Personal Finance Semester Test Review
Personal Finance Semester Test Review
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 1. The way in which people make, distribute, and use their goods and services is called ____.
|a. |opportunity cost |c. |economics |
|b. |short-term goals |d. |wealth-watch |
____ 2. Interest earned on previously earned interest is called compounding or ____.
|a. |future value computations |c. |doubling down |
|b. |economics |d. |inflation |
____ 3. Financial plans that are more than five years off are called ____.
|a. |opportunity plans |c. |intermediate goals |
|b. |long-term goals |d. |attainable goals |
____ 4. The trade-off made by making one choice instead of another is commonly referred to as a(n) ____.
|a. |trade decision |c. |economic choice |
|b. |personal preference |d. |opportunity cost |
____ 5. Saving for vacation next summer or paying off small debts are examples of ____.
|a. |opportunity planning |c. |long-term goals |
|b. |short-term goals |d. |opportunity results |
____ 6. Spending, saving, and investing to have the kind of life you want and financial security can be achieved by ____.
|a. |personal financial planning |
|b. |paying interest |
|c. |discussing your financial situation with a friend |
|d. |regulating inflation |
____ 7. The amount of goods and services available for sale is called ____.
|a. |demand |c. |supply |
|b. |reserve |d. |economy |
____ 8. The central banking organization of the United States is called the ____.
|a. |Bank of America |c. |Federal Bank Reserve |
|b. |United States Reserve Bank |d. |Federal Reserve System |
____ 9. The name for computations that allow you to determine how much money to deposit now to earn a desired amount in the future is ____.
|a. |present value |c. |values |
|b. |value assignment |d. |future value |
____ 10. A series of equal regular deposits is called ____.
|a. |serial deposits |c. |a personal financial plan |
|b. |an annuity |d. |a paycheck |
____ 11. Someone who enjoys nature and the outdoors may have an aptitude for a career in ____.
|a. |forestry management |c. |teaching English |
|b. |clothes design |d. |engineering |
____ 12. A demographic trend that has boosted careers in health, physical fitness, and recreational products is more ____.
