Introduction to Personal Finance Test
Bank
Course Introduction
Introduction to Personal Finance provides students with foundational knowledge and practical skills to effectively manage their personal financial resources throughout life. Key topics include budgeting, saving, banking services, credit and debt management, insurance, taxes, and the basics of investing. Emphasis is placed on understanding financial decision-making and goal setting, developing sound financial habits, and analyzing the impact of financial decisions on long-term personal and family well-being. This course equips students with tools and strategies to navigate financial challenges and plan for a secure financial future.
Recommended Textbook
Personal Finance An Integrated Planning Approach 8th Edition by Ralph R Frasca
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16 Chapters
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Page 2
Chapter 1: Financial Planning: Why Its Important to You
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Sample Questions
Q1) All things the same,achieving financial goals helps us to achieve non-financial goals.
A)True
B)False Answer: True
Q2) The four-step approach to financial planning begins by evaluating your success in goal achievement.
A)True
B)False Answer: False
Q3) If additional earnings are taxed at 25%,$1,000 of expenses require $1,333 of pre-tax earnings.
A)True
B)False Answer: True
Q4) Opportunity costs include only out-of-pocket expenses.
A)True
B)False
Answer: False
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Chapter 2: The Time Value of Money:
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Q1) The future value of $500 invested at the end of each of the next three years is $1,555 (assuming a 10% interest rate).
A)True
B)False Answer: False
Q2) Discounting is the process of reducing future values to present values.
A)True
B)False Answer: True
Q3) Highly volatile inflation rates and earning rates make goal planning a useless activity.
A)True
B)False Answer: False
Q4) If the future value of an ordinary annuity is $8,000,the future value of an annuity due is $7,200 given a 10% interest rate.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Financial Statement
Budgets:
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Sample Questions
Q1) An automobile is usually an example of a lifestyle asset.
A)True
B)False Answer: True
Q2) A debt ratio of 2.2 means you have $2.20 of assets for each $1 of total liabilities.
A)True
B)False
Answer: False
Q3) An example of an inflexible expense is entertainment.
A)True
B)False Answer: False
Q4) A debt service coverage ratio of 1.0 would mean all of your future income would be needed to repay existing debts.
A)True
B)False Answer: True
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Chapter 4: Taxes: the Governments Share of Your Rewards
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Which of the following statements is false?
A)If you are listed as a dependent on your parent's return,you need not file an individual return yourself.
B)If you are under 24 and a full-time student,you may be claimed as a dependent on your parent's return.
C)A qualified tuition reduction is tax-free.
D)Scholarships and fellowships may or may not be included in taxable income.
Q2) Your income tax return should be kept permanently since the statute of limitations does not protect you against honest mistakes.
A)True B)False
Q3) The marital deduction on the taxable estate is currently
A)at $500,000 and is scheduled to more than double over the next few years.
B)at $500,000 and is scheduled to be cut in about half over the next few years.
C)at $600,000.
D)unlimited.
Q4) Adjusted gross income equals gross income plus employer paid fringe benefits.
A)True B)False
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Chapter 5: Liquidity Management: Managing Current
Assets and Current Liabilities
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Sample Questions
Q1) Which of the following is not true of U.S.Series EE bonds?
A)The rate on new issues is set relative to the rates on other Treasury loans.
B)Taxes on on interest can be deferred until the bond is redeemed.
C)The interest income is taxed by states and local governments.
D)Some interest is forfeited if the bonds are redeemed before five years.
Q2) The rate on new issues of U.S.Series EE savings bond five years is set at 90% of rate on 5-year Treasury securities.
A)True
B)False
Q3) A gift card may expire after a period of nonuse.
A)True
B)False
Q4) A cash management strategy does not involve which of the following activities?
A)Deciding to your satisfaction what future interest rates will be
B)Balancing your desires for safety,liquidity,and yield
C)Obtaining information about alternative deposit accounts
D)Keeping as little cash as possible
Q5) One motive for holding cash is to undertake transactions.
A)True
B)False
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Chapter 6: Short-Term Credit Management: Consumer Credit
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Sample Questions
Q1) A revolving credit account
A)allows you to make purchases up to a credit limit.
