Personal Finance 11th Edition by E. Thomas Garman – Test Bank

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Description Personal Finance 11th Edition by E. Thomas Garman – Test Bank Sample Questions Instant Download With Answers Chapter 3—Financial Statements, Tools, and Budgets

TRUE/FALSE

1.

Financial planning focuses prmarily on spending wisely.

ANS: F financial planning also includes the management of risk and plans for capital accumulation

PTS: 1

2.

DIF:

easy

REF: p. 65

Financial planning begins by acquiring a good job that provides a person with enough extra income to manage.

ANS: F financial planning begins by examining values and setting financial goals.

PTS: 1

DIF:

moderate

REF: p. 65

3.

Financial planning is the process of developing and implementing short-term plans to achieve financial objectives.

ANS: F financial planning is long-term.

PTS: 1

4.

DIF:

easy

REF: p. 67

Financial planning is a single, customized plan regarding a person’s financial affairs.

ANS: F financial planning involves a series of plans.

PTS: 1

5.

DIF:

easy

REF: p. 65

Financial planning is only for the rich.

ANS: F people of all income and wealth levels benefit from doing financial planning.

PTS: 1

6.

DIF:

easy

REF: p. 65

Values have little impact on financial goals.

ANS: F personal values are the starting point for setting financial goals.

PTS: 1

7.

DIF:

easy

REF: p. 65

It is not necessary that your values be consistent with your financial and lifestyle goals.

ANS: F financial and lifestyle goals should be consistent with your values.

PTS: 1

8.

DIF:

easy

REF: p. 65

Values are fundamental beliefs regarding what consumer goods are worth.

ANS: F values are your beliefs about what is important, desirable and worthwhile.

PTS: 1

9.

easy

REF: p. 67

The concept of “pay myself first,” saving and investing before you pay other expenses, is a characteristic of successful financial managers.

ANS: T

10.

DIF:

PTS: 1

DIF:

moderate

REF: p. 67

Financial planning begins by examining one’s values.

ANS: T

PTS: 1

DIF:

easy

REF: p. 65

11.

Specific financial goals drive the creation of budgets.

ANS: T

12.

DIF:

easy

REF: p. 83

The major purpose of budgeting is to reach your financial goals.

ANS: T

13.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 83

The major purpose of budgeting is to make sure bills get paid.

ANS: F the major purpose of budgeting is to reach financial goals.

PTS: 1

14.

REF: p. 83

PTS: 1

DIF:

easy

REF: p. 65

Paying off debts is an example of a financial goal even though it does not involve a direct purchase.

ANS: T

16.

easy

Your goal in financial planning is to manage your income and wealth in such as way that your goals are met in a suitable manner.

ANS: T

15.

DIF:

PTS: 1

DIF:

moderate

REF: p. 67

Specific goals should be measurable, attainable, relevant, and time-related.

ANS: T

PTS: 1

DIF:

easy

REF: p. 67

17.

Among the intermediate-term goals for capital accumulation is having a fund for emergencies.

ANS: T

18.

DIF:

easy

REF: p. 83

Reducing the number of bank and credit accounts that each partner brings into the marriage can save money on account fees.

ANS: T

19.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 69

A balance sheet describes an individual’s financial progress over a period of time, generally a year.

ANS: F a balance sheet shows an individual’s financial status on a specified date.

PTS: 1

20.

moderate

REF: p. 69

A cash-flow statement summarizes transactions that have taken place over a specific period of time.

ANS: T

21.

DIF:

PTS: 1

DIF:

moderate

REF: p. 69

Monetary assets include cash and near-cash items that can be readily converted to cash.

ANS: T

PTS: 1

DIF:

easy

REF: p. 70

22.

Tangible assets are assets whose primary purpose is to provide maintenance of a lifestyle.

ANS: T

23.

PTS: 1

DIF:

moderate

REF: p. 70

In general, tangible assets do not depreciate in value over time.

ANS: F most tangible assets do depreciate over time.

PTS: 1

24.

DIF:

easy

REF: p. 70

Successful financial planning requires identifying the one best investment asset for an individual, then putting all of the individual’s surplus into that asset.

ANS: F successful financial planning involves using several investment assets.

PTS: 1

25.

moderate

REF: p. 70

Both IRAs and non-residential real estate property are investment assets.

ANS: T

26.

DIF:

PTS: 1

DIF:

easy

REF: p. 70

The balance sheet serves as an assessment of assets and liabilities at fair market value as of a specified date.

ANS: T

PTS: 1

DIF:

moderate

REF: p. 70

27.

For most people, the only way to increase net worth is to spend less than their income; people must save and invest.

ANS: T

28.

PTS: 1

DIF:

moderate

REF: p. 71-72

A balance sheet shows flows of income in and expenses out of your finances for a given period of time.

ANS: F the balance sheet shows the value of your assets and liabilities as of a specific date.

PTS: 1

29.

easy

REF: p. 70

Short-term liabilities are obligations to be paid off within one year.

ANS: T

30.

DIF:

PTS: 1

DIF:

easy

REF: p. 71

The liability section of a balance sheet would include money owed to a doctor or a lawyer but would not include money owed to a friend.

ANS: F all monies owed are included

PTS: 1

31.

DIF:

moderate

REF: p. 70-71

A person who has a negative net worth is technically insolvent.

ANS: T

32.

easy

REF: p. 71

PTS: 1

DIF:

easy

REF: p. 72

A cash-flow statement shows flows of income in and expenses out of your finances for a given period of time.

ANS: T

34.

DIF:

A cash-flow statement for a previous year would show whether you were able to live within your income.

ANS: T

33.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 72

A cash-flow statement shows the value of your assets and liabilities as of a specific date.

ANS: F the cash-flow statement shows flows of income in and expenses out of your finances for a given period of time.

PTS: 1

35.

easy

REF: p. 72

Keeping track of all income and expenses is very important to achieving your financial objectives.

ANS: T

36.

DIF:

PTS: 1

DIF:

easy

REF: p. 94

Savings set aside can be categorized as both fixed and variable expenses.

ANS: T

PTS: 1

DIF:

moderate

REF: p. 74

37.

It is usually easy to reduce a fixed expense.

ANS: F fixed expenses are difficult to reduce.

PTS: 1

38.

PTS: 1

DIF:

moderate

REF: p. 75

PTS: 1

DIF:

moderate

REF: p. 72

A surplus demonstrates that you are managing your financial resources successfully and do not have to use savings or borrow to make financial ends meet.

ANS: T

41.

REF: p. 74

Most people keep track of their finances on a cash basis rather than on an accrual basis.

ANS: T

40.

easy

The surplus section on an individual’s cash-flow statement is similar to net profit for a business.

ANS: T

39.

DIF:

PTS: 1

DIF:

moderate

REF: p. 75

Financial ratios are numerical calculations designed to make assessments of financial conditions more complex.

ANS: F financial ratios help make more sense of your financial situation.

PTS: 1

42.

moderate

REF: p. 77

Liquidity is the speed and ease with which an asset can be converted to cash.

ANS: T

43.

DIF:

PTS: 1

DIF:

easy

REF: p. 77

Many experts recommend that people should have assets equal to one year’s expenses in emergency cash reserves.

ANS: F financial experts tend to recommend a three-month emergency fund although some recommend up to six months.

PTS: 1

44.

DIF:

moderate

REF: p. 77

The liquidity ratio reveals how many months it would take to convert all assets into cash.

ANS: F this ratio relates only to monetary assets and how long they would last should income stop.

PTS: 1

45.

DIF:

moderate

REF: p. 77

You can use the liquidity ratio to determine the number of months that you could continue to meet your expenses using only your monetary assets should all income cease.

ANS: T

PTS: 1

DIF:

easy

REF: p. 77

46.

A family with two income earners will always need a greater amount of cash reserves than a family with one earner.

ANS: F the need for cash reserves relates to the amount of income and not whether it comes from one or multiple sources.

PTS: 1

47.

PTS: 1

DIF:

easy

REF: p. 69

PTS: 1

DIF:

moderate

REF: p. 77

The asset-to-debt ratio compares total assets with total liabilities and is a broad measure of a household’s financial liquidity.

ANS: T

50.

REF: p. 77

Households dependent on the income from a self-employed person may need a larger emergency cash reserve than others.

ANS: T

49.

moderate

By analyzing financial statements, a person can assess his or her financial condition and progress.

ANS: T

48.

DIF:

PTS: 1

DIF:

moderate

REF: p. 77

A person is insolvent when he or she doesn’t have enough current income to pay all of his or her current bills.

ANS: F

insolvent refers to not having enough assets to cover your liabilities¾a negative net worth.

PTS: 1

51.

DIF:

moderate

REF: p. 71

A low asset-to-debt ratio is a positive indicator of financial well-being.

ANS: F a high asset-to-debt ratio is desirable.

PTS: 1

52.

REF: p. 77

PTS: 1

DIF:

moderate

REF: p. 77

A debt service-to-income ratio of 0.36 or less is considered manageable for most families.

ANS: T

54.

moderate

The debt service-to-income ratio provides a view of total debt burden of an individual or family by comparing the dollars spent on gross annual debt repayments with gross annual income.

ANS: T

53.

DIF:

PTS: 1

DIF:

moderate

REF: p. 77

A debt service-to-income ratio of 0.36 or less indicates that disposable income is adequate to make debt repayments.

ANS: F a ratio of 0.36 or less indicates that gross income is adequate to make debt repayments.

PTS: 1

55.

DIF:

moderate

REF: p. 77

The debt payments-to-disposable-income ratio is gross income divided by monthly nonmortgage debt repayments.

ANS: F the ratio is monthly nonmortgage debt payments divided by monthly disposable income.

PTS: 1

56.

PTS: 1

DIF:

easy

REF: p. 78

PTS: 1

DIF:

easy

REF: p. 78

Keeping good records is a prerequisite for effective financial planning.

ANS: T

59.

REF: p. 78

The investment assets-to-total assets ratio compares the value of your investment assets with your total assets.

