Principles of Personal Finance Test Questions
Course Introduction
Principles of Personal Finance introduces students to the fundamental concepts and practical skills essential for managing personal financial resources effectively. The course covers topics including budgeting, saving, credit management, investing, insurance, and retirement planning. Students will learn how to set financial goals, understand the time value of money, make informed decisions about major purchases, and recognize potential financial risks. Through real-world applications and interactive activities, students gain the knowledge and confidence needed to navigate financial challenges and make responsible choices to achieve long-term financial stability.
Recommended Textbook
Personal Finance 10th Edition by Jack R. Kapoor
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19 Chapters
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Chapter 1: Personal Finance Basics and the Time Value of Money
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Sample Questions
Q1) The uncertainty associated with decision making is referred to as:
A)opportunity cost.
B)selection of alternatives.
C)financial goals.
D)personal values.
E)risk.
Answer: E
Q2) Most decisions have only a few alternatives from which to choose. A)True
B)False
Answer: False
Q3) Present value is also referred to as compounding. A)True
B)False
Answer: False
Q4) Explain why borrowers benefit more than lenders in times of high inflation. Answer: Answers will vary
Q5) Describe the S-M-A-R-T approach to financial planning goal setting.Give an example.
Answer: Answers will vary
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Chapter 2: Financial Aspects of Career Planning
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Sample Questions
Q1) Blake Edwards has done some research and has discovered that economists believe interest rates will rise significantly over the next two years.Blake believes that this will lead to fewer homes being sold and fewer jobs in the banking and mortgage industries.This is an example of __________________ influencing jobs in the future.
A)demographic trends
B)economic conditions
C)industry trends
D)geographic trends
E)educational trends
Answer: B
Q2) In the career planning process,after identifying specific job opportunities,a person should:
A)assess interests,abilities,and goals.
B)develop a résumé and cover letter.
C)evaluate job offers.
D)plan for career growth.
E)evaluate the job market.
Answer: B
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Chapter 3: Money Management Strategy: Financial Statements
and Budgeting
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Sample Questions
Q1) Improvements in a person's financial position are the result of:
A)increased liabilities.
B)reductions in earnings.
C)increased savings and investments.
D)increased purchases on credit.
E)lower amounts deposited in savings.
Answer: C
Q2) Jamie McFarland has determined that the value of her liquid assets is $4,500,the value of her real estate is $128,000,the value of her personal possessions is $62,000,and the value of her investment assets is $73,000.She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000.What is the total value of her debts?
A)$267,500
B)$105,500
C)$162,000
D)$205,500
E)None of the above
Answer: B
Q3) Explain why opportunity cost is an important concept in money management. Answer: Answers will vary
Page 5
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Chapter 4: Planning Your Tax Strategy
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Sample Questions
Q1) Most people pay federal income tax by:
A)paying the total amount owed on April 15.
B)filing quarterly tax payments.
C)having amounts withheld from income.
D)earning tax credits for various deductions.
E)filing the 1040 EZ form.
Q2) Money received in the form of dividends or interest is commonly called "earned income."
A)True
B)False
Q3) An exclusion affects a person's taxes by:
A)reducing the amount of taxable income.
B)increasing itemized deductions.
C)decreasing itemized deductions.
D)decreasing the number of exemptions a person can claim.
E)increasing the number of exemptions a person can claim.
Q4) What are the advantages of a 401K?
Q5) A general sales tax is also referred to as an excise tax.
A)True
B)False
6
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Chapter 5: Financial Services: Savings Plans and Payment Accounts
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Sample Questions
Q1) Which of the following institutions makes loans based on the value of tangibles possessions,such as jewelry and collectibles?
A)life insurance company
B)finance company
C)mortgage company
D)pawnshop
E)investment company
Q2) When interest rates are rising,a person would be best served by:
A)short-term savings instruments.
B)long-term savings instruments.
C)short-term loans.
D)variable-rate loans.
E)certificates of deposit.
Q3) A saver will usually earn the highest rate with which one of the following types of savings plans?
A)certificate of deposit
B)debit account
C)passbook account
D)share account
E)NOW account
Page 7
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Chapter 6: Introduction to Consumer Credit
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Sample Questions
Q1) What are a few things to consider before you cosign a loan?
Q2) Which one of the following is not a source that provides data to credit bureaus?
A)banks
B)finance companies
C)merchants
D)court records
E)Internal Revenue Service
Q3) Which one of the following would not typically be closed-end credit?
A)home mortgage
B)installment loan to purchase new furniture
C)line of credit from your bank
D)automobile loan
E)single lump-sum credit loan due in 90 days
Q4) The maximum amount of credit you are allowed by a creditor is called
A)revolving credit.
B)line of credit.
C)convenience credit.
D)installment cash credit.
E)single lump-sum credit.
