Arbitration
D. A consumer action panel
E. Cooperative action
19. The purpose of small claims court is to:
A. regulate fair business activities.
B. provide hearing on proposed consumer protection laws.
C. allow consumers with similar complaints to take action as a group.
D. resolve minor consumer complaints.
E. assist low-income consumers who need legal help.
20. Small claims court requires a person to have:
A. written testimony.
B. a case involving less than a set amount.
C. representation by an attorney.
D. evidence screened in advance of the hearing
21. Recently, Jim Dahl was on a bus tour in a mountain area. The bus broke down forcing the
group to stay overnight. Group members had to pay for their own hotel bills. Jim believes that
the hotel cost for the group should be paid by the tour company. Which legal action would be
most appropriate?
A. small claims court
B. mediation
C. legal aid society
D. arbitration
E. class action suit
22. An implied warranty that comes with a used car is that:
A. major repairs are the responsibility of the seller.
B. government agencies will repair safety defects.
C. the vehicle must be in operating condition.
D. hidden defects will be repaired at no cost to the buyer.
E. a vehicle must operate properly for at least one year.
23. A vehicle sold "as is" has:
A. a limited warranty.
B. no express warranty.
C. a 30-day guarantee.
D. a full warranty on parts but not labor.
E. no implied warranties.
24. Most cars bought from private parties have:
A. no implied warranties.
B. a 30-day return privilege.
C. a limited warranty.
D. no express warranty.
E. a government-supported repair guarantee.
25. The purpose of an automobile service contract is to:
A. reduce operating costs of the vehicle.
B. cover regular maintenance.
C. provide automobile insurance at a discount.
D. repair major problems after the warranty expires.
E. stay informed of government safety recalls.
26. A disadvantage of leasing an automobile would be the:
A. unexpected costs with a closed-end lease.
B. responsibility for repair costs.
C. poor expense records for tax purposes.
D. limited mileage in the lease agreement.
27. Which of the following is usually the largest fixed expense for a new vehicle?
A. insurance
B. gasoline
C. registration, license, and fees
D. parking
E. depreciation
28. Which of the following would be an advantage of leasing a vehicle?
A. Automatic ownership interest in the car
B. Unlimited mileage on the car
C. No need to meet credit requirements
D. Lease payments are likely to be lower than finance payments
E. All of the choices are advantages of leasing a vehicle
29. The price that is paid for a vehicle in a lease is called:
A. The residual value
B. The unit price
C. The capitalized cost
D. The deductible
E. The premium
True / False Questions
30. Opportunity costs of housing can refer to time and effort involved in finding and repairing a
place to live along with lost interest earnings on security deposits and down payments. TRUE
31. A lease protects the rights of both the landlord only. FALSE
32. Condominiums involve the purchase of an individual living unit rather than an entire
building. TRUE
33. Negotiating a purchase price for a home usually involves an offer and counteroffers.
TRUE
34. The amount of the down payment will affect the amount of mortgage a person can afford.
TRUE
35. Amortization refers to changes in the monthly payment for a variable rate mortgage.
FALSE
36. Adjustable rate mortgages with a payment cap can result in a situation of negative
amortization. TRUE
37. An escrow account is designed to reduce the cost of a mortgage. FALSE
38. An appraisal refers to the price for which a home has been sold. FALSE
Multiple Choice Questions
39. Renting is more advantageous than buying a home for:
A. lower short-term living costs.
B. financial benefits.
C. long-term investment purposes.
D. receiving tax benefits.
E. permanence of residence.
40. A common opportunity cost associated with renting is:
A. interest lost on the down payment.
B. interest lost on closing costs.
C. property taxes.
D. maintenance costs.
E. interest lost on the security deposit.
41. Renting would be appropriate for people who:
A. want to reduce their taxes.
B. have difficulty establishing credit.
C. have limited funds currently available.
D. enjoy remodeling their residence.
E. desire the financial benefits of increased equity.
42. Brenda Williams plans to rent instead of buy her housing. What advantage of renting will
Brenda encounter?
