Personal Finance Semester Test Review
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____
____
____
____
____
____
____
____
____
____
____
____
____
1. The way in which people make, distribute, and use their goods and services is called ____.
a. opportunity cost
c. economics
b. short-term goals
d. wealth-watch
2. Interest earned on previously earned interest is called compounding or ____.
a. future value computations
c. doubling down
b. economics
d. inflation
3. Financial plans that are more than five years off are called ____.
a. opportunity plans
c. intermediate goals
b. long-term goals
d. attainable goals
4. The trade-off made by making one choice instead of another is commonly referred to as a(n) ____.
a. trade decision
c. economic choice
b. personal preference
d. opportunity cost
5. Saving for vacation next summer or paying off small debts are examples of ____.
a. opportunity planning
c. long-term goals
b. short-term goals
d. opportunity results
6. Spending, saving, and investing to have the kind of life you want and financial security can be achieved by
____.
a. personal financial planning
b. paying interest
c. discussing your financial situation with a friend
d. regulating inflation
7. The amount of goods and services available for sale is called ____.
a. demand
c. supply
b. reserve
d. economy
8. The central banking organization of the United States is called the ____.
a. Bank of America
c. Federal Bank Reserve
b. United States Reserve Bank
d. Federal Reserve System
9. The name for computations that allow you to determine how much money to deposit now to earn a desired
amount in the future is ____.
a. present value
c. values
b. value assignment
d. future value
10. A series of equal regular deposits is called ____.
a. serial deposits
c. a personal financial plan
b. an annuity
d. a paycheck
11. Someone who enjoys nature and the outdoors may have an aptitude for a career in ____.
a. forestry management
c. teaching English
b. clothes design
d. engineering
12. A demographic trend that has boosted careers in health, physical fitness, and recreational products is more
____.
a. working parents
c. elderly people
b. leisure time
d. ongoing job training
13. In recent years, some of the fastest growing job markets have been in ____.
a. New York
c. Illinois
____ 14.
____ 15.
____ 16.
____ 17.
____ 18.
____ 19.
____ 20.
____ 21.
____ 22.
____ 23.
____ 24.
____ 25.
____ 26.
____ 27.
b. California
d. Arizona
High interest rates are likely to reduce employment opportunities in ____.
a. food services
c. teaching
b. construction
d. health care
A good way to gain experience that often leads to permanent employment is a(n) ____.
a. internship
c. classroom assignment
b. volunteer position
d. an after-school activity
A cover letter gives a potential employer ____.
a. a summary of your qualifications
b. a year-by-year outline of your experience
c. the highlights of your skills and abilities
d. the reason you want a particular job
Good places to look for job listings include all the following EXCEPT ____.
a. The Occupational Outlook Handbook
b. newspapers
c. the Internet
d. job fairs
A pension plan is a ____.
a. plan for maternity leave
b. plan for increases in pay
c. retirement plan funded in part by employers
d. free life insurance policy
An example of a tax-exempt benefit is ____.
a. vacation time
c. a 401(k) plan
b. free life insurance
d. a flexible work schedule
By law an employer must pay for a portion of ____.
a. child care
c. fitness programs
b. Social Security
d. legal assistance
A disadvantage of using a safe deposit box for keeping financial documents is that it ____.
a. fails to protect documents from fire
c. can cost $100 a year to rent
b. takes up too much space in your home
d. cannot store canceled checks
An example of a liquid asset is a ____.
a. savings account
c. retirement account
b. bond
d. house
An example of a current liability is ____.
a. a car loan
c. a mortgage
b. taxes
d. a student loan
A cash flow statement gives you important feedback on your ____.
a. assets and liabilities
c. income and spending patterns
b. short-term and long-term debts
d. net pay and gross pay
One use of discretionary funds is spending on ____.
a. groceries
c. videos
b. transportation
d. medication
An example of a variable expense is ____.
