Kapoor Personal Finance Test Bank 14th Edition by QuentinAxel

CHAPTER 1 1)

Describe the S-M-A-R-T approach to developing financial goals. Give an example.

What are the eight components of financial planning?

3) People are commonly overwhelmed by the many influences on personal financial decisions. What are the factors affecting personal financial planning?

4) What types of risks are commonly associated with personal financial decisions? How can these risks be evaluated and minimized to reduce personal and financial difficulties?

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5) Shauna Schmidt is trying to decide whether to keep her money in a savings account or in a mutual fund. What would you tell her to help her analyze her decision?

What are the six steps in the financial planning process?

Explain why borrowers benefit more than lenders in times of high inflation.

What is meant by the term "time value of money?"

9) 72.

Describe the relationship between the annual inflation rate and prices using the Rule of

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10) Many events affect your life situation and occur within the adult life cycle. List five events.

11) Which of the following are benefits to financial literacy? A.Increased effectiveness in obtaining, using, and protecting financial resources B.Expanded control of financial activities C.Avoidance of excessive debt, bankruptcy, and dependence on others for financial security A) Only A B) Only B C) Only C D) Only A and B E) All of these choices are correct.

12) Fintech involves which of the following? A.Apps, websites, and mobile devices for banking B.Artificial intelligence, robotics, and drones C.Blockchain, crowdfunding, and cryptocurrencies

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A) Only A B) Only B C) Only C D) Only A and B E) All of these choices are correct.

13)

The main goal of personal financial planning is managing your money to: A) save and invest for future needs. B) reduce a person's tax liability. C) achieve personal economic satisfaction. D) spend to achieve financial objectives. E) save, spend, and borrow based on current needs.

14)

Inflation is likely to result from: A) lower demand by consumers. B) increased production by business. C) lower interest rates. D) increased demand by consumers without increased supply. E) an increase in the supply of a product.

15)

Who is most likely to benefit from inflation? A) Retired people B) Lenders C) Borrowers D) Low-income consumers E) Government

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16)

Higher consumer prices are likely to be accompanied by: A) lower union wages. B) lower interest rates. C) lower production costs. D) higher interest rates. E) higher exports.

17) With an inflation rate of 8 percent, prices would double in about _____________blank years. A) 4 B) 6 C) 9 D) 10 E) 12

18)

Increased consumer spending will usually cause: A) lower consumer prices. B) reduced employment levels. C) lower wages. D) lower interest rates. E) higher employment levels.

19)

Higher interest rates can be caused by:

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A) a lower money supply. B) an increase in the money supply. C) a decrease in consumer borrowing. D) lower consumer spending. E) increased saving and investing by consumers.

20)

The risk premium you receive as a saver is based:

A) on your credit rating. B) on the amount of money you are borrowing. C) only on the uncertainty associated with getting your money back. D) only on the expected rate of inflation. E) in part on the uncertainty associated with getting your money back and the expected rate of inflation.

21)

Which of the following would increase the risk of a loan to the lender? A) Inflation rate greater than loan rate B) A short time to maturity C) Consumer Price Index D) Rule of 72 E) Inflation rate lower than loan rate

22)

The stages in the family and financial needs of an adult are called the: A) financial planning process. B) budgeting procedure. C) personal economic cycle. D) adult life cycle. E) tax planning process.

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23)

The study of how wealth is created and distributed is: A) financial planning. B) opportunity cost. C) inflation. D) economics. E) a market economy.

24)

The main economic influence that causes inflation is: A) changes in the stock market. B) decreases in interest rates. C) increases in employment. D) decreases in government spending. E) increases in demand without increases in supply.

25)

The Fed refers to: A) government regulation of business. B) congress. C) the Federal Reserve System. D) the Federal Deposit Insurance Corporation. E) spending by the federal government.

26)

The main responsibility of The Fed is to:

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A) maintain an adequate supply of money. B) approve spending by Congress. C) set federal income tax rates. D) determine illegal business activities. E) maintain a balanced budget for the federal government.

27) Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to: A) inflation risk. B) interest rate risk. C) income risk. D) personal risk. E) liquidity risk.

28)

Which of the following would cause consumer prices to drop? A) Increased consumer borrowing B) Higher spending by consumers C) A demand for higher wages D) Hidden inflation E) Increased supply by business without increased consumer demand

29) Attempts to increase financial resources are part of the ____________ blankcomponent of financial planning. A) planning B) obtaining C) saving D) sharing E) protecting

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30)

A major activity in the planning component of financial planning is: A) selecting insurance coverage. B) evaluating investment alternatives. C) gaining occupational training and experience. D) anticipating spending through budgeting. E) establishing a line of credit.

31) The ability to readily convert financial resources into cash without loss of value is referred to as: A) bankruptcy. B) liquidity. C) investing. D) saving. E) opportunity cost.

32) The problem of bankruptcy is associated with misuse of credit in the _____________blank component of financial planning. A) sharing B) saving C) obtaining D) borrowing E) protecting

33) Which of the following is a question associated with the saving component of financial planning?

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A) Do you have an adequate emergency fund? B) Is your will current? C) Is your investment program appropriate to your income and tax situation? D) Do you have a realistic budget for your current financial situation? E) Are your transportation expenses minimized through careful planning?

34) A formalized report that summarizes your current financial situation, analyses your financial needs, and recommends future financial activities is a(n): A) insurance prospectus. B) financial plan. C) budget. D) investment forecast. E) statement.

35) When an individual makes a purchase without considering the financial consequences of that purchase, he/she ignores the _____________blank aspect of financial planning. A) borrowing B) risk management C) spending D) retirement and estate planning E) obtaining

36)

The success of a financial plan will be determined by: A) the amount of debts owed. B) the stage of the adult life cycle. C) a person's tax status. D) the individual’s financial habits. E) current economic conditions.

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37) As Olivia Wilson plans to set aside funds for her young children's college education, she is setting a(n) _____________blank goal. A) intermediate B) long-term C) short-term D) intangible E) durable

38)

_____________blank goals relate to personal relationships, health, and education. A) Durable-product B) Short-term C) Consumable-product D) Intangible-purchase E) Intermediate

39)

William Davis has a goal of "saving $60 a month for vacation." William’s goal lacks: A) measurable terms. B) a realistic perspective. C) specific terms. D) the type of action to be taken. E) a time frame.

40)

Financial goals should take a SMART approach. What does SMART stand for?

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A) specific, meaningful, action orientated, real time, timely B) specific, measurable, action orientated, real time, timely C) specific, measurable, action orientated, realistic, time-based D) specific, measurable, action orientated, realistic, time sensitive E) specific, meaningful, action items, realistic, timely

41) Which of the following goals would be the easiest to implement and measure its accomplishment? A) "Reduce our debt payments." B) "Save funds for an annual vacation." C) "Save $50 a month to create a $2,000 emergency fund." D) "Invest $1,200 a year for retirement." E) "Increase our emergency fund."

42)

Opportunity cost refers to: A) money needed for major consumer purchases. B) what a person gives up by making a choice. C) the amount paid for taxes when a purchase is made. D) current interest rates. E) evaluating different alternatives for financial decisions.

43)

An example of a personal opportunity cost would be: A) interest lost by using savings to make a purchase. B) higher earnings on savings that must be kept on deposit a minimum of six months. C) lost wages due to continuing as a full-time student. D) time spent comparing several brands of personal computers. E) having to pay a tax penalty due to not having enough withheld from your monthly

salary.

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44)

The time value of money refers to:

A) opportunity costs such as time lost on an activity. B) financial decisions that require borrowing funds from a financial institution. C) changes in interest rates due to changes in the supply and demand for money in our economy. D) increases in an amount of money as a result of interest earned. E) changing demographic trends in our society.

45)

The amount of interest is determined by multiplying the amount in savings by the: A) annual interest rate. B) time period. C) number of months in a year. D) time period and number of months. E) annual interest rate and the time period.

46) If a person deposited $75 a month for 5 years earning 7 percent, this would involve what type of computation? A) Simple interest B) Future value of a single amount C) Future value of a series of deposits D) Present value of a single amount E) Present value of a series of deposits

47) Which type of computation would a person use to determine the current value of a desired amount in the future?

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A) Simple interest B) Future value of a single amount C) Future value of a series of deposits D) Present value of a single amount E) Compound interest

48) If inflation is increasing at 4 percent per year, and your salary increases at the same rate, how long will it take your salary to double? A) 24 years B) 18 years C) 14 years D) 12 years E) 6 years

49) When prices are increasing at a rate of 12 percent, the cost of products would double in about how many years? A) 24 years B) 18 years C) 12 years D) 6 years E) 3 years

50)

Future value calculations involve: A) discounting. B) add-on interest. C) compounding. D) simple interest. E) an annuity.

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51) If you put $500 in a savings account and make no further deposits, what type of calculation would provide you with the value of the account in 10 years? A) Future value of a single amount B) Simple interest C) Present value of a single amount D) Present value of a series of deposits E) Future value of a series of deposits

52)

The first step of the financial planning process is to: A) develop financial goals. B) implement the financial plan. C) determine your current financial situation. D) review and revise your financial plan. E) create a financial action plan.

53) _____________blank risk refers to the danger of changes in buying power during times of rising or falling prices. A) Liquidity B) Income C) Personal D) Inflation E) Interest Rate

54)

Which of the following is an example of opportunity cost?

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A) Renting an apartment near school B) Saving money instead of taking a vacation C) Setting aside money for paying income tax D) Purchasing automobile insurance E) Using a personal computer for financial planning

55)

The changing cost of money when borrowing is referred to as _____________blank risk. A) interest rate B) inflation C) income D) liquidity E) personal

56)

The uncertainty associated with every decision is referred to as: A) opportunity cost. B) selection of alternatives. C) financial goals. D) personal values. E) risk.

57)

The financial planning process concludes with efforts to: A) develop financial goals. B) create a financial action plan. C) determine your current financial situation. D) implement the financial action plan. E) review and revise your financial plan.

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58) Using the services of financial institutions to research a situation will be most evident in your effort to: A) develop financial goals. B) review and revise your financial plan. C) determine your current financial situation. D) evaluate your alternatives. E) create a financial action plan.

59)

Changes in personal, social, and economic factors make it necessary to: A) review and revise your financial plan. B) implement the financial plan. C) develop financial goals. D) determine your current financial situation. E) create a financial action plan.

60)

Which of the following is usually considered a long-term financial strategy? A) Creating a budget this year B) Using savings to pay off a loan within one year C) Renting an apartment for three years to save for the purchase of a home D) Investing in a mutual fund for six years to accumulate retirement funds E) Purchasing a six-month auto insurance policy to cover the needs of dependents

61) Sophia Martinez is assessing her balances. She expects to retire in the next year and has $675,000 in savings and investments and owns her own home that is worth $250,000. Which step in the financial planning process does this situation demonstrate?

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A) Determining her current financial situation B) Developing her financial goals C) Identifying alternative courses of action D) Evaluating her alternatives E) Implementing her financial plan

62) Sophia Martinez wants to travel after she retires as well as pay off the balance of the loan she has on the home she owns. Which step in the financial planning process does this situation demonstrate? A) Determining her current financial situation B) Developing her financial goals C) Identifying alternative courses of action D) Evaluating her alternatives E) Implementing her financial plan

63) Sophia Martinez wants to travel around the world. Sophia has three options she can pursue: she could continue to work full time to earn the money she needs for her trip, she could work part time so that she can still earn some money but have the time necessary to complete her trip, or she could take full retirement so that she has all the time necessary to complete her trip. Which step in the financial planning process does this scenario demonstrate? A) Determining her current financial situation B) Developing her financial goals C) Identifying alternative courses of action D) Evaluating her alternatives E) Implementing her financial plan

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64) Sophia Martinez knows that if she continues to work full time, it will be difficult for her to get the time off she needs to be able to travel around the world. However, if she continues to work full time she will more easily earn the money she needs to take her trip and still have money left for her living expenses after she gets back from her trip. Which step in the financial planning process does this scenario demonstrate? A) Determining her current financial situation B) Developing her financial goals C) Identifying alternative courses of action D) Evaluating her alternatives E) Implementing her financial plan

65) Sophia Martinez has decided to retire and use the time she has earned to travel around the world. She has decided to start her trip around the world in Europe by train and bus and will use her savings to pay for her trip. Which step in the financial planning process does this scenario demonstrate? A) Developing her financial goals B) Identifying alternative courses of action C) Evaluating her alternatives D) Implementing her financial plan E) Reviewing and revising her financial plan

66) Sophia Martinez's goal has been to travel around the world. She has been traveling for six months and she has decided she is a little tired of living out of a suitcase. She has decided to go home, look for a part-time job, and take shorter trips to locations around the world that appeal to her. Which step in the financial planning process does this scenario most likely demonstrate? A) Developing her financial goals B) Identifying alternative courses of action C) Evaluating her alternatives D) Implementing her financial plan E) Reviewing and revising her financial plan

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67) Patrick Jones is interested in purchasing a 65" LED TV for his living room. Patrick knows that right now the TV will cost approximately $500. He is not sure he can afford this TV right now but is worried that if he waits, the cost of the TV will rise to $800. Which type of risk is Patrick worried about? A) Inflation risk B) Interest rate risk C) Income risk D) Personal risk E) Liquidity risk

68) Patrick Jones is interested in purchasing a 65" LED TV for his living room. He knows that right now the TV will cost approximately $500. Patrick wants to borrow the money to purchase the TV but is concerned that interest rates are going to fall in the future. He is worried that he might get stuck with a loan at a high interest rate. What type of risk is Patrick worried about? A) Inflation risk B) Interest rate risk C) Income risk D) Personal risk E) Liquidity risk

69) Patrick Jones is interested in purchasing a 65" LED TV for his living room. He knows that right now the TV will cost approximately $500. However, Patrick is a little concerned about his job. Patrick is a pilot for Delta Airlines, and he thinks it is possible that he could be laid off in the near future. What type of risk is Patrick worried about?

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A) Inflation risk B) Interest rate risk C) Income risk D) Personal risk E) Liquidity risk

70) Nia Rogers is considering investing in 30-year corporate bonds issued by Duke Energy Company. She knows that she will earn an interest rate of 6 percent by purchasing these bonds. However, she is concerned because she might need to take her money out of this investment in a year, and she has heard that she might have to sell the bonds at a significantly lower price than she will purchase them for. What type of risk is Nia concerned about? A) Inflation risk B) Interest rate risk C) Income risk D) Personal risk E) Liquidity risk

71) Paulo Valle has just moved into a new house and needs a lawn mower, since he has always lived in apartments and now he has a lawn to mow. What type of goal would this be for Paulo? A) Consumable-product goal B) Durable-product goal C) Intangible goal D) Intermediate goal E) Long-term goal

72) Stella Jones likes to go to the movies once a week. When she is at the movies, she generally gets a large popcorn and a drink. Stella wants to be sure that she sets aside money each week so she can continue going to the movies. What type of goal would this be for Stella?

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A) Consumable-product goal B) Durable-product goal C) Intangible goal D) Intermediate goal E) Long-term goal

73) Anthony Vasquez is 42 years old, married, and has three children, ages 15, 13, and 8. This discussion is a demonstration of what factor in personal financial planning? A) Adult life cycle B) Economic factors C) Global influences D) Opportunity costs E) None of these choices are correct.

74) One aspect of financial planning is to make wise decisions using a plan as to what to purchase and when to purchase it. Which component of financial planning does this deal with? A) Borrowing B) Spending C) Managing risk D) Investing E) Retirement and estate planning

75) One aspect of financial planning is to use credit appropriately/wisely. Which component of financial planning does this deal with?

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A) Borrowing B) Spending C) Managing risk D) Investing E) Retirement and estate planning

76) One aspect of financial planning is to make sure you maintain adequate insurance coverage for your needs. Which component of financial planning does this deal with? A) Borrowing B) Spending C) Managing risk D) Investing E) Retirement and estate planning

77) One aspect of financial planning is to buy stocks, real estate, and mutual funds with the potential for long-term growth. Which component of financial planning does this deal with? A) Borrowing B) Spending C) Managing risk D) Investing E) Retirement and estate planning

78) When prices are rising at a rate of 3 percent, the cost of products and services would double in _____________blank years.

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A) 3 B) 6 C) 18 D) 24 E) 72

79)

Resources for financial planning can be found from: A) print media. B) digital media. C) financial institutions. D) financial specialists. E) All of these choices are correct.

80) The annual price increase for most goods and services measured by the Bureau of Labor Statistics is called _____________blank A) deflation B) inflation C) the consumer price index D) the price calculator E) the goods index

81) If you desire your savings to double in 6 years, what rate of return would you need to earn? A) 6 percent B) 8 percent C) 9 percent D) 10 percent E) 12 percent

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82) A family spends $40,000 on living expenses. With an annual inflation rate of 3 percent, they can expect to spend approximately _____________blank in one year. A) $40,300 B) $41,200 C) $42,000 D) $43,720 E) $46,000

83) The future value of $50 deposited each year for 6 years earning 7 percent would be approximately how much? Use Exhibit 1-B. Note: Round time value factors to 3 decimal places and final answer to the nearest dollar amount. A) $371 B) $50 C) $428 D) $300 E) $358

84) You are planning to buy a house in five years. Approximately how much do you need to deposit today to have a $10,000 down payment if your investment will make 6 percent? Use Exhibit 1-C. Note: Round time value factors to 3 decimal places and final answer to the nearest dollar amount. A) $6,000 B) $6,590 C) $7,470 D) $9,400 E) $10,000

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85) Raymond is planning to go to graduate school in a program that will take three years. Raymond wants to have $10,000 available each year for his school and living expenses. If he earns 6 percent on his investments, approximately how much must be deposited at the start of his studies for him to withdraw $10,000 a year for three years? Use Exhibit 1-D. Note: Round time value factors to 3 decimal places and final answer to the nearest dollar amount. A) $10,000 B) $18,390 C) $26,730 D) $29,100 E) $30,000

86) Margaret Wells’ new job is very demanding. She regularly works long hours and on the weekends. As a result, Margaret has not had much time for her family and friends. This is an example of: A) deflation. B) financial opportunity cost. C) personal opportunity cost. D) time value of money. E) inflation.

87) During _____________blank, even though prices decline, spending slows because consumers expect prices to continue to decline. A) deflation B) depreciation C) appreciation D) economic recovery E) inflation

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88)

Financial institutions include the following: A) banks. B) credit unions. C) insurance companies. D) investment companies. E) All of these choices are correct.

89) More recently, the annual price increase for most goods and services as measured by the consumer price index has been less than _____________blank percent. A) 1 B) 2 C) 3 D) 4 E) 5

90) Developing financial goals is the _____________blank step in the financial planning process. A) first B) second C) third D) fourth E) fifth

91)

The following are examples of intangible-purchase goals, except:

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A) obtaining a college degree. B) going on a cruise vacation. C) buying a house. D) losing weight. E) getting more sleep.

92)

Developing and using a budget is part of which component of financial planning? A) Retirement and estate planning B) Investing C) Spending D) Managing risk E) Planning

93) Determining your current financial situation is a part of which step in the financial planning process? A) First B) Second C) Third D) Fourth E) Fifth

94) Evaluating risk associated with making most financial decisions is difficult because of what factor(s)? A) Inflation risk B) Interest rate risk C) Personal risk D) Liquidity risk E) All of these choices are correct.

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95)

Financial planning information sources generally do not include: A) print media. B) financial specialists. C) financial institutions. D) personal friends. E) digital media.

96)

Inflation risk may include changes in buying power and: A) rising prices. B) falling prices. C) decisions to buy later. D) decisions to buy now. E) All of these choices are correct.

97)

Types of risks associated with financial decisions may include: A) Income risk B) Personal risk C) Liquidity risk D) Inflation risk E) All of these choices are correct

98)

Developing financial goals does not involve:

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A) analyzing your financial values several times a year. B) differentiating your needs from your wants. C) allowing others to decide which goals you should pursue. D) creating specific financial goals. E) None of these choices are correct.

99) Analyzing your current financial position is a part of which step of the financial planning process? A) Step 1: Determine current financial situation B) Step 2: Develop financial goals C) Step 3: Identify alternative courses of action D) Step 4: Evaluate alternatives E) Step 5: Create and implement the action plan

100)

The advantages of personal financial planning include:

A) increased effectiveness in obtaining, using, and protecting your financial resources. B) increased control of your financial affairs by avoiding excessive debt and bankruptcy. C) improved personal relationships resulting from better communicated financial decisions. D) All of these choices are correct. E) None of these choices are correct.

101)

Personal financial activities involve the following main decision areas? A) Spending B) Saving C) Sharing D) All of these choices are correct. E) None of these choices are correct.

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102) When identifying alternative courses of action, possible courses of action include which of the following? A) Continue with the same course of action B) Expand the past situation C) Change the past situation D) Take an old course of action E) All of these choices are correct.

103) If you are concerned about year-end tax payments and need an action plan, you may take the following action(s): A) increase the amount withheld from each paycheck. B) file quarterly tax payments. C) shelter current income in a tax-deferred retirement program. D) invest in tax-exempt securities. E) All of these choices are correct.

104)

The appropriate path for daily money decisions will: A) take some time. B) take some effort. C) result in lower stress. D) result in personal financial security. E) All of these choices are correct.

105)

The earnings you receive as a saver or an investor reflect:

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A) past interest rates. B) a risk premium based on length of the savings period. C) expected deflation. D) the extent of certainty about getting your money back. E) a positive credit rating.

106) In most societies, the forces of_____________blank set prices for securities, goods, and services. A) supply and demand B) inflation C) business D) government E) foreign competition

107)

A security is a financial instrument and includes all of the following, except: A) bonds. B) stocks. C) certificates of deposit. D) mutual funds. E) rare coins.

108) Long-term financial security can be achieved through both frugal living and wise investing. ⊚ true ⊚ false

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109) An opportunity fund is when money is set aside to expand ones income and net worth, or can be used to invest in oneself through higher education. ⊚ true ⊚ false

110) The purpose of a tariff, also known as an import tax, is to decrease the trade deficit, which always has the effect intended. ⊚ true ⊚ false

111)

Increased demand for a product or service will usually result in lower prices for the item. ⊚ true ⊚ false

112)

Inflation reduces the buying power of the dollar. ⊚ true ⊚ false

113)

Lenders benefit more than borrowers in times of high inflation. ⊚ true ⊚ false

114)

Economics is the study of using money to achieve financial goals. ⊚ true ⊚ false

115)

Reduced spending causes unemployment from staff reduction.

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⊚ ⊚

116)

true false

A financial plan is another name for a budget. ⊚ true ⊚ false

117) Developing and using a budget is part of the "obtaining" component of financial planning. ⊚ true ⊚ false

118)

Planning to buy a car is an example of an intangible-purchase goal. ⊚ true ⊚ false

119)

Opportunity costs refer to what a person gives up when making a choice. ⊚ true ⊚ false

120) Personal opportunity costs refer to time, effort, and health that are given up when a decision is made. ⊚ true ⊚ false

121)

Time value of money refers to changes in consumer spending when inflation occurs. ⊚ true ⊚ false

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122) Interest on savings is calculated by multiplying the principal amount times the opportunity cost times the annual interest rate. ⊚ true ⊚ false

123)

Present value is often referred to as compounding. ⊚ true ⊚ false

124) Present value computations are used to determine how much you need to deposit now so that you can withdraw a specified amount for a set number of years. ⊚ ⊚

125)

true false

Opportunity costs may be viewed only in terms of financial resources. ⊚ true ⊚ false

126) Gross domestic product (GDP) measures the total value of goods and services produced within a country's borders, excluding items produced with foreign resources. ⊚ true ⊚ false

127) Estate planning arranges for the transfer of finances and valuables to others when incapacity, illness, or death occurs.

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⊚ ⊚

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true false

Answer Key Test name: Chap 01_14e_Kapoor 11) E 12) E 13) C 14) D 15) C 16) D 17) C 18) E 19) A 20) E 21) A 22) D 23) D 24) E 25) C 26) A 27) E 28) E 29) B 30) D 31) B 32) D 33) A 34) B 35) C 36) D Version 1

37) B 38) D 39) E 40) C 41) C 42) B 43) D 44) D 45) E 46) C 47) D 48) B 49) D 50) C 51) A 52) C 53) D 54) B 55) A 56) E 57) E 58) D 59) A 60) D 61) A 62) B 63) C 64) D 65) D 66) E Version 1

67) A 68) B 69) C 70) E 71) B 72) A 73) A 74) B 75) A 76) C 77) D 78) D 79) E 80) C 81) E 82) B 83) E 84) C 85) C 86) C 87) A 88) E 89) B 90) B 91) C 92) E 93) A 94) E 95) D 96) E Version 1

97) E 98) C 99) A 100) D 101) D 102) A 103) E 104) E 105) B 106) A 107) E 108) TRUE 109) TRUE 110) FALSE 111) FALSE 112) TRUE 113) FALSE 114) FALSE 115) TRUE 116) FALSE 117) FALSE 118) FALSE 119) TRUE 120) TRUE 121) FALSE 122) FALSE 123) FALSE 124) TRUE 125) FALSE 126) FALSE Version 1

127) TRUE

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CHAPTER 2 1)

What are the stages that provide an approach to career planning and advancement?

Besides personal factors, what other factors influence employment opportunities?

3) Discuss the main career information sources available for use when doing career planning.

4) Maria Edwards recently has been offered employment in another city. She has been employed in her current position for four years. What factors should Maria consider when evaluating this new position?

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What activities are commonly suggested when preparing for a job interview?

6) You are given the choice of $4,000 in extra taxable income per year or a tax-exempt medical policy. The medical policy costs $300 per month. Your tax rate is 25 percent. Considering financial factors only, should you take the cash or the medical policy? Explain your decision.

Describe the three steps for effective networking?

If you are planning on starting a business, what three actions should you consider?

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9) Give 5 to 10 examples of interview questions you should expect in preparing for an interview.

10)

Which of the following are not an example of general skills? A) Training and certification in technology fields B) Understanding of personal motivations and motivations of others C) Knowledge of research techniques D) Effective written and oral communication skills E) Ability to work well with others

11)

Compared to a job, a career: A) does not offer a path for occupational growth. B) does not require a commitment to a profession. C) requires continued training. D) excludes considering your interests. E) always leads to an internship.

12) A(n) _____________blank is an employment position that is obtained mainly to earn money.

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A) career B) job C) internship D) apprenticeship E) cooperative

13) Which one of the following is defined as a commitment to a profession that requires continued training and offers a clear path for occupational growth? A) Apprenticeship B) Job C) Internship D) Career E) Cooperative employment experience

14)

You may identify a satisfying career using guidance tests that: A) evaluate the job market. B) identify potential job opportunities. C) develop a résumé and cover letter. D) plan for career growth. E) measure interests, abilities, and personal qualities.

15)

The final stage of the career planning and advancement process is to: A) plan and implement a program for career development. B) research employment. C) identify specific employment opportunities. D) interview for available positions. E) evaluate job offers.

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16) After identifying specific employment opportunities in the career planning and advancement process, a person should: A) assess personal goals, abilities, and career fields. B) develop a résumé and cover letter. C) evaluate job offers. D) implement a program for career development. E) research the employment market.

17)

A career is selected in relation to which social influence? A) Interest rates B) Inflation C) Foreign competition D) Demographic trends E) Consumer demand

18)

Natural abilities that people possess are called: A) interests. B) aptitudes. C) attitudes. D) personality traits. E) occupational techniques.

19)

Creativity, problem-solving skills, and physical dexterity are examples of:

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A) interests. B) survival skills. C) aptitudes. D) occupational attitudes. E) on-the-job training.

20)

Which of the following economic conditions can affect career opportunities? A) High interest rates B) Decreased global demand for goods and services C) Price increases D) All of these choices are correct. E) None of these choices are correct.

21) Decreased global demand for goods and services is an example of a(n) _____________blank influence on the job market. A) economic B) social C) political D) technological E) industrial

22)

Which of the following is an example of an industry trend? A) Increased employment opportunities in service industries B) People living longer C) Higher interest rates D) Price increases E) Continued growth in the number of working parents

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23) Noah Lupito is concerned about the effect of current economic conditions on various career fields. Which career information source would be most useful to Noah as he addresses his concerns? A) Occupational Outlook Handbook B) Library and media C) Campus career office D) Online gossip sources E) Business and personal contacts

24)

The Occupational Outlook Handbook would be most useful for determining: A) jobs available in your community. B) current economic conditions. C) detailed information on various career clusters. D) interview questions for various careers. E) suggested résumé formats for various career fields.

25) Which one of the following is a professional association that can assist in career planning for a specific career area? A) Bureau of Labor Statistics B) Chamber of Commerce C) Rotary Club D) American Marketing Association E) U.S. Department of Labor

26)

The purpose of an informational interview is to:

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A) obtain employment. B) reduce the number of potential candidates. C) ask job candidates some general questions. D) practice interview skills. E) gather information about an organization or a career.

27) Seventy percent of professionals locate employment positions presently available through networking and: A) the Occupational Outlook Handbook. B) personal contacts. C) an informational interview. D) the Bureau of Labor Statistics. E) business and economic news reports.

28) To determine the difference between two job offers with different salaries and employee benefits, you can use which method? A) Credit reporting B) Market value calculation C) Present value calculation of a pension program D) Present value calculation of a retirement plan E) Vesting

29)

When negotiating your salary which of the following tasks should be undertaken? A) Research comparable positions B) Prepare evidence of contributions C) Plan for appropriate timing and message D) Emphasize your value to the employer E) All of these choices are correct.

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30) Callan Patel is in the 24 percent tax bracket. A non-taxable employee benefit with a value of $500 would have a tax-equivalent value of approximately: A) $658. B) $528. C) $500. D) $360. E) $140.

31)

A tax-deferred employee benefit is: A) never subject to federal income tax. B) never subject to state income tax. C) taxed at some future time. D) taxed at a special rate. E) only available to union employees.

32)

Formal training methods include: A) company programs. B) seminars and webinars. C) college courses. D) All of these choices are correct. E) None of these choices are correct.

33)

Efficient work habits consist of using:

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A) lists. B) goal setting. C) note taking. D) time management techniques. E) All of these choices are correct.

34)

A career objective is: A) best included in your cover letter. B) usually included in your résumé. C) frequently the same as that of other candidates. D) not of interest to most employers. E) usually not related to the job sought.

35)

The education section of a résumé should include: A) names of instructors. B) course numbers. C) individual course grades. D) schools attended. E) class activities.

36) Naomi Reyes recently coordinated a fund-raising project for an organization that assists homeless youth. This would most likely be an example of experience in: A) doing research on a company. B) obtaining financial planning and budgeting skills. C) public speaking. D) human relations. E) problem solving.

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37)

A chronological résumé presents your education and experience based on: A) the number of years of experience. B) the number of years of education. C) areas or ability. D) career goal. E) a reverse time sequence.

38) A _____________blank résumé presents a person's education, work experience, and other information in order of the most recent item first. A) goal-oriented B) functional C) chronological D) targeted E) data base

39)

A functional résumé is suggested for a person who: A) has diverse skills and time gaps in their experience. B) is interested in a specific job. C) has a continuous school and work record. D) plans to advance in the same career area. E) has just completed school.

40) A person who has worked in many fields and has a variety of skills in categories such as communications, research, and supervision would probably be best served with the use of a _____________blank résumé.

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A) targeted B) functional C) chronological D) goal-oriented E) career change

41) A _____________blank cover letter is designed to compare your experiences with the job requirements side-by-side. A) functional B) chronological C) goal-oriented D) targeted E) data

42)

A person's résumé should generally be limited to: A) one page. B) three pages. C) four pages. D) five or more pages depending on experiences. E) a maximum of ten pages.

43)

What is the purpose of a cover letter? A) Obtain career planning information B) Request a reference for a job C) Develop résumé information D) Research a career area E) Express your interest to obtain an interview

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44)

The purpose of the development section of a cover letter is to: A) express interest in a specific job. B) request an interview. C) get the reader's attention. D) get the reader to take action. E) highlight background that qualifies the applicant for a specific job.

45) An interview designed to determine the best candidates for further interviewing is a(n) _____________blank interview. A) screening B) informational C) selection D) contact E) follow-up

46)

The purpose of a screening interview is to: A) make business contacts. B) determine the best candidates for further interviewing. C) locate potential people for advancement within the company. D) judge the least qualified candidates for a position. E) obtain information on available jobs in an area.

47)

The finalists for a job position are invited for a(n) _____________blank interview.

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A) informational B) confirmation C) selection D) screening E) personal contact

48)

The purpose of a behavioral interview is to: A) select the best applicants for further interviewing. B) obtain training information on a career area. C) better evaluate candidates for on-the-job potential. D) explore possible job opportunities in a career area. E) locate potential candidates for a position.

49) Which one of the following would likely lead to the most earnings over an individual's working career? A) Two year vocational degree B) Bachelor's degree C) Master's degree D) Professional or doctoral degree E) Associate's degree

50) Which of the following would be a competency commonly associated with successful people? A) An ability to work well with others in various settings B) A willingness to cope with conflict and adapt to change C) An ability to solve problems creatively in team settings D) Effective written and oral communication skills E) All of these are competencies commonly associated with successful people.

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51) Audra Parker has done some research and has found that the population in the U.S. is living longer which means there will be an increased need for health care professionals in the future. This is an example of _____________blank influencing jobs in the future. A) demographic trends B) economic conditions C) industry trends D) geographic trends E) educational trends

52) Jake Williams has done some research and has discovered that average incomes are high in metropolitan areas such as Boston, New York, Los Angeles, and Chicago. Based on his findings, Jake believes these areas will experience greater population and job growth as a result. This is an example of _____________blank influencing jobs in the future. A) technology trends B) economic conditions C) industry trends D) geographic trends E) educational trends

53) Donna Edwards has done some research and has discovered that economists believe interest rates will rise significantly over the next two years. Donna believes that this will lead to fewer homes being sold and fewer jobs in the banking and mortgage industries. This is an example of _____________blank influencing jobs in the future. A) demographic trends B) economic conditions C) industry trends D) geographic trends E) educational trends

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54) Daria Smith has gone to the career placement center at her university. She has taken both an interests inventory and a personality test and has found careers where his interests and personality are well suited. Which stage in the career planning and advancement process has Daria completed? A) Assess and research personal goals, abilities, and career fields. B) Research the employment market and identify specific employment opportunities. C) Develop a résumé and cover letter to apply for available positions. D) Interview for available positions and assess interview performance. E) Evaluate financial and other factors of positions offered.

55) Caleb O’Connor has gone to monster.com as well as his local newspaper and has found five job possibilities that he feels fit his abilities and interests. Which stage in the career planning and advancement process has Caleb completed? A) Assess and research personal goals, abilities, and career fields. B) Research the employment market and identify specific employment opportunities. C) Develop a résumé and cover letter to apply for available positions. D) Interview for available positions and assess interview performance. E) Evaluate financial and other factors of positions offered.

56) Annie Hudson has written her résumé and had it checked by her career placement center for errors. She plans on sending it to three companies she has identified as having job openings. Which stage in the career planning and advancement process is Annie completing? A) Assess and research personal goals, abilities, and career fields. B) Research the employment market and identify specific employment opportunities. C) Develop a résumé and cover letter to apply for available positions. D) Interview for available positions and assess interview performance. E) Evaluate financial and other factors of positions offered.

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57) Kylie Burroughs has purchased a suit and has interviewed with three companies through the career placement center at her university. She was surprised by some of the questions asked and does not feel she answered them well. She has developed some answers that she feels are better answers and better reflect her abilities and aptitudes. Which stage in the career planning and advancement process has Kylie completed? A) Assess and research personal goals, abilities, and career fields. B) Research the employment market and identify specific employment opportunities. C) Develop a résumé and cover letter to apply for available positions. D) Interview for available positions and assess interview performance. E) Evaluate financial and other factors of positions offered.

58) Jason Liang has gotten three job offers. He is now looking at the benefits packages of all three to see what he likes and doesn't like. Which stage in the career planning and advancement process is Jason completing? A) Assess and research personal goals, abilities, and career fields. B) Research the employment market and identify specific employment opportunities. C) Develop a résumé and cover letter to apply for available positions. D) Interview for available positions and assess interview performance. E) Evaluate financial and other factors of positions offered.

59) Gabriella Johnson wants to gain some employment experience so when she is ready to start a career she has something to offer a company. She has decided to work 20 hours a week for a local accounting firm answering the phone and assisting the partners in completing tax returns. Which of the following employment experience strategies is she pursuing? A) Part-time employment B) Volunteer work C) Internship D) Campus project E) Cooperative education program

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60) Jordan Raynor wants to gain some needed experience so when he is ready to start a career he has something to offer a company. He has decided to participate in a community organization that presents programs to local school children. Which of the following employment experience strategies is he pursuing? A) Part-time employment B) Volunteer work C) Internship D) Campus project E) Cooperative education program

61) Duane Thompson wants to gain some needed work experience so when he is ready to start a career he has something to offer a company. He has decided to help organize the homecoming parade for the University of Central Oklahoma where he goes to school full time. Which of the following employment strategies is he pursuing? A) Part-time employment B) Volunteer work C) Internship D) Campus project E) Cooperative education program

62) Lori Johnson wants to gain some needed experience so when she is ready to start a career she has something to offer a company. She has talked to the career placement center at her university. They tell her she can get a job with a local company for the summer and earn college credit while working. Which of the following employment strategies is she pursuing? A) Part-time employment B) Volunteer work C) Internship D) Campus project E) Cooperative education program

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63) Which of the following is the process of making and using contacts to obtain and update career information and find job opportunities? A) Networking B) An internship C) A career fair D) A cover letter E) Financial planning

64) Which of the following is an opportunity to connect with several prospective employers in a short time span? (Hint: It is often held at local university campuses or convention centers.) A) Networking B) An internship C) A career fair D) A cover letter E) An informational interview

65) Which of the following is sent to a company to indicate your interest in a job and to obtain an interview? (Hint: It is generally accompanied by your résumé.) A) List of references B) College transcript C) Diploma D) Cover letter E) Recommendation letter

66) Which of the following is the point at which retirement payments made on your behalf by the company belong to you even if you no longer work for the company?

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A) Networking B) Vesting C) A tax deferred benefit D) A tax exempt benefit E) Break even

67)

Which of the following is a benefit on which you pay income taxes at some future time? A) Cafeteria-style benefit B) Vesting C) Tax-deferred benefit D) Tax-exempt benefit E) Exclusion

68)

_____________blank is a benefit on which you pay no income taxes. A) Networking B) Vesting C) A tax-deferred benefit D) A tax-exempt benefit E) An opportunity cost

69) Kardea lives in City A and earns $40,000 per year. The cost of living index in City A is 80. She is considering a move to City B which has a cost of living index of 90. How large a salary will she require in City B to maintain her current standard of living? A) $32,000 B) $36,000 C) $45,000 D) $50,000 E) $55,000

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70)

The term networking refers to: A) using the internet to locate job listings. B) making and using contacts to obtain and update career information. C) accessing career databases online. D) building a list of references to provide to prospective employers. E) designing an electronic system for storing résumés and job related information.

71)

Which one of the following is not an element of corporate culture? A) Management styles B) Work intensity C) Government regulations D) Dress codes E) Social interactions

72) Joseph is eligible for a non-taxable life insurance benefit with an annual premium of $400 paid entirely by his employer. Assuming Joseph is in a 28 percent bracket, how much would he have to earn to pay for this benefit with after-tax dollars? A) $600.00 B) $555.56 C) $470.59 D) $288.00 E) $112.00

73) In addition to price increases and consumer demand, what is another economic factor that can affect career opportunities?

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A) Demographic trends B) Interest rates C) Foreign competition D) Changing uses of technology E) Geographic trends

74)

Having a relationship with a mentor can provide the following benefit(s): A) personalized training. B) access to influential people. C) emotional support during difficult times. D) growth in technical and social areas of a career. E) All of these choices are correct.

75) Which of the following is an example of the type of information that you would not usually include on a résumé? A) Name B) Address C) Career objective D) Email address E) Telephone number

76)

Which of the following pieces of information is generally not included on a résumé? A) Education B) References C) Hobbies D) Organizational experience E) Honors

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77) A type of employee benefits program that allows workers to base their job benefits on a credit system and personal needs is called: A) cafeteria-style. B) mandatory. C) flexible. D) voluntary. E) bundled.

78) Over the past 25 years, almost all new jobs in the private (business) sector were created by companies less than _____________blank years old. A) 20 B) 15 C) 10 D) 5 E) 2

79)

The main sources of networking include which of the following? A) Community organizations B) Professional associations C) Business contacts D) All of these choices are correct. E) None of these choices are correct.

80)

Trade-offs of career decisions may include:

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A) selecting challenging employment over employment offering the highest salary. B) refusing a promotion to move to employment that would reduce leisure time. C) choosing part-time employment to have more time with children. D) giving up a secure job to operate your own business. E) All of these choices are correct.

81)

Career choices require periodic evaluation of trade-offs related to which of the following? A) Personal factors B) Social factors C) Economic factors D) All of these choices are correct. E) None of these choices are correct.

82) Service industries that are expected to continue to have the greatest employment potential include: A) airlines. B) information technology. C) oil refineries. D) auto manufacturers. E) None of these choices are correct.

83)

An interviewer can legally ask you: A) if you have the legal right to work in the U.S. indefinitely. B) if you have any disabilities. C) about religion. D) where you were born. E) about marital status.

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84) Employability skills are missing in many potential employees and do not necessarily include: A) skills to obtain work. B) skills to maintain a job. C) skills to advance in a career. D) skills to supervise others. E) transferable skills.

85)

Guidance tests may help to identify a satisfying career by measuring: A) abilities. B) interests. C) personal qualities. D) All of these choices are correct. E) None of these choices are correct.

86) When considering career training and skill development, what factors influence future income? A) Education level B) Field of study C) Experiences D) Job market E) All of these choices are correct.

87)

The first stage in the career planning and advancement to process is:

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A) develop a résumé and cover letter. B) research the employment market. C) interview for available positions. D) assess and research personal goals, abilities, and career fields. E) evaluate financial factors of offered positions.

88)

Acceptable references are those that can verify your abilities and competencies such as: A) teachers. B) previous employers. C) supervisors. D) business colleagues. E) All of these choices are correct.

89) When searching for employment, candidates can expect to interact with hiring managers through social networks using: A) a LinkedIn profile. B) Twitter. C) QR (quick response) codes. D) Pinterest. E) Any of these.

90) What type of popular loan is available for entrepreneurs through non-profits, foundations, and community organizations? A) Major loans B) Microloans C) Miniature loans D) Max loans E) Online loans

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91)

A mistake for résumés and cover letters is: A) not paying a professional to prepare these documents. B) not listing five references. C) not checking the spelling and grammar. D) not comparing benefits before applying for the job. E) not identifying the salary potential.

92)

Use of artificial intelligence (AI) is: A) decreasing in use for identifying and hiring employees. B) attracting the least qualified applicants. C) unable to screen candidates based on their skills. D) helping to match job descriptions with résumés of the best candidates. E) eliminating all bias against foreign accents.

93)

Most important, your résumé and cover letter should have F-O-C-U-S. The “C” means: A) Create – prepare a list of interests B) Communicate – list the ways you can be reached C) Conclude – relate that you are the best candidate D) Coordinate – promote yourself through social media E) Connect – provide examples of accomplishments that will benefit the company

94)

Which of the following is described as an online “living entity”?

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A) Social media résumé B) Chronological résumé C) Functional résumé D) Infographic résumé E) Traditional résumé

95) Corporate culture refers to the methods used by an organization to determine the value of employee benefits. ⊚ true ⊚ false

96)

Technical skills, also known as hard skills, are skills needed for a specific profession. ⊚ true ⊚ false

97)

General skills, also known as soft skills, are skills that are adaptable to varied careers. ⊚ true ⊚ false

98)

An interest inventory measures the natural abilities that people possess. ⊚ true ⊚ false

99) Employment in housing-related industries increases and decreases based on changes in interest rates. ⊚ true ⊚ false

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100) Libraries usually have a variety of career information sources for career planning including government publications and industry brochures. ⊚ true ⊚ false

101) The COVID-19 pandemic resulted in an expanded number of in-person internship and inoffice interactions. ⊚ true ⊚ false

102) The purpose of an informational interview is to obtain employment from a branch office of a major corporation. ⊚ true ⊚ false

103)

Government-supported employment services can assist individuals with finding a job. ⊚ true ⊚ false

104) A cafeteria-style employee benefits program allows workers to select the benefits they prefer based on their personal needs. ⊚ true ⊚ false

105)

A tax-exempt employee benefit may be worth more than a tax-deferred benefit. ⊚ true ⊚ false

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106) Continuing career education to update your knowledge can be through formal or informal methods. ⊚ true ⊚ false

107) A mentor is an experienced employee who serves as a teacher and counselor for a less experienced person in a career field. ⊚ true ⊚ false

108) A person's name, address, telephone number, and email address should be included on a résumé in the personal data section. ⊚ ⊚

true false

109) A list of grades received in school is commonly included on a résumé in the education section. ⊚ true ⊚ false

110)

References are usually not included in a résumé. ⊚ ⊚

true false

111) Functional résumés emphasize a person's diverse skills and abilities in categories such as communications, research, and human relations. Version 1

⊚ ⊚

true false

112)

The purpose of a cover letter is to determine if a company has jobs available. ⊚ true ⊚ false

113)

A screening interview is reserved for only the finalists in a job search. ⊚ true ⊚ false

114) An elevator speech is a short, persuasive, focused summary of your unique experiences and skills used when networking. ⊚ true ⊚ false

115) Non-monetary benefits can be requested instead of a salary increase during a negotiation with your employer. ⊚ true ⊚ false

116) A medical savings account (MSA) or health savings account (HSA) allows health care costs to be paid with pretax dollars. ⊚ true ⊚ false

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Answer Key Test name: Chap 02_14e_Kapoor 10) A 11) C 12) B 13) D 14) E 15) A 16) B 17) D 18) B 19) C 20) D 21) A 22) A 23) B 24) C 25) D 26) E 27) B 28) B 29) E 30) A 31) C 32) D 33) E 34) A 35) D Version 1

36) B 37) E 38) C 39) A 40) B 41) D 42) A 43) E 44) E 45) A 46) B 47) C 48) C 49) D 50) E 51) A 52) D 53) B 54) A 55) B 56) C 57) D 58) E 59) A 60) B 61) D 62) C 63) A 64) C 65) D Version 1

66) B 67) C 68) D 69) C 70) B 71) C 72) B 73) B 74) E 75) C 76) B 77) A 78) D 79) D 80) E 81) D 82) B 83) A 84) D 85) D 86) E 87) D 88) E 89) E 90) B 91) C 92) D 93) E 94) A 95) FALSE Version 1

96) TRUE 97) TRUE 98) FALSE 99) TRUE 100) TRUE 101) FALSE 102) FALSE 103) TRUE 104) TRUE 105) TRUE 106) TRUE 107) TRUE 108) TRUE 109) FALSE 110) TRUE 111) TRUE 112) FALSE 113) FALSE 114) TRUE 115) TRUE 116) TRUE

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CHAPTER 3 1)

What types of financial records and documents should be kept in a safe deposit box?

2) Describe the main components and purpose of a personal balance sheet and a cash flow statement?

3) Julia Rivera lives with her two sons, ages 6 and 9. They have had difficulty managing their finances. What purposes could a budget serve for the Riveras? What actions would you suggest for the budgeting process to be successful?

4) Annette Benson has the following financial amounts: checking account $750, savings account $2,200, credit card balance $500, jewelry $1,200, real estate valued at $119,000, a mortgage on the real estate of $23,000. What is the total of Annette's assets? What actions could she take to increase her net worth?

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Explain why opportunity cost is an important concept in money management.

6) List the four phases of creating and implementing a budget and describe the details of each phase.

Opportunity costs refer to: A) current spending habits. B) changing economic conditions that affect a person's cost of living. C) storage facilities to make financial documents easily available. D) trade-offs associated with money management decisions. E) avoiding the use of consumer credit.

A home file should be used for:

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A) storing all financial documents and records. B) financial records for current needs. C) documents that require maximum security. D) obsolete financial documents. E) records that are difficult to replace.

Which of the following documents would most likely be stored in a safe-deposit box?

A) W-2 forms B) Personal financial statements C) Warranties D) Birth certificates E) Checking account statements

10) Which of the following would be organized as a personal and employment record in a home file? A) Budget B) Paycheck stub C) Social Security number D) Property tax bill E) Lease

11)

Which category of a home file includes stock and bond purchase documents? A) Investment records B) Insurance records C) Estate planning records D) Tax records E) Consumer purchase records

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12) Warranties are commonly kept with ____________ purchase and automobile records in a home file. A) investment B) insurance C) credit D) financial service E) consumer

13)

Which of the following are considered to be personal financial statements? A) Budget and credit card statements B) Personal balance sheet and cash flow statement C) Checkbook and budget D) Tax returns E) Bank and savings statements

14)

A personal balance sheet presents: A) amounts budgeted for spending. B) income and expenses for a period of time. C) earnings on savings and investments. D) items you own and amounts you owe. E) family financial goals.

15) a:

The current financial position of an individual or family is best presented with the use of

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A) budget. B) cash flow statement. C) balance sheet. D) bank statement. E) time value of money report.

16)

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of: A) $50,000. B) $28,000. C) $22,000. D) $67,000. E) $41,000.

17)

Cash and other tangible property (with a monetary value) that you own are referred to as: A) liabilities. B) variable expenses. C) net worth. D) income. E) assets.

18)

The value of items owned minus the amounts owed to others equals: A) net assets. B) net worth. C) total liabilities. D) total income. E) budgeted expenses.

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19)

Liquid assets refer to: A) amounts that must be paid soon. B) cash and items of value that can be easily converted to cash. C) total income available to a family for spending. D) the value of investments. E) amounts on which taxes must be paid.

20)

Funds set aside for retirement is an example of a(n) _____________blank asset. A) personal B) common C) investment D) household E) budgeted

21)

Liabilities are amounts representing: A) debts owed now. B) items of value. C) living expenses. D) taxable income. E) current assets.

22)

Current liabilities differ from long-term liabilities based on:

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A) the amount owed. B) the financial situation of the creditor. C) the interest rate charged. D) when the debt is due. E) current economic conditions.

23) Jeremy Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due within one year? A) Budget variance B) Investment assets C) Long-term liabilities D) Current assets E) Current liabilities

24)

Which of the following would be considered a long-term liability? A) Charge account B) Mortgage C) Six-month cash loan D) Tax payment E) Insurance premium

25)

A person's net worth is computed by: A) adding assets and liabilities. B) deducting current living expenses from total assets. C) subtracting total liabilities from total assets. D) subtracting assets from current liabilities. E) adding liabilities and budgeted expenses.

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26)

Which one of the following illustrates an insolvent situation? A) Assets $56,000; annual expenses $60,000 B) Assets $78,000; net worth $22,000 C) Liabilities $45,000; net worth $6,000 D) Assets $40,000; liabilities $60,000 E) Annual cash inflows $45,000; liabilities $50,000

27)

A person's net worth would increase as a result of: A) reducing the amounts you owe to others. B) decreasing savings. C) increasing spending for current living expenses. D) decreasing the value of personal possessions. E) decreasing the value of investments.

28)

A cash flow statement reports a person's or a family's: A) net worth. B) cash receipts and payments. C) plan for spending. D) value of investments. E) balance of savings.

29) Which one of the following presents a summary of cash receipts and payments for a period of time?

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A) Balance sheet B) Credit card statement C) Investment summary D) Cash flow statement E) Asset report

30)

Total earnings of a person minus the deductions for taxes and other items is called: A) budgeted income. B) gross pay. C) net worth. D) total revenue. E) take-home pay.

31)

A common deduction from a person's paycheck is for: A) interest. B) Social Security taxes. C) rent. D) unemployment. E) current liabilities.

32)

Payments that do not vary from month to month are _____________blank expenses. A) fixed B) usage C) variable D) luxury E) output

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33)

Elijah Ward wants to reduce his fixed expenses. Which action would be appropriate? A) Get a part-time job B) Eat more meals at home rather than in restaurants C) Find a place to live with a lower rent D) Save more money for the future E) Buy on credit items that might cost more later

34)

Which of the following payments would be considered a variable expense? A) Rent B) Installment loan payment C) Mortgage payment D) Monthly train ticket for commuting to work E) Electricity bill

35)

A decrease in net worth could be the result of: A) inflows exceeding outflows for a month. B) outflows exceeding inflows for a month. C) assets exceeding expenses. D) increased earnings on the job. E) inflows and outflows being equal for a month.

36) During the past month, Jennifer Johnson had income of $3,500. During the month, her net worth declined by $300. If no other financial activities occurred, this means Jennifer's payments for the month were:

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A) $3,800. B) $3,500. C) $3,200. D) $300. E) $0.

37)

Improvements in a person's financial position are the result of: A) increasing liabilities. B) reducing earnings. C) saving current income and investing. D) increasing purchases on credit. E) withdrawing amounts from savings.

38)

To determine a person's solvency, which financial document should be consulted? A) Cash flow statement B) Budget C) Debt consolidation statement D) Personal balance sheet E) Credit report

39) The Kakeibo system, a Japanese household financial ledger, requires writing down the spending in which of the following categories? A.Needs & wants B.Culture (i.e. books & museum visits) C.Unexpected costs (i.e. medical & repairs)

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A) Only A B) Only B C) Only C D) Only A and C E) All of these choices are correct.

40)

Which one of the following cash outflows should be listed first on a cash flow statement? A) Variable expenses B) Food expenses C) Fixed expenses D) Utility expenses E) Recreation expenses

41)

Changes in the cost of living: A) vary depending on where you live. B) are the same for different locations. C) are constant from month to month. D) are the same for all goods and services. E) are not a factor when preparing a budget.

42) If a family planned to spend $400 for food during April but only spent $350, this difference would be referred to as a: A) surplus. B) deficit. C) fixed living expense. D) budget reduction. E) contribution to net worth.

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43)

A budget deficit would result when a person's or family's: A) actual spending is less than planned spending. B) actual spending is greater than planned spending. C) actual spending equals planned spending. D) assets exceed liabilities. E) net worth decreases.

44)

When it comes to savings, most Americans: A) have an adequate emergency fund. B) devote large portions of their income to savings. C) find saving difficult. D) keep substantial amounts in a regular savings account. E) reduce the amount they save during their working life.

45) Ava Roberts uses a computer to organize her personal financial records and update her budget activities. These activities are an example of: A) money management. B) an opportunity cost. C) a balance sheet. D) creative accounting. E) electronic analysis.

46) Alex Ling has decided to put $30 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his emergency fund is important. This would be an example of a(n):

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A) budget variance. B) opportunity cost. C) balance sheet. D) accounting error. E) budget anomaly.

47) Nicholas Bowman has a savings account with $825 in it. He knows that he can easily withdraw this money and spend it whenever he wishes. This would be an example of: A) money management. B) a personal possession. C) a limited asset. D) a liquid asset. E) net worth analysis.

48) Harper Phillips has created a financial statement for herself that lists all of the assets she owns as well as the debts she owes. This would be an example of: A) money management. B) opportunity cost analysis. C) a personal balance sheet. D) a liquidation exercise. E) a budget variance.

49)

A personal balance sheet: A) predicts income and expenses. B) reports what an individual or a family owns and owes. C) reports income and expenses for an individual or a family. D) predicts investment success. E) analyzes debt payment activities.

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50) Ella McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $135,000, the value of her personal possessions is $58,000, and the value of her investment assets is $72,000. 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 Ella's net worth? A) $269,500 B) $105,500 C) $164,000 D) $205,500 E) $132,000

51) Ella McDonald has determined the following information about her own financial situation. Her checking account is worth $545 and her savings account is worth $1,000. She owns her own home that has a market value of $119,000. She has furniture and appliances worth $8,500 and a laptop worth $1,200. She has a car worth $9,700 and owes $8,200 on her auto loan. She has also purchased some stock worth $5,500 and she has a retirement account worth $27,655. What is the total value of her assets? A) $1,545 B) $119,000 C) $27,800 D) $44,050 E) $173,100

52) Maria Reid has determined that the value of her assets is $64,000 and the value of her debts is $23,000. The difference between these two is $41,000. The $41,000 could be referred to as her:

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A) nest egg. B) total assets. C) adjusted assets. D) debt equity. E) net worth.

53) A family has a net worth of $165,000 and liabilities of $176,000. What is the amount of their assets? A) $11,000 B) $165,000 C) $176,000 D) $341,000 E) $506,000

54) Ian Parr needs to store monthly statements from his bank, credit card company, and savings accounts. Where is the most appropriate place for Ian to store this information? A) Home file B) Safe deposit box C) File at work D) Best friend's house E) No storage needed

55) Lucas McLean needs to store the title to his car and his military papers. Where is the most appropriate place for Lucas to store this information?

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A) Home file B) Safe deposit box C) Personal computer D) Best friend's house E) No storage needed

56) Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $500 and her savings account is worth $900. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased an annuity worth $5,500 and she has a retirement account worth $38,550. What is the value of her liquid assets? A) $1,400 B) $98,000 C) $27,800 D) $44,050 E) $171,900

57) Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $119,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a mutual fund worth $5,500 and she has a retirement account worth $38,550. What is the value of her real estate assets? A) $2,050 B) $119,000 C) $27,800 D) $44,050 E) $171,900

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58) Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $8,500 and a laptop worth $1,200. She has a car worth $9,700. She has recently purchased a mutual fund worth $5,500 and she has a retirement account worth $38,550. What is the value of her personal possessions? A) $2,050 B) $98,000 C) $19,400 D) $44,050 E) $171,900

59) Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a mutual fund worth $4,500 and she has a retirement account worth $62,300. What is the value of her investment assets? A) $2,050 B) $98,000 C) $27,800 D) $66,800 E) $171,900

60) Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $800 and her savings account is worth $1,100. She owns her own home that has a market value of $122,000. She has furniture and appliances worth $9,500 and a laptop worth $1,400. She has a car worth $12,500. She has recently purchased a mutual fund worth $5,500 and she has a retirement account worth $32,500. What is the total value of her assets?

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A) $127,850 B) $122,000 C) $168,600 D) $159,900 E) $185,300

61) Ruth Fraser has determined that the value of her liquid assets is $5,400, the value of her real estate is $182,000, the value of her personal possessions is $26,000, 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 assets? A) $286,400 B) $182,000 C) $73,000 D) $26,000 E) $7,500

62) Ruth Fraser 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 $5,700 and the value of her long-term liabilities is $89,000. What is the total value of her debts? A) $267,500 B) $94,700 C) $162,000 D) $205,500 E) $172,800

63) Ruth Fraser 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 $5,700 and the value of her long-term liabilities is $89,000. What is Ruth's net worth? Version 1

A) $267,500 B) $94,700 C) $172,800 D) $205,500 E) $162,000

64) This month, Oliver Goldberg has cash inflows of $2,950 and cash outflows of $2,800, resulting in a: A) balanced budget. B) surplus of $150. C) deficit of $150. D) surplus of $2,950. E) deficit of $2,800.

65) A person has $1,550 in liabilities, monthly savings of $200, and monthly gross income of $2,000. What is the person's savings ratio? A) 0.77 B) 0.10 C) 2.35 D) 0.16 E) 12.90

66) When preparing her monthly budget, Maddie Foster has projected income of $3,700. Each month she pays $1,200 in rent, $42 for life insurance, and $240 for her auto loan. What percentage of her budget goes for these fixed expenses?

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A) 6 percent B) 12 percent C) 27 percent D) 40 percent E) 60 percent

67) The Ramos family budgets $400 a month for food. Last month they spent $393, which creates a: A) budget surplus of $7. B) budget deficit of $7. C) budget surplus of $400. D) budget deficit of $393. E) balanced budget.

68) Martin Jefferson has developed a budget that he follows each month. This is a budget that he keeps in his head. He does not write anything down, nor does he use a computer to keep track of this budget. What type of budget has Martin created? A) Mental budget B) Physical budget C) Written budget D) Computerized budget E) Cloud budget

69) Freddie Moore has developed a budget that he follows each month. Freddie has an envelope for each type of expenditure. After he cashes his paycheck, he puts the amount of cash in each envelope that he plans to spend on that category each month. What type of budget has Freddie created?

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A) Mental budget B) Physical budget C) Written budget D) Computerized budget E) Cloud budget

70) Lora Romero has developed a budget that she follows each month. She went to the office supply store and purchased a spiral notebook. Each month she writes what she plans to spend in the various categories. At the end of the month, she writes the amount that she actually spent in each of these categories and compares this with the budgeted amounts. What type of budget has Lora created? A) Mental budget B) Physical budget C) Written budget D) Computerized budget E) None of these choices are correct.

71) Luca Hicks has a budget that he follows each month. He has used spreadsheet software to help him determine what he wants to spend each month. At the end of the month, the spreadsheet software automatically compares what he budgeted with what he spent. Luca can also graph these results if he wants to. What type of budget has Luca created? A) Mental budget B) Physical budget C) Written budget D) Computerized budget E) None of these choices are correct.

72) Everett Wilson has determined that the amount of money he spends on his mortgage payment, car loan payment, and home insurance payment totals $1,200 every month. What type of expenses has Everett determined with this calculation? Version 1

A) Current liabilities B) Long-term liabilities C) Net worth D) Variable expenses E) Fixed expenses

73)

Which of the following is typically considered to be a personal and employment record? A) Birth certificate B) Current résumé C) Employee benefit information D) Social Security number E) All of these choices are correct.

74) Copies of tax returns and supporting data should be kept for _____________blank year(s). A) 0 B) 1 C) 3 D) 5 E) 7

75)

Which of the following would most likely be classified as a current liability? A) Monthly balance due on a credit card B) Total amount of a mortgage C) Balance of an education loan D) Total amount of a five-year home improvement loan E) Balance of a 60-month auto loan

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76)

Which of the following would be considered a fixed expense? A) Electric bill B) Food at home C) Rent D) Donations E) Medical expenses

77) Your aunt gives you some money for your birthday and you decide to put it into your savings account instead of spending it. The trade-off of not being able to spend the money now is an example of _____________blank cost. A) fixed B) opportunity C) variable D) transaction E) total

78) For January, Emerson Powers had cash inflows of $3,500 and cash outflows of $4,050, resulting in a: A) balanced budget. B) surplus of $550. C) deficit of $550. D) surplus of $3,500. E) deficit of $4,050.

79) The value of the home you own would be included in which section of your balance sheet?

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A) Liquid assets B) Investment assets C) Real estate assets D) Personal possessions E) Current liabilities

80)

Characteristics of successful budgets include being: A) well planned. B) realistic. C) flexible. D) clearly communicated. E) All of these choices are correct.

81) A person with erratic or seasonal income may need an emergency fund of _____________blank months or more. A) 2 B) 3 C) 6 D) 10 E) 12

82) Calculate the debt ratio for an individual who has $45,000 in assets and $17,500 in liabilities. A) 0.26 B) 2.57 C) 0.45 D) 0.39 E) 1.75

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83)

An example of a liquid asset is: A) furniture. B) jewelry. C) automobile. D) money in a checking account. E) home computer.

84) The amount of income that a person or household has available to spend after deductions for taxes and other items is called: A) take-home pay. B) discretionary income. C) surplus. D) budget variance. E) cash flow.

85)

Flexible payments that change from month to month are referred to as: A) variable expenses. B) fixed expenses. C) cash flow. D) insolvency. E) budget variance.

86)

In order to determine net worth, you would create what kind of report?

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A) Written budget B) Personal balance sheet C) Cash flow statement D) SWOT analysis E) Physical budget

87) Which of the following items is something that would typically not be stored in a safe deposit box? A) Rare coins B) Passport C) Car title D) Birth certificate E) Bank statements

88)

Common long-term liabilities include: A) Auto loans B) Medical bills C) Insurance premiums D) Charge accounts E) Cash loans

89)

Discretionary income is: A) a person’s earnings after deducting taxes and other items. B) referred to as net pay. C) referred to as disposable income. D) money left over after paying for housing, food, and other necessities. E) referred to as take-home pay.

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90)

The debt ratio is calculated as: A) net worth divided by liabilities. B) monthly credit payments divided by take-home pay. C) liabilities divided by assets. D) liquid assets divided by current liabilities. E) liquid assets divided by monthly expenses.

91)

Financial goals should take a SMART approach with goals that are: A) time-based. B) realistic. C) action-oriented. D) specific and measurable. E) All of these choices are correct.

92)

One of the main purposes of a budget is to help you: A) live within your income. B) spend your money quickly. C) reach your career goals. D) prepare for financial non-emergencies. E) develop spontaneous financial management habits.

93)

Which of the following can be minimized through budgeting?

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A) Overusing credit B) Lacking a regular savings program C) Failing to ensure future financial security D) All of these choices are correct. E) None of these choices are correct.