A. tax advantages
B. lower initial costs
C. community pride
D. financial benefits
E. home improvement flexibility
43. The legal document involved in renting an apartment is called a(n):
A. service contract.
B. mortgage.
C. lease.
D. security deposit.
E. escrow account.
44. The purpose of a security deposit is to:
A. pay for potential damages.
B. cover the costs of utilities.
C. pay for the tenant's portion of real estate property taxes.
D. cover increases in monthly rent.
E. meet government housing regulations for a safe building.
45. Lonette and Al received a statement reporting that they paid $8,000 in mortgage interest
during the past year. If they are in a 28 percent tax bracket, this deduction may reduce their by:
A. $1,000.
B. $2,240.
C. $3,000.
D. $4,000.
E. $8,000.
46. A common financial risk of home ownership is that:
A. interest rates may change with a conventional mortgage.
B. property values may decrease.
C. mortgage interest is not tax deductible.
D. only a portion of real estate taxes are tax deductible.
47. The purpose of a counteroffer is to:
A. negotiate the purchase price.
B. reduce mortgage payments.
C. lower real estate property taxes.
D. avoid paying points at closing.
E. avoid paying the real estate agent's commission.
48. Earnest money has the purpose of:
A. paying real estate property taxes.
B. reducing the mortgage interest rate.
C. serving as good faith by a homebuyer.
D. paying the real estate agent's commission.
E. being a mortgage application fee.
49. What is prepaid interest charged by a mortgage company?
A. escrow
B. points
C. origination fee
D. title fee
E. deed
50. A conventional mortgage usually involves:
A. a variable interest rate.
B. a government guarantee.
C. a balloon payment.
D. equal payments.
E. a payment cap.
True / False Questions
1. Generally, it is not a good idea to participate in an employer-sponsored retirement program. FALSE
2. When starting an investment program, you should stop participating in your savings program. FALSE
3. The potential return of any investment should be directly related to the risk that the investor assumes. TRUE
4. During inflationary times, there is a risk that the financial return on an investment will not keep pace with the rate of inflation.
TRUE
5. Liquidity is the ease with which an asset can be converted to cash without a substantial loss in dollar value.
TRUE
6. Over the past 50 years, stocks and U.S. government bonds have returned about the same rate of return.
FALSE
7. Because of the growth potential, stocks or mutual funds that invest in stocks should be the only type of securities included in
the investment portfolio for most people. FALSE
8. Asset allocation is the process of spreading your assets among several different types of investments to lessen risk. TRUE
9. Preferred stock represents the most basic form of corporate ownership. FALSE
10. The most important priority for an investor in preferred stock is receiving cash dividends before common stockholders are
paid any cash dividends. TRUE
11. Bondholders generally receive interest payments every six months. TRUE
12. Mutual funds range from very conservative to extremely speculative investments. TRUE
13. Once you have painstakingly developed a financial plan, it is not wise to change it. FALSE
14. Although useful for many things, the Internet cannot be used to monitor the value of stock, bond, and mutual fund
investments. FALSE
Multiple Choice Questions
15. All of the following statements are considered to be good advice for a potential investor starting an investment program :
A. Work to balance your budget.
B. Increase credit purchases and make installment payments in order to increase cash available for investing.
C. Establish specific and measurable investment goals.
D. Start an emergency fund.
E. Establish a line of credit.
16. A good rule of thumb is to limit consumer credit payments to ____________ percent of your net monthly income.
A. 20
B. 30
C. 40
D. 50
E. 60
17. Eric Peltz earns $80,000 a year. His monthly expenses total $4,300. What is the minimum amount of money that Mr. Peltz
should set aside in an emergency fund?
A. $2,150
B. $4,300
C. $8,600
D. $12,900
E. $43,000
18. Twenty years ago, you began investing $2,000 a year. Because your investments earned an average of 8 percent a year, your
investment portfolio has a current dollar value of $92,000. How much did you earn on your investments over the 20-year period
of time?
A. $2,000
B. $40,000
C. $52,000
D. $92,000
E. $132,000
19. If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed
interest rate?