ANS: T

58.

easy

Disposable personal income is the amount of take-home pay remaining after all deductions are withheld for taxes, insurance, union dues, and other.

ANS: T

57.

DIF:

PTS: 1

DIF:

easy

REF: p. 94

Original deeds and mortgage papers should be stored in one’s home file.

ANS: F

such records are best kept in a safe-deposit box.

PTS: 1

60.

PTS: 1

DIF:

moderate

REF: p. 79

PTS: 1

DIF:

moderate

REF: p. 82-83

Budgeting gives one control over his or her finances.

ANS: T

63.

REF: p. 80

Budgeting is narrower in scope than overall financial planning as it is primarily concerned with projecting future income and expenditures over a period of time.

ANS: T

62.

moderate

Safe-deposit boxes take two keys to open, and the financial institution where the box is located keeps one of these keys.

ANS: T

61.

DIF:

PTS: 1

DIF:

easy

REF: p. 82

Once budget estimates are determined; one should not make any changes in the budget for at least one year.

ANS: F budget estimates should be revised as needed to reflect reality.

PTS: 1

64.

DIF:

easy

REF: p. 85-87

When setting up your budget for the month, it is useful to use prior months’ cash-flow statements to set your estimates for income and spending for the upcoming month..

ANS: T

65.

REF: p. 83

PTS: 1

DIF:

easy

REF: p. 85

PTS: 1

DIF:

easy

REF: p. 85

Discretionary income is the money left over once the necessities of living are covered.

ANS: T

68.

easy

To make realistic estimates of income and expenses, reliable financial information is critical. The more accurate the estimates, the more effective the budget.

ANS: T

67.

DIF:

Budget estimates are the projected dollar amounts in a budget that one plans to receive or spend during the period covered by the budget.

ANS: T

66.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 85

Discretionary income is the money people use to pay for the necessities of life.

ANS: F discretionary income is the money left over once the necessities of living are covered.

PTS: 1

69.

DIF:

moderate

REF: p. 85

Reconciling budget estimates includes reconciling conflicting needs and wants.

ANS: T

PTS: 1

DIF:

easy

REF: p. 85

70.

The best method to control overspending is to regularly monitor unexpended balances in each budget classification.

ANS: T

71.

DIF:

moderate

REF: p. 91

A budget variance is the difference between one’s actual expenditure with budgeted amount for a specific category.

ANS: T

72.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 93

A net surplus in your monthly budget can not be carried forward to the next month.

ANS: F a net surplus can be carried forward so that irregular expenses can be managed.

PTS: 1

73.

easy

REF: p. 94

When a college student saves all summer so that he or she has money available to live on during the school year; he or she is using a revolving savings fund.

ANS: T

74.

DIF:

PTS: 1

DIF:

moderate

REF: p. 87

After the budgeting period has ended, you need to add up the actual income received and expenditures made during that period.

ANS: T

PTS: 1

DIF:

easy

REF: p. 94

75.

Using credit cards to “balance” your budget is a proper budgeting tool.

ANS: F uses of credit cards are expenditures and not income.

PTS: 1

76.

REF: p. 75

PTS: 1

DIF:

easy

REF: p. 93

When budgeting, recordkeeping is the process of recording the sources and amount of dollars earned and spent.

ANS: T

78.

moderate

A budget variance is the difference between the amount budgeted and the actual amount spent or received.

ANS: T

77.

DIF:

PTS: 1

DIF:

easy

REF: p. 94

The use of automated teller machines is recommended as a valid method of controlling expenditures.

ANS: F simply using an ATM is not a good method of controlling expenditures unless the uses and purposes are recorded in one’s check register.

PTS: 1

MULTIPLE CHOICE

DIF:

easy

REF: p. 89

79.

Financial plans should include objectives and goals in which of the following areas?

a.

Spending

b.

Risk management

c.

Capital accumulation

d.

All of these

ANS: D

80.

PTS: 1

easy

REF: p. 65-67

The three broad areas of financial plans include financial plans for

a.

spending.

b.

risk management.

c.

capital accumulation.

d.

All of these.

ANS: D

81.

DIF:

PTS: 1

DIF:

The basis for financial planning is (are)

a.

a budget.

b.

personal values.

easy

REF: p. 64-65

c.

a balance sheet.

d.

goals.

ANS: B

82.

DIF:

easy

REF: p. 67

PTS: 1

DIF:

easy

REF: p. 67

Values are

a.

attitudes.

b.

needs.

c.

beliefs.

d.

wants.

ANS: C

83.

PTS: 1

Which of the following is the best example of a well-stated financial goal?

a.

Buy a $3,000 computer in 18 months

b.

Purchase a three-bedroom home in five years

c.

Buy a $2,000 stereo

d.

Pay off your credit cards as soon as possible

ANS: A as it contains the specifics of what, how much and when.

PTS: 1

84.

DIF:

difficult

REF: p. 67-68

Which of the following goals is most clearly stated?

a.

Save enough for a down payment on a house in five years

b.

Save $1,000 in one year for a vacation to San Diego

c.

Pay off all credit card balances

d.

Pay cash for a car

ANS: B as it contains the specifics of what, how much and when.

PTS: 1

85.

DIF:

moderate

REF: p. 67-68

The first step in the budgeting process is

a.

organizing.

b.

setting financial goals.

c.

decision making.

d.

evaluating.

ANS: B

86.

PTS: 1

DIF:

moderate

REF: p. 67-68

Hillary and Justin Palmer have a long-term goal of saving $6,000 for a down payment on a new vehicle they would like to buy in three years. Which of the following is a short-term goal that is most consistent with this long-term goal?

a.

Buy a new car every two years

b.

Save $2,000 this year

c.

Save $3,000 this year

d.

Accumulate $1,500 for a trip to Florida this year

ANS: B

87.

PTS: 1

DIF:

moderate

REF: p. 67-68

Financial goals

a.

should be explicitly stated.

b.

should be consistent with your values.

c.

all of these.

d.

none of these.

ANS: C

PTS: 1

DIF:

easy

REF: p. 67-68

88.

A successful financial plan includes

a.

specified values that underlie the plan.

b.

explicitly stated financial goals.

c.

logical and consistent financial strategies.

d.

all of these.

ANS: D

89.

PTS: 1

DIF:

moderate

The primary purpose of setting long-term financial goals is to help

a.

measure financial success or failure.

b.

provide direction for overall financial planning.

c.

acquire great wealth.

d.

achieve a comfortable retirement.

ANS: B

90.

REF: p. 65-68

PTS: 1

Financial goals should state

a.

the “what” of the goal.

b.

the “how much” of the goal.

DIF:

moderate

REF: p. 65

c.

the “when” of the goal.

d.

all of these.

ANS: D

91.

PTS: 1

DIF:

REF: p. 67

To set the stage for financial success, one must

a.

save money.

b.

start budgeting.

c.

identify financial values and goals.

d.

cut up all credit cards.

ANS: C

92.

easy

PTS: 1

DIF:

easy

REF: p. 67

The two most useful financial statements are ____ and ____.

a.

federal tax returns; income and expense statements

b.

cash-flow statements; balance sheets

c.

balance sheets; wills

d.

wills; federal tax returns

ANS: B

93.

PTS: 1

moderate

REF: p. 69

A balance sheet includes ____, ____, and ____.

a.

income; expenses; net worth

b.

assets; expenses; liabilities

c.

income; liabilities; net worth

d.

assets; liabilities; net worth

ANS: D

94.

DIF:

PTS: 1

DIF:

moderate

REF: p. 69

Which of the following provides information about a person’s financial condition at a specific point in time?

a.

Balance sheet

b.

Federal tax return

c.

Income and expense statement

d.

All of these

ANS: A

95. a.

PTS: 1

DIF:

moderate

REF: p. 69

A cash-flow statement is also known as a(n) ____ statement. income and expense

b.

net worth

c.

taxable income

d.

asset-and-liability

ANS: A

96.

PTS: 1

DIF:

easy

REF: p. 69

Rita and Jose Hernandez want to assess their financial progress over the next few years. They have decided to take a reading of their status every New Year’s Day. Which financial statement would they prepare each year?

a.

Will

b.

Cash-flow statement

c.

Balance sheet

d.

Federal income tax return

ANS: C as the balance sheet will tell them if their net worth is growing from year to year.

PTS: 1

97. a.

DIF:

difficult

REF: p. 69

Assets on the balance sheet are valued at their fair market value.

b.

original purchase price.

c.

replacement cost.

d.

sentimental value.

ANS: A

98.

PTS: 1

moderate

REF: p. 70

Which of the following types of assets is primarily used for emergencies, maintenance of living expenses, savings, and payment of bills?

a.

Monetary

b.

Tangible

c.

Investment

d.

Capital

ANS: A

99.

DIF:

PTS: 1

DIF:

easy

REF: p. 70

Which of the following types of assets is primarily used for the maintenance of a lifestyle?

a.

Monetary

b.

Tangible

c.

Investment

d.

Capital

ANS: B

100.

PTS: 1

DIF:

moderate

REF: p. 70

Which of the following is classified as a tangible asset?

a.

Motorcycle

b.

Cash

c.

Real estate investment

d.

Pension plan

ANS: A

PTS: 1

DIF:

moderate

REF: p. 70

101. Which of the following would be included in the category of assets known as monetary assets? a.

Money market accounts

b.

Stocks

c.

Bonds

d.

Real estate

ANS: A

PTS: 1

DIF:

easy

REF: p. 70

102.

Which of the following is classified as an investment asset?

a.

Certificates of deposit

b.

Money market accounts

c.

Primary residence

d.

Stocks

ANS: D

PTS: 1

DIF:

moderate

REF: p. 70

103. Vincent and Paula Farelli have decided to pay off their $875 MasterCard debt by taking $875 out of their money market savings account. This transaction will a.

increase their net worth on their balance sheet.

b.

not change their net worth on their balance sheet.

c.

decrease the surplus on their income and expense statement.

d.

not change the surplus on their income and expense statement.