a. cable television charges
c. insurance premiums
b. bus fare to school or work
d. electric bills
Your net worth goes up when you ____.
a. spend more than you earn
c. borrow money to pay a deficit
____ 28.
____ 29.
____ 30.
____ 31.
____ 32.
____ 33.
____ 34.
____ 35.
____ 36.
____ 37.
____ 38.
____ 39.
____ 40.
____ 41.
b. pay off previous debts
d. withdraw money from your savings
The first step in planning a budget is ____.
a. estimating income
c. listing fixed expenses
b. setting financial goals
d. budgeting for savings
A good budget has all the following characteristics EXCEPT ____.
a. inaccessibility
c. practicality
b. flexibility
d. careful planning
A savings option many employers offer is ____.
a. paying interest on employees’ savings
b. sending employees’ children through college
c. writing a check for employees’ savings accounts
d. putting paycheck deductions in employees’ retirement funds
The lowest price is generally the wisest choice when ____.
a. you can afford to buy any of the options
b. quantity and quality are basically the same
c. you cannot afford to buy the best quality
d. prices and quality differ
Products often purchased using price negotiation are ____.
a. shampoos
c. CD players
b. swimsuits
d. automobiles
A drawback of paying on credit is having ____.
a. additional fees
c. extra money for emergencies
b. more interest on savings
d. delivery charges
A good time to find a bargain on a swimsuit is at a ____.
a. clearance sale
c. “back-to-school” sale
b. “white” sale
d. mid-season sale
An advantage of a cooperative is that it ____.
a. has a limited number of products
c. offers few customer services
b. saves its members money
d. sells only to its members
An advantage to direct selling is ____.
a. prompt delivery
c. convenience
b. easy return policies
d. swift refunds
When shopping, avoid ____.
a. making a list
c. comparing prices
b. store-brand products
d. impulse buying
Better Business Bureaus handle ____.
a. class-action lawsuits
b. complaints against local merchants
c. potentially unsafe products
d. standards for chemicals, cosmetics, and medical devices
To find a local dispute resolution program, a person should contact ____.
a. the Food and Drug Administration
c. small claims court
b. the Consumer Safety Commission
d. his or her U.S. congressperson
Disagreements in small claims courts are usually settled by ____.
a. judges
c. mediation
b. juries
d. arbitration
Which of the following financial services is best suited for saving money over a period of years?
a. certificate of deposit
c. demand deposit
____ 42.
____ 43.
____ 44.
____ 45.
____ 46.
____ 47.
____ 48.
____ 49.
____ 50.
____ 51.
____ 52.
____ 53.
b. checking account
d. mortgage loan
Credit cards allow you to ____.
a. spend only the amount in your account
b. borrow money for a short term
c. protect your checks from thieves
d. transfer money between accounts on-line
You give up liquidity when you ____.
a. buy a certificate of deposit
c. open a savings account
b. use an ATM
d. recharge a stored-value card
The Federal Deposit Insurance Corporation insures depositors against losing their money in the case of a
____.
a. lost debit card
c. bank failure
b. stolen paycheck
d. death in the family
Compared with commercial banks, credit unions generally offer ____.
a. higher interest rates on loans
c. higher interest on savings
b. fewer financial services
d. lower fees and loan rates
To earn high interest rates on a certificate of deposit, you must accept all the following limitations EXCEPT
____.
a. leaving money in for the term of the deposit
b. paying a penalty when money is withdrawn
c. completing a monthly bank reconciliation
d. depositing a minimum amount
In which kind of savings plan does the interest rate vary from month to month?
a. regular savings
c. money market
b. certificate of deposit
d. U.S. Savings Bonds
If you deposit $100 in an account with an annual interest rate of 6 percent compounded monthly, after 12
months you will have ____.
a. $6
c. $106
b. $6.18
d. $106.18
When writing a check, include all of the following EXCEPT ____.
a. the current date
c. your signature on the front
b. the name of the payee
d. an endorsement on the back
The first step in balancing a checkbook is ____.