A. The bond is worthless.
B. The value of the bond will increase.
C. The value of the bond will decrease.
D. The value of the bond will not change.
E. It is impossible to determine if the bond's value will increase or decrease.
20. A $1,000 corporate bond pays 6.5 percent a year. What is the annual interest you will receive each year?
A. $0.65.
B. $6.50.
C. $65
D. $1,060.50
E. $1,065
21. The ease with which an investment can be converted to cash without a substantial loss in dollar value is called the:
A. asset value.
B. liquidity factor.
C. immediate quotient.
D. fixed cost factor.
E. variable cost factor.
22. Which of the following investments offers the greatest liquidity?
A. savings accounts
B. common stock
C. corporate bonds
D. real estate
E. collectibles
23. Terry Hamilton has just received $30,000 from an uncle who died and is trying to decide how to invest it. She has done some
research has decided that about 30% of the money should go into large cap stocks, 20% into medium cap stocks, 15% into small
cap stocks, 10% into bonds, 10% into foreign stocks and 15% into cash. She thinks that even if one area does not do that well, the
rest will so that her overall return will be pretty good. What aspect of investing is Terry most concerned about?
A. Income
B. Return
C. Diversification
D. Liquidity
E. Investment Growth
24. Garrett Cammans is thinking about buying an investment. The investment option that he is thinking about buying represents
the most basic form of ownership and pays a dividend. The dividend on this investment is paid after all other payments and
dividends have been made. What investment is Garrett thinking about purchasing?
A. Common Stock
B. Preferred Stock
C. Corporate Bond
D. Real Estate
E. Mutual fund
25. Mike Lively is thinking about buying an investment. The investment option that he is thinking about buying is an ownership
claim on the company. The most important priority he has with this investment is receiving dividends before dividends are paid
to other types of investments. What investment is Mike thinking about purchasing?
A. Common Stock
B. Preferred Stock
C. Corporate Bond
D. Real Estate
E. Mutual Fund
26. Kevin Bacon is thinking about buying an investment. The investment option that he is thinking about buying is a written
pledge by a corporation to repay a specified amount of money. It also pays interest payments every 6 months until it matures.
What investment is Kevin thinking about purchasing?
A. Common Stock
B. Preferred Stock
C. Corporate Bond
D. Real Estate
E. Mutual Fund
27. Normally, corporate bondholders receive interest:
A. monthly.
B. every three months.
C. every six months.
D. yearly.
E. when the bond matures.
28. Hugh Jackman is thinking about buying an investment. The investment option that he is thinking about buying is an
investment where investors pool their money. One of the key features is that it is managed by professional managers. What
investment is Hugh thinking about purchasing?
A. Common Stock
B. Preferred Stock
C. Corporate Bond
D. Real Estate
E. Mutual Fund
29. Which of the following investments would provide the predictable source of income?
A. commodities
B. options
C. precious metals
D. common stock
E. government bonds
True / False Questions
30. Dividend payments on common stock are guaranteed, but the amount is determined by the board of directors. FALSE
31. The record date is the date that the actual dividend payment is made to stockholders. FALSE
32. A stock split is a procedure in which a stockholder's common stock is exchanged for preferred stock.
FALSE
33. If an investor owns cumulative preferred stock, missed or omitted dividends accumulate and must be paid before any cash
dividend is paid to common stockholders. TRUE
34. A blue-chip stock is too speculative for most investors. FALSE
35. A defensive stock is a stock that typically sells for less than $1. FALSE
36. A large cap stock is a stock issued by a company that has capitalization of $10 billion or more. TRUE
37. Dollar cost averaging enables investors to avoid the problem of buying high and selling low. TRUE
Multiple Choice Questions
38. Amy Farmer receives something in the mail from the company she has purchased stock in. This legal form lists the issues to
be decided at the annual stockholders' meeting and asks her to sign something that allows someone else to vote for her. What has
she received in the mail?
A. Equity
B. Proxy
C. Voting rights
D. Dividends
E. None of the choices
39. Matt Dannon just bought the stock of a company. He knows that with this stock comes the responsibility to approve major
actions taken by the company. What gives Matt this responsibility?
A. Equity
B. Proxy
C. Voting Rights
D. Dividends
E. None of the choices
40. James Green just bought the stock of a company. He knows that he will receive a cash payment from the company once a
quarter, although the company is not obligated to make this payment. What will he receive?
A. Equity
B. Proxy
C. Voting Rights
D. Dividends
E. None of the choices
41. Valerie Kilmer has purchased the stock of the Williams Widget Company. After she buys the stock she is told that the
number of shares she owns will be divided into a larger number. In fact, she will get two shares for every share that she owns
today. What has happened to this company?