94)

Which of these is an example of an opportunity cost?

A) Spending for current living expenses increases the amount you have for saving and investing. B) Saving and investing for the future reduces the amount you can spend now. C) Buying on credit results in payments later and increases the amount of future income available. D) Using savings for purchases results in additional interest earnings. E) Comparison shopping costs you money.

95)

An organized system of financial records provides a basis for: A) handling daily business activities. B) planning and measuring financial progress. C) completing required tax reports. D) making effective investment decisions. E) All of these choices are correct.

96)

One of the main purposes of personal financial statements is to:

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A) report your future financial position relating to the value of items owned and owed. B) measure your progress toward financial goals. C) maintain information about your professional work activities. D) provide data you can use when rating a restaurant. E) provide data you can use when applying for a job.

97)

The 50/30/20 financial rule of thumb suggests that 50 percent of income be used for: A) necessities. B) wants. C) savings. D) car buying. E) education.

98)

The 50/30/20 financial rule of thumb suggests that 30 percent of income be used for: A) necessities. B) wants. C) savings. D) car buying. E) education.

99)

The 50/30/20 financial rule of thumb suggests that 20 percent of income be used for: A) necessities. B) wants. C) savings. D) car buying. E) education.

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100)

Financial experts recommend monthly savings of: A) 1 percent. B) 2 to 3 percent. C) 4 percent. D) 5 to 10 percent. E) 15 percent.

101)

Money management refers to long-term investment decisions. ⊚ true ⊚ false

102) A poorly organized financial record system can result in lost valuables, hidden assets, and dormant accounts. ⊚ true ⊚ false

103)

Financial experts recommend keeping your tax records for three to five years. ⊚ true ⊚ false

104) Opportunity costs are only associated with money management decisions involving longterm financial security. ⊚ true ⊚ false

105)

A budget is a spending plan that outlines how you will spend available income.

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⊚ ⊚

true false

106)

During the COVID-19 pandemic, many people had very limited discretionary income. ⊚ true ⊚ false

107)

A personal balance sheet reports your personal income and expenditures. ⊚ true ⊚ false

108) A person's net worth is the difference between the value of the items owned and the amounts owed to others. ⊚ true ⊚ false

109)

Furniture, jewelry, and an automobile are examples of liquid assets. ⊚ true ⊚ false

110)

Insolvency occurs when liabilities far exceed available assets. ⊚ ⊚

111)

true false

Take-home pay is a person's earnings after deductions for taxes and other items. ⊚ ⊚

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true false 32

112) Financial payments that do not vary from month to month are referred to as variable expenses. ⊚ true ⊚ false

113) Discretionary income is money left over after paying for housing, food, and other necessities. ⊚ true ⊚ false

114) How you save is less important than making regular savings deposits for future financial goals. ⊚ true ⊚ false

115) rate.

For many years, the United States has ranked highest among industrial nations in savings ⊚ ⊚

true false

116) In order to calculate a person’s savings ratio, the amount saved each month is divided by net income. ⊚ true ⊚ false

117) The 70 percent rule is a budgeting guideline that allocates 70 percent of income for necessary expenses, 10 percent for savings, and 20 percent for retirement and financial security.

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⊚ ⊚

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true false

Answer Key Test name: Chap 03_14e_Kapoor 7) D 8) B 9) D 10) C 11) A 12) E 13) B 14) D 15) C 16) B 17) E 18) B 19) B 20) C 21) A 22) D 23) E 24) B 25) C 26) D 27) A 28) B 29) D 30) E 31) B 32) A Version 1

33) C 34) E 35) B 36) A 37) C 38) D 39) E 40) C 41) A 42) A 43) B 44) C 45) A 46) B 47) D 48) C 49) B 50) C 51) E 52) E 53) D 54) A 55) B 56) A 57) B 58) C 59) D 60) E 61) A 62) B Version 1

63) C 64) B 65) B 66) D 67) A 68) A 69) B 70) C 71) D 72) E 73) E 74) E 75) A 76) C 77) B 78) C 79) C 80) E 81) C 82) D 83) D 84) A 85) A 86) B 87) E 88) A 89) D 90) C 91) E 92) A Version 1

93) D 94) B 95) E 96) B 97) A 98) B 99) C 100) D 101) FALSE 102) TRUE 103) FALSE 104) FALSE 105) TRUE 106) TRUE 107) FALSE 108) TRUE 109) FALSE 110) TRUE 111) TRUE 112) FALSE 113) TRUE 114) TRUE 115) FALSE 116) FALSE 117) FALSE

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CHAPTER 4 1) Calvin Stevens wants to complete his own federal income tax return. He has several questions about the tax form to use and what items should be reported as income. What sources of assistance would you recommend for Calvin?

What is the difference between tax-exempt income and tax-deferred income?

What are the advantages of a 401(K)?

Explain the difference between a short-term capital gain and a long-term capital gain.

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What sources are available for professional tax assistance?

The principal purpose of taxes is to: A) finance government activities. B) reduce the chances of inflation. C) create jobs. D) discourage use of certain goods and services. E) decrease competition from foreign companies.

7) Which type of tax is imposed on specific goods and services, such as gasoline and cigarettes, at the time of purchase? A) Estate B) Inheritance C) Excise D) Gift E) Value-added

The ______________blank property tax is based on the value of land and buildings. A) personal B) real estate C) direct D) proportional E) regressive

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9) What type of tax is imposed on the value of an individual's property at the time of his or her death? A) Inheritance B) Excise C) Gift D) Personal property E) Estate

10)

Taxable income is used to compute the amount of: A) exemptions. B) income tax owed. C) deductions. D) capital gains. E) exclusions.

11) A taxable investment produced interest earnings of $1,200. A person in a 22 percent tax bracket would have after-tax earnings of: A) $1,200. B) $936. C) $780. D) $264. E) $22.

12) The tax on $2,000 of profit on a capital asset is deferred. A person in a 24 percent tax bracket will have to pay what amount of taxes when the asset is sold?

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A) $2,000 B) $1,500 C) $760 D) $480 E) $24

13) When a taxpayer's income increases $1,000 and the taxes owed increases from $7,850 to $8,200, the marginal tax rate is ______ percent. A) 12 B) 22 C) 24 D) 32 E) 35

14) A taxpayer with a taxable income of $45,328 and a total tax bill of $5,911 would have an average tax rate of ____ percent. A) 10 B) 12 C) 13.04 D) 14.67 E) 22

15) A person has $5,000 in medical expenses and an adjusted gross income of $33,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?

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A) $375 B) $2,525 C) $2,475 D) $5,000 E) $3,000

16)

Which of the following would not be included in gross income? A) Portfolio income B) Investment income C) Exclusions D) Passive income E) Earned income

17) Money received by an individual for personal effort is classified as ______________blank income. A) passive B) earned C) portfolio D) excluded E) investment

18) Money received in the form of dividends or interest is classified as ____________blank income. A) passive B) earned C) excluded D) capital gain E) investment

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19) Earnings from a limited partnership would be an example of ____________blank income. A) passive B) capital gain C) portfolio D) earned E) excluded

20)

Which one of the following is included in gross income? A) Tax credit B) Exemption C) Exclusion D) Earned income E) Tax deduction

21)

Which one of the following would reduce gross income to obtain adjusted gross income? A) IRA contributions B) Mortgage interest C) Medical expenses D) Moving expenses E) Charitable contributions

22) John Garcia had earnings from his salary of $32,000, interest on savings of $200, a contribution to a traditional individual retirement account of $1,200, and dividends from mutual funds of $125. John's adjusted gross income would be:

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A) $31,125. B) $32,000. C) $33,200. D) $33,400. E) $33,525.

23)

An exclusion affects a person's taxes by: A) not including tax-exempt income in gross 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.

24) Reductions from gross income for such items as individual retirement account contributions and alimony payments will result in: A) adjusted gross income. B) taxable income. C) earned income. D) passive income. E) total exclusions.

25)

Tax-deferred retirement plans are a type of: A) exemption. B) itemized deduction. C) passive income. D) tax shelter. E) tax credit.

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26)

Which one of the following items is a set amount of income on which no taxes are paid? A) Medical expenses B) Standard deduction C) Deferred income D) Withholding E) Capital gains

27)

An expense that would be included in the itemized deductions of a taxpayer is: A) personal postage expenses. B) life insurance premiums. C) real estate property taxes. D) retirement plan contributions. E) annual interest paid on credit cards.

28) _____________blank are expenses that a taxpayer is allowed to deduct from adjusted gross income. A) Exemptions B) Exclusions C) Itemized deductions D) Tax credits E) Passive income

29) For tax years prior to 2018, a deduction from adjusted gross income for yourself, your spouse, and qualified dependents was termed:

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A) the standard deduction. B) a tax credit. C) an itemized deduction. D) an exclusion. E) an exemption.

30) Anita Walsh is considering an additional charitable contribution of $1,500 to a taxdeductible charity, bringing her total itemized deductions to $16,000. If Michele is in a 24 percent tax bracket, how much will this $1,500 contribution reduce her taxes? A) $0 B) $360 C) $1,500 D) $1,600 E) $3,840

31) A tax ____________blank is an amount subtracted directly from the amount of taxes owed. A) credit B) reduction C) deduction D) exclusion E) shelter

32) A tax credit of $100 for a person in a 24 percent tax bracket would reduce a person's taxes owed by:

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A) $10. B) $28. C) $76. D) $100. E) $24.

33)

The pay-as-you-go system requires: A) paying the total amount of taxes owed on May 15. B) filing quarterly tax returns. C) having federal income tax deducted from your paychecks. D) earning tax credits for various deductions. E) filing the 1040 EZ form.

34)

Estimated quarterly tax payments must be made by people who: A) are employed in a foreign country. B) receive regular payroll checks. C) work for the government. D) do not have taxes withheld from their paychecks. E) itemize deductions.

35) A taxpayer whose spouse recently died and who has a dependent is most likely to use the ____________blank filing status. A) single B) married filing joint return C) married filing separate return D) head of household E) qualifying widow or widower

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36)

The "head of household" filing status is for someone who is: A) recently divorced. B) recently widowed. C) unmarried and has a dependent child. D) married but only one spouse has income. E) married and each spouse makes about the same income.

37) For 2020, which form would a married individual with less than $100,000 in taxable income use to file his federal income tax return? A) Form 1040X B) IRS Publication C) Form 1040 D) Schedule A E) Schedule E

38)

In 2020, the Form 1040 is not appropriate for someone who: A) is single with no children. B) makes less than $50,000 with no interest or dividends. C) had no taxable income and no tax withheld. D) has a complex tax situation. E) has a simple tax situation.

39) Which one of the following people is least likely to have to file a federal income tax return?

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A) A U.S. citizen who is a resident of Puerto Rico. B) A U.S. citizen earning $8,000 where taxes were withheld. C) A single person earning less than $5,000. D) A single person over age 65 earning $20,000. E) A 28-year old single college student earning more than $16,000.

40)

Itemized deductions are recorded on: A) W-2 form. B) Schedule A. C) Schedule B. D) Form 2106. E) Form 1040B.

41) A person who owes total federal income taxes of $3,450 but had total withholdings of $3,125 would: A) receive a refund of $3,125. B) make a payment of $3,450. C) make a payment of $325. D) receive a refund of $3,450. E) receive a refund of $325.

42) Mya Yates wants her tax return prepared by a government-approved tax expert. Which of the following tax preparers should Mya use? A) CPA B) Enrolled agent C) Nationally-certified tax preparer D) Tax attorney E) Local tax preparer

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43)

Which type of audit is the simplest and most common for taxpayers? A) A field audit B) An office audit C) A research audit D) A correspondence audit E) A documentation audit

44) Which one of these terms is defined as the use of legitimate methods to reduce one's taxes? A) Tax evasion B) Tax avoidance C) Tax exemption D) Tax deferral E) Tax deduction

45)

Union dues, tax preparation fees, and other miscellaneous expenses are: A) partially deductible. B) fully deductible. C) deductible for self-employed individuals only. D) deductible for people in certain income categories. E) not deductible.

46)

Which one of the following is most likely to qualify as an itemized deduction?

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A) Interest on a credit card or charge account B) Charitable contributions C) Losses reimbursed by insurance D) Life insurance premiums E) Traffic violation fee

47)

The interest is deductible on your tax return for which of the following? A) Home equity loan B) Auto loan C) Credit card D) Life insurance policy cash value loan E) Personal cash loan from a credit union

48)

Which one of these investments produces tax-exempt income? A) Real estate B) Corporate stock C) Retirement plan D) Municipal bond E) Corporate bond

49)

Capital gains refer to: A) tax-exempt investments. B) portfolio income. C) profits from the sale of a capital asset. D) earnings from investments such as dividends or interest. E) earnings from passive activities.

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50)

A short-term capital gain is profit earned on an investment that is: A) made involving small companies. B) not taxed as ordinary income. C) held for less than a year. D) in foreign companies. E) made only from real estate.

51)

Which one of these statements correctly applies to a Roth IRA? A) Earnings on the account are tax-free after five years. B) Contributions reduce earned income for tax purposes in the year of contribution. C) Deposits must be in federally-insured accounts. D) Funds are only to be used for educational expenses. E) Only self-employed workers can contribute to a Roth IRA.

52) by:

An itemized deduction of $800 with a 33 percent tax rate would reduce a person's taxes

A) $800. B) $33. C) $200. D) $536. E) $264.

53)

An IRA, Keogh plan, and 401(k) plan are examples of:

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A) tax-exempt retirement plans. B) tax-deferred retirement plans. C) capital gains. D) self-employment insurance programs. E) job-related expenses that are tax deductible.

54) Lorenzo Turner goes into a local department store and purchases a new suit. He pays $48 in taxes on this purchase. What type of tax is this most likely to be? A) General sales tax B) Excise tax C) Personal property tax D) Income tax E) Estate tax

55) The state of Oklahoma imposes a tax of $0.17 per gallon on gasoline. What type of tax is this most likely to be? A) Real estate tax B) Excise tax C) Personal property tax D) Income tax E) Estate tax

56) Tobias Moran owns a fishing boat. His state imposes an annual 3.25 percent tax on the current value of this boat. What type of tax is this most likely to be?

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A) General sales tax B) Excise tax C) Personal property tax D) Income tax E) Estate tax

57) Andre Miller earns $4,500 per month from his job at Cisco Systems; $900 is withheld from this amount each month for taxes. What type of tax is this most likely to be? A) General sales tax B) Excise tax C) Personal property tax D) Income tax E) Estate tax

58) Vivian Reid just died. At the time of her death the total value of her assets was $150,000. The federal government collected $7,500 in taxes based on this value. What type of tax is this most likely to be? A) General sales tax B) Excise tax C) Personal property tax D) Income tax E) Estate tax

59) Mr. and Mrs. O’Carroll want to give their son, Liam, a total of $30,000. They each write him a check for $15,000 so they won't have to pay any gift tax. This is an example of:

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A) fraud. B) tax evasion. C) tax exclusion. D) tax avoidance. E) tax-deferred income.

60) Ayoki Hideaki is single and earns $32,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes. Up to $9,950 $9,951 − $40,525 $40,526 − $86,375 $86,376 − $164,925

10% 12% 22% 24%

Calculate the dollar amount of estimated taxes that Ayoki owes. A) $3,200 B) $3,641 C) $3,840 D) $7,040 E) $7,680

61) Aida Hassen is single and earns $40,000 in taxable income. She uses the following tax rate schedule to calculate the taxes she owes. Up to $9,950 $9,951 − $40,525 $40,526 − $86,375 $86,376 − $164,925

10% 12% 22% 24%

What is Aida's marginal tax rate?

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A) 10% B) 12% C) 22% D) 24% E) Between 10% and 12%

62) Miles Greenwood is single and earns $40,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes. Up to $9,950 $9,951 − $40,525 $40,526 − $86,375 $86,376 − $164,925

10% 12% 22% 24%

What is Miles' average tax rate? A) 11.50% B) 18.27% C) 21.35% D) 23.87% E) 25.00%

63) Philippe Bates goes on The Price Is Right and earns $525,000 in winnings. What type of income is this? A) Earned income B) Investment income C) Passive income D) Other income E) Deferred income

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64) Harlan Manning is 55 years old, and has adjusted gross income of $40,000. He has medical expenses for the year ending 2020 of $7,000. How much of these expenses can he include as an itemized deduction? A) $0 B) $3,000 C) $4,000 D) $6,000 E) $7,000

65) Sonja Nayak has adjusted gross income of $40,000. She paid $4,700 in property taxes during the year. How much of the tax can she include as an itemized deduction? A) $4,700 B) $4,000 C) $3,000 D) $700 E) $0

66) Theo Roth has adjusted gross income of $82,000. During the year, Theo decided he needed a larger home. He purchased a home on a golf course in the same town as his first home. He incurred $6,000 in moving expenses. How much of this can he include as an itemized deduction? A) $8,200 B) $6,150 C) $6,000 D) $1,000 E) $0

67) Evita Obregon is a U.S. citizen that worked in Mexico for part of the year and earned $50,000 while she was there. This foreign earned income will not be included in her gross income for the year. This represents a tax: Version 1

A) deduction. B) exclusion. C) exemption. D) credit. E) refund.

68) Elaine's Embroidery Emporium which is run out of Elaine's home is visited by an IRS agent who wants to verify the office expenses Elaine claims are valid. What type of IRS audit is this? A) Correspondence audit B) Office audit C) Field audit D) Detailed audit E) Research audit

69) A ______blank allows a taxpayer to put pretax dollars into an employer-sponsored program to cover medical expenses or child care costs. A) tax credit B) tax deduction C) flexible spending account D) tax-deferred investment E) tax-exempt investment

70)

Which one of the following is a tax-deferred retirement plan sponsored by an employer?

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A) Roth IRA B) Education savings account C) Keogh plan D) 401(k) plan E) 529 plan

71) Which one of the following is a retirement plan that commonly (age and higher income notwithstanding) allows a $6,000 annual contribution with tax-free earnings after five years? A) Roth IRA B) Education Savings Account C) Keogh Plan D) 401(k) Plan E) 529 Plan

72)

The interest paid on which type of loan is not tax deductible? A) Home equity loan interest for home improvements B) Credit card interest C) Mortgage interest to buy a home D) Mortgage interest to build a home E) Investment interest up to the amount of investment income

73)

Approximately what percent of tax filers are audited each year? A) 1 percent B) 3 percent C) 5 percent D) 10 percent E) 15 percent

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74) Ms. Romano is a single mom with three children who live at home. She earned less than $40,000 in 2020. What is the maximum amount of earned income tax credit that she may qualify for? A) $2,798 B) $3,242 C) $6,431 D) $0

75) Taxpayers with high incomes and high amounts of certain deductions may be subject to an additional tax referred to as the ________________blank tax. A) deferred B) bonus C) excess D) capital gains E) alternative minimum

76)

Examples of tax credits do not include a(n) _______________blank tax credit. A) energy-savings B) adoption C) elderly and disabled D) credit card E) savers

77) Peter Marsh claimed an additional $3,000 in deductions he knowingly knew he did not qualify for so he could reduce his tax bill. This is referred to as tax:

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A) avoidance. B) acceleration. C) evasion. D) delaying. E) deferment.

78) Oliver closed on his new home December 31, 2020 instead of January 1, 2021. As a result, Oliver: A) accelerated tax deductions in 2020. B) accelerated tax deductions in 2021. C) increased his adjusted gross income in 2020. D) delayed the receipt of income in 2020. E) delayed the receipt of income in 2021.

79) Min Soo-Yun bought 20 shares of stock two years ago. She recently sold her stock making a profit of $1,400. Long-term capital gain rates are 15 percent for her income level. She is in the 22 percent tax bracket. Her tax on this investment is: A) $98. B) $210. C) $308. D) $392. E) $0.

80)

In recent years, how many states have not had a general sales tax?

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A) 1 B) 4 C) 3 D) 5 E) 2

81)

Which of the following good or service is subject to an excise tax? A) Gasoline B) Tires C) Cigarettes D) Air travel E) All of these choices are correct.

82)

One type of education savings plan is the: A) 401(k). B) 529 plan. C) Keogh plan. D) Traditional IRA. E) Roth IRA.

83) What kind of audit requires that a taxpayer visit an IRS office to clarify some aspect of his or her tax return? A) Office audit B) Correspondence audit C) Field audit D) Taxpayer compliance measurement program audit E) Random audit

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84)

Money received in the form of dividends or interest is commonly called: A) earned income. B) investment income. C) passive income. D) tax-deferred income. E) tax-exempt income.

85)

A tax on the value of automobiles, boats, or furniture is referred to as: A) inheritance tax. B) estate tax. C) personal property tax. D) excise tax. E) general sales tax.

86)

Factors that affect a person's filing status include marital status and: A) employment status. B) age. C) occupation. D) dependents. E) place of residence.

87)

Which of the following is a major source of revenue for local governments?

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A) Real estate property tax B) Excise tax C) Estate tax D) Inheritance tax E) Social Security tax

88) An excise tax is imposed by the federal and state governments on all of the following specific goods, except: A) clothing. B) gasoline. C) cigarettes. D) tires. E) air travel.

89) To minimize taxes owed, you should do which of the following if you expect to have a higher tax rate next year? A) Accelerate deductions into the current year B) Delay the receipt of income until next year C) Delay deductions until next year D) Get a loan for the additional taxes E) Quit work at the end of the current year

90) To minimize taxes owed, you should do which of the following if you expect to have a higher tax rate next year?

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A) Accelerate the receipt of income into the current year B) Delay the receipt of income until next year C) Accelerate deductions into the current year D) Get a loan for the additional taxes E) Quit work at the end of the current year

91)

Effective personal tax strategies include: A) taking advantage of tax credits for which you qualify. B) considering tax-exempt investments, such as municipal bonds. C) searching out all possible itemized deductions. D) maximizing contributions to tax-deferred retirement programs. E) All of these choices are correct.

92)

Personal property taxes may tax the value of: A) automobiles. B) boats. C) farm equipment. D) All of these choices are correct. E) None of these choices are correct.

93)

Earned income is money received from: A) dividends. B) interest. C) wages. D) rent from investments. E) real estate investments.

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94)

Which statement is true regarding a tax credit? A) A tax credit is the same as a tax deduction. B) A tax credit reduces the amount of taxes owed. C) Medical expenses are an example of a tax credit. D) A tax credit reduces taxable income. E) A charitable contribution is an example of a tax credit.

95) The standard deduction is a set amount on which no taxes are paid. For 2021, single people receive a standard deduction of: A) $24,550. B) $22,000. C) $15,000. D) $12,550. E) $0.

96)

One of the most frequently overlooked tax deductions is: A) student loan interest paid by parents. B) real estate taxes. C) federal income tax you paid last spring. D) tax preparation fees. E) state income taxes.

97) Although you should generally keep tax records for 3 years from the date you file your return, you may be held responsible for providing back documentation up to:

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A) 3 years. B) 4 years. C) 5 years. D) 7 years. E) 10 years.

98) The Tax Cuts and Jobs Act allows owners of a sole proprietor or partnership to deduct up to _____blank percent of the income earned by the business from their individual return to arrive at taxable income beginning in 2018. A) 0 B) 5 C) 10 D) 15 E) 20

99) __________blank may involve an official-looking (but phony) letter or email sent to a taxpayer to trick them into disclosing personal information and bank account numbers by stating that the taxpayer is entitled to a tax refund from the IRS. A) Phishing B) Office audits C) Field audits D) Correspondence audits E) Tax solicitations

100)

The principal purpose of taxes is to control economic conditions. ⊚ true ⊚ false

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101) State and local governments may impose a personal property tax on the value of automobiles. ⊚ true ⊚ false

102)

Real estate property taxes are the major source of revenue for local government. ⊚ true ⊚ false

103)

A general sales tax is also referred to as an excise tax. ⊚ true ⊚ false

104) An estate tax is imposed on the value of an individual's property at the time of his or her death. ⊚ true ⊚ false

105) The Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017, included reductions on tax rates for individuals, larger standard deductions for all taxpayers, and limits to other common deductions. ⊚ true ⊚ false

106) The 7.5 percent threshold for medical and dental expenses has varied over the last decade between 7.5 and 10 percent, but was voted to be permanent at 7.5 percent for the foreseeable future.

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⊚ ⊚

true false

107) Moving expenses are available to any person who is moving for a new job at least 50 miles farther from their former home. ⊚ true ⊚ false

108)

An exclusion is earnings not included in gross income. ⊚ true ⊚ false

109)

The IRS provided Form 1040-SR for senior citizens is a large print version of Form 1040. ⊚ true ⊚ false

110)

A person's filing status is affected by marital status and dependents. ⊚ true ⊚ false

111) An office audit requires that a person visit an IRS office to clarify some aspect of his or her tax return. ⊚ true ⊚ false

112)

Tax avoidance refers to the use of illegal actions to reduce one's taxes. ⊚ true ⊚ false

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113)

Capital gains refer to profits from the sale of stocks, bonds, or real estate. ⊚ true ⊚ false

114)

Tax evasion is the use of illegal actions to reduce one's taxes. ⊚ true ⊚ false

115) A drawback of flexible spending accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost. ⊚ true ⊚ false

116) Taxable income is a result of subtracting adjustments to income and standard (or itemized) deductions from gross income. ⊚ true ⊚ false

117) The Tax Cuts and Jobs Act simplified the basic form used when filing your taxes, so that there is now only one form, Form 1040, to report your income. ⊚ true ⊚ false

118) Health savings accounts, are a type of savings account that allows for a reduction in taxable income when paying for medical expenses. ⊚ true ⊚ false

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119) Taxpayers should beware of tax preparers who offer your refund in advance (refund anticipation loans) and charge interest rates exceeding 300 percent. ⊚ true ⊚ false

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Answer Key Test name: Chap 04_14e_Kapoor 6) A 7) C 8) B 9) E 10) B 11) B 12) D 13) E 14) C 15) B 16) C 17) B 18) E 19) A 20) D 21) A 22) A 23) A 24) A 25) D 26) B 27) C 28) C 29) E 30) B 31) A Version 1

32) D 33) C 34) D 35) E 36) C 37) C 38) C 39) C 40) B 41) C 42) B 43) D 44) B 45) E 46) B 47) A 48) D 49) C 50) C 51) A 52) E 53) B 54) A 55) B 56) C 57) D 58) E 59) D 60) B 61) C Version 1

62) A 63) D 64) C 65) A 66) E 67) B 68) C 69) C 70) D 71) A 72) B 73) A 74) C 75) E 76) D 77) C 78) A 79) B 80) D 81) E 82) B 83) A 84) B 85) C 86) D 87) A 88) A 89) C 90) A 91) E Version 1

92) D 93) C 94) B 95) D 96) A 97) D 98) E 99) A 100) FALSE 101) TRUE 102) TRUE 103) FALSE 104) TRUE 105) TRUE 106) TRUE 107) FALSE 108) TRUE 109) TRUE 110) TRUE 111) TRUE 112) FALSE 113) TRUE 114) TRUE 115) TRUE 116) TRUE 117) TRUE 118) TRUE 119) TRUE

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CHAPTER 5 1) What are the main types of deposit institutions and nondeposit institutions used by consumers?

2) Levi Nolan is a college graduate who has just landed a great job. He feels it is time for him to start saving a portion of his earnings. What factors would you recommend he consider when evaluating and comparing different savings plans?

3) Harper Kellogg maintains a monthly balance in her checking account of approximately $150, writes about 25 checks a month, and makes three deposits each month. How would Harper decide which one of the following checking accounts she should use? Bank A: regular checking account with a monthly fee of $4.50 for an unlimited number of checks, no monthly balance requirement, and no interest earnings. Bank B: interest-bearing checking account paying 4 percent interest on balances over $300 and a monthly service charge of $6 if the balance falls below $300. Bank C: special checking account that charges 35 cents a check and 20 cents for each deposit, no interest earnings. Bank D: minimum-balance account that requires a $200 minimum balance to avoid the $10 monthly fee, two percent interest paid if the balance remains above $400.

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4) You are planning to purchase a house in five years and intend to save a fixed amount of money each month for a down payment. What are three important considerations in selecting a savings plan?

5) Samir earned $84 on $1,200 invested in a high-yield money market account. He is taxed at 22 percent of his earnings. What is the after-tax yield on his investment?

Describe mobile transfer apps and how they work.

A trust has the purpose of:

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A) solving a person's financial problems. B) obtaining low-interest loans. C) handling daily money management activities. D) managing the assets of a person. E) improving a person's budgeting skills.

8) During the COVID-19 pandemic, the rapid increase in the use of digital and mobile banking applications was beneficial for: A) social distancing. B) contactless transactions. C) enhanced mobile banking experience. D) All of these choices are correct. E) None of these choices are correct.

Video teller machines (VTMs) provide which of the following banking services? A) Personalized service after bank branch hours B) Answer specific account questions C) Face-to-face connection to bank representative D) Only A and B E) All of these choices are correct.

10) The storage of funds for future use is a purpose of _____________blank, which include savings accounts and certificates of deposit. A) trusts B) borrowing C) credit cards D) time deposits E) cash checking

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11) An all-purpose account offered by investment brokers that provides a complete financial services program is a(n): A) NOW account. B) asset management account. C) EFT account. D) mutual fund. E) money market account.

12) Kiandra Tyler expects interest rates to decline over the next few months. To achieve her long-term financial goals, she will trade off liquidity for a higher return by using a: A) regular savings account. B) interest-bearing checking account. C) five-year certificate of deposit. D) money market account. E) money market fund.

13) A debit card transaction is processed by a retailer, with the amount of purchases deducted from your checking account by: A) transferring money electronically. B) obtaining a discount on consumer purchases. C) making credit card purchases. D) quickly obtaining a cash loan. E) making investments with an investment company.

14)

When interest rates are rising, a person should select:

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A) short-term savings instruments. B) long-term savings instruments. C) short-term loans. D) variable-rate loans. E) five-year certificates of deposit.

15) In the banking industry, checking accounts are frequently referred to as _____________blank deposits. A) common B) time C) current D) loan E) demand

16)

Time deposits are another name for: A) checking accounts. B) loans and charge accounts. C) savings accounts. D) government securities. E) profits earned by a financial institution.

17)

Which of the following statements regarding debit and credit card liability is correct? A) A credit card carries more risk of loss to the cardholder. B) A debit card carries more risk of loss to the cardholder. C) There is no cardholder liability if either type of card is lost. D) The federal government insures losses on credit but not debit cards. E) The federal government insures losses on debit but not credit cards.

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18)

Which of the following is organized as a corporation and owned by stockholders? A) Credit unions B) Investment companies C) Mutual savings banks D) Savings and loan associations E) Commercial banks

19)

To avoid high fees for cash loans, a person should avoid borrowing from a: A) credit union. B) savings and loan association. C) pawnshop. D) commercial bank. E) mutual savings bank.

20)

The profits from a mutual savings bank go to the: A) creditors. B) loan applicants. C) stockholders. D) depositors. E) community in which it operates.

21)

In recent years, membership in credit unions has:

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A) become more difficult due to higher taxes. B) become more flexible. C) been limited to government employees. D) declined due to poor credit union management. E) stayed at about the same level.

22)

An advantage credit unions may have over other financial service providers is: A) interest-bearing checking accounts. B) lower loan rates. C) flexible-rate loans. D) credit cards. E) variable-rate savings plans.

23)

A common service offered by investment companies is: A) interest-bearing checking accounts. B) variable-rate loans. C) credit card accounts. D) savings bonds. E) money market funds.

24) The business hours and ATM locations of a financial institution refer to the _____________blank feature when selecting a financial service provider. A) safety B) cost C) compounding D) liquidity E) convenience

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25)

A regular savings account at a credit union is called a _____________blank account. A) share B) NOW C) club D) certificate E) money market

26)

A certificate of deposit usually has: A) earnings based on fluctuating market interest rates. B) no set time period. C) a penalty for early withdrawal of funds. D) a variable rate of return. E) no minimum deposit amount.

27) A saver will usually receive higher earnings with which one of the following types of savings plans? A) Certificate of deposit B) Debit account C) Regular savings account D) Share account E) Credit account

28)

Which one of the following savings plans is not covered by federal deposit insurance?

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A) Account at a savings and loan B) Regular checking account at a commercial bank C) Money market account at a commercial bank D) Money market fund with an investment company E) Certificate of deposit at a commercial bank

29)

Which is true of investing in Series EE U.S. Savings Bonds? A) The interest earned is always exempt from federal income taxes. B) Federal income tax on earnings may be deferred until the bonds are redeemed. C) The interest rate on these bonds is adjusted twice a year for inflation. D) Series EE Bonds must be purchased for set amounts over $100. E) They can be redeemed any time without forfeiting interest.

30)

The rate of return on a savings account is also referred to as: A) liquidity. B) compounding. C) yield. D) opportunity cost. E) asset turnover.

31) A $200 savings account that earns $8.50 interest in a year has a yield of _____________blank percent. A) 2.35 B) 13.00 C) 8.50 D) 11.25 E) 4.25

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32)

Savings compounded _____________blank would have the highest effective yield. A) daily B) annually C) semiannually D) monthly E) weekly

33)

The Truth in Savings law requires that financial service providers: A) provide insurance for savings accounts. B) send customers monthly bank statements. C) disclose annual percentage yield on savings accounts. D) offer adjustable rate savings accounts. E) become members of the Federal Reserve System.

34)

Comparison of earnings for different savings plans can best be accomplished using the: A) discounted present value. B) compounding frequencies. C) net present value. D) annual percentage yield. E) after-tax rate of return.

35)

The Federal Deposit Insurance Corporation insures savings plans at:

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A) credit unions and mutual savings banks. B) commercial banks and savings and loan associations. C) investment companies and finance companies. D) insurance companies and credit unions. E) commercial banks and credit unions.

36)

Savers should do which of the following in times of falling interest rates?

A) Use long-term loans to take advantage of current low rates. B) Use short-term loans to take advantage of lower rates when you refinance the loans. C) Select short-term savings instruments to take advantage of higher rates when they mature. D) Select short-term savings instruments to lock-in earnings at current high rates. E) Select long-term savings instruments to lock-in earnings at current low rates.

37) A limit on the amount you must keep on deposit in a checking account in order to earn interest or avoid a service charge is an example of a(n): A) holding period. B) restriction. C) overdraft fee. D) share draft. E) certified deposit fee.

38)

Smart cards with an embedded chip are used for banking transactions and may also store: A) personal data. B) past purchases. C) insurance information. D) medical history. E) All of these choices are correct.

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39)

The purpose of a "special endorsement" is to: A) cash a check. B) deposit a check. C) transfer a check to another person. D) withdraw cash from your account. E) reduce the charge for service fees.

40) A _____________blank endorsement would be used if a person is presenting a check in person to obtain cash. A) restrictive B) common C) special D) blank E) documented

41) A _____________blank endorsement consists of the words “for deposit only” followed by your signature and account number and is especially useful when you are depositing checks. A) blank B) restrictive C) common D) special E) documented

42)

When preparing a bank reconciliation, outstanding checks should be:

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A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance. E) ignored until they have cleared.

43)

In the bank reconciliation process, ATM withdrawals should be: A) added to the bank statement balance. B) subtracted from the bank statement balance. C) added to the checkbook balance. D) subtracted from the checkbook balance. E) ignored.

44) Based on the following information, what amount would be subtracted from the bank statement side of the bank reconciliation? ATM withdrawal $20; Outstanding checks $154; Interest $1.25; Deposit in-transit $75. A) $154.00 B) $20.00 C) $174.00 D) $155.25 E) $75.00

45)

A personal check with guaranteed payment is called a: A) traveler's check. B) bank draft. C) certified check. D) money order. E) cashier's check.

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46) Rashad Dixon writes a check to pay for day care for his son. What type of financial service is Rashad using? A) Payment service B) Savings service C) Credit service D) Trust service E) Investment service

47) Noah Holmes deposited $2,500 in a 3-year bank certificate of deposit which pays six percent interest. What type of financial service is Noah using? A) Payment service B) Savings service C) Credit service D) Trust service E) Budget counseling

48) Elena Alvarado gets an auto loan from her credit union for $11,500. Elena will make monthly payments over the next five years to repay the loan. What type of financial service is Elena using? A) Payment service B) Savings service C) Credit service D) Trust service E) Asset management

49) Tariq Salah has set up a legal agreement that allows the First State Bank of Orlando to manage funds set aside for his daughter's college education. What type of financial service is Tariq using? Version 1

A) Payment service B) Savings service C) Credit service D) Trust service E) Asset management

50)

What is the rate that banks charge large corporations for loans called? A) Prime rate B) Discount rate C) Mortgage rate D) Treasury bond rate E) Corporate bond rate

51) What is the rate that the Federal Reserve banks charge financial service providers for loans called? A) Prime rate B) Discount rate C) Mortgage rate D) Treasury bond rate E) Corporate bond rate

52)

What is the rate an individual will pay to borrow for the purchase of a new home called? A) Prime rate B) Discount rate C) Mortgage rate D) Treasury bond rate E) Corporate bond rate

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53) What is the term used to refer to the yield on a long-term (20-year) debt obligation issued by the U.S. government? A) Prime rate B) Discount rate C) Mortgage rate D) Treasury bond rate E) Corporate bond rate

54)

Which of the following is a user-owned, nonprofit, cooperative financial institution? A) Life insurance company B) Investment company C) Mortgage company D) Pawnshop E) Credit union

55) Which of the following has the main purpose of issuing a policy that provides financial security for dependents? A) Life insurance company B) Commercial bank C) Savings and loan association D) Credit union E) Mutual savings bank

56) Which of the following institutions is organized primarily to provide loans to purchase homes?

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A) Life insurance company B) Finance company C) Mortgage company D) Pawnshop E) Investment company

57) Which of the following institutions makes loans based on the value of tangible possessions, such as jewelry and other valuables? A) Life insurance company B) Finance company C) Mortgage company D) Pawnshop E) Investment company

58) Which of the following is a drawback of a money market fund from an investment company? A) Penalty if money is withdrawn early B) Lower rate of interest if redeemed within the first five years C) Lacks liquidity D) Not covered by FDIC insurance E) Not usually allowed to write checks

59)

Which CD attempts to attract savers with gifts or special rates? A) Bump-up B) Indexed C) Callable D) Global E) Promotional

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60) Which is a CD that offers a higher rate at set intervals, such as every six months you are invested? A) Bump-up B) Indexed C) Callable D) Global E) Promotional

61)

Which CD pays earnings based on the stock market? A) Bump-up B) Indexed C) Callable D) Global E) Promotional

62) Which CD starts with a higher rate, has a long time to maturity, and can be closed by the bank after a set time period? A) Bump-up B) Indexed C) Callable D) Global E) Promotional

63) Automatically buying a new CD upon maturity of the current CD is commonly referred to as:

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A) creating a CD portfolio. B) rolling over. C) refinancing. D) calling a CD. E) bumping up.

64) Which law requires financial service providers to disclose fees, the interest rate, the annual percentage yield, and the other terms and conditions on savings account plans? A) Truth in Savings Law B) Truth in Lending Law C) Expedited Funds Availability Act D) Equal Employment Opportunity Act E) Identity Theft Protection Act

65)

Which type of organization does not provide home mortgages? A) Federal credit unions B) Savings and loan associations C) Employee credit unions D) Mutual savings banks E) Check-cashing outlets

66)

What type of account would you expect to provide the poorest yield? A) Certificate of deposit earning 4 percent compounded semiannually B) Savings account earning 4 percent compounded annually C) Money market account earning 4 percent compounded monthly D) Money market fund earning 4 percent compounded monthly E) Savings account earning 4 percent compounded semiannually

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67)

What type of account would be considered the most liquid? A) 3-year certificate of deposit B) Regular savings account C) Money market account D) U.S. savings bond E) Share of stock

68)

Interest rates charged by a pawnshop: A) can range from 3 percent per month to over 100 percent a year. B) are usually below 5 percent per year. C) are normally lower than a bank. D) can range from 100 percent per month to over 300 percent a year. E) are insignificant.

69) A person borrows $100 from a payday loan company, and pays $10 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore compounding. A) 110 B) 260 C) 10 D) 20 E) 5

70) A savings account earns 3 percent. If the saver is in a 22 percent tax bracket, the after-tax savings rate of return would be _____________blank percent.

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A) 22.00 B) 19.00 C) 3.00 D) 2.34 E) 0.66

71) The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $520,000 in a joint account with her husband, Ted. How much is not covered by FDIC insurance? A) $20,000 B) $260,000 C) $520,000 D) $250,000 E) $0

72) Pearl deposited $1,000 in an account paying 2 percent interest. The inflation rate is 5 percent. What is the buying power of the account after one year? A) $1,050 B) $1,020 C) $1,000 D) $970 E) $950

73) Your bank statement shows a balance of $695. Your checkbook register shows a balance of $562. You earned interest of $3 and had a service charge of $5. There are no outstanding deposits. What is the amount of outstanding checks?

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A) $135 B) $160 C) $133 D) $6 E) $0

74) Which of the following types of financial service providers are insured by federal government agencies? A) Credit card companies and finance companies B) Credit unions and investment firms C) Mortgage companies, banks, and credit unions D) Banks, credit unions, and savings and loans associations E) Banks, credit card companies, and credit unions

75)

Which of the following represent the use of credit? A) Demand deposit B) Home mortgage C) ATM withdrawal D) Time deposit E) Debit card

76)

Which of the following is a way to reduce ATM fees? A) Withdraw larger amounts rather than making several smaller withdrawals. B) Withdraw the minimum amount each time you withdraw. C) Withdraw from ATMs closest to you regardless of which bank owns the ATM. D) Withdraw from ATMs that can be used by customers from many different banks. E) Make a separate withdrawal for each purchase to maintain a record of your spending.

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77)

Series EE U.S. Savings Bonds can be purchased: A) in increments of $25 only. B) for any amount above $25. C) for less than face value. D) in increments of $50 only. E) in whole dollar amounts only.

78) Determine the rate of return on a savings account in which you deposited $200.00 and earned $5.00 in interest after one year. A) 5.00% B) 0.05% C) 2.50% D) 0.20% E) 18.00%

79)

What is the term used to refer to the cost of borrowing for large U.S. corporations? A) Prime rate B) Discount rate C) Corporate bond rate D) Treasury bond rate E) T-bill rate

80) An estimated _____________blank people in the U.S. are "unbanked", using a variety of alternative services rather than having a bank account.

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A) 1 million B) 6 million C) 8 million D) 10 million E) 25 million

81) Which one of the following financial service providers should be avoided, because the interest rates charged on loans can be over 100 percent a year? A) Pawnshop B) Credit union C) Savings and loan association D) Mutual savings bank E) Life insurance company

82)

Series EE bonds continue to earn interest for how many years? A) 10 B) 20 C) 25 D) 30 E) 35

83) A higher rate of return would result from a savings account that had which of the following compounding frequencies? A) Daily B) Weekly C) Biweekly D) Monthly E) Yearly

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84)

An asset management account typically offers the following service: A) online banking. B) checking account. C) a line of credit. D) mobile apps. E) All of these choices are correct.

85) This type of financial institution is known to frequently offer lower fees and lower loan rates. A) Commercial bank B) Savings and loans association C) Mutual savings bank D) Credit union E) Investment companies

86)

This type of savings plan is usually considered to be very liquid. A) Bonds B) Stocks C) Certificate of deposit D) Regular savings account E) Investment account

87)

Demand deposits are another term for:

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A) savings accounts. B) savings bonds. C) checking accounts. D) certificates of deposit. E) investment accounts.

88)

Which one of the following is not true for PayNearMe transactions? A) It is used by people without a credit or debit card. B) It is used for online transactions. C) It allows buyers to make a purchase and then pay cash at a local store. D) The customer does not receive a receipt. E) The seller is notified of the payment.

89)

Prepaid debit cards are used for: A) social security benefits. B) school lunches. C) highway tolls. D) telephone service. E) All of these choices are correct.

90)

Which one of the following is true for an interest-earning account? A) It usually requires a minimum balance. B) It is an account that charges a fee for each check written. C) It does not earn interest. D) It does not require a minimum balance. E) None of these are true.

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91)

Which one of the following will help to avoid identity theft? A) Put your Social Security number on checks. B) Put your full name on checks. C) Put your full account number on checks when paying a bill. D) Use passwords involving both letters, special characters, and numbers. E) Check your credit report once every three years.

92) The Check Clearing for the 21st Century Act (known as Check 21) shortens the processing time for deposited checks by: A) verifying the identity of the depositor. B) establishing the substitute check. C) verifying the identity of the financial institution. D) eliminating paper checks. E) making the funds immediately available upon deposit.

93)

“Loading” of prepaid debit cards may occur by: A) cash or check. B) direct deposit. C) online transfer. D) smartphone check photo. E) All of these choices are correct.

94)

Which one of the following will help to avoid identity theft?

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A) Download apps from any app store. B) Avoid sharing personal data on social media. C) Use public wifi networks. D) Avoid anti-spam software. E) Mail bill payments from home mailbox.

95)

Which of the following is not a “High-Cost Financial Service Provider”? A) Pawnshops B) P2P lending intermediaries C) Payday loan companies D) Rent-to-own centers E) Car title loan companies

96) A "no-fee" checking account that requires a non-interest-earning minimum balance of $500 has an opportunity cost of lost interest earnings. ⊚ true ⊚ false

97) An asset management account provides a complete financial services program for a single fee. ⊚ true ⊚ false

98)

Using a debit card to make purchases means you are spending your own funds. ⊚ true ⊚ false

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99) Digital or mobile wallets can be used for banking activities that include credit, debit, loyalty cards, and peer-to-peer money transfers, as well as transit and event tickets. ⊚ true ⊚ false

100) A regular savings account usually offers a higher rate of return to savers than a certificate of deposit. ⊚ true ⊚ false

101) High-yield savings accounts pay many times more than regular savings accounts without restrictions for the minimum balance, withdrawal limits, and fees. ⊚ true ⊚ false

102)

A certificate of deposit is also known as a demand deposit. ⊚ true ⊚ false

103) Some banks may charge a monthly fee for low-balance accounts, or an inactivity fee if no transactions occur for 6 to 24 months. ⊚ true ⊚ false

104) The more frequently the compounding occurs, the less a person will earn on a savings account. ⊚ true ⊚ false

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105) The main trends in payment methods include touchless payments, digital wallets, and QR code payments. ⊚ true ⊚ false

106) A restrictive endorsement on a check to be deposited consists of the words "for deposit only." ⊚ true ⊚ false

107) When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance. ⊚ ⊚

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true false

Answer Key Test name: Chap 05_14e_Kapoor 7) D 8) D 9) E 10) D 11) B 12) C 13) A 14) A 15) E 16) C 17) B 18) E 19) C 20) D 21) B 22) B 23) E 24) E 25) A 26) C 27) A 28) D 29) B 30) C 31) E 32) A Version 1

33) C 34) D 35) B 36) B 37) B 38) E 39) C 40) D 41) B 42) B 43) D 44) A 45) C 46) A 47) B 48) C 49) D 50) A 51) B 52) C 53) D 54) E 55) A 56) C 57) D 58) D 59) E 60) A 61) B 62) C Version 1

63) B 64) A 65) E 66) B 67) B 68) A 69) B 70) D 71) A 72) D 73) A 74) D 75) B 76) A 77) B 78) C 79) C 80) D 81) A 82) D 83) A 84) E 85) D 86) D 87) C 88) D 89) E 90) A 91) D 92) B Version 1

93) E 94) B 95) B 96) TRUE 97) TRUE 98) TRUE 99) TRUE 100) FALSE 101) FALSE 102) FALSE 103) TRUE 104) FALSE 105) TRUE 106) TRUE 107) FALSE

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CHAPTER 6 1) If you believe you have been refused credit due to discrimination, what are three steps you can take?

2) Natalia has a monthly net income of $1,400. She has a house payment of $600 per month, a car loan with payments of $300 per month, a Visa card with payments of $60 per month, and a credit card with a local department store with payments of $32 per month. What is Natalia’s debt payment-to-income ratio? Is she within range of what experts suggest you spend on consumer credit payments?

What is consumer credit? What are its advantages and disadvantages?

What are the two basic types of credit? Give examples of both.

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What are the three most common types of closed-end credit?

What is revolving check credit?

How can you protect yourself against credit card fraud?

What are the two general rules of measuring credit capacity?

What are a few things to consider before you cosign a loan?

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10)

What do creditors look for when you apply for credit?

11)

Describe the federal law that protects you from billing mistakes/errors.

12) If your identity is stolen, the Federal Trade Commission recommends that you take what three actions immediately?

13) A friend comes to you for advice about improving their credit score. What are the five steps for improving your credit score?

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14)

What does it mean when a credit card is co-branded?

15)

Describe the scam referred to as “Phishing.”

16) What are the three alternatives in financing current purchases for most consumers? Describe the trade-offs of each alternative.

17) When activating a new credit card, consumers are warned to watch for “the pitch.” Describe “the pitch.”

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18)

Consumer credit: A) is currently a privilege of the affluent. B) dates back to colonial times. C) currently carries no finance charge. D) is not a major force in our economy. E) use has been declining in recent years.

19)

When did installment credit explode on the American scene? A) With the advent of the automobile in the early 1900s B) With the advent of television in the late 1940s C) Just after World War II D) During the recession of the 1950s E) During the inflation of the 1970s

20) The baby boom generation currently represents about 30 percent of the population but holds nearly _____________blank percent of the outstanding debt. A) 80 B) 70 C) 60 D) 50 E) 40

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21)

One common type of closed-end credit is: A) a line of credit. B) convenience credit. C) revolving credit. D) installment cash credit. E) bank card credit.

22)

One example of closed-end credit is: A) a credit card issued by a department store. B) a credit card issued by VISA or MasterCard. C) the use of overdraft protection at a bank. D) the use of a Travel and Entertainment card. E) a mortgage loan.

23) Mortgage loans, automobile loans, and installment loans for purchasing furniture or appliances are examples of: A) lines of credit. B) credit card loans. C) open-end credit. D) closed-end credit. E) convenience credit.

24)

Many banks extend a bank line of credit, which is also called: A) revolving check credit. B) a box of credit. C) convenience credit. D) installment credit. E) single lump-sum credit.

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25)

The maximum dollar amount of credit the lender has made available to you is called: A) revolving credit. B) line of credit. C) convenience credit. D) installment cash credit. E) single lump-sum credit.

26)

An example of open-end credit is: A) the use of a bank credit card to make a purchase. B) a mortgage loan from a savings and loan institution. C) an automobile loan from a credit union. D) an installment loan from a furniture store. E) an installment loan for purchasing a major appliance.

27)

Installment sales credit is a: A) direct loan of money for personal purposes. B) direct loan of money for home improvement. C) loan that allows you to receive merchandise such as large appliances or furniture. D) direct loan for vacation purposes. E) synonym for a single lump-sum credit.

28) Which of the following is a prearranged loan for a specified amount that you can use by writing a special check?

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A) Incidental credit B) Closed-end credit C) A bank line of credit D) Installment sales credit E) Overdraft protection

29)

Installment cash credit is a: A) loan that must be repaid in total on a specified day. B) direct loan of money for personal purposes. C) loan that allows the consumer to receive merchandise, such as a refrigerator. D) down payment made on a purchase. E) synonym for single lump-sum credit.

30)

A credit arrangement that has no extra costs and no specific repayment plan is called: A) installment sales credit. B) single lump-sum credit. C) line of credit. D) incidental credit. E) revolving check credit.

31)

Revolving check credit is a: A) credit arrangement that has no extra costs. B) prearranged loan for a specified amount that you can use by writing a special check. C) credit arrangement that has no specific repayment plan. D) synonym for installment cash credit. E) synonym for single lump-sum credit.

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32)

A debit card: A) decreases your account at the moment you buy goods or services. B) extends credit and delays your payment. C) is a new type of a credit card issued by VISA International. D) is another name for a travel and entertainment card. E) typically has a credit limit of $1,000.

33) In determining your credit capacity, you first provide for basic necessities within your budget, such as: A) furniture. B) home furnishings. C) mortgage or rent. D) an automobile. E) durable goods.

34) Experts suggest that you spend no more than _____________blank percent of your net income (after-tax) on consumer credit payments. A) 10 B) 20 C) 30 D) 40 E) 50

35) Today, Adnan purchased a laptop computer from a retail outlet. He has agreed to pay for this purchase in full 30 days from today. This is an example of:

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A) open-end credit. B) mortgage loan. C) single lump-sum credit. D) installment cash credit. E) revolving check credit.

36)

If you cosign a loan: A) you are only responsible for half of the debt obligation. B) you will be asked, but not required, to pay the loan in full if the borrower fails to pay. C) you will be required to pay the loan in full if the borrower does not pay. D) the creditor must first try to collect from the borrower. E) the creditor is prohibited from garnishing your wages if you refuse to pay the loan in

full.

37) Which one of the following agencies maintains data about the amount and terms of your credit and your paying habits? A) Federal Reserve Bank in your district B) Consumer sentinel network C) Federal Trade Commission D) Public assistance office E) Credit bureau

38) If your monthly net income is $1,250, what should be your maximum amount spent on credit payments?

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A) $125 B) $250 C) $375 D) $500 E) $600

39) What would be the maximum limit for an individual's debt-to-equity ratio, excluding the home mortgage? A) 0.50 B) 0.33 C) 1.00 D) 2.00 E) 2.25

40)

What can be included in your credit bureau file? A) Race B) Nationality C) Sex D) Marital status E) Religion

41) Which federal law regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their file? A) Truth in Lending Act of 1969 B) Fair Credit Billing Act of 1975 C) Equal Credit Opportunity Act of 1975 D) Fair Credit Reporting Act of 1971 E) Fair Debit Collection Practices Act of 1978

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42) Most of the information in your credit file may be reported for only _____________blank years. A) 7 B) 9 C) 11 D) 13 E) 15

43)

If you dispute the accuracy of information in your credit file: A) you should sue the credit bureau. B) the credit bureau has no power to change it. C) the credit bureau must reinvestigate and modify or remove inaccurate data. D) you must wait at least six months prior to launching an investigation. E) you have no means of correcting it.

44)

An unauthorized person who obtains a credit report under false pretenses may be: A) sued by the lender. B) sued by the borrower. C) jailed for 5 years. D) subject to a fine and imprisonment. E) placed on a probation.

45)

The debt payments-to-income ratio is:

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A) calculated by dividing total liabilities by net worth. B) calculated by dividing monthly debt payments (excluding mortgage payments) by net monthly income. C) determined by dividing your assets by your liabilities. D) a useless ratio for determining your credit capacity. E) rarely used by creditors in determining credit worthiness.

46)

The debt-to-equity ratio is: A) calculated by dividing total liabilities by net worth. B) calculated by dividing monthly debt payments by net monthly income. C) determined by dividing your assets by your liabilities. D) a useless ratio for determining your credit capacity. E) rarely used by creditors in determining credit worthiness.

47) Nico's net take-home pay per month is $2,100. What is the maximum dollar amount of debt payments, excluding a home mortgage, he should have? A) $840 B) $420 C) $315 D) $210 E) $0

48)

Which one of the following is not a source that provides data to credit bureaus? A) Banks B) Finance companies C) Credit card companies D) Court records E) Internal Revenue Service

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49) If you have declared personal bankruptcy, then this fact may be reported by credit bureaus for _____________blank years. A) 5 B) 10 C) 15 D) 20 E) 25

50)

If you have incorrect information in your credit file: A) you can't really do much about it. B) you have no legal remedies. C) credit bureaus are not required to change it. D) there are legal remedies available to you. E) don't worry because it will not affect your ability to borrow money.

51)

If you are denied credit, your first step should be to: A) increase your income and decrease your spending. B) reapply for credit. C) hire an attorney and file a suit against the creditor. D) check your credit file at the credit bureau. E) sue the credit bureau that provided the negative information.

52) Which federal consumer credit law starts all credit applicants off on the same footing with factors that may not be used to discriminate against you?

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A) Fair Credit Reporting Act B) Truth in Lending Act C) Fair Credit Billing Act D) Fair Debt Collection Practices Act E) Equal Credit Opportunity Act

53) The credit bureau cannot charge you a fee for a copy of your credit report if you request it within _____________blank days of being denied credit based on the information in the credit report. A) 10 B) 20 C) 30 D) 40 E) 60

54)

The borrower's attitude toward his or her credit obligations is called: A) capacity. B) capital. C) character. D) collateral. E) conditions.

55) A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5 Cs of lending?

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A) Character B) Capacity C) Collateral D) Capital E) Conditions

56)

The borrower's financial ability to meet credit obligations is called: A) capacity. B) character. C) capital. D) collateral. E) conditions.

57)

A term that refers to the borrower's assets or net worth is called: A) capacity. B) character. C) capital. D) collateral. E) conditions.

58) A valuable asset pledged to obtain a loan and subject to repossession upon default to satisfy the debt is called: A) capacity. B) character. C) capital. D) collateral. E) conditions.

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59) A loan officer is examining your income and the amount of your existing debt payments and monthly expenses in deciding whether to make a loan to you today. Which aspect of the 5 Cs of lending is the loan officer most likely looking at? A) Character B) Capacity C) Capital D) Collateral E) Conditions

60)

In evaluating your credit application, a lender may: A) ask your age. B) deny you credit if you are on public assistance. C) require your parent’s address. D) decrease your credit because of your age. E) discriminate against your race and nationality.

61)

If your credit application is denied, you: A) should sue the credit rating agency. B) should file a complaint against the merchant. C) have no legal right to know why. D) are entitled to know the specific reason you were denied credit. E) can reapply for credit after six months.

62)

If you have a problem with your credit account, the best solution is to:

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A) file a lawsuit against the creditor. B) first call your creditor. C) complain to the Federal Reserve System. D) complain to the Board of Governors. E) wait for creditor action.

63)

Which federal credit law sets the procedure for promptly correcting billing mistakes? A) Fair Debt Collection Practices Act B) Equal Credit Opportunity Act C) Fair Credit Billing Act D) Fair Credit Reporting Act E) Truth in Lending Act

64)

The best way to maintain your credit standing is to: A) use credit sparingly. B) pay cash for your purchases. C) repay your debts on time. D) declare a Chapter 7 bankruptcy. E) use as many credit cards as you can.

65)

If you think that your bill is wrong, you should first: A) contact the local credit bureau and inform it of the billing error. B) complain to the Better Business Bureau. C) contact your state consumer protection agency. D) call the creditor to discuss the error. E) contact your attorney to settle the matter.

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66)

Which federal credit law protects you against an unauthorized use of your credit card? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

67) When you complain about your billing error, the creditor must acknowledge your letter within _____________blank days. A) 10 B) 20 C) 30 D) 60 E) 90

68)

When resolving a billing dispute, a creditor must either tell you why the bill is correct or: A) correct your account within two billing periods. B) send this information to a credit bureau. C) require you to pay the bill in full and then credit your account if the error is found. D) start the collection process. E) demand that you surrender your credit card.

69)

What should you do if your identity is stolen?

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A) File a police report. B) Ignore the problem and hope that it will go away. C) Close all of your accounts and do not say anything to anyone. D) Pay all the charges for which you are billed, even if they are not yours, so you can keep your credit accounts. E) Complain to your friends.

70)

If you have a complaint about consumer credit, you should first: A) try to solve your problem directly with the creditor. B) contact your attorney. C) file a complaint with the Better Business Bureau. D) report it to the state consumer protection agency. E) complain to the Federal Reserve Bank in your district.

71) Which federal consumer credit law places the burden of proof for accurate credit information on the credit reporting agency rather than on the consumer? A) Consumer Credit Reporting Reform Act B) Truth in Lending Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

72) Which federal consumer credit law provides specific cost disclosure requirements for the annual percentage rate and the finance charges as a dollar amount?

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A) Fair Debt Collection Practice Act B) Equal Credit Opportunity Act C) Fair Credit Billing Act D) Fair Credit Reporting Act E) Truth in Lending Act

73) Which federal consumer credit law prohibits credit discrimination based on sex and marital status? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

74)

Which federal consumer credit law regulates the advertising of credit terms? A) Fair Debt Collection Practices Act B) Equal Credit Opportunity Act C) Fair Credit Billing Act D) Fair Credit Reporting Act E) Truth in Lending Act

75) If you have a complaint about a bank in connection with any of the federal credit laws, who should you contact? A) National Credit Union Association B) Federal Trade Commission C) Federal Reserve System D) Comptroller of the Currency E) Bank Vice-President

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76) Which federal consumer credit law prohibits creditors from requiring women to reapply for credit upon a change in marital status? A) Fair Debt Collection Practices Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Credit Reporting Act E) Truth in Lending Act

77) Which federal consumer credit law prohibits abusive, deceptive, and unfair practices by debt collectors? A) Fair Credit Billing Act B) Fair Debt Collection Practices Act C) Equal Credit Opportunity Act D) Fair Credit Reporting Act E) Truth in Lending Act

78) Which federal consumer credit law prohibits credit card issuers from sending unrequested cards? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

79) Which federal consumer credit law limits a cardholder's liability for unauthorized use of a card to $50?

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A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

80) Which federal consumer credit law requires credit reporting agencies to send the consumer's version of a disputed item to certain businesses or creditors? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

81) Which federal consumer credit law allows consumers to withhold payment for faulty or defective goods or services when purchased with a credit card? A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

82) Which federal consumer credit law requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application?

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A) Truth in Lending Act B) Fair Credit Reporting Act C) Fair Credit Billing Act D) Equal Credit Opportunity Act E) Fair Debt Collection Practices Act

83)

Which of the following is most likely not a valid reason for using credit?

A) Borrowing for an emergency stay in a hospital B) Borrowing to purchase a car so that a homemaker can return to the workforce C) Borrowing to buy a printer for your home office now because you know it will be twice as expensive later D) Borrowing to pay for your expensive dinner and movie every week E) Borrowing to pay for a college education

84)

Which one of the following is an advantage of using credit? A) Potential bankruptcy B) Spending beyond your budget C) Providing help in emergencies D) Committing future income to pay for current purchases E) Incurring interest charges

85)

Which one of the following is a disadvantage of using credit? A) Receiving advance notice of sales B) Temptation to overspend C) Avoiding the necessity of carrying cash D) Ease of returning merchandise E) Paying for several purchases with one monthly payment

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86) Lorenzo Reyes purchases a big screen TV on credit and will repay the loan with one payment at the end of 90 days. What type of credit did Lorenzo use? A) Installment sales credit B) Installment cash credit C) Single lump-sum credit D) Revolving check credit E) Open-end credit

87) Nia Gardner purchases a sofa, love seat, and reclining chair for her family room. She made a down payment and will make payments of $65 per month for the next twenty-four months. What type of credit did Nia use? A) Installment sales credit B) Installment cash credit C) Single lump-sum credit D) Revolving check credit E) Open-end credit

88) Eli Arnold gets a direct loan of money to go on vacation with his family. There is no down payment, and he will repay the loan over the next twelve months. What type of credit did Eli use? A) Installment sales credit B) Installment cash credit C) Single lump-sum credit D) Revolving check credit E) Incidental credit

89) Camilla Padilla uses her Visa card to purchase a new digital camera and lens. What type of credit did Camilla use? Version 1

A) Installment sales credit B) Installment cash credit C) Single lump-sum credit D) Open-end credit E) Closed-end credit

90) Patrick McDevitt visits the doctor for his annual check-up which costs $85. He is billed for this at the end of the month. What type of credit did Patrick use? A) Installment sales credit B) Installment cash credit C) Single lump-sum credit D) Closed-end credit E) Incidental credit

91)

Which one of the following is important to do to help avoid credit card fraud? A) If you do not receive your billing statement, notify the company immediately. B) Give out your credit card number over the phone. C) Write your credit card number on the outside of envelopes. D) Leave your credit card lying around anywhere. E) If your billing statement is incorrect, ignore it.

92)

What should you do when you shop online using your credit card? A) Delete immediately all records of your transactions. B) Use a secure browser. C) Give out your private information to anyone who requests it online. D) Make sure to open and download all files sent you by strangers. E) Give your password to anyone who requests it.

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93) Dorian Roberts has monthly net income of $1,200. He has a house payment of $550 per month, a car loan with payments of $250 per month, a Visa card with payments of $40 per month, and a credit card with a local department store with payments of $58 per month. What is Dorian’s debt payments-to-income ratio? A) 0% B) 8% C) 75% D) 29% E) 20%

94) Raya Mancillas has determined that her net worth is $24,000, excluding her home. She owes $90,000 on her mortgage and $12,000 on a car loan. What is Raya's debt-to-equity ratio? A) 3.2 B) 2.0 C) 0.5 D) 2.7 E) 0.3

95) Tamara Lock is 55 years old, divorced, and has worked at her current job for five years. She is interested in looking at her credit report. Which of the following pieces of information should she find in this report? A) The address of the house she lived in as a child B) A loan for furniture she paid off 12 years ago C) The outstanding balance on the Visa card she has today D) The names and addresses of her grown children E) The fact that she was late paying her electric bill 8 years ago

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96)

Loretta Lawrence wants to get a loan in just her name. She knows the creditor cannot: A) refuse her credit if she is creditworthy. B) consider income from her part-time job. C) consider the payment history of all her joint accounts. D) consider alimony payments she receives from her ex-husband. E) consider child support payments she receives from her ex-husband.