B)requires complete repayment each billing period.
C)must be renewed each billing period.
D)is for large purchases with a set repayment schedule.
Q2) The add-on clause on a consumer loan
A)allows you to add on additional loans at the existing rate on your current loans.
B)allows the creditor to add on additional interest when the market rate of interest rises.
C)allows the lender to repossess all goods purchased with the original loan even though your total payments may have been enough to cover an earlier purchase.
D)allows you to extend the term of the loan by adding on additional installments.
Q3) Home equity loans have been unpopular because interest on this loan is not tax-deductible.
A)True
B)False
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8
Chapter 7: Consumer Durables: the Personal Auto
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Sample Questions
Q1) The cost of operations is a sunk cost.
A)True
B)False
Q2) According to Internet Fraud Watch,the most common form on Internet fraud involves A)auto sales. B)auctions.
C)Internet service providers. D)credit card sales.
Q3) The cost of owning an automobile is a sunk cost.
A)True
B)False
Q4) Service contracts generally represent a cost-saving method that reduces your cost of operations.
A)True
B)False
Q5) A "full" warranty means you are entitled to full remedies.
A)True B)False
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Chapter 8: Housing: the Cost of Shelter
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Sample Questions
Q1) Suppose you have a adjustable rate mortgage with a present interest rate of 13%.The current rate is set according to an interest rate index that had a rate of 15% when the current rate on your home loan was determined.Assuming that adjustments are unlimited in either direction,what is the interest rate on your home mortgage in the next adjustment period if the interest rate index is at 14%?
A)12%
B)13%
C)14%
D)15%
Q2) With an open listing agreement
A)the first agent to list your home is entitled to half the commission on the sale. B)the first agent to list your home is entitled to the full commission on the sale.
C)any agent can broker your home.The commission goes to the agent who locates a buyer.
D)The broker who is willing to sell your home for the lowest commission receives an exclusive right to sell.
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Chapter 9: Financial Markets and Instruments: Learning the Investment Environment
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Sample Questions
Q1) You purchased 100 shares of KLM at $60 a share by depositing the minimum amount of margin.If the initial margin requirement was 50% and the maintenance margin requirement is 30%,you will get a margin call if KLM's price falls to
A)$18.
B)$20.
C)$43.
D)$40.
Q2) A broker's margin account means the broker shares in your trading gains and losses.
A)True
B)False
Q3) The Securities Exchange Act of 1934 created the document called a 10-K report. A)True
B)False
Q4) Which of the items below should you expect to receive from a full-service broker?
A)Privileged (inside)information about certain companies
B)Assistance in tailoring a portfolio to meet your needs
C)Assistance in preparing your income tax return
D)all of the above
11
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Chapter 10: Investment Basics: Understanding Risk and Return
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Sample Questions
Q1) Which method of investing probably involves the most risk?
A)Using the CAPM as a guide to select securities
B)Using a market-timing strategy to manage a portfolio
C)Using a buy-and-hold approach to manage a portfolio
D)Using DRIPS and dollar cost averaging to build a portfolio
Q2) The market risk premium is the expected return for accepting overall market risk.
A)True
B)False
Q3) The market risk premium is the difference between the market return and A)the return on corporate bonds.
B)the return on Treasury bonds.
C)the inflation rate.
D)the return on Treasury bills.
Q4) If the risk-free rate of return increases,required returns on all other securities should increase as well.
A)True
B)False
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Chapter 11: Stocks and Bonds: Your Most Common Investments
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Sample Questions
Q1) A 10-year bond with a $1,000 face value and 6% coupon rate is currently selling in the bond market for $1,200.Its current yield is A)5%.
B)6%.
C)8%.
D)10%.
Q2) A sinking fund refers to funds allocated to gradually retire a bond issue over time.
A)True
B)False
Q3) A zero-coupon Treasury bond is an example of a defaulted Treasury bond.
A)True B)False
Q4) A participating preferred stock allows its holder to vote and participate in managing the company.
