Consumer Finance Practice Exam
Course Introduction
Consumer Finance explores the principles, concepts, and analytical tools essential for understanding how individuals and households manage their financial resources. The course covers topics such as budgeting, saving, credit and debt management, personal loans, mortgages, insurance, investing, retirement planning, and the impact of financial markets and institutions on consumer choices. Emphasis is placed on practical decision-making and strategies to enhance financial well-being, while also examining behavioral aspects affecting financial choices and the role of public policy in consumer financial protection.
Recommended Textbook
Personal Finance 4 4th Edition by Lawrence J. Gitman
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15 Chapters
2587 Verified Questions
2587 Flashcards
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Page 2
Chapter 1: Understanding the Financial Planning Process
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) The longer you wait to begin retirement planning,the less you will likely have in your retirement fund.
A)True
B)False
Answer: True
Q2) Your house is an example of a tangible asset.
A)True
B)False Answer: True
Q3) Long-term goals are typically for periods of over 6 years.
A)True
B)False Answer: True
Q4) Wealth can be defined as the net total value of all the things you own.
A)True
B)False Answer: True
Q5) The best way to achieve your financial objectives is to [save every extra dollar you can | develop a sound financial plan].
Answer: B
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Chapter 2: Using Financial Statements and Budgets
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) Total assets on your balance sheet are $6,000 and liabilities are $2,000.Your solvency ratio would be [67% | 33%].
Answer: A
Q2) Sonny and Cher have a net worth of $35,000 and total assets of $200,000.If their revolving credit and unpaid bills total $2,200,what are their long-term liabilities?
A) $115,000
B) $140,000
C) $142,200
D) $162,800
E) $165,000
Answer: D
Q3) If you use net salary as income on your budget,the expenditures section must include income and social security taxes.
A)True
B)False
Answer: False
Q4) Another term sometimes used for net worth is [collateral | equity].
Answer: B
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4
Chapter 3: Preparing Your Taxes
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191 Flashcards
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Sample Questions
Q1) Hector is a single taxpayer in the 28% marginal tax bracket.In 2013,he sold stock shares,which he held for 36 months,for a capital gain of $8,500.He also sold some financial services stock,which he held for 14 months,for a capital loss of $2,000.In addition,he sold the home that he had lived in for the past 3 years and experienced a $15,000 gain on the house.How much will his net capital gains (or losses)be for 2013? How much will he pay (or save)in taxes as a result of these transactions?
Answer: $6,500 long-term capital gain this year.The capital gain on the house is tax-free. $6,500 × .15 = $975 tax liability in 2013 as a result of the gain
Q2) Itemized deductions are listed on Schedule:
A) A.
B) B. C) C.
D) D.
E) F.
Answer: A
Q3) Interest you paid on your [vacation home | consumer] loan could be deducted.
Answer: A
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Page 5
Chapter 4: Managing Your Cash and Savings
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189 Flashcards
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Sample Questions
Q1) Financial institutions [must pay at least a federally mandated minimum interest rate | may pay any interest rate they want] on their various accounts.
Q2) Credit unions are generally [small | large] institutions when compared with commercial banks and savings and loan associations.
Q3) Asset management accounts are offered by most banks and are typically FDIC insured.
A)True
B)False
Q4) Connie Shockey wants to put funds in an account that does not offer checking privileges because she has a tendency to overspend.Which of the following would fit her criteria?
A) NOW account
B) An asset management account with overdraft protection
C) Money market mutual fund
D) Money market deposit account
E) Certificate of deposit
Q5) The key to a successful savings program is to save regularly.
A)True B)False
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Chapter 5: Making Automobile and Housing Decisions
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198 Verified Questions
198 Flashcards
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Sample Questions
Q1) Condominium and Townhome owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.
A)True
B)False
Q2) A loan-to-value ratio of 90 percent would require a buyer to make a 90% down payment.
A)True
B)False
Q3) Negative amortization is possible with a fixed-rate mortgage.
A)True
B)False
Q4) One who leases an automobile is typically responsible for early termination costs,even when early termination is due to theft or auto accidents.
A)True
B)False
Q5) Seeking mortgage preapproval [is | is not] recommended when you begin your house search.