Q5) What is consumer credit? What are its advantages and disadvantages?
Page 8
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Chapter 7: Choosing a Source of Credit: The Costs of Credit Alternatives
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Sample Questions
Q1) Both Chapter 7 and Chapter 13 bankruptcy are considered an easy way out of debt.
A)True
B)False
Q2) Which one of the following financing methods provides a float period?
A)installment loan
B)credit card
C)lump-sum loan
D)home equity line of credit
E)auto loan
Q3) By evaluating your credit options,you may:
A)reduce your finance charges.
B)reconsider your decision to borrow money.
C)discover a less expensive type of loan.
D)find a lender that charges a lower rate.
E)All of the other answers.
Q4) The Consumer Credit Counseling Service counseling is usually free.
A)True
B)False
Page 9
Q5) What can you do if you are unable to meet your credit obligations?
Q6) What are the major sources of consumer credit?
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Page 10
Chapter 8: Consumer Purchasing Strategies and Legal Protection
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Sample Questions
Q1) Which of the following is usually the largest fixed expense for a new vehicle?
A)insurance
B)gasoline
C)registration,license,and fees
D)parking
E)depreciation
Q2) Tiffany Parrish has purchased a new car.Since then she has had to make six trips to the dealer in four weeks to fix several major problems without much luck.She knows that she is entitled to a refund.What type of law gives her the right to ask for a refund?
A)Lemon Law
B)Truth in Lending
C)Truth in Saving
D)Fair reporting
E)Consumer Credit Act
Q3) Distinguish between an implied warranty and an express warranty.
Q4) Describe four common consumer myths and explain the dangers of such erroneous beliefs.Why do you think they continue to be believed by many consumers? Offer suggestions for ways to increase consumer awareness of such myths.
11
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Chapter 9: The Housing Decision: Factors and Finances
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Sample Questions
Q1) Amortization refers to changes in the monthly payment for a variable rate mortgage.
A)True
B)False
Q2) What does it mean to sublet an apartment?
A)increase the rent
B)lower maintenance costs
C)convert the units to condominiums
D)meet certain government housing regulations
E)obtain another tenant to complete a lease period
Q3) A contract condition that states that the agreement is binding only if a certain event occurs is a(n):
A)dual agency.
B)contingency clause.
C)counteroffer.
D)zoning law.
E)prefabrication.
Q4) Explain negative amortization and how such a situation can occur.
Q5) What is the purpose of an escrow account and what costs are typically included?
Q6) Explain what amortization is and how a down payment and loan duration impact it.
Page 12
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Chapter 10: Property and Motor Vehicle Insurance
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Sample Questions
Q1) Defective house wiring is an example of a:
A)hazard.
B)peril.
C)risk.
D)speculation.
E)planned danger.
Q2) Personal belongings that have a high value require coverage with a personal property floater.
A)True
B)False
Q3) Renter's insurance would include coverage for:
A)flood damage.
B)personal property.
C)building and other structures.
D)umbrella liability.
E)earthquake damagE.
Q4) The driver classification category is based on automobile style,model,and value of the vehicle.
A)True
B)False
Page 13
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Chapter 11: Health, Disability, and Long-Term Care Insurance
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Sample Questions
Q1) According to your textbook,supplemental hospital indemnity plans:
A)are almost always excellent buys.
B)should be purchased at an early age.
C)do not justify the premium cost.
D)should be purchased only by older people.
E)are meant for couples with two or three children.
Q2) Medicaid is administered by each state within certain broad federal requirements and guidelines.
A)True
B)False
Q3) Health insurance is available from:
A)private insurance companies.
B)Blue Cross and Blue Shield.
C)HMOs.
D)PPOs.
E)everyone listed in all of the other answers.
Q4) Part A of Medicare pays for all covered services for inpatient hospital care after you pay a single annual deductible.
A)True
B)False
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Chapter 12: Life Insurance
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Sample Questions
Q1) Universal life,variable life,and adjustable life are types of term life insurance.
A)True
B)False
Q2) Two basic types of life insurance are temporary and permanent insurance.
A)True
B)False
Q3) The premium that is refunded to holders of a participating policy is called the policy dividend.
A)True
B)False
Q4) The cost-of-living protection rider is designed to help prevent inflation from eroding the purchasing power of the protection your policy provides.
A)True
B)False
Q5) Most insurance companies can determine how long a particular person will live. A)True
B)False
Q6) List some of the important provisions found in most life insurance policies.
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Chapter 13: Investing Fundamentals
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Sample Questions
Q1) Brenda Lee has received a $10,000 gift from her mother and is trying to decide how to invest it.She thinks she would like to invest it in stocks because she knows that stocks have been earning about a 10% rate of return over the last several years.What aspect of investing interests Brenda?
A)risk
B)return
C)diversification
D)liquidity
E)income
Q2) Liquidity is the ease with which an asset can be converted to cash without a substantial loss in dollar value.