ANS: B since it involves both a reduction in an asset and a reduction in a liability.

PTS: 1

DIF:

difficult

REF: p. 70-71

104.

Which of the following would be classified as a short-term liability?

a.

Next month’s rent

b.

Credit card debt

c.

Education loans

d.

A car loan

ANS: B

105.

PTS: 1

easy

REF: p. 71

Which of the following would be classified as a long-term liability?

a.

Credit card debt

b.

Bank card debt

c.

Education loan balance

d.

All of these

ANS: C

106.

DIF:

PTS: 1

DIF:

The formula for calculating net worth is

a.

income minus expenses.

b.

assets minus liabilities.

c.

income minus liabilities.

moderate

REF: p. 71

d.

assets minus expenses.

ANS: B

PTS: 1

DIF:

moderate

REF: p. 71

107. To construct a balance sheet, you need to compile dollar values for your assets and liabilities. Good sources from which to begin are a.

checkbook or savings account records.

b.

receipts of various payments.

c.

investments.

d.

all of these.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 79

108. Jason and Larissa would like to accumulate three times their monthly expenses in monetary assets. They currently have $2,800 in their money market account, and their monthly expenses are $4,500. How much more do they need in their money market account to reach their goal? a.

$13,500

b.

$3,900

c.

$10,700

d.

$1,700

ANS: C (3 x $4,500) – $2,800

PTS: 1

DIF:

moderate

REF: p. 70

109. Cindy Estrada is applying for a loan and the bank has asked her for some financial information. Use the following data to calculate Cindy’s net worth.

Checking account balance American Express credit card balance Money market account House Mortgage loan balance Automobile Cash on hand Auto loan balance

a.

$121,025

b.

$129,725

c.

$130,375

d.

$131,025

ANS: B $1,300 + $2,200 + $255,000 + $20,000 + $575 – $650 – $140,000 – $8,700

PTS: 1

DIF:

moderate

REF: p. 70-71

110. Maria Gomez would like to learn more about her financial situation. Help her calculate her current net worth.

Annual salary U.S. savings bond Money market fund Checking account balance MasterCard balance Value of automobile Outstanding auto loan

a.

$3,460

b.

$10,210

c.

$11,710

d.

$53,710

ANS: C $1,500 + $4,000 + $760 + $15,000 – $2,800 – $6,750

PTS: 1

111.

DIF:

difficult

REF: p. 70-71

A surplus on your cash-flow statement indicates that you are

a.

using savings to pay current expenses.

b.

managing your financial resources successfully.

c.

borrowing money to pay current expenses.

d.

both using savings to pay current expenses and borrowing money to pay current expenses.

ANS: B

PTS: 1

DIF:

difficult

REF: p. 72

112. Mack and Amy are making regular contributions of $200 a month from their salaries to a money market savings account. These transactions will

a.

increase their net worth on their balance sheet.

b.

decrease the surplus on their cash-flow statement.

c.

not change either their net worth or the surplus.

d.

both increase their net worth on their balance sheet and decrease the surplus on their incom

ANS: D as the practice increases their monetary assets and shows up as a savings amount in their expenditure column of their cash-flow statement.

PTS: 1

113.

DIF:

moderate

REF: p. 69-75

Which of the following is a characteristic of a cash-flow statement?

a.

It covers a period of time, usually one month or one year.

b.

It shows if you were able to live within your income for the period covered.

c.

The statement includes three sections: income, expenses, and surplus (or deficit).

d.

All of these.

ANS: D

PTS: 1

DIF:

easy

REF: p. 72-75

114. Child support received, Social Security benefits, and public assistance are all examples of

a.

expenses.

b.

assets.

c.

income.

d.

both assets and income.

ANS: C all are flows of money into one’s finances.

PTS: 1

115.

DIF:

moderate

Rent and insurance payments are examples of

a.

short-term liabilities.

b.

variable expenses.

c.

fixed expenses.

d.

long-term liabilities.

ANS: C

116. a.

REF: p. 73

PTS: 1

DIF:

moderate

REF: p. 74

Canceled checks provide a source of information for the value of assets.

b.

liabilities.

c.

income.

d.

expenditures.

ANS: D

117.

PTS: 1

easy

REF: p. 73-74

Food, clothing, and entertainment are examples of

a.

short-term liabilities.

b.

variable expenses.

c.

fixed expenses.

d.

long-term liabilities.

ANS: B

118.

DIF:

PTS: 1

DIF:

moderate

A net surplus at the end of the month could be

a.

used to pay down credit card debt.

b.

invested in a retirement account.

c.

carried forward to the next month.

REF: p. 74

d.

all of these.

ANS: D

PTS: 1

DIF:

easy

REF: p. 75

119. Paul is a college student who has the following financial information. He would like your help in figuring his surplus for last year.

Income from summer job Support from parents Scholarship Savings account balance Variable expenses Fixed expenses Current liabilities

What is Paul’s surplus? a.

$2,650

b.

$2,200

c.

$1,250

d.

$1,000

ANS: B $5,000 + $3,500 + $1,200 – $3,500 – $4,000

PTS: 1

120.

DIF:

difficult

REF: p. 73-76

The formula for calculating surplus (loss) is

a.

total income minus total expenses.

b.

assets minus liabilities.

c.

total income minus liabilities.

d.

assets minus total expenses.

ANS: A

PTS: 1

DIF:

easy

REF: p. 76

121. Julie and Alex have compiled their financial records and would like to know if they are living within their level of income. What is their surplus?

Salaries Interest income Food expenses Rent

Clothing costs Auto expenses Recreation Miscellaneous expenses

a.

$7,100

b.

$8,300

c.

$9500

d.

$12,500

ANS: B $48,000 + $1,200 – $10,500 – $14,400 – $3,600 – $4,200 – $4,800 – $3,400

PTS: 1

DIF:

moderate

REF: p. 73-76

122. Wendy Wilson, a successful graduate of State University, is currently employed in a position paying $37,500 a year. Wendy’s annual living expenses are only $33,000 so she has accumulated $4,600 in monetary assets and $27,000 in investment assets since her graduation. Use the liquidity ratio to figure how long Wendy could pay expenses if she were to lose her job. a.

Less than three weeks

b.

About two months

c.

Approximately seven months

d.

Approximately eleventh months

ANS: A $33,000 / 12 / $4,600 = 0.60 months

PTS: 1

DIF:

difficult

REF: p. 76

123. Tom and Kelly McDonald have total assets valued at $346,000 and total debt of $168,000. What is Tom and Kelly’s asset-to-debt ratio? a.

2.06

b.

1.00

c.

0.51

d.

0.49

ANS: A $346,000 / $168,000

PTS: 1

DIF:

moderate

REF: p. 77

124. Tran Phueong has monetary assets valued at $17,500 and monthly expenses of $2525. Using the liquidity ratio, how long could Tran live on his monetary assets if he were to lose his job? a.

Over 12 months

b.

About 7 months

c.

About 3 month

d.

Less than 1 month

ANS: B $17,500 / $2,525 = 6.93

PTS: 1

125.

DIF:

moderate

REF: p. 77

Janice Leno has the following assets and debts listed on her balance sheet:

Liquid Assets Tangible assets Investment assets Short-term liabilities Long-term liabilities

Janice’s asset-to-debt ratio is

a.

3.45

b.

2.54

c.

3.96

d.

0.29

ANS: A ($3,687 + $61,241 + $34,289) / ($4,631 + $24,134)

PTS: 1

DIF:

moderate

REF: p. 77

126. Robert and Jessica Stein have a gross income of $53,000 a year and annual expenses of $51,500 including taxes. Their annual debt payments total $15,000.

According to the recommended standards for the debt service-to-income ratio, the Steins’ ratio of a.

36 percent and is too high for easily manageable debt repayment.

b.

36 percent implies they have the ability to easily make their debt repayments.

c.

28 percent is much too high for easily manageable debt repayment.

d.

28 percent implies they have the ability to make their debt repayments.

ANS: D $15,000 / $53,000

PTS: 1

DIF:

difficult

REF: p. 78

127. Eric Jones develops computer software for a major company. Eric’s salary and bonuses total $82,000, but he pays $29,233 in income and Social Security taxes. If Eric’s annual debt repayments are $33,620, what is his debt service-to-income ratio? a.

41 percent

b.

64 percent

c.

36 percent

d.

77 percent

ANS: A $33,620 / $82,000

PTS: 1

DIF:

moderate

REF: p. 78

128. A debt-payments-to-disposable-income ratio of ____ percent or more is considered to be problematic. a.

10

b.

14

c.

15

d.

36

ANS: C

129.

PTS: 1

DIF:

moderate

REF: p. 78

Disposable income is income

a.

before taxes.

b.

after all employer withholding including taxes.

c.

after all employer withholding except taxes.

d.

minus fixed expenditures.

ANS: B

PTS: 1

DIF:

difficult

REF: p. 78

130. Stephen Scott’s monthly pay stub indicates that his monthly gross income is $3,800. However, $800 is withheld for income and Social Security taxes, $200 is withheld for his health and disability insurance, and another $200 is contributed to his pension plan. How much is Stephen’s disposable income? a.

$2,600

b.

$2,800

c.

$3,000

d.

$3,800

ANS: B

PTS: 1

DIF:

moderate

REF: p. 80

131. A debt-payments-to-disposable-income ratio with monthly nonmortgage debt repayments of $470 and a disposable income of $3,615 would be ____ percent. a.

13

b.

20

c.

8

d.

87

ANS: A $470 / $3,615

PTS: 1

DIF:

difficult

REF: p. 78

132. The Ronselli family has total assets of $460,000 and total liabilities of $186,000.

Included in their total assets are monetary assets of $47,000 and investment assets of $253,000. What is the Ronsellis’ investment assets-to-total assets ratio? a.

26 percent

b.

55 percent

c.

65 percent

d.

92 percent

ANS: B $253,000 / $460,000

PTS: 1

133.