Q6) The most popular type of lease is the [closed-end | open-end] lease.
Q7) [Lessor | Lessee] is another term for landlord.
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Chapter 6: Using Credit
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) A problem with home equity loans is the:
A) high rate of interest on these loans.
B) difficulty in qualifying for these loans.
C) short-term nature of these loans.
D) temptation to spread payments over a long term.
E) tax disadvantages of these loans.
Q2) Discount store and online sales have dropped in the aftermath of the recession.
A)True
B)False
Q3) Bank credit card purchases always begin accruing interest charges immediately.
A)True
B)False
Q4) Credit reports on individual borrowers are issued by credit bureau,a type of reporting agency.
A)True
B)False
Q5) In terms of overall household liabilities,[auto | home] loans comprise the largest share.
Q6) You are likely to have financial difficulty if your personal credit obligations exceed [15% | 20%] of your take-home pay.
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Chapter 7: Using Consumer Loans
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) The majority of consumer loans are made with [fixed | variable] interest rates.
Q2) Collateral is an item of value used to secure the principal portion of a loan.
A)True
B)False
Q3) _____ loans do not have to be repaid until after you graduate from college.
A) Stafford and Perkins
B) Stafford and PLUS
C) Perkins and PLUS
D) PLUS and SLS
E) Perkins and SLS
Q4) Single-payment loans are used mostly for short-term financing.
A)True
B)False
Q5) It is [legal | illegal] for a lender to charge a prepayment penalty.
Q6) Jamie is going to buy some furniture with a single-payment loan that is discounted.The loan will be for $5,000 for 2 years at 10% interest.Calculate the APR on this loan.
Q7) If the proceeds from the sale of your repossessed collateral are insufficient to pay the balance due on your loan,the lender usually [can | cannot] collect the deficiency from you.
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Chapter 8: Insuring Your Life
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153 Flashcards
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Sample Questions
Q1) _____ and _____ are both relatively expensive types of decreasing-term life insurance.
A) Group life; credit life
B) Credit life; mortgage life
C) Mortgage life; industrial life
D) Industrial life; special-purpose policies
E) Special-purpose policies; group life
Q2) The three major categories of life insurance are term,straight life,and limited payment.
A)True
B)False
Q3) Underwriting is:
A) selling insurance at a premium less than that of the competition.
B) payment of a claim.
C) a method for developing policy wording.
D) the determination of which exposures to insure.
E) none of these
Q4) The [policy owner | insurance company] makes the investment decisions with variable life insurance.
Q5) Most term insurance policies [are | are not] renewable.
Page 10
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Chapter 9: Insuring Your Health
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154 Flashcards
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Sample Questions
Q1) Typically group health insurance plans provide substantially less comprehensive coverage than the average individually underwritten policy.
A)True
B)False
Q2) Your right to continue a health insurance policy if you choose is known as:
A) policy exclusions.
B) co-insurance.
C) co-payment.
D) duration of benefits.
E) renewability.
Q3) Health insurance coverage can include:
A) group plans.
B) workers' compensation.
C) social security.
D) veteran's benefits.
E) all of the above
Q4) The major emphasis of dental insurance is to cover only extractions and x-rays.
A)True
B)False
Q5) "Long-Term Care" is a term used to describe [nursing home | extended hospital].
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Chapter 10: Protecting Your Property
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189 Flashcards
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Sample Questions
Q1) A $100,000/$300,000 bodily injury liability automobile policy could pay up to $100,000 to one person or up to $300,000 to several people seeking damages.
A)True
B)False
Q2) Covered liability perils do not include claims for libel,slander,or character defamation.
A)True
B)False
Q3) Kevin,who has liability limits of $20,000/$40,000/$20,000 and a $500 collision deductible,is involved in an accident.Due to his negligence he runs into a Rolls Royce.Three people sustained bodily injuries in the Rolls Royce.The driver's injuries were worth $1,000,000,a passenger received injuries worth $12,500,and another passenger received injuries of $7,100.How much will the PAP pay for these bodily injuries?