A. Dividend split
B. Proxy split
C. Stock split
D. Banana split
E. None of the choices
42. Sean Rouse has purchased the stock of the Stowaway Transportation Company. The company is getting ready to pay a
dividend. He knows he must be registered on the corporation's books on the ________________ in order to receive the dividend.
A. Record date
B. Ex dividend date
C. Payment date
D. Purchased date
E. None of the choices
43. Orlando Blodgett is buying the stock of the Getaway Caribbean Cruise Company. However, if he buys the stock today, he
knows it is the first day it is selling without the dividend for this quarter. What date is Orlando buying the stock on?
A. Record Date
B. Ex dividend date
C. Payment date
D. Sale date
E. None of the choices
44. Beverly Frickel purchased 100 shares of Gleason Systems stock for $42.50 per share. Her commission for this purchase was
$35. She sold the stock two years later for $55 per share and a commission of $50. While she held the stock it paid a dividend of
$1.50 per share. What was Beverly's total dollar return on this stock?
A. $1250
B. $1165
C. $150
D. $1315
E. $1400
45. Patsy Banz owns 220 shares of General Mills Corporation. For the last calendar quarter, General Mills Corporation paid a
dividend of $0.47 a share. What is the total amount she received in her dividend check for this quarter?
A. $0.47
B. $47
C. $94
D. $103.40
E. It is impossible to calculate the total dividend amount with this information.
46. James Turbyfil purchased 100 shares of IBM for $72. James also paid $55 commission. What was the total purchase price for
this transaction?
A. $55
B. $72
C. $7,237.50
D. $7,255.00
E. $7,347.50
47. If the board of directors approves a two for one stock split, an investor who owns 150 shares before the split owns
____________ shares after the split.
A. 75
B. 150
C. 225
D. 300
E. 450
48. A stock issued by a corporation that has the potential of earning above-average profits when compared to other firms in the
economy is called a(n) ____________ stock.
A. defensive
B. cyclical
C. growth
D. income
E. blue-chip
True / False Questions
49. A corporate bond is a corporation's written pledge that it will repay a specified amount of money with interest.
TRUE
50. A convertible bond is a bond that can be exchanged, at the owner's option, for a specified number of shares of the
corporation's common stock. TRUE
51. A registered bond is a bond whose ownership is registered in the owner's name by the issuing company.
TRUE
52. The only way an investor can make money on a bond investment is to hold the bond until maturity.
FALSE
53. Tax-exempt bonds offer slightly higher interest rates than corporate bonds.
Multiple Choice Questions
FALSE
54. Assume that you purchase a $1,000 corporate bond that pays 9.25 percent interest. What is the amount of interest that you
receive each year?
A. $1,000
B. $92.50
C. $92
D. $90
E. $9.25
55. A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.
A. debenture
B. mortgage
C. indenture
D. preemptive
E. treasury
56. A call feature:
A. allows bondholders to convert their bond to a specified number of shares of common stock.
B. is not available on corporate bonds.
C. allows the corporation to buy outstanding bonds from current bondholders before the maturity date.
D. is only available with government securities.
E. is guaranteed by the corporation.
57. The type of bond that is not registered in the investor's name is a ___________ bond.
A. revenue
B. general obligation
C. bearer
D. zero-coupon
E. tax-exempt
58. If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally:
A. increase in value.
B. decrease in value.
C. remain unchanged.
D. become worthless.
E. be returned to the corporation.
True / False Questions
59. The major reasons why investors purchase mutual funds are professional management and diversification.
TRUE
60. A closed-end fund is a mutual fund in which shares are issued only when the fund is organized. TRUE
61. Today, there are more closed-end funds than there are open-end funds.
FALSE
62. The managers of mutual funds tailor their investment portfolios to the investment objectives of their customers.
TRUE
Multiple Choice Questions
63. Approximately ____________ percent of all mutual funds are open-end funds.
A. 5
B. 6
C. 30
D. 72
E. 93
64. A mutual fund in which shares are issued only when the fund is organized is called a(n) ____________ fund.
A. closed-end
B. open-end
C. load
D. no-load
E. convertible
65. The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is
called the:
A. book value.
B. outstanding balance.
C. per share value.
D. net asset value.
E. accounting value.
66. A fee that some investment companies charge for advertising and marketing a mutual fund is called a:
A. 14A-1 fee.
B. 12b-1 fee.
C. 18-2 fee.
D. 21-AB fee.
E. None of these answers are correct.
67. A mutual fund that invests in common stocks of rapidly growing corporations with higher-than-average revenue and earnings
growth is called a(n) ____________ fund.