DIF:

difficult

REF: p. 78

The advantages of having organized financial records include

a.

helping you save money as well as make money.

b.

helping you take advantage of all available tax deductions.

c.

enabling you to review the results of financial transactions.

d.

all of these.

ANS: D

134.

PTS: 1

easy

REF: p. 79-80

Which of the following is (are) characteristic of a safe-deposit box?

a.

Customer keeps all keys

b.

Takes two keys to open

c.

Come without an annual fee

d.

They are not secure

ANS: B

135.

DIF:

PTS: 1

DIF:

easy

Discretionary income is used to pay for things like

REF: p. 79

a.

utilities.

b.

vacations.

c.

housing.

d.

food.

ANS: B

PTS: 1

DIF:

easy

REF: p. 85

136. Matthew is concerned about his ability to save money regularly and has prepared a budget. Which of the following budget classifications would be most appropriate for Matthew’s budget? a.

Savings withheld from income and deposited directly to savings

b.

Savings as a fixed expenditure

c.

Savings as a variable expenditure

d.

Saving whatever may be left over

ANS: A

137.

PTS: 1

DIF:

moderate

REF: p. 83-84

There should be enough money in a revolving savings fund to

a.

pay all short-term debt.

b.

avoid running out of money.

c.

pay all fixed expenditures.

d.

pay for all long-term goals.

ANS: B

138.

PTS: 1

DIF:

moderate

REF: p. 87

The purpose of a revolving savings fund is to

a.

save for long-term goals.

b.

accumulate funds for large, irregular expenses.

c.

meet occasional deficits.

d.

both accumulate funds for large, irregular expenses and meet occasional deficits.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 87

139. Jerry and Gloria Collins expect the following cash surpluses or deficits the first three months of the year. The rest of the year they expect cash surpluses.

January

$100 surplus

February

$200 deficit

March

$150 deficit

Their revolving savings fund should be at least

a.

$100.

b.

$200.

c.

$250.

d.

$350.

ANS: C $200 + $150 – $100

PTS: 1

DIF:

difficult

REF: p. 87

140. The Thomas family projects a budget deficit of $250 in January and $450 in February with surpluses the rest of the year. Their revolving savings fund should be at least a.

$700.

b.

$450.

c.

$350.

d.

$250.

ANS: A $250 + $450

PTS: 1

141.

DIF:

moderate

REF: p. 87

Using a budget design that keeps a declining balance helps one

a.

control credit purchases.

b.

code expenses.

c.

monitor unexpended balances.

d.

use subordinate budgets.

ANS: C

142.

PTS: 1

DIF:

moderate

REF: p. 91

The strictest method of controlling budgets is

a.

justifying exceptions.

b.

monitoring unexpended balances.

c.

using subordinate budgets.

d.

using the envelope system.

ANS: D since when the money is gone no more spending can occur in the category.

PTS: 1

DIF:

difficult

REF: p. 91

143. The process of recording the sources and amounts of dollars earned and spent is called a.

record keeping.

b.

budgeting.

c.

financial planning.

d.

goal setting.

ANS: A

PTS: 1

DIF:

moderate

REF: p. 94

144. A budgeting device on which annual estimated income and expenses are recorded for each month in an effort to look at surplus or deficit situations is called a a.

cash-flow calendar.

b.

revolving savings fund.

c.

cash budget.

d.

budget control statement.

ANS: A

PTS: 1

DIF:

moderate

REF: p. 87

NARRBEGIN: Figure 3-1 Figure 3-1 Maria and John Sanchez have just completed their third annual set of financial statements. They met in a personal finance class while in college and still remember

their instructor’s advice regarding the importance of knowing their financial condition and progress. Even before they got married, they decided that each year on February 2 (Groundhog Day) they would update their cash-flow statement and their balance sheet.

The following information is taken from their latest financial statements:

Monetary assets Tangible assets Investment assets Short-term liabilities Long-term liabilities Annual gross income Annual take-home income Annual expenses (including taxes and debt repayment) Annual debt repayment

NARREND

145.

Refer to Figure 3-1. Calculate Maria and John’s current net worth.

a.

$26,325

b.

$25,025

c.

$23,825

d.

$16,325

ANS: C $4,060 + $35,800 + $15,005 – $3,690 – $27,350

PTS: 1

146.

DIF:

moderate

REF: p. 70-72

Refer to Figure 3-1. Calculate Maria and John’s surplus (loss) for the year.

a.

$2,503

b.

$1,200

c.

($1,200)

d.

($11,800)

ANS: B $48,000 – $46,800

PTS: 1

DIF:

moderate

REF: p. 72-76

147. Refer to Figure 3-1. According to the liquidity ratio, how long could Maria and John continue to meet their expenses after a total loss of income? a.

Less than 1 month

b.

Slightly more than 1 month

c.

Nearly 5 months

d.

Over 12 months

ANS: B $4,060 / ($46,800 / 12)

PTS: 1

148.

DIF:

moderate

REF: p. 77

Refer to Figure 3-1. What is Maria and John’s asset-to-debt ratio?

a.

0.57

b.

35.0

c.

2.56

d.

1.77

ANS: D $54,865 / $31,040

PTS: 1

DIF:

moderate

REF: p. 77

149. Refer to Figure 3-1. Calculate and evaluate Maria and John’s debt service-toincome ratio. a.

18 percent¾adequate income to repay debt

b.

18 percent¾in the danger zone

c.

25 percent¾adequate income to repay debt

d.

25 percent¾in the danger zone

ANS: A $8,700 / $48,000

PTS: 1

DIF:

difficult

REF: p. 77-78

150. Refer to Figure 3-1. Calculate Maria and John’s investment assets-to-total assets ratio. a.

35 percent

b.

50 percent

c.

63 percent

d.

27 percent

ANS: D $15,005 / $54,865

PTS: 1

151.

DIF:

REF: p. 78

A short-term goal is one that is projected to be acheived within how much time?

a.

one month

b.

three months

c.

one year

d.

five years

ANS: C

152.

difficult

PTS: 1

DIF:

moderate

REF: p. 83

A long-term goal is one that is projected to be acheived beyond how much time?

a.

six months

b.

one year

c.

five year

d.

ten years

ANS: C

PTS: 1

DIF:

moderate

REF: p. 83

Chapter 5—Managing Checking and Savings Accounts

TRUE/FALSE

1.

The goal of monetary asset management is to maximize interest earnings and minimizing fees while keeping funds safe and readily available.

ANS: T

2.

DIF:

easy

REF: p. 141

Monetary asset management includes setting money aside in a savings account for use later when making investments.

ANS: T

3.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 141

Cash management focuses primarily on your investment assets.

ANS: F cash management focuses on monetary assets.

PTS: 1

4.

moderate

REF: p. 141

Liquidity is the speed and ease with which an asset can be converted to cash.

ANS: T

5.

DIF:

PTS: 1

DIF:

easy

REF: p. 141

Unlike other providers of financial services, depository institutions can both take deposits and make loans to consumers.

ANS: T

6.

DIF:

easy

REF: p. 142

Today, even stock brokerages and insurance companies provide certain products for use in cash management.

ANS: T

7.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 143

Credit unions typically offer the widest variety of financial services.

ANS: F commercial banks offer the widest variety.

PTS: 1

8.

REF: p. 143

PTS: 1

DIF:

easy

REF: p. 143

The primary focus of savings banks is to accept savings from consumers and provide mortgage and consumer loans.

ANS: T

10.

easy

Commercial banks typically offer the widest variety of financial services.

ANS: T

9.

DIF:

PTS: 1

DIF:

easy

REF: p. 143

Deposits in credit unions with federal charters are insured through the National Credit Union Share Insurance Fund (NCUSIF).

ANS: T

PTS: 1

DIF:

moderate

REF: p. 143

11.

Mutual savings banks are called “mutual” because the depositors own the institution and share in the earnings.

ANS: T

12.

PTS: 1

DIF:

easy

REF: p. 143

Credit unions with federal charters have their accounts insured through the FDIC.

ANS: F they are insured through the National Credit Union Share Insurance Fund (NCUSIF).

PTS: 1

13.

DIF:

easy

REF: p. 143

The total protection an individual might have with any institution, including all its branches, is $250,000 with no more than $125,000 each on single-ownership and joint accounts.

ANS: F the total protection can be $500,000¾$250,000 each on individual and joint accounts.

PTS: 1

14.

difficult

REF: p. 143

A mutual fund is an investment company that raises money by selling shares to the public and then invests that money in a diversified portfolio of investments.

ANS: T

15.

DIF:

PTS: 1

DIF:

easy

REF: p. 144

One can increase the amount of money covered by FDIC insurance by dividing his or her money among different branche offices of the same depository institution.

ANS: F you must spread funds across several institutions in order to expand your insurance coverage.

PTS: 1

16.

DIF:

moderate

REF: p. 143

Money deposited in mutual funds is insured by the federal government.

ANS: F the federal deposit insurance programs only cover depository institutions.

PTS: 1

17.

moderate

REF: p. 143

A stock brokerage firm is a licensed financial institution that specializes in selling and buying stocks, bonds, and other investment alternatives.

ANS: T

18.

DIF:

PTS: 1

DIF:

easy

REF: p. 144

Stock brokerage firms are federally insured institutions.

ANS: F the federal deposit insurance programs only cover depository institutions.

PTS: 1

19.

DIF:

moderate

REF: p. 143

Stock brokerage firms earn commissions on clients’ stock transactions.

ANS: T

20.

PTS: 1

DIF:

easy

REF: p. 144

The only reason to have a checking account is so that one has an account for writing checks.

ANS: F checking accounts can earn interest.

PTS: 1

21.

PTS: 1

DIF:

easy

REF: p. 144

PTS: 1

DIF:

moderate

REF: p. 145

Interest-earning checking accounts are offered through savings banks and mutual savings banks as well as credit unions.

ANS: T

24.

REF: p. 144

The interest rate you earn on your checking and savings account can vary with the amount you have in the accounts.