|a. |working parents |c. |elderly people |
|b. |leisure time |d. |ongoing job training |
____ 13. In recent years, some of the fastest growing job markets have been in ____.
|a. |New York |c. |Illinois |
|b. |California |d. |Arizona |
____ 14. High interest rates are likely to reduce employment opportunities in ____.
|a. |food services |c. |teaching |
|b. |construction |d. |health care |
____ 15. A good way to gain experience that often leads to permanent employment is a(n) ____.
|a. |internship |c. |classroom assignment |
|b. |volunteer position |d. |an after-school activity |
____ 16. A cover letter gives a potential employer ____.
|a. |a summary of your qualifications |
|b. |a year-by-year outline of your experience |
|c. |the highlights of your skills and abilities |
|d. |the reason you want a particular job |
____ 17. Good places to look for job listings include all the following EXCEPT ____.
|a. |The Occupational Outlook Handbook |
|b. |newspapers |
|c. |the Internet |
|d. |job fairs |
____ 18. A pension plan is a ____.
|a. |plan for maternity leave |
|b. |plan for increases in pay |
|c. |retirement plan funded in part by employers |
|d. |free life insurance policy |
____ 19. An example of a tax-exempt benefit is ____.
|a. |vacation time |c. |a 401(k) plan |
|b. |free life insurance |d. |a flexible work schedule |
____ 20. By law an employer must pay for a portion of ____.
|a. |child care |c. |fitness programs |
|b. |Social Security |d. |legal assistance |
____ 21. A disadvantage of using a safe deposit box for keeping financial documents is that it ____.
|a. |fails to protect documents from fire |c. |can cost $100 a year to rent |
|b. |takes up too much space in your home |d. |cannot store canceled checks |
____ 22. An example of a liquid asset is a ____.
|a. |savings account |c. |retirement account |
|b. |bond |d. |house |
____ 23. An example of a current liability is ____.
|a. |a car loan |c. |a mortgage |
|b. |taxes |d. |a student loan |
____ 24. A cash flow statement gives you important feedback on your ____.
|a. |assets and liabilities |c. |income and spending patterns |
|b. |short-term and long-term debts |d. |net pay and gross pay |
____ 25. One use of discretionary funds is spending on ____.
|a. |groceries |c. |videos |
|b. |transportation |d. |medication |
____ 26. An example of a variable expense is ____.
|a. |cable television charges |c. |insurance premiums |
|b. |bus fare to school or work |d. |electric bills |
____ 27. Your net worth goes up when you ____.
|a. |spend more than you earn |c. |borrow money to pay a deficit |
|b. |pay off previous debts |d. |withdraw money from your savings |
____ 28. The first step in planning a budget is ____.
|a. |estimating income |c. |listing fixed expenses |
|b. |setting financial goals |d. |budgeting for savings |
____ 29. A good budget has all the following characteristics EXCEPT ____.
|a. |inaccessibility |c. |practicality |
|b. |flexibility |d. |careful planning |
____ 30. A savings option many employers offer is ____.
|a. |paying interest on employees’ savings |
|b. |sending employees’ children through college |
|c. |writing a check for employees’ savings accounts |
|d. |putting paycheck deductions in employees’ retirement funds |
____ 31. The lowest price is generally the wisest choice when ____.
|a. |you can afford to buy any of the options |
|b. |quantity and quality are basically the same |
|c. |you cannot afford to buy the best quality |
|d. |prices and quality differ |
____ 32. Products often purchased using price negotiation are ____.
|a. |shampoos |c. |CD players |
|b. |swimsuits |d. |automobiles |
____ 33. A drawback of paying on credit is having ____.
|a. |additional fees |c. |extra money for emergencies |
|b. |more interest on savings |d. |delivery charges |
____ 34. A good time to find a bargain on a swimsuit is at a ____.
|a. |clearance sale |c. |“back-to-school” sale |
|b. |“white” sale |d. |mid-season sale |
____ 35. An advantage of a cooperative is that it ____.
|a. |has a limited number of products |c. |offers few customer services |
|b. |saves its members money |d. |sells only to its members |
____ 36. An advantage to direct selling is ____.
|a. |prompt delivery |c. |convenience |
|b. |easy return policies |d. |swift refunds |
____ 37. When shopping, avoid ____.
|a. |making a list |c. |comparing prices |
|b. |store-brand products |d. |impulse buying |
____ 38. Better Business Bureaus handle ____.
|a. |class-action lawsuits |
|b. |complaints against local merchants |
|c. |potentially unsafe products |
|d. |standards for chemicals, cosmetics, and medical devices |
____ 39. To find a local dispute resolution program, a person should contact ____.
|a. |the Food and Drug Administration |c. |small claims court |
|b. |the Consumer Safety Commission |d. |his or her U.S. congressperson |
____ 40. Disagreements in small claims courts are usually settled by ____.
|a. |judges |c. |mediation |
|b. |juries |d. |arbitration |
____ 41. Which of the following financial services is best suited for saving money over a period of years?
|a. |certificate of deposit |c. |demand deposit |
|b. |checking account |d. |mortgage loan |
____ 42. Credit cards allow you to ____.
|a. |spend only the amount in your account |
|b. |borrow money for a short term |
|c. |protect your checks from thieves |
|d. |transfer money between accounts on-line |
____ 43. You give up liquidity when you ____.
|a. |buy a certificate of deposit |c. |open a savings account |
|b. |use an ATM |d. |recharge a stored-value card |
____ 44. The Federal Deposit Insurance Corporation insures depositors against losing their money in the case of a ____.
|a. |lost debit card |c. |bank failure |
|b. |stolen paycheck |d. |death in the family |
____ 45. Compared with commercial banks, credit unions generally offer ____.
|a. |higher interest rates on loans |c. |higher interest on savings |
|b. |fewer financial services |d. |lower fees and loan rates |
____ 46. To earn high interest rates on a certificate of deposit, you must accept all the following limitations EXCEPT ____.