97)

Olivia Nguyen needs a loan to purchase a new car. She knows the creditor must: A) ask about her children. B) consider whether she has a telephone. C) evaluate her on the same basis as applicants who are male. D) require her to find a cosigner for the loan. E) ask about her exercise practices.

98)

The information in your credit report is used by the credit bureau to calculate your: A) debt-to-equity ratio. B) FICO credit score. C) debt payment-to-income ratio. D) liquidity ratio. E) long-term capitalization ratio.

99)

Which of the following is a credit bureau? A) Federal Reserve B) Federal Trade Commission C) Better Business Bureau D) Experian E) FICO

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100) Dominic Monaldo is applying for a loan from a bank. The bank is concerned because Dominic is an airline pilot for United Airlines. The bank thinks that Dominic may be laid off in the near future. Which one of the 5 Cs of credit is the bank concerned with? A) Character B) Capacity C) Capital D) Collateral E) Conditions

101) Elena Fowler is applying for a loan from a bank. The bank knows she owns a house worth $160,000 and a car with a trade-in value of $12,000 as well as other personal assets worth approximately $44,000. Which one of the 5 Cs of credit is the bank looking at? A) Character B) Capacity C) Capital D) Collateral E) Conditions

102) Alexander Price is applying for a loan from the bank. The bank has determined that he has never been late making payments on past loans. Which of the 5 Cs of credit is the bank looking at? A) Character B) Capacity C) Capital D) Collateral E) Conditions

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103) Penelope Stevens is getting a loan to buy a used car. The bank wants to know the trade-in value of the car she is purchasing. Which of the 5 Cs of credit is the bank examining? A) Character B) Capacity C) Capital D) Collateral E) Conditions

104) Rakesh Shan believes that his credit card company has made an error in its monthly statement to him. Which consumer protection law specifies procedures he can use to dispute this monthly statement? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

105) Paula DeYoung has checked her credit report and believes there is an error in it. Which consumer protection law specifies that she has the right to have errors in her credit report investigated? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

106) Nina Hamilton knows that credit companies must evaluate her on the same basis as a borrower who is male. Which consumer protection law guarantees her this right?

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A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

107) Derek Hammond has been receiving calls at work every two hours from a collection company that is trying to collect a past due loan from him. He believes this is harassment and that the collections company is not allowed to do this. Which consumer protection law provides protection from this type of harassment? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

108) Da’Vante Patton is thinking about getting a loan for a new car. He knows that when he goes shopping for a loan that all of the banks must report the annual percentage rate as well as all other terms and conditions of the loan. This will allow him to easily compare loans from different banks. Which consumer protection law requires full disclosure on all loans? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Act

109)

Which one of the following would not be considered closed-end credit?

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A) Home mortgage loan 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

110)

Co-branded credit cards: A) are often linked with a certain business trade name offering "points." B) help build customer loyalty. C) allow the cardholder to earn rebates on products and services. D) have increased in popularity since 1992. E) All of these choices are correct.

111)

Which one of the following would not be a good use of a home equity loan? A) Paying for a college education B) Buying a new boat C) Putting a new roof on your house D) Paying medical bills E) Adding a deck on the back of your house

112)

If you want to improve your credit score, then you should: A) get copies of your credit report. B) pay your bills on time. C) make sure you understand how your credit score is determined. D) beware of credit-repair scams. E) All of these choices are correct.

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113) Gabriel Richards’ net worth is $120,000, excluding his home. His liabilities of $54,000 include all of his credit card balances and the balance due on his auto loan and home improvement loan. His townhouse has a market value of $220,000 and he owes $190,000 to his mortgage company. What is Gabriel's debt-to-equity ratio? A) 0.65 B) 0.74 C) 0.45 D) 0.35 E) 0.28

114)

Stored-value cards: A) look nothing like typical debit cards. B) have decreased in popularity over the past decade. C) work the same as a credit card. D) can lose their value if a retailer goes bankrupt. E) are currently being used for very limited purposes.

115)

Which FICO credit score would represent the least risky borrower? A) 400 B) 550 C) 625 D) 700 E) 825

116)

According to a recent survey, how many U.S. households carry one or more credit cards?

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A) 4 out of 10 B) 5 out of 10 C) 6 out of 10 D) 7 out of 10 E) 9 out of 10

117) If you think you have been discriminated against by consumer reporting agencies or creditors, you should file a complaint with which government agency? A) Federal Reserve Board B) Federal Deposit Insurance Corporation C) Consumer Financial Protection Bureau D) Office of the Comptroller of the Currency E) National Credit Union Administration

118) Approximately how many credit card users would be classified as "convenience users" who generally pay off their balances in full each month? A) 20% B) 33% C) 45% D) 50% E) 70%

119)

Debit cards are often called: A) bank cards. B) ATM cards. C) cash cards. D) check cards. E) All of these choices are correct.

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120) In addition to department stores, where else is a good place to obtain your first credit card? A) Banks B) Credit unions C) Savings and loans associations D) Gasoline companies E) Investment companies

121)

Which one of the following is not included in the 5 Cs of credit? A) Conditions B) Cash flow C) Collateral D) Capacity E) Character

122)

Credit bureaus obtain data from which of the following? A) Banks B) Finance companies C) Merchants D) Credit card companies E) All of these choices are correct.

123) Which of the following federal consumer credit laws requires creditors to promptly credit customers’ accounts and to return overpayments if requested?

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A) Fair Credit Reporting Act B) Truth in Lending Act C) Equal Credit Opportunity Act D) Fair Credit Billing Act E) Consumer Credit Reporting Reform Act

124) The Consumer Financial Protection Bureau receives an average of how many complaints about the credit bureaus every year? A) 5,000 B) 25,000 C) 36,000 D) 42,000 E) 50,000

125)

Which of the following contains new protections for college students and young adults? A) Fair Credit Reporting Act B) Credit Card Accountability, Responsibility, and Disclosure Act C) Truth in Lending Act D) Equal Credit Opportunity Act E) Fair Credit Billing Act

126) Your credit card company must send you a notice _____________blank days before they can increase your interest rate. A) 30 B) 45 C) 50 D) 60 E) 90

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127)

Which federal consumer credit law places the maximum cost of a credit report at $8? A) Consumer Credit Reporting Reform Act B) Fair and Accurate Credit Transactions Act C) Fair Debt Collection Practices Act D) Fair Credit Billing Act E) Truth in Lending Act

128) Which federal consumer credit law requires “credit repair” companies to give consumers a written contract that can be canceled within three business days? A) Fair and Accurate Credit Transactions Act B) Fair Debt Collection Practices Act C) Fair Credit Billing Act D) Truth in Lending Act E) Consumer Credit Reporting Reform Act

129) Which federal consumer credit law requires issuers to display on monthly statements how long it would take to pay off the existing balance and the total interest cost if the consumer paid only the minimum due? A) Fair Credit Reporting Act B) Equal Credit Opportunity Act C) Truth in Lending Act D) Credit Card Accountability, Responsibility, and Disclosure Act E) Fair Credit Billing Act

130)

How many alternatives do most consumers have in financing current purchases?

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A) 1 B) 2 C) 3 D) 4 E) unlimited

131)

Which of the following is true of the baby boomer generation? A) Represents about 30 percent of the population B) Holds nearly 60 percent of the outstanding debt C) Extensively uses debt D) Born between 1946 and 1964 E) All of these choices are correct.

132)

Which of the following is not a valid reason for using credit? A) To pay for a medical emergency B) To purchase a car for a homemaker returning to the workforce C) To purchase an item now for less money than it will cost later D) To pay for everyday living expenses E) To pay for a college education

133)

Which of the following is not true of mobile commerce?

A) Some smart phones are equipped to make purchases. B) Consumers have shown increased interest in this concept. C) A credit card company may provide a sticker that attaches to the phone rather than a physical credit card. D) Apps can be used to quickly pay with a mobile phone. E) Little interest in this concept has been shown by retailers and finance companies.

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134) The market value of Kasari’s home is $120,000 and the balance on her mortgage loan is $80,000. The lender has agreed to let her borrow up to 75 percent of the total value of her home less the mortgage. How much can she borrow with a home equity loan? A) $10,000 B) $40,000 C) $80,000 D) $90,000 E) $120,000

135) Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. ⊚ true ⊚ false

136) Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals and families. ⊚ true ⊚ false

137) due.

Consumer credit is based on trust in people's ability and willingness to pay bills when ⊚ ⊚

138)

true false

Consumer credit dates back to colonial times. ⊚ true ⊚ false

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139) All economists do not recognize consumer credit as a major force in the American economy. ⊚ true ⊚ false

140)

"Shopaholics" and young adults are most vulnerable to misusing credit. ⊚ true ⊚ false

141)

College students are not a prime target for credit card issuers. ⊚ true ⊚ false

142)

Credit, when effectively used, can help you have more and enjoy more. ⊚ true ⊚ false

143) It is safer to use credit, since charge accounts and credit cards let you shop and travel without carrying a large amount of cash. ⊚ true ⊚ false

144)

Perhaps the greatest disadvantage of using credit is the temptation to overspend. ⊚ true ⊚ false

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145) Although credit allows more immediate satisfaction of needs and desires, it does not increase total purchasing power. ⊚ true ⊚ false

146) Smart cards are chip-enabled cards that can store up to 500 times the amount of data of a credit card. ⊚ true ⊚ false

147) With open-end credit, you pay back one-time loans in a specified period of time in payments of equal amounts. ⊚ true ⊚ false

148) With closed-end credit, loans are made on a continuous basis and you are billed periodically for at least a partial payment. ⊚ true ⊚ false

149)

Closed-end credit is used for a specific purpose and involves a specified amount. ⊚ true ⊚ false

150) With closed-end credit, generally the seller holds the title to the merchandise until the payments have been completed.

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⊚ ⊚

true false

151) Installment sales credit is a loan that allows you to receive high-priced items, such as large appliances or furniture. ⊚ true ⊚ false

152) Installment cash credit is a direct loan of money for personal purposes, home improvements, or vacation expenses. ⊚ true ⊚ false

153) Single lump-sum credit is a loan that must be repaid in total on a specified day, usually within 30 to 90 days. ⊚ true ⊚ false

154)

Using a bank credit card, such as Visa or MasterCard, is an example of closed-end credit. ⊚ true ⊚ false

155)

Interest is a periodic charge for the use of credit. ⊚ true ⊚ false

156) The credit cardholders who pay off their balances in full each month are known as convenience users.

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⊚ ⊚

true false

157)

Debit cards are often called bank cards, ATM cards, cash cards, and check cards. ⊚ true ⊚ false

158)

If your debit card is lost or stolen, you must work directly with the issuer. ⊚ true ⊚ false

159) To protect yourself against credit card fraud, you should shred anything with your account number on it before throwing it away. ⊚ true ⊚ false

160) card.

Department stores and gasoline companies are good places to obtain your first credit ⊚ ⊚

true false

161) A home equity loan is usually set up as a revolving line of credit, typically with a fixed interest rate. ⊚ true ⊚ false

162) With a revolving line of credit, borrowings are permitted up to a specified limit and for a stated period, usually 5 to 10 years.

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⊚ ⊚

true false

163) The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth. ⊚ true ⊚ false

164) It is recommended that you spend no more than 20 percent of your net (after-tax) income on credit payments. ⊚ true ⊚ false

165) The debt-to-equity ratio is calculated by dividing your monthly debt payments by your net worth. ⊚ true ⊚ false

166)

The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers. ⊚ true ⊚ false

167)

The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers. ⊚ true ⊚ false

168)

When you cosign a loan, you are being asked to guarantee this debt.

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⊚ ⊚

true false

169) A lender requires a cosigner even when a borrower meets the lender's criteria for making a loan. ⊚ true ⊚ false

170) If you cosign a loan, the creditor can collect this debt from you without first trying to collect from the borrower. ⊚ true ⊚ false

171) If you cosign a loan and the debt is not paid off, then this fact does not become a part of your credit record. ⊚ true ⊚ false

172) The Consumer Financial Protection Bureau receives more consumer complaints about credit bureaus than about any other industry. ⊚ true ⊚ false

173)

The accuracy of credit reports has worsened recently. ⊚ true ⊚ false

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174) The Fair Credit Reporting Act, which regulates the use of credit reports, requires the deletion of obsolete information and gives consumers access to their files. ⊚ true ⊚ false

175) Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records. ⊚ true ⊚ false

176)

Your friends and neighbors easily can get credit information about you. ⊚ true ⊚ false

177) Most of the information in your credit file may be reported for only seven years. However, if you have declared personal bankruptcy, then this fact may be reported for 10 years. ⊚ true ⊚ false

178) The Equal Credit Opportunity Act is very specific about how a person's age may be used in credit decisions. ⊚ true ⊚ false

179) In the 5 Cs of credit, capacity refers to the borrower's attitude toward his or her credit obligations. ⊚ true ⊚ false

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180) In the 5 Cs of credit, character refers to the borrower's attitude toward his or her credit obligations. ⊚ true ⊚ false

181) In the 5 Cs of credit, capacity refers to the borrower's financial ability to meet credit obligations. ⊚ true ⊚ false

182)

In the 5 Cs of credit, capital refers to your assets or net worth. ⊚ true ⊚ false

183)

In the 5 Cs of credit, capital refers to your financial ability to meet credit obligations. ⊚ true ⊚ false

184) In the 5 Cs of credit, collateral is an asset that you pledge to a financial institution to obtain a loan. ⊚ true ⊚ false

185) In the 5 Cs of credit, conditions refers to general economic conditions that can affect your ability to repay a loan. ⊚ true ⊚ false

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186)

A creditor may ignore your retirement income in rating your application. ⊚ true ⊚ false

187)

You may not be denied credit because you receive Social Security or public assistance. ⊚ true ⊚ false

188) The Fair Credit Billing Act sets the procedures for promptly correcting billing mistakes/errors. ⊚ true ⊚ false

189) The Fair Credit Billing Act has a provision in which a lender can threaten your credit rating while you are resolving a billing dispute. ⊚ true ⊚ false

190)

When imposters take your name, they are committing a crime. ⊚ true ⊚ false

191) If someone has stolen your identity, the Federal Trade Commission recommends that you contact the fraud departments of each of the three major credit bureaus. ⊚ true ⊚ false

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192) A home equity loan is based on the difference between the current market value of your home and the amount you still owe on your mortgage. ⊚ true ⊚ false

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Answer Key Test name: Chap 06_14e_Kapoor 18) B 19) A 20) C 21) D 22) E 23) D 24) A 25) B 26) A 27) C 28) C 29) B 30) D 31) B 32) A 33) C 34) B 35) C 36) C 37) E 38) B 39) C 40) D 41) D 42) A 43) C Version 1

44) D 45) B 46) A 47) B 48) E 49) B 50) D 51) D 52) E 53) E 54) C 55) A 56) A 57) C 58) D 59) B 60) A 61) D 62) B 63) C 64) C 65) D 66) B 67) C 68) A 69) A 70) A 71) A 72) E 73) D Version 1

74) E 75) C 76) C 77) B 78) A 79) A 80) B 81) C 82) D 83) D 84) C 85) B 86) C 87) A 88) B 89) D 90) E 91) A 92) B 93) D 94) C 95) C 96) A 97) C 98) B 99) D 100) E 101) C 102) A 103) D Version 1

104) B 105) A 106) C 107) D 108) E 109) C 110) E 111) B 112) E 113) C 114) D 115) E 116) D 117) C 118) D 119) E 120) D 121) B 122) E 123) D 124) C 125) B 126) B 127) A 128) E 129) D 130) C 131) E 132) D 133) E Version 1

134) A 135) TRUE 136) TRUE 137) TRUE 138) TRUE 139) FALSE 140) TRUE 141) FALSE 142) TRUE 143) TRUE 144) TRUE 145) TRUE 146) TRUE 147) FALSE 148) FALSE 149) TRUE 150) TRUE 151) TRUE 152) TRUE 153) TRUE 154) FALSE 155) TRUE 156) TRUE 157) TRUE 158) TRUE 159) TRUE 160) TRUE 161) FALSE 162) TRUE 163) FALSE Version 1

164) TRUE 165) FALSE 166) FALSE 167) TRUE 168) TRUE 169) FALSE 170) TRUE 171) FALSE 172) TRUE 173) FALSE 174) TRUE 175) TRUE 176) FALSE 177) TRUE 178) TRUE 179) FALSE 180) TRUE 181) TRUE 182) TRUE 183) FALSE 184) TRUE 185) TRUE 186) FALSE 187) TRUE 188) TRUE 189) FALSE 190) TRUE 191) TRUE 192) TRUE

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CHAPTER 7 1) List several national nonprofit organizations that provide information and assist people with debt problems by phone and online.

What are the major sources of consumer credit?

3) What are two key concepts to remember if you are thinking of borrowing money or opening a credit account? Describe each concept.

What are the various methods used to calculate interest?

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Explain the rule of 78s.

6) In open-end credit, what are the various systems creditors use to calculate the balance on which they assess finance charges?

7) If you are having problems paying your bills and need help, what are several options available to you?

Explain the concept of "float."

Explain simple interest.

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10) In what ways can you lower the risk to your lender in order to reduce your borrowing costs?

11)

Explain the two choices available in declaring personal bankruptcy.

12)

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 interest rate. E) All of these choices are correct.

13)

Which one of the following financing methods usually provides a “float” period?

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A) Installment loan B) Credit card C) Lump-sum loan D) Home equity line of credit E) Auto loan

14)

A “float” period can be defined as: A) the interest charged during one billing period. B) the principal balance due on a loan. C) a home equity loan. D) a certain number of days during which no interest is charged. E) a lump-sum loan from a credit union.

15)

Which one of the following is often the source of the least expensive loan? A) Parents or family members B) Banks C) Savings and loan associations D) Finance companies E) Loan sharks

16)

One of the drawbacks of borrowing from parents or family members is that such loans: A) tend to be more expensive than other types of loans. B) must be interest-free. C) can complicate family relationships. D) are limited to oral agreements. E) are legally prohibited from establishing repayment dates and terms.

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17) Your bank card has an APR of 21 percent and there is a 3 percent fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $500 on the first day of the month. You get your credit card bill at the end of the month. What is the approximate total finance charge you will pay on this cash advance for the month? A) $15 B) $21 C) $24 D) $0 E) $3

18)

You can often obtain medium-priced loans from: A) parents or family members. B) American Express. C) Diners Club. D) finance companies. E) credit unions and federal savings banks.

19)

The number of credit union members has been: A) growing steadily. B) declining gradually. C) static. D) restricted by the Tax Reform Act of 1986. E) restricted by state laws.

20)

The most expensive loans are available from:

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A) parents. B) friends. C) federal savings banks. D) finance companies. E) credit unions.

21) Which federal law, passed in 1969, requires creditors to state the cost of borrowing as a dollar amount? A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) Truth in Lending Law

22)

The total dollar amount you pay to use credit is called the: A) finance charge. B) annual percentage rate. C) price of the good/service purchased. D) amortized rebate. E) interest rate.

23) If you borrow $150 at 10 percent interest, how much will you repay in one lump-sum at the end of one year using simple interest? A) $100 B) $150 C) $165 D) $115 E) $155

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24) If creditors add finance charges after subtracting payments made during the billing period, then this is called the: A) APR method. B) discount method. C) previous balance method. D) adjusted balance method. E) average daily balance method.

25) If creditors give you no credit for payments made during the billing period, then this is called the: A) APR method. B) discount method. C) previous balance method. D) adjusted balance method. E) average daily balance method.

26) Which formula is used by creditors and involves tables based on a mathematical formula to determine how much interest you have paid at any point in a loan? A) Simple interest formula B) Compound interest formula C) Multiple compound interest formula D) The rule of 78s E) The rule of 72s

27)

The most commonly purchased type of credit insurance is:

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A) credit life insurance. B) credit accident insurance. C) credit health insurance. D) credit property insurance. E) credit disability insurance.

28) Which type of credit insurance repays your loan in the event of a loss of income due to illness or injury? A) Credit life insurance B) Credit accident and health insurance C) Credit property insurance D) Credit casualty insurance E) Credit inability insurance

29) Which formula dictates that you pay more interest at the beginning of a loan and pay less and less interest as the debt is reduced? A) Adjusted balance method B) Previous balance method C) The rule of 78s D) Average daily balance E) Accelerated balance

30)

If you find that you cannot make your payments, the first thing you should do is: A) skip town. B) declare personal bankruptcy. C) borrow from a loan shark to make the payment. D) let the balance owed go to a collection agency. E) contact your creditors and try to work out a modified payment plan with them.

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31) According to a consumer affairs columnist, the nation's number one family financial problem is: A) underemployment. B) overindebtedness. C) medical costs. D) insurance costs. E) unemployment.

32)

If you default on your automobile loan, most automobile financing agreements: A) require an advance notice be sent to you before your car is repossessed. B) permit your creditor to repossess your car at any time without notice. C) permit the federal consumer credit laws to protect your car from being repossessed. D) allow you to not pay the full balance due on your automobile loan. E) allow you to pay fifty percent of the balance due on your automobile loan.

33)

The Federal Trade Commission enforces the: A) Truth in Credit Act. B) Equal Credit Act. C) Fair Credit Receiving Act. D) Fair Debt Collection Practices Act. E) Fair Credit Payment Act.

34)

If you receive a phone call from a debt collector:

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A) hang up on him or her. B) expect follow-up written communication within five days. C) call the police. D) threaten the collector with a law suit. E) contact your attorney immediately.

35) If you receive a phone call from a debt collector, s/he must send you a written notice within _____________blank days. A) 5 B) 10 C) 15 D) 20 E) 30

36) This morning, you received a phone call alleging you owe a debt. If you dispute this debt, you must write to the debt collector and request verification of the obligation. How many days do you have to send this letter? A) 5 B) 10 C) 15 D) 20 E) 30

37) A few months ago, you sent a certified letter to a debt collector and requested verification of a debt the collector says you owe. You know the letter was received by the collector but you have not received a response to your request. Today, you received a letter threatening court action. What should you do?

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A) Pay the debt and protect your credit rating B) Insist that communications about the debt cease C) Renegotiate payment terms with the creditor D) Sue the collection agency E) Pay half the outstanding balance

38)

What is the most common reason why consumers are unable to pay their bills on time? A) Medical expenses B) Defective goods and services C) Excessive use of credit D) Fraudulent use of credit E) Consumer fraud

39)

Which of the following is/are a signal of potential debt problems? A) Paying only the minimum balance on credit card bills each month B) Missing payments or paying late C) Using savings to pay routine bills D) Depending on overtime to meet everyday expenses E) All of these are danger signals.

40)

Which one of the following is not a danger signal of potential debt problems? A) Paying only the minimum balance due each month B) Receiving second or third payment notices from creditors C) Using savings to pay routine bills D) Repaying loans faster than required E) Depending on overtime and moonlighting to meet everyday expenses

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41)

Excessive indebtedness can result in: A) heavy drinking. B) neglect of children. C) marital difficulties. D) drug abuse. E) All of these choices are correct.

42)

The Consumer Credit Counseling Service is affiliated with the: A) National Foundation for Consumer Credit. B) Federal Trade Commission. C) Better Business Bureau. D) U.S. Consumer Protection Agency. E) Federal Reserve Banks.

43) Which of the following financially supports the Consumer Credit Counseling Service with contributions? A) National Foundation for Consumer Credit B) Community-minded organizations and individuals C) Federal Reserve Banks D) The Federal Home Loan Bank E) Taxpayers

44) Which one of the following is a local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems?

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A) Credit bureau B) Chamber of Commerce C) Consumer Credit Counseling Service D) Internal Revenue Service E) Better Business Bureau

45)

Credit counselors are aware that most people who are in debt over their heads are: A) criminals who take advantage of creditors. B) living in poverty-stricken areas. C) expected to declare Chapter 11 bankruptcy. D) not college educated. E) basically honest people.

46)

The CCCS is also concerned with: A) lending money to destitute people. B) giving debtors food and shelter. C) helping destitute debtors to relocate into less expensive areas. D) preventing and solving the problems related to overindebtedness. E) paying off mortgage loans.

47)

The CCCS aids families by: A) setting up a realistic budget for them. B) paying off their loans. C) providing free basic necessities. D) providing one month free shelter. E) relocating them in less expensive areas.

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48)

Which of the following is not true of CCCS counseling? A) It is usually free. B) It is quite costly. C) It provides education regarding the pitfalls of unwise credit buying. D) It suggests techniques for family budgeting. E) It helps families manage their money.

49) In a Chapter 7 bankruptcy, which of the following debts may be excluded from discharge? A) Debts arising from fraud B) Debts arising from embezzlement C) Debts arising from driving while intoxicated D) Debts arising from larceny E) All of these choices are correct.

50)

The CCCS sometimes charges a nominal fee if it: A) administers a debt repayment plan. B) helps families manage their debts better. C) sets up a realistic budget for them. D) provides credit education. E) contacts creditors.

51) Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?

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A) Chapter 7 B) Chapter 11 C) Chapter 13 D) Chapter 15 E) Chapter 17

52)

In a Chapter 7 bankruptcy, the debtor: A) is required to draw up a petition listing his or her assets and liabilities. B) does not have to pay a filing fee. C) is called a "bankrupt." D) does not have to pay outstanding alimony and child support payments. E) does not have to repay educational loans.

53) Which of the following institutions is generally sympathetic to borrowers with legitimate payment problems? A) Credit union B) Payday advance company C) Finance company D) Department store E) Commercial bank

54) Which payday loan lender is likely to ask you to write a check for $115 before granting you a $100 loan? A) Credit union B) Finance company C) Federal savings bank D) Department store E) Commercial bank

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55) Antonio Ellis gets a loan from General Motors Acceptance Corporation. Which type of lending institution is this? A) Credit union B) Check casher C) Finance company D) Department store E) Commercial bank

56) Cristina Burnett qualifies for an American Express card. Which of the following offers this type of loan? A) Credit union B) Check casher C) Finance company D) T&E card E) Commercial bank

57) Kai Jones wants to borrow money for six years to purchase a new car. He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent. By choosing the variable rate loan, Kai is reducing the lender's risk by: A) sharing the interest rate risk. B) increasing his monthly payments. C) taking a higher stake in the asset he is purchasing. D) repaying the loan over a faster period of time. E) pledging collateral.

58) Reynaldo Mendez wants to buy a new sail boat. He is planning on making a $9,000 cash down payment, which is a large portion of the cost of what he is financing. In which way is Reynaldo reducing his lender's risk? Version 1

A) He is sharing the interest rate risk with his lender. B) He is pledging valuable assets that can be seized if the loan is not repaid. C) He is taking a higher stake in the asset he is purchasing. D) He is repaying the loan over a faster period of time. E) He is increasing his monthly payments.

59) Shea McBride is going to buy a new car, and she needs to apply for a loan to cover the purchase. She knows she can get a loan for up to 6 years, but she would prefer a shorter-term loan. She selects a 4-year loan. Shea is lowering her lender's risk by: A) sharing the interest rate risk. B) pledging collateral. C) paying a larger cash deposit. D) repaying the loan faster. E) sharing inflation risk with her lender.

60) Yao yang starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the adjusted balance method (and excludes new purchases). What would Yao's finance charges be for the month? A) $7.50 B) $13.25 C) $11.25 D) $15.00 E) $18.00

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61) Shepherd Walsh starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the previous balance method. What would Shepherd's finance charges be for the month? A) $4.50 B) $7.50 C) $11.25 D) $12.00 E) $18.00

62) Rashod Alam starts the month with a balance on his credit card of $800. The average daily balance for the month including purchases is $683. The average daily balance for the month excluding new purchases is $550. The bank charges 1.5 percent per month and uses the average daily balance including new purchases method. What would Rashod finance charges be for the month? A) $8.25 B) $10.25 C) $12.00 D) $15.00 E) $18.00

63) Mason Snyder starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The average daily balance for the month including the new purchase is $683. The average daily balance for the month excluding the new purchase is $550. The bank charges 1.5 percent per month and uses the average daily balance excluding new purchases method. What would Mason’s finance charges be for the month?

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A) $4.50 B) $7.50 C) $8.25 D) $10.25 E) $12.00

64) Sia Schultz gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month. Under the APR formula, what is the amount of interest included in her first payment? A) $16.00 B) $14.77 C) $8.96 D) $4.87 E) $1.23

65) Nadia Hill wants to have a house just like the one her parents had when she was a teenager. She finds the house she wants and gets an interest-only loan on it for the first five years. Which one of the following best explains Nadia’s spending, which can lead to overindebtedness? A) Misunderstanding or lack of communication B) The use of money to punish C) The expectation of instant comfort D) Keeping up with the Joneses E) Overindulgence of children

66) Marco Greene notices that his neighbor has a brand new Ford F150 truck parked in the driveway. Even though his current car is fine, Marco decides that he needs a new car and goes out and purchases a Tundra with a six-year loan. Which one of the following best explains Marco's spending, which can lead to overindebtedness?

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A) Misunderstanding or lack of communication B) The use of money to punish C) The expectation of instant comfort D) Keeping up with the Joneses E) Overindulgence of children

67) Siad Black has two children. He is buying each of them their own TV to put in their rooms so they do not have to join the rest of the family and watch TV together. Which one of the following best explains Siad's spending, which can lead to over indebtedness? A) Misunderstanding or lack of communication B) The use of money to punish C) The expectation of instant comfort D) Keeping up with the Joneses E) Overindulgence of children

68)

Which one of these is the fairest method of calculating finance charges on a credit card? A) Declining balance method B) Adjusted balance method C) Current balance method D) Average daily balance method E) Previous balance method

69)

Which method of payment is almost always cheaper than using credit? A) Bank credit card B) Check written on a home equity line of credit C) Cash D) Store credit card E) Cash advance on a Visa credit card

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70) Payday, cash advance, check advance, and postdated checks are _____________blank loans. A) inexpensive B) medium-priced C) expensive D) low APR E) variable APR

71)

Before you sign a loan contract, make sure to: A) explore other financing options. B) contact several lenders. C) know your rights under the law. D) compare terms, interest rates, and other fees. E) All of these choices are correct.

72)

If a new-car loan costs 3 percent, then a used-car loan may cost: A) a lower percentage. B) the same percentage. C) slightly more. D) significantly more. E) a substantially higher percentage.

73) If Tae He-Ran borrows $300 for one year with an APR of 21 percent and an annual service fee of $6, what is her total cost of credit?

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A) $6 B) $15 C) $21 D) $69 E) $74

74) You just received a credit card application. Which of the following are included with this application? A) Minimum interest charges B) Annual percentage rate for purchases C) Penalty fees D) Method used to calculate balance E) All of these choices are correct.

75)

The rule of 78s dictates that a borrower pays: A) more interest at the beginning of the loan period. B) more interest at the end of the loan period. C) more interest in the middle of the loan period. D) less interest than indicated by the APR. E) equal amounts of interest throughout the loan.

76) An increasing number of personal bankruptcies are made by well-educated, middle-class people, who represent _____________blank percent of the adult population. A) 70 B) 60 C) 50 D) 40 E) 30

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77) According to Fair Isaac Corporation (FICO), a personal bankruptcy can cause an immediate drop in your credit score of how many points? A) 100 B) 150 C) 180 D) 210 E) 260

78)

Collection agencies are allowed to: A) contact you at your place of employment. B) contact you as early as 8 a.m. C) say that you will be arrested if you do not pay the debt. D) harass you. E) threaten harm to you or your family.

79)

Which of the following is not true about the Credit CARD Act of 2009? A) States that teaser rates must stay in effect for at least 6 months B) Makes new disclosure statements clear and more timely C) Requires credit card issuers to post their standard card agreements on the internet D) Allows card issuers to apply new higher interest rates to the existing card balances E) Requires issuers to mail monthly statements at least 21 days before payment is due

80) In addition to the Consumer Credit Counseling Service (CCCS), the following entities also provide counseling services:

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A) Universities B) Credit unions C) Military bases D) State and federal housing authorities E) All of these choices are correct.

81)

Which type of debt would not be forgiven in a straight bankruptcy? A) Credit card debt B) Medical bills C) Personal loans D) Educational loans E) Utility bills

82) Which of the following methods calculates interest on the full amount of the original principal? A) Declining balance method B) Add-on interest method C) Previous balance method D) Adjusted balance method E) Average daily balance method

83) When more than one payment is made on a simple interest loan, the method of computing interest is known as the: A) add-on interest method. B) average daily balance method. C) adjusted balance method. D) declining balance method. E) previous balance method.

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84)

Borrowing from credit unions has several advantages but does not include: A) costly credit life insurance. B) sympathy toward borrowers with legitimate payment problems. C) personalized service. D) the same range of consumer loans that banks offer. E) None of these choices are correct.

85)

All loans to or from family members should: A) be in writing. B) state the interest rate. C) state the repayment schedule. D) state the final payment date. E) All of these choices are correct.

86)

Which of the following is not true regarding a tax refund loan? A) It is an inexpensive way to borrow money. B) It lets you get an advance on a tax refund. C) APRs as high as 774 percent have been reported. D) An alternative to these loans is to ask for more time to pay a bill. E) A cash advance on your credit card may cost less.

87)

The finance charge may include which of the following:

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A) Interest costs B) Service charges C) Credit-related insurance premiums D) Appraisal fees E) All of these choices are correct.

88)

Variations of simple interest do not include the: A) add-on interest method. B) bank discount method. C) adjusted balance method. D) simple interest on the declining balance method. E) compound interest method.

89) Which of the following is true if your credit company invites you to skip a monthly payment without a penalty? A) They are doing you a favor. B) You will not owe finance charges on your unpaid balance. C) Interest will not be adding up on any purchases you make after the due date you skipped. D) It would be a mistake to take this offer. E) You should not ignore this offer.

90)

Mature consumers have certain information and: A) they demonstrate self-discipline. B) they control their impulses and use sound judgment. C) they accept responsibility for money management. D) they are able to postpone expenditures when needed. E) All of these choices are correct.

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91)

Danger signals of potential debt problems include: A) paying early. B) borrowing money to pay old debts. C) talking to your spouse about money. D) paying extra payments. E) paying the balance in full each month.

92)

The Consumer Credit Counseling Service (CCCS) is supported by contributions from: A) banks. B) consumer finance companies. C) credit unions. D) merchants. E) All of these choices are correct.

93)

Before deciding to borrow money, you should ask yourself: A) Do I need a loan? B) Can I afford a loan? C) Can I qualify for a loan? D) All of these choices are correct. E) None of these choices are correct.

94)

Which of the following is true of the minimum monthly payment on a credit card?

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A) It is the largest amount you can pay and still be a cardholder in good standing. B) It is not required to be listed as a warning on your monthly credit card statement. C) It refers to the maximum payment amount due from a cardholder. D) It is a financial trap. E) It refers to the total amount that a cardholder owes.

95)

In filing a petition for a Chapter 7 bankruptcy, a debtor must provide the following: A) A list of creditors and the amount and nature of their claims. B) The source, amount, and frequency of the creditor’s income. C) A list of all the creditor’s property. D) A detailed list of the creditor’s monthly expenses. E) A list of the creditor’s personal references.

96) Do not make the mistake of trusting which of the following counseling providers that promise to help you clean up your credit report for a fee? A) University B) Military base C) Credit repair clinic D) Credit union E) State housing authority

97)

Which of the following is not true of debt collection in the United States? A) The industry employs nearly 120,000 workers. B) It includes calls and letters. C) It includes filing lawsuits to collect the debt from consumers. D) It includes workers across approximately 8,000 collection agencies. E) It is only a $1 million industry.

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98) After you have selected a product, you should buy it immediately before the store runs out of it. ⊚ true ⊚ false

99)

Buying on credit is almost always cheaper than paying cash. ⊚ true ⊚ false

100)

Parents or family members are often the source of the least expensive loans. ⊚ true ⊚ false

101) You can often obtain medium-priced loans from commercial banks, federal savings banks, and credit unions. ⊚ true ⊚ false

102) Two key concepts that you should remember when borrowing are the finance charge and the annual percentage rate. ⊚ true ⊚ false

103) A loan origination fee is what the lender charges for the loan and may include processing the application, underwriting, funding, and other administration costs. ⊚ ⊚

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true false

104)

The finance charge is the total dollar amount you pay to use credit. ⊚ true ⊚ false

105) The annual percentage rate is the percentage cost (or relative cost) of credit on a yearly basis. ⊚ true ⊚ false

106) If you want to minimize your borrowing costs, you may need to accept conditions that reduce the risk for your lender. ⊚ true ⊚ false

107) If you pledge property or other assets as collateral, you will probably pay a higher interest rate on your loan than you would without collateral. ⊚ true ⊚ false

108)

You may be able to borrow at a lower interest rate if you accept a shorter-term loan. ⊚ true ⊚ false

109) The two most common methods of calculating interest are compound and simple interest formulas. ⊚ true ⊚ false

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110)

The most basic method of calculating interest is the compound interest calculation. ⊚ true ⊚ false

111) When more than one payment is made on a simple interest loan, the method of computing interest is known as the declining balance method. ⊚ true ⊚ false

112) With the add-on interest method, interest is calculated on the full amount of the original principal. ⊚ true ⊚ false

113) The fairest method of calculating interest on a credit card is the average daily balance method. ⊚ true ⊚ false

114) If creditors give you no credit for payments made during the billing period, it is called the adjusted balance method. ⊚ true ⊚ false

115) The Truth in Lending law does not set the interest rates or tell the creditor how to make interest calculations.

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⊚ ⊚

true false

116) If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month. ⊚ true ⊚ false

117)

Inflation increases the purchasing power of money. ⊚ true ⊚ false

118)

You can deduct the interest paid on consumer loans on your income tax return. ⊚ true ⊚ false

119) Banks often encourage you to make the maximum payment, referred to as the "cardholder amount due." ⊚ true ⊚ false

120)

The rule of 78s formula dictates that you pay less interest at the beginning of a loan. ⊚ true ⊚ false

121) Under the rule of 78s, loans for a year or less usually do not allow for a finance charge rebate.

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⊚ ⊚

true false

122)

The most commonly purchased type of credit insurance is credit life insurance. ⊚ true ⊚ false

123)

Credit life insurance provides for the repayment of the loan if the borrower dies. ⊚ true ⊚ false

124) car.

The consumer credit laws require that an advance notice be given before repossessing a ⊚ ⊚

true false

125) During the COVID-19 pandemic, many credit card companies offered assistance by lowering or deferring monthly minimum payments, waiving or refunding late fees, reducing interest rates, and establishing a payment plan to pay off existing balances. ⊚ ⊚

true false

126) The Fair Debt Collection Practices Act regulates the ways debt collection agencies do business. ⊚ true ⊚ false

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127) Anyone who is overburdened by credit obligations can phone, write, or visit a Consumer Credit Counseling Service (CCCS) office. ⊚ true ⊚ false

128) There is never a charge for a debt repayment plan administered by a Consumer Credit Counseling Service (CCCS) office. ⊚ true ⊚ false

129)

The Consumer Credit Counseling Service (CCCS) counseling is usually free. ⊚ true ⊚ false

130) The Consumer Credit Counseling Service (CCCS) is a lending institution that will refinance all of your existing debts for you. ⊚ true ⊚ false

131) In addition to the Consumer Credit Counseling Service (CCCS), alternative counseling services (universities, credit unions, military bases, and state and federal housing authorities) sometimes provide nonprofit counseling services. ⊚ true ⊚ false

132) Bankruptcy is a legal process in which some or all of the assets of a debtor are distributed among the creditors on an installment basis. ⊚ ⊚

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true false

133) You may file bankruptcy without an attorney because court employees and the bankruptcy judges are allowed to offer legal advise. ⊚ ⊚

134)

true false

An increasing number of bankruptcy filers are well-educated, middle-class people. ⊚ true ⊚ false

135) You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy. ⊚ true ⊚ false

136)

A person filing for relief under the bankruptcy code is called bankrupt, not a debtor. ⊚ true ⊚ false

137)

Chapter 7 bankruptcy is also known as a straight bankruptcy. ⊚ true ⊚ false

138)

Both Chapter 7 and Chapter 13 bankruptcy are considered an easy way out of debt. ⊚ true ⊚ false

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139)

In a straight bankruptcy, many, but not all, debts are forgiven. ⊚ true ⊚ false

140)

In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property. ⊚ true ⊚ false

141) You have the right to file your own bankruptcy case and to represent yourself at all court hearings. ⊚ true ⊚ false

142)

There are no costs involved in filing for a bankruptcy. ⊚ true ⊚ false

143) If you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child support, or educational loans. ⊚ true ⊚ false

144) If your credit company invites you to skip a monthly payment without a penalty, they are doing you a favor. ⊚ true ⊚ false

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145)

Credit unions offer loans with a single repayment schedule to non-members. ⊚ true ⊚ false

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Answer Key Test name: Chap 07_14e_Kapoor 12) E 13) B 14) D 15) A 16) C 17) C 18) E 19) A 20) D 21) E 22) A 23) C 24) D 25) C 26) D 27) A 28) B 29) C 30) E 31) B 32) B 33) D 34) B 35) A 36) E 37) B Version 1

38) C 39) E 40) D 41) E 42) A 43) B 44) C 45) E 46) D 47) A 48) B 49) E 50) A 51) C 52) A 53) A 54) B 55) C 56) D 57) A 58) C 59) D 60) A 61) D 62) B 63) C 64) B 65) C 66) D 67) E Version 1

68) D 69) C 70) C 71) E 72) C 73) D 74) E 75) A 76) E 77) E 78) B 79) D 80) E 81) D 82) B 83) D 84) A 85) E 86) A 87) E 88) C 89) D 90) E 91) B 92) E 93) D 94) D 95) A 96) C 97) E Version 1

98) FALSE 99) FALSE 100) TRUE 101) TRUE 102) TRUE 103) TRUE 104) TRUE 105) TRUE 106) TRUE 107) FALSE 108) TRUE 109) TRUE 110) FALSE 111) TRUE 112) TRUE 113) TRUE 114) FALSE 115) TRUE 116) TRUE 117) FALSE 118) FALSE 119) FALSE 120) FALSE 121) TRUE 122) TRUE 123) TRUE 124) FALSE 125) TRUE 126) TRUE 127) TRUE Version 1

128) FALSE 129) TRUE 130) FALSE 131) TRUE 132) TRUE 133) FALSE 134) TRUE 135) TRUE 136) FALSE 137) TRUE 138) FALSE 139) TRUE 140) TRUE 141) TRUE 142) FALSE 143) FALSE 144) FALSE 145) FALSE

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CHAPTER 8 1) Leila Ahmadi wants to purchase a package of shredded cheese at a local store for taco night. Is it better for her to pay $2.72 for 16 ounces or $3.84 for 24 ounces of this product? Explain your answer.

What factors influence most people's buying decisions?

3) What are the common sources of consumer information to assist consumers in making wise buying decisions?

4) Lamar Montgomery recently purchased a stereo system. After a few weeks it overheated, causing a small fire and some minor damage. What actions would you recommend to Lamar to resolve his consumer complaint?

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5) What legal options are available when assistance is needed to resolve a consumer complaint?

Distinguish between an implied warranty and an express warranty.

Explain the difference between arbitration and mediation.

List three examples of common (or not so common) frauds and describe each.

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When comparing prices, which of the following statements is not true? A) More store convenience typically means higher prices. B) Large packages are always the best buy. C) Ready-to-use products have higher prices. D) Sale prices may not always mean saving money. E) Many websites and apps are available with pricing comparison tools.

10)

An example of an economic factor that influences buying decisions would be: A) family size. B) inflation. C) advertising. D) hobbies. E) lifestyle.

11) Which one of the following is the best example of a personal opportunity cost associated with a consumer purchase? A) Enjoyment derived from owning an item B) Taxes paid on purchases C) Money spent by stores on advertising D) Time and effort spent on comparison shopping E) Efforts by the government to prevent consumer fraud

12)

The first phase of the consumer buying process involves:

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A) comparing alternatives. B) evaluating alternatives. C) identifying the problem. D) researching alternatives. E) selecting the buying location.

13)

Which of the following is a benefit of an electric vehicle (EV)? A) More environmentally friendly B) Potential tax credits C) Lower maintenance costs D) Smartphone apps to program charging and heating and cooling E) All of these choices are correct.

14)

To avoid scams of online used-car sellers: A) research the seller’s reputation and background. B) do a title check to confirm the seller’s name and make sure the car is not stolen. C) beware of vehicle photos with tempting low prices. D) check for recalls and the safety record of the vehicle. E) All of these choices are correct.

15) Which organization tests products for electrical and fire safety to assure items meet safety standards?

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A) Consumers Watch B) Better Business Bureau C) Consumer Product Safety Commission D) Underwriters Laboratories E) Federal Trade Commission

16)

The main purpose of Consumers Union is to: A) report the quality of products and services. B) reduce fire hazards of home appliances. C) handle consumer complaints from government workers. D) represent the government in consumer complaint hearings. E) provide environmental information on automobiles.

17)

A cooperative is designed to: A) solve consumer complaints. B) test consumer products for quality. C) sell products or services to members at reduced prices. D) obtain brand-name items for less than wholesale cost. E) lobby for changes in consumer protection laws.

18) _____________blank are nonprofit organizations organized by member-owners to save money on various products and services. Their prices are usually lower than at other retailers. A) Cooperatives B) Warehouse stores C) Factory outlets D) Catalog showrooms E) Hypermarkets

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19)

Cooperatives are commonly organized to sell: A) service contracts. B) furniture. C) auto repair services. D) food. E) information processing services.

20)

Impulse buying refers to: A) evaluating alternatives. B) gathering information. C) comparison shopping. D) selecting the least desirable alternative. E) unplanned purchasing.

21) The items produced for a specific retail chain of stores are commonly sold under a _____________blank brand. A) store B) government C) regional D) local E) national

22)

Which of the following information is required on food labels?

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A) Ingredients B) Unit pricing C) Generic name D) Common product name E) Brand name

23)

Private label products are those that: A) are sold as government surplus. B) require nutritional labeling information. C) provide freshness information on the package. D) are distributed by all national chain stores. E) are sold by one chain of stores.

24)

Open dating provides information on: A) freshness. B) pricing. C) nutrition. D) common product use. E) government inspection.

25)

A 64-ounce package selling for $3.20 would have a unit price of: A) $3.20 per ounce. B) $2.00 per pound. C) $0.05 per ounce. D) $20.00 per quart. E) $20.48 per ounce.

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26)

What type of warranty indicates that the seller has the right to sell a product? A) Express warranty B) Full warranty C) Implied warranty of title D) Warranty of merchantability E) Limited warranty

27) Jamaal Rodgers recently became aware of implied warranties that exist for consumer purchases. An implied warranty exists as a result of: A) a stated intent of the seller. B) actions by consumers. C) the intended use of a product. D) rulings of federal consumer agencies. E) a written statement from the manufacturer.

28)

Which one of these statements best describes a criticism of automobile service contracts?

A) Repair companies provide poor service. B) Service contracts are included in the initial price of the product and thus are not optional. C) The government regulation of service contract companies is weak. D) The contracts do not always include everything you might expect. E) There are a limited number of authorized repair facilities.

29)

The purpose of a service contract is to:

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A) prevent legal action due to a defective product. B) protect a product owner from the high costs of certain repairs. C) reduce the chance of needing repairs. D) obtain regular maintenance on a product. E) have legal assistance for consumer complaints.

30)

Most consumer complaints are resolved by: A) legal action. B) assistance from a government agency. C) contacting a company's headquarters. D) returning to the original sales location. E) obtaining help from an action line.

31)

As a result of the COVID-19 pandemic, new cons resulted in several scams including: A) fraudulent COVID-19 testkits and treatments. B) fake coronavirus charities. C) stimulus check swindles. D) work-at-home scams. E) All of these choices are correct.

32) Sadie Morales is planning to use the services of the Better Business Bureau. A major purpose of the BBB is to help: A) recommend reputable companies in an area. B) resolve consumer complaints with local merchants. C) lobby for improved consumer protection laws. D) evaluate products and services for quality. E) represent businesses in government hearings.

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33) The process of resolving conflicts between a customer and a business with the use of a third party whose recommendations are nonbinding is called: A) mediation. B) arbitration. C) a class action suit. D) a product lawsuit. E) a small claims court hearing.

34) _____________blank is the settlement of a difference by a third party whose decision is legally binding. A) Negotiation B) Mediation C) Arbitration D) Servicing E) Cooperative action

35)

Arbitration differs from mediation in that arbitration: A) involves government officials. B) requires the use of a lawyer. C) is only available in certain states. D) allows compromise through negotiation. E) is legally binding.

36) To avoid becoming a victim of deceptive business practices, which of the following should be considered?

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A) Do business with reputable companies with consistent customer satisfaction. B) Understand contracts or other documents you sign. C) Beware of websites not ending in .com, .gov, or .org. D) Compare credit costs with cost of paying cash. E) All of these choices are correct.

37)

The purpose of small claims court is to: A) regulate fair business activities. B) provide hearings on proposed consumer protection laws. C) allow consumers with similar complaints to take action as a group. D) handle legal disputes involving minor amounts. E) assist low-income consumers who need legal help.

38)

Small claims courts: A) hear only class-action suits. B) are located in every state. C) have no minimum dollar limit on claims. D) require the use of an attorney. E) require that claims be in excess of $100,000.

39) Recently, Julian Carr was on a bus tour in a mountainous area. The bus broke down forcing the group to stay overnight. Group members had to pay for their own hotel bills. Julian believes that the hotel cost for the group should be paid by the tour company. Which legal action would be most appropriate?

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A) Small claims court B) Mediation C) Legal aid society D) Arbitration E) Class-action suit

40)

For a situation to qualify as a class-action suit, it must: A) involve several people who have suffered the same problem. B) involve a national retail store. C) be a case that would not be handled by an attorney. D) involve low-income individuals. E) be a legal problem against a government agency.

41)

Which of the following statements about a legal aid society is not true? A) It provides legal assistance to people who cannot afford their own attorney. B) It is part of a network of community law offices. C) It provides legal assistance at minimal cost or without charge. D) It is a branch of the American Bar Association. E) It is a publicly supported organization.

42)

Federal Trade Commission (FTC) regulations require that: A) all used cars be sold with a warranty. B) used car buyers be informed of whether or not the vehicle comes with a warranty. C) used cars with over 100,000 miles be sold only by the individual owner, not by a

dealer. D) major repairs must be made on all used cars prior to being offered for sale. E) the seller of a defective used car pay half the cost of the required repairs.

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43)

An implied warranty that comes with a used car is that: A) major repairs are the responsibility of the seller. B) government agencies will repair safety defects. C) the vehicle is guaranteed to run for a while. D) hidden defects will be repaired at no cost to the buyer. E) the vehicle will be serviced free of charge for one year.

44)

A used car sold "as is" has: A) a limited warranty. B) an implied warranty of merchantability C) a 30-day guarantee. D) a full warranty on parts but not labor. E) a 90-day guarantee.

45)

Most used cars bought from private owners have: A) no implied warranties. B) a 30-day return privilege. C) a limited warranty. D) no express warranty. E) a government-supported repair guarantee.

46)

The main purpose of the Edmund's Used Car Prices is to:

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A) monitor safety problems of existing vehicles. B) provide current used-car prices. C) reduce sales of stolen vehicles. D) list cars available for sale from government agencies. E) provide VIN numbers for vehicles.

47)

The sticker price of a car refers to: A) the amount of government taxes on a new car. B) the cost of repairing a used car which is for sale. C) the list of optional equipment that may be added to a car. D) the suggested retail price of a new car. E) a comparison of costs and performance of comparable cars.

48)

The purpose of the invoice price is to inform customers of the: A) sales tax on the vehicle. B) suggested retail price. C) sticker price. D) charge for optional extras. E) dealer's cost.

49)

An automobile service contract can: A) reduce operating costs of the vehicle. B) cover regular maintenance. C) provide automobile insurance at a discount. D) cover repairs not included in the manufacturer’s warranty. E) help the buyer stay informed of government safety recalls.

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50)

A disadvantage of leasing an automobile would be the: A) relatively high cost of the security deposit. B) the higher monthly payment as compared to a purchase. C) poor expense records for tax purposes. D) additional costs for turning the car in early. E) responsibility for fuel expenses.

51) Lucas Estrada is planning to lease an automobile. In an effort to minimize the price of the vehicle being leased, Lucas should compare the _____________blank at different leasing companies. A) down payment B) capitalized cost C) money factor D) residual value E) number of payments

52)

Which of the following is the largest fixed expense associated with a new automobile? A) Insurance B) Gasoline C) Registration, license, and fees D) Parking E) Depreciation

53)

_____________blank is considered a variable operating cost of an automobile.

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A) Depreciation B) Interest on auto loan C) Insurance D) Registration fee E) Maintenance

54) Aaron Garza likes to play golf. This hobby would be an example of a(n) _____________blank factor that influences his purchasing decision. A) economic B) social C) personal D) global E) financial

55) Jerome Boyd has noticed that interest rates have risen in recent months. He is worried that this may make it more difficult for him to finance the purchase of a car. This would be an example of a(n) _____________blank factor that influences his purchasing decision. A) economic B) social C) personal D) global E) career

56)

The Sears Kenmore dishwasher is an example of a:

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A) national brand. B) store brand. C) generic brand. D) local brand. E) regional brand.

57)

A Whirlpool dishwasher is an example of a: A) national brand. B) store brand. C) generic brand. D) local brand. E) regional brand.

58) Meredith Carroll has a piece of paper that she can mail in to the manufacturer of the product that she just purchased. It allows her to get part of her purchase price back. What is she most likely using? A) Coupon B) Rebate C) Warranty D) Indenture E) Service contract

59) Emmett Burke has a piece of paper that he gives to the cashier when he purchases a grocery item that saves him a dollar off the cost of that item. What is he most likely using?

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A) Coupon B) Rebate C) Warranty D) Receipt E) Promissory note

60) John Frey has a piece of paper that guarantees the conditions, under which he can return, replace, or repair an item that he has purchased. What is it he most likely has? A) Coupon B) Rebate C) Warranty D) Rain check E) Class action suit

61) Claudia Keyes is a member in a store that is a nonprofit organization that buys grocery items in bulk. The savings on these bulk purchases are passed on to the members in the form of lower food prices. Claudia is most likely shopping in which type of store? A) Department store B) Specialty store C) Discount store D) Convenience store E) Cooperative

62) Violet Rizzo’s car broke down on the way to work, and her mechanic has told her that the car cannot be fixed. Violet drives 30 miles one way to work each day. There is no reliable bus or train transportation that goes anywhere near her work. Violet decides she needs a car for reliable transportation to work. What step in the purchasing process is Violet carrying out?

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A) Problem identification B) Comparing financing alternatives C) Evaluating alternatives D) Determining the purchase price E) Post-purchase activities

63) Jordan Ramirez has decided he needs a new car so that he has reliable transportation to work. He is getting recommendations from his friends as to what might be a good car to purchase. He is also looking at the Consumer Reports magazine to determine what they recommend as a safe, low maintenance car, and he has searched some websites on the internet as well. What step in the purchasing process is Jordan carrying out? A) Problem identification B) Information gathering C) Selecting vehicle options D) Determining the purchase price E) Post-purchase activities

64) Soleil Deepak has decided she needs a new car. After doing some research, she has settled on a midsized four door sedan. She likes the Honda Accord and is exploring the features she needs and wants on this car. She is also trying to decide whether she would be better off purchasing a new car, a used car, or leasing a car. She knows that if she purchases it new it would likely last her for many, many years. On the other hand a used car would be a lot cheaper. She is not sure a lease is for her because of the mileage requirements. What step in the purchasing process is Soleil carrying out? A) Problem identification B) Information gathering C) Evaluating alternatives D) Determining the purchase price E) Post-purchase activities

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65) Lorenzo DeMarco has settled on purchasing a new Honda Accord and has found that the suggested retail price is $23,600 and that the dealer's invoice price is $21,500. It is time for him to go to a dealer and negotiate the price he will pay for his new car. What step in the purchasing process is Lorenzo carrying out? A) Problem identification B) Information gathering C) Evaluating alternatives D) Determining the purchase price E) Post-purchase activities

66) Kendrick Walker just purchased a new vehicle. He is reading his owner's manual to know when he needs to take it in for its regular servicing at the dealer. He wants to make sure this car lasts awhile. What step in the purchasing process is Kendrick carrying out? A) Problem identification B) Information gathering C) Evaluating alternatives D) Determining the purchase price E) Post-purchase activities

67)

Which of the following would be an advantage of leasing a vehicle? A) Automatic ownership interest in the car B) Unlimited mileage on the car C) No need to meet credit requirements D) Lease payments are likely to be lower than loan payments E) Additional costs to turn the car in early

68)

The price that is paid for a vehicle in a lease is called the:

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A) residual value. B) unit price. C) capitalized cost. D) deductible. E) premium.

69) Leona Kim 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

70) An online buying club requires an annual fee of $45 in order to qualify for a 15 percent discount on purchases. What amount would a person have to buy in order to save enough to cover the cost of the membership? A) $15 B) $67 C) $165 D) $300 E) $450

71) A credit purchase with 24 monthly payments of $87 and a down payment of $120 would have a total cost of:

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A) $1,200. B) $1,287. C) $2,088. D) $2,208. E) $2,880.

72) Isabel would spend $200 per week on groceries for her family if she did not use coupons. Her coupons save her 8 percent of that amount. She puts the amount saved into her savings account. How much will she have in her savings account at the end of the first year? Ignore interest earnings. A) $16 B) $200 C) $416 D) $832 E) $10,400

73) A motor vehicle has the following costs: annual depreciation − $1,600; oil changes −$140; automobile insurance − $700 annually; license plate costs − $100. What is the annual amount of the total fixed operating cost for this vehicle? A) $1,600 B) $1,740 C) $2,300 D) $2,400 E) $2,540

74) Ana is trying to decide whether to lease or buy a car. Which one of the following is not a factor necessary in making the comparison?

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A) Down payment B) Monthly lease payments C) Gasoline costs D) Residual value E) Mileage overage charges

75) Proper vehicle maintenance is essential to extending the life of your car. Regular oil changes should occur every _____________blank miles, depending on recommendations for the vehicle. A) 6,000 B) 3,000 - 5,000 C) 6,000 - 10,000 D) 2,000 - 3,000 E) 10,000

76) A scam that uses email spam or pop-up messages to deceive you into revealing your credit card number, bank account information, social security number, passwords, or other personal information is called: A) pharming. B) phishing. C) an internet pyramid scheme. D) a bogus "campus card" scheme. E) a foreign scam.

77) Which of the following is least likely to assist you in timing purchases to help you obtain bargains?

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A) Changing economic conditions B) Time zones C) Weather reports D) Political conflicts around the world E) Crop failures

78) Sloane owes $2,450 on her car loan. According to Edmund’s Used Car Prices , her car is valued at $1,850. The term used to refer to this situation is: A) residual value. B) pre-approval. C) capitalized cost. D) upside-down. E) money factor.

79)

The expected value of a vehicle at the end of a lease is called the: A) residual value. B) unit price. C) sticker price. D) capitalized cost. E) money factor.

80) A scam that involves malicious software or an email attachment that places a virus or worm in the user's computer or in a server that directs traffic on the internet is called: A) a foreign scam. B) a bogus campus card scheme. C) pharming. D) an internet pyramid scheme. E) phishing.

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81) Which of the following is not a social factor that would influence a consumer buyer's decision? A) Lifestyle B) Hobbies C) Marital status D) Culture E) Peer group

82) What type of warranty covers only certain aspects of the product, such as parts, or requires the buyer to incur part of the costs for shipping or repairs? A) Limited warranty B) Full warranty C) Implied warranty D) Warranty of title E) Express warranty

83) Consumer information necessary for wise purchasing decisions, such as websites or radio, is commonly provided by: A) government agencies. B) personal contacts. C) independent testing organizations. D) media sources. E) business organizations.

84)

Which type of purchasing strategy involves comparing unit prices?

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A) Timing purchases B) Price comparison C) Label information D) Brand comparison E) Store selection

85)

Which of the following is not a national brand? A) Green Giant B) Nabisco C) Kraft D) Samsung E) Great Value

86)

Which of the following is usually not in written form? A) Express warranty B) General warranty C) Product warranty D) Implied warranty E) Specific warranty

87) Which of the following is a social factor that would influence a consumer’s buying decision? A) Hobbies B) Inflation C) Tax rates D) Gender E) Marital status

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88)

An example of a financial services cooperative is a: A) credit union. B) sports store. C) grocery store. D) pawnshop. E) payday loan company.

89)

Which of the following is a store-brand product? A) Bayer aspirin B) Walgreen’s aspirin C) Tylenol D) Advil E) Aleve

90)

An example of open dating that appears on grocery items is: A) use by tomorrow. B) expires in 5 days. C) use before May 6, 2023. D) good for 1 month. E) fresh for 5 days.

91)

An implied warranty of merchantability guarantees that:

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A) the buyer must pay for all warranty repair costs. B) the manufacturer must cover all warranty repair costs. C) a toaster must toast bread. D) a used car must come with a radio. E) a new car must come with an MP3 player.

92)

Federal law requires food labels to contain: A) advertising phrases. B) the company website. C) unit price information. D) ingredients and nutrients. E) None of these choices are correct.

93)

When comparing prices, remember that: A) less store convenience usually means higher prices. B) ready-to-use products have higher prices. C) large packages are always the best buy. D) “sale” always means saving money. E) unit pricing can be ignored.

94) To avoid the financial difficulties that occur when people try to convince themselves that things they WANT are things they NEED, 20SomethingFinance.com suggests: A) buy an item right away. B) delay a purchase to consider how much you could save. C) review delayed purchases after six months to see if the money is available. D) do not return items even if the purchase does not meet expectations. E) review delayed purchases after a month to see if the urge to buy still exists.

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95)

Which of the following is true of automobile service contracts?

A) Automobile service contracts are warranties. B) Automobile service contracts can cover repairs not included in the manufacturer’s warranty. C) Automobile service contracts are free. D) Automobile service contracts are always a wise financial decision. E) Automobile service contracts usually cost less than $200.

96) Which of the following allows a consumer to easily change to a different car in a “negotiation-free” way for a monthly fee that covers the car payment, insurance, maintenance, and roadside assistance? A) Car lease B) Car purchase C) Car subscription D) Car loan E) Car trade

97) the:

To determine the true cost of credit for a new car, consider both the finance charge and

A) APR. B) promotional gifts. C) free snacks in the show room. D) warranty period. E) customer service.

98)

The first phase in the buying process involves information gathering.

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⊚ ⊚

true false

99) Advertising is a type of consumer information commonly provided by business organizations. ⊚ true ⊚ false

100) Government agencies provide education programs and complaint hotlines to assist consumers in gathering information to make wise buying decisions. ⊚ true ⊚ false

101) The COVID-19 pandemic saw new trends in increased online shopping and expanded home delivery and curbside pickup. ⊚ ⊚

true false

102) Most expiration dates relate to safety not quality, therefore the “sell by” date indicates that food is unsafe for consumption. ⊚ ⊚

true false

103) Open dating information provides consumers with information about the freshness of a perishable product. ⊚ true ⊚ false

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104) Service contracts are usually free and included in the cost of appliances and other highpriced items. ⊚ true ⊚ false

105) Mediation involves a legally binding decision by a third party to solve a consumer complaint. ⊚ true ⊚ false

106) Payment scams include when a fraudulent request is made for a payment with a gift card, wire transfer, cryptocurrency, or money-transfer app. ⊚ ⊚

107)

true false

Representation by a lawyer is usually required in small claims court. ⊚ true ⊚ false

108) A class-action suit is a legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice. ⊚ true ⊚ false

109) Unit pricing uses a standard unit of measurement to compare the prices of packages of different sizes.

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⊚ ⊚

true false

110) A limited warranty covers all aspects of the product and does not require the buyer to incur any of the costs for shipping and repairs. ⊚ true ⊚ false

111) One way to gather information about a product is to use an independent testing organization like Underwriters Laboratories (UL). ⊚ true ⊚ false

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Answer Key Test name: Chap 08_14e_Kapoor 9) B 10) B 11) D 12) C 13) E 14) E 15) D 16) A 17) C 18) A 19) D 20) E 21) A 22) A 23) E 24) A 25) C 26) C 27) C 28) D 29) B 30) D 31) E 32) B 33) A 34) C Version 1

35) E 36) E 37) D 38) B 39) E 40) A 41) D 42) B 43) C 44) B 45) D 46) B 47) D 48) E 49) D 50) D 51) B 52) E 53) E 54) B 55) A 56) B 57) A 58) B 59) A 60) C 61) E 62) A 63) B 64) C Version 1

65) D 66) E 67) D 68) C 69) A 70) D 71) D 72) D 73) D 74) C 75) B 76) B 77) B 78) D 79) A 80) C 81) C 82) A 83) D 84) B 85) E 86) D 87) A 88) A 89) B 90) C 91) C 92) D 93) B 94) E Version 1

95) B 96) C 97) A 98) TRUE 99) TRUE 100) TRUE 101) TRUE 102) FALSE 103) TRUE 104) FALSE 105) FALSE 106) TRUE 107) FALSE 108) TRUE 109) TRUE 110) FALSE 111) TRUE

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CHAPTER 9 1) Property taxes are based on the assessed value. Who determines this value and what can you do if you disagree with this assessment?