ANS: T

23.

easy

When you use a debit card, funds are instantaneously removed from your account.

ANS: T

22.

DIF:

PTS: 1

DIF:

easy

REF: p. 144

A share draft account is the credit union version of a NOW account.

ANS: T

PTS: 1

DIF:

moderate

REF: p. 144-145

25.

Share draft accounts at credit unions are generally more expensive than NOW accounts at commercial banks.

ANS: F credit unions generally charge the lowest fees of all depository institutions.

PTS: 1

26.

moderate

REF: p. 145

Costs for a share draft account are often higher than for those for a checking account at a bank or savings bank.

ANS: F

27.

DIF:

PTS: 1

DIF:

moderate

REF: p. 145

NOW accounts get their name because they are considered demand deposits.

ANS: F NOW stands for negotiable order of withdrawal and is the type of checking account that pays interest.

PTS: 1

28.

moderate

REF: p. 144

College students who are independent of their parents may qualify for very lowcost lifeline banking accounts.

ANS: T

29.

DIF:

PTS: 1

DIF:

moderate

REF: p. 145

NOW accounts and share draft accounts with tiered interest will pay higher interest rates on larger balances.

ANS: T

30.

easy

REF: p. 144-145

PTS: 1

DIF:

easy

REF: p. 145

A stop-payment order works only if the check has not yet cleared.

ANS: T

32.

DIF:

Acceptance for a lifeline banking account is dependent on one’s income and net worth.

ANS: T

31.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 146

A written stop-payment order is valid for up to three years.

ANS: F such orders expire after six months unless renewed.

PTS: 1

33.

moderate

REF: p. 146

Traveler’s check companies guarantee replacement of lost checks if their serial numbers are identified.

ANS: T

34.

DIF:

PTS: 1

DIF:

easy

REF: p. 146

Fees of no more $10 are generally charged for money orders, certified checks and cashier’s checks.

ANS: F fees are based on the amount on the instrument and can be much higher.

PTS: 1

35.

DIF:

moderate

REF: p. 147

If your checking account balance drops to less than perhaps $50 at any point during a month you would likely be better off with a minimum deposit account in order to avoid fees.

ANS: F an average-balance account would be better in this situation as your average will be higher than your lowest balance.

PTS: 1

36.

DIF:

moderate

REF: p. 147

Banks offering a “free” checking account means that there are no fees for writing bad checks or using another bank’s ATM.

ANS: F “free” only relates to the assessment of monthly service charges.

PTS: 1

37.

moderate

REF: p. 145

Funds on deposit in a savings account are considered time deposits rather than demand deposits.

ANS: T

38.

DIF:

PTS: 1

DIF:

easy

REF: p. 147-148

Funds on deposit in a savings account are considered demand deposits.

ANS: F

they are considered time deposits.

PTS: 1

39.

moderate

REF: p. 147-148

Time deposits are savings that are expected to remain on deposit in a financial institution for an extended period.

ANS: T

40.

DIF:

PTS: 1

DIF:

easy

REF: p. 147-148

Demand deposits are savings that are expected to remain on deposit in a financial institution for an extended period.

ANS: F time deposits are expected to remain on deposit for an extended period of time.

PTS: 1

41.

easy

REF: p. 148

Institutions usually have a rule requiring that savings account holders give 30 to 60 days notice for withdrawals, although this restriction is seldom enforced.

ANS: T

42.

DIF:

PTS: 1

DIF:

moderate

REF: p. 148

Time deposits specify a period that the savings must be left on deposit, such as six months or three years.

ANS: F only fixed-time deposits such as CDs have this requirement.

PTS: 1

43.

REF: p. 148

PTS: 1

DIF:

easy

REF: p. 148

Institutions have a rule requiring that savings account holders give 30 to 60 days’ notice for withdrawals.

ANS: T

45.

moderate

Fixed-time deposits specify a period of time that the savings must be left on deposit.

ANS: T

44.

DIF:

PTS: 1

DIF:

easy

REF: p. 148

A long-term, fixed-rate certificate of deposit would be most appropriate when interest rates are moving up.

ANS: F fixed-rates in a market where rates are rising result in locking-in the lower initial rate.

PTS: 1

46.

DIF:

moderate

REF: p. 149

In general, the shorter the maturity time on a certificate of deposit, the higher the rate of interest that will be paid.

ANS: F the opposite is true as long-term CDs have higher rates.

PTS: 1

DIF:

moderate

REF: p. 148-149

47.

If one believes interests rates will move lower in the months ahead, he or she should invest in long-term, fixed-rate savings investments.

ANS: T

48.

PTS: 1

DIF:

moderate

REF: p. 149

It is highly recommended that CD investments be made at local bank-like institutions, even though some yield may be sacrificed.

ANS: F there is no need to have a local institution for CDs as you will not have access to the funds.

PTS: 1

49.

REF: p. 148-149

PTS: 1

DIF:

easy

REF: p. 148

Interest rates on longer-term CDs are usually higher than the comparable rates on shorter-term instruments.

ANS: T

51.

moderate

The interest rate in force when a CD is purchased typically remains fixed for the entire term of the deposit.

ANS: T

50.

DIF:

PTS: 1

DIF:

moderate

REF: p. 148

Bump-up CDs allow savers to bump up the interest rate once to a higher market rate.

ANS: T

PTS: 1

DIF:

easy

REF: p. 149

52.

Money withdrawn from a CD before the end of the specified time period is subject to interest penalties.

ANS: T

53.

REF: p. 149

PTS: 1

DIF:

moderate

REF: p. 149

PTS: 1

DIF:

moderate

REF: p. 148-149

Laddering CDs is a technique that smoothes out the fluctuations in interest rates.

ANS: T

56.

easy

It is possible to lose money on a certificate of deposit if the early withdrawal penalty is greater than the interest earned.

ANS: T

55.

DIF:

While the majority of certificates of deposit pay a fixed rate of interest, variablerate certificates of deposit are available.

ANS: T

54.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 149

The safest type of endorsement on a check is a blank endorsement.

ANS: F the safest type of endorsement is a restrictive endorsement¾blank endorsements are the least safe.

PTS: 1

57.

DIF:

easy

REF: p. 148

Checks mailed to the bank for deposit should always be endorsed with a restrictive endorsement.

ANS: T

58.

REF: p. 148

PTS: 1

DIF:

easy

REF: p. 148

PTS: 1

DIF:

moderate

REF: p. 147 | p. 152

If you have an automatic overdraft loan agreement with your bank, money will be borrowed from your MasterCard or Visa as a cash advance when you write a bad check.

ANS: T

61.

easy

Writing a “bad check” can be very expensive because of fees assessed by both the bank and the payee.

ANS: T

60.

DIF:

A check with a blank endorsement contains only the payee’s signature on the back.

ANS: T

59.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 153

An automatic funds transfer agreement is usually the most expensive way to avoid bad check fees.

ANS: F courtesy overdraft/bounce protection can be the most expensive.

PTS: 1

62.

DIF:

moderate

REF: p. 153

Courtesy overdraft/bounce protection can be very helpful if the institution will honor your debit card even if you have insufficient funds.

ANS: F

if the institution honors your card you may have to pay a fee for every single overdraft as you are unaware of the lack of sufficient funds.

PTS: 1

63.

DIF:

easy

REF: p. 150

PTS: 1

DIF:

easy

REF: p. 150

PTS: 1

DIF:

easy

REF: p. 148

Contributions to a Roth IRA and the earnings within it accumulate tax-free, and withdrawals are entirely free of tax after age 59.

ANS: T

67.

PTS: 1

The more frequent the compounding, the greater the effective return for the saver.

ANS: T

66.

REF: p. 153

A person whose income is dependent on commissions generally needs more readily available emergency fund than a salaried employee.

ANS: T

65.

moderate

Periodically, you should conduct an account reconciliation in which you compare your records with your bank’s records.

ANS: T

64.

DIF:

PTS: 1

DIF:

easy

REF: p. 151

Before age 59, the earnings in a Roth IRA, but not the contributions, can be used for college expenses (or any purpose) without incurring a penalty.

ANS: F the contributions can be used but not the earnings to avoid a penalty.

PTS: 1

68.

DIF:

moderate

REF: p. 151

Deposits into a Section 529 college savings plan are deductible, and withdrawals for qualified educational expenses are tax-free.

ANS: F deposits into a Section 529 plan are NOT deductible but the withdrawals for qualified educational expenses are tax-free.

PTS: 1

69.

REF: p. 151

PTS: 1

DIF:

easy

REF: p. 151

For children younger than 18, unearned income in a custodial account in excess of $1,900 is taxed at the parent’s rate.

ANS: T

71.

moderate

Non-deductible contributions up to a maximum of $2,000 per year may be made to a Coverdell education savings account.

ANS: T

70.

DIF:

PTS: 1

DIF:

easy

REF: p. 151

For children younger than 18, unearned income in a custodial account in excess of $950 is taxed at the parent’s rate.

ANS: F unearned income in a custodial account in excess of $950 is taxed at the child’s rate.

PTS: 1

DIF:

moderate

REF: p. 151

72.

For children younger than age 18, the first $1,700 of unearned income (the income earned from an investment) earned on custodial account assets is tax-free to the child.

ANS: F the first $950 of unearned income earned on custodial account assets is tax-free to the child.

PTS: 1

73.

moderate

REF: p. 151

Zero bonds are municipal, corporate, and government bonds that pay no annual interest.

ANS: T

74.

DIF:

PTS: 1

DIF:

easy

REF: p. 151

One should accumulate enough savings to cover living expenses for six to nine months.

ANS: F experts recommend an emergency fund of from three to six months of expenses.

PTS: 1

75.

DIF:

moderate

REF: p. 150

Certificates of deposit are available through stockbrokers as well as through bank-like institutions.

ANS: T

PTS: 1

DIF:

easy

REF: p. 149

76.

A Series EE savings bond is a type of discount bond.

ANS: T

77.

