Finance for Non-Business Majors Practice Questions
Course Introduction
This course introduces fundamental financial concepts and tools tailored for students without a business background. Topics include personal finance management, basics of financial statements, budgeting, investment principles, time value of money, risk and return, and an overview of financial markets. Emphasis is placed on practical applications, critical thinking, and everyday decision making, enabling students to confidently navigate personal and professional financial situations regardless of their primary field of study.
Recommended Textbook
Personal Finance Turning Money into Wealth 7th Edition by Arthur J. Keown
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Chapter 1: The Financial Planning Process
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Sample Questions
Q1) Evaluating your financial health consists of
A) preparing a personal balance sheet.
B) determining what you are worth.
C) preparing a personal income statement.
D) determining where your money comes from and where it goes.
E) all of the above.
Answer: E
Q2) What elements are found in an effective financial plan?
A) Flexibility to allow for changes in your situation
B) Sufficient liquidity to meet unexpected needs
C) Insurance protection from catastrophic events
D) Helps you legally reduce the amount of taxes you owe
E) All of the above
Answer: E
Q3) Salaries vary for individuals working in similar jobs for different companies,but one thing is clear: the more specialized skills and training a job requires,the higher the job tends to pay.
A)True
B)False
Answer: True
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Chapter 2: Measuring Your Financial Health and Making a Plan
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Sample Questions
Q1) Suppose that you have been operating an online marketing business out of your home,and the business has recently expanded beyond belief.Since you have neglected your personal finances for some time,what would you do as a first step?
A) Separate your personal finances from the business finances.
B) Combine your personal finances and business finances to save time.
C) Rent a separate office for your business activities.
D) Purchase a software program to handle both your business and personal finance at the same time.
Answer: A
Q2) Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet.
A)True
B)False
Answer: True
Q3) Current liabilities are those that can typically be paid off in full within 12 months. A)True
B)False
Answer: True
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Chapter 3: Understanding and Appreciating the Time Value of Money
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Sample Questions
Q1) It is not realistic for a 20-year-old to accumulate $1 million by the age of 65.
A)True
B)False
Answer: False
Q2) A one-time investment of $1,500 at a 10 percent annual rate of return yields $2,196 in two years.The $2,196 is known as the A) present value.
B) compound value.
C) principal plus interest.
D) future value.
E) annuity value
Answer: D
Q3) A compound annuity uses the principles of A) reinvesting and present value.
B) compound interest and future value.
C) reinvesting and compound interest.
D) compound interest and present value.
E) amortization and reinvesting.
Answer: C
Page 5
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Chapter 4: Tax Planning and Strategies
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Sample Questions
Q1) Elizabeth currently makes $45,000 per year and is in a 25% tax bracket.If she contributes $2,400 to her 401(k)plan at work,by how much will this lower her taxable income?
A) $7,500
B) $600
C) $2,400
D) $11,250
Q2) For most tax payers,their average tax rate is lower than their marginal tax rate.
A)True
B)False
Q3) ________ income is from activities in which the taxpayer does not actively participate.
A) Active
B) Portfolio
C) Passive
D) Investment
E) both C and D
Q4) Name and describe the four general categories that reduce your taxable income,therefore reducing your tax liability.
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Chapter 5: Cash or Liquid Asset Management
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Sample Questions
Q1) Liquid assets allow you to cover unplanned expenses without having to interrupt your long-term investments or liquidate any tangible assets.
A)True
B)False
Q2) With online banking and EFT,many people don't really need checks anymore.If you seldom need a paper check for transactions,what option is available to you that may be cheaper than maintaining a checking account?
A) Certified checks
B) Cashiers checks
C) Money orders
D) Both B and C are good options.
Q3) NOW accounts offer an option to traditional demand deposits.All of the following are characteristics of NOW accounts except one.Which is it?
A) You must generally maintain high minimum balances.
B) There is a monthly fee associated with them.
C) The interest rate is generally higher than other savings accounts.
D) The interest rate is generally lower than other cash management alternatives.
Q4) Explain the two types of gift,or stored value,cards.
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Chapter 6: Using Credit Cards: The Role of Open Credit
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Sample Questions
Q1) What is the APY on Bradley's default,or penalty,rate?
A) 33 percent
B) 33.50 percent
C) 38.48 percent
D) 42.96 percent
Q2) Changes to credit card policies and rates are usually announced via "bill addendums," which are notices enclosed with your bill.
A)True
B)False
Q3) Having completed a personal finance class,you are now ready to give some advice to your free-spending friends.Which one is unwise?