What factors influence the type of housing a family will select?

3) Jerry Watson is considering buying a home. What five actions would you recommend for him to take to accomplish this goal of buying a home?

4) Isaac Johnston needs to sell his home because of a job transfer to another city. What actions should Isaac take to prepare his home for selling?

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What should you consider to determine the price you offer for a home?

Explain what amortization is and how a down payment and loan duration impact it.

Explain negative amortization and how such a situation can occur.

What is the purpose of an escrow account and what costs are typically included?

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9) Differentiate between a cooperative and a condominium. Be sure to include a discussion of the ownership and responsibility for the common areas.

10)

Renting is more advantageous than buying a home when you are seeking: A) lower initial costs. B) fewer restrictions regarding remodeling. C) a long-term investment. D) tax deductions for property taxes. E) permanence of residence.

11)

Disadvantages of renting include:

A) fewer financial advantages of homeowners such as tax deductions for mortgage interest and property taxes. B) increased restrictions on the activities they can pursue in their rental residence. C) requirements to sign a legal document (i.e. rental lease) D) All of these choices are correct. E) None of these choices are correct.

12)

A common cost associated with renting is: A) the down payment. B) closing costs. C) property taxes. D) maintenance costs. E) the security deposit.

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13)

The main services of a real estate agentdo not include: A) showing you homes based on your needs and preapproved mortgage amount. B) presenting your offer to the seller based on market analysis. C) negotiating a purchase price. D) making sure you obtain financing at a low interest rate. E) representing you at the closing.

14)

A major expense associated with home ownership would be: A) renter's insurance. B) the security deposit. C) increased value of the property. D) real estate taxes. E) interest lost on the security deposit.

15)

Renting would be most appropriate for people who: A) want more tax deduction benefits. B) desire to do their own maintenance and repairs. C) have limited initial funds available. D) enjoy remodeling their residence. E) desire unmonitored parties.

16) Emma plans to rent instead of buying her housing. Which advantage of renting will she realize?

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A) Tax deductions B) Ease of mobility C) Property value increases D) Restricted lifestyle E) Home remodeling flexibility

17)

The legal document involved in renting an apartment is called a: A) service contract. B) mortgage. C) lease. D) security deposit. E) escrow account.

18)

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 take over rent payments during the lease period

19)

The purpose of a security deposit is to: A) pay for any damages that may occur during the lease period. B) cover the costs of utilities. C) pay for the tenant's portion of real estate property taxes. D) cover increases in monthly rent. E) meet government housing regulations for a safe building.

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20)

A condominium involves: A) renting a mobile home. B) buying stock in a nonprofit organization. C) ownership of an individual housing unit in a building. D) government-subsidized housing. E) renting a house with the option to buy.

21)

A cooperative housing arrangement involves: A) government-supported rental units. B) a nonprofit organization whose residents must own its stock. C) individual ownership of a living unit in a building. D) factory built and on-site assembly. E) housing units owned by a real estate developer.

22)

Prefabricated homes refers to: A) nonprofit ownership. B) government leasing of living units. C) rental units available to government employees. D) ownership available to low-income individuals. E) housing units that are partially assembled in factories.

23)

Which of these is a potential financial benefit of home ownership?

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A) Low security deposit B) Tax deductibility of the down payment C) Lifestyle flexibility D) Increases in property value E) No maintenance cost

24) Which of the following would increase the amount that a person could afford to spend on a home? A) Increase in family income B) Increase in insurance payments C) Decrease in initial maintenance and repairs D) Increase in utility bills E) Increase in monthly living expenses

25)

The purpose of zoning laws is to: A) restrict property use. B) encourage new housing development. C) minimize people moving from an area. D) reduce real estate property taxes. E) assist real estate agents in finding homes for sale.

26) Which type of repair problem is more likely to be covered by a new homeowner service contract?

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A) Structural damage B) Roof damage from a hurricane C) Paint for worn exterior D) Heating and air-conditioning system failure E) Remodeling the kitchen

27)

The purpose of a counteroffer is to: A) negotiate the purchase price. B) reduce mortgage payments. C) lower real estate property taxes. D) avoid paying points at closing. E) avoid paying the real estate agent's commission.

28)

Earnest money is used: A) to pay real estate property taxes. B) to reduce the mortgage interest rate. C) as evidence of good faith by a homebuyer. D) to pay the real estate agent's commission. E) to pay a mortgage application fee.

29)

The amount of mortgage a person is eligible for will be larger when: A) the value of the collateral is lower. B) the down payment is lower. C) other debt obligations are higher. D) the family's income is lower. E) the interest rates are lower.

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30)

Which of the following would increase the equity in a home at a faster rate? A) Making a down payment of 10 percent instead of 20 percent B) Obtaining a mortgage interest rate of 9 percent instead of 8 percent C) Obtaining a 15-year mortgage instead of a 30-year mortgage D) Making larger deposits to the escrow account E) Obtaining an interest-only mortgage

31)

Prepaid interest charged by a mortgage lender is called: A) escrow. B) points. C) an origination fee. D) a title fee. E) a deed

32) Tyson Fields is applying for a $100,000 mortgage. He can select either a $595 monthly payment with no points or a $515 payment with two points. How many months will it take Tyson to cover the cost of the discount points if he takes the lower monthly payment? A) 6 B) 10 C) 18 D) 25 E) 48

33)

A conventional mortgage usually has:

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A) a variable interest rate. B) a government guarantee. C) a balloon payment. D) equal payments. E) a payment cap.

34)

Which of the following is an example of a conventional mortgage? A) An FHA mortgage B) A buy-down C) A fixed-rate mortgage D) A shared-appreciation mortgage E) A home equity loan

35)

A VA-guaranteed loan program provides assistance to: A) armed services veterans. B) recent college graduates. C) low-income homebuyers. D) government employees. E) the elderly.

36)

A possible advantage of FHA and VA mortgages can be: A) higher debt ratios are required of buyers. B) loans may be assumable. C) the high interest loans are attractive. D) the monthly payments will always be higher than those of other mortgages. E) higher down payments are required of buyers.

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37)

The purpose of a rate cap with an adjustable rate mortgage is to: A) minimize interest costs. B) prevent changes in the amount of the monthly payment. C) increase negative amortization. D) restrict the amount by which the interest rate can increase or decrease during the ARM

term. E) lower the escrow account.

38)

Which one of these situations creates negative amortization? A) When the amount of the monthly mortgage payment increases B) When the monthly mortgage payment does not cover the interest owed C) When the amount paid into an escrow account decreases D) When the mortgage interest rate decreases E) When the amount of the down payment is lowered

39) A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer? A) FHA-insured loan B) Balloon mortgage C) Buy-down D) Shared-appreciation mortgage E) Growing-equity mortgage

40)

A home equity loan may also be referred to as a __________blank mortgage.

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A) shared-appreciation B) graduated-payment C) growing-equity D) second E) buy-down

41)

Refinancing of a mortgage is recommended when: A) interest rates rise. B) interest rates fall. C) the escrow account balance declines. D) two or more points are required by the lender at the time of closing. E) the escrow account balance increases.

42)

Which of the following is an example of a closing cost? A) Home inspection fees B) Moving expenses C) Earnest money D) Title insurance E) Down payment

43)

The purpose of title insurance is to: A) transfer ownership of property. B) reduce the chance of a decrease in property value. C) protect an owner from unforeseen property claims. D) protect an owner from changes in mortgage interest rates. E) cover the closing costs of a real estate transaction.

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44)

Which document does the seller use to guarantee the title is good? A) Title B) Escrow account C) Settlement statement D) Appraisal E) Warranty deed

45)

Which of the following expenses is paid from an escrow account? A) Title insurance B) Property taxes C) Points D) Loan application fee E) Real estate agent's commission

46)

An appraisal is likely to cost between: A) $100 – $200. B) $200 – $300. C) $300 – $400. D) $400 – $500. E) $500 – $600.

47) If you sell your home without a real estate agent, you should still employ the services of a(n) __________blank to assist you with the contract and the closing.

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A) broker B) insurance agent C) lawyer D) contractor E) rental agent

48)

One service provided by a real estate agent when selling your home is: A) providing legal advice. B) completing a mortgage application. C) screening potential buyers. D) making needed repairs. E) conducting a home inspection.

49)

Which one of the following is an advantage of buying? A) Ease of mobility B) Financial benefits C) Fewer responsibilities D) Minimal financial commitment E) Declining equity

50)

A cost associated with renting would be the: A) property insurance. B) property taxes. C) down payment and closing costs. D) security deposit. E) mortgage interest.

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51)

A __________blank is a building that contains exactly two housing units. A) mobile home B) duplex C) condominium D) prefabricated home E) cooperative

52) Jaxson Grant is a member of a nonprofit organization that owns a building. He can occupy one of its units as long as he owns stock in the organization. What type of housing is Jaxson most likely living in? A) A condominium B) A duplex C) A cooperative D) A prefabricated home E) A mobile home

53) Talia Robinson is purchasing a home with components built in a factory and then assembled at the housing site. What type of housing is Talia purchasing? A) Condominium B) Duplex C) Cooperative D) Prefabricated home E) Penthouse

54)

What is the most popular form of housing?

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A) Condominium B) Duplex C) Cooperative D) Prefabricated home E) Single-family dwelling

55)

The assessed value of your home is the: A) value used to calculate property taxes. B) estimated current market value. C) price you paid to purchase the home. D) amount of money a buyer has offered to purchase the home. E) cost basis assigned to your home by your insurance company.

56)

The appraised value of your home is the: A) value used to calculate property taxes. B) estimated current value of the property. C) price you paid to purchase the home. D) amount of money a buyer has offered to purchase the home. E) cost remaining after the down payment.

57) Shakeia Duncan wants to know what home price she can afford. Her annual gross income is $45,000. She owes $550 per month on other debts and expects her property taxes and homeowner's insurance to cost $225 per month. She knows she can get an 8 percent, 30-year mortgage so her mortgage payment factor is 7.34. She expects to make a 20 percent down payment. What is Shakeia's affordable home purchase price? Do not round intermediate calculations and round your final answer to the nearest $100.

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A) $110,700 B) $88,600 C) $199,300 D) $42,500 E) $254,800

58) Andre Wheeler wants to know what home price he can afford. His annual gross income is $60,000. He has no other debt expenses and expects property taxes and insurance to cost $500 per month. He knows he can get a 6 percent, 15-year mortgage so his mortgage payment factor is 8.43. He expects to make a 10 percent down payment. What is Andre's affordable home purchase price? Do not round intermediate calculations and round your final answer to the nearest $100. A) $148,300 B) $177,900 C) $151,400 D) $197,700 E) $1,483,000

59) A loan based on the high equity in a home that provides the homeowner with tax-free income and which is paid back when the home is sold or the homeowner dies is called a(n): A) conventional mortgage. B) growing equity mortgage. C) second mortgage. D) reverse mortgage. E) adjustable rate mortgage.

60) A renter is required to pay a security deposit of $800, on which 3 percent interest will be paid. What amount would the person earn each year?

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A) $100 B) $64 C) $24 D) $16 E) $4

61) If closing costs of $1,950 are associated with the refinance of a mortgage that would reduce the monthly payment from $890 to $780, it would take approximately __________blank months to cover these costs. A) 8 B) 16 C) 18 D) 20 E) 22

62) A contract condition that states that the agreement is binding only if a certain event occurs is a: A) dual agency. B) contingency clause. C) counteroffer. D) zoning law. E) prefabrication.

63) Naomi has completed a mortgage application and provided evidence of employment, income, assets owned, and existing debt to the potential lending institution. Although Naomi has not even begun the process of looking at possible homes to buy, she is eagerly awaiting news from the lender as to whether she has been approved for a mortgage. In what stage of the application process is she?

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A) Appraisal B) Prequalification C) Assessment D) Amortization E) Home inspection

64) Ariana and Anthony have decided to perform the landscaping of their new home by themselves. They also plan to take a do-it-yourself class at a local home store so they can replace the tile in the master bathroom without using a contractor. The effect of performing these tasks themselves will result in an increase in their: A) principal. B) contingencies. C) escrow account. D) sweat equity. E) buy-down.

65)

Which type of home has a tendency to quickly depreciate in value? A) Cooperative B) Mobile home C) Condominium D) Duplex E) Previously-owned single family home

66) Maxwell has hired a professional to assess the soundness of the roof, foundation, and building materials of a potential home he is considering. The professional will also be checking other aspects of the home including the plumbing, heating, and cooling systems. Maxwell is paying for a:

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A) walk-through. B) zoning evaluation. C) home inspection. D) title search. E) handyman's special.

67) Legislation that requires that loan applicants be given certain information, including an estimate of the costs, three days before the closing, is known as: A) the Real Estate Settlement Procedures Act. B) the Cooperative Lending Act. C) the Truth in Lending Act. D) the Title Insurance Act. E) the Real Estate Investment Act.

68) During which phase of the home-buying process would you assess types of housing available? A) Price the property B) Find and evaluate a property to purchase C) Obtain financing D) Determine home ownership needs E) Close the purchase transaction

69) The Homeowners Protection Act requires that a PMI policy be terminated automatically when a homeowner's equity reaches __________blank percent of the property value at the time the mortgage was issued.

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A) 5 B) 9 C) 12 D) 18 E) 22

70) Private Mortgage Insurance is usually required if the down payment is less than __________blank percent of the purchase price of the home. A) 5 B) 8 C) 12 D) 15 E) 20

71) What is the term used to describe the reduction of the balance owed on a loan with each payment made over a period of time? A) A buy-down B) Shared-appreciation C) Prepaid interest D) Amortization E) A rate cap

72) Money that is usually deposited with the lending institution for the payment of property taxes and homeowner's insurance is called:

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A) points. B) an escrow account. C) a rate cap. D) closing costs. E) a buy-down.

73)

Most people do not select a place of residence based on: A) lifestyle. B) needs. C) values. D) attitudes. E) credit score.

74) A lease is a legal document that provides the right to take legal action by the __________blank for nonpayment of rent. A) landlord B) builder C) realtor D) tenant E) homeowner

75)

Which home improvement is least likely to increase the value of your home? A) Energy-efficient features B) A remodeled kitchen C) An extra bathroom D) A finished basement E) An exercise room

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76)

A payment cap on an adjustable-rate mortgage can result in negative amortization when: A) interest rates decrease but the amount of the monthly payment does not. B) the amount of the monthly payment increases and interest rates do not. C) the amount of the monthly payment decreases and interest rates do not. D) interest rates rise but the amount of the monthly payment does not. E) the loan stretches out to 40 years.

77)

Which of the following can help you prepare your home for selling? A) Moving furniture to the garage B) Painting worn exterior C) Closing the drapes when showing your home D) Trimming the grass around old vehicles in the yard E) Turning off the lights to conserve energy when showing your home

78)

A real estate short sale occurs when: A) you are selling the home without a real estate professional. B) an appraisal is too costly to obtain. C) an estimate of the current value of the property is not available. D) the new selling price is less than the amount owed on a previous mortgage. E) the home is sold for less than the list price.

79) A home worth $160,000 with $80,000 still owed on the mortgage would have equity of $80,000, which is __________blank percent of the home’s value.

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A) 20% B) 50% C) 60% D) 67% E) 80%

80)

A home worth $250,000 with $100,000 still owed on the mortgage would have equity of: A) $250,000 B) $200,000 C) $150,000 D) $100,000 E) $80,000

81) What is the affordable monthly mortgage payment if your yearly gross income is $48,000 and monthly payments on an auto loan are $320? A) $4,800 B) $4,000 C) $1,500 D) $1,200 E) $320

82)

Which of the following serves as collateral for the mortgage? A) Your income B) The amount of your down payment C) The length of your loan D) Current mortgage rates E) The home you buy

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83) You believe that interest rates may drop and have decided not to lock in an interest rate on your loan during the loan commitment process. This is called a: A) buy-down. B) discount point. C) float. D) rate cap. E) payment cap.

84) Which of the following is most commonly used as a base index for setting rates for adjustable-rate mortgages? A) Federal Reserve Bank B) Karl’s Mortgage Calculator C) Realtor.com D) London Interbank Offered Rate E) Bankrate.com

85)

Your selection of a place of residence is most likely to be influenced by your: A) lifestyle. B) gender. C) favorite restaurant. D) credit score. E) number of years employed.

86)

Which of the following is not an advantage of renting?

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A) Ease of mobility B) More long-term financial benefits than home ownership C) Fewer responsibilities for maintenance and repairs D) Lower initial costs E) No expenses related to property taxes

87) Which of the following is a form of housing in which the units in a building are owned by a nonprofit organization? A) Mobile home B) Condominium C) Cooperative housing D) Duplex E) Townhouse

88)

Which of the following can affect the price of a home? A) Cost of the home inspection B) Number of realtors in the area C) Cost of the appraisal D) Current mortgage rates E) Number of loan officers in the area

89)

The main housing costs associated with renting are: A) property taxes. B) rent and utilities. C) property insurance. D) maintenance upkeep. E) down payment.

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90) Ronan McEvoy pays monthly rent of $1,250 and an annual premium for renter’s insurance of $210. He realizes that he has lost interest of $36 from paying the security deposit. What is Ronan’s total annual cost of renting? A) $246 B) $1,250 C) $1,496 D) $15,000 E) $15,246

91)

Which of the following is an advantage of renting an apartment? A) No tax benefits B) Easy to move C) Limitations regarding remodeling D) Restrictions regarding pets E) Higher utility expenses

92)

Which of the following is not a benefit of tiny houses (usually 400 square feet or less)? A) Lower home ownership costs B) Environmentally friendly design C) Less clutter D) Limited privacy E) A simpler lifestyle

93) The Internet of Things (IoT) is the interconnection of devices embedded in household items to send and receive data and includes all of the following, except:

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A) a smart thermostat. B) a ceiling fan that only turns on and off when you speak. C) a wifi-enabled coffee maker that is programmable. D) a light bulb with a speaker that streams audio from an app. E) an intelligent countertop oven.

94)

What is not true of lifestyle inflation? A) A salary increase is received B) Often results in increased debt C) Often results in lower amounts saved D) May result in overspending E) Helps to maintain a frugal level of spending

95) People who are financially able to buy a house may choose to rent to avoid the time and money commitment needed to maintain a house. ⊚ true ⊚ false

96) The price-to-rent ratio represents the relationship between home prices and annual rents, thus illustrating the desirability of owning over renting. ⊚ ⊚

true false

97) When the price-to-rent ratio is 18 or higher, real estate advisors recommend you purchase a house. ⊚ ⊚

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true false

98)

A lease provides protection to both the tenant and the landlord. ⊚ true ⊚ false

99) Condominiums involve the purchase of an individual housing unit in a building rather than an entire building. ⊚ ⊚

true false

100) Real estate professionals believe that location is the most important factor to consider when selecting a home. ⊚ true ⊚ false

101) PropTech (property technology) involves three main areas including smart homes using digital platforms and apps; sharing real estate information for leasing and renting of land, offices, storage, and apartments; and real estate FinTech with blockchain technology. ⊚ ⊚

102)

Dual agency exists when a real estate agent is working on two or more properties at once. ⊚ ⊚

103)

true false

Negotiating a purchase price for a home can involve an offer and a counteroffer.

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⊚ ⊚

true false

104) The amount of cash available for a down payment will affect the size of the mortgage loan needed to purchase a home. ⊚ true ⊚ false

105)

Prepaid interest may be charged by the lender for a lower mortgage rate. ⊚ true ⊚ false

106)

Amortization refers to changes in the monthly payment for a variable rate mortgage. ⊚ true ⊚ false

107) An FHA fixed-rate mortgage has low down payment requirements and is fully assumable with no prepayment penalties. ⊚ true ⊚ false

108)

An escrow account is designed to reduce the cost of a mortgage. ⊚ true ⊚ false

109)

An appraisal refers to the price for which a home has been sold. ⊚ true ⊚ false

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110) Home purchases by iBuyers typically take a bit longer than when working with a real estate agent but come with a higher price and no additional service fees. ⊚ ⊚

111)

true false

Home improvements may or may not increase the selling price of the home. ⊚ true ⊚ false

112) The purpose of a rate cap in an adjustable-rate mortgage is to limit the amount by which the interest rate can increase or decrease during the ARM term. ⊚ true ⊚ false

113) A deed is the document that transfers ownership of the property from one party to another. ⊚ true ⊚ false

114) The COVID-19 pandemic caused a decrease in rental demand in some areas, which created opportunities for lower rents. ⊚ ⊚

true false

115) Real estate advisors suggest a price-to-rent ratio of 25 or lower when you buy to possibly avoid a lower home value after your purchase. Version 1

⊚ ⊚

true false

116) Private mortgage insurance (PMI) can be requested to terminate if the homeowners can prove the equity in the house is at least 22 percent of the current market value. ⊚ ⊚

true false

117) The ability-to-repay (ATR)/qualified mortgage (QM) rule requires lenders to consider a borrower’s financial situation before granting a mortgage. ⊚ ⊚

118)

true false

With a credit score of at least 600, a person will usually be able to obtain home financing. ⊚ ⊚

true false

119) A payment cap keeps the payments on an adjustable-rate mortgage at a given level or limits the amount to which those payments can rise. ⊚ true ⊚ false

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Answer Key Test name: Chap 09_14e_Kapoor 10) A 11) D 12) E 13) D 14) D 15) C 16) B 17) C 18) E 19) A 20) C 21) B 22) E 23) D 24) A 25) A 26) D 27) A 28) C 29) E 30) C 31) B 32) D 33) D 34) C 35) A Version 1

36) B 37) D 38) B 39) C 40) D 41) B 42) D 43) C 44) E 45) B 46) C 47) C 48) C 49) B 50) D 51) B 52) C 53) D 54) E 55) A 56) B 57) A 58) C 59) D 60) C 61) C 62) B 63) B 64) D 65) B Version 1

66) C 67) A 68) D 69) E 70) E 71) D 72) B 73) E 74) A 75) E 76) D 77) B 78) D 79) B 80) C 81) D 82) E 83) C 84) D 85) A 86) B 87) C 88) D 89) B 90) E 91) B 92) D 93) B 94) E 95) TRUE Version 1

96) TRUE 97) FALSE 98) TRUE 99) TRUE 100) TRUE 101) TRUE 102) FALSE 103) TRUE 104) TRUE 105) TRUE 106) FALSE 107) TRUE 108) FALSE 109) FALSE 110) FALSE 111) TRUE 112) TRUE 113) TRUE 114) TRUE 115) FALSE 116) TRUE 117) TRUE 118) FALSE 119) TRUE

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CHAPTER 10 1)

List and describe the four steps in developing a personal insurance program.

What coverages are included in a homeowner's insurance policy?

What are the factors that affect the cost of home insurance?

What do automobile insurance companies use GPS technology for?

5) A friend wants to understand what affects the cost of auto insurance. Explain the main factors used to determine the automobile insurance premiums a person pays.

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Explain the difference between strict and vicarious liability. Provide examples.

7) Patrick and Dr. Paola Pearson rent a condominium in an area known for litigious residents and high cost judgments. Patrick has an extensive stamp collection and Paola has expensive photographic equipment. What kind of insurance would you recommend for a couple in their living situation?

8) You are backing out of your driveway, late for a meeting. A short mental lapse and BANG...you hit one of your landscraping posts at the end of the driveway. The damage seems minor. What questions should you ask when trying to decide whether or not to report the incident to your insurance company?

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9) What does the term subrogation mean as it relates to motor vehicle property damage coverage?

10)

Peril is defined as: A) the refusal by an insurance company to pay for a loss. B) the cause of risk. C) the cause of a possible loss. D) an uncertainty as to loss. E) safety.

11)

Defective house wiring is an example of a: A) hazard. B) peril. C) risk. D) speculation. E) planned danger.

12) The uncertainties of direct and indirect losses to personal or real property due to fire, windstorms, accidents, theft, and other hazards are called __________blank risks.

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A) personal B) business C) property D) liability E) speculative

13) Possible losses due to negligence resulting in bodily injury or property damage to others are called __________blank risks. A) speculative B) liability C) property D) personal E) commercial

14) risk.

Starting a small business that may or may not succeed is an example of __________blank

A) speculative B) pure C) commercial D) personal E) liability

15)

Eating a balanced diet and exercising is an example of risk __________blank. A) shifting B) acceptance C) reduction D) assumption E) avoidance

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16) Wearing a seat belt in an automobile to protect yourself against the risk of injury in an automobile accident is an example of risk __________blank. A) reduction B) acceptance C) pooling D) shifting E) avoidance

17)

Which of the following would be covered by a home insurance policy? A) Hospital expenses for surgery B) Injury to animals, birds, or fish C) Boats and aircraft D) Damage to your roof from hail E) Theft of business supplies from your office

18) The legal responsibility for the financial cost of another person's losses or injuries is referred to as: A) theft. B) robbery. C) liability. D) assigned risk. E) collusion.

19) If a homeowner leaves toys on stairs that results in injury to a delivery person, this may be ruled as:

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A) vicarious liability. B) negligence. C) assigned risk. D) umbrella coverage. E) coinsurance.

20)

Negligence refers to: A) failure to take ordinary or reasonable care. B) cancellation of insurance. C) property damage. D) high risk insurance coverage. E) common hazards in our society.

21) While cleaning your home, a worker damages some furniture. You take action against the worker's employer to cover the cost of the damage. This is an example of a(n) __________blank liability. A) umbrella B) assigned C) common situation D) peril E) vicarious

22) High winds cause damage to trees, shrubs, and plants. This insurance claim would be covered under the __________blank component of homeowner's insurance.

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A) additional living expenses B) personal property C) house and other structures D) personal liability E) specialized coverage

23) to:

The additional living expenses component of a homeowner’s insurance policy is designed

A) pay for temporary housing while your home is repaired. B) cover damage to property while away from home. C) reimburse a homeowner for damage done by a visitor. D) pay for medical expenses of people injured on your property. E) pay for repairs caused by fire or other hazards.

24)

Which of the following is considered personal property for home insurance coverage? A) Automobile B) Garage C) Furniture D) House E) Trees and shrubs

25) Jia Valentine has expensive photography equipment for use in her hobby. Which one of the following types of coverage would pay for damage or theft of this equipment? A) Umbrella policy B) Personal liability C) Additional living expense coverage D) Personal property floater E) Coinsurance floater

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26) The __________blank coverage of a home insurance policy would cover accidental damage to another person's property by a member of your family. A) supplementary B) personal property C) medical payments D) additional living expenses E) voluntary liability

27)

An umbrella policy is designed to cover: A) expensive personal property. B) additional buildings on your property. C) property when traveling away from home. D) major personal liability claims. E) flood damage.

28) Most home insurance policies provide coverage for minor accidental injuries on your property under: A) earthquake damage. B) flood damage. C) an umbrella liability. D) personal property floaters. E) medical payments coverage.

29)

Renter's insurance would include coverage for:

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A) flood damage. B) personal property. C) house and other structures. D) umbrella liability. E) earthquake damage.

30)

Which one of the following is not covered by renter's insurance? A) Financial loss due to damage of personal property B) Fire damage to the building’s roof from faulty wiring C) Additional living expenses D) Financial loss due to loss of personal property E) Personal liability

31) Which form of a homeowner's policy expands coverage to include replacement cost on contents? A) Comprehensive Form (HO-5) B) Special Form (HO-3) C) Condominium Form (HO-6) D) Tenants Form (HO-4) E) Country Home Form (HO-7)

32) Aaron and Ella Padilla recently purchased a new home and desire coverage for all causes of loss or damage except those specially excluded by the policy. They should obtain the __________blank form for a homeowner's policy.

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A) basic B) broad C) special D) modified coverage E) condominium

33) Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay? A) $100 B) $150 C) $200 D) $350 E) $400

34) Which one of the following insurance policy provisions requires the insured to pay for part of the loss if the property is not insured for the specified percentage of replacement value? A) Personal property floater B) An endorsement C) Coinsurance clause D) Umbrella coverage E) Assigned risk clause

35) The __________blank method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation.

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A) replacement value B) actual cash value C) umbrella D) endorsement E) personal property floater

36)

Home insurance premiums are affected most directly by: A) the profits of the insurance company. B) insurance agents' commission. C) government regulations that set premiums. D) processing costs of claims. E) the number of claims in an area.

37) Your home insurance policy has a $500 deductible. If a small fire causes $850 damage to your home, what amount of the claim would the insurance company pay? A) $250 B) $350 C) $500 D) $850 E) Not able to determine from this information

38)

The purpose of financial responsibility laws is to: A) reduce auto insurance costs. B) assist poor drivers in getting insurance coverage. C) protect the public from physical harm and property damage losses caused by drivers. D) require uninsured motorists' coverage. E) help drivers with a clean driving record.

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39)

Which of the following are types of motor vehicle property damage coverage? A) Property damage liability B) Collision C) Comprehensive physical damage D) All of these choices are correct. E) None of these choices are correct.

40) If a broken windshield costs $750 to replace and you have a $200 deductible on your comprehensive coverage, the insurance company will pay __________blank of the damages. A) $750 B) $200 C) $550 D) $0 E) $500

41) __________blank provides coverage for the risk of financial loss due to legal expenses, medical expenses, lost wages, and other expenses associated with injuries caused by an automobile accident for which you were responsible. A) Medical payment B) Bodily injury liability C) Uninsured motorists protection D) No-fault insurance E) Comprehensive insurance

42)

The 100 in 100/300/50 refers to:

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A) property damage liability coverage. B) the amount of the deductible. C) collision coverage. D) the total coverage for an accident. E) the limit for bodily injury claims that can be paid to one person.

43) Xavier Jones was injured in an accident caused by another driver who did not have insurance. Xavier's medical expenses would be covered by: A) property damage coverage. B) collision coverage. C) bodily injury liability. D) uninsured motorists protection. E) no-fault coverage.

44) Which one of the following coverages would pay for healthcare for friends who were injured in your automobile? A) Medical payments coverage B) Bodily injury liability C) Collision D) Uninsured coverage E) Underinsured coverage

45) Which of the following is a system in which drivers involved in an accident collect medical expenses, lost wages, and related injury costs from their own insurance company?

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A) Assigned risk pool B) Financial responsibility coverage C) Comprehensive system D) No-fault insurance E) Uninsured motorists protection

46) __________blank protects you against financial loss when your car damages other vehicles, street signs, or buildings. A) Bodily injury liability B) Comprehensive physical damage C) Property damage liability D) No-fault insurance E) Assigned risk coverage

47)

The 25 in 50/100/25 refers to __________blank coverage. A) assigned risk B) bodily injury liability C) no-fault insurance D) medical payments E) property damage liability

48) Which one of the following types of coverage would pay for damage to your automobile in an accident for which you were at fault? A) Property damage liability B) Collision C) Comprehensive physical damage D) No-fault insurance E) Assigned risk pool coverage

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49)

Comprehensive physical damage coverage would cover financial losses due to: A) injuries caused by a driver without insurance. B) damage to your car in an accident for which you were at fault. C) damage to your car caused by wind or hail. D) legal action against you for an accident. E) damage to a neighbor's tree caused by your car.

50)

__________blank coverage would pay for damage to your vehicle regardless of fault. A) Property damage liability B) Collision C) Comprehensive physical damage D) Uninsured motorists protection E) Assigned risk

51) Julianna Rollins was judged at fault in an automobile accident. Three others were awarded damages of $125,000, $100,000, and $75,000. Julianna has 100/300 bodily injury liability coverage. What amount, if any, would not be covered by her insurance? A) $125,000 B) $100,000 C) $25,000 D) $10,000 E) None. The total amount would be covered by insurance.

52) Your geographic location is a major factor in determining the __________blank used to calculate your automobile insurance premiums.

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A) driver classification B) assigned risk pool C) coverage level D) legal responsibilities E) rating territory

53) Wind damage occurs to your car costing $800 to repair. If you have a $500 deductible for collision and full coverage for comprehensive, what portion of the claim will the insurance company pay? A) $100 B) $200 C) $500 D) $700 E) $800

54) Which one of the following refers to a category based on the driver’s age, sex, marital status, and driving habits that is used to set automobile insurance premiums? A) Rating territory B) Assigned risk pool C) No-fault system D) Driver classification E) Rating tiers

55)

Which one of the following factors is used to determine a person's driver classification?

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A) Age B) Type and age of vehicle C) Claims in your geographic area D) Insurance company claim processing costs E) State insurance premium regulations

56)

An assigned risk pool: A) exists in every state. B) reduces medical costs associated with auto accidents. C) takes unsafe drivers off the road. D) reduces auto insurance premiums with state regulation. E) offers premium discounts to safe drivers.

57) A system that requires each insurance company operating in a state to provide coverage to individuals who may have had many expensive claims is referred to as: A) no-fault insurance. B) an assigned risk pool. C) premium discounts. D) equal opportunity insurance. E) comprehensive coverage.

58) Angelica Vaughn owns a home in Edmond, Oklahoma. She is worried about a tornado causing damage to her home. The tornado is an example of a: A) peril. B) hazard. C) risk. D) premium. E) liability.

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59) Etta Weaver owns a home in Edmond, Oklahoma. She has a coffee maker in the home that has been recalled because it is likely to start fires. The coffee maker is an example of a: A) peril. B) hazard. C) risk. D) premium. E) deductible.

60) Miriam Romero owns a home in Edmond, Oklahoma. She is worried her property might be damaged due to some unforeseen event. This worry about the uncertainty as to a loss is an example of a: A) peril. B) hazard. C) risk. D) premium. E) policy.

61) Marcus Tate owns a home in Edmond, Oklahoma and pays $795 per year in insurance on the home. The $795 fee is an example of a: A) peril. B) hazard. C) risk. D) premium. E) liability.

62) Tao Kakuzo rides his bicycle to work so that he does not have to worry about getting in a car accident. How is Tao managing his risk?

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A) Avoidance B) Reduction C) Assumption D) Shifting E) Creation

63) Julian Foster has bought a car with extra safety features, including front and side airbags and antilock brakes. How is Julian managing his risk? A) Avoidance B) Reduction C) Assumption D) Shifting E) Development

64) Ernest Jacobs has set aside $5,000 in case he has an accident in his 2001 Honda Civic. He does not have collision insurance on this car. How is Ernest managing his risk? A) Avoidance B) Reduction C) Assumption D) Shifting E) Creation

65) Rashed Roberts pays a premium each month to State Farm Insurance for automobile insurance on his 2014 Dodge Ram pick-up truck. How is Rashed managing his risk?

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A) Avoidance B) Reduction C) Assumption D) Shifting E) Assessment

66) Ashton Arnold owns a home in Elk City. There was a bad thunderstorm and his gazebo was hit by lightning and burned to the ground. What part of his homeowner's insurance policy would cover this loss? A) House and other structures B) Additional living expenses C) Personal property D) Personal liability E) Specialized coverage

67) Zahra Bayat owns a home in Tampa, Florida. There was a fire in her home and she and her family had to move to a hotel until their home could be fixed. What part of her homeowner's insurance policy would cover the cost of the hotel? A) House and other structures B) Additional living expenses C) Personal property D) Personal liability E) Specialized coverage

68) Chelise Richards owns a home in Pompano Beach, Florida. Her house is broken into and the burglar steals her computer, big screen TV, stereo equipment, and toaster. What part of her homeowner's insurance would cover this loss?

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A) House and other structures B) Additional living expenses C) Personal property D) Personal liability E) Specialized coverage

69) Chandan Patel owns a home in Yukon, Oklahoma. A babysitter he hires breaks her leg when she trips over the dog. What part of his homeowner's insurance would cover this loss? A) House and other structures B) Additional living expenses C) Personal property D) Personal liability E) Specialized coverage

70) Garrett Reed owns a home in San Francisco, California. There is a major earthquake and his house is damaged by the earthquake. What type of insurance would he have to have to cover this loss? A) House and other structures B) Additional living expenses C) Personal property D) Personal liability E) Specialized coverage

71) LaMarcus Pittman must show a card from his automobile insurance company when he registers his car in the state of Oklahoma each year to show financial responsibility. Which of the following types of laws is the reason he must show this card each year?

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A) Financial responsibility laws B) Lemon laws C) Truth in Lending Law D) Equal Opportunity Law E) Fiscal responsibility laws

72) Cormac O’Grady accidentally collided with a car driven by Everett Chapman. It was Cormac’s fault and Everett was seriously injured and had to spend the night in the hospital. What part of Cormac’s automobile insurance policy would cover Everett's injuries? A) Bodily injury liability B) Medical payments coverage C) Property damage liability D) Collision coverage E) Comprehensive physical damage

73) Lillian Brady ran off the road and hit a bridge support. She was seriously injured and spent three days in the hospital. What part of Lillian's automobile insurance policy would cover Lillian's injuries? A) Bodily injury liability B) Medical payments coverage C) Property damage liability D) Collision coverage E) Comprehensive physical damage

74) Helena Guererro borrowed her best friend's car and was in an accident. She was at fault. The car was totaled. What part of Helena’s automobile insurance policy would cover the damage to her friend's car?

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A) Bodily injury liability B) Medical payments coverage C) Property damage liability D) Collision coverage E) Comprehensive physical damage

75) Min Jin-Yung was in an accident in which her car was totaled. What part of Min's automobile insurance would cover the damage to her car? A) Bodily injury liability B) Medical payments coverage C) Property damage liability D) Collision coverage E) Comprehensive physical damage

76) Noah Hammon left his car parked on the street all night. When he came out in the morning all four of his tires had been slashed by vandals. What part of Noah's automobile insurance would cover this damage? A) Bodily injury liability B) Medical payments coverage C) Property damage liability D) Collision coverage E) Comprehensive physical damage

77) Which one of the following would be an example of the driver classification category that helps determine insurance rates?

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A) John Brown has a 2005 Mazda Miata convertible. B) Harry Anderson lives in Boca Raton, Florida. C) Charlie Purciful is 22 years old. D) Charlotte Webb has her vehicle in a locked garage. E) Barry Evans has just moved to Raleigh, North Carolina.

78) Which one of the following would be an example of a rating territory that helps determine insurance rates? A) Sean McKnight drives a 2019 Volkswagen Passat. B) Margaret Williams is 73 years old. C) Natasha Smith lives in Milwaukee, Wisconsin. D) Antonio Ruiz is married. E) Cooper Waddington has had three speeding tickets in five years.

79) Which of the following might qualify Camilla Porter for a premium discount on her automobile insurance? A) Completing a driver's training program B) Earning straight A's in school C) Installing an alarm system in her car D) Participating in a carpool five days a week E) Any of these might qualify Amy for a discount.

80) Which one of the following would not be considered personal property by a homeowner's insurance policy?

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A) Furniture B) Toaster C) Tool shed D) Clothing E) Microwave

81) Your home insurance policy has a $1,000 deductible. If a windstorm causes $2,500 of damage to your home, what amount of the claim would the insurance company pay? A) $2,500 B) $1,000 C) $1,500 D) $500 E) $0

82) What type of coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for another person’s losses or injuries? A) Business property B) Liability C) Floater D) Comprehensive E) Personal property

83)

The 500 in 200/500/50 refers to:

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A) property damage liability coverage. B) the amount of the deductible. C) collision coverage. D) the total coverage for an accident. E) the limit for all bodily injury claims from a single accident.

84)

Personal risks, property risks, and liability risks are types of __________blank risk. A) speculative B) avoided C) assumed D) pure E) reduced

85) A parent may be held responsible for the actions of their child if those actions cause financial or physical harm to others. This is known as: A) negligence. B) strict liability. C) vicarious liability. D) umbrella coverage. E) self insurance.

86) Which of the following would not be considered personal property under a typical homeowner's insurance policy? A) Furniture B) Firearms C) House and other structures D) Jewelry E) A silverware set

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87) __________blank coverage protects your automobile from risks such as glass breakage, falling objects, vandalism, or damage caused by hitting an animal. A) Towing and emergency road service B) Comprehensive physical damage C) Collision D) Wage loss E) Medical payments

88) Which of the following is not something you should do when you are involved in an automobile accident? A) Stop your vehicle B) Turn off the engine C) Seek medical assistance for anyone with injuries D) Discuss the accident with anyone around, making sure to admit liability if the accident was your fault E) Obtain names and contact information of others in the accident and witnesses

89)

What type of personal liability coverage is also called a personal catastrophe policy? A) Umbrella policy B) Personal property floater C) Coinsurance floater D) Assigned risk clause E) Medical payments coverage

90) Personal risks are the uncertainties surrounding the loss of income or life due to all except:

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A) professional misconduct. B) premature death. C) illness. D) disability. E) unemployment.

91) Liability insurance that protects you from claims if a client holds you responsible for errors or you fail to perform as promised is called: A) umbrella policy. B) personal property floater. C) errors and omissions. D) endorsement. E) self-insurance.

92)

Fewer than what percent of people who live in flood-prone areas have flood insurance? A) 5 B) 15 C) 20 D) 30 E) 50

93)

Approximately what percent of people who rent have purchased renter's insurance? A) 10 B) 20 C) 40 D) 60 E) 75

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94)

Self-insurance is part of: A) risk avoidance. B) risk assumption. C) risk shifting. D) risk reduction. E) endorsement.

95)

Property owners face potential property losses due to two risks, physical damage and: A) liability. B) negligence. C) strict liability. D) vicarious liability. E) loss of use.

96) Additional personal liability insurance beyond the basic coverage in a homeowner’s policy is available with: A) an umbrella policy. B) a personal property floater. C) an endorsement. D) a coinsurance clause. E) medical payments coverage.

97) and:

Most insurance policies include deductibles, which are a combination of risk assumption

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A) risk avoidance. B) risk reduction. C) risk shifting. D) risk creation. E) risk assessment.

98)

Which statement is not true about no-fault insurance systems?

A) They are intended to reduce the time and cost associated with the settlement of automobile injury cases. B) The systems vary from state to state. C) Some states include property damage in the coverage. D) Some states set limits on medical expenses, lost wages, and other claim settlements. E) In recent years, all 50 states had some variation of the system.

99)

The most common method of dealing with risk is to: A) shift the risk. B) pool the risk. C) avoid the risk. D) reduce the risk. E) assume the risk.

100) Which of the following refers to the process of establishing a monetary fund that can be used to cover the cost of a loss? A) Risk reduction B) Self-insurance C) Risk creation D) Risk avoidance E) Risk shifting

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101)

Property owners face loss of use risk due to: A) arson. B) fire. C) wind. D) water. E) smoke.

102)

Uninsurable risks are considered __________blank risk. A) property B) liability C) speculative D) pure E) personal

103) Which of the following is a list of personal belongings with purchase dates and cost information? A) Personal property floater B) Household inventory C) Additional living expense D) Umbrella policy E) Personal liability policy

104) Which of the following is a risk-sharing firm that agrees to assume financial responsibility for losses that may result from an insured risk?

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A) Financial advisor B) Auto manufacturer C) Homeowner D) Policyholder E) Insurance company

105)

Which of the following is an insurable risk? A) Purposeful injury to another B) Quitting your job because you dislike it C) Professional misconduct D) Starting a small business E) Gambling

106) Risk management is an organized strategy for protecting assets and people and is considered a __________blank. A) one-month process B) short-range process C) medium-range process D) long-range process E) non-planning process

107)

What is the most common and costly natural disaster in the United States? A) Earthquakes B) Lightning strikes C) Floods D) Fires E) Thunderstorms

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108) For about __________blank, homeowners can obtain $10,000 coverage for sewage and drain backup damage. A) $100 a year B) $1,000 a year C) $100 a month D) $200 to $300 per year E) $300 to $400 per year

109) Nadia Asadi accidentally hit a utility pole. The cost to repair her car was $2,950, and she has a $500 collision deductible. How much will the insurance company be required to pay for the car repair? A) $250 B) $500 C) $1,000 D) $2,450 E) $2,950

110)

Which of the following is not covered by personal property coverage? A) Your camera taken on vacation B) Your computer tablet used while at school C) Your garage D) Power tool rental E) Rug shampoo machine rental

111) To reduce driving accidents among teens, some parents have installed an in-car monitoring device that records:

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A) seat belt use. B) engine temperature. C) tire pressure. D) oil changes. E) gas mileage.

112) loss.

The purpose of insurance is to help protect you and your family against possible financial ⊚ ⊚

true false

113) Risk management is an organized strategy for protecting and conserving assets and people. ⊚ true ⊚ false

114)

Homeowner's insurance refers to coverage also available to condominium owners. ⊚ true ⊚ false

115) A flood insurance policy will cover your home up to $250,000, however you will need a separate flood policy for your personal belongings which provides coverage up to $100,000. ⊚ true ⊚ false

116) A household inventory is a list or documentation of personal belongings, with purchase dates and cost information, however, items of special value do not need to have receipts, serial numbers, brand names, model names, or written appraisals of value.

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⊚ ⊚

true false

117) Personal belongings that have a high value can be protected with a personal property floater. ⊚ true ⊚ false

118) A household inventory helps to provide evidence of ownership and value of items covered by home insurance. ⊚ true ⊚ false

119) An umbrella policy provides additional personal liability coverage beyond the basic amounts in most homeowner policies. ⊚ true ⊚ false

120) Medical payments coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for injury or property damage of others. ⊚ true ⊚ false

121) The comprehensive form (HO-5) of homeowner's insurance includes coverage for damage due to floods. ⊚ true ⊚ false

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122) Replacement value for settling property insurance claims is less costly than the actual cash value method. ⊚ true ⊚ false

123) Using the replacement cost coverage, if a roof costs $10,000 to replace, a replacement cost policy will pay the same amount no matter how old the roof is. ⊚ true ⊚ false

124)

A home made of wood is more expensive to insure than a comparable brick structure. ⊚ true ⊚ false

125) The 100/300 amounts for bodily injury liability insurance refer to the premium associated with insurance coverage. ⊚ true ⊚ false

126) Medical payments coverage in an automobile insurance policy pays for the costs of injuries to persons in the driver's vehicle. ⊚ true ⊚ false

127) No-fault insurance systems always reduce the time and costs involved in settling auto injury claims.

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⊚ ⊚

true false

128) Property damage liability coverage would pay for damage to another vehicle for which you were at fault. ⊚ true ⊚ false

129) The driver classification category is based on automobile style, model, and value of the vehicle. ⊚ true ⊚ false

130) To reduce driving accidents among teens, an in-car monitoring device can be installed that records seat belt usage, engine speed, tire traction, and beeps when violating speed limits, braking, and sharp turns. ⊚ true ⊚ false

131) The purpose of an assigned risk pool is to assist people with poor driving records in obtaining automobile insurance coverage. ⊚ true ⊚ false

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Answer Key Test name: Chap 10_14e_Kapoor 10) C 11) A 12) C 13) B 14) A 15) C 16) A 17) D 18) C 19) B 20) A 21) E 22) C 23) A 24) C 25) D 26) A 27) D 28) E 29) B 30) B 31) A 32) C 33) E 34) C 35) B Version 1

36) E 37) B 38) C 39) D 40) C 41) B 42) E 43) D 44) A 45) D 46) C 47) E 48) B 49) C 50) B 51) C 52) E 53) E 54) D 55) A 56) A 57) B 58) A 59) B 60) C 61) D 62) A 63) B 64) C 65) D Version 1

66) A 67) B 68) C 69) D 70) E 71) A 72) A 73) B 74) C 75) D 76) E 77) C 78) C 79) E 80) C 81) C 82) B 83) E 84) D 85) C 86) C 87) B 88) D 89) A 90) A 91) C 92) E 93) C 94) B 95) E Version 1

96) A 97) C 98) E 99) A 100) B 101) A 102) C 103) B 104) E 105) C 106) D 107) C 108) A 109) D 110) C 111) A 112) TRUE 113) TRUE 114) TRUE 115) TRUE 116) FALSE 117) TRUE 118) TRUE 119) TRUE 120) FALSE 121) FALSE 122) FALSE 123) TRUE 124) TRUE 125) FALSE Version 1

126) TRUE 127) FALSE 128) TRUE 129) FALSE 130) TRUE 131) TRUE

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CHAPTER 11 1) Besides preventive care, HMOs provide a comprehensive range of other health care services. What are they?

2) The Saunders family has health insurance coverage that pays 50 percent of out-ofhospital expenses after a $1,200 deductible per person. Mrs. Saunders incurred doctor and prescription medication expenses of $3,850. What amount would the insurance company pay and what amount will the Saunders family pay?

3) Lincoln, an assembly line worker at a motorcycle manufacturing plant, has take-home pay of $1,200 a week. He is injured in an accident that will keep him off work for 12 weeks. His disability insurance coverage replaces 60 percent of his earnings after a six-week waiting period. What total amount would he receive in disability benefits?

4) The high administrative costs in the U.S., currently around 11 percent of health care dollars, is attributed to what activities?

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What is the process to appeal health insurance claim decisions?

Why does health care cost so much?

7) What does health insurance include, and what is its importance in personal financial planning?

List five (5) ways you can get health care coverage.

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Name the five basic types of health insurance?

10)

Identify the sources of health care insurance.

11)

What are the two best-known sources of government health care insurance?

12) What is disability income insurance? What are the major sources of disability income insurance?

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13)

What are some things that you can do to reduce your personal health care costs?

14) Which country has the highest per capita medical expenditures of any industrialized country in the world? A) Australia B) Britain C) Canada D) Denmark E) United States

15) Which of the following groups has undertaken innovative activities to contain the costs of health care? A) Employers B) Labor unions C) Health insurers D) Consumers E) All of these choices are correct.

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16) Which of the following is an innovative way concerned groups are containing health care costs? A) Incentives to encourage preventive care B) Encouragement of prepaid group practices C) Establishment of community health education programs D) Encouragement by doctors for patients to pay cash for routine medical care E) All of these choices are correct.

17)

What are some possible reasons for high and rising costs of health care? A) The use of sophisticated and expensive technologies B) Rapid average earnings growth for health care professionals C) Duplication of tests D) The increasing number and longevity of elderly people E) All of these choices are correct.

18)

What is one of the best ways for you to avoid the high cost of illness? A) Get sufficient rest B) Gain a little extra weight C) Smoke and drink D) Drive dangerously E) Avoid relaxation

19)

Most group health insurance plans in the United States are sponsored by: A) victims of communicable diseases. B) individuals with families. C) single individuals with no dependents. D) elderly individuals. E) employers.

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20) Which type of health insurance plan may not provide benefits for the major portion of your medical care bills? A) Group health insurance B) Life insurance C) Medicare D) Medicaid E) Disability income insurance

21) Leo Faulkner gets a bad case of the flu and ends up in the hospital for three days. Which part of his basic health insurance coverage should help pay for this stay? A) Hospital expense B) Surgical expense C) Physician expense D) Major medical expense E) Medicare Part B

22) Tristan Bates needs surgery for appendicitis. Which part of his basic health insurance coverage should help pay for the surgeon’s fees? A) Hospital expense B) Surgical expense C) Physician expense D) Major medical expense E) Medicare Part B

23) Chen Zhihao was playing softball and got hurt sliding into second base. She gets an x-ray at her doctor's office to make sure her ankle isn't broken. Which part of her basic health insurance coverage should help pay for this x-ray?

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A) Hospital expense B) Surgical expense C) Physician expense D) Major medical expense E) Medicare Part B

24) DeShonte Lloyd developed a serious infection and spent 6 months in his hospital's intensive care unit. What part of his health insurance policy would be the most useful for helping to pay for this? A) Hospital expense B) Surgical expense C) Physician expense D) Major medical expense E) Medicare Part B

25) Lucas Fazzari has three different insurance policies. He has been injured in an accident and has incurred $30,000 in medical bills. There is a provision in all of his insurance contracts that ensures the total benefits he receives from all sources is limited to 100 percent of allowable medical expenses. What is this provision called? A) Coordination of benefits B) Deductible C) Coinsurance D) Stop-loss provision E) Waiver of premium

26) Alia Mazwell must pay $500 for doctor's visits each year before her insurance company will make any payments for doctor's visits. What is this requirement called?

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A) Coordination of benefits B) Deductible C) Coinsurance D) Stop-loss provision E) Waiver of premium

27) Alia Maxwell is required to pay 20 percent of her medical costs after the deductible has been paid. What is this requirement called? A) Coordination of benefits B) Deductible C) Coinsurance D) Stop-loss provision E) Waiver of premium

28) Alia Maxwell has personally paid a total of $6,000 in medical costs this year, which is the out-of-pocket limit listed in her insurance plan. At this point, there is a provision in her insurance contract that requires her insurance company to pay 100 percent of her medical costs for the remainder of the year. What provision is this likely to be? A) Coordination of benefits B) Hospital indemnity clause C) Coinsurance D) Stop-loss provision E) Major medical expense provision

29) Samir Nazari has a type of all-inclusive health insurance that has a very low deductible and pays for hospital, surgical, medical, and other bills under one plan. What type of insurance does he have?

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A) Comprehensive major medical B) Hospital indemnity C) Long-term care D) Cancer E) Disability income

30) Anwar Jones has an insurance policy that pays benefits to him in cash when he is hospitalized. What type of insurance would this be? A) Comprehensive major medical B) Hospital indemnity C) Long-term care D) Cancer E) Disability income

31) Olivia Sanchez was seriously injured in a car accident and is paralyzed from the waist down. Luckily, she has an insurance policy that will pay for someone to come in and help with her daily activities such as bathing, dressing, and household chores. What type of insurance policy is this likely to be? A) Comprehensive major medical B) Hospital indemnity C) Long-term care D) Cancer E) Disability income

32) Kayla Schumacher receives a phone call from a salesperson who tries to sell her an insurance policy by scaring her about her high risk of death from this disease. She knows that this type of insurance policy is notoriously a poor value, so she politely declines. What type of insurance policy did this salesperson likely try to sell her?

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A) Comprehensive major medical B) Hospital indemnity C) Long-term care D) Cancer E) Disability income

33) Which provision in a health insurance policy states that you will pay a flat dollar amount each time you receive a covered medical service? A) Daily benefit B) Benefit period C) Policy limit D) Elimination period E) Copayment

34) Harlow Stevens has an insurance policy that she and her three daughters, ages 5, 9, and 11, are entitled to benefits under. Which provision in her insurance policy is defined by this list of covered members? A) Eligibility B) Assigned benefits C) Benefit limits D) Guaranteed renewable E) Exclusions and limitations

35) Ryo Ho-Jin has an insurance policy that cannot be cancelled unless he fails to pay his premium when due. Which provision in his insurance policy would specify this?

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A) Eligibility B) Assigned benefits C) Benefit limits D) Guaranteed renewable E) Exclusions and limitations

36) Jackson Barnes has an insurance policy that will only pay for a maximum of 60 days of hospitalization during a year. Which provision in his insurance policy would specify this? A) Eligibility B) Assigned benefits C) Benefit limits D) Guaranteed renewable E) Exclusions

37) Javier Navarro has an insurance policy that does not cover cosmetic surgery like the nose job he would like to have. Which provision in his insurance policy would specify this? A) Eligibility B) Assigned benefits C) Benefit limits D) Guaranteed renewable E) Exclusions and limitations

38)

A good health insurance plan should: A) impose unreasonable exclusions. B) provide at least a $2 million lifetime maximum for each family member. C) pay 100 percent for out-of-hospital expenses. D) provide at least 120 days’ hospital room and board in full. E) limit your out-of-pocket expenses to no more than $1,000 per year.

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39) Which type of insurance is usually bought in combination with hospital expense and surgical expense insurance? A) Disability income B) Comprehensive major medical C) Umbrella D) Hospital indemnity E) Physician's expense

40) Which type of health insurance includes two features (a deductible provision and a coinsurance provision) to help keep the premium within the policyholder’s means? A) Disability income B) Major medical expense C) Hospital indemnity D) Physician's expense E) Surgical expense

41)

A good health insurance plan should: A) pay at least 90 percent for out-of-hospital expenses after a yearly deductible. B) provide at least 100 days' hospital room and board in full. C) provide at least a $1 million lifetime maximum for each family member. D) impose unreasonable exclusions. E) limit out-of-pocket expenses to no more than $10,000 a year.

42) Which one of the following provisions requires that the policyholder pay a basic amount before the policy benefits begin?

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A) Coinsurance B) Stop-loss C) Deductible D) Self-insurance E) Incontestable

43) __________blank is a type of major medical insurance that has a very low deductible amount and is offered without a separate basic plan. A) Comprehensive major medical insurance B) Major medical expense insurance C) Physician's expense insurance D) Hospital expense insurance E) Surgical expense insurance

44) Which health insurance policy pays benefits only when you are hospitalized, but pays these benefits in cash which you can use for medical, nonmedical, or supplementary expenses? A) Hospital indemnity B) Interim or short-term C) Disability income D) Comprehensive major medical E) Major medical expense

45)

Dental expense insurance provides reimbursement for: A) oral examinations. B) fillings. C) extractions. D) inlays. E) All of these choices are correct.

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46)

According to the textbook, a hospital indemnity policy: A) is almost always excellent buys. B) should be purchased at an early age. C) does not justify the premium cost. D) should be purchased only by older people. E) is meant for couples with two or three children.

47)

Which type of health insurance is notoriously a poor value? A) Individual health B) Group health C) Dread disease D) Dental E) Vision

48)

Which of the following statements is not true?

A) Physician expense insurance coverage normally excludes visits to the doctor's office, x-rays, and lab tests. B) Basic health insurance coverage includes hospital expense insurance, surgical expense insurance, and physician expense insurance. C) A deductible provision requires the policyholder to pay a basic amount before the policy benefits begin. D) A good health insurance plan should impose no unreasonable exclusions. E) A hospital indemnity policy is not a substitute for basic or major medical protection.

49) Which one of the following would be your best selection if you could only choose one of the following types of insurance?

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A) A basic plan combined with a major medical expense plan B) Combined dental and vision plan C) Dread disease and cancer plan D) Long-term care E) Accident

50)

Which type of insurance protects your ability to earn income? A) Life B) Liability C) Disability income D) Car E) Home and property

51)

Health insurance is not available from: A) private insurance companies. B) Blue Cross and Blue Shield. C) HMOs. D) PPOs. E) home health care agencies.

52)

Which one of the following is not a provider of health insurance? A) Fraternal organizations B) Trade unions C) Government programs such as Medicare D) Health Insurance Industry Association E) Blue Cross and Blue Shield

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53) Most private insurance companies sell health insurance policies to __________blank, who in turn offer them as fringe benefits. A) individuals B) families C) employers D) employees E) non-profit organizations

54) Which health insurance plan directly employs or contracts with selected physicians to provide managed health care services in exchange for a fixed, prepaid monthly premium? A) Blue Cross B) Blue Shield C) Medicare D) Medicaid E) HMO

55)

Hospital insurance (Part A) and medical insurance (Part B) are included in: A) Blue Cross. B) Blue Shield. C) Medicare. D) Medicaid. E) HMO.

56)

Which medical expense is covered by Medicare?

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A) Acupuncture B) Immunizations C) Private-duty nursing D) Routine checkups E) Hospice care

57)

Medigap is sold or serviced by: A) Medicare. B) Medicaid. C) private insurance companies. D) the federal government. E) State governments.

58) Which one of the following is a correct statement about the administrative costs of the health care system in the U.S.? A) Consumes 1 percent of healthcare dollars B) Considered ethical to spend a high percentage on administrative costs C) Americans pay less for health care than those living in Canada’s socialized system D) Includes enrolling beneficiaries and checking eligibility E) Includes rebates to customers for good health checkups

59)

Which one of the following is a source of government health insurance? A) Blue Cross B) Blue Shield C) Medicare D) HMO E) PPO

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60) Which one of the following is a source of government health insurance that is administered by each state? A) Blue Cross B) Blue Shield C) National Institutes of Health D) HMO E) Medicaid

61)

Hospital insurance is which part of Medicare? A) Part A B) Part B C) Part C D) Part D E) Part E

62)

Medical insurance is which part of Medicare? A) Part A B) Part B C) Part C D) Part D E) Part E

63)

The hospital insurance portion of Medicare helps pay for:

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A) inpatient hospital care. B) inpatient care in a skilled nursing facility. C) home health care. D) hospice care. E) All of these choices are correct.

64)

Medicare medical insurance helps pay for: A) inpatient hospital care. B) doctors' services. C) home health care. D) hospice care. E) inpatient care in a skilled nursing facility.

65)

Medicare medical insurance is: A) mandatory. B) financed by corporations. C) voluntary, and you must sign up for coverage. D) state supported and partially funded by the National Institutes of Health. E) paid for by state governments.

66)

Which of the following statements is not correct about Medicaid?

A) The Social Security Act created Medicaid in 1965. B) Medicaid is a program of medical assistance to certain low-income individuals and families. C) Medicaid is administered by each state within certain federal guidelines. D) Medicaid is financed by both state and federal funds. E) Medicaid is provided to wealthy individuals.

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67) Because you feel young and healthy now, you may overlook the very real need for which type of insurance? A) Disability income B) Automobile C) Dental D) Vision care E) Liability

68)

Disability: A) is universally unacceptable. B) has several definitions. C) is determined by the American Council of Life Insurance. D) has been formalized by the National Disability Council. E) is provided by the Insurance Information Institute.

69)

Good disability plans pay when you are: A) unable to work at your regular job. B) unable to work at any job. C) unable to work at a related job. D) ill even for a short period. E) fired from your regular job.

70)

With disability income insurance, benefits usually begin:

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A) on the first day of disability. B) between 30 and 90 days after the disability occurs. C) on the 10th day of disability. D) one year after the start of the disability. E) on the 15th day of disability.

71)

The waiting period in disability income insurance is called the __________blank period. A) exclusion B) no benefit C) coverage D) trade-off E) elimination

72)

Generally, disability income policies with longer waiting periods: A) have higher premiums. B) have lower premiums. C) have about the same premium as those with shorter periods. D) are issued by smaller insurance companies. E) are issued by larger insurance companies.

73)

In most employer-sponsored disability income insurance plans: A) your employer pays part or all of the cost. B) you pay all of the cost. C) your union pays all of the cost. D) the Social Security Administration pays most of the premium. E) the Veterans Administration foots the bill.

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74) Most insurers limit disability benefits from all sources of insurance to no more than __________blank percent of your take-home pay. A) 30-40 B) 40-50 C) 50-60 D) 60-70 E) 70-80

75) Graham Ebbetts is permanently disabled while on the job. Which of the following is the most likely source of disability income for Graham? A) His employer B) Social Security C) Worker's compensation D) An individual insurance policy E) His health insurance policy

76)

Which one of the following is true regarding group health insurance?

A) Provides coverage for you and your immediate family B) Covers all of your health insurance needs C) Comprises 100 percent of all health insurance issued by health and life insurance companies D) Typically covers all of an individual's medical costs E) Always requires proof of insurability

77)

Which of the following is not a way that you can reduce your own medical costs?

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A) Ask your physician and pharmacist if a less expensive generic drug is available. B) Save time and do not review billing statements from medical providers. C) Practice preventative care and stay well. D) Consider participating in a flexible spending account if your employer offers it. E) Ask your doctor if you can follow up by phone instead of visiting the office.

78) Which of the following is not a key provision of the Patient Protection and Affordable Care Act of 2010? A) Offers tax credits for small businesses to make employee coverage more affordable B) Eliminates copayments for preventive services C) Encourages insurance companies to drop people from coverage when they get sick D) Restricts the use of annual limits to ensure access to needed care in all plans E) Increases funds for Community Health Centers

79) Phoebe Davidson’s health insurance policy includes a $500 deductible and a coinsurance provision requiring her to pay 20 percent thereafter. Her medical bills total $7,000. What amount is she required to pay personally? A) $1,800 B) $500 C) $1,300 D) $5,000 E) $7,000

80) The Affordable Health Act of 2010 requires new health plans to allow young people to remain on their parents' insurance policy until what age?

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A) 23 B) 24 C) 25 D) 26 E) 27

81)

Every year, what percent of the adult U.S. population suffers a long-term disability? A) 12 B) 14 C) 18 D) 23 E) 25

82)

As a national average, a year in a nursing home can cost: A) up to $32,000 B) up to $49,000. C) exactly $63,000. D) over $105,000. E) up to $100,000.

83)

Physician expense insurance coverage excludes which of the following: A) visits to the doctor's office. B) x-rays. C) surgery. D) lab tests. E) general physician care.