DIF:

easy

REF: p. 151

Federal income tax on interest earned on a Series EE U.S. government savings bond may be deferred until the bond is redeemed.

ANS: T

78.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 151

Interest accrued on a Series EE savings bond is tax-free at redemption if the proceeds are used for the purchase of your first home.

ANS: F the tax-free feature only applies to withdrawals to pay for a college education.

PTS: 1

79.

DIF:

moderate

REF: p. 151

Americans have the highest savings rates among the major countries of the world.

ANS: F they have among the lowest savings rates.

PTS: 1

80.

DIF:

easy

REF: p. 149

A grace period is the time period in days during which deposits or withdrawals can be made and still earn the same interest as other savings from a given day of the interest period.

ANS: T

81.

DIF:

easy

REF: p. 152

The Truth in Savings Act requires depository institutions to disclose a standardized rate of interest so that depositors can easily compare various savings options.

ANS: T

82.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 151

The term money market account describes a variety of high-interest earning accounts that normally have unlimited check-writing privileges.

ANS: F check-writing privileges are generally limited per month.

PTS: 1

83.

REF: p. 153

PTS: 1

DIF:

easy

REF: p. 153

If the balance on either a super NOW account or a money market deposit account falls below a specified level, the account generally earns interest at the lower rate paid on a regular NOW account.

ANS: T

85.

moderate

The initial minimum deposit on a super NOW account typically ranges from $1,000 to $2,500.

ANS: T

84.

DIF:

PTS: 1

DIF:

moderate

REF: p. 153

Completing a signature card is part of the process when opening a checking account.

ANS: T

86.

easy

REF: p. 155

PTS: 1

DIF:

moderate

REF: p. 155

A payable-on-death designation can be used to set up an individual account that automatically goes to another person when you die.

ANS: T

88.

DIF:

A joint account that gives each owner access to the account (without the other’s signature) is called a joint tenancy account with right of survivorship.

ANS: T

87.

PTS: 1

PTS: 1

DIF:

moderate

REF: p. 155

In community property states, the rights of the husbands and wives are unequally protected.

ANS: F the rights of spouses are equal in these states.

PTS: 1

89.

easy

REF: p. 155

A tenancy by the entirety account may be opened only by spouses.

ANS: T

90.

DIF:

PTS: 1

DIF:

easy

REF: p. 155

Money market deposit accounts are normally federally insured whereas money market mutual funds are not federally insured.

ANS: T

PTS: 1

DIF:

easy

REF: p. 153-154

91.

Money market mutual funds that buy only U.S. government securities are virtually risk-free.

ANS: T

92.

DIF:

moderate

REF: p. 154

An asset management account is a multiple-purpose, coordinated package that provides a wide variety of financial services.

ANS: T

93.

PTS: 1

PTS: 1

DIF:

easy

REF: p. 154-155

Everyone should use an asset management account to simplify their monetary asset management.

ANS: F these accounts are most appropriate for those who typically have $10,000 or more in monetary assets

PTS: 1

94.

DIF:

moderate

REF: p. 154-155

Everything else being the same, an investor would prefer an asset management account that “sweeps” weekly rather than daily.

ANS: F more frequent sweeps make the most of the benefits of these accounts.

PTS: 1

95.

DIF:

moderate

REF: p. 154- 155

Electronic funds transfers (EFTs) move money electronically between accounts rather than by check or cash.

ANS: T

96.

PTS: 1

DIF:

moderate

REF: p. 156

When a customer uses a debit card to pay for a purchase, funds will be charged to his or her credit card.

ANS: F debit card usage is covered immediately by a transfer out of the user’s checking account.

PTS: 1

97.

DIF:

easy

REF: p. 144

ATMs can be used to withdraw funds from a money market mutual fund.

ANS: F ATMs are only available in conjunction with accounts at depository institutions.

PTS: 1

98.

moderate

REF: p. 154

Some stored value cards can be “reloaded” with additional funds.

ANS: T

99.

DIF:

PTS: 1

DIF:

easy

REF: p. 156

Electronic benefits transfer (EBT) cards are used by the government to pay military personnel and provide Social Security and other government benefits.

ANS: T

PTS: 1

DIF:

easy

REF: p. 156

100. When you sign up for electronic banking services, the depository institution must inform you of your rights and responsibilities in a written disclosure statement.

ANS: T

101.

PTS: 1

DIF:

easy

REF: p. 157

Written receipts are not required when using an ATM or a POS terminal.

ANS: F receipts are required although many people ignore or toss them.

PTS: 1

DIF:

easy

REF: p. 157

102. Your losses from a stolen ATM card are unlimited if you fail to report unauthorized use within 30 days after your statement is mailed to you.

ANS: F you have 60 days to notify your bank however your losses can be as high as $500 if you wait more than two days.

PTS: 1

DIF:

moderate

REF: p. 158

103. Most homeowner’s and renter’s insurance policies cover your liability for theft of debit cards but not credit cards.

ANS: F theft from both types of cards is typically covered.

PTS: 1

DIF:

moderate

REF: p. 158

104. To be legally responsible for only the first $50 of unauthorized use, one must report an ATM card missing within two days after the loss or theft of the card.

ANS: T

PTS: 1

DIF:

moderate

REF: p. 158

105. Most homeowner’s and renter’s insurance policies cover the liability for theft of both debit and credit cards.

ANS: T

PTS: 1

DIF:

moderate

REF: p. 158

106. ATM cardholders are liable for only the first $50 of unauthorized use if they notify the issuing company within five business days after the loss or theft of their card or PIN.

ANS: F they must make the notification within two days to be afforded this protection.

PTS: 1

DIF:

moderate

REF: p. 158

107. Financial experts recommend that each person in a relationship keep some money of his or her own.

ANS: T

PTS: 1

DIF:

easy

REF: p. 159

MULTIPLE CHOICE

108. a.

Management of ____ is not included in monetary asset management. tangible assets

b.

savings accounts

c.

money market accounts

d.

checking accounts

ANS: A

109.

PTS: 1

DIF:

easy

REF: p. 141

Which of the following are examples of monetary assets?

a.

Cash on hand, corporate stock, and insurance

b.

Money market accounts, cash on hand, and certificates of deposit

c.

Savings accounts, interest-earning checking accounts, and corporate stock

d.

Real estate, money market accounts, interest-earning checking accounts

ANS: B

PTS: 1

DIF:

moderate

REF: p. 141

110. The speed and ease by which an asset can be converted into cash is referred to as its a.

risk.

b.

liquidity.

c.

diversity.

d.

safety.

ANS: B

111.

PTS: 1

easy

REF: p. 141

Which of the following does not apply to monetary assets?

a.

Very safe

b.

High liquidity

c.

High return

d.

All of these

ANS: C

112.

DIF:

PTS: 1

DIF:

easy

REF: p. 141

Common financial services offered by depository institutions include

a.

checking, lending, and savings.

b.

checking, real estate sales, and savings.

c.

credit cards, stock brokerage, and tax preparation.

d.

legal advice, savings, and life insurance.

ANS: A

only banks provide all three of these.

PTS: 1

113.

DIF:

difficult

REF: p. 142-143

The Federal Deposit Insurance Corporation (FDIC) insures accounts in

a.

commercial banks.

b.

credit unions.

c.

brokerage companies.

d.

commercial banks and credit unions.

ANS: A

114.

PTS: 1

DIF:

moderate

REF: p. 143

Which of the following statements is true regarding mutual savings banks?

a.

Mutual savings banks provide financial services nationwide.

b.

Accounts in mutual savings banks are not federally insured.

c.

Mutual savings banks are quite similar to savings banks.

d.

Holding savings is the only financial service provided by mutual savings banks.

ANS: C

PTS: 1

DIF:

moderate

REF: p. 142

115.

Which of the following is not true about commercial banks?

a.

Commercial banks are corporations chartered under federal and state regulations.

b.

Accounts in federally chartered commercial banks are insured against loss by the Bank Insur

c.

Commercial banks offer numerous consumer services.

d.

Commercial banks generally pay depositors an interest rate about 0.10 to 0.20 percentage p

ANS: D

116.

PTS: 1

DIF:

difficult

REF: p. 143

Depositors of savings are the owners of

a.

credit unions.

b.

mutual savings banks.

c.

savings banks.

d.

credit unions and mutual savings banks.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 143

117. Not-for-profit, common-bond financial institutions that are owned by their members are called a.

credit unions.

b.

mutual savings banks.

c.

credit bureaus.

d.

savings banks.

ANS: A

118.

PTS: 1

DIF:

easy

REF: p. 143

____ typically pay the highest rates of interest on savings.

a.

Commercial banks

b.

Credit unions

c.

Savings banks

d.

Mutual savings banks

ANS: B

PTS: 1

DIF:

moderate

REF: p. 143

119. Tom and Mindy want to keep $420,000 in cash equivalents that are federally insured. They could accomplish this by a.

investing $170,000 in a money market mutual fund and $250,000 in a federally insured cred

b.

dividing it equally into three different joint accounts in the same federally insured bank.

c.

dividing it equally into two different joint accounts in two different federally insured savings

d.

putting $75,000 in two joint accounts in different branches of the same bank.

ANS: C since the funds are in two different institutions they will be protected up to $250,000 in each.

PTS: 1

DIF:

difficult

REF: p. 143

120. The Federal Deposit Insurance Corporation (FDIC) currently insures against loss of up to ____ per person in an individual account at any one institution. a.

$50,000

b.

$100,000

c.

$250,000

d.

$500,000

ANS: C

121.

PTS: 1

DIF:

moderate

State-chartered credit unions are often insured by

a.

NCUSIF.

b.

FDIC.

c.

SAIF.

d.

MSB.

REF: p. 143

ANS: A

122.

PTS: 1

DIF:

easy

A stock brokerage firm is a licensed financial institution that

a.

buys and sells stocks and bonds.

b.

provides investment alternatives.

c.

offers money market mutual fund accounts.

d.

all of these.

ANS: D

123.