A) Reduce the credit card balance.
B) Resolve any billing errors.
C) Quit using credit cards altogether.
D) Look for trouble signs in credit card spending.
E) Control your spending through discipline.
Q4) Your credit score is possibly the most important number that affects your life.How does your credit score affect you?
Q5) Briefly describe the three credit card users.
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Chapter 7: Student and Consumer Loans: The Role of Planned Borrowing
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Sample Questions
Q1) Frank ran up a large credit card bill as an undergraduate student,he also took out as much in student loans as possible.He is now unable to pay his credit card debt and his student loan debt.However,he has decided to declare bankruptcy to eliminate his debt.Frank will be able to eliminate his federally subsidized student loan debt by declaring bankruptcy.
A)True
B)False
Q2) You have just obtained a personal loan for a new home movie system under the simple interest method.You have borrowed $12,000 for 9 months at an annual rate of 10%.Your marginal tax rate is 28%.What are the total interest charges you would pay if the loan is paid off on time?
A) $1,200
B) $1,080
C) $900
D) $648
E) None of the above
Q3) List examples of loans or loan sources that fit into the categories of inexpensive,more expensive,and most expensive.
Q4) How do you know how much debt you can comfortably afford?
Page 9
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Chapter 8: The Home and Automobile Decision
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Sample Questions
Q1) Describe four ways to come up with the down payment money for buying a house.
Q2) You can only get an ARM loan from a predatory lender.
A)True
B)False
Q3) Someone who plans on selling his or her home within the next 3 years should get a fixed-rate mortgage.
A)True
B)False
Q4) Over the past decade,the number of new car sales are down and the number of new car leases are up.What is probably the main reason why this is true?
A) The salesman makes a higher commission when cars are leased.
B) The manufacturers prefer it when people lease instead of purchase.
C) New cars are getting so expensive that the average person can't afford to buy them.
D) Both A and B are correct.
Q5) Give at least six tips on smart buying.
Q6) Name six factors that will determine your monthly lease payment.
Q7) What are the typical sources of mortgages?
Q8) Tell about the advantages of a shorter-term mortgage over a 30-year one.
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Chapter 9: Life and Health Insurance
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Sample Questions
Q1) The suicide clause will pay double the face value to the beneficiary if the named insured commits suicide.
A)True
B)False
Q2) The main disadvantage of a flexible spending plan is that you may lose any money remaining in the account at the end of the fiscal year.
A)True
B)False
Q3) Choose the option(s)available in the nonforfeiture clause of a cash-value life policy.
A) Exchange the policy for a paid-up term policy of equal face value.
B) Receive the policy's cash value.
C) Retain rights to a death benefit.
D) Exchange the policy's cash value for a paid-up policy with a reduced face value.
E) A, B, and D above
Q4) Compare and contrast fee-for-service and managed health care plans.
Q5) Compare and contrast group and individual health insurance policies.
Q6) Typically,who should buy life insurance?
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Page 11
Chapter 10: Property and Liability Insurance
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Sample Questions
Q1) In your many travels,you have suddenly found yourself in an auto accident - the very first one where you are at fault.Both cars are blocking a bridge with heavy city traffic.What should you do?
A) Stay at the scene of the accident - have someone call the police and get medical help.
B) Move the cars to a safe place so no one else gets hit.
C) Call a lawyer to meet you at the scene of the accident.
D) Refrain from admitting guilt or signing anything.
E) All of the above except C
Q2) Personal liability insurance protects you from financial losses incurred if someone is injured on your property or as a result of your actions.
A)True
B)False
Q3) A(n)________ is an insurance company that distributes its products to customers without the use of agents.
A) direct writer
B) private writer
C) underwriter
D) public writer
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Page 12
Chapter 11: Investment Basics
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Sample Questions
Q1) A(n)________ account represents the money or investments you have at a brokerage firm.
A) discretionary
B) brokerage
C) stock purchasing
D) indemnity
Q2) Petrina was told by a successful friend to invest in stocks and income-producing real estate.Both of these are examples of ________ investments.
A) ownership
B) lending
C) risk-free
D) short-term
E) liquid
Q3) What are the benefits of a well-diversified portfolio?
A) It protects you from systematic risk.
B) It protects you from firm specific risk.
C) It protects you from company-unique risk.
D) All of the above are correct.
E) All but A are correct.
Q4) How does overconfidence affect investors?