A. balanced
B. growth
C. industry
D. income
E. money market
68. A mutual fund that invests in the common stocks of companies in the same industry is called a(n) ____________ fund.
A. growth-income
B. income
C. sector
D. small-cap
E. money market
69. When one investment company manages a group of mutual funds, it is called a(n):
A. family of funds.
B. exchange fund.
C. diversification fund.
D. versatility fund.
E. group of funds.
70. Which of the following statements is ?
A. Most mutual funds are managed funds.
B. The role of a fund manager is not important because the investment company is always changing managers.
C. If a fund has performed well under its present manager over a 5-year, 10-year, or longer period, it is time to sell the fund.
D. Managed funds are usually index funds that include a high concentration of defensive stocks.
E. A team of managers is always better than a single fund manager.
71. Darissa Poe is buying shares in a mutual fund that only invests in companies from countries other than the United States.
What type of mutual fund has she purchased?
A. An aggressive growth fund
B. An equity income fund
C. A global fund
D. An international fund
E. A regional fund
True / False Questions
1. Increased demand for a product or service will usually result in lower prices for the item.
FALSE
2. Inflation reduces the buying power of money. TRUE
3. When prices are increasing at a rate of 6 percent, the cost of products would double in about
12 years. TRUE
4.A decrease in the demand for a product or service may result in a decrease in wages for people
producing that item. TRUE
5.A financial plan is another name for a budget. FALSE
6.Short-term goals are usually achieved within the next year or so. TRUE
7.Opportunity costs refer to time, money, and other resources that are given up when a decision
is made. TRUE
8.Risks associated with most financial decisions are fairly easy to measure.
FALSE
9.The financial planning process is complete once you implement your financial plan.
FALSE
Multiple Choice Questions
10.Higher prices are likely to result from:
A. lower demand by consumers.
B. increased production by business.
C. lower interest rates.
D. increased spending by consumers without increased production.
E. an increase in the supply of a product.
11.With an inflation rate of 9 percent, prices would double in about ___________ years.
A. 4
B. 6
C. 8
D. 10
E. 12
12.Increased consumer spending will usually cause:
A. lower consumer prices.
B. reduced employment levels.
C. lower tax revenues.
D. lower interest rates.
E. higher employment levels.
13.The main economic influence that determines prices is:
A. the stock market.
B. interest rates.
C. employment.
D. government spending.
E. supply and demand.
14.As Jean Tyler plans to set aside funds for her young children's college education, she is
setting a(n) ____________ goal.
A. intermediate
B. long-term
C. short-term
D. intangible
E. durable
15.Brad Opper has a goal of "saving $50 a month for vacation." Brad's goal lacks:
A. measurable terms.
B. a realistic perspective.
C. specific terms.
D. the type of action to be taken.
E. a time frame.
16.Opportunity cost refers to:
A. money needed for major consumer purchases.
B. what a person gives up by making a choice.
C. the amount paid for taxes when a purchase is made.
D. current interest rates.
E. evaluating different alternatives for financial decisions.
17.If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type
of computation?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
18.Which type of computation would a person use to determine current value of a desired
amount for the future?
A. simple interest
B. future value of a single amount
C. future value of a series of deposits
D. present value of a single amount
E. present value of a series of deposits
19. If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how
long will it take your salary to double?
A. 30 years
B. 24 years
C. 18 years
D. 12 years
E. 6 years
20.When prices are increasing at a rate of 6 percent, the cost of products would double in about
how many years?
A. 7.2 years
B. 10 years
C. 6 years
D. 12 years
E. 18 years
21.If you put $1,000 in a saving account and make no further deposits, what type of calculation
would provide you with the value of the account in 20 years?
A. future value of a single amount
B. simple interest
C. present value of a single amount
D. present value of a series of deposits
E. future value of a series of deposits
22.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.
23.A family spends $40,000 on living expenses. With an annual inflation rate of 3 percent, they
can expect their expenses to be approximately _______ in three years.