PTS: 1

DIF:

moderate

REF: p. 144

Stock brokerage firms typically offer

a.

money market mutual fund accounts.

b.

checking accounts.

c.

certificates of deposit.

d.

savings accounts.

ANS: A

124.

REF: p. 143

PTS: 1

DIF:

moderate

REF: p. 144

A lifeline checking account is accurately described as an account that

a.

always pays interest.

b.

assesses monthly fees depending on the maximum balance in the account.

c.

assesses no charges for ATM transactions.

d.

can be accessed using a debit card.

ANS: D

125.

PTS: 1

DIF:

moderate

Which of the following sets NOW accounts apart from other checking accounts?

a.

They are safer.

b.

They are time deposits.

c.

They can be accessed by a debit card.

d.

They pay interest.

ANS: D

126.

REF: p. 145

PTS: 1

DIF:

easy

REF: p. 142 | p. 143

How can a person transfer money out of his or her checking account?

a.

Write a check.

b.

Use an ATM.

c.

Make electronic funds transfers.

d.

All of these.

ANS: D

PTS: 1

DIF:

easy

REF: p. 144 | p. 156

127. When an account pays one rate of interest on a minimum amount on deposit and a higher rate of interest on additional deposits, this is called ____ interest. a.

compound

b.

variable

c.

tiered

d.

none of these

ANS: C

128.

PTS: 1

DIF:

moderate

REF: p. 145

Checks you write and present for payment can clear your bank in as little as

a.

Minutes.

b.

Hours.

c.

One day.

d.

Three days.

ANS: A

with electronic scanning a check can clear immediately.

PTS: 1

DIF:

difficult

REF: p. 146

129. Molly went to her bank, gave the teller $200 plus a small fee, and received ten $20 checks. What kind of checks were these? a.

Certified checks

b.

Money orders

c.

Cashier’s checks

d.

Traveler’s checks

ANS: D

PTS: 1

DIF:

easy

REF: p. 146

130. Which of the following types of payment instruments could you get at your local post office? a.

Certified check

b.

Money order

c.

Cashier’s check

d.

Traveler’s check

ANS: B

PTS: 1

DIF:

easy

REF: p. 146

131. A check drawn on a financial institution, backed by the financial institution’s finances, and made out to a specific payee is called a a.

certified check.

b.

money order.

c.

cashier’s check.

d.

traveler’s check.

ANS: C

132.

PTS: 1

DIF:

moderate

REF: p. 146

Which of the following could incur fees and penalties on a checking account?

a.

The account holder uses an ATM not owned by the financial institution.

b.

A customer asks the financial institution to not honor a particular check.

c.

The account balance falls below a set minimum amount.

d.

All of these.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 145

133. Someone who consistently falls below the minimum balance in his or her checking account for only a few days during each month needs to open a checking account that computes the balance by the ____ method. a.

minimum-balance

b.

quarterly compounding

c.

APY

d.

average daily balance

ANS: D

134.

PTS: 1

DIF:

moderate

REF: p. 145

Which of the following is not a benefit of a savings account?

a.

Account holders must give 30 to 60 days’ notice for withdrawals.

b.

Account holders are provided with printed receipts to document their account transactions.

c.

Account holders have the ability to make frequent deposits or withdrawals of funds.

d.

No fees are assessed as long as a low minimum balance is maintained.

ANS: A

135.

PTS: 1

DIF:

easy

REF: p. 148

Characteristics of a savings account include that

a.

no fees are assessed as long as a low minimum balance ($50 to $250) is maintained.

b.

account transactions are not accessible through ATMs.

c.

no printed receipts are provided to document account transactions.

d.

it permits the frequent deposit or withdrawal of funds.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 148

136. Certificates of deposit (CDs) tend to pay higher rates of interest than money market accounts because a.

CDs are not government insured and therefore are riskier investments than money market a

b.

the required minimum investment for CDs is higher than for money market accounts.

c.

there are higher annual fees charged for CDs than for money market accounts.

d.

the investor agrees to leave his or her money in the CD for a specified period of time while h

ANS: D the guarantee that the money will remain in the account makes CDs more attractive to the institution accepting the funds.

PTS: 1

DIF:

difficult

REF: p. 148-149

137. A ____ allows savers to add up to 100 percent of the initial deposit whenever desired. a.

certificate of deposit

b.

variable-rate certificate of deposit

c.

bump-up certificate of deposit

d.

brokered certificate of deposit

ANS: C

PTS: 1

DIF:

moderate

REF: p. 149

138. If Gus Solis believes interest rates are going to fall in the near future and remain low for several years, Gus should now a.

invest in a variable-rate certificate of deposit.

b.

invest in a long-term, fixed-rate certificate of deposit.

c.

invest in a short-term, fixed-rate certificate of deposit.

d.

bury his money in fruit jars in the back yard.

ANS: B

PTS: 1

DIF:

moderate

REF: p. 148-149

139. In general, you will receive higher rates of interest on your certificate of deposit the ____ the maturity and the ____ the dollar amount invested. a.

shorter; smaller

b.

longer; smaller

c.

longer; larger

d.

shorter; larger

ANS: C

PTS: 1

DIF:

moderate

REF: p. 148-149

140. Which of the following types of investments can potentially provide tax-exempt interest if the principal and interest are used to pay a child’s college education? a.

Certificates of deposit

b.

A government-issued super NOW account

c.

Series EE U.S. government bonds

d.

Money market mutual fund

ANS: C

PTS: 1

DIF:

easy

REF: p. 151

141. Which of the following statements regarding Series EE U.S. savings bonds is not true? a.

A $100 bond can be purchased for $50.

b.

The interest is usually compounded semiannually.

c.

Interest is tax-free at redemption if the proceeds are used to fund a child’s college education

d.

The interest on the bonds is paid out semiannually.

ANS: D

PTS: 1

DIF:

difficult

REF: p. 151

142. Diana and Kim are roommates in college and Diana owes Kim for last month’s rent. When Diana receives a check from her mother for the rent, what type of endorsement should Diana use to sign this check over to Kim?

a.

Blank endorsement

b.

Restrictive endorsement

c.

Special endorsement

d.

Trailing endorsement

ANS: C

PTS: 1

DIF:

moderate

REF: p. 148

143. Which of the following is the least expensive way of protecting yourself from fees should you overdraft your checking account. a.

An automatic funds transfer agreement

b.

An automatic overdraft loan agreement

c.

Opt-in overdraft/bounce protection

d.

Paying the overdraft/bounced check fee

ANS: A

PTS: 1

DIF:

moderate

REF: p. 153

144. Which of the following could be the most expensive way of protecting yourself from fees should you overdraft your checking account? a.

An automatic funds transfer agreement

b.

An automatic overdraft loan agreement

c.

Opt-in overdraft/bounce protection

d.

Paying the overdraft/bounced check fee

ANS: C because your bank will continue to honor your debit card you can rack up multiple fees without realizing that you are in an overdraft situation.

PTS: 1

145.

DIF:

difficult

REF: p. 153

Which type of bank agreement will result in the lowest fees?

a.

an automatic funds transfer agreement.

b.

an automatic overdraft loan agreement.

c.

courtesy overdraft/bounce protection agreement.

d.

pay the bounced check fee itself.

ANS: A

PTS: 1

DIF:

moderate

REF: p. 153

146. Jack and Jill have trouble keeping their checking account balanced. Because they never know how much is really in their account, they have an automatic funds transfer agreement with their bank. When Jack or Jill writes a bad check, what will happen? a.

The needed funds will automatically be borrowed from their Visa account.

b.

The needed funds will automatically be transferred from their savings account.

c.

The bank will honor the check and then call Jack and Jill and ask that they deposit the neede

d.

The bank will stamp the check “insufficient funds” and return it to the payee.

ANS: B

PTS: 1

DIF:

moderate

REF: p. 153

147. Which of the following is a reason why you should reconcile your bank accounts regularly? a.

You or your bank may have made a computational error.

b.

Checks you have written may not have cleared your account.

c.

Fees may have been assessed lowering your balance below what you think you have on dep

d.

All of these

ANS: D

148.

PTS: 1

DIF:

easy

REF: p. 150

Which of the following is the best advice for people who want to start saving?

a.

Fools and their money are soon parted.

b.

Pay yourself first.

c.

Marry in haste, respect at leisure.

d.

There’s no fool like an old fool.

ANS: B

149.

PTS: 1

DIF:

easy

REF: p. 149

Which of the following is not a benefit of a savings account?

a.

A way to save for your child’s education

b.

Builds funds for large, irregular expenses

c.

Protection against inflation

d.

A way to achieve short-term savings goals

ANS: C

PTS: 1

DIF:

moderate

REF: p. 148

150. Ronald’s gross income is $60,000, and his living expenses consume 75 percent of his gross income. According to financial experts, Ronald should set aside ____ to cover emergencies. a.

$22,500 to $45,000

b.

$5,000 to $10,000

c.

$15,000 to $30,000

d.

$11,250 to $22,500

ANS: D ($60,000 x 0.75 / 12) x 3 and ($60,000 x 0.75 / 12) x 6

PTS: 1

DIF:

difficult

REF: p. 150

151. According to financial advisers, a family with monthly living expenses of $2,500 should maintain readily accessible savings of at least a.

$2,500.

b.

$5,000.

c.

$7,500.

d.

$10,000.

ANS: C

152.

PTS: 1

DIF:

moderate

REF: p. 150

Which of these is a reason many don’t save?

a.

Their belief that spending is better when inflation is low

b.

Not having a credit card precludes them from purchasing essentials

c.

The high annual percentage yields (APYs) for savings accounts

d.

Their belief that they have no money left over at the end of the month

ANS: D

PTS: 1

DIF:

moderate

REF: p. 149

153. Interest paid on deposits in financial institutions is based on how much money is on deposit and a.

how the balance is determined.

b.

the interest rate applied.

c.

the frequency of compounding.

d.

all of these.

ANS: D

154.