A)True B)False
Q5) Stockholder voting rights allow one vote per share. A)True B)False
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Chapter 12: Mutual Fundsother Pooling Arrangements:
Simplifying, Maybe Improving Investment Performance
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Sample Questions
Q1) A sector fund invests in only one industry.
A)True
B)False
Q2) The Gale Market Index Fund advertises that it earned a 392% return.This is probably its
A)cumulative total return over some number of years.
B)average annual total return over some number of years.
C)total return for the previous year.
D)return in relation to the overall market.
Q3) An open-end fund differs from a closed-end fund in that the open-end fund does not limit the kinds of securities it buys.
A)True
B)False
Q4) An equity trust invests in equity securities,such as common stocks.
A)True
B)False
Q5) In constructing portfolios,investors are advised to consider intangible assets but ignore tangible assets.
A)True
B)False
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Chapter 13: Property and Liability Insurance: Protecting Your Lifestyle Assets
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Sample Questions
Q1) With 100/300/10 split auto liability limits,the maximum payout for property damage is
A)$10,000.
B)$100,000.
C)$300,000.
D)$450,000.
Q2) Home replacement cost
A)may exceed actual cash value on older homes.
B)is likely to exceed actual cash value on new homes.
C)is equal to actual cash value plus depreciation.
D)and actual cash value are identical concepts.
E)is equal to the face amount of dwelling protection.
Q3) You have an insurable interest in an event if
A)it is the result of accidental circumstances.
B)it has a potentially negative impact on your wealth.
C)you have no financial interest in the outcome.
D)it the result of predetermined actions.
Q4) To purchase insurance you must have an insurable interest.
A)True
B)False
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Chapter 14: Health Care and Disability Insurance: Protecting Your Earning Capacity
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Sample Questions
Q1) Federal rules governing the continuation of health care insurance after termination of employment
A)cover only the terminated employee.
B)cover only the terminated employee's dependents.
C)cover both the terminated employee and dependents.
D)have been ruled unconstitutional by the Supreme Court.
Q2) The National Association of Insurance Commissions has developed standardized policies for medigap coverage.
A)True
B)False
Q3) In larger firms,COBRA requires that employers must offer terminating employees who cannot obtain alternative group insurance coverage
A)continued group insurance coverage that is convertible to individual coverage.
B)government sponsored health insurance.
C)an individual policy at termination.
D)counseling on how alternative coverage might be obtained individually.
Q4) HMOs tend to charge lower premiums than traditional service-benefit coverage.
A)True
B)False
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Chapter 15: Life Insurance and Estate Planning: Protecting Your Dependents
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Sample Questions
Q1) Which of the following statements are correct?
I.At death,property may be transferred outside of the will.
II.At death,all property is distributed through the probate process.
III.Probate costs are typically based upon the value of the assets Transferred through probate.
IV.The named executor will manage the death estate through the Probate process.
A)only I and II
B)only I,III,and IV
C)only II and IV
D)only II,III,and IV
E)all
Q2) Which of the following would be included in the Transition Fund?
A)Insurance policies
B)College tuition
C)Probate costs
D)Lifestyle assets
Q3) You may only specify one person as a primary beneficiary.
A)True
B)False
Page 17
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Chapter 16: Retirement Planning: Planning for Your
Long-Term Needs
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Sample Questions
Q1) A "single premium annuity" is another term for an "immediate annuity."
A)True
B)False
Q2) One common characteristic shared by both the Roth IRA and traditional IRA is that both
A)have contribution limits.
B)require that disbursements begin at age 70 1/2.
C)cease contributions at age 70 1/2.
D)have identical tax advantages.
Q3) The government provides special tax incentives on savings specially earmarked for retirement.
A)True
B)False
Q4) If you marginal tax rate is likely to be lower in your retirement years,you should
A)prefer a tax-deductible IRA to Roth IRA.
B)prefer a Roth IRA to a tax-deductible IRA.
C)be indifferent between investing in a tax-deductible IRA or a Roth IRA.
D)prefer a non-tax advantaged investment to either a tax-deductible IRA or a Roth IRA.
Page 18
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