a. subtracting fees on the bank statement from the checkbook balance
b. comparing checks in the check record with those on the statement
c. adding interest earned to the checkbook balance
d. adding recent deposits to the bank statement balance
An example of open-end credit is a(n) ____.
a. mortgage
c. installment loan
b. automobile loan
d. a credit card charge
The interest is tax deductible on a ____.
a. bank loan
c. home equity loan
b. credit union loan
d. credit card loan
Credit card holders are known as convenience users when they ____.
a. pay off their balances each month
b. carry balances beyond the grace period
c. pay finance charges
d. carry smart cards
____ 54. The finance charge on a credit card is calculated using the ____.
a. debt payment-to-income ratio
c. minimum down payment
b. annual percentage rate
d. term of the loan
____ 55. A higher interest rate is usually the trade-off for a ____.
a. minimum down payment
c. short-term loan
b. secured loan
d. simple interest loan
____ 56. Which of the “five Cs of credit” require that a person’s assets exceed his or her liabilities?
a. character
c. capital
b. capacity
d. collateral
____ 57. A credit bureau is required to follow reasonable procedures to make sure that ____.
a. creditors extend credit to retirees
b. eligible borrowers on public assistance receive credit
c. banks avoid the practice of redlining
d. the information in a person’s file is correct
____ 58. How should a cardholder begin to correct a mistake on a credit card bill?
a. stop payment on the creditor’s check
b. shred papers that contain personal information
c. notify the creditor in writing
d. get a new Personal Identification Number
____ 59. The Consumer Credit Counseling Service offers to ____.
a. erase legitimate debts that consumers owe
b. supervise debt repayment plans
c. grant money for repaying debts
d. help debtors declare bankruptcy
____ 60. In a Chapter 13 bankruptcy, the debtor usually gets to ____.
a. keep most of his or her property
c. avoid paying debts arising from fraud
b. discontinue alimony payments
d. stop payments on educational loans
____ 61. Renting is often a wise choice for someone who wants ____.
a. pets
c. privacy
b. stability
d. mobility
____ 62. A disadvantage of renting is ____.
a. more responsibilities
c. restricted lifestyle
b. high initial costs
d. eligibility for tax deductions
____ 63. Your biggest monthly expense as a tenant is the ____.
a. rent
c. utilities
b. security deposit
d. renter’s insurance
____ 64. An example of an attached home is a ____.
a. one-story ranch
c. prefabricated house
b. town house
d. mobile home
____ 65. A home inspector is responsible for ____.
a. negotiating a house’s purchase price
b. recommending lawyers and real estate agents
c. evaluating the house and the land
d. arranging financing for the purchase
____ 66. The listing price is the amount that the ____.
a. owner asks for the house
c. buyer accepts for the house
b. buyer offers for the house
d. buyer borrows to finance the house
____ 67. A bank pays the full amount of a mortgage to ____.
____ 68.
____ 69.
____ 70.
____ 71.
____ 72.
____ 73.
____ 74.
____ 75.
____ 76.
____ 77.
____ 78.
____ 79.
____ 80.
a. the buyer
c. the seller
b. a savings and loan
d. an escrow account
What might a buyer do to get a low interest rate?
a. buy mortgage insurance
c. pay an application fee
b. pay points
d. amortize
Many government-guaranteed loans offer lower interest rates because they are ____.
a. available to moderate-income buyers
b. given to eligible veterans of the armed services
c. accompanied by extra insurance fees
d. repaid by the government if the borrower defaults
A lender may ask a buyer to deposit money in an escrow account for paying ____.
a. property taxes
c. loan interest
b. closing costs
d. the principal
Which risk component is most likely at fault when an investor’s stock becomes worthless?
a. inflation
c. business failure
b. interest rates
d. financial markets
Of the following investments, the one with the most predictable income is ____.
a. gold
c. real estate
b. commodities
d. U.S. Savings Bonds
“Growth” companies typically reinvest their profits rather than ____.
a. pay dividends
b. expand operations
c. conduct research
d. increase their stock’s value
A corporation gets it equity capital from its ____.
a. sole proprietor
c. stockholders
b. partners
d. professional managers
After a company fails, who has first rights to its remaining assets?
a. corporate bond holders
c. common stockholders
b. mutual fund investors
d. preferred stockholders
Which question should you ask when selling real estate?
a. Is the property in good condition?
b. Can the buyer get the required financing?
c. Will the property decrease in value?
d. What is the condition of other properties in the area?