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84)

Up to how many days of care in a skilled nursing facility are covered by Medicare? A) 30 B) 60 C) 85 D) 100 E) 120

85)

Medicare covers the cost of care in what countries besides the United States? A) Japan B) India C) Germany D) Mexico and Canada E) Mexico, Canada, and Germany

86) According to The Center for Medicare and Medicaid Services, health insurance includes both medical expense insurance and: A) disability income insurance. B) unemployment income insurance. C) retirement income insurance. D) life insurance. E) dental insurance.

87) Group health insurance plans comprise about __________blank percent of all the health insurance issued by health and life insurance companies.

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A) 60 B) 70 C) 80 D) 90 E) 100

88)

A sign that your group health coverage needs supplementing would be: A) it covers a minor portion of your dental bills. B) it covers a major portion of your hospital charges. C) it covers a major portion of your doctor bills. D) it covers over 50 percent of the going rate for surgical procedures. E) it covers a minor portion of your hospital, doctor, and surgical charges.

89)

Which of the following factors has not contributed to rising health costs? A) An aging population B) An overweight population C) The cost of prescription drugs D) The growing number of insured E) Advancements in medical technology

90) In the U.S., administrative costs consume nearly __________blank percent of health care dollars. A) 1 B) 5 C) 10 D) 11 E) 15

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91) If your employer pays the premium for long-term care, then the __________blank treats it as a tax-deductible expense for the employer. A) National Association of Insurance Commissioners B) U.S. Administration on Aging C) Medicare.gov D) Longtermcare.gov E) Health Insurance Portability and Accountability Act of 1996

92) Which of the following is not listed in your book as offering group health insurance plans? A) Large government employers B) Health and fitness clubs C) Labor unions D) Professional associations E) Large private employers

93) Which type of health insurance covers diagnosing and treating glaucoma, eyeglasses, and eye surgery? A) Surgical expense B) Vision care C) Physician’s expense D) Medicare Part B E) Major medical

94) Which provision in a health insurance policy prevents you from collecting benefits from two or more group policies that would in total exceed the actual charges?

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A) Coordination of benefits B) Assigned benefits C) Benefit limits D) Guaranteed renewable E) Exclusions and limitations

95) Which provision in a health insurance policy explains the circumstances under which the insurance company can end your health insurance policy? A) Coordination of benefits B) Assigned benefits C) Cancellation and termination D) Guaranteed renewable E) Exclusions and limitations

96) If you are 35 years old now, your chances of experiencing a three-month or longer disability before you reach age 65 are __________blank percent, according to the National Association of Insurance Commissioners. A) 25 B) 30 C) 40 D) 50 E) 75

97) To qualify for disability income under Social Security, you must be totally disabled for __________blank months or more, and you must be unable to do any work.

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A) 1 B) 3 C) 6 D) 9 E) 12

98) Joaquin Cuevos is purchasing disability income insurance. He should aim for a benefit amount that, when added to other income, will equal __________blank percent of his gross pay. A) 40 B) 50 to 60 C) 60 to 70 D) 70 to 80 E) 90

99)

Which of the following is not a source of disability income? A) Your employer B) Social Security C) Worker’s compensation D) Unemployment compensation E) Group union disability benefits

100)

People are more likely to lose their incomes due to __________blank than death. A) retirement B) unemployment C) a layoff D) disability E) war

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101) According to the Government Accountability Office, fraud and abuse account for nearly __________blank percent of all dollars spent on health care. A) 10 B) 11 C) 15 D) 20 E) 25

102) By 2028, annual health care spending is expected to grow to almost __________blank percent of GDP. A) 1 B) 10 C) 11 D) 15 E) 20

103) Which of the following requires large employers to provide health insurance coverage to all employees? A) The COBRA of 1986 B) The HIPAA of 1996 C) The Centers for Medicaid Services D) The Centers for Medicare Services E) The Tax Cuts and Jobs Act of 2017

104) A recent industry survey estimated that __________blank percent of employed Americans are enrolled in some form of managed care.

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A) 85 B) 75 C) 50 D) 40 E) 25

105) Which of the following plans is a hybrid that combines characteristics of both HMOs and PPOs? A) Medicaid B) PPO C) POS D) HMO E) Medicare

106)

What should you do if your health insurer denies medical treatment or coverage? A) Write a formal complaint letter. B) Review your policy and explanation of benefits. C) Contact your insurer and keep detailed records of your contacts. D) Request documentation from your doctor to support your case. E) All of these choices are correct.

107) In the case of divorce, federal law provides that coverage under a former spouse’s medical plan can be continued for __________blank months if the former spouse works for a company with 20 or more employees.

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A) 12 B) 36 C) 48 D) 60 E) indefinitely

108) Services that may be available in your community to help meet long-term care needs include: A) visiting nurses. B) home health aides. C) home-delivered meals. D) adult day care centers. E) All of these choices are correct.

109) Which of the following is true regarding the difference between a reimbursement policy and an indemnity policy for health insurance provisions? A) A reimbursement policy is based on the actual expenses you incur. B) An indemnity policy is based on the actual expenses you incur. C) A reimbursement policy is based on specified benefits regardless of actual expenses. D) An indemnity policy is based on actual expenses regardless of specified benefits. E) There is no difference between these two.

110)

Home health care does not include: A) home health agencies. B) doctor offices. C) home care aid organizations. D) hospices. E) facilities that care for the terminally ill.

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111) The United States has the lowest per capita medical expenditures of any industrialized country in the world. ⊚ ⊚

112)

true false

Affordable health care has become one of the most important social issues of our time. ⊚ true ⊚ false

113) Due to third parties, private health insurers, and government paying such a large part of the nation’s health care bill, hospitals, doctors, and patients often lack the incentive to make the most economical use of health care services. ⊚ true ⊚ false

114) One reason for the high and rising costs of health care is the use of sophisticated and expensive technologies. ⊚ true ⊚ false

115)

One way to reduce your own medical costs is to stay well. ⊚ true ⊚ false

116)

The prescription to stay healthy includes getting sufficient rest, relaxation, and exercise. ⊚ true ⊚ false

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117) Health club membership is a form of protection to alleviate the financial burdens individuals suffer from illness or injury. ⊚ true ⊚ false

118)

Group health insurance will cover you, but not your immediate family. ⊚ true ⊚ false

119)

Individual health insurance covers either one person or a family. ⊚ true ⊚ false

120)

Very few group health insurance policies have a coordination of benefits provision. ⊚ true ⊚ false

121)

A good health insurance plan should offer basic coverage for hospital and doctor bills. ⊚ true ⊚ false

122)

A good health insurance plan should impose no unreasonable exclusions. ⊚ true ⊚ false

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123)

More people have hospital insurance than any other kind of health insurance. ⊚ true ⊚ false

124) People often buy surgical expense insurance in combination with hospital expense insurance and physician expense insurance. ⊚ true ⊚ false

125) Physician expense insurance coverage excludes visits to the doctor's office, x-rays, and lab tests. ⊚ true ⊚ false

126) Basic health insurance coverage includes hospital expense insurance, surgical expense insurance, and physician expense insurance. ⊚ true ⊚ false

127) A deductible provision requires the policyholder to pay a basic amount before the policy benefits begin. ⊚ true ⊚ false

128) Hospital expense insurance pays part or the full amount of hospital bills for room, board, and other charges. ⊚ true ⊚ false

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129) Surgical expense insurance pays part or the full amount of the surgeon's fees for an operation. ⊚ true ⊚ false

130)

Physician expense insurance helps pay for physician's care that does not involve surgery. ⊚ true ⊚ false

131) A recent study by Americans for Long-Term Care Security found that one out of five Americans over age 30 is at risk of needing some form of long-term care within the next 12 months. ⊚ true ⊚ false

132) A coinsurance provision requires the policyholder to share the expenses beyond the deductible amount. ⊚ true ⊚ false

133) A stop-loss provision requires the policyholder to pay up to a certain amount, after which the insurance company pays 100 percent of all remaining covered expenses. ⊚ true ⊚ false

134) A hospital indemnity policy pays benefits directly to the hospital only when you are hospitalized.

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⊚ ⊚

true false

135)

The hospital indemnity policy is a good substitute for basic or major medical protection. ⊚ true ⊚ false

136)

Dread disease and cancer policies are usually very good values. ⊚ true ⊚ false

137) Long-term care insurance was virtually unknown 50 years ago, but it is now growing faster than any other form of insurance. ⊚ true ⊚ false

138)

Blue Cross plans provide for surgical and medical services performed by physicians. ⊚ true ⊚ false

139) The Coronavirus Aid, Response and Economic Security (CARES) Act of 2020 permits HSA, FSA, and HRA account holders to pay for over-the-counter medications without a prescription. ⊚ true ⊚ false

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140) The Coronavirus Aid, Response and Economic Security (CARES) Act of 2020 allows account holders to use HSA, FSA, and HRA accounts to pay for certain menstrual care products as eligible medical expenses. ⊚ true ⊚ false

141)

Blue Shield plans provide hospital care benefits on essentially a "service type" basis. ⊚ true ⊚ false

142) Preferred provider organizations combine the best elements of the fee-for-service and HMO systems. ⊚ true ⊚ false

143) Part A of Medicare pays for all covered services for inpatient hospital care after you pay a single annual deductible. ⊚ true ⊚ false

144) Medicare covers COVID-19 lab tests and vaccines, but if you are diagnosed with the infection you are responsible for all medically necessary hospitalizations and treatments. ⊚ true ⊚ false

145) Medigap insurance, intended to supplement Medicare, is sold and serviced by the federal government. ⊚ true ⊚ false

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146) Medicaid is administered by each state within certain broad federal requirements and guidelines. ⊚ true ⊚ false

147)

Medicare does not cover the medical expenses of private-duty nursing care. ⊚ true ⊚ false

148)

The two best-known sources of government health insurance are Medicare and Medicaid. ⊚ true ⊚ false

149)

Medicare originally had two parts: hospital insurance and medical insurance. ⊚ true ⊚ false

150)

Medicare hospital insurance is financed from a portion of the Social Security tax. ⊚ true ⊚ false

151)

To get Medicare medical insurance, you must sign up for it and pay a monthly premium. ⊚ true ⊚ false

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152) Care in a skilled nursing facility beyond 100 days per benefit period is approved and covered by Medicare. ⊚ true ⊚ false

153) Medicare covers routine checkups, dental care, most immunizations, cosmetic surgery, routine foot care, eyeglasses, and hearing aids. ⊚ true ⊚ false

154)

Medicare covers the cost of care received outside the United States, Canada, and Mexico. ⊚ true ⊚ false

155)

Medicare was never intended to pay all medical costs. ⊚ true ⊚ false

156)

Medicare supplement insurance is a government-sponsored program. ⊚ true ⊚ false

157) Title XIX of the Social Security Act provides for a program of medical assistance to certain low-income individuals and families, known as Medicaid. ⊚ true ⊚ false

158)

Medicaid is financed by both state and federal funds.

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⊚ ⊚

159)

true false

Very few members of the Medicaid population are also covered by Medicare. ⊚ true ⊚ false

160) Medicaid differs from Medicare because eligibility for Medicaid depends on having very low income and assets. ⊚ true ⊚ false

161) Because Medicaid coverage is very limited, people using it need to purchase supplemental insurance. ⊚ true ⊚ false

162) Disability income insurance provides regular cash income lost by employees as the result of an accident or illness. ⊚ true ⊚ false

163)

Once a person is eligible, Medicaid provides more benefits than does Medicare. ⊚ true ⊚ false

164) Disability income insurance is probably the least neglected form of available insurance protection.

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⊚ ⊚

165)

true false

Every year, 12 percent of the adult U.S. population suffers a long-term disability. ⊚ true ⊚ false

166) Good disability plans pay when you are unable to work at your regular job; poor disability plans pay only when you are unable to work at any job. ⊚ true ⊚ false

167)

Disability benefits begin on the first day you become disabled. ⊚ true ⊚ false

168)

Generally, disability income policies with shorter waiting periods have lower premiums. ⊚ true ⊚ false

169)

You should seek a disability income policy that pays benefits for life. ⊚ true ⊚ false

170) You should look for a disability income policy that waives premium payments while you are disabled. ⊚ true ⊚ false

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171) The premium for noncancelable and guaranteed renewable coverage for a disability income policy is higher, but the coverages are well worth the extra cost. ⊚ true ⊚ false

172) Many employers provide disability income protection for their employees through group insurance plans. ⊚ true ⊚ false

173) Most salaried workers in the United States do not participate in the Social Security program. ⊚ true ⊚ false

174) It is best for you to get routine care and recommended preventive services from a primary care provider rather than a hospital’s emergency department. ⊚ true ⊚ false

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Answer Key Test name: Chap 11_14e_Kapoor 14) E 15) E 16) E 17) E 18) A 19) E 20) A 21) A 22) B 23) C 24) D 25) A 26) B 27) C 28) D 29) A 30) B 31) C 32) D 33) E 34) A 35) D 36) C 37) E 38) D 39) E Version 1

40) B 41) C 42) C 43) A 44) A 45) E 46) C 47) C 48) A 49) A 50) C 51) E 52) D 53) C 54) E 55) C 56) E 57) C 58) D 59) C 60) E 61) A 62) B 63) E 64) B 65) C 66) E 67) A 68) B 69) A Version 1

70) B 71) E 72) B 73) A 74) E 75) C 76) A 77) B 78) C 79) A 80) D 81) A 82) D 83) C 84) D 85) D 86) A 87) D 88) E 89) D 90) D 91) E 92) B 93) B 94) A 95) C 96) D 97) E 98) C 99) D Version 1

100) D 101) A 102) E 103) E 104) A 105) C 106) E 107) B 108) E 109) A 110) B 111) FALSE 112) TRUE 113) TRUE 114) TRUE 115) TRUE 116) TRUE 117) FALSE 118) FALSE 119) TRUE 120) FALSE 121) TRUE 122) TRUE 123) TRUE 124) TRUE 125) FALSE 126) TRUE 127) TRUE 128) TRUE 129) TRUE Version 1

130) TRUE 131) FALSE 132) TRUE 133) TRUE 134) FALSE 135) FALSE 136) FALSE 137) TRUE 138) FALSE 139) TRUE 140) TRUE 141) FALSE 142) TRUE 143) TRUE 144) FALSE 145) FALSE 146) TRUE 147) TRUE 148) TRUE 149) TRUE 150) TRUE 151) TRUE 152) FALSE 153) FALSE 154) FALSE 155) TRUE 156) FALSE 157) TRUE 158) TRUE 159) FALSE Version 1

160) TRUE 161) FALSE 162) TRUE 163) TRUE 164) FALSE 165) TRUE 166) TRUE 167) FALSE 168) FALSE 169) TRUE 170) TRUE 171) TRUE 172) TRUE 173) FALSE 174) TRUE

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CHAPTER 12 1) Suppose your annual premium for a $30,000, 20-year limited-payment policy is $600 over the 20-year period. The cash value of your policy at the end of the 20 years is $10,000. Assume that you could have invested the annual premium in a mutual fund yielding 7 percent annually. What is the net cost of your insurance for the 20-year period? Use a factor of 40.995 for your time value of money calculation.

How does life insurance work? What is its purpose and principle?

3) What are the six methods of estimating your life insurance needs? Explain the basic principle of each method.

4) type.

What are the two types of life insurance companies? Explain the basic features of each

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What are the two basic types of life insurance? Give examples of each.

Define rider and describe three riders commonly attached to life insurance policies.

7) In creating a plan to buy your life insurance, what factors should you consider before buying? Also, describe from whom you should buy, including the sources.

When choosing an insurance agent, what are some important questions to ask?

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Explain how a guaranteed insurability option works and why it is beneficial.

10) List and describe the importance of each of the “Ten Golden Rules for Buying Life Insurance.”

11)

Life insurance proceeds may be used to: A) pay off a home mortgage. B) cover funeral costs. C) make charitable bequests. D) pay estate taxes. E) All of these choices are correct.

12)

Which is a correct statement about life insurance?

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A) Life insurance provides liquidity at the time of death. B) Life insurance is still more often bought than sold. C) Life insurance is one of the least expensive purchases you may ever make. D) Choosing the right policy takes only a few minutes. E) Consumer awareness of life insurance has changed significantly over the years.

13)

Individuals and families purchase life insurance primarily to: A) pay liability claims resulting from accidents. B) protect someone who depends on them from financial losses caused by their death. C) fund lavish retirement vacations. D) keep up with people with a similar financial situation. E) make early retirement possible.

14)

In the 1950s, the life insurance industry developed: A) the forces of supply and demand. B) the insurance division of the federal government. C) the forces of competition. D) mortality tables. E) the principle of life insurance.

15)

The 2001 Mortality Table separates the mortality experience by: A) age. B) income level. C) occupation. D) domicile. E) gender.

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16)

The life expectancy of a female at the age of 30 is 52.2 years. It means that:

A) a 30-year-old female has the highest probability of dying. B) a 30-year-old female has the highest probability of living. C) females alive at 30 years of age are expected to live an additional 52.2 years on average. D) 52.2 is the average age at which all females, age 30, will die. E) very few 30-year-old females will live past the age of 82.2.

17)

Which of the following are common uses of life insurance proceeds? A) Provide an education for children B) Set up an estate plan C) Establish a regular income for survivors D) Accumulate savings E) All of these choices are correct.

18)

What should you consider before you buy life insurance? A) Your past sources of income B) Your cost of health insurance C) Your vacation benefits D) Your accumulated sick leave E) Your savings

19)

You probably have little or no need for life insurance if you are:

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A) a single person living with your parents. B) divorced and have two children. C) married and your spouse works. D) gainfully employed. E) a two-earner household with a mortgage.

20)

A two-earner couple likely will have: A) the greatest need for life insurance. B) no need for life insurance. C) a moderate need for life insurance, especially if they have a mortgage. D) the greatest need for an annuity. E) the exact same life insurance needs as single persons living alone.

21)

Who has the greatest need for life insurance? A) Households with small children B) Singles living alone C) Singles living with parents D) Dual income couple E) Retired person

22)

After determining that you need life insurance, you should then: A) consult a local insurance company agent. B) buy as much life insurance as you can afford. C) estimate your life insurance requirements. D) determine your life insurance objectives. E) evaluate the ratings of the insurance company.

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23)

The easy method of determining life insurance needs assumes that your family is: A) rich. B) poor. C) typical. D) young. E) old.

24) Your annual income is $45,000. What is your life insurance need based on the easy method? A) $220,500 B) $315,000 C) $345,000 D) $400,000 E) $450,000

25) Which method of determining life insurance needs is designed specifically for a working couple with no dependents? A) The multiple of income method B) Easy method C) "Nonworking" spouse method D) "Family need" method E) DINK method

26)

The multiple of income method of determining life insurance needs:

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A) assumes you have only two children. B) assumes your spouse does not work. C) assumes your insurance needs are complex. D) uses your annual income as the sole factor. E) assumes your spouse is in an occupation with an uncertain future.

27) Insurance experts have estimated that extra costs of up to _____________blank a year may be required to replace the services of a homemaker in a family with small children. A) $3,000 B) $6,000 C) $10,000 D) $12,000 E) $15,000

28) The method of determining life insurance requirements that considers factors such as Social Security and your liquid assets is called the: A) easy method. B) single-income method. C) DINK method. D) "nonworking" spouse method. E) "family need" method.

29) Your annual income is $32,000. What is your life insurance need based on the easy method?

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A) $32,000 B) $96,000 C) $156,800 D) $200,000 E) $224,000

30) The DINK method of determining life insurance needs recommends adding an additional insurance cushion if your spouse is: A) healthy. B) employed in an occupation with a certain future. C) a nonworking spouse. D) suffering from poor health. E) a senior citizen.

31) The total debts of you and your spouse include the following: mortgage, $200,000; auto loan, $16,000; credit card balance, $2,000; and personal debts of $4,000. Further, you estimate that your funeral will cost $6,000. Your spouse expects to continue to work after your death. What is your life insurance need using the DINK method? A) $117,000 B) $120,000 C) $200,000 D) $216,000 E) $222,000

32) Using the "nonworking" spouse method, what should be the life insurance needs for a family whose youngest child is 8 years old?

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A) $50,000 B) $70,000 C) $80,000 D) $100,000 E) $180,000

33) Using the "nonworking" spouse method, what should be the life insurance need for a family whose youngest child is 12 years old? A) $30,000 B) $50,000 C) $60,000 D) $100,000 E) $120,000

34) Levi Roth has made the choice to stay home and raise his three kids while his spouse works. He wants to determine his insurance needs. What method was specifically designed for someone in his situation? A) Easy method B) DINK method C) Nonworking spouse method D) Family need method E) Soccer mom method

35) Your annual income is $90,000. You have a spouse, two kids, a dog and a mortgage - a typical family. What is your life insurance need based on the easy method?

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A) $310,000 B) $441,000 C) $630,000 D) $1,000,000 E) $1,200,000

36) Under the multiple of income method of estimating life insurance needs, what important factor is excluded from the calculation? A) Annual income B) Your current employer C) Future earnings D) Past earnings E) Current assets

37) Easton Willis has five kids and a lot more debt than a typical family. What method would probably be the best method for him to use to calculate his insurance needs? A) Easy method B) DINK method C) Nonworking spouse method D) Family need method E) Soccer mom method

38) The insurance agent’s rule of thumb that a typical family will need 70 percent of salary for seven years in order to adjust to the financial consequences of a wage-earner's death is known as which of the following estimation methods?

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A) Nonworking spouse B) Easy method C) DINK method D) Family need E) Soccer mom

39)

Which of the following is false? A) Stock companies generally sell nonparticipating policies. B) A participating policy has a somewhat higher premium than a nonparticipating policy. C) Mutual companies generally sell participating policies. D) You can expect to receive a policy dividend from a stock company. E) Part of the premium is refunded to the policyholder in a participating policy.

40)

Most participating policies are sold by: A) federal government agencies. B) state insurance commissioners. C) mutual life insurance companies. D) stock life insurance companies. E) investment banks.

41)

Which statement is correct regarding mutual life insurance companies? A) Mutual insurance companies have stockholders. B) Nearly all mutual companies issue only nonparticipating policies. C) Premiums are lower than those offered by stock companies. D) Mutual companies do not pay policy dividends. E) A mutual company refunds part of the premium to its policyholders.

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42)

Which statement is correct regarding stock life insurance companies? A) A stock company sells participating policies. B) A stock company always charges higher premiums than mutual companies. C) A stockholder receives a policy dividend. D) A stock company generally sells nonparticipating policies. E) A stock company is owned by policyholders.

43)

Which type of insurance is sometimes called temporary life insurance? A) Whole life insurance B) Term insurance C) Straight life D) Ordinary life E) Cash value life

44)

Which one of the following statements correctly applies to term insurance? A) The premiums remain constant. B) The policy builds cash value. C) Protection is for a specified period of time. D) It usually is more expensive than whole life insurance. E) The investment performance varies with the stock market.

45)

The most common type of permanent life insurance is called:

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A) whole life. B) term life. C) universal life. D) modified life. E) variable life.

46)

Which statement is correct about whole life insurance? A) At first, it is cheaper than term life. B) It builds up cash value. C) The premiums increase with your age. D) It is the best choice for people who plan to keep the policy for a short term. E) It is the same thing as term life insurance.

47) Which type of life insurance policy requires you to pay premiums for a stipulated period, usually 20 or 30 years, or until you reach a specified age? A) Modified life policy B) Variable life policy C) Adjustable life policy D) Limited payment policy E) Endowment policy

48)

A special form of the limited payment plan is the _____________blank premium policy. A) double B) simple C) single D) compound E) equitable

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49) The cash values of a(n) _____________blank life insurance policy fluctuate according to the yields earned by a separate fund, which can be a stock fund, a money market fund, or a bond fund. A) modified B) variable C) adjustable D) ordinary E) temporary

50) Subject to certain minimums, which life insurance, first introduced in 1979, has a minimum amount that must be paid to cover the insurance portion? A) Whole life B) Ordinary life C) Universal life D) Adjustable life E) Variable life

51)

Which type of life insurance policy combines term insurance with an investment option? A) Whole life B) Ordinary life C) Universal life D) Adjustable life E) Extended life

52)

Some experts claim that credit life insurance policies are:

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A) the nation’s biggest rip-off. B) the best buys. C) useful for creditors and debtors alike. D) less expensive than term life insurance. E) an excellent investment.

53) A plan that insures a large number of persons under the terms of a single policy without requiring medical examinations is called a(n) _____________blank life insurance policy. A) individual B) whole C) large number D) permanent E) group

54)

Fundamentally, group life insurance is _____________blank insurance. A) term B) whole life C) ordinary life D) permanent E) universal life

55)

Which of the following statements is true about group life insurance? A) Group life has been losing its popularity recently. B) The cost of insurance per $1,000 is the same for each employee, regardless of age. C) Group insurance is not a good bargain for older employees. D) Principles that apply to other forms of insurance do not apply to group life insurance. E) Group life is never considered the same thing as term life insurance.

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56) Lai Feng is thinking about purchasing some life insurance. She goes to a company where the policyholders are essentially the owners of the company. What type of life insurance company has she visited? A) Stock B) Debt C) Mutual D) Exclusionary E) Cooperative

57) Sergio Ibanez is thinking about purchasing some life insurance. He goes to a company that is owned by shareholders. What type of life insurance company has he visited? A) Stock B) Debt C) Mutual D) Exclusionary E) Cooperative

58) Shealynne Brown has a life insurance policy that provides her with protection for the next five years. However, she can get five more years of protection at the end of this term without having to have a medical examination because she will be less than 70 years old at that time. Her premiums will rise during each five-year period. What type of term life insurance does Shealynne likely have? A) Straight B) Renewable C) Convertible D) Decreasing E) Accelerated

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59) Max Pittman has a life insurance policy that can be exchanged for a whole life policy without a medical examination. Once it has been exchanged, the premiums will increase. What type of term life insurance does Max likely have? A) Straight B) Renewable C) Convertible D) Decreasing E) Accelerated

60) Mihara Keiko has a life insurance policy where the payments to beneficiaries get smaller as time passes. What type of term life insurance does Mihara likely have? A) Straight B) Renewable C) Convertible D) Decreasing E) Accelerated

61)

Which of the following does not refer to permanent insurance? A) Whole life B) Straight life C) Ordinary life D) Cash value life E) Term life

62) Kyo Sol-Mi has a life insurance policy that returns every cent she pays in premiums if she outlives the term of the policy. She knows this policy costs 30 to 50 percent more than a traditional policy but thinks it is worth it. What type of term life insurance does Kyo have?

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A) Straight B) Renewable C) Convertible D) Decreasing E) Return-of-premium

63) Daniel Pacheo has a life insurance policy where he makes payments of $325 per year until he reaches the age of 65. His policy is then "paid up" for life. His beneficiaries will receive the face value upon his death. What type of life insurance policy does Daniel likely have? A) Ordinary life B) Limited payment C) Variable life D) Adjustable life E) Universal life

64) John Sachetti has a life insurance policy that is tied to a separate stock fund. The cash value of his insurance policy depends on the yields earned in this fund and is not guaranteed. What type of life insurance does John likely have? A) Ordinary whole life B) Limited payment life C) Variable life D) Adjustable life E) Universal life

65) Marcus Johnson has a life insurance policy that allows him to change his policy to fit his changing needs. He can change either the premium he pays or the period of coverage. What type of insurance does Marcus likely have?

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A) Ordinary whole life B) Limited payment life C) Variable life D) Adjustable life E) Universal life

66) Javion Leonard has a life insurance policy that allows him to change his premium without changing his coverage. He can also access his cash value with a policy loan or a withdrawal. What type of insurance does Javion likely have? A) Ordinary whole life B) Limited payment life C) Variable life D) Adjustable life E) Universal life

67) Jayla Navarro has a participating life insurance policy that returns part of her premiums at the end of the year. What is another name for this policy? A) Cash Value B) Par C) Nonpar D) Rider E) Double Indemnity

68) Owen Bowers has a life insurance policy which he has modified to include an accidental death benefit payable to his son and daughter. This modification has most likely been done by attaching a(n) _____________blank to the policy.

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A) accelerated benefits clause B) policy dividend C) guaranteed insurability clause D) second-to-die rider E) double indemnity provision

69) Carmen de la Cruz has her age listed on her driver's license as being three years younger than it actually is. This is also how old she tells her insurance company she is. Her insurance company has discovered she lied about her age. What provision of her life insurance contract states that her benefits will be what her premium would have bought if she had been truthful about her age? A) Policy loan B) Misstatement of age C) Cost-of-living protection D) Guaranteed insurability E) Grace period

70)

Your life insurance policy is valuable only if it: A) meets your objectives. B) makes you rich. C) makes your beneficiaries rich. D) serves as collateral for a loan. E) pays you at least 7.5 percent interest.

71)

A beneficiary can be a spouse or child who:

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A) acts as a trustee of your insurance policy. B) is a guardian of your children. C) acts on your behalf. D) is designated to receive your life insurance proceeds. E) acts as an agent handling your insurance policy.

72) The grace period normally allows _____________blank days to elapse, during which time the premium may be paid on an insurance policy without penalty. A) 11 to 15 B) 16 to 21 C) 20 to 25 D) 28 to 31 E) 35 to 40

73)

A suicide clause means that the insurance company:

A) can cancel the policy if suicide is proven. B) will pay a death benefit equal to the amount of the premium paid, if the insured dies by suicide during the first two years that the policy is in force. C) will pay only half the death benefits if the insured commits suicide. D) automatically pays the premium out of the policy's cash value. E) will not pay any death benefits if suicide is suspected.

74) If a provision for an accidental death benefit is attached to a whole life insurance policy, then this provision is referred to as a(n):

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A) rider. B) waiver of premium. C) automatic premium loan. D) beneficiary. E) incontestability clause.

75)

Which statement is false regarding switching policies?

A) An author noted that half of those who buy whole or universal life drop them within 10 years. B) The insurance industry is regulated by state insurance commissioners. C) Your need for life insurance coverage will change over time. D) A new life insurance policy will cost more as you get older. E) You will always be insurable if you switch policies.

76) An authoritative rating guide to the financial stability of the nation's insurers is published by all of the following except: A) Dow Jones Company. B) Standard & Poor's. C) Moody's Rating Service. D) A. M. Best Company. E) Weiss Research.

77) A method of evaluating the cost of life insurance by taking into account the time value of money combines all of the following except:

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A) premium payments. B) dividends. C) supply and demand. D) cash-value buildup. E) present value analysis.

78) In determining the cost of insurance, if your insurance agent does not give you an interest-adjusted index upon request, then your best bet is to: A) buy the policy anyway. B) look for another agent. C) tell the agent that you are still thinking. D) tell the agent you will buy it later. E) complain to the Better Business Bureau.

79)

The prices of life insurance policies: A) vary considerably among life insurance companies. B) are relatively the same for all policies. C) are higher for females than males. D) have remained constant over time. E) are set by the government here in the United States.

80) After you buy new life insurance, you have a "free look" period of _____________blank days. A) 10 B) 20 C) 30 D) 40 E) 50

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81) Which of the following offers special features, including a stepped-up death benefit, a guaranteed minimum income benefit, or long-term care insurance that often carry additional fees and charges? A) Whole life insurance B) Term life insurance C) Modified life insurance D) Single-premium insurance E) A variable annuity

82)

One of the ten golden rules when buying life insurance is to: A) buy from an unlicensed company. B) buy more life insurance than you need. C) select an agent who is incompetent. D) ask about lower premium rates for nonsmokers. E) not worry about reading and understanding your policy.

83) A settlement option that provides for payment of the life insurance proceeds in equal periodic installments for a specified number of years after your death is called a: A) flexible annuity. B) limited installment payment. C) life income option. D) lump-sum payment. E) company retained payment.

84) Luca Mariano wants to determine his life insurance needs. What method would identify his insurance needs as a range between five and ten times his annual income?

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A) Multiple of income method B) DINK method C) Nonworking spouse method D) "Family need" method E) Sample method

85) When comparing universal life policies with whole life policies, which of the following is typically an advantage of a universal life policy? A) Cash value accumulates B) You can access cash value only through a policy loan C) The policy will lapse if a specific premium is not paid each year D) You have control over your outlay E) Your premium cannot be changed

86) Which of the following questions are important to consider when choosing an insurance agent? A) Is your agent available when needed? B) Does your agent advise you to have a financial plan? C) Is your agent happy to answer questions? D) Does your agent keep up with changes in the insurance field? E) All of these choices are correct.

87) According to a survey by Salary.com, the equivalent wage of a stay-at-home mom is approximately how much?

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A) $54,000 B) $75,000 C) $100,000 D) $178,000 E) $175,000

88) Which type of life insurance policy provides coverage from the beginning of the contract to maturity and guarantees payment of a specified sum to the insured, even if he or she is still living at the end of the contract period? A) Credit life insurance B) Endowment life insurance C) Industrial life insurance D) Group life insurance E) Universal life insurance

89) Which of the following attributes would not be used by an underwriter to determine the appropriate premiums to charge for insurance? A) Marital status B) Gender C) Health D) Age E) Occupation

90) The easy method of determining life insurance needs is based on the rule of thumb that a "typical family" will need about what percent of a wage-earner's salary for seven years?

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A) 20 B) 40 C) 50 D) 70 E) 80

91)

How many different types of life insurance companies are there? A) 1 B) 2 C) 3 D) 4 E) 5

92)

Term insurance is protection for a specified period of time, usually: A) 1 year B) 5 years C) 10 years D) 20 years E) Any of these intervals are offered

93) life?

How frequently does the premium for a whole life policy change during the insured's

A) Every year B) Every two years C) Every five years D) Every 10 years E) It never changes

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94)

Which type of life insurance is the least popular and its appeal continues to drop? A) Endowment life insurance B) Credit life insurance C) Group life insurance D) Industrial life insurance E) Universal life insurance

95)

The premium for a whole life insurance policy remains constant: A) throughout your lifetime. B) during the first year of the policy. C) during the first five years of the policy. D) only through age 55. E) only through age 69.

96)

When choosing life insurance, you should consider: A) the price of the policy. B) the financial stability of the insurance company. C) the reliability of the insurance company. D) the service that the insurance company provides. E) All of these choices are correct.

97)

Which of the following life insurance policies has a cash value feature?

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A) Term life B) Group life C) Credit life D) Whole life E) Convertible term

98)

Cash-value policies may make sense for people who: A) intend to keep the policies for only a couple of years. B) are able to save easily. C) must be forced to save. D) need to accumulate reserves in a few years. E) need benefits in the early years.

99) Using the multiple of income method to estimate insurance needs, what amount of insurance is needed if your current income is $50,000? A) $50,000 B) $100,000−$200,000 C) $250,000−$500,000 D) $500,000−$900,000 E) over $1,000,000

100) Using the multiple of income Method to estimate life insurance needs, what is the minimum amount of insurance needed for Susan Smith if her annual income is $60,000?

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A) $60,000 B) $100,000 C) $150,000 D) $200,000 E) $300,000

101) Which type of life insurance policy continues to grow in popularity, because the policyholder pays the same premium amount for the life of the policy? A) Whole life B) Multiyear term life C) Decreasing term D) Return-of-premium term E) Convertible term

102)

One of the ten golden rules when buying life insurance is to: A) buy from an unlicensed company. B) buy more life insurance than you need. C) select an agent who is competent and trustworthy. D) ask about higher premium rates for nonsmokers. E) not worry about reading and understanding your policy.

103)

One of the ten golden rules when buying life insurance is to: A) buy from a company licensed in your state. B) buy more life insurance than you need. C) select an agent who is incompetent. D) ask about higher premium rates for nonsmokers. E) not worry about reading and understanding your policy.

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104) Which one of the following is a price quote service that offers convenient and free, noobligation life insurance premium comparisons? A) TermQuote B) Bargain Quote C) Life Quote D) Expensive Quote E) Best Value Quote

105) To obtain the insurance proceeds from a life insurance policy, who will have to send the policy and a copy of your death certificate to the life insurance company? A) Your doctor B) Your family friend C) Your beneficiary D) Your coworker E) Your funeral home

106) Which of the following life insurance policies offers the greatest amount of coverage for the lowest initial premium and is a good choice for young families on a tight budget? A) Whole life B) Straight life C) Ordinary life D) Cash value life E) Term life

107) Prior to the COVID-19 pandemic, many viewed life insurance as just another discretionary expense, but with the death toll in the US over 500,000 lives, the need for financial preparedness has garnered a greater focus.

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⊚ ⊚

true false

108) Most people buy life insurance to protect someone who depends on them from financial losses caused by their death. ⊚ true ⊚ false

109)

Most American families face a substantial loss when one spouse dies unexpectedly. ⊚ true ⊚ false

110)

Life insurance is one of the most important and expensive purchases you may ever make. ⊚ true ⊚ false

111)

Consumer awareness of life insurance has changed little over the years. ⊚ true ⊚ false

112)

Life insurance proceeds may be used to provide an education or income for children. ⊚ true ⊚ false

113)

Life insurance proceeds may be used to provide a retirement income. ⊚ true ⊚ false

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114)

Most insurance companies can determine how long a particular person will live. ⊚ true ⊚ false

115)

Single persons living alone usually have little or no need for life insurance. ⊚ true ⊚ false

116)

Households with small children usually have the greatest need for life insurance. ⊚ true ⊚ false

117) Before you buy life insurance, you should determine whether you really need life insurance. ⊚ true ⊚ false

118) If your death would cause financial stress for your spouse or children, you should consider purchasing life insurance. ⊚ true ⊚ false

119) Two-earner couples may have a moderate need for life insurance, especially if they have a mortgage or other large debts. ⊚ true ⊚ false

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120) How much insurance one should carry is an important question for every person who owns or intends to buy life insurance. ⊚ true ⊚ false

121)

A life insurance policy puts a price on the life of the insured person. ⊚ true ⊚ false

122) The easy method of determining life insurance needs is based on the rule of thumb that a "typical family" will need about 70 percent of your salary for seven years. ⊚ true ⊚ false

123) The DINK method of determining life insurance needs assumes that your spouse will continue to work after your death and covers one-half of the family debt, plus estimated funeral expenses. ⊚ true ⊚ false

124) If you have no dependents and your spouse earns as much as you do, you have simple insurance needs. ⊚ true ⊚ false

125) The "family need" method of determining life insurance needs provides a thorough estimation of your life insurance needs.

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⊚ ⊚

true false

126) According to LIMRA, consumers often overestimate the cost of insurance, which in turn reduces the chance they will buy a policy due to perceived cost. ⊚ true ⊚ false

127)

Mutual companies issue only nonparticipating policies. ⊚ true ⊚ false

128) A term insurance policy pays a benefit only if you die during the period that the policy covers. ⊚ true ⊚ false

129)

The premium for a whole life policy increases with your age. ⊚ true ⊚ false

130)

Universal life, variable life, and adjustable life are types of term life insurance. ⊚ true ⊚ false

131)

You can purchase life insurance from two types of life insurance companies. ⊚ true ⊚ false

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132)

Stock life insurance companies are owned by their policyholders. ⊚ true ⊚ false

133)

Most life insurance companies are mutuals. ⊚ true ⊚ false

134)

In a participating policy, a part of the premium is refunded to the policyholder annually. ⊚ true ⊚ false

135) The premium that is refunded to policyholders of a participating policy is called the policy dividend. ⊚ true ⊚ false

136)

Two basic types of life insurance are temporary and permanent insurance. ⊚ true ⊚ false

137) Permanent insurance can be limited payment, variable, adjustable, or universal life insurance. ⊚ true ⊚ false

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138)

Group life and credit life insurance are generally permanent forms of insurance. ⊚ true ⊚ false

139)

Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20 years. ⊚ true ⊚ false

140)

Term insurance continues for the entire term even if you stop paying the premiums. ⊚ true ⊚ false

141) Term insurance is a basic, "no frills" form of life insurance and is the best value for most consumers. ⊚ true ⊚ false

142)

Term life insurance premiums decrease as you get older. ⊚ true ⊚ false

143) The coverage of term insurance ends at the conclusion of the term, but you can continue it if you have a renewability option. ⊚ true ⊚ false

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144) If you have convertible term insurance, you can exchange it for a whole life policy without a medical examination and at a higher premium. ⊚ true ⊚ false

145)

Decreasing term life insurance is no longer available. ⊚ true ⊚ false

146) The amount of your whole life insurance premium for each $1,000 of coverage depends primarily on the age at which you purchase the insurance. ⊚ true ⊚ false

147) Because the premium payment period for a limited payment policy is shorter than that of a whole life policy, the annual premium is higher. ⊚ true ⊚ false

148) A special form of the limited payment plan is the single-premium policy. In this type of contract, you make only one very large premium payment. ⊚ true ⊚ false

149)

The cash values of a variable life insurance policy increase at a constant rate over time. ⊚ true ⊚ false

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150) When you purchase a variable life policy, the insurance company assumes the risk of poor investment performance. ⊚ true ⊚ false

151) Universal life is a whole life policy that combines term insurance with an investment option. ⊚ true ⊚ false

152) Credit life insurance is used to repay a personal debt should the borrower die before doing so. ⊚ true ⊚ false

153) Credit life insurance policies for auto loans and home mortgages are usually the best buys for the protection they offer. ⊚ true ⊚ false

154)

Industrial life insurance is the most popular form of insurance today. ⊚ true ⊚ false

155) An important provision in every life insurance policy is the right to name your beneficiary.

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⊚ ⊚

true false

156) A rider is any document attached to the policy that modifies its coverage by adding or excluding specified conditions or altering its benefits. ⊚ true ⊚ false

157) The incontestability clause stipulates that the insurance company can dispute the validity of the policy anytime during the insured's lifetime. ⊚ true ⊚ false

158) The policy loan provision permits you to borrow any amount up to the cash value of the policy. ⊚ true ⊚ false

159) Even though it is expensive, you should add the accidental death benefit to your life insurance policy, because your chances of dying in the exact manner stated in the policy are very high. ⊚ true ⊚ false

160) When your life insurance objectives change, you should review the policy carefully and discuss its provisions with your agent. ⊚ true ⊚ false

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161) A beneficiary is a person designated to receive something, such as life insurance proceeds, from the insured. ⊚ true ⊚ false

162)

Usually, there is no time limit on reinstatement of a lapsed life insurance policy. ⊚ true ⊚ false

163) One important feature of a whole life policy is the nonforfeiture clause, which prevents the forfeiture of accrued benefits if you choose to drop the policy. ⊚ true ⊚ false

164) Under the waiver of premium disability benefit provision, the company waives any premiums that are due after the onset of total and permanent disability. ⊚ true ⊚ false

165) The guaranteed insurability option is desirable if you anticipate the need for additional life insurance in the future. ⊚ true ⊚ false

166) The cost-of-living protection rider is designed to help prevent inflation from eroding the purchasing power of the protection your policy provides.

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⊚ ⊚

true false

167) Accelerated benefits are life insurance policy proceeds paid to the terminally ill policyholder before he or she dies. ⊚ true ⊚ false

168)

A second-to-die life insurance policy pays a death benefit when the first spouse dies. ⊚ true ⊚ false

169) An interest-adjusted index is a method of evaluating the cost of life insurance by taking into account the time value of money. ⊚ true ⊚ false

170)

Life insurance is available from a wide range of private and public sources. ⊚ true ⊚ false

171) The financial strength of an insurance company may be a major factor in holding down premium costs for consumers. ⊚ true ⊚ false

172) When buying life insurance, as a rule, you should deal with companies rated superior or excellent by the major rating agencies.

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⊚ ⊚

true false

173) A chartered life underwriter is a life insurance agent who has passed a series of collegelevel examinations on insurance and related subjects. ⊚ true ⊚ false

174)

The lump-sum payment settlement option is the least used option. ⊚ true ⊚ false

175) Under the life income option, payments are made to the beneficiary for as long as he or she lives. ⊚ true ⊚ false

176) If life insurance proceeds are left with the company, the company acts as trustee and pays the interest to the beneficiary. ⊚ true ⊚ false

177) An annuity is a financial contract written by an insurance company to provide you with a regular income. ⊚ true ⊚ false

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178) With a variable life insurance policy, many people choose to supplement their retirement income by withdrawing some of the investment portion as an annuity to provide regular income. ⊚ true ⊚ false

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Answer Key Test name: Chap 12_14e_Kapoor 11) E 12) A 13) B 14) D 15) E 16) C 17) E 18) E 19) A 20) C 21) A 22) D 23) C 24) A 25) E 26) D 27) C 28) E 29) C 30) D 31) A 32) D 33) C 34) C 35) B 36) E Version 1

37) D 38) B 39) D 40) C 41) E 42) D 43) B 44) C 45) A 46) B 47) D 48) C 49) B 50) C 51) C 52) A 53) E 54) A 55) B 56) C 57) A 58) B 59) C 60) D 61) E 62) E 63) B 64) C 65) D 66) E Version 1

67) B 68) E 69) B 70) A 71) D 72) D 73) B 74) A 75) E 76) A 77) C 78) B 79) A 80) A 81) E 82) D 83) B 84) A 85) D 86) E 87) D 88) B 89) A 90) D 91) B 92) E 93) E 94) D 95) A 96) E Version 1

97) D 98) C 99) C 100) E 101) B 102) C 103) A 104) A 105) C 106) E 107) TRUE 108) TRUE 109) TRUE 110) TRUE 111) TRUE 112) TRUE 113) TRUE 114) FALSE 115) TRUE 116) TRUE 117) TRUE 118) TRUE 119) TRUE 120) TRUE 121) TRUE 122) TRUE 123) TRUE 124) TRUE 125) TRUE 126) TRUE Version 1

127) FALSE 128) TRUE 129) FALSE 130) FALSE 131) TRUE 132) FALSE 133) FALSE 134) TRUE 135) TRUE 136) TRUE 137) TRUE 138) FALSE 139) TRUE 140) FALSE 141) TRUE 142) FALSE 143) TRUE 144) TRUE 145) FALSE 146) TRUE 147) TRUE 148) TRUE 149) FALSE 150) FALSE 151) TRUE 152) TRUE 153) FALSE 154) FALSE 155) TRUE 156) TRUE Version 1

157) FALSE 158) TRUE 159) FALSE 160) TRUE 161) TRUE 162) FALSE 163) TRUE 164) TRUE 165) TRUE 166) TRUE 167) TRUE 168) FALSE 169) TRUE 170) TRUE 171) TRUE 172) TRUE 173) TRUE 174) FALSE 175) TRUE 176) TRUE 177) TRUE 178) TRUE

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CHAPTER 13 1) The investment pyramid describes four levels of investment. State the name of each level and provide examples of investments at each level.

2) Luciano Cespedes paid $1,000 for a corporate bond issued by an oil and gas corporation. The annual interest rate for the bond is 6 percent. a.What is the annual interest amount for this bond? b.Since the annual interest for this bond is paid every six months or semiannually, how much will Luciano receive for her bond each six months? c.If comparable, new bonds pay 8 percent interest, what is the approximate market value for Luciano’s oil and gas bond?

3) Choose three of the six traditional investments and describe how the factors of safety, risk, income, and growth are ranked for evaluating each of these investments.

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4) Amin and Leyli Nassour are both 32 years old. Although they graduated from college almost 10 years ago, they have never developed a diversified investment program. What extra money they had was invested in high-tech stocks that did quite well until the last five years. Then, with the economic downturn, they encountered major losses. How could asset allocation have reduced the dollar amounts of the Nassours' losses?

5) List the sources of investment information that investors can use to evaluate a potential investment.

6) To manage an economic crisis, many experts recommend that you manage your personal finances and your investment program with what six steps?

7) Discuss what robo advisors are, why they are used, and what they provide for investment clients.

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Which of the following is a true statement regarding investment goals?

A) To be useful, investment goals must be written. B) To be useful, investment goals must be very general. C) Investment goals are the same for each individual. D) Because investment goals deal with the future, it is useless to plan more than five years in the future. E) A long-term investment goal involves a time period of five years or less.

A short-term investment goal is one that will be accomplished within a period of: A) one year or less. B) two to five years. C) more than five years. D) three years or less. E) two years or less.

10) An intermediate-term investment goal is defined as one that will be accomplished within a period of: A) five to ten years. B) two to eight years. C) more than five years. D) one to five years. E) less than one year.

11) All of the following statements are considered to be good advice for a potential investor starting an investment program except:

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A) Work to balance your budget. B) Increase credit purchases to conserve cash. C) Establish specific and measurable investment goals. D) Start an emergency fund. E) Perform a financial checkup.

12) A good rule of thumb is to limit consumer credit payments to no more than _____________blank percent of your net (after-tax) income. A) 20 B) 30 C) 40 D) 50 E) 60

13)

An emergency fund should be deposited in a: A) savings account or other near-cash investments. B) six-month certificate of deposit. C) checking account. D) safe place at home. E) safe deposit box in a bank vault.

14) Cristiano Pedroso earns $80,000 a year. His monthly expenses total $4,500. What is the minimum amount of money that he should set aside in an emergency fund? A) $2,150 B) $4,500 C) $9,000 D) $13,500 E) $40,000

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15) Joaquin Garcia earns $40,000 a year. His monthly expenses total $2,500. What is the minimum amount of money that he should set aside in an emergency fund? A) $2,500 B) $5,000 C) $7,500 D) $10,000 E) $20,000

16)

Which of the following features does not accurately describe a line of credit? A) A loan approved before the money is actually needed B) Funds available immediately when needed once the loan is preapproved C) Obtainable from a credit union, savings and loan association, or bank D) It has a ceiling E) Long-term loan

17) All except which one of the following are good ways to acquire money for starting an investment program? A) Pay bills first, and then save a reasonable amount of money for investment B) Participate in an elective savings program C) Make a special savings effort one month per year D) Borrow money specifically for investment purposes E) Take advantage of an employer-sponsored retirement program

18) Oliver Schneider earns $2,500 per month. He pays his mortgage, utilities, grocery and other bills and then he makes sure to set aside $100 for his savings and investment accounts before he spends money to go to movies and other personal expenses. Which suggestion for obtaining the money he needs for investing is he following?

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A) Paying himself first B) Taking advantage of employer-sponsored retirement programs C) Participating in an elective savings program D) Making a special effort once or twice a year to save E) Taking advantage of gifts, inheritance and other windfalls

19) Larissa Haas contributes six percent of her monthly earnings to her 401k plan at work. The plan allows her to invest in several different types of mutual funds and her employer matches up to 3 percent of her salary. Which suggestion for obtaining the money she needs for investing is she following? A) Paying herself first B) Taking advantage of employer-sponsored retirement programs C) Participating in an elective savings program D) Making a special effort once or twice a year to save E) Taking advantage of gifts, inheritance and other windfalls

20) Quentin Hayes has a mutual fund that automatically takes $50 out of his paycheck each month. Which suggestion for obtaining the money he needs for investing is he following? A) Taking advantage of gifts, inheritance and other windfalls B) Taking advantage of employer-sponsored retirement programs C) Participating in an elective savings program D) Making a special effort once or twice a year to save E) Using financial leverage to increase investment returns

21) After Christmas is over, Graham Clarke works hard to control his expenses in February so that he can make an extra payment into a mutual fund. Which suggestion for obtaining the money he needs for investing is he following?

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22) Elliott McLeod just received $12,000 from his grandmother's estate. He has thought about buying himself a new motorcycle with the money but has decided instead to add the money to his mutual fund account. What is he doing to obtain the money for investing? A) Paying himself first B) Taking advantage of employer-sponsored retirement programs C) Participating in an elective savings program D) Making a special effort once or twice a year to save E) Sacrificing some purchases to provide financing for investments

23) Forty years ago, you began investing $2,000 a year. Because your investments earned an average of 2 percent a year, your investment portfolio has a current dollar value of $120,804. How much did you earn on your investments over the 40-year period of time? A) $2,000 B) $40,000 C) $40,804 D) $80,000 E) $120,804

24) Twenty years ago, you began investing $200 a month. Because your investments earned an average of 8 percent a year, your investment portfolio has a current dollar value of $128,000. How much did you earn on your investments over the 20-year period of time?

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A) $48,000 B) $60,000 C) $80,000 D) $100,000 E) $128,000

25) Bai Cheng has received $35,000 in a divorce settlement and is trying to decide how to invest it. She has looked at stocks but is uncertain as some stocks have lost a lot of value for their owners recently. What aspect of investing is she most concerned about? A) Risk B) Inflation C) Diversification D) Liquidity E) Investment growth

26) Which one of the following individuals should be receptive to speculative investments with higher risks? A) Carmella Fazzari, who is a single mother with two small children B) Darren McCarter, who works for American Airlines and is worried that he is going to be laid off soon C) Levell Parks, who is an investment banker with financial training D) Edward Burke, who is 74 years old and has been retired for 6 years E) Tyler Richert, who is a pizza delivery person and makes about $15,000 per year

27) Elin Lindberg has received a $12,000 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 appreciating by about 10 percent over the last several years. What aspect of investing interests Elin?

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A) Risk B) Return C) Diversification D) Liquidity E) Income

28) Which one of the following is a true statement regarding the components of the risk factor? A) When choosing an investment, it is not necessary to consider the risk factor. B) During inflationary times, there is no risk that the financial return on an investment will not keep pace with the rate of inflation. C) The interest rate risk associated with corporate bonds is the result of changes in the interest rates in the economy. D) The risk of business failure deals with changes in the value of stocks and bonds due to changes in interest rates in the market. E) The prices of stocks, bonds, and other investments never fluctuate in the market.

29) If interest rates in the overall economy decrease to 4 percent, which one of the following is most likely to be the approximate market value of a $1,000 corporate bond with a fixed interest rate of 6 percent? A) $1,000 B) $1,500 C) $2,000 D) $4,000 E) $6,000

30) If interest rates in the overall economy increase to 8 percent, which one of the following is most likely to be the approximate market value of a $1,000 corporate bond with a fixed interest rate of 4 percent?

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A) $0 B) $400 C) $500 D) $1,000 E) $1,700

31) After the death of her husband, Laila Fareedi, 35, received a check for $250,000 from a life insurance company. Laila has two small children and wants to make sure that both she and the children are taken care of in the future. Based on this information, which of the investment factors listed below would be the most important to Laila in her investment program? A) Beta B) Safety C) Business failure D) Market risk E) Liquidity

32) If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed interest rate? A) The bond will lose all its value. B) The value of the bond will increase. C) The value of the bond will decrease. D) The value of the bond will not change. E) It is impossible to determine if the bond's value will increase, decrease, or remain constant.

33) An example of _____________blank risk occurs when the financial return on an investment does not keep up with prices that are increasing in the overall economy.

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A) market B) interest C) inflation D) business failure E) current

34) A $1,000 corporate bond pays 5 percent a year. What is the annual interest you will receive? A) $0.50 B) $5.00 C) $50.00 D) $500.00 E) $1,000.00

35) Unsuccessful products or bad corporate management may result in investors experiencing _____________blank risk. A) inflation B) interest rate C) business failure D) systematic E) income

36) When a bond decreases in value because interest rates in the economy increase, it is an example of _____________blank risk.

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A) market B) interest rate C) inflation D) business failure E) current

37) Seamus O’Scanlon wants to invest but is worried about risk. In particular, he is worried that the money he invests today will not buy as much ten years from now. What type of risk concerns Seamus? A) Inflation risk B) Interest rate risk C) Business failure D) Market risk E) Global investment

38) Genevieve Rodgers wants to invest but is worried about risk. In particular, she is worried that bad management and increased competition in the wireless phone market will make these companies less profitable than expected. What type of risk is Genevieve most concerned with? A) Inflation B) Interest rate C) Business failure D) Systematic E) None of these choices is correct.

39)

Which one of the following statements is true regarding global investments?

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A) Global investments must be evaluated just like domestic investments. B) Global investments can only be bought in the U.S. C) Today, very few investors are investing in stocks and bonds issued by foreign firms or in global mutual funds. D) For most small investors, it is safer to invest in foreign firms, rather than in global mutual funds. E) Investing in global investments does not diversify your portfolio.

40) John Hernandez is 24 years old and has saved enough money to fund an adequate emergency fund. In addition, he has saved $5,600 that can be used to fund an investment program. He is single, has no dependents, and would like to retire when he is 60 years old. Which one of the investment factors listed below would be most important for an investor like Mr. Hernandez? A) Beta B) Investment income C) Investment growth D) Risk E) Investment liquidity

41) Fluctuations in the prices of stocks, bonds, or other investments due to political activity may cause investors to experience _____________blank risk. A) inflation B) interest rate C) business failure D) market E) income

42) An investor concerned with a predictable source of income provided by an investment would choose:

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A) U.S. government securities. B) commodities. C) options. D) common stocks. E) speculative investments.

43)

Which one of the following investments offers the least amount of growth potential? A) Real estate B) Common stock C) Mutual funds D) Options E) Preferred stock

44)

Which one of the following investments offers the greatest opportunity for growth? A) Bank accounts B) Common stock C) Corporate bonds D) Government bonds E) Options

45)

Which of the following are not considered a speculative investment alternatives? A) Options and commodities B) Derivatives C) Stocks and bonds D) Bitcoins and cryptocurrencies E) Hedge Funds and Levered Real Estate

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46) Lennox Jackson is single and 28 years old. He has just graduated from college with a master’s degree and obtained a job making $27,500 a year. Which one of the following investments would you recommend for his long-term investment program? A) Corporate bonds B) Government bonds C) Growth stocks D) Certificates of deposits E) Savings account

47) The ability of an investment to be converted to cash without a substantial loss in dollar value is called: A) asset value. B) liquidity. C) growth potential. D) fixed cost factor. E) variable cost factor.

48)

Which one of the following investments offers the greatest liquidity? A) Checking account B) Common stock C) Corporate bond D) Real estate E) Collectibles

49)

Which one of the following investments offers the least liquidity?

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A) Checking account B) Near-cash investment C) Real estate D) Savings account E) Certificate of deposit

50) Francisco Paiva has just gotten a gift of $15,000 from his parents and is trying to decide how to invest it. He is thinking about investing in a money market mutual fund, because he knows he can withdraw the money whenever he needs it with little chance of a loss in value. What aspect of investing is Francisco most concerned about? A) Risk B) Return C) Diversification D) Liquidity E) Investment growth

51) Adler Reimer has just received an inheritance of $25,000 from his mother and is trying to decide how to invest it. Adler is young and earns a good salary. Adler wants to invest in a smallcap mutual fund. While he won't receive much in the way of cash dividends, the companies are reinvesting significant amounts so the sales revenue and earnings in the future will be much larger. What aspect of investing is Adler most concerned about? A) Market risk B) Rate of return C) Diversification D) Liquidity E) Investment growth

52) Based on historical performance, which one of the following investments is most likely to provide an average return of 10 percent a year between now and the year 2025?

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A) U.S. Treasury bills B) Corporate bonds C) Stocks D) Options E) Zero-coupon bonds

53) Samantha Ahangar has just received $22,000 from an uncle who died and is trying to decide how to invest it. She has done some research and has decided that about 30 percent of the money should go into large-cap stocks, 20 percent into medium-cap stocks, 15 percent into small-cap stocks, 10 percent into bonds, 10 percent into foreign stock, and 15 percent into cash. She thinks that even if one area does not do that well, the rest will so that her overall return will be pretty good. What aspect of investing is Samantha most concerned about? A) Income B) Return C) Diversification D) Liquidity E) Investment growth

54)

What is the primary goal of asset allocation? A) Investment income B) Growth C) Liquidity D) Return E) Risk reduction

55)

Which one of the following statements is true?

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A) Investors should put all of their "eggs in one basket." B) Individuals can ignore their tolerance for risk when selecting specific investments. C) Diversification is one way to increase your risk. D) The amount of time a specific investment has to work is an important factor when managing an investment. E) Younger investors tend to invest a large percentage of their portfolio in conservative investments.

56)

Which one of the following investments would rank the highest with regard to safety? A) U.S. Government bond B) Common stock C) Preferred stock D) Corporate bond E) Real estate

57)

Equity capital is money: A) obtained from the owners of a business. B) borrowed through banks. C) obtained by employee benefit programs. D) that has to be repaid. E) that has been allocated to a retirement program.

58)

If you seek financial security, which investments are appropriate for you? A) Speculative stocks, options, and commodities B) Growth stocks and rental property C) U.S. securities and conservative mutual funds D) CDs and U.S. government bonds E) All of these are appropriate for financial security.

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59) Keshaun Tillman is thinking about buying an investment that represents safety and income within the investment pyramid. Which investment is Keshaun thinking about purchasing? A) Speculative stocks, options, and commodities B) Growth stocks and rental property C) U.S. securities and conservative mutual funds D) CDs and U.S. government bonds E) All of these are appropriate for safety and income.

60) Devonte Adams is thinking about buying an investment that represents an ownership claim on a company. The most important priority he has with this investment is receiving his dividends before dividends are paid on other types of investments. What investment is Devonte thinking about purchasing? A) Common stock B) Preferred stock C) Corporate bond D) Option E) Mutual fund

61) Audrey is thinking about an investment that involves buying a written pledge by a corporation to repay a specified amount of money. It also pays interest every 6 months until it matures. What investment is Audrey thinking about purchasing? A) Common stock B) Preferred stock C) Corporate bond D) Real estate E) Mutual fund

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62)

A corporation selling stock is obligated to: A) guarantee the shareholders' investment. B) repay money obtained from the sale of that stock. C) repurchase shares of stock at a later date. D) pay dividends to the common shareholders. E) pay dividends to preferred stockholders before common stockholders.

63)

Which of the following is a true statement regarding stock investments?

A) A corporation generally obtains equity capital from bondholders. B) A corporation must issue preferred stock before issuing common stock. C) When a corporation is experiencing financial problems, an investor should purchase common rather than preferred stock. D) Corporations are required to pay dividends every year. E) There are no guarantees that a stock’s value will go up after you purchase it.

64)

The money obtained by a company from selling corporate bonds: A) is obtained from investors. B) is obtained from the owners of the business. C) is obtained from employee stock option programs. D) does not have to be repaid. E) must be allocated to retirement programs.

65) If a $1,000 bond pays 4.6 percent interest each year, how much would each semiannual interest payment be?

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A) $5 B) $10 C) $20 D) $23 E) $46

66)

The maturity dates for most bonds range between _____________blank years. A) 0 to 5 B) 5 to 20 C) 10 to 20 D) 1 to 30 E) 15 to 40

67) Which one of these investments pools the money from many investors, hires a professional money manager to manage those funds, and offers diversification to investors? A) NOW account B) Securities exchange C) Certificate of deposit D) Mutual fund E) Stock option

68)

Which one of the following is a true statement regarding mutual funds?

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A) Professional management is an especially important factor for investors purchasing a mutual fund. B) The only reason investors purchase mutual funds is the high growth expected. C) While mutual funds may experience loss, your original investment is guaranteed. D) Mutual funds are all designed to appeal only to conservative investors. E) The responsibility for choosing the right mutual fund is based on the professional manager’s evaluation.

69) Alexander Riggs is thinking about buying an investment. The investment option that he is thinking about buying is an investment where investors pool their money. One of the key features is that it is managed by professional managers. What investment is Alexander thinking about purchasing? A) Common stock B) Preferred stock C) Corporate bond D) Real estate E) Mutual fund

70) Xavier Robbinson is thinking about investing in an investment that is high-risk in the hope of earning a relatively large profit in a short amount of time. Which investment is he most likely considering? A) U.S. government bond B) Certificate of deposit C) Low-growth stock D) Speculative stock E) Low-risk bond

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71) Narinder Patel is thinking about buying an investment. The most important consideration when making this investment is the location of the investment. What investment is Narinder thinking about purchasing? A) Common stock B) Preferred stock C) Corporate bond D) Real estate E) Mutual fund

72)

Which one of the following is false regarding mutual fund investments?

A) Mutual funds invest in a variety of securities. B) Diversification provided by a mutual fund reduces risk. C) The goals of one mutual fund investor may differ from those of another. D) Since mutual fund managers are professionals, there is no need for the investor to evaluate a mutual fund. E) Mutual fund investments range from very conservative to extremely speculative investments.

73)

Which one of the following is a true statement regarding real estate investments?

A) It is not possible for real estate values to decrease. B) Location is the least important factor when making a real estate investment. C) The growth rate of real estate makes it a long-term investment. D) There is no reason to evaluate a real estate investment because real estate always increases in value sooner or later. E) The growth rate of real estate makes it a "get-rich-quick" scheme.

74) Which one of the following would not be considered a safe investment for a conservative investor?

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A) Cash B) Certificates of deposit C) Savings accounts D) U.S. Government bonds E) Collectibles

75) Which one of the following investments would provide the most predictable source of income? A) Global mutual funds B) Real estate C) Collectibles D) Common stock E) U.S. government securities

76) For an investor who wants to be conservative, which of the following investments would not be appropriate? A) U.S. government bonds B) Coins and stamps C) U.S. securities D) CDs E) Conservative mutual funds

77) Which of the following statements is true regarding the steps for effective investment planning?