A) $20,000
B) $40,000
C) $39,600
D) $39,100
E) Some other amount
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Chapter 11: Investment Planning
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168 Verified Questions
168 Flashcards
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Sample Questions
Q1) The [DJIA | S&P Index] is based on 500 different stocks.
Q2) The SIPC provides protection to the investor from:
A) declining security prices.
B) low or missing dividend payments.
C) brokerage firm failure.
D) using margin requirements.
E) none of these
Q3) The [broker | dealer] market is made up of both the NASDAQ market and the OTC market.
Q4) Two hundred shares of stock would constitute [odd lot | round lot].
Q5) Investing is considered a short-term activity that involves the buying and selling of securities.
A)True
B)False
Q6) A statement specifying how investment capital will be invested in order to reach targeted goals is called a marketing plan.
A)True B)False
Q7) Fifty shares of stock would constitute [an odd lot | a round lot].
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Q8) The owner of a bond would expect to receive [steady | variable] annual income.
Chapter 12: Investing in Stocks and Bonds
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186 Verified Questions
186 Flashcards
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Sample Questions
Q1) John and Mary Smith own 500 shares of ABE stock.After the company pays a 6 percent stock dividend,John and Mary will own 530 shares of ABE stock.
A)True
B)False
Q2) A convertible bond is usually a:
A) government bond.
B) participating bond.
C) debenture.
D) mortgage bond.
E) junk bond.
Q3) Net profit margin is a key measure of profitability that relates the net profits of a firm to its sales.
A)True
B)False
Q4) [General obligation bonds | Revenue bonds] are the least risky municipal bond category.
Q5) The [lower | higher] a bond's rating,the more likely the issuer will default.
Q6) [Bond | Common stock] prices would be most affected by interest rate risk.
Q7) [Cash |Stock] dividends are the most common form of dividends.
Page 14
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Chapter 13: Investing in Mutual Funds
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170 Flashcards
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Sample Questions
Q1) A no-load mutual fund would most likely be sold by [a broker | calling the mutual fund company].
Q2) Socially responsible funds abstain from investing in alcohol,gambling,or tobacco stocks.
A)True
B)False
Q3) Sector funds may include stocks from different indexes.
A)True
B)False
Q4) No-load funds are generally sold directly to the investor without a salesperson.
A)True
B)False
Q5) Socially Responsible Funds typically avoid investing in:
A) environmentally sound companies.
B) alcohol and Tobacco stocks.
C) car companies that do not promote safety.
D) fast food chains that sell meat.
E) all of the above
Q6) The [custodian | investment advisor] buys and sells the stocks or bonds and otherwise oversees the portfolio.
Page 15
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Chapter 14: Planning for Retirement
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208 Flashcards
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Sample Questions
Q1) The need for retirement planning is increased by the uncertainties of:
A) inflation.
B) Social Security benefits.
C) the assets you hold.
D) your pension benefits.
E) all of these
Q2) Reduced early retirement Social Security benefits can be received at age 60.
A)True
B)False
Q3) Upon retirement,married couples automatically receive 1.5 times the higher earning spouse's Social Security benefit.
A)True
B)False
Q4) Danielle puts 8 percent of her paycheck in a 401(k)plan administered by her employer.Danielle earns $55,000 per year and is in the 28 percent tax category.What annual tax savings does she get from her contribution? If her employer matches contributions on the first 5% of her salary dollar for dollar and the second 5% 50 cents on the dollar,how much will her employer put into her account this year?
Q5) Inflation will have [little | great] impact on your retirement plans.
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Chapter 15: Preserving Your Estate
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160 Flashcards
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Sample Questions
Q1) In an irrevocable living trust,the donor relinquishes his title to the property.
A)True
B)False
Q2) A first will is revoked if a second legitimate will is created.
A)True
B)False
Q3) You would create a [living | testamentary] trust to be used during your lifetime.
Q4) When writing a will,you should seek the professional services of:
A) tax accountants.
B) attorneys.
C) executors.
D) intestate administrators.
E) trustees.
Q5) You are married with a 3-year old child.If you die without leaving a will,in most states [your spouse will inherit your entire estate | your spouse and child will share your estate].
Q6) Gift giving can reduce estate tax liability.
A)True
B)False
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