In an investment program "pyramid," investing in baseball cards would be a possible investment for ____.
a. Level 1
c. Level 3
b. Level 2
d. Level 4
The largest financial planners are monitored by the ____.
a. Securities and Exchange Commission
c. Harvard Business Review
b. Chartered Financial Consultants
d. Survey of Current Business
Short-term capital gains are ____.
a. taxed as regular income
c. tax-exempt
b. not taxed
d. tax-deferred
The purpose of the Dow Industrial Average is to ____.
a. disclose a company's assets and liabilities
b. discontinue alimony payments
c. describe companies' management
____ 81.
____ 82.
____ 83.
____ 84.
____ 85.
____ 86.
____ 87.
____ 88.
____ 89.
____ 90.
____ 91.
____ 92.
____ 93.
d. improve investment skills
A legal form that asks stockholders to transfer their voting rights is called a(n) ____.
a. security
c. preemptive right
b. proxy
d. stock split
Preferred stock offers investors all the following advantages EXCEPT ____.
a. dividends before common stockholders receive any
b. a higher yield than common stock
c. more potential growth than common stock
d. less risk than common stock
A participation feature provides preferred stockholders with ____.
a. safety and the possibility of greater returns
b. a share in the earnings that remain after required and stated dividends are paid
c. omitted dividends at a later payment period
d. dividends before common stockholders receive any
Financial professionals consider shares in AT&T ____.
a. blue-chip stocks
c. cyclical stocks
b. growth stocks
d. penny stocks
Stock that has steady earnings and continues paying dividends even during economic declines is known as
____.
a. cyclical stock
c. small cap stock
b. growth stock
d. defensive stock
An example of a financial magazine that provides information about specific companies is ____.
a. AMEX
c. Barron’s
b. Yahoo
d. Stocks
What is the formula for calculating the total return on a stock?
a. annual dividend ÷ current market value
b. current return + capital gain
c. dividend x number of shares x years held
d. net earnings ÷ common stock outstanding
Most over-the-counter stock is traded through ____.
a. IPOs
c. AMEX
b. the NYSE
d. Nasdaq
A stop order requests that a stockbroker ____.
a. buy a stock at the best possible price
c. buy or sell a stock at its current value
b. decide when to sell a stock
d. sell a stock for a specific amount
An example of a short-term investment strategy is ____.
a. the buy-and-hold technique
c. dollar cost averaging
b. buying stock on margin
d. a dividend reinvestment plan
Some states collect a personal property tax on ____.
a. gasoline
c. automobiles
b. alcoholic beverages
d. medicines
The federal government collects a gift tax when ____.
a. one person gives another land worth $20,000
b. parents make tuition payments equal to $30,000 for you
c. you spend $100,000 in medical expenses
d. you receive a check for $5,000
Earned income includes ____.
a. dividends from investments
c. interest from banks
____ 94.
____ 95.
____ 96.
____ 97.
____ 98.
____ 99.
____ 100.
____ 101.
____ 102.
____ 103.
____ 104.
____ 105.
____ 106.
____ 107.
____ 108.
b. bonuses from work
d. student loan interest
Which amounts are NOT included in your gross income?
a. exemptions
c. exclusions
b. reductions
d. deductions
Earnings on a traditional IRA are ____.
a. tax-exempt
c. taxed income
b. tax-deferred
d. tax credits
Which itemized deduction is subject to limitations if it is more than 20 percent of a person’s income?