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A) When establishing an investment program, you should begin by monitoring your investments. B) When you are choosing an investment, you should examine only the interest rate risk factor associated with each investment. C) When establishing an investment program, you should examine the potential return for all investments. D) Leave the financial planning to the professionals. E) There is no need to monitor your investments after you have made your investment decision.

78)

Which one of the following is not a business periodical? A) Barron’s B) Bloomberg Businessweek C) New York Stock Exchange Report D) Forbes E) Fortune

79)

Which one of the following is false regarding sources of investment information?

A) You can obtain recommendations to buy or sell stocks and other securities by accessing internet sites. B) Personal subscriptions to investor services are relatively inexpensive. C) You can obtain current price information for stocks, bonds, and mutual funds by using the internet. D) You can trade securities online. E) Federal, state, and local governments have a home page where you can obtain investment information.

80)

Morningstar and Value Line are companies that would be examples of:

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A) stockbrokers. B) securities exchanges. C) stock regulations. D) investor services. E) stock underwriters.

81)

Which of the following does not offer investor services? A) Value Line Stock Reports B) www.yahoo.com C) Morningstar Investment Reports D) Standard & Poor's E) All of these offer investor services

82) Which one of the following is not a recommended step individuals can use to withstand an economic downturn? A) Establish a smaller than usual emergency fund B) Consider converting investments to cash to preserve value C) Notify lenders and credit card companies if you are unable to make payments D) Reduce spending E) Monitor the value of your investment and retirement accounts

83)

To avoid the financial problems associated with excessive credit card debt, you should: A) Pay your credit card balance in full each month B) Use your credit card to pay for small purchases C) Take advantage of the cash advance feature D) Use a large number of credit cards E) Avoid getting help if you think you are in trouble

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84)

Which type of risk affects only a specific company or a specific industry? A) Interest rate B) Systematic C) Unsystematic D) Economic E) Inflation

85)

Which one of these is not an example of systematic risk? A) War B) Inflation C) Political activity D) Decline in the auto industry E) Increasing interest rates

86) Stocks provide average safety while government bonds provide _____________blank safety. A) low B) medium C) high D) average E) below average

87)

In how many of the years since 1926 have stocks lost money?

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A) 0 B) 10 C) 25 D) 40 E) 55

88) It is suggested that you allocate a percentage of your assets to growth investments based on the: A) difference between your age and 100. B) difference between your age and 75. C) difference between your age and 70. D) difference between your age and 65. E) difference between your age and 62.

89)

Because of the age factor, older investors tend to be more conservative and invest in: A) speculative stocks. B) commodities. C) collectibles. D) very safe corporate stocks. E) options.

90)

Which of the following types of investment information can be found on the internet? A) Interest rates for certificates of deposit B) Current price information for stocks, bonds, and mutual funds C) Broker's buy and sell recommendations D) Financial calculators E) All of these choices are correct.

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91) Establishing a(n) _____________blank ensures that you will have an amount of money that can be obtained quickly in case of immediate need. A) traditional IRA B) emergency fund C) Roth IRA D) 403b E) 401k

92) The maximum dollar amount that can be borrowed using the cash advance provision on a credit card is called the: A) ceiling. B) finance charge. C) interest rate. D) emergency fund. E) rate of return.

93)

Which of the following is not true of stocks? A) Since the end of World War II, stocks have returned almost 10 percent a year. B) Since 1926, stocks had positive gains in 69 years. C) Since 1926, stocks lost money in 25 years. D) In March 2020, the Dow Jones experienced its worst one-day decline in history. E) In reality, stocks do not have a place in every investment portfolio.

94) An investment program can be seen as a pyramid consisting of _____________blank levels.

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A) 1 B) 2 C) 3 D) 4 E) 5

95)

Bondholders normally receive interest payments every _____________blank months. A) 3 B) 6 C) 9 D) 12 E) 24

96)

Which of the following is not true of mutual funds? A) Mutual funds range from very conservative to extremely speculative investments. B) They do not offer diversification. C) They can be used for retirement accounts. D) This investment provides professional management. E) A mutual fund pools the money from many investors.

97)

Typical asset classes used for diversification include all of the following except: A) Bonds B) Foreign stocks C) Credit cards D) Small cap stocks E) Midcap stocks

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98)

The advantages of asset allocation include all of the following except: A) It lessens risk for the investment program. B) It helps avoid the pitfall of putting all your eggs in one basket. C) It uses different asset classes to provide a measure of safety. D) It helps offset a loss in one investment with gains in other investments. E) It is extremely difficult to find the right mix of asset classes.

99) in:

If you need to withdraw your investment money in two years, you should probably invest

A) stocks. B) mutual funds. C) certificates of deposits. D) long-term government bonds. E) long-term corporate bonds.

100) According to many financial planners, what percentage of your assets should be invested in safer, more conservative investments if you are 25 years of age? A) 15% B) 25% C) 60% D) 75% E) 100%

101)

For a corporation, equity capital is provided by:

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A) stockholders. B) lenders. C) bondholders. D) financial managers. E) government agencies.

102) of:

Many financial planners recommend that you choose a mutual fund with an expense ratio

A) 1 percent or less B) 2 percent or less C) 3 percent or less D) 4 percent or less E) 5 percent or less

103) If you do not pay for products or services purchased on credit, then all of the following can occur, except: A) Merchandise can be repossessed. B) You can develop a good relationship with creditors. C) A business can sue to recover the cost of the product or service. D) Your credit score can be lowered to reflect late or missed payments. E) The cost of additional credit may be higher.

104) Which of the following is defined as the increase and decrease in a nation’s economic activity?

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A) Business cycle B) Recession C) Monetary policy D) Fiscal policy E) Economics

105) If you invest $2,000 in a stock and the stock pays you $35 in dividends each year and is worth $2,150 at the end of one year, then what is your rate of return? A) 9.25% B) 8.25% C) 7.25% D) 6.25% E) 5.25%

106) If you can leave your investments alone and let them work for 5 to 10 years or more, then you can invest in: A) short-term government bonds. B) stocks and mutual funds. C) highly rated corporate bonds. D) certificates of deposit. E) cash.

107)

The first step to creating an investment plan is to establish investment goals. ⊚ true ⊚ false

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108) The time value of money is built upon two important concepts, 1) you save or invest on a regular basis over a long period of time, and 2) your savings and investments grow because they pay interest, dividends, or increase in value, adding to the amount initially invested. ⊚ true ⊚ false

109) For most people, debt is one of the most significant obstacles that keeps them for obtaining the life and lifestyle they want. ⊚ true ⊚ false

110) The money in your emergency fund should be kept in an IRA or ROTH IRA that earns interest. ⊚ true ⊚ false

111) An emergency fund is an amount of money that can be accessed quickly in case of immediate need. ⊚ true ⊚ false

112)

A line of credit is a short-term loan that is approved before the money is actually needed. ⊚ true ⊚ false

113) A ceiling on a credit card is determined by the borrower and is the dollar amount that they want to borrow using the cash advance provision on their credit card. ⊚ true ⊚ false

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114)

The rate of return on an investment has no effect on an investment program. ⊚ true ⊚ false

115) The key to investing is to determine how much risk you are willing to assume, then choose quality investments that offer higher returns without an unacceptably high risk. ⊚ true ⊚ false

116)

There is no relationship between risk and safety. ⊚ true ⊚ false

117) The potential return on any investment should be directly related to the risk that the investor assumes. ⊚ true ⊚ false

118) During periods of high inflation, there is a risk that the financial return on an investment will not keep pace with the rate of inflation. ⊚ true ⊚ false

119)

With most investments, more information is available than you can read and comprehend. ⊚ true ⊚ false

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120)

The U.S. government is the world’s largest provider of investment information. ⊚ true ⊚ false

121)

Common stock that an investor expects will increase in value is known as a growth stock. ⊚ true ⊚ false

122) Liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment’s value. ⊚ true ⊚ false

123) As investors get older, the asset allocations change and typically become more aggressive. ⊚ true ⊚ false

124) A bond’s value can decrease if a corporation experiences financial problems and investors are concerned about the prospects of repayment at maturity. ⊚ true ⊚ false

125) Asset allocation is the process of spreading your assets among several different types of investments to lessen risk. ⊚ true ⊚ false Version 1

126) The amount of time that your investments have to work for you is an important factor when establishing your long-term investment program. ⊚ true ⊚ false

127) Younger investors tend to invest a large percentage of their nest egg in growth-oriented investments. ⊚ true ⊚ false

128) The most important priority an investor in preferred stock enjoys is receiving cash dividends before common stockholders are paid any cash dividends. ⊚ true ⊚ false

129) A speculative investment is a high-risk investment that is made in the hope of earning a relatively large profit over a long period of time. ⊚ true ⊚ false

130)

Generally, options are conservative, long-term investments. ⊚ true ⊚ false

131) Once you have developed an asset allocation plan for your investments, you never need to adjust it.

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⊚ ⊚

true false

132) Once you have developed an investment program, there is no need for continued evaluation of it. ⊚ true ⊚ false

133) Accurate record keeping can help you spot opportunities to maximize profits or reduce dollar losses when you sell your investments. ⊚ true ⊚ false

134) The Securities and Exchange Commission provides investors access to financial information that is reported by corporations that issues stocks and bonds. ⊚ true ⊚ false

135) Although useful for many things, the internet cannot be used to monitor the current price of stock, bond, and mutual fund investments. ⊚ true ⊚ false

136) Brokerage firms, investment companies, banks, and most corporations have a home page where you can obtain valuable investment information. ⊚ true ⊚ false

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137)

A corporation must give each potential investor an annual report. ⊚ true ⊚ false

138) A prospectus discloses information about corporate earnings, assets and liabilities, products or services, and the qualifications of top management. ⊚ true ⊚ false

139) Both fiscal policy and monetary policy are used on a regular basis to stabilize the economy and encourage economic growth. ⊚ true ⊚ false

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Answer Key Test name: Chap 13_14e_Kapoor 8) A 9) A 10) D 11) B 12) A 13) A 14) D 15) C 16) E 17) D 18) A 19) B 20) C 21) D 22) E 23) C 24) C 25) A 26) C 27) B 28) C 29) B 30) C 31) B 32) B 33) C Version 1

34) C 35) C 36) B 37) A 38) C 39) A 40) C 41) D 42) A 43) D 44) B 45) C 46) C 47) B 48) A 49) C 50) D 51) E 52) C 53) C 54) E 55) D 56) A 57) A 58) D 59) C 60) B 61) C 62) E 63) E Version 1

64) A 65) D 66) D 67) D 68) A 69) E 70) D 71) D 72) D 73) C 74) E 75) E 76) B 77) C 78) C 79) B 80) D 81) B 82) A 83) A 84) C 85) D 86) C 87) C 88) A 89) D 90) E 91) B 92) A 93) E Version 1

94) D 95) B 96) B 97) C 98) E 99) C 100) B 101) A 102) A 103) B 104) A 105) A 106) B 107) TRUE 108) TRUE 109) TRUE 110) FALSE 111) TRUE 112) TRUE 113) FALSE 114) FALSE 115) TRUE 116) FALSE 117) TRUE 118) TRUE 119) TRUE 120) TRUE 121) TRUE 122) TRUE 123) FALSE Version 1

124) TRUE 125) TRUE 126) TRUE 127) TRUE 128) TRUE 129) FALSE 130) FALSE 131) FALSE 132) FALSE 133) TRUE 134) TRUE 135) FALSE 136) TRUE 137) FALSE 138) TRUE 139) TRUE

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CHAPTER 14 1)

What are the 5 steps you can take to open an account with a brokerage firm?

Explain why the earnings per share of stock decreases after a 2-for-1 stock split.

Why do corporations issue common stock? Why do investors buy that stock?

What is the primary difference between common stock and preferred stock?

5) Describe information that may help you decide whether to use a full-service, discount, or online brokerage firm.

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6) Sayed Khalef has saved $10,000 and wants to invest in common stock. Give examples of long-term techniques and short-term techniques that he could use to invest. Describe the difference between short-term and long-term investments.

Explain what dollar cost averaging is and why an investor would use the technique.

8) Avianna Farmer just received a legal form in the mail from a firm in which she owns stock. This form lists the issues to be decided at the annual stockholders' meeting and asks her to give written permission for someone else to vote for her if she cannot attend. What form has she received in the mail? A) Equity B) Proxy C) Voting rights D) Dividends E) Call option

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9) Matthew Goldblum has just purchased a security which has no maturity date and no promised dividend payments. He can recoup his investment by either selling the security to another individual. What type of security did Matthew purchase? A) Stock option B) Corporate bond C) Government bond D) Dividend E) Common stock

10) Miguel Vasquez just bought shares of common stock. Which one of the following is he entitled to based on his ownership of these shares? A) Semi-annual interest payments B) Guaranteed annual dividends C) Right to vote at annual meetings D) Right to declare a stock split E) Right to declare future dividends

11) Rafael Barroso just bought a stock which he expects will provide him with a quarterly cash payment, although that payment is not guaranteed. In fact, he expects the amount of the payment to vary over time. What type of payment is he expecting to receive? A) Option premium B) Interest C) Capital gain D) Dividend E) Rebate

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12) Aubrey Strong owns stock in the Chicago Widget Company. She was just advised that in the near future she will be receiving two shares for every one share she owns today. What has the company declared that will cause this change to her shares? A) Extra dividend B) Capital gains distribution C) Stock split D) Stock repurchase E) Stock conversion

13) Aaron Woodward owns shares of common stock in Frey Transportation Company. The company is getting ready to pay a dividend. Aaron knows he must be registered on the corporation's books on the _____________blank date in order to receive the dividend. A) record B) ex-dividend C) payment date D) ex-payment E) stockholders' meeting

14) Julian Yates is buying stock in the Blue Waters Caribbean Cruise Company today. He had thought about buying the stock yesterday and if he had, he would have received this quarter's dividend. However, since he waited until today, he will not receive that dividend payment. Given this information, which one of the following dates applies to this stock today? A) Record date B) Ex-dividend date C) Payment date D) Stock split date E) Stock repurchase date

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15) Jasmine Hill purchased 100 shares of Goshen Systems stock for $32.50 per share. Her commission for this purchase was $25. She sold the stock two years later for $45 per share and a commission of $40. What was Jasmine’s total dollar return on this stock? A) $1,100 B) $1,185 C) $1,500 D) $3,275 E) $4,460

16) Kendrick Bishop bought 200 shares of Bayview Petroleum Company for $100 per share and paid a commission of $50. He sold the stock five years later for $125 per share and paid $65 commission. While he held the stock, it paid exactly one dividend of $4.00 per share. What was Kendrick's total dollar return on this stock? A) $24,900 B) $20,000 C) $5,800 D) $5,700 E) $5,685

17) Arianna Burnett owns stock in the Westlake Gems Company. She knows in advance that the dividend on this stock is $1.50 per share. Given this, you know for sure that she purchased which type of stock? A) Preferred B) Common C) Blue chip D) Growth E) Penny

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18) When compared to corporate bonds, the dividend yield on preferred stocks is often _____________blank the yield on bonds. A) the same as B) lower than C) higher than D) unrelated to E) safer

19) The federal government requires corporations selling new issues of securities to disclose information about itself in a prospectus. Which of the following must be disclosed? A) Corporate earnings B) Assets and liabilities C) Products or services D) Qualifications of top management E) All of these must be disclosed.

20) To finance their business activities, many corporations prefer selling common stock because: A) it does not have to be repaid until 10 to 15 years after it has been issued. B) interest payments to stockholders are lower than interest paid to a bank. C) common shareholders have no voting rights. D) interest paid to stockholders is tax deductible. E) the money obtained from stockholders does not have to be repaid.

21)

Common stock dividends are paid out of profits and:

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A) must be approved by the corporation’s board of directors. B) are guaranteed to be paid quarterly. C) are paid prior to the firm's taxes. D) are usually paid semi-annually. E) equal 100 percent of the firm's annual earnings.

22)

Equity financing is a preferred choice to provide financing for a corporation because: A) a lender is always available to provide this type of financing. B) it does not have to be repaid. C) repayment doesn't have to be made for ten years or more. D) only interest must be paid for the first five years. E) it can wait five years before buying back the shares.

23) The Green Bay Corporation holds its annual meeting in April. Corrina Warren, who owns stock in the company, cannot attend the meeting. She can vote by: A) voluntary certificate. B) preemptive right. C) proxy. D) cumulative certificate. E) participatory certificate.

24)

Which one of the following statements is true?

A) Corporate dividends for common stock must be paid in cash only. B) Stockholders must elect the board of directors. C) The selling price of stock is determined by how much the corporation is willing to receive. D) Corporations are required by law to have two stockholder meetings each year. E) Stockholders may vote only by proxy.

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25)

Which one of the following statements is true?

A) Board members are appointed by a company's management. B) Stockholders receive a tax break on dividend income. C) Investors should be concerned about the corporation’s ability to earn profits and pay dividends in the future. D) If a cash dividend is declared by the board of directors, each stockholder will receive a different dollar amount per share. E) Corporate dividends are always paid in cash.

26)

Dividends remain with the stock until: A) one business day before the date of record. B) two business days after the date of record. C) three days before the date of record. D) three days after the date of record. E) three days before the actual payment date.

27) Joelle Cardenas owns 200 shares of a stock. For the last calendar quarter, the company paid a dividend of $0.45 a share. What is the total amount she received in her dividend check for this quarter? A) $0.45 B) $45.00 C) $100.00 D) $90.00 E) $200.00

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28) Hashira Ruriko purchased 175 shares of stock for $20 a share and sold them for $30 a share. The commissions required to buy and sell her stock totaled $50 for each transaction. Assuming she received no dividends during the time she owned the stock, what is her total investment on the purchase of this stock? A) $3,250 B) $3,550 C) $5,200 D) $5,300 E) $5,500

29) Shepherd Franklin purchased 100 shares of stock for $73 a share. James also paid a $60 commission. What was the total purchase price for this transaction? A) $60 B) $73 C) $7,300 D) $7,360 E) $8,000

30) If the board of directors approves a two-for-one stock split, an investor who owns 125 shares before the split will own _____________blank shares after the split. A) 75 B) 125 C) 225 D) 250 E) 450

31)

When a stock splits two-for-one, you should expect the price per share to:

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A) decrease to half its pre-split price. B) decrease in value by 75 percent or more. C) remain unchanged. D) increase to more than twice its pre-split price. E) increase to twice its pre-split price.

32) Regarding a stock split, the earnings "pie" before the split is _____________blank size after the split. A) a smaller B) a larger C) double the D) the same E) unrelated to the

33)

The most common stock split is: A) 1-for-2. B) 2-for-1. C) 1-for-3. D) 4-for-1. E) 5-for-1.

34) A safe investment that generally attracts conservative investors is called a _____________blank stock. A) penny B) cyclical C) growth D) small-cap E) blue chip

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35) A stock issued by a company that has a market capitalization of between $300 million and $2 billion is called a _____________blank stock. A) defensive B) cyclical C) growth D) small-cap E) blue chip

36) Regardless of a stock’s classification, a stock is a(n) _____________blank investment because there are no guarantees. A) speculative B) conservative C) substitute D) unwise E) sound

37) A stock issued by a corporation that has a market capitalization of between $2 and $10 billion is called a _____________blank stock. A) defensive B) midcap C) growth D) income E) blue chip

38) A stock issued by a corporation that has the potential of earning above-average profits when compared to other firms in the economy is called a(n) _____________blank stock.

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A) defensive B) cyclical C) growth D) income E) blue chip

39)

A stock that sells for $5 or less per share is called a _____________blank stock. A) fractional B) penny C) dollar D) ten-dollar E) coin

40)

Which one of the following statements is true?

A) It is possible to obtain financial information about a corporation that issues stock by using the internet. B) While it is possible to obtain information about a company by accessing the internet, the information is usually out of date. C) You can use an internet search engine to only access a company's price information. D) Corporations have web pages but do not provide any financial information on them. E) By using the Yahoo! Finance website, investors can access financial information only about the economy as a whole.

41)

Which one of the following is a true statement regarding stock advisory services?

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A) When choosing a stock advisory service that charges fees for their information, the quality of the information is always excellent. B) Stock advisory services provide only printed materials to evaluate potential stock investments. C) There are less than a hundred stock advisory services that charge fees for their information. D) The information provided by investors' services consists of simple alphabetical listings only. E) For stocks, Value Line, Zacks, and Morningstar are three of the most popular advisory services.

42) The federal government requires that a corporation selling a new issue of securities must disclose information about the company and its finances in a(n): A) annual report. B) quarterly report. C) accountant's audit report. D) prospectus. E) stock guide.

43) Tareq Feraoun wants to diversify his portfolio by adding a stock that maintains stable earnings when the economy declines. What type of stock does Tareq want to add to his portfolio? A) Defensive stock B) Cyclical stock C) Small-cap stock D) Blue chip stock E) Growth stock

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44) Kareem Clancy wants to diversify his portfolio by adding a stock that has a value which moves in direct relation to the business cycle. What type of stock is Kareem thinking about adding to his portfolio? A) Defensive stock B) Cyclical stock C) Small-cap stock D) Blue chip stock E) Growth stock

45) Matteo Strauss wants to invest in a stock that is relatively safe and is generally attractive to conservative investors. What type of stock best fits Matteo's requirements? A) Midcap stock B) Cyclical stock C) Small-cap stock D) Blue chip stock E) Growth stock

46) Poppy Russell wants to diversify her portfolio by investing in a firm that has the potential to earn above average profits compared to other firms in the economy. What type of stock is Poppy thinking about adding to her portfolio? A) Defensive stock B) Cyclical stock C) Small-cap stock D) Blue chip stock E) Growth stock

47)

Which one of the following statements is false?

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A) Numerical measures can help investors decide if it is time to buy or sell a stock. B) Future earnings may be one of the most significant factors to examine when evaluating a stock. C) Higher earnings generally equate to higher stock prices. D) The price for a share of stock is determined by what another investor is willing to pay for it. E) Few investors consider earnings per share when evaluating the financial health of a corporation.

48) Becker Lane Manufacturing has after-tax income of $6 million. It also has 4 million shares of stock outstanding. What is the corporation’s earnings per share? A) $3.00 B) $2.00 C) $1.50 D) $0.67 E) $0.75

49) State Street Corporation has after-tax income of $6.4 million and its earnings per share are $0.20. How many shares of stock does it have outstanding? A) 2 million B) 3.1 million C) 12.8 million D) 32 million E) 40 million

50) Burlington Manufacturing has calculated its earnings per share as $1.25. If the corporation has 500,000 shares outstanding, what is the amount of after-tax income?

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A) $12,500 B) $62,500 C) $125,000 D) $625,000 E) $6,250,000

51) Last year, Hampton Electronics earned $2.00 per share. If a share of its stock is selling for $60, what is the firm's P-E ratio? A) 0.03 B) 2 C) 30 D) 33 E) 60

52) Hawkeye Wiring, Incorporated has 1,000 shareholders who own a total of two million shares of its common stock. The stock currently sells for $80 per share. The company earned $8 million after taxes. The annual dividend is $0.50 per share. The company has assets of $125 million and liabilities of $25 million. What is the P-E ratio? A) 10 B) 11 C) 13 D) 20 E) 25

53) Koehn Plumbing Supply, Incorporated has one million shares of common stock outstanding at a price per share of $62.50. The company earned $6 million after taxes. The annual dividend is $2.50 per share. The company has assets of $250,000,000 and liabilities of $50,000,000. What is the dividend yield?

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A) 1% B) 2% C) 3% D) 4% E) 5%

54) To calculate dividend yield, the annual dividend amount per share is divided by the _____________blank per share. A) current stock price B) stock's original issue value C) current earnings D) current book value E) current sales revenue

55) Saoirse McDevitt paid $65 a share for stock in GBX Corporation. The stock has a current market value of $24 a share and pays $0.80 a year in dividends per share. What is the dividend yield rounded to the nearest tenth of a percent? A) 2.5% B) 7.4% C) 3.3% D) 30.0% E) 40.0%

56) The stock of The Collaborative Company has a dividend yield of 4 percent. The corporation has paid a dividend of $3.00 a share over the last 12 months and has earnings per share of $5. What is the current market price per share?

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A) $13 B) $25 C) $75 D) $93 E) $225

57) Assume that you purchased 100 shares of a stock for $50 a share, that you received an annual dividend of $2.50 a share, and that you sold your stock for $60 a share at the end of one year. What is the total return on your investment? A) $200 B) $1,000 C) $1,250 D) $1,500 E) $2,200

58) Assume that you purchased 100 shares of a stock for $60 a share, that you did not receive any dividends, and that you sold your stock for $70 a share at the end of one year. What is the total return for your investment? A) $60 B) $70 C) $100 D) $700 E) $1,000

59) A yield calculation that takes into account the total return, the original investment, and the number of years that the investment is held is called _____________blank yield.

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A) current B) dividend C) annualized holding period D) capital gain E) original investment

60) HBM, Incorporated has 1,000 shareholders who own a total of two million shares of its common stock. The company earned $20 million after taxes and paid out $8 million in dividends. The company has assets of $250 million and liabilities of $50 million. What is the book value per share? A) $2 B) $8 C) $20 D) $100 E) $250

61) Assume the beta for the stock market in general is 1.0 and the beta for World-Wide Television Productions is 2.8. If the stock market increases in value by 5 percent, what is the expected increase in value for the World-Wide Productions stock? A) 1% B) 5% C) 14% D) 28% E) 30%

62)

Which of the following is true regarding book value?

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A) A direct correlation exists between the market value and book value of a stock. B) Book value calculations may be misleading to investors. C) Book value is seldom reported in financial publications. D) Book value is never used to calculate market price-to-book ratio. E) Some investors believe a stock is a bargain when the stock’s market value is above its book value.

63) Dover Bay Corporation has assets that total $24 million and liabilities that total $8 million. It also has 1,000,000 shares of stock outstanding. What is the Dover Bay's book value per share? A) $32 B) $24 C) $16 D) $8 E) $0

64) Grayville Manufacturing stock has a market value of $24 a share. If the book value is $20 a share, the corporation’s market price-to-book ratio is: A) 2.4. B) 0.8. C) 1.0. D) 1.2. E) 2.0.

65)

In addition to expected earnings, fundamental analysis theorists consider:

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A) the financial strength of the company. B) the type of industry the company is in. C) new product development. D) the economic growth of the overall economy. E) All of these choices are correct.

66) An investment theory based on the assumption that a stock's market value is determined by the forces of supply and demand in the stock market as a whole is called the _____________blank theory. A) fundamental B) technical analysis C) efficient market D) primary E) market

67) An investment theory based on the assumption that stock price movements are purely random is called the _____________blank theory. A) fundamental B) technical C) efficient market hypothesis D) primary E) market

68) The Royalty Fertilizer Company's stock is selling for $64 in the market and its earnings per share is $8. The company is projected to grow at a rate of 16 percent over the next year. What is this company's price/earnings to growth ratio?

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A) 8.00 B) 6.40 C) 0.50 D) 16.00 E) 64.00

69) Edwardsville Paint Company pays an annual dividend of $0.80 per share, has earnings per share of $2.50, and sells for $35 a share. What is this company’s dividend payout ratio? A) 8% B) 25% C) 28% D) 32% E) 35%

70) A market in which an investor purchases financial securities from the issuer of those securities using an investment bank or other representative is called the _____________blank market. A) technical B) fundamental C) efficient D) secondary E) primary

71) A market for existing financial securities that are currently traded among investors is called the _____________blank market.

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A) technical B) fundamental C) efficient D) secondary E) primary

72)

Which one of the following is a true statement regarding account executives?

A) They are generally not liable for client losses that result from their recommendations. B) It is wise to allow an account executive to make investment decisions without the client’s approval. C) An account executive cannot buy and sell securities for clients and help them develop an investment program. D) An account executive is not licensed to buy or sell securities for clients. E) The arbitration clause allows clients to sue the brokerage firm that an account executive represents.

73) Which of the following is an electronic marketplace for buying and selling global stocks and securities? A) New York Stock Exchange B) Over-the-counter market C) Nasdaq D) Tokyo foreign securities exchange E) London foreign securities exchange

74)

Which one of the following is a true statement?

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A) The over-the-counter market is a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange. B) Account executives buy or sell a particular stock to maintain an orderly market. C) OTC trading is for investors who want to buy or sell stocks in stores. D) Specialists are not members of the NYSE. E) Most NYSE members represent brokerage firms that do not charge commissions on security trades.

75) Both limit and _____________blank orders may be good for one day, one week, one month, good until canceled, or a specified date. A) stop-loss B) limit C) stop D) round E) discretionary

76) Which order is executed if and when the specified price or better is reached and all other previously received orders have been fulfilled? A) Market B) Limit C) Stop D) Round E) Discretionary

77) An order to sell a particular stock at the next available opportunity after the market price of the stock reaches a specified price is called a _____________blank order.

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A) market B) limit C) stop D) round E) discretionary

78) Ana Maria Campos is thinking about purchasing the stock of the Mt. Vernon Corporation at the current market price. What type of order should she place? A) Market order B) Limit order C) Stop order D) Discretionary order E) Common order

79) Allie Robinson wants to buy the stock of CJM Company at a specified price or better. What type of order should she place? A) Market order B) Limit order C) Stop order D) Discretionary order E) Common order

80) Sierra Hensley wants to sell the stock of Badger International at the next available price after the market price reaches $50 per share. What type of order should she place?

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A) Market order B) Limit order C) Stop order D) Discretionary order E) Common order

81) A long-term technique used by investors who purchase an equal dollar amount of the same stock at equal intervals in time is called: A) dollar cost averaging. B) dividend reinvestment plan. C) buy and hold technique. D) regulated transaction. E) secured transaction.

82) A long-term investment technique used by investors to purchase stock directly from a corporation without paying a commission to an account executive or broker is called: A) dollar cost appreciation. B) direct investment plan. C) unregulated transaction. D) regulated transaction. E) over-the-counter transaction.

83)

Which one of the following statements is true regarding buying stock on margin?

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A) When buying stock on margin, an investor borrows stock from the brokerage firm. B) Usually, a bank arranges for the loan in a margin transaction. C) Investors buy on margin because doing so offers them the potential to buy more stock and therefore earn larger returns. D) The margin requirement is established by the New York Stock Exchange. E) The current margin requirement is 25 percent.

84)

Which one of the following statements is true regarding selling short?

A) When an investor buys stocks and assumes they will increase in value, he or she is using a procedure called selling short. B) Selling short is selling stock that has been borrowed from a brokerage firm. C) When you sell short, you buy today, knowing you must sell or cover your short transaction, at a later date. D) In a short transaction, if the stock increases in value, the investor makes money. E) To make money in a short transaction, you must hold on the stock for at least one year.

85) Stock owners who believe the price of their stock will go down during an option period will purchase a: A) futures contract. B) long contract. C) call option. D) put option. E) margin contract.

86) On May 24, 2021, Nam Dae-Jung bought 100 shares of stock from RWM Corporation. The quarterly dividend is $1.50 per share and the record date is May 25. How much will Nam receive for this quarterly dividend?

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A) $0.00 B) $1.50 C) $15.00 D) $150.00 E) $0.15

87) On May 20, 2021, Nezar Besambought 100 shares of stock from MRM Corporation. The quarterly dividend is $1.50 per share and the record date is May 25. How much will Nezar receive for this quarterly dividend? A) $0.00 B) $1.50 C) $15.00 D) $150.00 E) $0.15

88)

If a stock has a 2-for-1 split: A) the value of the stock is guaranteed to increase. B) the value of the stock is guaranteed to decrease. C) total market capitalization increases. D) total market capitalization decreases. E) total market capitalization does not change.

89) Before a 2-for-1 stock split, Juliana's stock was valued at $60 per share. What is her per share value after the split?

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A) $30 B) $60 C) $90 D) $120 E) $150

90)

After a 2-for-1 stock split: A) earnings per share decrease. B) earnings per share increase. C) capitalization decreases. D) capitalization increases. E) dividend yields decrease.

91)

The beta for the S&P 500 is defined as: A) 0. B) 1.0. C) 10.0. D) 50.0. E) 100.0.

92)

If Athenry Corporation has a PEG value of .50, the stock is most likely: A) undervalued based on its projected growth rate. B) overvalued based on its projected growth rate. C) overvalued based on its $0.50 per share dividend. D) overvalued based on its good historical earnings. E) undervalued based on its poor historical earnings.

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93) Ms. Kanarek’s stock club uses numerous charts that plot past price movements and other market averages to predict the future direction for the market as a whole. Her club relies on _____________blank analysis to determine stock selections. A) fundamental B) technical C) efficient market D) chart E) plot

94) a(n):

When a corporation sells stock to the general public for the first time, it is referred to as

A) primary market opportunity. B) secondary market offering. C) initial public offering. D) investment bank offering. E) primary stockholder opportunity.

95)

Initial public offerings are a _____________blank investment. A) guaranteed B) speculative C) safe D) conservative E) blue chip

96)

Stock dividends are declared by the:

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A) chief financial officer. B) board of directors. C) stockholders. D) corporate employees. E) U.S. government.

97) The stock exchange known to trade stock for innovative, forward-looking growth companies is the: A) NYSE. B) Nasdaq. C) American Stock exchange. D) S&P 100. E) STSE.

98) Approximately _____________blank percent of earnings are distributed to stockholders as dividends by most corporations. A) 10 to 20 B) 25 to 45 C) 30 to 70 D) 75 to 95 E) 100

99) A stock issued by a corporation that has a market capitalization of $300 million or less would be classified as what type of stock?

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A) Micro-cap B) Value stock C) Midcap D) Small-cap E) Blue chip

100) a(n):

When stocks are trading at prices above their actual worth, the resulting situation is called

A) inflated corporate earnings. B) low unemployment rate. C) changes in government regulation. D) stock market bubble. E) economic turmoil.

101) A long-term investment technique that allows investors the option to reinvest cash dividends to purchase stock of the corporation is called: A) a direct investment plan. B) a dividend reinvestment plan. C) dollar cost averaging. D) buy-and-hold. E) day trading.

102)

If the corporation has a bad year, the board of directors generally may vote to: A) sell less stock. B) decrease the stock price. C) cease selling stock. D) omit dividend payments. E) increase dividend payments.

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103) A large-cap stock is a stock issued by a corporation that has a capitalization in excess of how much? A) $10 billion B) $20 billion C) $30 billion D) $40 billion E) $50 billion

104) Which of the following most likely does not charge a fee for you to access any of their information that may be used to evaluate a stock investment? A) Value Line B) Morningstar C) Yahoo! Finance D) Standard & Poor’s E) Reuters

105) Beta is a measure that compares the volatility associated with a specific stock issue with the volatility of which stock index? A) S&P 500 stock index B) Dow Jones Industrial Average C) Nasdaq composite index D) FTSE 100 index E) CAC 40 index

106)

When choosing a brokerage firm, an investor should consider:

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A) the amount of the commissions they charge. B) how much research information is available. C) how much research information costs. D) how much help you need when making an investment decision. E) All of these choices are correct.

107) Many analysts believe that a corporation’s ability to generate _____________blank in the future is one of the most significant factors that account for an increase or decrease in the price of a stock. A) stockholder support B) dividends C) earnings D) new business locations E) new business ideas

108)

Earnings per share for a stock investment is calculated as: A) after-tax income divided by the number of stockholders. B) the number of stockholders divided by after-tax income. C) after-tax income divided by the number of shares outstanding. D) the number of shares outstanding divided by after-tax income. E) None of these choices are correct.

109)

The price-earnings ratio for a stock investment is calculated as: A) price per share divided by the number of stockholders. B) the number of stockholders divided by the price per share. C) price per share divided by the number of shares outstanding. D) price per share divided by the earnings per share. E) the earnings per share divided by the price per share.

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110)

The dividend yield for a stock investment is calculated by dividing the: A) annual dividend amount per share by the investment’s past price per share. B) annual dividend amount per share by the investment’s current price per share. C) annual dividend amount per share by the investment’s future price per share. D) investment’s past price per share by the annual dividend amount per share. E) investment’s current price per share by the annual dividend amount per share.

111) When completing stock transactions, payment for stocks is generally required within _____________blank business days after the transaction. A) 3 B) 1 C) 2 D) 4 E) 5

112)

Today most investors buy or sell stocks _____________blank A) in person at company headquarters. B) online. C) in person at Nasdaq. D) in person at the full-service brokerage firm. E) in person at the discount broker firm.

113) Nalani Burrows purchased 100 shares of Mitchell Electronics four years ago at $15.00 each. She paid a $30 commission on this transaction. She has decided to sell these shares at $25.00 each and will incur a $25 commission on this sale. What is the amount of her capital gain?

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A) $945 B) $1,530 C) $2,475 D) $2,500 E) $3,000

114) Nalani Burrows purchased 100 shares of Mitchell Electronics four years ago at $15.00 each. She paid a $30 commission on this transaction. She has decided to sell these shares at $25.00 each and will incur a $25 commission on this sale. What is the total investment amount? A) $1,000 B) $1,500 C) $1,530 D) $2,475 E) $2,500

115) To reduce anxiety when you make stock investment decisions, you should do all of the following except: A) Evaluate each investment. B) Analyze the firm’s finances. C) Track the firm’s product line. D) Monitor economic developments. E) Hold the stocks for a short time for above average returns.

116)

One of the oldest and most recognized measures of stock market activity is:

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A) Morningstar. B) Reuters. C) Dow Jones Industrial Average. D) Market Watch. E) Value Line.

117) Warren Buffett is well known for successfully employing which theory to identify both stocks and corporations that are undervalued? A) Technical analysis B) Beta C) Efficient market hypothesis D) Fundamental analysis E) Stock market bubble

118) Which of the following uses algorithm-driven software to make investment suggestions that will match the investor’s profile? A) Morningstar B) Reuters C) Market Watch D) Robo-Advisor E) Account Executive

119) If the average cost of a stock is $91.86 as determined by dollar cost averaging, which of the following is true?

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A) You would lose money only if you sold your stock at less than $91.86. B) You would gain money only if you sold your stock at less than $91.86. C) You would lose money only if you purchased additional stock at greater than $91.86. D) You would gain money only if you purchased additional stock at greater than $91.86. E) You would not lose nor gain money regardless of the average cost of the stock.

120)

Since the end of World War II, stocks have returned almost 10 percent a year. ⊚ true ⊚ false

121) A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals. ⊚ true ⊚ false

122)

The record date is the date that the actual dividend payment is made to stockholders. ⊚ true ⊚ false

123) A stock split is a procedure in which a stockholder's common stock is exchanged for preferred stock. ⊚ true ⊚ false

124) Preferred stock is often referred to as a middle investment, because it represents an investment midway between common stock and corporate bonds. ⊚ true ⊚ false

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125) Periodicals such as Bloomberg Businessweek, Fortune, Forbes, Money, and Kiplinger’s Personal Finance contain information about stock investing. ⊚ true ⊚ false

126) The SEC and the Investor.gov website are the only reliable places investors can go to obtain information about investing in stocks and other investments. ⊚ true ⊚ false

127)

A blue chip stock is too speculative for most investors. ⊚ true ⊚ false

128)

A stock that pays higher-than-average dividends is called an income stock. ⊚ true ⊚ false

129) A cyclical stock is one that follows the business cycle of advances and declines in the economy. ⊚ true ⊚ false

130)

A defensive stock is a stock that typically sells for less than $5. ⊚ true ⊚ false

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131) A large-cap stock is a stock issued by a corporation that has capitalization of more than $10 billion. ⊚ true ⊚ false

132) Because of the need for secrecy, most corporations do not supply financial information about their company on their websites. ⊚ true ⊚ false

133) By using the internet, it is possible to find market price quotations, but more detailed financial information about a corporation is unavailable to the average investor. ⊚ true ⊚ false

134) It is common for websites like Morningstar and Reuters to charge fees for their more detailed financial information. ⊚ true ⊚ false

135) A high P-E ratio can indicate a stock is overvalued and a low P-E ratio can indicate that a stock is undervalued. ⊚ true ⊚ false

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136) A common pitfall that many investors fall into is that they spend substantial time initially selecting an investment, but they don’t continue to evaluate the investment to ensure that it continues to perform and meet their investment objectives. ⊚ true ⊚ false

137)

If a corporation's earnings decline, generally the stock's price usually increases. ⊚ true ⊚ false

138)

An increase in a corporation's earnings per share is a healthy sign. ⊚ true ⊚ false

139)

Stocks issued by large corporations in mature industries often have high P-E ratios. ⊚ true ⊚ false

140)

No meaningful average for the earnings per share measure exists. ⊚ true ⊚ false

141) The total return on a stock is equal to the current market value of the stock minus the investor's purchase price. ⊚ true ⊚ false

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142) The annualized holding period yield calculation takes into account the time the investment is held. ⊚ true ⊚ false

143) The book value for a share of stock is determined by deducting all liabilities from the corporation's assets and dividing the remainder by the number of outstanding shares of common stock. ⊚ true ⊚ false

144) The beta is a measure that compares the volatility associated with a specific stock issue with the volatility of the S&P 500 Stock Index. ⊚ true ⊚ false

145) The fundamental analysis theory is based on the assumption that a stock's intrinsic or real value is determined by the future earnings of the company. ⊚ true ⊚ false

146) An investment bank is a financial firm that assists corporations in raising funds, usually by helping to sell new security issues. ⊚ true ⊚ false

147) Without the liquidity provided by the secondary market, investors would not purchase stock in the primary market, because there would be no way to sell shares to other investors. ⊚ true ⊚ false

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148) A securities exchange is a marketplace where member brokers, who represent investors, meet to buy and sell securities. ⊚ true ⊚ false

149)

A market order is a request to buy or sell a stock at the current market value. ⊚ true ⊚ false

150) Commission free-trade offers are rarely accompanied by minimum balance requirements or other restrictions before trading for free. ⊚ true ⊚ false

151) The minimum commission charged by most brokerage firms for buying or selling stock is between $5 and $25. ⊚ true ⊚ false

152)

A limit order is a request to buy or sell a stock at a specified price or better. ⊚ true ⊚ false

153) In the situation of a call option, if a stock’s price increases, the person who purchased the call will be able to purchase the stock for a lower price guaranteed by the call option and then sell it for a profit.

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⊚ ⊚

true false

154) Many investors don’t realize they are using dollar cost averaging when purchasing shares of their company’s stock through a payroll deduction plan or as part of an employer-sponsored retirement plan over an extended period of time. ⊚ true ⊚ false

155)

Most speculators purchase stock and hold onto it for a number of years. ⊚ true ⊚ false

156)

Dollar cost averaging helps investors avoid the pitfall of buying high and selling low. ⊚ true ⊚ false

157) When investors purchase stock on margin, they borrow stock from a stockbroker or brokerage firm. ⊚ true ⊚ false

158) A call option gives the purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date. ⊚ true ⊚ false

159)

A low market price-to-book ratio could indicate that a stock is undervalued.

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⊚ ⊚

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true false

Answer Key Test name: Chap 14_14e_Kapoor 8) B 9) E 10) C 11) D 12) C 13) A 14) B 15) B 16) E 17) A 18) C 19) E 20) E 21) A 22) B 23) C 24) B 25) C 26) A 27) D 28) B 29) D 30) D 31) A 32) D 33) B Version 1

34) E 35) D 36) A 37) B 38) C 39) B 40) A 41) E 42) D 43) A 44) B 45) D 46) E 47) E 48) C 49) D 50) D 51) C 52) D 53) D 54) A 55) C 56) C 57) C 58) E 59) C 60) D 61) C 62) B 63) C Version 1

64) D 65) E 66) B 67) C 68) C 69) D 70) E 71) D 72) A 73) C 74) A 75) A 76) B 77) C 78) A 79) B 80) C 81) A 82) B 83) C 84) B 85) D 86) A 87) D 88) B 89) A 90) A 91) B 92) A 93) B Version 1

94) C 95) B 96) B 97) B 98) C 99) A 100) D 101) B 102) D 103) A 104) C 105) A 106) E 107) C 108) C 109) D 110) B 111) C 112) B 113) A 114) C 115) E 116) C 117) D 118) A 119) A 120) TRUE 121) TRUE 122) FALSE 123) FALSE Version 1

124) TRUE 125) TRUE 126) FALSE 127) FALSE 128) TRUE 129) TRUE 130) FALSE 131) TRUE 132) FALSE 133) FALSE 134) TRUE 135) TRUE 136) TRUE 137) FALSE 138) TRUE 139) FALSE 140) TRUE 141) FALSE 142) TRUE 143) TRUE 144) TRUE 145) TRUE 146) TRUE 147) TRUE 148) TRUE 149) TRUE 150) FALSE 151) TRUE 152) TRUE 153) TRUE Version 1

154) TRUE 155) FALSE 156) TRUE 157) FALSE 158) FALSE 159) TRUE

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CHAPTER 15 1) When investing in bonds, there are a lot of factors to consider. To help you decide if a bond is a good investment that will help you reach your financial goals, list four steps you can take.

2) Define four of these six terms. (A) corporate bond (B) bond indenture (C) trustee (D) mortgage bond (E) debenture bond (F) convertible bond

What are the three ways to make money with a bond investment?

How do interest rates in the economy affect the price of a corporate bond?

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5) Bonds are generally considered a relatively safe investment. How is it possible to lose money on bonds?

6) What is the difference between a U.S. government Treasury bill, Treasury note, and Treasury bond?

7) Corporate and Treasury bonds generally produce more interest revenue than municipal bonds. Why do investors choose to buy municipal bonds?

8) You are trying to evaluate two bond issues. One bond issue is rated "A" by Moody's; the other is rated "B." How important are the bond ratings issued by Moody's Investors Service? Based on your feedback, would you purchase the "A" bond or the "B" bond?

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9) If your primary goal is current yield, which one of these bonds is the wiser investment? Bond A: $1,000 corporate bond that pays 6 percent and has a current market value of $700; or Bond B: $1,000 corporate bond that pays 7.25 percent and has a current market value of $800?

10) Olivia Hawkins is evaluating a bond investment in Westlake Company. She is concerned about the corporation’s ability to make future interest payments. Determine the company’s time’s interest earned ratio if the company has operating income before interest and taxes of $12,235 million and interest expense of $1,025 million and interpret it.

11) Assume that you purchase a $1,000 corporate bond that pays 8.25 percent interest. What is the dollar amount of interest that you receive each year? A) $1,000.00 B) $82.50 C) $82.00 D) $80.00 E) $8.25

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12) You own a $1,000 bond that pays 9 percent interest. What is the amount of interest you will receive each six months? A) $4.50 B) $9.00 C) $90.00 D) $45.00 E) $22.50

13)

Usually, interest on corporate bonds is paid to the bondholder every: A) month. B) three months. C) six months. D) nine months. E) year.

14) Ailani Groom owns a $1,000 corporate bond that pays 6 percent. What is the dollar amount of each semiannual interest payment? A) $3.00 B) $30.00 C) $60.00 D) $300.00 E) $600.00

15)

Which one of the following statements is true regarding bond characteristics?

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A) Corporate bonds do not have a maturity date. B) The maturity dates for corporate bonds are generally less than a year. C) Corporate bonds do not have to be repaid. D) Corporate bonds are a form of equity financing. E) Long-term corporate bonds have maturities over 10 years.

16)

The legal conditions for a corporate bond are described in the: A) trustee contract. B) bondholder's covenant. C) corporate charter. D) bond indenture. E) bond debenture.

17)

The financially independent party that acts as the bondholders' representative is the: A) chairman of the board. B) president of the corporation. C) debenture holder. D) indenture holder. E) trustee.

18)

Which one of the following statements is correct regarding bond and stock differences? A) Stock is a form of debt financing. B) Stock must be repaid at maturity. C) Bonds are a form of debt financing. D) Bonds do not have to be repaid at maturity. E) Interest payments to bondholders are paid at the discretion of the board of directors.

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19) A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________blank bond. A) debenture B) mortgage C) indenture D) preemptive E) treasury

20) Because of the added security of collateral, the interest rates on _____________ bonds are usually lower than interest rates on unsecured debenture bonds. A) debenture B) mortgage C) indenture D) preemptive E) subordinated debenture

21) A type of bond that is unsecured and gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments, repayment, and assets is called a: A) debenture bond. B) mortgage bond. C) subordinated debenture. D) preemptive bond. E) treasury bond.

22) A legal debt convertible to shares of common stock at the investor’s option is called a(n) _____________blank.

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A) debenture bond B) mortgage bond C) indenture note D) convertible corporate note E) convertible bond

23) Ophelia Peterson has been thinking about investing in corporate bonds. She is concerned about safety and wants the most secure bond investment possible. She would most likely invest in _____________ blankbonds. A) debenture B) mortgage C) speculative D) convertible E) subordinated debenture

24)

Which one of the following statements is true?

A) All convertible corporate bonds are quality investments. B) Convertible bonds often pay 3 to 4 percent more interest than nonconvertible bonds. C) Because of the conversion feature, investors are attracted to the conservative gain that common stock conversion may provide. D) There is no guarantee that bondholders will convert to common stock even if the market value of the common stock does increase in value. E) Even if convertible bondholders convert their investment to common stock, the bondholders still receive interest payments.

25) A $1,000 corporate bond is convertible to 40 shares of the corporation's common stock. What is the minimum price that the stock must obtain before bondholders would consider converting the bond to stock?

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A) $10 B) $15 C) $20 D) $25 E) $40

26)

A call feature: A) allows bondholders to convert their bond to a specified number of shares of common

stock. B) is not available on corporate bonds. C) allows the corporation to buy outstanding bonds from current bondholders before the maturity date. D) is only available with government securities. E) is guaranteed by the corporation.

27) A provision in the bond indenture that forces the corporation to make arrangements for bond repayment before the maturity date is called a(n) ____________ fund. A) serial B) sinking C) debenture D) indenture E) money

28) To ensure that it has sufficient funds available to redeem a bond issue, a corporation may issue _____________blank bonds.

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A) debenture B) mortgage C) high-yield D) subordinate E) serial

29) Rayshall Corporation wants to retire a $60 million bond issue before the maturity date. In order to call the bonds in this issue, the corporation must pay the bondholders the face value plus a premium. What is the typical premium for bonds that have been called? A) $100 B) $50-$100 C) $20-$75 D) $10-$25 E) $1-$10

30) Which of the following is the process of spreading your money among several different types of investments to lessen risk? A) Book entry B) Professional management C) Asset allocation D) Bond laddering E) Dollar appreciation

31)

Which of the following specific situations does not affect bond prices?

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A) Actions by the Federal Reserve to either stimulate the economy or control inflation can lead to an increase or decrease in the interest rates that corporations and government entities pay when they issue new bonds. B) An interest rate increase or decrease for new bond issues can also cause the current market value of older bonds with fixed interest rates you already own to increase or decrease until they reach maturity. C) The value of a bond may also be affected by the financial condition of the company or government entity issuing the bond, the factors of supply and demand, an upturn or downturn in the economy, and the proximity of the bond’s maturity date. D) All of these choices are correct. E) None of these choices are correct.

32)

Today, almost all bond ownership records are maintained by a process called: A) certified registration. B) book entry. C) revenue recognition process. D) coupon registration. E) general obligation process.

33)

To calculate the current yield for a T-bill: A) divide the maturity value by the interest rate. B) multiply the maturity value by the interest rate. C) subtract the discount amount from the maturity value. D) divide the purchase price by the discount amount. E) divide the discount amount by the purchase price.

34)

Which type of bond is not registered in the investor's name?

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A) Revenue B) General obligation C) Bearer D) Zero-coupon E) Tax-exempt

35) If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally: A) increase in value. B) decrease in value. C) remain unchanged. D) become worthless. E) be returned to the corporation.

36) If overall interest rates in the economy fall, a corporate bond with a fixed interest rate will generally: A) increase in value. B) decrease in value. C) remain unchanged. D) become worthless. E) be returned to the corporation.

37) What is the approximate market value of a $1,000 corporate bond that pays 6 percent interest when comparable bonds are paying 8 percent interest?

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A) $60 B) $80 C) $750 D) $1,000 E) $1,060

38) If the approximate market value for of a $1,000 corporate bond is $1,200 and it pays 6 percent interest, then what are comparable bonds paying? A) 2 percent B) 3 percent C) 4 percent D) 5 percent E) 6 percent

39)

Investors purchase corporate bonds: A) to earn interest income. B) to gain possible dollar appreciation of bond value. C) to receive bond repayment at maturity. D) because they consider them a safer investment than stocks. E) All of these choices are correct.

40) When investors purchase bonds that mature at regular intervals in order to balance risk and return, they are creating a(n): A) bond ladder. B) staggered investment program. C) incremental investment program. D) step-up allocation program. E) guaranteed investment program.

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41) Which type of bond would provide a high degree of price stability, because the bonds are not very sensitive to changing interest rates? A) Discount B) Short-term C) Long-term D) Speculative E) Registered

42) If comparable bonds are paying 6 percent and the approximate market price of a $1,000 bond is $850, then what is the annual interest on the bond? A) $25 B) $51 C) $60 D) $85 E) $120

43) If comparable bonds are paying 8 percent and the approximate market value of a $1,000 bond is $1,375, then what is the semiannual interest on the bond? A) $55 B) $80 C) $100 D) $110 E) $137

44)

The commissions for purchasing bonds:

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A) are stated in plain language as with stocks. B) are a stated dollar amount for each bond you buy. C) may be a combination of a stated dollar amount plus an additional commission. D) include a markdown when buying. E) include a markup when selling.

45)

Which one of the following statements is false? A) The U.S. government sells bonds to obtain financing. B) U.S. government securities carry a decreased risk of default. C) Interest on U.S. government securities is taxable for federal income tax purposes. D) Most individual investors that purchase Treasury securities bid competitively. E) Treasury securities may be purchased directly from banks or brokers.

46) A government security issued in minimum units of $100 with maturities that are one year or less is called a: A) subordinated bond. B) Treasury bill. C) Treasury note. D) Treasury bond. E) savings bond.

47) Which of the following can be purchased through Treasury Direct at www.treasurydirect.gov ? A) TIPS B) Treasury bills C) Treasury notes D) Treasury bonds E) All of these choices are correct.

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48) a:

A government security issued in minimum units of $100 with a 30-year maturity is called

A) subordinated bond. B) Treasury bill. C) Treasury note. D) Treasury bond. E) savings bond.

49) Hakeem Johnson's objective was to purchase a government bond that provided some protection against inflation as measured by the consumer price index. To fulfill this objective, John purchased a: A) T-bill. B) T-note. C) T-bond. D) TIPS. E) general obligation bond.

50) A bond backed by the full faith, credit, and unlimited taxing power of the state or local government that issued it is called a _____________blank bond. A) debenture B) mortgage C) secured D) general obligation E) revenue

51) A bond that is repaid from the income generated by the project it is designed to finance is called a(n):

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A) Treasury bill. B) savings bond. C) revenue bond. D) general obligation bond. E) agency bond.

52) You are a taxpayer in the 24 percent tax bracket and you own a tax-exempt bond that pays 6 percent. What is your taxable equivalent yield? A) 5.00 percent B) 6.00 percent C) 7.89 percent D) 7.20 percent E) 14.40 percent

53) Jia Chun is trying to calculate the taxable equivalent yield for a municipal bond. If the bond she owns pays 5 percent interest and she is in the 22 percent tax bracket, what is the taxable-equivalent yield (round to nearest percent)? A) 4 percent B) 5 percent C) 6 percent D) 7 percent E) 8 percent

54)

Which one of the following statements is false regarding corporate bonds?

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A) It is possible to obtain information about a corporation that issues a bond by accessing the corporation's website on the internet. B) Price information about corporate bonds is available on the internet. C) You can research bonds online but you cannot trade them online. D) There are fewer websites that provide information on bonds as compared to websites that provide information on stocks. E) Many of the better bond websites charge a fee to access their research.

55) is:

If a bond is quoted in the newspaper at 96, the current price of a $1,000 face value bond

A) $9.60. B) $96.00. C) $960.00. D) $1,000.00. E) $1,096.00.

56) is:

If a bond is quoted in the newspaper at 103, the current price of a $1,000 face value bond

A) $30.00. B) $97.00. C) $970.00. D) $1,103.00. E) $1,030.00.

57)

Which one of the following statements is true?

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A) All metropolitan newspapers contain information on bonds. B) In bond quotations, prices are given as a percentage of the face value. C) The face value for most corporate bonds is $5,000. D) To find the actual price of a corporate bond, you must contact the corporation that originally issued the bond. E) To find the actual price of a corporate bond, you must call a stockbroker.

58) The minimum price that a seller is willing to receive for a government security is known as the _____________blank price. A) bid B) ask C) contract D) government E) adjusted

59) Which of the following sources can be used by an investor to obtain a corporation's annual report? A) Professional advisory services B) Corporation's website C) Phone call to corporation D) Written request mailed to the corporation E) All of these sources can be used by an investor to obtain an annual report.

60)

The highest bond rating issued by Standard & Poor's is:

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A) AAA. B) Aaa. C) A+. D) BB. E) Aa.

61)

The highest bond rating issued by Moody's is: A) AAA. B) Aaa. C) A+. D) BB. E) AA.

62)

A corporate bond rated B by Moody's would be suitable for: A) every investor. B) very cautious investors. C) speculators. D) no one because the bond issue is in default. E) investors who are highly dependent upon the interest income.

63)

Which bond rating does Standard & Poor's assign to a bond that is in default? A) A B) B C) C D) D E) Z

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64) According to Moody's, bonds with extremely poor prospects for recovery of principal or interest are rated: A) A-. B) B-. C) C. D) E. E) F.

65) What is the current yield for a $1,000 corporate bond that pays 6 percent and has a current market value of $600? A) 6 percent B) 8 percent C) 10 percent D) 12 percent E) 14 percent

66) If the current yield for a $1,000 corporate bond is 8 percent and it has a current market value of $900, then what is the annual income generated by the investment? A) $10 B) $72 C) $80 D) $90 E) $100

67)

The current yield on a corporate bond takes into account:

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A) the bond’s face amount. B) the interest rate paid by the bond. C) dollar amount of interest. D) current market value of the bond. E) All of these choices are correct.

68)

If a bond is purchased at a price above the face value, the yield to maturity will be: 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.

69)

If a bond is purchased at a price below the face value, the yield to maturity will be: 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.

70) Julian Cespedes has just purchased a bond with a face value of $1,000 that pays 4 percent. The purchase price of the bond was $950, and the bond will mature in 5 years. What is the yield to maturity for this bond (round to the nearest tenth of a percent)? A) 4.0 percent B) 6.0 percent C) 5.1 percent D) 8.2 percent E) 9.0 percent

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71) Sabrina Romero purchased a single bond last year for $987. He knows he will receive $1,000 on March 1, 2026. This date is referred to as the _____________blank date. A) maturity B) purchase C) record D) ex-dividend E) declaration

72) Which of the following are owned by a company and can be used to secure a mortgage bond? A) Dividends B) Bond indentures C) Liabilities D) Interest payments E) Assets

73)

Why do corporations sell bonds? A) To increase their financial leverage B) To pay for major purchases C) Because they are finding it difficult or impossible to sell stock D) Because the interest is tax-deductible E) All of these choices are correct.

74) Sahib Huda buys a bond that the company can retire before maturity if they wish. What type of bond has Sahib purchased?

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A) Debenture bond B) Subordinated debenture bond C) Convertible bond D) Callable bond E) High-yield bond

75) Shiva Nazari just purchased a bond that is unsecured and is secondary to other unsecured bonds with respect to interest payments or repayment at maturity. What type of bond has Shiva purchased? A) High-yield B) Subordinated debenture C) Convertible D) Callable E) Municipal

76) Calvin Stevens just bought a bond that is only secured by the reputation of the issuing corporation. What type of bond has Calvin purchased? A) Debenture B) Mortgage C) Convertible D) Callable E) High-yield

77) Annie McConnell purchased a bond that can be exchanged for a set number of shares of the issuer's common stock. What type of bond has Annie purchased?

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A) Debenture B) Subordinated debenture C) Convertible D) Callable E) High-yield

78)

Which is true of convertible bonds? A) They pay both interest and dividends simultaneously. B) They pay no interest payments. C) They can be repurchased by the issuing corporation before the maturity date. D) They must be carefully evaluated like all potential investments. E) They are always quality investments.

79)

To calculate the taxable equivalent yield on a municipal bond: A) divide your tax rate by the result of 1.0 minus your tax-exempt rate. B) multiply your tax rate by your tax-exempt rate of return. C) divide your tax rate by your tax-exempt rate of return. D) divide the tax-exempt rate of return by your tax rate. E) divide the tax-exempt rate of return by the result of 1.0 minus your tax rate.

80)

What is bond laddering? A) Buying only long-term bonds B) Buying only short-term bonds C) Buying bonds with maturity dates spread out over a number of years D) Combining stock and bond investments E) Exchanging bonds for shares of stock

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81)

Which one of the following bonds would likely have the lowest risk? A) Treasury bill B) Municipal bond C) Common stock D) Corporate bond E) Junk bond

82)

Treasury bills: A) are rated by Moody's. B) pay interest every six months. C) are long-term securities issued by the federal government. D) are discounted securities. E) pay a higher interest rate than corporate bonds.

83)

Which one of the following is issued by state and local governments? A) Treasury bond B) Treasury bill C) Municipal bond D) Corporate bond E) Common stock

84) Which one of the following represents a bond that generally lacks characteristics of a safe investment and is subject to high credit risk?

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A) Treasury bond B) Bond rated B by Standard and Poor's C) Bond rated AAA by Standard and Poor's D) Insured municipal bond E) Treasury bill

85)

Serial bonds are bonds of a single issue that: A) will pay no interest payments. B) will mature on the same date. C) will mature on different dates. D) cannot be called. E) will all mature ten years from the date of issue.

86) Which of the following terms applies to a bond issue for which the corporation puts money aside at regular intervals for the purpose of redeeming the bonds? A) Serial B) Default C) Sinking fund D) Low-coupon E) Convertible

87) Kahleel Malik has a bond with 10 years to maturity, a face value of $1,000, annual interest of $60, and a market price of $600. What is the yield-to-maturity on this bond? A) 6.0 percent B) 10.0 percent C) 11.0 percent D) 11.5 percent E) 12.5 percent

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88) Lola Ruiz has a bond that has 10 years to maturity, a face value of $1,000, a 7 percent interest rate, and a market price of $1,100. What is the dollar amount of annual interest on this bond? A) $20 B) $70 C) $100 D) $110 E) $200

89) Which of the following can cause the price of a corporate bond to fluctuate until the maturity date? A) Changes in overall interest rates in the economy B) The financial condition of the company issuing the bond C) The factors of supply and demand D) An upturn or downturn in the economy E) All of these choices are correct.

90)

Which of the following statements is true with respect to U.S. Treasury securities?

A) Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years. B) Typical maturities for treasury notes are 2, 3, 5, 7, and 10 years. C) Treasury bonds are issued in $5,000 units with 10-year maturities. D) The Treasury no longer issues Treasury bills. E) Treasury bills generally pay a higher interest rate than Treasury bonds.

91) The quality rating given by Standard & Poor's to bonds that are highly speculative and near default is:

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A) high-grade. B) problematic or default. C) investment-grade. D) medium-grade. E) unrated.

92) If the terms of the sinking fund provision are not met, the _____________blank may take legal action against the company on behalf of the bondholders. A) stockholder B) arbitrator C) mediator D) trustee E) guardian

93) The _____________blank is the dollar amount the bondholder will receive at the bond’s maturity. A) annual interest B) semiannual interest C) premium D) face value E) commission

94)

Which of the following factors is used to calculate the total return on the sale of a bond? A) Commission when bond was purchased B) Interest earned on the bond C) Cost of the bond when purchased D) Dollar return when the bond was sold E) All of these choices are correct.

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95) Which of the following statements is not true about Treasury Inflation-Protected Securities? A) They are currently sold with 5-, 10-, or 30-year maturities. B) The amount of principal increases with inflation and decreases with deflation. C) They pay interest twice a year, at a fixed rate. D) They can be held until maturity or sold before maturity. E) Interest income and growth in principal are exempt from federal income tax.

96) Maturity dates for intermediate term corporate bonds generally range from 3 to _____________blank years. A) 10 B) 15 C) 20 D) 25 E) 30

97) For Moody's and Standard & Poor's, the first _____________blank bond-rating categories represent investments suitable for conservative investors who want a safe investment that provides a predictable source of income. A) two B) three C) four D) five E) six

98) the:

For government bonds, the difference between the bid price and the ask price is called

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A) dirty price. B) asked price. C) spread. D) clean price. E) quoted price.

99) In the U.S., bond price quotations are based on the price of a bond with no accrued or earned interest, which is called the: A) dirty price. B) asked price. C) spread. D) clean price. E) coupon price.