|a. |leaving money in for the term of the deposit |
|b. |paying a penalty when money is withdrawn |
|c. |completing a monthly bank reconciliation |
|d. |depositing a minimum amount |
____ 47. In which kind of savings plan does the interest rate vary from month to month?
|a. |regular savings |c. |money market |
|b. |certificate of deposit |d. |U.S. Savings Bonds |
____ 48. If you deposit $100 in an account with an annual interest rate of 6 percent compounded monthly, after 12 months you will have ____.
|a. |$6 |c. |$106 |
|b. |$6.18 |d. |$106.18 |
____ 49. When writing a check, include all of the following EXCEPT ____.
|a. |the current date |c. |your signature on the front |
|b. |the name of the payee |d. |an endorsement on the back |
____ 50. The first step in balancing a checkbook is ____.
|a. |subtracting fees on the bank statement from the checkbook balance |
|b. |comparing checks in the check record with those on the statement |
|c. |adding interest earned to the checkbook balance |
|d. |adding recent deposits to the bank statement balance |
____ 51. An example of open-end credit is a(n) ____.
|a. |mortgage |c. |installment loan |
|b. |automobile loan |d. |a credit card charge |
____ 52. The interest is tax deductible on a ____.
|a. |bank loan |c. |home equity loan |
|b. |credit union loan |d. |credit card loan |
____ 53. Credit card holders are known as convenience users when they ____.
|a. |pay off their balances each month |
|b. |carry balances beyond the grace period |
|c. |pay finance charges |
|d. |carry smart cards |
____ 54. The finance charge on a credit card is calculated using the ____.
|a. |debt payment-to-income ratio |c. |minimum down payment |
|b. |annual percentage rate |d. |term of the loan |
____ 55. A higher interest rate is usually the trade-off for a ____.
|a. |minimum down payment |c. |short-term loan |
|b. |secured loan |d. |simple interest loan |
____ 56. Which of the “five Cs of credit” require that a person’s assets exceed his or her liabilities?
|a. |character |c. |capital |
|b. |capacity |d. |collateral |
____ 57. A credit bureau is required to follow reasonable procedures to make sure that ____.
|a. |creditors extend credit to retirees |
|b. |eligible borrowers on public assistance receive credit |
|c. |banks avoid the practice of redlining |
|d. |the information in a person’s file is correct |
____ 58. How should a cardholder begin to correct a mistake on a credit card bill?
|a. |stop payment on the creditor’s check |
|b. |shred papers that contain personal information |
|c. |notify the creditor in writing |
|d. |get a new Personal Identification Number |
____ 59. The Consumer Credit Counseling Service offers to ____.
|a. |erase legitimate debts that consumers owe |
|b. |supervise debt repayment plans |
|c. |grant money for repaying debts |
|d. |help debtors declare bankruptcy |
____ 60. In a Chapter 13 bankruptcy, the debtor usually gets to ____.
|a. |keep most of his or her property |c. |avoid paying debts arising from fraud |