PTS: 1

moderate

REF: p. 151

Savers should select an institution that calculates interest

a.

daily.

b.

weekly.

c.

monthly.

d.

quarterly.

ANS: A

155.

DIF:

PTS: 1

DIF:

easy

REF: p. 151

Wise money managers should select the savings option that

a.

pays the highest annual percentage yield (APY).

b.

avoids excessive fees.

c.

avoids excessive penalties.

d.

all of these.

ANS: D

156.

PTS: 1

DIF:

moderate

REF: p. 152

The Truth in Savings Act requires depository institutions to

a.

offer life-line banking.

b.

use the annual percentage yield in advertising.

c.

provide federal deposit insurance on savings accounts.

d.

pay at least 3.5 percent interest on savings.

ANS: B

PTS: 1

DIF:

moderate

REF: p. 151

157. Which of the following mechanisms for saving for a child’s college education shelters the income earned in the account from taxes? a.

Section 529 college savings plan

b.

Coverdell education savings account

c.

Roth IRA

d.

All of these

ANS: D

PTS: 1

DIF:

moderate

REF: p. 151

158. Discount bonds are sold to investors at ____ discounts from their face value and may be redeemed at ____ value on maturity. a.

minor; partial

b.

significant; face

c.

significant; partial

d.

minor; face

ANS: B

PTS: 1

DIF:

moderate

REF: p. 151

159. Which of the following forms is used to notify you of the taxable interest you have earned in a given year from a checking or savings account? a.

1099 Form

b.

W-2 Form

c.

1040 Form

d.

W-4 Form

ANS: A

PTS: 1

DIF:

moderate

REF: p. 153

160. Bob and Tina Cisneros have $3,000 to put in an emergency fund. Which of the following would be the most appropriate choice for the emergency fund? a.

Money market deposit account

b.

Two-year certificate of deposit

c.

Series EE U.S. savings bonds

d.

NOW account

ANS: A

PTS: 1

DIF:

difficult

REF: p. 152-153

161. Which of the following accounts could accurately be called a money market account? a.

Share draft account

b.

Asset management account

c.

NOW account

d.

Series EE savings bond

ANS: B

PTS: 1

DIF:

easy

REF: p. 152-153

162. List the money market accounts according to the interest rate generally paid on each account (from highest to lowest).

a.

Super NOW account, money market deposit account, and money market mutual fund

b.

Money market deposit account, money market mutual fund, and super NOW account

c.

Money market mutual fund, money market deposit account, and super NOW account

d.

Money market deposit account, super NOW account, and money market mutual fund

ANS: C

PTS: 1

DIF:

difficult

REF: p. 152-153

163. An individual checking or savings account can be set up to go automatically to another person when the depositor dies if it is set up as a(n) a.

payable at death account.

b.

obituarial account.

c.

estate account.

d.

joint tenancy account.

ANS: A

PTS: 1

DIF:

moderate

REF: p. 143

164. The assets in a ____ account are distributed to the heirs of the deceased according to the terms of the will. a.

joint tenancy with right of survivorship

b.

tenancy in common

c.

tenancy by the entirety

d.

tenancy in common and tenancy by the entirety

ANS: B

PTS: 1

DIF:

difficult

REF: p. 155

165. Husbands and wives who own a checking or savings account together would most likely want to set up the account with a.

tenancy in common.

b.

a payable on death designation.

c.

joint tenancy.

d.

periodic tenancy.

ANS: C in this way each can have complete access to the funds at any time.

PTS: 1

DIF:

difficult

REF: p. 155

166. In community property states, most of the money and property acquired during a marriage are legally considered the property of a.

both spouses.

b.

the husband.

c.

the wife.

d.

the individual who bought it.

ANS: A

PTS: 1

DIF:

easy

REF: p. 155

167. Amy and Lance are newlyweds. This is Lance’s second marriage. Because of problems that occurred before his divorce (his ex-wife took all the money out of their joint accounts), he is more cautious than most about setting up joint accounts. Which type of account would you recommend for Amy and Lance? a.

Tenancy by the entirety

b.

Tenancy in common

c.

Trustee account

d.

Joint tenancy account with right of survivorship

ANS: A both spouses would need to give permission for transfers out of this type of account.

PTS: 1

DIF:

difficult

REF: p. 155

168. Andy and Marjorie have very little will power when it comes to spending. They want to put their savings in an instrument that cannot be accessed by their ATM card. Which instrument would meet this criterion? a.

Savings account

b.

Super NOW account

c.

Money market mutual fund

d.

NOW account

ANS: C

PTS: 1

DIF:

moderate

REF: p. 154

169. Absent-minded Alfred lost his ATM card on May 1. He reported it missing the next day; however, $600 had been withdrawn from his checking account. According to the Electronic Funds Transfer Act, how much of this $600 loss is Alfred responsible for? a.

$0

b.

$50

c.

$500

d.

$600

ANS: B

PTS: 1

DIF:

difficult

REF: p. 158

170. A personal identification number is not needed for which of the following forms of electronic funds transfers? a.

ATM transactions

b.

Direct deposits

c.

Debit cards

d.

Point-of-sale transactions

ANS: B

PTS: 1

DIF:

moderate

REF: p. 156

171. A customer who wanted to directly transfer funds from his or her bank account to a retailer’s bank account would use a(n) a.

automated teller machine.

b.

electronic funds transfer.

c.

check.

d.

credit card.

ANS: B

PTS: 1

DIF:

easy

REF: p. 156

172. Richard generally keeps approximately $15,000 in checking and savings at his local financial institution. He makes several deposits and withdrawals to his accounts each month. Richard is interested in earning the highest interest possible, but he doesn’t want to worry about transferring funds between his NOW account and his money market deposit account. Which type of account(s) would you recommend as a possible alternative for Richard? a.

Asset management account

b.

Super NOW account

c.

NOW account and a money market mutual fund

d.

NOW account and a savings account

ANS: A

PTS: 1

DIF:

moderate

REF: p. 152-155

173. Which of the following accounts typically requires the largest minimum deposit to open and has the highest fees? a.

Super NOW account

b.

Money market mutual fund

c.

Asset management account

d.

Money market deposit account

ANS: C

PTS: 1

DIF:

moderate

REF: p. 152-155

174. Which of the following money market accounts includes a credit card and a debit card along with other accounts in one coordinated package? a.

Money market deposit account

b.

Asset management account

c.

Money market mutual fund

d.

Super NOW account

ANS: B

PTS: 1

DIF:

easy

REF: p. 152-155

175.

Electronic funds transfers (EFTs)

a.

can transfer funds electronically.

b.

can be used in place of checks.

c.

are paperless.

d.

all of these.

ANS: D

PTS: 1

DIF:

easy

REF: p. 156

176. Having your pay sent directly to your bank rather than have a check given to you is a type of a.

Shared accounting.

b.

Direct deposit.

c.

Check cancellation.

d.

NOW account.

ANS: B

PTS: 1

DIF:

easy

REF: p. 157

177. Which of the following is (are) required to withdraw money from an automated teller machine (ATM)? a.

Debit card

b.

Credit card

c.

Personal identification number

d.

ATM card and personal identification number

ANS: D

178.

PTS: 1

DIF:

moderate

REF: p. 156

A personal identification number (PIN) is required when using a(n)

a.

automated teller machine (ATM).

b.

point-of-sale (POS) terminal.

c.

stored-value card.

d.

automated teller machine and point-of-sale terminal.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 156

179. A POS terminal is an electronic computer terminal located at a store or other merchant location that allows the customer to a.

use a personal check.

b.

make a cash withdrawal.

c.

get a cash advance.

d.

make purchases.

ANS: D

PTS: 1

DIF:

easy

REF: p. 156

180. Which type of cash management instrument could also be used by a college student to access his or her meal plan? a.

Credit card

b.

Debit card

c.

Stored-value card

d.

Electronic money

ANS: C

PTS: 1

DIF:

moderate

REF: p. 156

181. Darla had $750 in her checking account when her ATM card and PIN were stolen.

Assuming the thief withdrew $525 from the account, how much could she save by reporting the stolen ATM card immediately rather than waiting three months before reporting the theft? a.

$50

b.

$525

c.

$475

d.

$500

ANS: C

PTS: 1

DIF:

difficult

REF: p. 159

182. Which of the following is not a technique for reducing the risk whenever you conduct banking transactions on-line? a.

Avoid using someone else’s computer to manage your account.

b.

Regularly change your password and keep it to yourself.

c.

When finished, always hit the log off button at the top of the page instead of just closing the

d.

Leave the computer on when finished.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 157-158

183. Which of the following ideas will not help you discuss money with more confidence and candor? a.

Get to know yourself.

b.

Learn to manage financial disagreements.

c.

Be honest and talk regularly.

d.

Make it clear that your needs and wants are more important than your spouse’s.

ANS: D

PTS: 1

DIF:

moderate

REF: p. 161-162

184.

Special concerns for blended families include

a.

determining who assumes financial responsibility for biological offspring and stepchildren.

b.

handling resentment over alimony and child-support payments.

c.

managing unequal assets, incomes, responsibilities, and debts.

d.

all of these.

ANS: D

PTS: 1

DIF:

easy

REF: p. 161

185. Both commercial bank and savings bank accounts are insured by the FDIC through a fund called the a.

bank insurance fund.

b.

deposit insurance fund.

c.

savings bank insurance fund.

d.

fiduciary trust fund.

ANS: B

186.

PTS: 1

DIF:

moderate

REF: p. 143

The regulator of commercial banks and saving banks is the

a.

Federal Deposit Insurance Corporation.

b.

Securities and Exchange Commission.

c.

Home Loan Bank Board.

d.

Comptroller of the Currency.

ANS: D

PTS: 1

DIF:

difficult

REF: p. 143

187. Because certificates of deposit require that the deposited funds remain on deposit for a specified period of time they are subject to a.

interest rate risk.

b.

fixed withdrawal risk.

c.

market risk.

d.

systemic risk.

ANS: A

PTS: 1

DIF:

moderate

REF: p. 149