100) In the U.S., the _____________blank for a bond represents the price of the bond plus accrued interest earned since the last interest payment date. A) dirty price B) asked price C) spread D) clean price E) coupon price

101) A type of bond that is still issued by corporations in foreign countries, but is no longer issued by U.S. corporations is called a:

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A) registered bond. B) bearer bond. C) registered coupon bond. D) serial bond. E) mortgage bond.

102) Which of the following is a fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue? A) Call feature B) Sinking fund C) Deposit fund D) Premium fund E) Savings account

103)

_____________blank are bonds of a single issue that mature on different dates. A) Convertible bonds B) High-yield bonds C) Mortgage bonds D) Serial bonds E) Debenture bonds

104)

Corporate bonds that pay higher interest but also have a higher risk of default are called: A) convertible bonds. B) high-yield bonds. C) mortgage bonds. D) serial bonds. E) callable bonds.

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105)

High-yield (junk) bonds are sold by companies: A) with a poor earnings history. B) with a questionable credit record. C) with lower ratings by major rating services. D) that are newer and have unproven ability to increase sales and earn profits. E) All of these choices are correct.

106) With a _____________blank, only the registered owner can collect the principal at maturity, but interest payments can be paid to anyone who presents one of the detachable coupons. A) registered coupon bond B) bearer bond C) corporate bond D) money market account E) savings bond

107) Anyone who is in physical possession of a _____________blank can collect interest payments and the face value of the bond at maturity regardless of whether or not they are the rightful owner. A) corporate bond B) registered coupon bond C) bearer bond D) money market account E) savings bond

108)

The Treasury Department currently sells T-bills with _____________blank maturities.

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A) 4-week B) 13-week C) 26-week D) 52-week E) All of these choices are correct.

109)

When a Treasury bill matures, the investor receives: A) a premium. B) the interest only. C) the purchase price. D) the face value. E) a discount.

110) Pilar Duarte is concerned about ABC company’s ability to make future interest payments on their bonds. What ratio can help her evaluate this concern? A) Bond price calculation B) Current yield calculation C) Yield to maturity D) Times interest earned E) Dividend yield

111) Alisha Pierce would like to invest in 10 T-bills that will have a maturity value of $1,000. The bills have a stated interest rate of 2 percent. What would be the purchase price of these Tbills?

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A) $960 B) $970 C) $980 D) $990 E) $1,000

112) Which of the following is not true regarding Federal Agency debt issues from Fannie Mae or Ginnie Mae? A) Agency debt issues do not have the same guarantee as U.S. Treasury securities. B) Agency debt issues often have a slightly higher interest rate than U.S. Treasury securities. C) Agency debt issues are callable before the maturity date. D) Investing in agency debt issues is simpler than buying and selling U.S. Treasury securities. E) Agency debt issues are not sponsored by the U.S. government.

113) Which website has a brochure entitled, “Saving and Investing: A Roadmap to Your Financial Security Through Saving and Investing?” A) Apple B) Google C) Bing D) Securities and Exchange Commission E) Internal Revenue Service

114) A corporate bond is a corporation's written pledge that it will repay a specified amount of money with interest. ⊚ true ⊚ false

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115)

Maturity dates for corporate bonds generally range from 1 to 10 years. ⊚ true ⊚ false

116) A bond debenture is a legal document that details all of the conditions relating to a bond issue. ⊚ true ⊚ false

117) A bond indenture is a legally binding contract that details all of the conditions relating to a bond issue. ⊚ true ⊚ false

118)

Bond interest payments are a tax-deductible expense for a corporation. ⊚ true ⊚ false

119)

Corporate bonds are a form of equity financing that does not have to be repaid. ⊚ true ⊚ false

120)

A mortgage bond is a corporate bond that is secured by various assets of the issuing firm. ⊚ true ⊚ false

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121) The interest rate on a convertible bond or note is often 1 to 2 percent higher than nonconvertible bonds or notes because of the conversion feature which provides a benefit to the seller. ⊚ true ⊚ false

122)

A subordinated debenture is a more secure investment than a mortgage bond. ⊚ true ⊚ false

123) A convertible bond is a bond that can be exchanged, at the holder’s option, for a specified number of shares of the corporation's common stock. ⊚ true ⊚ false

124) In reality, there is no guarantee that convertible bondholders will convert to common stock even if the price of the common stock does increase. ⊚ true ⊚ false

125) A sinking fund is a fund to which deposits are made each year for the purpose of redeeming a bond issue at maturity or a portion of the bond issue before maturity. ⊚ true ⊚ false

126) A registered bond is a bond whose ownership is listed in the owner's name by the issuing company.

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⊚ ⊚

true false

127) Interest checks for registered bonds are generally mailed directly to the bondholder of record. ⊚ true ⊚ false

128) With the use of technology and computers, the book entry form of bond ownership is no longer used. ⊚ true ⊚ false

129) Investors can choose to have their interest payments deposited directly into their brokerage account. ⊚ true ⊚ false

130) Professional management spells safety, because an occasional loss incurred with one bond issue is usually offset by gains from other bond issues in the fund’s portfolio. ⊚ true ⊚ false

131) Many financial experts recommend bond funds for very large investors, because these investments offer diversification and professional management. ⊚ true ⊚ false

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132) The only way an investor can make money on a bond investment is to hold the bond until maturity. ⊚ true ⊚ false

133) Because bonds are considered debt financing that must be repaid at maturity, a corporation's financial difficulties have little effect on the bond's value between the issue date and the maturity date. ⊚ true ⊚ false

134) Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years. ⊚ true ⊚ false

135) Treasury notes are issued in $100 units with a maturity of more than 1 year but not more than 10 years. ⊚ true ⊚ false

136)

Treasury bonds are issued in $5,000 units with 10-year maturities. ⊚ true ⊚ false

137) A general obligation bond is a bond that is repaid from the income generated by the project it is designed to finance. ⊚ true ⊚ false

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138) Insured municipal bonds offer slightly lower interest rates than uninsured bonds because of the reduced risk of default. ⊚ true ⊚ false

139) While the rates (and the returns) are low compared to other investment alternatives, most investors purchase U.S. Treasury securities because they want to diversify their investment portfolio and add additional risk to their investment portfolios. ⊚ true ⊚ false

140) In addition to those issued by the Treasury Department, debt securities are issued by federal agencies, including Fannie Mae, Ginnie Mae, and Freddie Mac. ⊚ true ⊚ false

141) Although there is a great deal of information on the internet about stock investments, it is impossible to evaluate bonds using the internet. ⊚ true ⊚ false

142) For government bonds, the bid price is the maximum price that a buyer is willing to pay for a government security. ⊚ true ⊚ false

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143) For both Moody's and Standard & Poor's, the first two categories (high-grade and medium-grade) represent investment-grade securities. ⊚ true ⊚ false

144) The current yield for a corporate bond is determined by dividing the annual income amount by the current market value. ⊚ true ⊚ false

145) The yield to maturity takes into account the relationship of a bond's maturity value, the time to maturity, the current price, and the dollar amount of interest. ⊚ true ⊚ false

146)

Since 2000, bond yields for high-quality corporate bonds have increased significantly. ⊚ true ⊚ false

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Answer Key Test name: Chap 15_14e_Kapoor 11) B 12) D 13) C 14) B 15) E 16) D 17) E 18) C 19) A 20) B 21) C 22) D 23) B 24) D 25) D 26) C 27) B 28) E 29) D 30) C 31) E 32) B 33) E 34) C 35) B 36) A Version 1

37) C 38) D 39) E 40) A 41) B 42) B 43) A 44) C 45) D 46) B 47) E 48) D 49) D 50) D 51) C 52) C 53) C 54) C 55) C 56) E 57) B 58) B 59) E 60) A 61) B 62) C 63) D 64) C 65) C 66) B Version 1

67) E 68) C 69) A 70) C 71) A 72) E 73) E 74) D 75) B 76) A 77) C 78) D 79) E 80) C 81) A 82) D 83) C 84) B 85) C 86) C 87) E 88) B 89) E 90) B 91) B 92) D 93) D 94) E 95) E 96) A Version 1

97) A 98) C 99) D 100) A 101) B 102) B 103) D 104) B 105) E 106) A 107) C 108) E 109) D 110) D 111) C 112) D 113) D 114) TRUE 115) FALSE 116) FALSE 117) TRUE 118) TRUE 119) FALSE 120) TRUE 121) FALSE 122) FALSE 123) TRUE 124) TRUE 125) TRUE 126) TRUE Version 1

127) TRUE 128) FALSE 129) TRUE 130) FALSE 131) FALSE 132) FALSE 133) FALSE 134) FALSE 135) TRUE 136) FALSE 137) FALSE 138) TRUE 139) FALSE 140) TRUE 141) FALSE 142) TRUE 143) TRUE 144) TRUE 145) TRUE 146) FALSE

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CHAPTER 16 1) What are seven steps you can take to open an investment account and begin investing in mutual funds?

2) Why do investors purchase mutual funds instead of purchasing stocks, bonds, or other investments on their own?

3) Explain the difference between a load fund and a no-load fund. From a performance standpoint, is there a significant difference between mutual funds that charge commissions and those that do not?

4) Naomi and Hannah Dawson just inherited $30,000 and would like to invest the money in a conservative mutual fund. Since they have never invested in mutual funds, they ask for your help. Describe the sources of information available for evaluating a mutual fund investment.

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5) Describe either the purchase options or withdrawal options that can be used to invest in or withdraw money from the investment company that sponsors an open-end mutual fund.

6) You are considering the purchase of shares in a mutual fund. Discuss three advantages and three disadvantages of mutual fund investing that you believe are important for potential investors to consider.

Which one of the following statements is false?

A) Investors purchase mutual funds for diversification. B) Investors purchase mutual funds because of their professional management. C) Investors who purchase mutual funds are guaranteed a higher rate of return than if they were to purchase comparable stocks and bonds directly. D) Professional fund managers work for an investment company. E) Even the best portfolio managers sometimes make mistakes.

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Which one of the following statements is false regarding exchange-traded funds?

A) An exchange-traded fund generally invests in the stocks or securities contained in a specific stock or securities index. B) With an exchange-traded fund, an investor can purchase as little as one share. C) The majority of exchange-traded funds tend to mirror the performance of the index. D) A passively managed exchange-traded fund manager needs to make more decisions than an actively-managed mutual fund manager. E) No minimum dollar investment amount is required for exchange-traded funds.

9) There are about _____________blank investment companies that offer exchange-traded funds. A) 25 B) 50 C) 150 D) 2,200 E) 10,000

10)

Approximately _____________blank investment companies offer open-end funds. A) 160 B) 1,400 C) 3,500 D) 6,400 E) 9,400

11) A mutual fund in which shares are issued only when the fund is organized is called a(n) _____________blank fund.

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A) closed-end B) open-end C) load D) no-load E) convertible

12) A mutual fund whose shares are issued and redeemed by the investment company at the request of investors is called a(n) _____________blank fund. A) closed-end B) open-end C) load D) no-load E) convertible

13) The current market value of a mutual fund's portfolio minus the mutual fund's liabilities equals a figure, that when divided by the number of shares outstanding, results in the: A) book value. B) outstanding balance. C) LIBOR rate. D) net asset value. E) accounting value.

14) The Capitalist Mutual Fund's portfolio is valued at $40 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 1,250,000 shares. What is the fund's net asset value?

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A) $200.00 B) $30.40 C) $20.00 D) $12.50 E) $1.00

15) The All-Star Basic Value Fund's portfolio is valued at $105 million. The fund has liabilities of $2.5 million, and the fund’s net asset value is $6.25 million. What is the fund's number of shares outstanding? A) 2,500,000 B) 5,500,000 C) 6,250,000 D) 16,400,000 E) 38,720,000

16)

For most mutual funds, the net asset value is calculated at the close of trading each: A) year. B) quarter. C) week. D) day. E) hour.

17) The New American Enterprise Mutual Fund's portfolio is valued at $60 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 2,900,000 shares. What is the fund's net asset value?

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A) $60 B) $58 C) $40 D) $29 E) $20

18) A mutual fund in which investors pay a commission every time they purchase shares is called a(n) _____________blank fund. A) closed-end B) open-end C) load D) no-load E) convertible

19) The sales charge for purchasing shares in a load fund is _____________blank percent of the purchase price. A) an average of 0.50 to 1 B) an average of 1 to 2 C) an average of 2 to 4 D) an average of 5 to 9 1/2 E) as high as 8 1/2

20) When an investor purchases shares in a load fund, the average load charge is between _____________blank percent.

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A) 0.5 to 2 B) 1 and 2 C) 2 and 5 D) 4 and 6 E) 5 and 7

21) Amaya Cooper just purchased 100 shares in the All-American Fund. The purchase cost for each share was $10. If this fund charges a 3 percent load, what is the total amount of commission she will pay the investment company? A) $30 B) $100 C) $230 D) $300 E) $500

22) Gabriel Summers purchased 250 shares of the Northern Lights Growth Fund. The purchase cost was $20 per share and the total commission was $250. What is the load being charged by the fund? A) 8.5 percent B) 5 percent C) 4.5 percent D) 3 percent E) 2.5 percent

23) A mutual fund in which no sales charge is paid by the individual investor is called a(n) _____________blank fund.

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A) closed-end B) open-end C) load D) no-load E) convertible

24) The average management fee for all mutual funds is _____________blank percent of the fund’s assets. A) less than 0.01 B) less than 0.05 C) 0.50 to 2 D) 2 to 4 E) 4 to 5

25) A fee that investors pay when they withdraw their investment from a mutual fund is called a: A) withdrawal fee. B) 12b. C) contingent deferred sales load. D) front-end load. E) management fee.

26) When Su Young-Ji went to withdraw $3,000 from the Nationwide Fidelity Mutual fund, he was informed that the fund would charge 4 percent of the amount withdrawn. What is the dollar amount of the withdrawal charge?

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A) $400 B) $300 C) $120 D) $40 E) $30

27) A fee that some investment companies charge for distributing and marketing a mutual fund is called a(n): A) 14A-1 fee. B) 12b-1 fee. C) 18-2 fee. D) 403 fee. E) 401 fee.

28) Another name for a mutual fund that charges a contingent deferred sales load is a(n) _____________blank fund. A) A B) B C) C D) D E) E

29) Another name for a mutual fund that doesn't levy a sales charge, but does charge an ongoing higher 12b-1 fee is a class _____________blank fund.

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A) A B) B C) C D) D E) E

30) Together, all the different management fees, 12b-1 fees, and additional operating costs for a specific fund are referred to as a(n): A) investment ratio. B) expense ratio. C) financial ratio. D) expense turnover. E) management ratio.

31) Many financial planners recommend that investors choose a mutual fund with an expense ratio that is: A) 1 percent or less. B) between 1 and 2 percent. C) between 2 and 3 percent. D) between 3 and 4 percent. E) over 4 percent.

32) A mutual fund that invests in stocks and bonds with the primary objectives of conserving principal, providing income, and long-term growth is called a(n) _____________blank fund.

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A) balanced B) growth C) industry D) income E) money market

33) A mutual fund that invests in companies expecting higher-than-average revenue and earnings growth is called a(n) _____________blank fund. A) balanced B) growth C) industry D) income E) money market

34) A mutual fund that invests in stocks issued by companies with a long history of paying dividends is called a(n) _____________blank fund. A) balanced B) equity income C) industry D) sector E) money market

35) A mutual fund that invests in investment-grade corporate debt with maturities between 3 and 10 years is called a(n) _____________blank fund.

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A) long-term bond B) growth C) sector D) income E) intermediate corporate bond

36) A mutual fund that invests in companies within the same industry is called a(n) _____________blank fund. A) growth-income B) income C) sector D) small-cap E) money market

37) A mutual fund that only invests in companies outside the United States is called a(n) _____________blank fund. A) growth-income B) income C) international D) industry E) large-cap

38)

A municipal bond fund: A) is too risky for most investors. B) invests in municipal bond mutual funds. C) invests in bonds that are backed by the federal government. D) is a risk-free investment. E) invests solely in Treasury bonds.

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39) Last month Maggie Birch’s divorce became final. As part of the settlement, she received $150,000. She would like to invest in mutual funds, but since she is 62 years old, she is concerned with the safety of her "nest egg." Which of the following mutual funds would you recommend? A) Growth fund B) Small-cap fund C) High-yield bond fund D) International fund E) Short-term U.S. government bond fund

40) Wesley Morison wants to invest in mutual funds, but is also worried about diversification. Which fund would you recommend to him? A) Income fund B) Long-term corporate bond fund C) U.S. government bond fund D) Midcap fund E) A fund of funds

41)

When one investment company manages a group of mutual funds, it is called a(n): A) family of funds. B) exchange fund. C) diversification fund. D) versatility fund. E) asset allocation fund.

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42) Yasmin Al-Fadl plans to retire in the year 2050. She is considering a fund that will be more risk-oriented now and become increasingly conservative as she approaches retirement. Which of the following funds would you recommend to her? A) Equity income fund B) Regional fund C) Sector fund D) Target-date fund E) Fund of funds

43)

Which one of the following funds would be considered the safest investment? A) Growth fund B) Money market fund C) Sector fund D) Asset allocation fund E) High-yield bond fund

44)

Which one of the following statements is false?

A) The responsibility for choosing the right mutual fund rests with the individual investor. B) Professional fund managers do make mistakes. C) Investors should evaluate their investments on a regular basis. D) There is no need to evaluate mutual fund investments, because investment companies hire the best professional managers they can to manage their funds. E) Individual investors should be involved in choosing a mutual fund, because they know how the objectives of a mutual fund match their own investment objectives.

45)

Which one of the following statements is true?

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A) Most mutual funds are managed funds. B) How long the present fund manager has been managing the fund is irrelevant. C) You should ignore fees when comparing mutual funds. D) Managed funds are usually index funds. E) A team of managers is always better than a single fund manager.

46)

Which one of the following statements is false?

A) As an investor, you should be concerned with how long a fund manager has been managing a mutual fund. B) The fund manager chooses when to buy and sell securities in the fund. C) If a manager has been managing a fund for 5 or 10 years, it is time to change managers and get someone with new ideas. D) The fund manager is responsible for choosing the securities that are contained in the fund. E) Managed funds have higher fees than index funds.

47)

The typical expense ratio for an index fund is: A) 0.25 percent or less B) between 0.50 and 1 percent. C) between 1 and 2 percent. D) between 2 and 3 percent. E) over 5 percent.

48)

Which one of the following statements is false regarding mutual funds and the internet?

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A) Many investors have found a wealth of information about mutual fund investments on the internet. B) It is possible to obtain current market values for a mutual fund by using the internet. C) Most investment companies that sponsor mutual funds have a websites. D) Professional advisory services are prohibited from discussing mutual funds on their websites. E) The investment companies’ website will provide procedures for opening an account, how much money is required to open an account, and statistical information about individual funds.

49)

An investment company sponsoring a mutual fund must give potential investors a(n): A) 12b B) prospectus. C) disclosure/evaluation form. D) redemption fee sheet. E) annual report.

50) Many investors will access a fund’s _____________blank by using the internet. It includes a letter from the fund’s independent auditors that provides an opinion as to the accuracy of the fund’s financial statements. A) annual report B) 12b C) annual prospectus D) annual summary report from the president of the investment company E) copy of the annual mutual funds report containing a summary of the professional advisory services comments

51) Which one of the following publications does not provide readers with information about mutual funds and investing?

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A) Bloomberg Businessweek B) Current Business Survey C) Forbes D) Kiplinger's Personal Finance E) Money

52)

Which of the following statements is false?

A) The purpose of investing in a closed-end fund, exchange-traded fund, or open-end mutual fund is to earn a financial return. B) Income dividends are the earnings that a fund pays to shareholders from its dividend and interest income. C) Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio. D) The only way to make money on a mutual fund is by selling shares at a higher price than was initially paid for them. E) Income dividends are taxable.

53)

Income dividends and capital gain distributions are: A) exempt from taxation. B) subject to federal taxation. C) subject to federal taxation after the first $1,000. D) subject to federal taxation after the first $5,000. E) subject to federal taxation after the first $10,000.

54) The most popular and least complicated method of purchasing shares in an open-end mutual fund is through a:

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A) regular account transaction. B) voluntary savings plan. C) contractual savings plan. D) minimum withdrawal plan. E) free contract plan.

55) A mutual fund that requires investors to make regular purchases over a specified period of time is called a: A) regular account. B) voluntary savings plan. C) contractual savings plan. D) minimum withdrawal plan. E) free contract plan.

56) Because of front-end commission charges, many financial experts and government regulatory agencies are critical of: A) regular accounts. B) voluntary savings plans. C) contractual savings plans. D) minimum withdrawal plans. E) free contract plans.

57) If an investor uses a reinvestment plan to invest income dividends and capital-gain distributions:

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A) both the income dividends and capital-gain distributions are tax-exempt. B) only the income dividends are tax-exempt. C) only the capital-gain distributions are tax-exempt. D) the income dividends and capital-gain distributions are currently taxable. E) both the income dividends and capital-gain distributions will be tax-deferred.

58) Which one of the following is not a withdrawal option for a mutual fund owner, who has a minimum NAV of $5,000? A) Withdrawing a specified, fixed dollar amount each investment period B) Liquidating, or "selling off" a certain number of shares each investment period C) Withdrawing a fixed percentage of asset growth D) Withdrawing all asset growth earned during an investment period E) Withdrawing a stated amount and treating it as a short-term loan

59)

Which of the following is an advantage of an exchange-traded fund? A) No minimum investment amount B) Buy and sell shares through a securities exchange at any time during the business day C) Lower management fees than closed-end or open-end funds D) Using limit orders to both buy and sell E) All of these are advantages of ETFs.

60) Liliana de la Cruz puts $8,000 into a load mutual fund. She knows that her up-front sales charge is 5 percent. How much of her money actually goes to buy shares in the mutual fund? A) $8,000 B) $7,600 C) $500 D) $400 E) $5

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61) Raheema al-Azer is buying shares in a mutual fund that is investing in stocks throughout the world, including the United States. What type of mutual fund is this? A) Aggressive-growth fund B) Equity income fund C) Global stock fund D) International fund E) Regional fund

62) Noah Sandavol is buying shares in a mutual fund that seeks rapid price appreciation by purchasing stocks whose prices are expected to increase dramatically in a short period of time. What type of mutual fund is he purchasing? A) Aggressive growth fund B) Equity income fund C) Global stock fund D) International fund E) Regional fund

63) Natasha Hopkins is buying shares in a mutual fund that invests in companies with a long history of paying a dividend whose objective is to provide income to shareholders. What type of mutual fund is she buying? A) Aggressive growth fund B) Equity income fund C) Global stock fund D) International fund E) Regional fund

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64) Emilia Gomez is buying shares in a mutual fund that invests in foreign stocks sold in securities markets throughout the world, excluding the United States. What type of mutual fund is she buying? A) Aggressive growth fund B) Equity income fund C) Global stock fund D) International fund E) Regional fund

65) Nishaa Toor is buying shares in a mutual fund that only invests in companies located in the Latin America area. What type of mutual fund is this? A) Aggressive growth fund B) Equity income fund C) Global stock fund D) International fund E) Regional fund

66) Sonya Ellis is buying shares in a mutual fund that avoids companies that do harm to people, animals, and the environment. What type of mutual fund is this? A) Socially responsible fund B) Sector fund C) Small-cap fund D) Index fund E) Growth fund

67) Emmett Castillo is buying shares in a mutual fund that invests in companies that are all in the natural resources industry. What type of mutual fund is he buying?

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A) Socially responsible fund B) Sector fund C) Small-cap fund D) Index fund E) Growth fund

68) Sloan Richards is buying shares in a mutual fund that invests in companies with a total capitalization of less than $2 billion. What type of mutual fund is this? A) Socially responsible fund B) Sector fund C) Small-cap fund D) Index fund E) Growth fund

69) Hiroi Makoto is buying shares in a mutual fund that invests, proportinately in the same companies as those found in the Standard & Poor’s 500. What type of mutual fund is he buying? A) Socially responsible fund B) Sector fund C) Small-cap fund D) Index fund E) Growth fund

70) Lena Strauss is buying shares in a mutual fund that invests in larger, well-established companies that are expecting higher-than-average revenues and earnings growth. What type of mutual fund is she buying?

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A) Socially responsible fund B) Sector fund C) Small-cap fund D) Index fund E) Growth fund

71)

Which type of mutual fund invests 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

72) Which type of mutual fund invests in corporate bonds with maturities in excess of 10 years? A) Junk bond fund B) Long-term corporate bond fund C) Municipal bond fund D) Short-term government bond fund E) World bond fund

73)

Which of the following invests in U. S. Treasury securities? A) Junk bond fund B) Intermediate U.S. bond fund C) Municipal bond fund D) Short-term corporate bond fund E) World bond fund

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74) Maya is seeking interest income for two years but wants to ensure that her investment is as safe as possible. Which type of mutual fund best fits her requirements? A) Junk bond fund B) Intermediate corporate bond fund C) Growth fund D) Short-term government bond fund E) World bond fund

75) Natalia Gallo is buying shares in a mutual fund that invests in bonds offered by foreign companies and governments. What type of mutual fund is she buying? A) Junk bond fund B) Intermediate corporate bond fund C) Municipal bond fund D) Short-term government bond fund E) World bond fund

76)

Which of the following would be found in a mutual fund's prospectus? A) Statement describing the risk factors associated with the fund B) Description of the fund's past performance C) Information about the fund's management D) The process for buying and selling shares in the fund E) All of these would be found in a prospectus.

77)

Which of the following is a disadvantage associated with purchasing a mutual fund?

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A) Difficulty of buying and selling shares B) Aggressive or unethical sales personnel C) Only one withdrawal option D) No distribution of income and capital gains E) Professional management

78)

Which of the following is an advantage associated with purchasing a mutual fund? A) No fund management fees B) Ability to control the timing of the capital gains distributions C) Total elimination of market risk D) Switching privileges within the same fund family E) Purchase/withdrawal costs

79) Honu Taylor uses all of her dividend income and capital gain distributions to purchase additional shares in her mutual fund. Which one of the following plans is she using? A) Regular account transaction B) Voluntary savings plan C) Contractual savings plan D) Reinvestment plan E) Professional management

80) Devante Hopkins is getting ready to purchase shares in a mutual fund. He will have to pay a one-time sales charge to purchase these shares. What type of shares is he buying? A) Class A B) Class B C) Class C D) Either class A or B E) Either class B or C

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81) Melia Ahohilani is getting ready to purchase shares in a mutual fund. The fund will charge her a one-time back-end load fee only if she redeems her shares within a stated period of time (usually 5 years). What type of shares is she buying? A) Class A B) Class B C) Class C D) Either class A or B E) Either class B or C

82)

Which one of the following is true with respect to closed-end funds? A) An unlimited number of shares are available to investors. B) Most of the investment companies today offer closed-end funds. C) Shares are traded on security exchanges similar to stocks. D) The share prices are determined by their NAV. E) Investors can never sell shares to another investor.

83) Which of the following options can a mutual fund investor use to purchase shares in an open-end fund? A) Regular account transaction B) Voluntary savings plan C) Contractual savings plan D) Reinvestment plan E) All of these are ways to purchase shares in an open-end fund.

84) The Capitalist Mutual Fund's net asset value is $25. The fund has liabilities of $2.5 million and 1,500,000 shares have been issued. What is the value of the fund's portfolio?

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A) $25 million B) $40 million C) $50 million D) $37 million E) $15 million

85)

The turnover ratio of a mutual fund measures the:

A) length of time a manager has been in charge of the fund. B) amount of profit the fund earns from one investment period to the next. C) number of months the average investor holds the fund before selling. D) percentage of a fund's holdings that have changed or "been replaced" during a 12month period. E) percentage of institutional investors who own the fund.

86)

A mutual fund:

A) is a way of investing in a single stock. B) offers safety through diversification because a loss in one investment may be offset by gains in other investments within the fund. C) is insured by the FDIC. D) is not an investment that is increasing in popularity. E) is professionally managed so investors need not monitor fund results.

87)

A closed-end fund is:

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A) a fund that generally invests only in the stocks or other securities contained in a specific stock or securities index. B) one that has only a certain number of shares available to investors when the fund is organized. C) professionally managed so investors need not monitor the performance of the fund. D) a fund whose shares are issued and redeemed by the investment company at the request of investors. E) one whose shares trade only at end-of-the-day prices.

88)

Contingent deferred sales loads may also be referred to as _____________blank loads. A) front-end B) back-end C) level D) purchase E) investiture

89)

Contingent deferred sales loads generally:

A) apply until the shares you own are in the fund for 10 years or more. B) apply regardless of how long your shares have been invested. C) increase as the length of time you have been in the fund increases. D) decline gradually until there is no withdrawal fee if you own the shares for more than five years. E) apply only for the first year funds are invested.

90)

Exchange-traded funds are offered by about _____________blank investment companies.

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A) 10 B) 2,200 C) 10,000 D) 18,000 E) 25

91) What is the most common reason given by American mutual fund owners for investing in funds? A) To reduce taxable income B) Saving for someone's education C) Saving for emergencies D) Saving for retirement E) Saving for a new car

92)

Another name for lifecycle funds is: A) balanced funds. B) funds of funds. C) target-date funds. D) asset allocation funds. E) money market funds.

93)

What percent of mutual funds receive a 5-star rating from Morningstar? A) 5 B) 10 C) 15 D) 20 E) 25

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94) Which of the following is an example of an exchange-traded fund (commonly referred to as ETF) that is available to track an index? A) Midcap stocks B) Small-cap stocks C) Fixed-income securities D) Commodities E) All of these choices are correct.

95)

Most open-end funds provide their investors with which service? A) Opportunity to buy and sell shares on request B) Payroll deduction program C) Automatic reinvestment program D) Automatic withdrawal program E) All of these choices are correct.

96) A contingent deferred sales load, which is a charge that shareholders pay when they withdraw their investment from a mutual fund, can be as low as 1 percent or as high as _____________blank percent depending on how long you own the mutual fund before making a withdrawal. A) 3 B) 5 C) 7 D) 10 E) 15

97)

All of the following information is contained in a mutual fund's fee table, except:

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A) expected return on investment. B) management fees. C) sales charge fees. D) 12b-1 fees. E) redemption fees.

98) Which of the following seeks high total return by maintaining precise amounts within each of the various types of asset that the fund invests in? A) Funds of fund B) Family of funds C) Fixed-income securities D) Money market instruments E) Asset allocation fund

99) A(n) _____________blank fund is a fund that generally invests in the stocks or other securities contained in a specific stock or securities index. A) closed-end B) exchange-traded C) open-end D) load E) no-load

100)

Who owns the most mutual funds? A) Investors less than 20 years old B) Investors between 18 and 36 years old C) Investors between 39 to 54 years old D) Investors between 53 to 71 years old E) Investors over 72 years old

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101) Today many investors use firms like _____________blank to create a financial plan to generate the income needed to satisfy their long-term goals? A) New American Frontiers B) Nasdaq C) Dow Jones Industrial Average D) Morgan Stanley E) Standard & Poor’s index

102)

Why do Americans invest in mutual funds? A) Saving for someone’s education B) Saving for emergencies C) Using funds to reduce taxable income D) Saving for retirement E) All of these choices are correct.

103) Within a family of funds, charges for exchanges generally are small for each transaction, and the fee may be as low as _____________blank per transaction. A) $1 B) $5 C) $10 D) $15 E) $20

104) Which of the following states that it is impossible to consistently beat the market without raising your risk level?

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A) Professional advisory services B) Professional fund manager C) Efficient market hypothesis D) Investment company E) Mutual fund broker

105) Morningstar rates mutual funds from the lowest to the highest using _____________blank stars. A) 2 B) 3 C) 4 D) 5 E) 6

106) Which of the following companies manages assets of $6.1 trillion, has almost 200 different funds, and has historically been known as the leader of low-cost investing? A) The Vanguard Group B) Fidelity Investments C) American Funds D) Foreign Funds E) Standard & Poor’s

107) If the dollar amount of total return on your mutual fund is $165 and the original cost of your investment is $1,200, then what is your percentage of total return?

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A) 6.88 percent B) 7.25 percent C) 12.00 percent D) 13.75 percent E) 16.50 percent

108)

Which of the following is not an advantage of investing in mutual funds? A) Ease of buying and selling shares B) Ongoing management fees and 12b-1 fees C) Professional management D) Diversification E) Multiple withdrawal options

109) An investor is planning to systematically withdraw money from his open-end fund. He arranges to receive 40 percent of the $700 asset growth from this particular investment period. The amount he will receive is: A) $40. B) $140. C) $280. D) $470. E) $700.

110)

Which of the following is not true of index funds? A) Sometimes they are called “passive” funds. B) They do have managers that buy the securities in the index. C) They are a low-cost alternative to managed mutual funds. D) The S&P 500 index outperforms the majority of funds over many years. E) The typical expense ratio for index funds is 0.50 percent or more.

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111)

Which of the following is a source of detailed information for fund investments? A) Internet B) Professional advisory services C) The fund’s annual report and prospectus D) Financial publications E) All of these choices are correct.

112) Which of the following rates mutual funds from 1 to 5 stars on how well they have performed in comparison with similar funds? A) Money B) Bloomberg’s Businessweek C) Morningstar D) Lipper E) Value Line

113)

Over 59 million U.S. households—almost half of all households—own mutual funds. ⊚ true ⊚ false

114) The major reasons why investors purchase mutual funds are professional management and diversification. ⊚ true ⊚ false

115) Because of professional management, there is no need for the individual investor to evaluate a mutual fund investment.

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⊚ ⊚

true false

116) Today, there are more investment companies that offer closed-end funds than there are that offer open-end funds. ⊚ true ⊚ false

117)

Investors in an open-end fund are free to buy and sell shares at the net asset value. ⊚ true ⊚ false

118) There are more investment companies that offer exchange-traded funds than there are that offer open-end mutual funds. ⊚ true ⊚ false

119) The potential return on any investment should be indirectly related to the risk the investor assumes. ⊚ true ⊚ false

120) A load fund is a mutual fund in which investors pay a commission when they purchase shares. ⊚ true ⊚ false

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121) If you need your money in a short period of time, you should consider conservative investments with less risk. ⊚ true ⊚ false

122)

You should consider your tolerance for risk before investing in mutual funds. ⊚ true ⊚ false

123) For a mutual fund, the annual management fee is a fixed percentage of the fund’s total liabilities. ⊚ true ⊚ false

124) Mutual funds have been around for a long time and became popular in the U.S. before the Great Depression in 1929. ⊚ true ⊚ false

125) Investors, 72 years or older, are less likely to invest in mutual funds than any other age group. ⊚ true ⊚ false

126) When you invest in Class A shares, you pay a sales charge when you sell your mutual fund shares. ⊚ true ⊚ false

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127) Class C shares, with their ongoing higher 12b-1 fees, may be more expensive than Class A shares over a period of years. ⊚ true ⊚ false

128) All details related to management fees, sales fees, 12b-1 fees, and other expenses are contained in a mutual fund's prospectus. ⊚ true ⊚ false

129) 12b-1 fees are typically used to pay brokers and others who sell the fund shares as well as paying for advertising, printing information, and shareholder service fees. ⊚ true ⊚ false

130) Mutual funds that allocate their investments among common stocks and bonds are referred to as small-cap funds. ⊚ true ⊚ false

131) Mutual funds that invest in smaller, lesser-known companies that offer higher growth potential are referred to as sector funds. ⊚ true ⊚ false

132)

High-yield bond funds are sometimes referred to as junk-bond funds.

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⊚ ⊚

true false

133) A mutual fund that provides tax-free interest income is referred to as a long-term U.S. bond fund. ⊚ true ⊚ false

134) Asset allocation funds invest in various asset classes including stocks, bonds, fixedincome securities, and money market instruments. ⊚ true ⊚ false

135) The family of funds concept makes it convenient for shareholders to switch their investments among funds as different funds offer more potential, financial reward, or security. ⊚ true ⊚ false

136) Portfolio construction is the process of choosing different types of stocks, bonds, funds, and other investment alternatives to obtain larger returns while reducing risk and can be a very personalized process. ⊚ true ⊚ false

137) The fund manager is ultimately responsible for a fund's success, because he/she decides when to buy or sell securities in the fund. ⊚ true ⊚ false

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138) Because an index mutual fund is a mirror image of a specific index, the dollar value of a share in an index fund increases when the index increases. ⊚ true ⊚ false

139) An investment company sponsoring a mutual fund must give existing shareholders a prospectus. ⊚ true ⊚ false

140) Managed funds can outperform index funds especially when you own the fund for a short time, however it is difficult for a managed fund to continue outperforming the index long term. ⊚ true ⊚ false

141) While advisory services provide detailed information on common and preferred stocks, there are no advisory services that provide information on mutual funds. ⊚ true ⊚ false

142) Investors in closed-end funds, exchange-traded funds, and open-end funds can make money by purchasing shares at a low price and then selling them at a higher price. ⊚ true ⊚ false

143) Although mutual funds are popular among individual investors, most people do not use them as part of an IRA or retirement account.

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⊚ ⊚

144)

true false

Typically, you must invest at least $15,000 to open a mutual fund account. ⊚ true ⊚ false

145) Income dividends are the earnings a fund pays to shareholders from its dividend and interest income. ⊚ true ⊚ false

146) Capital gain distributions result when you decide to sell shares in a mutual fund at a price higher than you paid. ⊚ true ⊚ false

147) While mutual fund income dividends are subject to taxation, capital gain distributions are not subject to taxation. ⊚ true ⊚ false

148) Assuming all qualifications are met, you can eliminate taxes on reinvested income, capital gain distributions, and profits from the sale of shares for funds held in a Roth individual retirement account. ⊚ true ⊚ false

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149) Capital gain distributions resulting from fund selling securities held for more than a year are taxed as long-term capital gains; however, capital gains resulting from shares held less than one year are taxed as ordinary income. ⊚ true ⊚ false

150) Tax information for mutual funds is reported as part of the year-end statement and on an IRS Form 1099 DIV. ⊚ true ⊚ false

151) To purchase shares in an open-end mutual fund from an investment company, you may use four options: regular account transactions, voluntary savings plans, contractual savings plans, and reinvestment plans. ⊚ true ⊚ false

152) When you decide to redeem shares in an open-end mutual fund, the only option is to sell off a specific number of shares. ⊚ true ⊚ false

153) Over many years, the majority of managed mutual funds outperform the Standard & Poor's 500 stock index. ⊚ true ⊚ false

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Answer Key Test name: Chap 16_14e_Kapoor 7) C 8) D 9) D 10) E 11) A 12) B 13) D 14) B 15) D 16) D 17) E 18) C 19) E 20) C 21) A 22) B 23) D 24) C 25) C 26) C 27) B 28) B 29) C 30) B 31) A 32) A Version 1

33) B 34) B 35) E 36) C 37) C 38) B 39) E 40) E 41) A 42) D 43) B 44) D 45) A 46) C 47) A 48) D 49) B 50) A 51) B 52) D 53) B 54) A 55) C 56) C 57) D 58) E 59) E 60) B 61) C 62) A Version 1

63) B 64) D 65) E 66) A 67) B 68) C 69) D 70) E 71) A 72) B 73) B 74) D 75) E 76) E 77) B 78) D 79) D 80) A 81) B 82) C 83) E 84) B 85) D 86) B 87) B 88) B 89) D 90) B 91) D 92) C Version 1

93) B 94) E 95) E 96) B 97) A 98) E 99) B 100) C 101) D 102) E 103) B 104) C 105) D 106) A 107) D 108) B 109) C 110) E 111) E 112) C 113) TRUE 114) TRUE 115) FALSE 116) FALSE 117) TRUE 118) FALSE 119) FALSE 120) TRUE 121) TRUE 122) TRUE Version 1

123) FALSE 124) TRUE 125) TRUE 126) FALSE 127) TRUE 128) TRUE 129) TRUE 130) FALSE 131) FALSE 132) TRUE 133) FALSE 134) TRUE 135) TRUE 136) TRUE 137) TRUE 138) TRUE 139) FALSE 140) TRUE 141) FALSE 142) TRUE 143) FALSE 144) FALSE 145) TRUE 146) FALSE 147) FALSE 148) TRUE 149) TRUE 150) TRUE 151) TRUE 152) FALSE Version 1

153) FALSE

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CHAPTER 17 1)

What are the possible advantages and possible disadvantages of investing in real estate?

What are four tips to avoid scams if you are struggling to pay your mortgage?

Explain the relationship between real estate syndicates and REITs.

4) Explain the difference between direct and indirect investments in real estate. Give examples of each.

What advantages do real estate investments offer?

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What are some possible disadvantages of real estate investments?

7) Miriam Lott bought a rental property for $100,000 cash. Later she sold the property for $130,000. What was her profit and return on this investment?

Explain what factors drive up gold prices and what factors decrease gold prices.

9) Your parents own a vacation home and find it more difficult to spend as much time there as they once did. They are thinking about continuing to use it as a vacation retreat but also want to periodically rent it and use it as an investment. Discuss the issues they should consider when making this decision .

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10)

Which one of the following is not required of a REIT by federal law?

A) Distribute at least 90 percent of the taxable annual earnings to shareholders B) Hire independent real estate professionals to perform certain management activities C) Have at least 100 shareholders with no more than half of all shares owned by 5 or fewer people D) Engage in only speculative, short-term holdings of real estate for quick profits E) Invest at least 75 percent of the total assets in real estate

11)

Real estate investments are classified as: A) participating or nonparticipating. B) common or preferred. C) cumulative or noncumulative. D) direct or indirect. E) conservative or risky.

12)

An example of an indirect real estate investment is a(n): A) single family dwelling. B) duplex. C) apartment. D) undeveloped land. E) mortgage pool.

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13)

An example of a direct real estate investment is a: A) limited partnership. B) single-family dwelling. C) real estate syndicate. D) real estate investment trust. E) mortgage pool.

14)

The median price of existing homes: A) has increased over the past 30 years, thereby acting as a hedge against inflation. B) has risen less than the Consumer Price Index. C) always increases in value. D) tends to be countercyclical, thereby acting as a hedge against the business cycle. E) remains constant over time.

15)

If you have a vacation home, the after-tax cost of owning it over time has: A) risen. B) remained unchanged. C) declined. D) equaled annual cost of living changes. E) equaled the annual inflation rate.

16) Aside from a home, the real property investment most widely favored by the small investor is: A) a post office building. B) land. C) a large apartment building with 100 or more apartments. D) a condominium. E) the duplex, fourplex, or small apartment building.

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17)

Which type of REIT owns and operates income-producing real estate? A) Compound B) Equity C) Mortgage D) Hybrid E) Simple

18) Which type of REIT pools money to invest in new shopping malls or self-storage facilities for the sole purpose of collecting rent? A) Mortgage B) Compound C) Hybrid D) Simple E) Equity

19)

About 90 percent of REITs are _____________blank REITs. A) equity B) mortgage C) hybrid D) participation E) government

20) In what type of real estate investment do you assume the role of a mortgage or student loan lender receiving interest and principal by check each month?

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A) Real estate investment trusts B) Real estate limited partnerships C) Participation certificates D) Real estate syndicates E) Post office buildings

21) In what type of real estate investment does the investor not hold legal title to the property? A) Vacation homes B) Undeveloped land C) Apartments D) Direct investment E) Indirect investment

22)

An example of an indirect real estate investment is: A) a single-family home. B) a duplex. C) a real estate investment trust. D) undeveloped land. E) an apartment building.

23) REITs, Ginnie Maes, and Freddie Macs are examples of _____________blank real estate investments. A) direct B) indirect C) low yield D) risky E) speculative

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24) Mariana Pacheo owns a condominium at the beach which she rents out to vacationers. What type of investment does she hold? A) Direct investment in real estate B) Indirect investment in real estate C) Equity REIT D) Participation certificate E) Mortgage REIT

25) Darius Baker has joined a real estate syndicate that bought an office building in downtown Orlando, Florida. What type of investment does he hold? A) Direct investment in real estate B) Indirect investment in real estate C) Equity REIT D) Participation certificate E) Mortgage REIT

26)

Which of the following is a true statement regarding commercial property? A) Rental property expenses do not include mortgage interest. B) Many investors acquire large rental properties initially and then trade down to smaller

units. C) Rental property expenses are not limited for tax purposes. D) Rental property expenses are treated as a passive loss once they exceed rental income. E) A passive activity is a business you materially participate in.

27) Christian Robles has invested in several pieces of real estate. Which one of the properties that Christian owns would be considered commercial property?

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A) 4 bedroom home that he does not rent out B) 20 acre tract of farm land that is sitting idle C) Fourplex that he rents to college students D) 100 acres of land in the mountains that he hopes to subdivide and sell as residential lots E) Vacation home

28) Jasmine Duncan has joined a real estate syndicate. The syndicate she belongs to was formed by one individual who sold participation units to Jasmine and several others. The individual who sold the participation units has unlimited liability and manages the property. Jasmine and the others can only lose their initial investment. What type of real estate syndicate has Jasmine joined? A) One organized as a corporation B) Limited partnership C) Trust D) REIT E) Real estate mutual fund

29) Tatum Collier has invested in something that acts like a mutual fund and that invests in hospitals 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 Tatum made? A) Foreclosure B) REIT C) Limited partnership D) Participation certificate E) Direct investment

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30) Dominic Martinez has invested in something that acts like a mutual fund and that derives income from interest on loans to real estate owners. He knows there are federal laws that require this type of investment to refrain from engaging in speculative, short-term holding of real estate to sell for quick profits. What type of investment has Dominic made? A) Limited partnership B) Equity REIT C) Mortgage REIT D) Hybrid REIT E) Participation certificate

31) Jamaal Ridley has invested in something that acts like a mutual fund and that invests in both mortgage loans and real estate operating companies. This investment trades on the New York Stock Exchange. What type of investment has Jamaal made? A) Limited partnership B) Equity REIT C) Mortgage REIT D) Hybrid REIT E) Participation certificate

32) Zhuan Hua has an equity investment in a pool of student loans that have been purchased by Sallie Mae. What type of investment is this? A) Limited partnership B) Direct C) Mortgage REIT D) Hybrid REIT E) Participation certificate

33) Which of the following is an investment where a trustee holds legal title to the investment?

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A) Commercial property B) Undeveloped land C) Single-family dwelling D) Duplex E) Syndicate

34) Saida Malek buys an apartment building for $2 million. Which one of the following demonstrates the highest degree of financial leverage? A) $500,000 down payment and mortgage of $1,500,000 B) $250,000 down payment and loan of $1,750,000 C) $150,000 down payment and loan of $1,850,000 D) $100,000 down payment and loan of $1,900,000 E) $1 million down payment and loan of $1 million

35)

Real property equity investments are a possible hedge against: A) deflation. B) disinflation. C) inflation. D) recession. E) unemployment.

36) One of the advantages of being a limited partner in a real estate investment venture is that you have _____________blank liability, which means you are not liable for losses beyond your initial investment.

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A) no financial B) unlimited C) product D) limited E) implied

37) General partners in a real estate investment venture have liability for _____________blank financial losses. A) none of the B) all of the C) some of the D) only exceptional E) implied

38) Which of the following is an advantage of investing in limited partnerships, REITs, mortgages, or participation certificates? A) A possible hedge against inflation B) Easy entry C) No management concerns D) Financial leverage E) All of these choices are correct.

39) Real property equity investments _____________blank provide protection against purchasing power risk.

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A) usually B) always C) never D) without exception E) at no time in the past or future will

40)

Real estate investments provide _____________blank protection against inflation. A) consistent B) unusual C) exceptional D) some E) no

41) Thousands of developers, lenders, and investors were victims of deflation in commercial real estate beginning in the: A) 1960s. B) 1980s. C) late 1970s. D) early 1970s. E) 1990s.

42)

Illiquidity in real estate means that:

A) you can quickly find someone who is willing to pay full value to purchase the property. B) you don't have a water well on the property. C) you cannot quickly sell the property at the market price. D) you don't have financial leverage. E) there is an efficient market for the property.

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43)

Diversification in direct real estate investments is: A) difficult. B) easy. C) always available. D) limited because of the small size of most real estate projects. E) never available.

44) Which one of the following real estate investments provides various levels of diversification? A) REITs B) Ginnie Maes C) Freddie Macs D) Other syndicates E) All of these choices are correct.

45) The ability of investors to use their real estate losses to offset income from wages, salaries, dividends, and interest is an aspect of a real estate syndicate that: A) no longer exists. B) is strengthened by the Tax Reform Act of 1986. C) has remained unchanged since 1980. D) improves the liquidity of real estate syndicates. E) is available only to limited partners.

46) Presently, you are required to use which method of depreciation in real estate investments?

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A) Sum-of-the-digits B) Straight-line C) Rule of 78s D) ACRS E) First In First Out

47) For residential real estate investments, the depreciation period is _____________blank years. A) 7 1/2 B) 17 1/2 C) 20 1/2 D) 27 1/2 E) 31 1/2

48) For all types of real estate investments, except residential ones, the depreciation period is _____________blank years. A) 7 1/2 B) 17 1/2 C) 20 1/2 D) 27 1/2 E) 31 1/2

49)

The investment tax credit has been eliminated entirely for all types of real estate except: A) low-income housing projects. B) single-family dwellings. C) shopping centers. D) raw land. E) developed land.

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50)

Which of the following is a possible disadvantage of real estate investments? A) Lack of involvement in property maintenance B) Hedge against inflation C) Illiquidity D) Lack of financial risk E) Easy entry

51) Which of the following can be a management problem when investing directly in real estate? A) Finding reliable tenants B) Inability to sell your interest in a limited partnership C) Disagreements among syndicate members D) Limited financial liability E) Financial planners do not support buying small properties

52) During which of the following economic periods is the price of a precious metal, such as rhodium, silver or platinum, likely to increase? A) Recession B) Depression C) Peace time D) Deflationary E) Inflationary

53)

Which of the following statements regarding cryptocurrency are not true?

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A) Are not regulated or supervised by a government agency B) Platforms lack critical system safeguards, including customer protections C) Can be a volatile market with price swings or flash crashes D) Markets can be manipulated including risks of cyberattacks and wallet hacking E) None of the above

54)

Which of the following statements regarding Bitcoin are not true? A) Is a decentralized, peer-to-peer virtual currency that is used like money B) Can be exchanged for traditional currencies such as the U.S. dollar C) Can be used to purchase goods or services online D) Operates without central authority or banks and is not back by any government E) None of the above

55)

Investors buy precious metals as a safe haven during: A) a recession. B) a depression. C) an economic upheaval. D) deflation. E) political stability.

56)

Easing of international tensions or disinflation causes gold prices to: A) skyrocket. B) increase moderately. C) remain stable. D) decline. E) change, but the direction of the change cannot be predicted.

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57)

High interest rates in the economy cause gold prices to: A) skyrocket. B) increase moderately. C) remain stable. D) decline. E) change, but the direction of the change cannot be predicted.

58)

In general, the price of gold: A) is stable. B) fluctuates daily. C) changes monthly. D) is unaffected by political upheavals. E) is unaffected by economic conditions.

59)

The basic unit of gold bullion is one _____ of 0.995 fine gold. A) kilogram B) troy ounce C) pound D) ton E) wafer

60) On larger gold bars, dealers and banks add a ____________ percent premium over the pure gold bullion value.

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A) 1 to 2 B) 3 to 5 C) 5 to 8 D) 6 to 7 E) 9 to 12

61)

Popular gold bullion coins today include: A) Australia’s kangaroo nugget. B) Canadian gold maple leaf. C) Mexican 50 peso. D) Chinese Panda. E) All of these choices are correct.

62) Callum Cooke has just purchased 20 American eagle gold bullion coins from a broker. What type of investment does he hold? A) Direct investment in real estate B) Indirect investment in real estate C) Precious metals D) Ceramics E) Gems

63) Charlie Graves has several baseball cards passed down to him from his grandfather. He is particularly proud of the signed Hank Aaron baseball card that he has. What type of investment does he hold?

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A) Direct investment in real estate B) Indirect investment in real estate C) Precious metals D) Collectibles E) Gems

64) Alyssa Thatcher owns three two-carat diamonds that she received from her grandmother, who did not believe in banks, stocks, or bonds. What type of investment does she hold? A) Direct investment in real estate B) Indirect investment in real estate C) Precious metals D) Collectibles E) Precious stones

65) If a gold bullion bar does not remain in the possession of the dealer or bank that sells it, what must happen before it can be resold? A) It must be made into coins. B) It must be pounded flat. C) It must be reassayed. D) It must be turned into jewelry. E) It must be taxed.

66) It is much easier today to find and trade in collectibles than it was in prior years. Which one of the following is primarily the reason for this?

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A) Telephone B) Web (internet) C) Magazines D) Plane travel E) Automobiles

67) A vacation home is deemed a second home as long as you do not rent it for more than 14 days per year. A) one month B) 14 days C) 7 days D) 8 weeks E) 4 weeks

68) What is the approximate annual depreciation for tax purposes on residential real estate purchased at a cost of $275,000? A) $27,500 B) $7,500 C) $20,000 D) $2,750 E) $10,000

69) Austin has invested $25,000 as one of 10 limited partners in a large shopping center that was purchased for $800,000. The shopping center has been unsuccessful and the four general partners fear that the property could be foreclosed upon soon. What is the most Austin might lose if the project fails?

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A) $80,000 B) $57,143 C) $200,000 D) $25,000 E) $20,000

70)

An advantage of purchasing diamonds for investors is that: A) diamonds are not easily turned into cash. B) diamonds are small and easy to conceal. C) diamonds are largely controlled by DeBeers Consolidated Mines of South Africa. D) the grading of diamonds is not an exact science. E) diamonds are typically bought at retail and sold at wholesale.

71)

Home ownership rates are highest among those individuals in which age group? A) Under 34 B) 35 - 44 C) 45 - 54 D) 55 - 64 E) 65 and over

72) De Beers Consolidated Mines of South Africa Ltd. controls what percent of the world's supply of rough diamonds? A) 50 B) 65 C) 75 D) 85 E) 95

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73)

Which of the following is not a characteristic used to grade certified diamonds? A) Weight B) Country of origin C) Clarity D) Quality of cut E) Color

74)

The primary reason people buy a vacation home is: A) to use as a family vacation retreat. B) for tax reasons. C) for rental income. D) for their grown children to live in. E) to eventually use it as their primary residence.

75) A REIT is a firm that pools investor funds and invests them in real estate or uses them to make what kind of loans? A) New car loans B) Construction loans C) Mortgage loans D) Both construction and mortgage loans E) Car, construction, and mortgage loans

76) The first gold bullion coin ever produced by the U.S. government was issued in what year?

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A) 1963 B) 1968 C) 1975 D) 1980 E) 1986

77) Coin dealers, precious metals dealers, and some banks sell gold bullion in amounts ranging from _____________blank grams to 500 ounces or more. A) 5 B) 10 C) 25 D) 50 E) There is no minimum order.

78) Besides gold, other metals that are used as a hedge against inflation include the following, except: A) silver. B) aluminum. C) platinum. D) palladium. E) rhodium.

79)

Which of the following lessened the appeal of investing in real estate? A) Hedge against inflation B) Professional management C) Financial leverage D) Tax Reform Act of 1986 E) National Association of Realtors

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80) Over the past 30 years, the median price of existing homes has increased an average of more than _____________blank percent every year. A) 5 B) 6 C) 7 D) 10 E) 11

81) According to the National Association of Realtors, home values nearly double every _____________blank years. A) 5 B) 6 C) 7 D) 10 E) 11

82) Mauricio has invested $50,000 as one of 5 general partners in a large shopping center that was purchased for $800,000. The shopping center has been unsuccessful and the partners fear that the property could be foreclosed upon soon. What amount is Mauricio liable for if the project fails? A) $60,000 B) $18,000 C) $180,000 D) $800,000 E) $50,000

83) What is the approximate annual depreciation for tax purposes on other types of real estate besides residential real estate if the property was purchased at a cost of $315,000? Version 1

A) $30,000 B) $3,150 C) $15,000 D) $10,000 E) $31,500

84)

Which of the following do not create management problems? A) REITs B) Mortgages C) Participation certificates D) Limited partnerships E) None of these choices are correct.

85) Suppose you invested $20,000 of your own money and had an $80,000 mortgage with interest rate of 6.5 percent. After one year, you sell the property for $130,000. What is your gross profit? A) $10,000 B) $90,000 C) $130,000 D) $50,000 E) $30,000

86) Which of the following is produced by the U.S. Mint specially for collectors, and is usually sold in a protective display case?

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A) Uncirculated bullion coins B) Proof bullion coins C) Small gold bars D) Large gold bars E) Wafers of any size

87)

Nowadays, gold certificates: A) offer you a method of holding gold without taking physical delivery B) are issued by individual banks in Germany or Switzerland that hold the metal on your

behalf C) provide a way to avoid storage and personal security problems D) provide liquidity because you can sell portions of the holdings if needed E) All of these choices are correct.

88)

Which of the following is not a recommended way to invest in gold? A) Purchase it from any company on the internet B) Buy stock in a gold mining firm C) Purchase a mutual fund that invests in gold bullion D) Purchase bullion coins from the U.S. Mint directly E) Buy collectible coins from coin dealers that use professional services to grade the

coins

89) Which of the following is not a reason that precious stones like diamonds appeal to investors?

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A) Small size B) Easily sold at market value C) Ease of concealment D) Great durability E) Potential hedge against inflation

90)

Which of the following is true of collectible coin purchases?

A) Sellers always honor “buy back” offers. B) Sellers never fail to disclose all of the fees attached to “buy back” offers. C) These coins can always be sold at a gain on the open market if the “buy back” offer is dishonored. D) It is a mistake to put faith in “buy back” offers. E) It is guaranteed that you can sell your collection at a later time.

91)

In a direct real estate investment, the investor holds legal title to the property. ⊚ true ⊚ false

92) With an indirect real estate investment, the investors appoint a trustee to hold legal title on behalf of all the investors in the group. ⊚ true ⊚ false

93)

2020 was a record-breaking year for the U.S. housing market, up 5.6 percent from 2019. ⊚ true ⊚ false

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94)

Limited partnerships and syndicates are examples of direct real estate investment. ⊚ true ⊚ false

95)

People primarily buy a vacation home for tax reasons. ⊚ true ⊚ false

96) During the COVID-19 pandemic, Americans were able to work from anywhere and therefore looked for less congested places, consequently increasing the number of vacation home buyers from suburbs, rural, small towns, and resort areas. ⊚ true ⊚ false

97) A real estate syndicate provides professional management and unlimited liability for its members. ⊚ true ⊚ false

98) Land purchased with the intent of subdividing it is speculative, because it involves many risks. ⊚ true ⊚ false

99) Indirect real estate investments include investing in real estate syndicates, REITs, and participation certificates. ⊚ true ⊚ false

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100)

Ginnie Maes are backed by the full faith and credit of the Federal Government. ⊚ true ⊚ false

101) A passive activity is a business or trade in which you do not materially participate, such as rental investment activity. ⊚ true ⊚ false

102) Passive loss is the total amount of losses from a passive activity minus the total income from the passive activity. ⊚ true ⊚ false

103) A January 2021 study conducted by the National Association of Realtors revealed that the COVID-19 pandemic stalled the commercial real estate market to pre-2019 levels, hitting the hotels, retail, and office properties the hardest. ⊚ true ⊚ false

104)

Real estate investment trusts are government-owned real estate companies. ⊚ true ⊚ false

105) A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

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⊚ ⊚

106)

true false

Real estate investment trusts are required by federal law to have at least 500 shareholders. ⊚ true ⊚ false

107) Real estate investment trusts must distribute at least 90 percent of their taxable annual earnings to shareholders. ⊚ true ⊚ false

108) The limited partnership is formed by a limited partner, who has unlimited liability for its debts. ⊚ true ⊚ false

109) A REIT is similar to a mutual fund or an investment company, and it trades on stock exchanges or over-the-counter. ⊚ true ⊚ false

110)

There are three types of REITs: equity REITs, mortgage REITs, and hybrid REITs. ⊚ true ⊚ false

111) Federal law requires that no more than half the shares in a REIT may be owned by 15 or fewer people.

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⊚ ⊚

true false

112) A participation certificate is an equity investment in a pool of mortgages or student loans that have been purchased by one of several government agencies. ⊚ true ⊚ false

113) First and second mortgages may potentially provide relatively high rates of return due to their special risk characteristics. ⊚ true ⊚ false

114)

One needs at least $25,000 to indirectly invest in participation certificates. ⊚ true ⊚ false

115) Ginnie Maes and Freddie Macs are guaranteed by agencies closely tied to the federal government, making them as secure as U.S. Treasury bonds and notes. ⊚ true ⊚ false

116)

If you want a risk-proof real estate investment, participation certificates are for you. ⊚ true ⊚ false

117) Direct real estate investments include single-family dwellings, duplexes, apartments, undeveloped land, and commercial property.

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⊚ ⊚

true false

118) Housing will continue to be a not-so-liquid investment that promises steady returns over time. ⊚ true ⊚ false

119)

Commercial property refers to land and buildings that produce lease or rental income. ⊚ true ⊚ false

120)

Investment in land usually produces considerable cash flow. ⊚ true ⊚ false

121) A REIT pools investor funds and invests them in real estate or uses them to make construction or mortgage loans. ⊚ true ⊚ false

122)

A REIT must invest all of its assets in real estate according to federal law. ⊚ true ⊚ false

123) A REIT may engage in speculative, short-term holding of real estate for the purpose of selling it for quick profits.

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⊚ ⊚

124)

true false

General partners in a real estate limited partnership have unlimited liability. ⊚ true ⊚ false

125) If you are a limited partner, you are generally liable for losses beyond your initial investment. ⊚ true ⊚ false

126)

Financial leverage is the use of borrowed funds for investment purposes. ⊚ true ⊚ false

127)

A limited partner cannot take part in the management of the partnership. ⊚ true ⊚ false

128)

Financial leverage is a disadvantage when property values and incomes are rising. ⊚ true ⊚ false

129) A possible hedge against inflation or purchasing power risk is real property equity investments. ⊚ true ⊚ false

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130) Financial leverage enables you to acquire a more expensive property than you could on your own. ⊚ true ⊚ false

131) The tax shelter aspect of real estate syndicates no longer exists due to the Tax Reform Act of 1986. ⊚ true ⊚ false

132) The Tax Cuts and Jobs Act of 2017 limited the mortgage interest deduction from $1 million down to $750,000 for your primary residence if you filed a joint return. ⊚ true ⊚ false

133) Perhaps the largest drawback of direct real estate investments is the absence of large, liquid, and relatively efficient markets for them. ⊚ true ⊚ false

134) The percent return on a real estate investment equals net profit divided by the amount invested. ⊚ true ⊚ false

135) Diversification in direct real estate investment is difficult because of the large size of most real estate projects.

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⊚ ⊚

136)

true false

It may take months to sell commercial property or limited partnership shares. ⊚ true ⊚ false

137) During deflationary or recessionary periods, the values of real estate investments generally increase. ⊚ true ⊚ false

138) REITs, Ginnie Maes, Freddie Macs, and other syndicates do not provide any diversification. ⊚ true ⊚ false

139)

Gross profit on a real estate transaction equals the selling price minus the purchase price. ⊚ true ⊚ false

140) Today, real estate investors must use accelerated depreciation methods to recover the costs. ⊚ true ⊚ false

141) The tax laws prevent real estate investors from taking losses in excess of the actual amounts they invest.