A. $40,300
B. $41,200
C. $42,000
D. $43,700
E. $46,000
24.Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value
of $500 would have a tax-equivalent value of:
A. $694.
B. $528.
C. $500.
D. $360.
E. $140.
25. Tax-deferred employee benefits are
A. not subject to federal income tax.
B. not subject to state income tax.
C. taxed at some future time.
D. are taxed at a special rate.
True / False Questions
26.Opportunity costs are only associated with money management decisions involving long-term
financial security. FALSE
27.A budget is a specific plan of how a person or family will spend their money.
TRUE
28.A personal balance sheet reports your income and expenses.
FALSE
29.A person's net worth is the difference between the value of the items owned and the amounts
owed to others. TRUE
30.Furniture, jewelry, and an automobile are examples of liquid assets.
FALSE
31. Current liabilities are amounts that must be paid within a short period of time, usually less
than a year. TRUE
32.A personal cash flow statement presents income and outflows of cash for a given time period,
such as a month. TRUE
33. If expenses for a month are greater than income, an increase in net worth will result.
FALSE
Multiple Choice Questions
34.A personal balance sheet presents:
A. amounts budgeted for spending.
B. income and expenses for a period of time.
C. earnings on savings and investments.
D. items owned and amounts owed.
E. family financial goals.
35. The current financial position (including net worth) of an individual or family is presented
with the use of a(n):
A. budget.
B. cash flow statement.
C. balance sheet.
D. bank statement.
E. time value of money report.
36.A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:
A. $45,000.
B. $23,000.
C. $22,000.
D. $67,000.
E. $41,000.
37. Items that you own with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.
38.Items of value minus the amounts owed to others equals:
A. net assets.
B. net worth.
C. total liabilities.
D. total income.
E. budgeted expenses.
39. Liabilities are amounts representing:
A. debts.
B. items of value.
C. living expenses.
D. taxable income.
E. current assets.
40 .A person's net worth is computed by:
A. adding assets and liabilities.
B. deducting current living expenses from total assets.
C. subtracting total liabilities from total assets.
D. subtracting assets from current liabilities.
E. adding liabilities and budgeted expenses.
41.A cash flow statement reports a person's or a family's:
A. net worth.
B. current income and payments.
C. plan for spending.
D. value of investments.
E. balance of savings.
42. Which of the following presents a summary of income and outflows for a period of time?
A. A balance sheet
B. A bank statement
C. An investment summary
D. A cash flow statement
E. An asset report
43.A common deduction from a person's paycheck is for:
A. interest.
B. taxes.
C. rent.
D. unemployment.
E. current liabilities.
44.A decrease in net worth would be the result of:
A. income greater than expenses for a month.
B. expenses greater than income for a month.
C. assets greater than expenses.
D. increased earnings on the job.
E. income and expenses equal for a month.
45.The difference between the amount budgeted and the actual amount is called a:
A. financial plan.
B. current liability.
C. change in net worth.
D. budget variance.
E. variable living expense.
46.Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of
her real estate is $128,000, the value of her personal possessions is $62,000 and the value of her
investment assets is $73,000. She has also determined the value of her current liabilities is
$7,500 and the value of her long term liabilities is $98,000. What is Jamie's net worth?
A. $267,500
B. $105,500
C. $162,000
D. $205,500
E. $132,000
47.A family has a net worth of $156,000 and liabilities of $167,000, what is the amount of their
assets?
A. $11,000
B. $156,000
C. $167,000
D. $323,000
48.In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950,
resulting
A. a balanced budget.
B. a surplus of $150.
C. a deficit of $150.
D. a surplus of $3,100.
E. a deficit of $2,950.
49.An investment account that increases from $3,000 to $3,271 in one year is earning about ___
percent.
A. 3
B. 5
C. 7
D. 9
E. 11
True / False Questions
50.Taxes are only considered as financial planning activities in April. FALSE
51.A state may impose a personal property tax. TRUE
52. Real-estate property taxes are a major source of revenue for local governments.
TRUE
53. A general sales tax is also referred to as an excise tax. FALSE
54.A tax on the value of automobiles, boats, or furniture is referred to as a personal property tax.
TRUE
55. Taxable income is the total earnings of a person. FALSE
56. Exemptions are deductions for yourself, your spouse and qualified dependents that you can
deduct from adjusted gross income. TRUE
Multiple Choice Questions
57.The main purpose of taxes is to:
A. generate revenue for funding government programs.
B. reduce the chances of inflation.
C. create jobs.
D. discourage use of certain goods and services.
E. decrease competition from foreign companies.
58.Which type of tax is imposed on specific goods and services at the time of purchase?