|b. |discontinue alimony payments |d. |stop payments on educational loans |
____ 61. Renting is often a wise choice for someone who wants ____.
|a. |pets |c. |privacy |
|b. |stability |d. |mobility |
____ 62. A disadvantage of renting is ____.
|a. |more responsibilities |c. |restricted lifestyle |
|b. |high initial costs |d. |eligibility for tax deductions |
____ 63. Your biggest monthly expense as a tenant is the ____.
|a. |rent |c. |utilities |
|b. |security deposit |d. |renter’s insurance |
____ 64. An example of an attached home is a ____.
|a. |one-story ranch |c. |prefabricated house |
|b. |town house |d. |mobile home |
____ 65. A home inspector is responsible for ____.
|a. |negotiating a house’s purchase price |
|b. |recommending lawyers and real estate agents |
|c. |evaluating the house and the land |
|d. |arranging financing for the purchase |
____ 66. The listing price is the amount that the ____.
|a. |owner asks for the house |c. |buyer accepts for the house |
|b. |buyer offers for the house |d. |buyer borrows to finance the house |
____ 67. A bank pays the full amount of a mortgage to ____.
|a. |the buyer |c. |the seller |
|b. |a savings and loan |d. |an escrow account |
____ 68. What might a buyer do to get a low interest rate?
|a. |buy mortgage insurance |c. |pay an application fee |
|b. |pay points |d. |amortize |
____ 69. Many government-guaranteed loans offer lower interest rates because they are ____.
|a. |available to moderate-income buyers |
|b. |given to eligible veterans of the armed services |
|c. |accompanied by extra insurance fees |
|d. |repaid by the government if the borrower defaults |
____ 70. A lender may ask a buyer to deposit money in an escrow account for paying ____.
|a. |property taxes |c. |loan interest |
|b. |closing costs |d. |the principal |
____ 71. Which risk component is most likely at fault when an investor’s stock becomes worthless?
|a. |inflation |c. |business failure |
|b. |interest rates |d. |financial markets |
____ 72. Of the following investments, the one with the most predictable income is ____.
|a. |gold |c. |real estate |
|b. |commodities |d. |U.S. Savings Bonds |
____ 73. “Growth” companies typically reinvest their profits rather than ____.
|a. |pay dividends |
|b. |expand operations |
|c. |conduct research |
|d. |increase their stock’s value |
____ 74. A corporation gets it equity capital from its ____.
|a. |sole proprietor |c. |stockholders |
|b. |partners |d. |professional managers |
____ 75. After a company fails, who has first rights to its remaining assets?
|a. |corporate bond holders |c. |common stockholders |
|b. |mutual fund investors |d. |preferred stockholders |
____ 76. Which question should you ask when selling real estate?
|a. |Is the property in good condition? |
|b. |Can the buyer get the required financing? |
|c. |Will the property decrease in value? |
|d. |What is the condition of other properties in the area? |
____ 77. In an investment program "pyramid," investing in baseball cards would be a possible investment for ____.
|a. |Level 1 |c. |Level 3 |
|b. |Level 2 |d. |Level 4 |
____ 78. The largest financial planners are monitored by the ____.
|a. |Securities and Exchange Commission |c. |Harvard Business Review |
|b. |Chartered Financial Consultants |d. |Survey of Current Business |
____ 79. Short-term capital gains are ____.
|a. |taxed as regular income |c. |tax-exempt |
|b. |not taxed |d. |tax-deferred |
____ 80. The purpose of the Dow Industrial Average is to ____.
|a. |disclose a company's assets and liabilities |
|b. |discontinue alimony payments |
|c. |describe companies' management |
|d. |improve investment skills |
____ 81. A legal form that asks stockholders to transfer their voting rights is called a(n) ____.
|a. |security |c. |preemptive right |
|b. |proxy |d. |stock split |
____ 82. Preferred stock offers investors all the following advantages EXCEPT ____.
|a. |dividends before common stockholders receive any |
|b. |a higher yield than common stock |
|c. |more potential growth than common stock |
|d. |less risk than common stock |
____ 83. A participation feature provides preferred stockholders with ____.
|a. |safety and the possibility of greater returns |
|b. |a share in the earnings that remain after required and stated dividends are paid |