Page 13
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Chapter 12: Investing in Stocks
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Sample Questions
Q1) A technical analysis is the framework for analyzing a security in which you look at a firm's internal strengths and weaknesses and external opportunities and threats in order to gain an understanding of what the future holds for that firm and its stock.
A)True
B)False
Q2) The market price of the stock is a reflection of the potential earnings per share of the firm.
A)True
B)False
Q3) Returns from shares of stock come in the form of
A) stock splits.
B) capital appreciation.
C) dividends.
D) All of the above are correct.
E) Only B and C are correct.
Q4) Dividends are paid regardless if the company makes a profit.
A)True
B)False
Q5) Is a positive stock split good for the current share holders?
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Chapter 13: Investing in Bonds and Other Alternatives
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Sample Questions
Q1) Any bond that is backed by the pledge of collateral is known as what type of bond?
A) Collateralized
B) Secured
C) Recalled
D) Sinking
E) Agency
Q2) Michael Milkman has suggested that you consider the purchase of some bonds that are rated BB or below.He is asking you to purchase ________ bonds.
A) junk
B) very risky
C) high-yield
D) All of the above
E) Only A and B.
Q3) The issuer of the bond is effectively loaning money to the bondholder when the bond is purchased.
A)True
B)False
Q4) What is the purpose of the call provision on some bonds?
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Chapter
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Sample Questions
Q1) Hedge fund managers charge very high fees,generally taking ________ of the assets under management (even when the fund loses money)along with ________ of the profits-and some take even more.
A) 1 percent; 10 percent
B) 2 percent; 10 percent
C) 2 percent; 20 percent
D) 5 percent; 25 percent
Q2) When you own shares in a mutual fund you make money in which of the following ways?
A) As the value of all of the securities held by the mutual fund increase, the value of each mutual fund share also increases.
B) If a fund receives interest or dividends from its holdings this income is passed on to share holders.
C) If the fund sells a security for more than it originally paid for it, the shareholders receive this in the form of capital gains.
D) You receive a portion of the commissions that the fund manager charges for trades.
E) Only A, B and C are correct.
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Page 16
Chapter 15: Retirement Planning
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Sample Questions
Q1) Contributions to Roth IRAs are tax deductible.
A)True
B)False
Q2) Which of the following benefits is not provided by Social Security?
A) Death
B) Disability
C) Education
D) Health
E) Retirement
Q3) Why might one want to select the lump-sum payment option for one's retirement funds?
A) Taking the lump-sum can be a hedge against inflation.
B) The lump-sum option provides greater flexibility than other options.
C) You can invest the funds and perhaps earn a higher return.
D) Having access to the funds provides money for emergencies.
E) All of the above
Q4) What are the major differences between the new IRAs and the traditional IRA?
Q5) Why would it be a good idea to hire a Certified Financial Planner before you retire?
Q6) What does the term 'self directed' mean concerning retirement accounts?
Page 17
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Chapter 16: Estate Planning: Saving Your Heirs Money and Headaches
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Sample Questions
Q1) A ________ gives the individual establishing the trust the ability to direct income from the trust to his or her spouse over the spouse's life,and then to whomever else the individual wants the funds to go.
A) Q-TIP trust
B) sprinkling trust
C) family trust
D) living trust
Q2) Which of the following is a disadvantage of joint ownership?
A) Jointly owned assets avoid probate.
B) It makes it legal for one party to "take the money and run."
C) It discourages compromise in the case of a divorce.
D) None of the above is a disadvantage of joint ownership.
Q3) What should you do once your will has been drawn up?
Q4) A will can be amended by a codicil for relatively minor changes.
A)True
B)False
Q5) There is no limit to the size of transfers that can be made between spouses on a tax-free basis.
A)True
B)False
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Chapter 17: Financial Life Events Fitting the Pieces Together
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Sample Questions
Q1) Discuss what is involved in Life Event 1: Getting started.
Q2) At the beginning of 2014,according to CreditCards.com and Cardweb.com,the average credit card debt per household with at least one credit card was $15,279,up from $2,985 in 1990.
A)True
B)False
Q3) What is a reason that your textbook suggests as to why a newly married couple would want to establish separate checking accounts?
A) It makes record keeping much easier.
B) It is preferable if the couple has incompatible money management styles.
C) One always gets a better deal from the bank on two accounts versus one account.
D) All of the above
E) None of the above
Q4) It is never a good idea for both spouses to be actively involved in and aware of the family's finances.This can lead to arguments.
A)True
B)False
Q5) Discuss why it is important to keep a clean credit record.
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