A. estate
B. inheritance
C. excise
D. general sales
E. value-added
59.The ______________ property tax is based on the value of land and buildings at some point
in time.
A. personal
B. real estate
C. direct
D. proportional
E. regressive
60.Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket
would result in after-tax earnings of
A. $1,600
B. $1,152
C. $1,100
D. $448
E. $152
61.A $2,000 deposit to a tax-deferred retirement account for a person in a $25 percent tax
bracket would result in a reduced tax bill of
A. $2,000
B. $1,500
C. $1,200
D. $500
E. $300
62.A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an
average tax rate of ____ percent.
A. 8.6
B. 10.3
C. 12.3
D. 14.2
E. 16.7
63.Which of the following would be deducted from gross income to obtain adjusted gross
income?
A. alimony payments
B. mortgage interest
C. medical expenses
D. foreign income exclusion
E. charitable contributions
64.Reductions from gross income for such items as individual retirement account contributions
and alimony payments will result in:
A. adjusted gross income.
B. taxable income.
C. earned income.
D. passive income.
E. total exclusions.
65.Which of the following items is a set amount on which no taxes are paid?
A. itemized deductions
B. the standard deduction
C. an earned tax credit
D. withholding
E. capital gains
66.An expense that would be included in the itemized deductions of a taxpayer is:
A. travel to work.
B. life insurance premiums.
C. real estate property taxes.
D. a driver's license fee.
67.A deduction from adjusted gross income for yourself, your spouse, and qualified dependents
is:
A. the standard deduction.
B. a tax credit.
C. an itemized deduction.
D. an exclusion.
E. an exemption.
68.Michele Barbour is considering an additional charitable contribution of $2,000 to a taxdeductible charity, bringing her total itemized deductions to $16,000. If Michelle is in a 28
percent tax bracket, and is not subject to a phase out of deductions, how much will this $2,000
contribution reduce her taxes?
A. nothing
B. $560
C. $1,600
D. $2,000
E. $4,480
69.Which of the following would qualify a person for an exemption when computing taxable
income?
A. mortgage interest
B. a tax shelter
C. a dependent
D. charitable contributions
E. passive income
70.A tax ____________ is an amount subtracted directly from the amount of taxes owed.
A. credit
B. exemption
C. deduction
D. exclusion
E. shelter
71.A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by:
A. $10.
B. $28.
C. $14.
D. $50.
E. $35.
72.A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975
would:
A. receive a refund of $3,975.
B. owe $4,350.
C. owe $375.
D. receive a refund of $4,350.
E. receive a refund of $375.
73.An example of an itemized deduction is:
A. interest on a credit card or charge account.
B. certain job-related travel expenses.
C. the cost of commuting to work.
D. life insurance premiums.
E. a traffic violation fee.
74.The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this
most likely to be?
A. General sales tax
B. Excise tax
C. Personal property tax
D. Income tax
E. Estate tax
75.Tim Bridges purchases a bass fishing boat in the state of Oklahoma. The state imposes a
3.25% tax on the value of this purchase. What type of tax is this most likely to be?
A. General sales tax
B. Excise tax
C. Personal property tax
D. Income tax
E. Estate tax
76.Drew Davis earns $4500 per month from his job at Cisco Systems; $900 is withheld from this
amount each month for taxes. What type of tax is this most likely to be?
A. General sales tax
B. Excise tax
C. Personal property tax
D. Income tax
E. Estate tax
77.Kim Ye is single and earns $40,000 in taxable income. He uses the following tax rate
schedule to calculate the taxes he owes.
Calculate the dollar amount of estimated taxes that Kim owes.
A. $2,737.50
B. $6,747.50
C. $10,000.00
D. $17,587.50
78. If Edward received a $1,600 raise to increase his annual salary from $37,000 to $38,600
during a year with an annual inflation of 4%, what would his personal increase be in nominal
terms?
A. .3%
B. 4.15%
C. 4.3%
D. 6%
79. Using the same information as problem 93, what is his real personal increase?
A. .3%
B. 4.15%
C. 4.3%
D. 6%