a. medical expenses
c. home equity loan interest
b. state income tax
d. charitable contributions
A tax credit is subtracted from ____.
a. gross income
c. taxable income
b. adjusted gross income
d. taxes owed
A self-employed person is subject to a penalty if he or she ____.
a. pays only 90 percent of the taxes owed in estimated payments
b. sends quarterly payments equal to last year’s taxes but less than this year’s
c. fails to make quarterly payments on time
d. claims a refund two years after filing
A person must use Form 1040 if he or she ____.
a. makes less than $50,000
c. has $300 in taxable interest
b. deducts medical expenses
d. claims a tax credit for child care
The interest made from municipal bonds is usually ____.
a. taxable income
c. tax-exempt
b. tax-deferred
d. an earned income credit
A person joins an insurance company by purchasing a contract called a ____.
a. premium
c. policy
b. fee
d. claim
In insurance, anything that may possibly cause a loss is known as a ____.
a. risk
c. hazard
b. peril
d. liability
Insurance risks involving losses caused by negligence are called ____.
a. personal risks
c. liability risks
b. property risks
d. speculative risks
Buying an insurance policy is an example of risk ____.
a. avoidance
c. assumption
b. reduction
d. shifting
A household inventory is ____.
a. insurance that covers a specific item
c. documentation of personal belongings
b. coverage that protects your residence
d. additional living expenses
People with homeowner’s insurance also need to obtain worker’s compensation for ____.
a. baby-sitters
c. friends
b. cooks
d. guests
Which term refers to loss in value as an item gets older?
a. depreciation
c. replacement value
b. cash value
d. endorsement
Collision insurance covers ____.
a. injuries to persons in an auto accident the insured person causes
b. damage to the auto of the insured person no matter who is at fault
____ 109.
____ 110.
____ 111.
____ 112.
____ 113.
____ 114.
____ 115.
____ 116.
____ 117.
____ 118.
____ 119.
____ 120.
c. damage to an uninsured auto in an accident the uninsured causes
d. medical expenses for anyone injured in the auto of the insured
Many states with no-fault insurance systems require ____.
a. wage loss insurance
c. rental reimbursement coverage
b. emergency road service coverage
d. property damage liability
A driver’s insurance premium rates will probably increase if he or she ____.
a. moves to a rural area
b. buys an auto that requires simple repairs
c. takes a driver training course
d. receives several traffic tickets
Which cost does physician expense coverage usually meet?
a. local ambulance service
c. anesthesia
b. routine nursing care
d. doctor visits
A provision that requires a policyholder to pay all costs up to a certain amount after which the insurance
company pays 100 percent of the remaining is called ____.
a. stop-loss
c. copayment
b. coinsurance
d. comprehensive major medical
Policyholders are paid in cash under ____.
a. dental expense insurance
c. hospital indemnity policies
b. dread disease policies
d. long-term care insurance
Policyholders pay higher premiums for health insurance with ____.
a. high deductibles
c. internal limits
b. out-of-pocket limits
d. aggregate limits
Private companies offer ____.
a. Medicare Part A
c. Medigap
b. Medicare Part B
d. Medicaid
Which government Web site provides information about the safety of various medical devices?
a. Healthfinder
b. Medline
c. National Institute of Health Information Page
d. Food and Drug Administration
Worker’s compensation is available only to workers who ____.
a. are injured on the job
c. work for the state
b. do not have Social Security
d. are injured at home
Which provision in a disability insurance policy is most likely to raise the premium?
a. a long elimination period
c. benefits for accidents only
b. benefit payments to age 65
d. guaranteed renewability
Life insurance that pays less to the beneficiary as time passes is known as ____.
a. renewable term
c. conversion term
b. multiyear level term
d. decreasing term
Term life insurance with a cash value is called a ____.
a. limited payment policy
c. universal life policy
b. variable life policy
d. credit life insurance policy