A)True
B)False
Q3) Asset allocation is the process of spreading your assets among several different types of investments to lessen risk.
A)True
B)False
Q4) Describe the sources of investment information investors can use to evaluate a potential investment.
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Chapter 14: Investing in Stocks
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Sample
Questions
Q1) Anthony Edwards wants to diversify his portfolio by adding a stock that maintains a stable value when the economy declines.What type of stock does Anthony want to add to his portfolio?
A)defensive stock
B)cyclical stock
C)small-cap stock
D)blue-chip stock
E)growth stock
Q2) The minimum commission charged by most brokerage firms for buying or selling stock is between $7 and $35.
A)True
B)False
Q3) The dividend yield for a stock investment is calculated by dividing the annual dividend by the stock's current market value.
A)True
B)False
Q4) Most speculators use a buy and hold technique.
A)True
B)False
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Chapter 15: Investing in Bonds
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Sample Questions
Q1) Treasury bonds are issued in $5,000 units with 10-year maturities.
A)True
B)False
Q2) June Tavia is trying to calculate the taxable equivalent yield for a municipal bond.If the bond she owns pays 4.5 percent interest and she is in the 25 percent tax bracket,what is the taxable-equivalent yield?
A)4.50 percent
B)5.50 percent
C)6.00 percent
D)7.72 percent
E)6.93 percent
Q3) If a bond is purchased at a price above the face value,the yield to maturity is:
A)greater than the stated interest rate.
B)the same as the stated interest rate.
C)less than the stated interest rate.
D)zero.
E)of no significancE.
Q4) Corporate and Treasury bonds generally produce more interest revenue than municipal bonds.Why do investors choose to buy municipal bonds?
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Chapter 16: Investing in Mutual Funds
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Sample Questions
Q1) Norma Rose is buying shares in a mutual fund that only invests in companies from countries other than the United States.What type of mutual is she buying?
A)aggressive growth fund
B)equity income fund
C)global fund
D)international fund
E)regional fund
Q2) Which type of mutual fund invests primarily in high-yield,high-risk corporate bonds?
A)junk bond fund
B)intermediate corporate bond fund
C)municipal bond fund
D)short-term government bond fund
E)world bond fund
Q3) To purchase shares in an open-end fund,you may use four options: regular accounts,voluntary savings plans,contractual savings plans,and reinvestment plans.
A)True
B)False
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Page 19
Chapter 17: Investing in Real Estate and Other Investment
Alternatives
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Sample Questions
Q1) For all types of real estate investments (EXCEPT residential real estate),the depreciation period is ____________ years.
A)7 1/2
B)17 1/2
C)20 1/2
D)27 1/2
E)31 1/2
Q2) Jefferson Davis has invested in something that acts like a mutual fund and that invests in properties all over the country.He knows there are federal laws that require this type of investment to distribute at least 90 percent of the income to shareholders and that requires there be at least 100 shareholders.What type of investment has Jefferson made?
A)foreclosures
B)REITs
C)limited partnerships
D)participation certificates
E)direct investment
Q3) Explain the relationship between syndicates and REITs.
Q4) What are some possible disadvantages of real estate investments?
Q5) What advantages do real estate investments offer?
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Chapter 18: Starting Early: Retirement Planning
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Sample Questions
Q1) Immediate annuities provide income payments at once and are usually purchased with a lump-sum payment.
A)True
B)False
Q2) What happens to your Social Security income if you retire early?
A)There is a temporary reduction of 5/9 of one percent for each month that you retire early.
B)There is a permanent reduction of 5/9 of one percent for each month that you retire early.
C)There is a temporary reduction of one percent for each year that you retire early.
D)There is a permanent reduction of one percent for each year that you retire early.
E)There is no impact on your Social Security income if you retire early.
Q3) Generally,the current value of your jewelry is not included in your assets. A)True
B)False
Q4) What types of expenses might increase during retirement?
Q5) Why is it important to review your assets and liabilities before your retirement?
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Page 21
Chapter 19: Estate Planning
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Sample Questions
Q1) An ethical will is a way to pass on your values and beliefs to your heirs.
A)True
B)False
Q2) Unmarried couples face formidable retirement and estate planning challenges.
A)True
B)False
Q3) Estate planning is a definite plan for the administration and disposition of one's property during one's lifetime and at one's death.
A)True
B)False
Q4) A will is:
A)the legal declaration of a person's mind as to the disposition of his or her property after his or her death.
B)a synonym for a prenuptial agreement.
C)a legal document authorizing someone to act on your behalf.
D)a synonym for a letter of last instruction.
E)a legal arrangement through which your assets are held by someone elsE.
Q5) How do wills and trusts help in planning your estate?
Q6) What are the federal and state tax considerations in estate planning?
Page 22
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