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⊚ ⊚

142)

true false

Factors such as fear of war, political instability, and inflation cause gold prices to decline. ⊚ true ⊚ false

143) High interest rates depress gold prices, because they make it very expensive to carry gold as an investment. ⊚ true ⊚ false

144)

You can avoid storage and assaying problems by investing in gold bullion coins. ⊚ true ⊚ false

145)

Collecting for investment purposes is very similar to collecting as a hobby. ⊚ true ⊚ false

146)

Collectibles may be difficult to sell at the right price on short notice. ⊚ true ⊚ false

147)

Easing of international tensions or disinflation causes a decline in gold prices. ⊚ true ⊚ false

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148)

The price of gold is subject to daily fluctuations. ⊚ true ⊚ false

149) The price of gold tends to be driven down by factors such as fear of war, political instability, and inflation whereas the price tends to increase during times of international cooperation or disinflation. ⊚ true ⊚ false

150)

The basic unit of gold bullion is one troy ounce. ⊚ true ⊚ false

151) On small gold bars, gold dealers and banks add a five to eight percent premium over the pure gold bullion value. ⊚ true ⊚ false

152)

Gold bullion poses storage problems. ⊚ true ⊚ false

153)

The first gold bullion coin ever produced by the U.S. government was issued in 2001. ⊚ true ⊚ false

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154) Most gold brokers require a minimum order of ten bullion coins and charge a commission of at least two percent. ⊚ true ⊚ false

155)

You may invest in gold by purchasing the common stocks of gold mining companies. ⊚ true ⊚ false

156) When buying gold bullion coins or collectible coins, it is advisable to ask for the coin’s melt value, which represents the basic true value of a coin if it were melted and sold. ⊚ true ⊚ false

157) Investments in silver, platinum, palladium, and rhodium are not used as a hedge against inflation. ⊚ true ⊚ false

158)

Unlike stocks and bonds, precious metals sitting in vaults earn no income. ⊚ true ⊚ false

159) When you purchase precious stones, it is difficult to determine whether you are getting a good stone. ⊚ true ⊚ false Version 1

160) Collectibles include rare coins, works of art, antiques, stamps, rare books, paintings, and other items that appeal to collectors and investors. ⊚ true ⊚ false

161) Prices of collectibles aren't necessarily cheaper on the web (internet), but it's much easier to compare them. ⊚ true ⊚ false

162) Most REITs specialize in one property type only, such as shopping malls, timberlands, or self-storage facilities. ⊚ true ⊚ false

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Answer Key Test name: Chap 17_14e_Kapoor 10) D 11) D 12) E 13) B 14) A 15) A 16) E 17) B 18) E 19) A 20) C 21) E 22) C 23) B 24) A 25) B 26) D 27) C 28) B 29) B 30) C 31) D 32) E 33) E 34) D 35) C Version 1

36) D 37) B 38) E 39) A 40) D 41) B 42) C 43) A 44) E 45) A 46) B 47) D 48) E 49) A 50) C 51) A 52) E 53) E 54) E 55) C 56) D 57) D 58) B 59) A 60) A 61) E 62) C 63) D 64) E 65) C Version 1

66) B 67) B 68) E 69) D 70) B 71) E 72) D 73) B 74) A 75) D 76) E 77) A 78) B 79) D 80) B 81) D 82) D 83) D 84) E 85) E 86) B 87) E 88) A 89) B 90) D 91) TRUE 92) TRUE 93) TRUE 94) FALSE 95) FALSE Version 1

96) TRUE 97) FALSE 98) TRUE 99) TRUE 100) TRUE 101) TRUE 102) TRUE 103) TRUE 104) FALSE 105) TRUE 106) FALSE 107) TRUE 108) FALSE 109) TRUE 110) TRUE 111) FALSE 112) TRUE 113) TRUE 114) FALSE 115) TRUE 116) TRUE 117) TRUE 118) TRUE 119) TRUE 120) FALSE 121) TRUE 122) FALSE 123) FALSE 124) TRUE 125) FALSE Version 1

126) TRUE 127) TRUE 128) FALSE 129) TRUE 130) TRUE 131) TRUE 132) TRUE 133) TRUE 134) TRUE 135) TRUE 136) TRUE 137) FALSE 138) FALSE 139) TRUE 140) FALSE 141) TRUE 142) FALSE 143) TRUE 144) TRUE 145) FALSE 146) TRUE 147) TRUE 148) TRUE 149) FALSE 150) FALSE 151) TRUE 152) TRUE 153) FALSE 154) TRUE 155) TRUE Version 1

156) TRUE 157) FALSE 158) TRUE 159) TRUE 160) TRUE 161) TRUE 162) TRUE

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CHAPTER 18 1) During retirement planning, you would need to estimate your monthly retirement expenses. Provide examples of monthly expenses that are fixed and monthly expenses that are variable.

2) Hadiya Benzema is reviewing her assets and liabilities. What is her net worth? Assets: Cash in checking account, $1,000 Cash in savings account, $2,800 Current value of investments in U.S. savings bonds, $4,000 Current value of investments in stocks & mutual funds, $9,700 Current cash value of life insurance, $7,300 Current value accrued pension benefit, $25,000 Current value of house, $155,000 Current value of furniture and appliances, $8,000 Current value of jewelry, $600 Current value of automobile, $7,200 Liabilities: Current unpaid bills, $800 Home mortgage unpaid balance, $100,000 Auto loan unpaid balance, $3,200 Property Taxes owed, $1,000 Home improvement loan balance, $1,200

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3) If you did not start early to prepare for retirement, what are five tips to help you prepare for retirement when there is little time left?

What are the basic steps in retirement planning?

Why is retirement planning important?

Why is it important to review your assets and liabilities before your retirement?

What types of expenses may be lowered or eliminated during retirement?

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What types of expenses might increase during retirement?

What types of housing options are available to retirees?

10) How can retirees avoid being surprised by hidden tax and financial traps when they move?

11)

What are the possible sources of income for retirees?

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12) To protect yourself from Social Security phone scams, it is important to remember that Social Security will NEVER:

13)

Explain the difference between a defined-contribution and defined-benefit plan.

14) Describe four of the seven misconceptions about retirement planning found in the chapter and explain what you should do if you hold any of these.

15) For the average individual, which one of the following statements is most likely correct regarding retirement?

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A) My costs of daily living will decrease significantly once I retire. B) I can only expect to live about ten years in retirement, so I don't need to save that much money. C) Once I retire, all my medical bills will be paid by Medicare. D) My employer's pension plan will provide sufficient income to meet all my retirement needs. E) I need to save whatever I can, even if it's a little bit, to help cover my retirement costs.

16)

Which one of the following is a true statement about retirement planning? A) I should wait until at least age 45 to start planning for retirement. B) My pension benefits will increase to keep pace with inflation. C) I should update my retirement plan periodically. D) My employer's health insurance plan will cover my medical expenses. E) Social Security will cover my basic living expenses.

17)

Which of the following is a true statement about retirement planning? A) You can expect to spend about 16 to 30 years in retirement. B) It's never too early to begin planning for retirement. C) You should not let your 45th birthday roll by without a comprehensive retirement plan. D) Retirement planning has both emotional and financial components. E) All of these statements are true

18)

Which statement is most likely correct about retirement planning?

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A) Social Security is sufficient to cover your cost of living. B) Your employer's pension combined with your Social Security will cover your basic living expenses. C) Most retirees don't need to worry about inflation. D) Your pension may remain constant and not keep pace with inflation. E) Your expenses will drop once you retire.

19)

Your first step in retirement planning is to: A) estimate your spending needs. B) analyze your current assets and liabilities. C) adjust your spending needs for inflation. D) evaluate your planned retirement income. E) determine if you'll have to work during retirement.

20)

The people who are in the best position to save are: A) teenagers. B) young adults in their 20s. C) people in their 30s. D) middle-aged. E) elderly.

21)

Why is financial planning for retirement critically important? A) You can expect to live in retirement up to 30 years. B) Social Security and your private pension may be insufficient to cover the cost of

living. C) Inflation may diminish the purchasing power of your retirement savings. D) You can expect to live in retirement for a minimum of 16 years. E) All of the listed factors are critically important.

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22)

You can determine your net worth by: A) subtracting your assets from your liabilities. B) subtracting the value of your home from the mortgage balance. C) adding your liabilities and assets. D) subtracting your liabilities from your assets. E) adding the value of your home to that of your other assets.

23) When a lender uses your house as collateral to buy an annuity for you from a life insurance company, it is called a reverse annuity mortgage or: A) an obverse annuity mortgage. B) an equity conversion. C) mortgage life insurance. D) a level-premium annuity. E) whole life insurance.

24)

You can get a reverse annuity mortgage if: A) you are willing to sell your house immediately. B) you buy a new home and pay only a minimal down payment. C) your mortgage is largely or completely paid off. D) you owe more in monthly mortgage interest than the annuity amount. E) you are willing to allow your principal mortgage balance to increase monthly.

25) During a divorce, pension benefits are generally divided between the spouses primarily based on the:

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A) length of the divorce period. B) life expectancies of each spouse. C) length of the marriage. D) current age of each spouse. E) living arrangements for the couple's children.

26)

Which statement is correct regarding retirement living expenses?

A) It is impossible to estimate your spending needs. B) Your spending patterns will probably not change. C) You'll use a smaller share of your income for food, housing, and medical care than non-retired families. D) The exact amount of money you'll need is impossible to predict. E) Work-related expenses, such as driving back and forth to work, tend to be higher during retirement.

27)

Which one of the following expenses for retirees is most likely to increase? A) Medical expenses B) Federal income taxes C) Clothing expenses D) Work-related expenses E) Housing expenses

28)

Which one of the following expenses for retirees is most likely to decrease? A) Clothing expenses B) Insurance expenses C) Medical expenses D) Expenses for leisure activities E) Gifts and contributions

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29)

Which one of the following expenses for retirees is most likely to decrease? A) Gifts and contributions B) Insurance C) Expenses for leisure activities D) Medical expenses E) Federal income taxes

30)

Which type of housing is preferred by most people who are approaching retirement? A) House-sharing B) Present home C) A smaller apartment D) Nursing home E) Boarding-house/rooming house

31) Which type of housing is designed to allow people to stay in their homes as they grow older and more frail? A) Two-story house B) Multi-story apartment complex C) Rooming house D) Universal design E) Rental unit

32) Which of the following is a tip from retirement specialists on how to uncover hidden taxes and other costs of a retirement area before moving?

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A) Call or write the local Chamber of Commerce to get an economic profile. B) Contact the state's tax department to find out state income, sales, and inheritance taxes. C) Call a local CPA to find out which taxes are rising. D) Rent for a while instead of buying immediately. E) Retirement specialists recommend all of these.

33)

Which one of the following is the most widely used source of retirement income? A) IRAs B) Keogh plans C) Social Security D) Company pension plans E) Union pension plans

34) Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age? A) Defined-contribution plan B) SEP IRA C) 401(k) D) Roth IRA E) Defined-benefit plan

35) Which federal law sets minimum standards for pension plans in private industry and protects more than 50 million workers?

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A) Employee Retirement Income Security Act B) Tax Reform Act C) Early Retirement Act D) Income Protection and Guarantee Act E) Civil Rights Act

36)

What are the two most popular personal retirement plans? A) Keogh account and Social Security B) Social Security and Roth IRA Plus C) Keogh accounts and individual retirement accounts (IRAs) D) 401(k) and Social Security E) 403(b) and 401(k)

37)

Possible sources of income for many retirees include: A) Social Security. B) other public pension plans. C) employer pension plans. D) personal retirement plans. E) All of these choices are correct.

38) Which retirement plan was specifically developed for self-employed individuals and their employees? A) Roth IRA B) Traditional IRA C) Defined-contribution plan D) Keogh plan E) Defined-benefit plan

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39)

What type of annuity is generally purchased by people of retirement age? A) Deferred annuity B) Immediate annuity C) Single-premium deferred annuity D) Flexible-premium deferred annuity E) Keogh annuity

40) An annuity in which payments stop when you die, whether a month or many years after the payout begins is called: A) straight life annuity. B) life annuity with installment certain. C) installment refund annuity. D) a life with period certain annuity. E) Keogh annuity.

41)

Which type of annuity gives more income per dollar of outlay than any other type? A) Installment refund annuity B) Life annuity with installment certain C) Straight life annuity D) Keogh annuity E) Life with period certain annuity

42)

Once you retire, which of the following is true about drawing on your savings?

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A) Timing depends on your financial circumstances. B) Timing depends on your age. C) Timing depends on how much you want to leave to your heirs. D) You should do so with caution. E) All of these are true

43) Which one of the following is probably the best suggestion for staying within your retirement income? A) Skip leisure activities B) Cut your food expenditures C) Cancel your life and property insurance D) Use your skills and time instead of your money E) Get rid of your health insurance

44) With respect to your federal income taxes, which one of the following may you have to do during retirement, even if you did not have to do so prior to retiring? A) Report your dividend and interest income B) Visit your local IRS office C) File semi-annual tax returns in April and October D) File quarterly estimated tax returns or arrange for withholding on pension payments E) File semi-annual reports listing all of your income sources

45) Which one of the following is a disadvantage associated with Social Security retirement income?

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A) Earned income may partially offset benefits B) Forced savings C) Portable from job to job D) Cost shared with employer E) Inflation-adjusted survivorship rights

46) Harper Foster is planning for her retirement. She has determined that her car is worth $12,000, her home is worth $160,000, her personal belongings are worth $80,000, and her stocks and bonds are worth $250,000. She owes $50,000 on her home and $5,000 on her car. What step in the retirement planning process is Harper completing? A) Analyzing her current assets and liabilities B) Estimating her spending needs C) Evaluating her planned retirement income D) Evaluating her retirement housing E) Developing a balanced budget based on her retirement income

47) Lia Misra is planning for her retirement. She guesses that by the time she retires, her mortgage will be paid off on her home. She expects she will pay $600 a month on food and that her medical expenses will be $400 a month. She also estimates that she will spend $400 a month on things that she enjoys like traveling, going to concerts, reading, and other similar activities. What step in the retirement planning process is Lia completing? A) Analyzing her current assets and liabilities B) Estimating her spending needs C) Evaluating her planned retirement income D) Evaluating her retirement housing E) Developing a balanced budget based on her retirement income

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48) Maggie Murphy is planning for her retirement. She has done some checking and thinks she will get about $1,408 a month from Social Security. She also thinks her pension plan will pay her about $1,125 per month. In addition, she has some personal retirement accounts that she thinks will pay her $400 per month. What step in the retirement planning process is Maggie completing? A) Analyzing her current assets and liabilities B) Estimating her spending needs C) Evaluating her planned retirement income D) Evaluating her retirement housing E) Developing a balanced budget based on her retirement income

49) Silvia Palermo is planning for her retirement. She knows that after she retires she will no longer need her own single family dwelling. She plans on buying a condominium in Chicago; this is close to the bus and train line and close to a grocery store. What step in the retirement planning process is Silvia completing? A) Analyzing her current assets and liabilities B) Estimating her spending needs C) Evaluating her planned retirement income D) Evaluating her retirement housing E) Developing a balanced budget based on her retirement income

50) Zaria Reed is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Zaria completing?

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A) Analyzing her current assets and liabilities B) Estimating her spending needs C) Determining her planned retirement income D) Increasing her retirement income E) Determining how long her retirement savings will last.

51)

What is most likely to be an individual's single biggest asset? A) Automobile B) Jewelry C) Bank account D) Home E) Furniture

52) Jordan Harris owns a vehicle worth $20,000 and a home worth $230,000. He has a checking account balance of $1,000, a savings account balance of $1,000, and a mutual fund worth $75,000. His personal assets are worth $100,000. He still owes $10,000 on his car, $101,000 on his home, and $1,000 on his credit card. What is Jordan’s net worth? A) $538,000 B) $427,000 C) $315,000 D) $112,000 E) $136,000

53) As people reach retirement age, what is the most likely housing choice they would make? Assume they are moving to a new geographic area.

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A) Split-level house with two sets of stairs B) 100-year old house that needs lots of renovations C) Smaller condominium close to the city bus line D) House with 10 acres far out in the country E) Larger rental house

54)

If you do not plan to retire early, then when should you apply for Social Security? A) 3 months before your full retirement age B) 1 year before your full retirement age C) 1 year after your full retirement age D) 10 years before your full retirement age E) On your full retirement age birthday

55) What happens to your Social Security income if you retire early at age 62 instead of full retirement age? A) There is a temporary reduction of 5/9 of one percent for each month that you receive payments before full retirement age. B) There is a permanent reduction of 5/9 of one percent for each month that you receive payments before full retirement age. C) There is a temporary reduction of one percent for each year that you receive payments before full retirement age. D) There is a permanent reduction of one percent for each year that you receive payments before full retirement age. E) There is no impact on your Social Security income if you retire early.

56) If you work after your full retirement age, your Social Security benefit will increase by one-fourth of one percent for each month you delay retirement up until what age?

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A) 67 B) 70 C) 75 D) 80 E) 85

57) Amir Sharpe works as a manager of a retail store. His employer has been setting money aside for him each month in the amount of 7 percent of his monthly earnings. What type of retirement plan does Amir have? A) Money-purchase pension plan B) Stock bonus plan C) Profit-sharing plan D) 403(b) plan E) Defined benefit plan

58) As its retirement plan contribution, Pascal Mendes’ employer has been buying shares of the company's stock for Pascal's benefit. What type of retirement plan does Pascal’s most likely have? A) Money-purchase pension plan B) Stock bonus plan C) Profit-sharing plan D) Salary reduction plan E) 403(b) plan

59) The contribution Anwar Hassif’s employer makes to his retirement plan depends on the profits of the company. What type of retirement plan does Anwar have?

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A) Money-purchase pension plan B) Stock bonus plan C) Profit-sharing plan D) Salary reduction plan E) 403(b) plan

60) Mariana Lopes is a professor at a public university. Her employer makes nontaxable contributions to a plan in her name and reduces her salary by the same amount. What type of retirement plan does Mariana have? A) Money-purchase pension plan B) Stock bonus plan C) Profit-sharing plan D) Defined benefit plan E) 403(b) plan

61) Cameron Stone has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible (based on his tax filing status and income) as his employer does not offer a retirement plan. What type of individual retirement account does he have? A) Traditional IRA B) Roth IRA C) Spousal IRA D) Coverdell Education Savings Account E) 401(k)

62) Jeremiah Brown has been making contributions into an individual retirement account for his retirement. His contributions are not tax deductible but his earnings accumulate tax free. What type of individual retirement account does he have?

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A) Traditional IRA B) Roth IRA C) Spousal IRA D) Coverdell Education Savings Account E) 401(k)

63) Julian McMillan has been making contributions into an individual retirement account on behalf of his nonworking partner. What type of individual retirement account is this? A) Traditional IRA B) Roth IRA C) Spousal IRA D) Coverdell Education Savings Account E) SEP-IRA

64) Theo Simonsson has been making contributions into an individual retirement account to help pay for his children to go to college. Which type of account is he most likely using? A) Traditional IRA B) Roth IRA C) SEP-IRA D) Coverdell Education Savings Account E) Rollover IRA

65) At a 3 percent rate of inflation, approximately how many years will it take for prices to double?

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A) 9 years B) 15 years C) 21 years D) 24 years E) 30 years

66)

Which is correct with respect to life expectancy? A) Men have a longer life expectancy than women at age 65. B) There is no difference in life expectancy between men and women at age 65. C) Women have a longer life expectancy than men at age 65. D) There is no difference in life expectancy among retirees in retirement communities at

age 65. E) At age 65, the average life expectancy for a man is 25 years.

67) Kim Jae-Yun owns a condo worth $250,000, a car valued at $15,000, and miscellaneous assets worth $7,000. She owes $125,000 on the condo and $10,000 on the car and has no other debts. Her retirement account, in which she is fully vested, contains $28,000 in mutual funds. She was just insured with a $200,000 term life insurance policy. What are her total assets? A) $200,000 B) $300,000 C) $100,000 D) $592,500 E) $600,000

68)

Which of the following is typically a characteristic of a defined benefit plan?

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A) Employer funded with federal rules setting the amounts that employers must contribute B) Employee contributions generally required C) No federal guarantee of benefits D) Employee-managed investments E) Account balances transferable to IRAs

69)

Which of the following is typically a characteristic of a defined contribution plan? A) Employer promises a retirement benefit B) No employee contributions C) No federal guarantee of benefits D) Retirement benefit computed based on an age, wage, and years of service formula E) Account balance not transferable to an IRA

70)

Which one of the following is not a typical characteristic of a defined benefit plan? A) Employer contributions B) Formula-based benefit C) Investments managed by plan officials D) Federal government guarantees some benefit amount E) Employee required contributions

71)

Which one of the following is not a typical characteristic of a defined contribution plan? A) Employer may match contributions B) Ability to transfer account balance to an IRA C) Guaranteed formula-based benefit D) Employee-managed investments E) Benefit depends on employee contributions

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72)

Which one of the following is not a private source of retirement income? A) Traditional IRAs B) Social Security C) Defined contribution plans D) Defined benefit plans E) Spousal IRAs

73)

Which of the following is a feature of an Education IRA? A) Can be used for elementary and secondary school costs B) Renamed the Coverdell Education Savings Account C) Annual contribution limit of $2,000 for each child D) Non-deductible contributions E) All of these are features of an Education IRA.

74)

Social Security covers approximately what percent of all U.S. workers? A) 72 B) 78 C) 86 D) 97 E) 99

75) The Social Security Administration estimates that what percent of individuals age 65 and older would live in poverty without Social Security benefits?

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A) 18 B) 23 C) 37 D) 41 E) 47

76) According to the 2020 Trustees Report, in what year is it projected that the funds available for paying Social Security benefits will be exhausted at current benefit and tax rates? A) 2021 B) 2035 C) 2047 D) 2050 E) 2062

77) If a rollover from a retirement fund or other IRA is not made directly to a similar employer-provided retirement plan or an IRA, there will be a mandatory federal income tax withholding equal to what percent of the taxable distribution? A) 5 B) 10 C) 15 D) 20 E) 25

78) Almost one out of every _____________blank Americans collects some kind of Social Security benefit.

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A) 2 B) 4 C) 5 D) 6 E) 10

79)

Up to what percent of your Social Security benefits may be subject to federal income tax? A) 10 B) 25 C) 50 D) 75 E) 85

80) People born after 1928 need at least how many quarters of coverage to qualify for Social Security benefits? A) 20 B) 40 C) 60 D) 80 E) 100

81) The full Social Security benefit for a spouse is what percent of the retired worker's full benefit? A) 25 B) 40 C) 50 D) 65 E) 80

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82)

Which of the following are considered tax-sheltered annuity plans? A) Education IRAs B) Stock bonus plans C) Profit-sharing plans D) Money-purchase pension plans E) 401(k) plans, Section 403(b) plans, and Section 457 plans

83) Your right to at least a portion of the benefits you have accrued under an employer pension plan is called: A) vesting. B) inflation-adjusted survivorship. C) lump-sum withdrawal option. D) guaranteed formula-based benefit. E) None of these choices are correct.

84) According to the Securities and Exchange Commission, one of the easiest ways to boost your retirement savings is: A) apply for Social Security. B) save by regular, automatic deductions from your paycheck. C) move to less expensive housing. D) rent out a room in your house. E) begin saving a lot when you reach age 45.

85) What percent of the average worker’s preretirement earnings is replaced by Social Security?

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A) 25% B) 40% C) 50% D) 70% E) 90%

86) For every 10 years you delay before starting retirement, you will need to save _____________blank times as much each month to catch up. A) ten B) nine C) six D) five E) three

87)

Developing the habit of saving for retirement is easier when you are: A) young. B) married. C) divorced. D) middle-aged. E) self-employed.

88) Georgina Boucher owns a condo worth $250,000, a car valued at $15,000, and miscellaneous assets worth $7,500. She owes $190,000 on the condo and $10,000 on the car and has no other debts. Her retirement account, in which she is fully vested, contains $28,000 in mutual funds. She was just insured with a $300,000 term life insurance policy. What are her total liabilities?

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A) $200,000 B) $300,000 C) $100,000 D) $592,500 E) $600,000

89) Isa Haruko owns a condo worth $260,000, a car valued at $25,000, and miscellaneous assets worth $7,500. Her retirement account, in which she is fully vested, contains $27,500 in mutual funds. Her net worth is $165,000. What are her total liabilities? A) $165,000 B) $155,000 C) $320,000 D) $465,000 E) $260,000

90) Portia Bexley owes $175,000 on her condo and $15,000 on her car and has no other debts. Her net worth is $132,000. What are her total assets? A) $78,000 B) $132,000 C) $175,000 D) $190,000 E) $322,000

91)

Before you get a reverse mortgage of any kind, consider that:

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A) there are origination fees, closing costs, servicing fees, and mortgage insurance premiums B) interest rates may change over the life of the mortgage C) you are still responsible for property taxes, insurance, utilities, and maintenance expenses D) you may leave fewer or no assets for your heirs E) All of these should be considered.

92)

Which of the following is not a variable expense? A) Food B) Rent or mortgage payments C) Clothing D) Medical expenses E) Vacations

93)

Which of the following is not true of unforeseen expenses? A) They rarely occur during retirement. B) They can require the use of an emergency fund. C) They may require building a cushion to cope with inflation. D) They may come in the form of higher than expected prices for goods and services. E) They can occur while you are living a tranquil life.

94) According to the U.S. Bureau of Labor Statistics, the annual inflation rate in the United States was _____________blank percent in April 2021.

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A) 1 B) 4.2 C) 3 D) 3.5 E) 4

95) Which of the following is not a question that will help assess your financial condition as you approach retirement? A) Do you know where your health insurance will come from after retirement? B) Do you save according to your retirement plan, shifting from safe investments to risky, growth type investments? C) Do you have your own credit history? D) Do you talk regularly and frankly to family members about retirement finances? E) Do you know where you plan to live in retirement?

96) You can depend on your employer's health insurance plan and Medicare to pay all your medical expenses when you retire. ⊚ true ⊚ false

97)

It is vital to engage in basic retirement planning activities throughout your working years. ⊚ true ⊚ false

98)

Saving now for the future requires tackling the trade-offs between spending and saving. ⊚ true ⊚ false

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99) Eighty percent of millennials have money saved for retirement, but nearly half have less than $10,000 in retirement savings. ⊚ true ⊚ false

100) Only by saving now and curtailing current spending can you ensure a comfortable retirement later. ⊚ true ⊚ false

101) A successful, happy retirement just doesn't happen; it takes planning and continual evaluation. ⊚ true ⊚ false

102) One of the misconceptions about retirement is that your expenses will drop when you retire. ⊚ true ⊚ false

103) You can depend on Social Security and your company pension to pay for your basic living expenses. ⊚ true ⊚ false

104)

It is almost certain that your pension benefits will increase to keep pace with inflation.

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⊚ ⊚

true false

105)

Saving money doesn't come naturally to many young people. ⊚ true ⊚ false

106)

The time to begin saving is when you are young. ⊚ true ⊚ false

107)

Inflation increases the purchasing power of your retirement savings. ⊚ true ⊚ false

108)

Your assets include everything you own that has value. ⊚ true ⊚ false

109) In a reverse annuity mortgage, a lender uses your house as collateral to buy an annuity for you from a life insurance company. ⊚ true ⊚ false

110) During retirement, you should increase your premium payments by increasing the face value of your life insurance. ⊚ true ⊚ false

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111)

The current value of your life insurance and pensions are included in your assets. ⊚ true ⊚ false

112)

Generally, the current value of your jewelry is not included in your assets. ⊚ true ⊚ false

113) Your mortgage, car payments, credit card balances, and taxes due are all examples of your liabilities. ⊚ true ⊚ false

114)

The exact amount of money you will need in retirement can be predicted accurately. ⊚ true ⊚ false

115)

Your expenses for leisure activities will probably decrease during retirement. ⊚ true ⊚ false

116) Your work-related expenses, such as driving back and forth to work, will be lower or eliminated during retirement. ⊚ true ⊚ false

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117)

Your federal income taxes will probably be lower during the retirement years. ⊚ true ⊚ false

118)

Although medical expenses vary from person to person, they tend to decrease with age. ⊚ true ⊚ false

119) The potential loss of buying power due to inflation is what makes it so important to plan ahead for your retirement. ⊚ true ⊚ false

120) Too many people make the move to change housing during retirement without doing enough research. ⊚ true ⊚ false

121) According to the Social Security Administration, disabled workers represent 14 percent of those who receive Social Security benefits. ⊚ true ⊚ false

122)

Social Security was originally intended to provide 100 percent of retirement income. ⊚ true ⊚ false

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123)

Most people can qualify for reduced Social Security retirement benefits at age 62. ⊚ true ⊚ false

124)

The law exempts all Social Security benefits from federal income taxes. ⊚ true ⊚ false

125) Under a 401(k) plan, your employer makes nontaxable contributions to the plan for your benefit and reduces your salary by the same amounts. ⊚ true ⊚ false

126)

In a Roth IRA, contributions are not tax deductible, but earnings accumulate tax free. ⊚ true ⊚ false

127) Social Security is a package of protection, providing retirement, survivors', and disability benefits. ⊚ true ⊚ false

128)

Social Security should be the only source of your retirement income. ⊚ true ⊚ false

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129) Your Social Security payments will start at age full retirement age whether you apply for benefits or not. ⊚ true ⊚ false

130) The Social Security office will require you to provide proof of your age to apply for Social Security benefits. ⊚ true ⊚ false

131) If you work after full retirement age, your Social Security benefits will neither increase nor decrease. ⊚ true ⊚ false

132) Because of longer life expectancies, the full retirement age is greater than age 65 for younger individuals. ⊚ true ⊚ false

133) People born after 1928 need at least 60 quarters of coverage to qualify for Social Security benefits. ⊚ true ⊚ false

134) If you leave your company before you retire, then you have a right to a portion of the benefits you have accrued under an employer pension plan only if you are vested.

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⊚ ⊚

true false

135) Your Social Security benefits may be reduced if you earn above a certain amount a year, depending on your age and the amount you earn. ⊚ true ⊚ false

136) Social Security benefits do not increase even if the cost of living increased during the preceding year. ⊚ true ⊚ false

137) When you change jobs, your 401(k) plan savings can be left with the previous employer’s plan, can be rolled over to the new employer’s plan or to an IRA, or can be cashed out. ⊚ true ⊚ false

138) According to the 2020 OASDI Trustees Report, “Social Security is not sustainable over the long term at current benefit and tax rates.” ⊚ true ⊚ false

139) Besides Social Security, the federal government administers several other retirement plans for federal government and railroad employees. ⊚ true ⊚ false

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140) Employees who are covered under the Railroad Retirement System are also covered by Social Security. ⊚ true ⊚ false

141) With a Keogh plan, you may contribute up to 35% of your annual income, up to a maximum of $68,000 (as of 2021) to this tax-deferred retirement plan. ⊚ true ⊚ false

142)

Most employer pension plans are either defined-contribution or defined-benefit plans. ⊚ true ⊚ false

143) Over the last two decades, the defined-benefit plan has continued to grow rapidly while the number of defined-contribution plans has generally dropped. ⊚ true ⊚ false

144) A defined-contribution plan has an individual account for each employee; therefore, these plans are also called individual account plans. ⊚ true ⊚ false

145)

Profit-sharing plans and 401(k) plans are examples of defined-contribution plans. ⊚ true ⊚ false

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146) If your employer is a tax-exempt institution such as a hospital, university, or museum, then the salary reduction plan is called a Section 403(b) plan. ⊚ true ⊚ false

147) plan.

If you are a government employee, then the salary reduction plan may be a Section 457 ⊚ ⊚

true false

148) Money-purchase pension plans, stock bonus plans, profit-sharing plans, 401(k) plans, 403(b) plans, and Section 457 plans are examples of defined-contribution plans. ⊚ true ⊚ false

149)

All earnings in a tax-sheltered annuity grow without current federal taxation. ⊚ true ⊚ false

150) The biggest benefit of an IRA lies in its tax-deferred earnings growth; the longer the money accumulates tax deferred, the bigger the benefit. ⊚ true ⊚ false

151) With a defined-contribution plan, the plan document specifies the benefits promised to the employee at the normal retirement age. ⊚ true ⊚ false

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152) Because of their actuarial aspects, defined-benefit plans tend to be more complicated and more expensive to administer than defined-contribution plans. ⊚ true ⊚ false

153) The shift to defined-contribution plans has forced employees to take more responsibility for their retirement. ⊚ true ⊚ false

154) Pension plan portability enables you to carry earned benefits from one employer's pension plan to another's when you change jobs. ⊚ true ⊚ false

155) Although the full retirement age is rising, you should still apply for Medicare benefits three months before your 65th birthday. ⊚ true ⊚ false

156) ERISA established the Pension Benefit Guaranty Corporation to provide pension insurance. ⊚ true ⊚ false

157) The Social Security Administration provides a history of your earnings and an estimate of your future monthly benefits online.

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⊚ ⊚

true false

158) Your contribution to a Traditional IRA is fully tax deductible regardless of your filing status and your income. ⊚ true ⊚ false

159)

You can borrow from your Roth IRA. ⊚ true ⊚ false

160)

You may convert your traditional IRA to a Roth IRA. ⊚ true ⊚ false

161)

Under certain circumstances, the Roth IRA allows for tax-free, penalty-free distributions. ⊚ true ⊚ false

162)

The Education IRA was renamed the Coverdell Education Savings Account. ⊚ true ⊚ false

163)

You can keep money in most retirement plans indefinitely. ⊚ true ⊚ false

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164) The amount of the minimum required distribution from an IRA at age 70½ is based on your life expectancy at the time of the distribution. ⊚ true ⊚ false

165) Whether or not you are covered by a pension plan, you can still make nondeductible IRA contributions. ⊚ true ⊚ false

166)

A SEP-IRA plan is simply an individual retirement account funded by the employer. ⊚ true ⊚ false

167) Your contributions to a SEP-IRA, which can vary from year to year, are tax deductible and earnings accumulate on a tax-deferred basis. ⊚ true ⊚ false

168) You can put your IRA funds in many kinds of investments, including stocks, bonds, mutual funds, real estate, and U.S.-minted gold and silver coins. ⊚ true ⊚ false

169) The average 2021 monthly Social Security benefit for a retired worker is approximately $1,543.

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⊚ ⊚

true false

170)

Keogh plans can be defined-contribution plans or defined-benefit plans. ⊚ true ⊚ false

171)

An annuity provides guaranteed income for life. ⊚ true ⊚ false

172)

You can only buy an annuity by making periodic payments. ⊚ true ⊚ false

173)

The rate of return on annuities is rarely tied to market rates. ⊚ true ⊚ false

174)

Earned interest on annuities accumulates tax free until the annuity payments begin. ⊚ true ⊚ false

175)

Annuity payouts may either be a fixed or a variable amount. ⊚ true ⊚ false

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176) You can create a "my Social Security" account if you are 18 or older and have a Social Security number, valid e-mail, and U.S. mail address. ⊚ true ⊚ false

177) Immediate annuities provide income payments at once and are usually purchased with a lump-sum payment. ⊚ true ⊚ false

178) The EGTRRA was passed by Congress in 2001 and increased the employee annual contribution limit for 401(k) and other employer-sponsored retirement plans. ⊚ ⊚

true false

179) A joint-and-survivor annuity pays its installments until the death of the last designated survivor. ⊚ true ⊚ false

180) With a fixed-dollar annuity, the money you pay is invested in common stocks or other equities that have a guaranteed return. ⊚ true ⊚ false

181) The first step in stretching your retirement income is to make sure you are receiving all of the income to which you are entitled. Version 1

⊚ ⊚

true false

182) During retirement, as long as you do not earn more than the annually exempt amount through part-time work, your Social Security payments will not be affected. ⊚ true ⊚ false

183) To offset inflation, your retirement assets must earn enough to keep up with, and even exceed, the rate of inflation. ⊚ true ⊚ false

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Answer Key Test name: Chap 18_14e_Kapoor 15) E 16) C 17) E 18) D 19) B 20) D 21) E 22) D 23) B 24) C 25) C 26) D 27) A 28) A 29) E 30) B 31) D 32) E 33) C 34) E 35) A 36) C 37) E 38) D 39) B 40) A Version 1

41) C 42) E 43) D 44) D 45) A 46) A 47) B 48) C 49) D 50) E 51) D 52) C 53) C 54) A 55) B 56) B 57) A 58) B 59) C 60) E 61) A 62) B 63) C 64) D 65) D 66) C 67) B 68) A 69) C 70) E Version 1

71) C 72) B 73) E 74) D 75) E 76) B 77) D 78) C 79) E 80) B 81) C 82) E 83) A 84) B 85) B 86) E 87) A 88) A 89) B 90) E 91) E 92) B 93) A 94) B 95) B 96) FALSE 97) TRUE 98) TRUE 99) TRUE 100) TRUE Version 1

101) TRUE 102) TRUE 103) FALSE 104) FALSE 105) TRUE 106) TRUE 107) FALSE 108) TRUE 109) TRUE 110) FALSE 111) TRUE 112) FALSE 113) TRUE 114) FALSE 115) FALSE 116) TRUE 117) TRUE 118) FALSE 119) TRUE 120) TRUE 121) TRUE 122) FALSE 123) TRUE 124) FALSE 125) TRUE 126) TRUE 127) TRUE 128) FALSE 129) FALSE 130) TRUE Version 1

131) FALSE 132) TRUE 133) FALSE 134) TRUE 135) TRUE 136) FALSE 137) TRUE 138) TRUE 139) TRUE 140) FALSE 141) FALSE 142) TRUE 143) FALSE 144) TRUE 145) TRUE 146) TRUE 147) TRUE 148) TRUE 149) TRUE 150) TRUE 151) FALSE 152) TRUE 153) TRUE 154) TRUE 155) TRUE 156) TRUE 157) TRUE 158) FALSE 159) FALSE 160) TRUE Version 1

161) TRUE 162) TRUE 163) FALSE 164) TRUE 165) TRUE 166) TRUE 167) TRUE 168) TRUE 169) TRUE 170) TRUE 171) TRUE 172) FALSE 173) FALSE 174) TRUE 175) TRUE 176) TRUE 177) TRUE 178) TRUE 179) TRUE 180) FALSE 181) TRUE 182) TRUE 183) TRUE

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CHAPTER 19 1) There are 10 commandments of making your will listed in this chapter. Describe 5 of these.

2) If you are active online, what steps should you take to write a social media will to handle the closure of your email addresses, social media profiles, and blogs after you die?

What is estate planning and how does your personal situation affect that planning?

Explain what a will is and what occurs at your death if you do not have one.

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Describe the four types of wills and which one is best for you.

6) What are the four major federal and state taxes that must be considered in estate planning?

What are some benefits of establishing a trust?

Which one of the following statements is true about estate planning? A) Estate planning is only for the rich. B) It is always easy to plan for your family's financial security in the event of your death. C) Estate planning does not require taking an inventory of everything you own. D) Many people give a lot of thought to setting their financial affairs in order. E) Many people do little to provide for those who will survive them.

Which is true of estate planning?

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A) It includes handling your property while you are alive B) It includes dealing with what happens to your property after your death C) It is part of retirement planning D) It is part of financial planning E) All of these choices are correct.

10)

If you are married, your estate planning involves: A) the interests of at least two people. B) simple legal requirements. C) only your children. D) seeking the services of a securities broker. E) only yourself.

11)

Which one of the following statements is correct? A) An estate plan is usually implemented by a will and trust agreements. B) Most people do extensive estate planning. C) Most people think they will live forever. D) People should not worry about estate planning until they are age 65. E) Estate planning is really only necessary if you are wealthy.

12)

Estate planning has two parts. The first part consists of: A) building your estate through savings, investments, and insurance. B) transferring your estate, while you are alive, in the manner you have specified. C) deciding who is going to get what. D) evaluating your assets and liabilities. E) planning for the period right after you die.

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13)

Estate planning has two parts. The second part of estate planning consists of: A) building your estate through working. B) transferring your estate, at your death, in the manner you have specified. C) deciding who should be your attorney. D) evaluating your assets and liabilities. E) buying life insurance.

14)

In estate planning, if you are married: A) you do not need a will as your spouse is entitled to all of your assets. B) your estate planning becomes simpler once you have children. C) you should let your spouse do all of your estate planning. D) your situation is more complex than when you were still single. E) your planning consists solely of naming beneficiaries for your life insurance.

15)

Which of the following is a part of estate planning? A) Making a will B) Setting up a trust C) Accumulating savings and investments for your future D) Disposing of your property at your death E) All of these are part of estate planning.

16)

Which of the following is true if you are an unmarried couple?

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A) A partner has the same legal rights as a spouse. B) Unmarried couples can use the marital deduction. C) Estate planning is less important for unmarried couples. D) If your partner is not named as the beneficiary, your pension plan proceeds will go to your closest blood relative. E) Your partner will always receive your pension even if not named as the beneficiary.

17)

Which of the following is an important document needed for estate planning? A) Your driver's license B) Your transcript from college C) Your birth certificate D) Your birthday cards E) Your voter registration

18)

Najeem Brooks has died without writing a will. What is the legal term for this? A) Probate B) Intestate C) Testamentary D) Statutory E) Codicil

19) Raul Cruz owns a home worth $250,000, a car worth $15,000, various investments worth $600,000 and other personal assets worth $25,000. What are these things to Raul Cruz? A) Estate B) Will C) Trust D) Probate E) Liabilities

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20) Zhou Ling has assets worth $1,200,000. He has written a legal document that specifies that these assets are to be divided equally between his wife and his two sons upon his death. What is this legal document? A) Estate B) Will C) Trust D) Probate E) Liabilities

21) Lucas LaRoque has assets worth $1,500,000 and has written a legal document that specifies that all of his money go to his children. After he dies, there is a legal process to determine whether his document specifying how his assets be divided is valid. This is also the legal process by which his executor manages and distributes his property. What is this legal process called? A) Estate B) Will C) Trust D) Probate E) Terms of distribution

22)

A will is: A) a way to transfer your property according to your wishes after you die. 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.

23)

Which one of the following statements is correct regarding wills?

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A) Only married people need a will. B) Only married people with dependents need a will. C) Only the rich with considerable estates need a will. D) Every adult should have a written will. E) Only senior citizens need a will.

24)

If you die without a valid will: A) the IRS confiscates your property. B) a federal court decides how your property will be distributed. C) your closest relative will receive all your property according to federal law. D) your letter of instruction becomes your will. E) your state's law of descent and distribution becomes your will.

25)

Which one of the following wills is called an "I love you" will? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Holographic

26)

Which one of the following wills leaves everything to your spouse? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

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27)

Which will is sufficient for most smaller estates? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

28) Which one of the following wills automatically leaves one-half of your adjusted gross estate to your spouse? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) A/B trust

29) Under what type of will is half of your estate taxed at your death and half at your spouse's death? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) A/B trust

30) Under what type of will does everything pass to your spouse, with the exception of an amount equal to the exemption, which passes into trust?

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A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

31) Which type of will allows you to pass to your spouse any amount that satisfies your family objective? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) A/B trust

32)

A handwritten will is called a(n): A) holographic will. B) formal will. C) statutory will. D) exemption trust will. E) informal will.

33)

Which will should be written, dated, and signed entirely in your own handwriting? A) Informal B) Marital trust C) Formal D) Statutory E) Holographic

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34) Which one of the following may be either typed or on a preprinted form and is usually prepared with an attorney's assistance? A) Medical directives B) Holographic will C) Formal will D) Letter of last instruction E) Living will

35) Which type of will involves serious risks of invalidity that the form is out of date with respect to current law? A) Marital share B) Statutory C) Formal D) Exemption trust E) Living

36)

A person who will follow your instructions specified in your will is called a(n): A) beneficiary. B) trustor. C) witness. D) executor. E) codicil.

37)

Which of the following should prompt you to review your will?

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A) You move to a different state. B) You have sold property mentioned in the will. C) The size and composition of your estate has changed. D) You have married, divorced, or remarried. E) All of these choices are correct.

38) Which document identifies the will being amended, confirms the unchanged sections of the will, and changes a provision(s) in your existing will? A) Codicil B) Tracer C) Addendum D) Rider E) Floater

39) A documentary agreement between spouses before marriage in which one or both parties often waive a right to receive property under the other's will or under state law is called a: A) letter of last instruction. B) codicil. C) prenuptial agreement. D) marital agreement. E) marital share will.

40) If both parents die at the same time, a(n)_____________blank is a person who assumes the responsibilities of providing the children with personal care and of managing the estate.

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A) beneficiary B) executor C) trustee D) guardian E) executrix

41) A person or institution that holds or generally manages property for the benefit of someone else under a trust agreement is called a(n): A) beneficiary. B) executor. C) trustee. D) guardian. E) executrix.

42) A legal document authorizing someone to act on your behalf, if you become ill or incapacitated, is called a: A) codicil. B) rider. C) durable power of attorney. D) trustor. E) proxy.

43) Sasha Burke is married and has assets totaling $9 million. What type of will would most likely result in the lowest overall amount of federal estate taxes? Assume the exemption amount is $3 million.

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A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

44) Isaac Clarke has created a will and left everything to his wife Naomi. What type of will has he created? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

45) Sarah Koehn has created a will that leaves one-half of her adjusted gross estate to her wife, Hilary. What type of will has she created? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

46) Darnell Jones has created a will that leaves everything to his wife except an exemption amount of $3 million. This exemption amount passes into a trust. What type of will has Darnell created?

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A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living

47) Garrett Navarro has created a will that leaves exactly $2 million to his husband in anticipation of his income needs. What type of will has Garrett created? A) Simple B) Traditional marital share C) Exemption trust D) Stated dollar amount E) Living will

48) Lydia Wright has used a preprinted form that she got from a stationery store to create her will. What type of will has she created? A) Holographic B) Formal C) Statutory D) Casual E) Living

49) Sonya Patel has used a preprinted form that she got from the internet to create her will. However, she was unhappy with one section of the will and crossed out the parts she didn't like and hand wrote the changes she wanted. The changes that she made most likely made her will:

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A) invalid. B) an A/B trust. C) a letter of last instruction. D) a marital trust. E) an exemption trust.

50) Mauricio Juarez has been named by Estella Duarte to follow her instructions and distribute her assets as she has designated in her will, pay any bills, and collect any money owed to her. To which position has Mauricio been named? A) Executor B) Trustee C) Guardian D) Beneficiary E) Agent

51) Elliott Lockwood has been selected by Vivian Lennon to assume the responsibility of raising her children and managing her estate for those children if she were to die. In what capacity would Elliott be acting? A) Executor B) Trustee C) Guardian D) Beneficiary E) Agent

52) Ella Holman has been selected to manage the property under a trust agreement for Davis Peterson until he reaches the age of 30. Davis is currently 21. In what capacity would Ella be acting?

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A) Executrix B) Trustee C) Guardian D) Beneficiary E) Administrator

53) Dalton McQuade has been selected to receive the assets of his brother Antonio in the event of Antonio's death. What is Dalton? A) Executor B) Trustee C) Guardian D) Beneficiary E) Agent

54) A legal arrangement through which your assets are held by a trustee for your benefit or that of your beneficiaries is called a: A) codicil. B) power of attorney. C) proxy. D) rider. E) trust.

55) If you establish a(n) _____________blank trust, you retain the right to end the trust or change its terms during your lifetime.

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A) irrevocable B) revocable C) living D) self-declaration E) testamentary

56)

If you establish a(n) _____________blank trust, you cannot change its terms or end it. A) irrevocable B) revocable C) living D) self-declaration E) testamentary

57) A(n) _____________blank trust is a property management arrangement that you establish while you are alive. A) guardian B) trustee C) living D) power of attorney E) estate

58) A trust established by your will that becomes effective upon your death is called a(n) _____________blank trust. A) testamentary B) living C) revocable D) life E) insurance

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59) Under what type of ownership is the property considered owned 50-50 for estate tax purposes and passed automatically to your spouse at your death? A) Tenants in common B) Tenancy by the entirety C) Joint tenants with the right of survivorship D) Tenancy by seniority E) Tenancy by default

60) In what type of joint ownership may neither spouse sell the property without the consent of the other? A) Tenancy by default B) Tenancy by the entirety C) Tenancy in common D) Joint tenants with the right of survivorship E) Simple tenancy

61) A newly practicing surgeon, who will soon finish paying off his college loans, might want to set up a(n): A) credit-shelter trust. B) marital-deduction trust. C) living trust. D) inter vivos trust. E) disclaimer trust.

62) In what type of ownership is each individual considered to own a proportionate share for tax purposes with only your share being included in your estate?

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A) Tenancy by default B) Tenancy by the entirety C) Tenants in common D) Joint tenants with the right of survivorship E) Tenancy by performance

63) Giorgio Badaracco has assets worth $2,400,000. Since he plans to travel and does not want to oversee these assets, he has created a legal arrangement so the assets can be managed by an officer of his local bank. What type of legal arrangement has he likely made? A) Guardianship B) Statutory will C) Trust agreement D) Living will E) Letter of instruction

64)

Which of the following would be a benefit of establishing a trust? A) It can reduce or provide for payment of estate taxes. B) It can allow you to avoid probate and transfer assets immediately to beneficiaries. C) It can free you from managing your assets while providing you a regular income. D) It can ensure that your property serves a desired purpose after you die. E) A trust can do all of these things.

65) Nasim Nazeri has a trust that she can end at any time she wants. She has assets in the trust that she thinks she may need to use at a later date. What type of trust does Nasim have?

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A) Revocable trust B) Irrevocable trust C) Bargain trust D) Negotiable trust E) Non-negotiable trust

66) A federal tax levied on the value of the inheritance of a deceased person to transmit his or her property and life insurance at death is called a(n) _____________blank tax. A) estate income B) trust income C) inheritance D) gift E) estate

67) A tax levied on an heir to receive all or part of the estate and life insurance proceeds of a deceased person is called a(n) ____________ tax. A) estate income B) trust income C) inheritance D) gift E) estate

68) A federal and state tax levied on the privilege of making gifts to others is called a(n) _____________blank tax.

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A) estate income B) trust income C) inheritance D) gift E) estate

69) What is the maximum yearly amount that an individual can give as a gift without incurring gift tax liability or having to report the gift to the IRS according to the Tax Cuts and Jobs Act? A) $5,000 B) $15,000 C) $17,000 D) $20,000 E) $25,000

70)

How many months after your death is the federal estate tax due and payable in cash? A) 3 B) 6 C) 9 D) 12 E) 15

71) Rakeem Wilkins owns a home worth $300,000, a car worth $15,000, various investments worth $600,000, and other personal assets worth $30,000. He still owes $175,000 on his mortgage and $10,000 on a car loan. The probate and administration costs of his estate are estimated at $5,000. What is his estimated net taxable estate?

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A) $850,000 B) $870,000 C) $875,000 D) $755,000 E) $760,000

72) Advance directives are legal documents that allow you to state what kind of health care you want if you were too ill to speak for yourself. Advance directives most often do not include which of the following? A) Living will B) Health care proxy C) Letter of last instruction D) Simple will E) Durable power of attorney

73) John Early worries that his deteriorating health is going to make him incapacitated and unable to conduct his personal affairs. He wants to grant his nephew, Aiden Early, the ability to act on his behalf. To do this, what document would he most likely need? A) Letter of last instruction B) Durable power of attorney C) Will D) Revocable trust E) Irrevocable trust

74) Ruth Krupin wants to leave some words of encouragement and spiritual advice to her children to encourage their faith in the event that something happens to her. What type of document would be best for her to prepare?

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A) Ethical will B) Durable power of attorney C) Letter of last instruction D) Codicil E) Formal will

75)

Which of the following is not a true statement about a holographic will? A) It is handwritten. B) It should be dated in your own handwriting. C) It is always prepared by an attorney. D) It should be signed in your own handwriting. E) Some states may not recognize it.

76)

Which of the following would keep you from being an executor of a will? A) Being in the military B) Being 16 years of age C) Being unmarried D) Being over 65 years of age E) Being a family member of the deceased

77)

Which of the following would keep you from being an executor of a will? A) Having been convicted of a felony B) Being over 70 years of age C) Being married D) Being a coworker of the deceased E) Being a child of the deceased

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78) A simple document stating that anything you may have neglected to place in your trust during your lifetime should be placed in it at your death is called a(n): A) letter of last instruction. B) ethical will. C) prenuptial agreement. D) codicil. E) pourover will.

79) If your beneficiary is too young or unable to handle money wisely, which kind of trust allows the beneficiary to receive small amounts of money at specified intervals? A) A spendthrift trust B) A charitable lead trust C) A charitable reminder trust D) A self-declaration trust E) A generation-skipping trust

80)

Which will leaves everything to the spouse? A) Traditional marital share will B) Exemption trust will C) I love you will D) Stated dollar amount will E) Living trust

81)

Your executor can be which of the following:

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A) a family member. B) a friend. C) an attorney. D) an accountant. E) Your executor can be any of these.

82)

Which statement is not true about a formal will? A) It is usually prepared without an attorney's assistance. B) It may be typed. C) It may be on a preprinted form. D) You must sign it in the presence of two witnesses. E) It must also be signed by the witnesses in your presence.

83)

Which statement is not true about an ethical will? A) It is used to pass on your values and beliefs to your heirs. B) It is a legally binding document. C) It helps with estate planning. D) It requires earnest self-examination. E) It is a way to express love and share lessons learned.

84)

Which statement is not true about a letter of last instruction? A) It is also known as after-death wishes. B) It should contain details about your funeral arrangements. C) It should contain names of people to be notified of your death. D) It is legally enforceable in all states. E) It should contain information about the location of your bank accounts.

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85)

Which of the following is the most practical first step in estate planning? A) Preparing a will B) Gathering military service records C) Obtaining court documents with legal name changes D) Reviewing automobile registrations E) Purchasing life insurance

86)

Which of the following are rules to remember when writing a will? A) In most states, you must be 18 years of age or older. B) A will must be written in sound judgment and mental capacity to be valid. C) The document must clearly state that it is your will. D) The will must name an executor. E) All of these are rules to remember.

87)

To be valid, a will must: A) be notarized. B) be recorded in a court of law. C) be signed in the presence of two witnesses. D) be orally stated in front of two witnesses. E) not name an executor as the court will appoint one.

88)

A standard will costs:

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A) $100. B) between $100 and $200. C) $250. D) between $500 and $800. E) $700.

89)

Which of the following is the creator of a trust? A) Estate B) Trustee C) Grantor D) Beneficiary E) Survivor

90) Which of the following is a trust established while you are living and receives your life insurance benefits upon your death and administers them in an agreed-on manner? A) Grantor retained annuity trust B) Life insurance trust C) Marital-deduction trust D) Self-declaration trust E) Charitable lead trust

91) Which of the following is a trust that shelters valuable assets that you can pass on to your heirs with minimal taxes and lets you receive an annuity for as long as the trust lasts? A) Grantor retained annuity trust B) Life insurance trust C) Marital-deduction trust D) Self-declaration trust E) Charitable lead trust

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92) Which of the following is a trust that pays a specified charity income from a donated asset for a set number of years and then transfers the principal to the donor’s beneficiaries with reduced estate or gift taxes at the end of the term? A) Grantor retained annuity trust B) Life insurance trust C) Marital-deduction trust D) Self-declaration trust E) Charitable lead trust

93)

Which of the following is not true of a credit-shelter trust?

A) It is also known as a residuary trust. B) It allows $11.7 million (in 2021) of every estate to pass free of federal estate taxes to your spouse. C) Only an estate of more than $23.4 million is taxable for a married couple. D) The exemptions allowed by the Tax Cuts and Jobs Act of 2017 never expire. E) It is also known as a bypass trust.

94) Which of the following states the seller must give you a written statement of your right to cancel a deal within three business days if you buy a living trust in your home or somewhere other than the seller’s permanent place of business (say, a hotel seminar)? A) Better Business Bureau B) AARP C) American Bar Association D) Cooling Off Rule E) National Consumer Law Center

95)

Which of the following is true of a testamentary trust?

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A) It does not protect your assets from the probate process. B) It is valuable for experienced beneficiaries. C) It becomes effect upon your signature. D) It is not established by your will. E) It does not provide the benefit of asset management.

96)

Which is not true of wills? A) The ideal will may depend on the size of your estate. B) The ideal will may depend on the future appreciation of your estate. C) The ideal will may depend on inflation. D) Attorneys today believe that only the simple will is ideal. E) The ideal will may depend on your age and your spouse’s age.

97) A living will that is valid in 42 states can be downloaded from the Aging with Dignity organization and is called: A) Last Rights. B) Ignore Your Wishes. C) Five Wishes. D) Dying Wishes. E) Right to Life Rights.

98) LIMRA International, a financial services research organization, provides information about estate planning to survivors in the form of a booklet. ⊚ true ⊚ false

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99) Estate planning is a definite plan for the administration and disposition of one's property during one's lifetime and at one's death. ⊚ true ⊚ false

100)

Estate planning is not an essential part of retirement planning. ⊚ true ⊚ false

101) A large percentage of people do little or nothing to provide for those who will survive them. ⊚ true ⊚ false

102)

If you never married, you don't need to organize your financial affairs. ⊚ true ⊚ false

103)

Estate planning is useful only to rich and elderly people. ⊚ true ⊚ false

104)

Estate planning is an integral part of financial planning. ⊚ true ⊚ false

105)

Most people cannot afford the expense of using trusts.

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⊚ ⊚

true false

106) Estate planning includes a subject most people would rather avoid: death—your own or that of your spouse. ⊚ true ⊚ false

107)

An estate plan is usually implemented by a will and one or more trust agreements. ⊚ true ⊚ false

108)

Millions of nontraditional households have unique estate planning problems. ⊚ true ⊚ false

109)

Unmarried couples face formidable retirement and estate planning challenges. ⊚ true ⊚ false

110)

Last-minute "death-bed" estate planning may fail to carry out your wishes. ⊚ true ⊚ false

111) Setting up a trust for your children when your estate is worth more than $11.7 million (in 2021) can help spare a huge estate tax bill compared to simply leaving money to your children. ⊚ true ⊚ false Version 1

112) When death occurs, proof of claims must be produced or the claims will not be processed. ⊚ true ⊚ false

113)

If you die without a valid will, you die intestate. ⊚ true ⊚ false

114) The standard costs for will creation can range from $500 to $800 and varies from state to state, however typically the cost of writing a will is less than writing a living trust. ⊚ true ⊚ false

115) A will is a legal declaration of a person's mind as to the disposition of his or her property after death. ⊚ true ⊚ false

116)

If you die intestate, the state's law of descent and distribution becomes your will. ⊚ true ⊚ false

117)

It is unnecessary to review and modify your will when you divorce or remarry. ⊚ true ⊚ false

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118) If you marry after you have made a will, the will is revoked automatically unless certain conditions are met. ⊚ true ⊚ false

119) If you marry after you have made a will, you are better off drawing a new will to fit your new circumstances. ⊚ true ⊚ false

120)

The cost of preparing a will varies from place to place. ⊚ true ⊚ false

121)

Generally, the cost of writing a will is more than that for writing a living trust. ⊚ true ⊚ false

122)

Probate is the legal procedure of proving a valid or invalid will. ⊚ true ⊚ false

123)

You should avoid probate because it is expensive, lengthy, and public. ⊚ true ⊚ false

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124)

A living trust avoids probate at your death. ⊚ true ⊚ false

125)

Another name for an executor is an executrix. ⊚ true ⊚ false

126) The stated dollar amount will allows you to pass on to your spouse any amount that satisfies family objectives, however may not include tax considerations. ⊚ true ⊚ false

127) The new 100 percent marital deduction is automatic if your will refers to the old 50 percent marital deduction. ⊚ true ⊚ false

128) Wills have existed for thousands of years; the oldest known will was written by an Egyptian pharaoh in 2448 BC. ⊚ true ⊚ false

129)

A simple will creates lower overall taxation for all individuals. ⊚ true ⊚ false

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130)

A statutory will is one type of formal will. ⊚ true ⊚ false

131)

Your executor can be the trust department of a bank. ⊚ true ⊚ false

132) else.

A guardian is a person or an institution that holds property for the benefit of someone ⊚ ⊚

true false

133) Making any changes on the face of a will, that has been signed and witnessed, can invalidate it. ⊚ true ⊚ false

134)

A codicil is a document that explains, adds, or deletes provisions in your existing will. ⊚ true ⊚ false

135)

A prenuptial agreement is a documentary agreement between spouses after marriage. ⊚ true ⊚ false

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136)

The adjusted gross estate is equal to the gross estate minus debts and costs. ⊚ true ⊚ false

137)

Probate is less expensive, quicker, and more private than a living trust. ⊚ true ⊚ false

138) The main advantage of the exemption trust will is that it eliminates future taxation of the exemption amount and any growth in it. ⊚ true ⊚ false

139)

A formal will may be either typed or on a preprinted form. ⊚ true ⊚ false

140)

A beneficiary is a person who has been named to receive property under the will. ⊚ true ⊚ false

141)

Joint ownership is a good substitute for a will. ⊚ true ⊚ false

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142)

The state law sets the fees for executors, whether professionals or friends. ⊚ true ⊚ false

143)

If only a few changes are needed in your will, adding a codicil may be the best choice. ⊚ true ⊚ false

144) A living will provides for your wishes to be followed if you become so physically or mentally disabled that you are unable to act on your own behalf. ⊚ true ⊚ false

145)

A living will is a substitute for a traditional will. ⊚ true ⊚ false

146)

Many states do not recognize living wills. ⊚ true ⊚ false

147)

An ethical will is a way to pass on your values and beliefs to your heirs. ⊚ true ⊚ false

148) Related to the concept of a living will is a durable power of attorney also known as a health care proxy.

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⊚ ⊚

149)

true false

You can assign a durable power of attorney to anyone you choose. ⊚ true ⊚ false

150) A letter of last instruction can provide your heirs with important information, such as the details of your funeral arrangements. ⊚ true ⊚ false

151) Estate planning requires an inventory of everything you own, including interests in trusts and powers of appointment. ⊚ true ⊚ false

152) A trust is a legal arrangement through which a trustee holds your assets for your benefit or that of your beneficiaries. ⊚ true ⊚ false

153) Under the Tax Cuts and Jobs Act of 2017, for a married couple, only an estate of more than $23.4 million is taxed at the 50 percent rate, and expires on December 31, 2021. ⊚ true ⊚ false

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154) An inter vivos trust is a property management arrangement that you establish while you are alive. ⊚ true ⊚ false

155)

A credit-shelter trust is perhaps the most common estate planning trust. ⊚ true ⊚ false

156) A disclaimer trust is designed for the couple who do not yet have enough assets to need a credit-shelter trust but may need one in the future. ⊚ true ⊚ false

157) With a marital-deduction trust, you can leave to your spouse any money that doesn't go into a credit-shelter trust. ⊚ true ⊚ false

158)

Perhaps the most popular form of marital trust is the Q-TIP trust. ⊚ true ⊚ false

159) A credit-shelter trust is also known as a bypass trust, a "residuary" trust, an A/B trust, an exemption equivalent trust, or a family trust. ⊚ true ⊚ false

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160) A qualified personal residence trust, or QPRT, lets you get your home or vacation home out of your estate. ⊚ true ⊚ false

161) A generation-skipping trust allows people to directly leave a substantial amount of money to their grandchildren or great-grandchildren. ⊚ true ⊚ false

162) Community property is any property that has been acquired by only one of the spouses before the marriage, but not by gift, devise, bequest or inheritance, or by the income therefrom. ⊚ true ⊚ false

163) Life insurance may be a reasonable, feasible, and economical means of paying your estate tax. ⊚ true ⊚ false

164)

Inheritance taxes are imposed only by the state governments. ⊚ true ⊚ false

165) Fewer than 1 percent of estates pay an estate tax, therefore only about 1,800 estates were expected to owe estate tax in 2021. ⊚ true ⊚ false

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166) According to a recent American Association of Retired Persons survey, over 50 percent of Americans age 45 or older have not drawn up a will. ⊚ true ⊚ false

167) A unique feature of a self-declaration trust is that the creator of the trust is also the trustee. ⊚ true ⊚ false

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Answer Key Test name: Chap 19_14e_Kapoor 8) E 9) E 10) A 11) A 12) A 13) B 14) D 15) E 16) D 17) C 18) B 19) A 20) B 21) D 22) A 23) D 24) E 25) A 26) A 27) A 28) B 29) B 30) C 31) D 32) A 33) E Version 1

34) C 35) B 36) D 37) E 38) A 39) C 40) D 41) C 42) C 43) B 44) A 45) B 46) C 47) D 48) C 49) A 50) A 51) C 52) B 53) D 54) E 55) B 56) A 57) C 58) A 59) C 60) B 61) E 62) C 63) C Version 1

64) E 65) A 66) E 67) C 68) D 69) B 70) C 71) D 72) D 73) B 74) A 75) C 76) B 77) A 78) E 79) A 80) C 81) E 82) A 83) B 84) D 85) A 86) E 87) C 88) D 89) C 90) B 91) A 92) E 93) D Version 1

94) D 95) A 96) D 97) C 98) TRUE 99) TRUE 100) FALSE 101) TRUE 102) FALSE 103) FALSE 104) TRUE 105) FALSE 106) TRUE 107) TRUE 108) TRUE 109) TRUE 110) TRUE 111) TRUE 112) TRUE 113) TRUE 114) TRUE 115) TRUE 116) TRUE 117) FALSE 118) TRUE 119) TRUE 120) TRUE 121) FALSE 122) TRUE 123) TRUE Version 1

124) TRUE 125) TRUE 126) TRUE 127) FALSE 128) TRUE 129) FALSE 130) TRUE 131) TRUE 132) FALSE 133) TRUE 134) TRUE 135) FALSE 136) TRUE 137) FALSE 138) TRUE 139) TRUE 140) TRUE 141) FALSE 142) TRUE 143) TRUE 144) TRUE 145) FALSE 146) FALSE 147) TRUE 148) TRUE 149) TRUE 150) TRUE 151) TRUE 152) TRUE 153) FALSE Version 1

154) TRUE 155) TRUE 156) TRUE 157) TRUE 158) TRUE 159) TRUE 160) TRUE 161) TRUE 162) FALSE 163) TRUE 164) TRUE 165) TRUE 166) TRUE 167) TRUE

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