|c. |omitted dividends at a later payment period |
|d. |dividends before common stockholders receive any |
____ 84. Financial professionals consider shares in AT&T ____.
|a. |blue-chip stocks |c. |cyclical stocks |
|b. |growth stocks |d. |penny stocks |
____ 85. Stock that has steady earnings and continues paying dividends even during economic declines is known as ____.
|a. |cyclical stock |c. |small cap stock |
|b. |growth stock |d. |defensive stock |
____ 86. An example of a financial magazine that provides information about specific companies is ____.
|a. |AMEX |c. |Barron’s |
|b. |Yahoo |d. |Stocks |
____ 87. What is the formula for calculating the total return on a stock?
|a. |annual dividend ÷ current market value |
|b. |current return + capital gain |
|c. |dividend x number of shares x years held |
|d. |net earnings ÷ common stock outstanding |
____ 88. Most over-the-counter stock is traded through ____.
|a. |IPOs |c. |AMEX |
|b. |the NYSE |d. |Nasdaq |
____ 89. A stop order requests that a stockbroker ____.
|a. |buy a stock at the best possible price |c. |buy or sell a stock at its current value |
|b. |decide when to sell a stock |d. |sell a stock for a specific amount |
____ 90. An example of a short-term investment strategy is ____.
|a. |the buy-and-hold technique |c. |dollar cost averaging |
|b. |buying stock on margin |d. |a dividend reinvestment plan |
____ 91. Some states collect a personal property tax on ____.
|a. |gasoline |c. |automobiles |
|b. |alcoholic beverages |d. |medicines |
____ 92. The federal government collects a gift tax when ____.
|a. |one person gives another land worth $20,000 |
|b. |parents make tuition payments equal to $30,000 for you |
|c. |you spend $100,000 in medical expenses |
|d. |you receive a check for $5,000 |
____ 93. Earned income includes ____.
|a. |dividends from investments |c. |interest from banks |
|b. |bonuses from work |d. |student loan interest |
____ 94. Which amounts are NOT included in your gross income?
|a. |exemptions |c. |exclusions |
|b. |reductions |d. |deductions |
____ 95. Earnings on a traditional IRA are ____.
|a. |tax-exempt |c. |taxed income |
|b. |tax-deferred |d. |tax credits |
____ 96. Which itemized deduction is subject to limitations if it is more than 20 percent of a person’s income?
|a. |medical expenses |c. |home equity loan interest |
|b. |state income tax |d. |charitable contributions |
____ 97. A tax credit is subtracted from ____.
|a. |gross income |c. |taxable income |
|b. |adjusted gross income |d. |taxes owed |
____ 98. A self-employed person is subject to a penalty if he or she ____.
|a. |pays only 90 percent of the taxes owed in estimated payments |
|b. |sends quarterly payments equal to last year’s taxes but less than this year’s |
|c. |fails to make quarterly payments on time |
|d. |claims a refund two years after filing |
____ 99. A person must use Form 1040 if he or she ____.
|a. |makes less than $50,000 |c. |has $300 in taxable interest |
|b. |deducts medical expenses |d. |claims a tax credit for child care |
____ 100. The interest made from municipal bonds is usually ____.
|a. |taxable income |c. |tax-exempt |
|b. |tax-deferred |d. |an earned income credit |
____ 101. A person joins an insurance company by purchasing a contract called a ____.
|a. |premium |c. |policy |
|b. |fee |d. |claim |
____ 102. In insurance, anything that may possibly cause a loss is known as a ____.
|a. |risk |c. |hazard |
|b. |peril |d. |liability |
____ 103. Insurance risks involving losses caused by negligence are called ____.
|a. |personal risks |c. |liability risks |
|b. |property risks |d. |speculative risks |
____ 104. Buying an insurance policy is an example of risk ____.
|a. |avoidance |c. |assumption |
|b. |reduction |d. |shifting |
____ 105. A household inventory is ____.
|a. |insurance that covers a specific item |c. |documentation of personal belongings |
|b. |coverage that protects your residence |d. |additional living expenses |
____ 106. People with homeowner’s insurance also need to obtain worker’s compensation for ____.
|a. |baby-sitters |c. |friends |
|b. |cooks |d. |guests |
____ 107. Which term refers to loss in value as an item gets older?
|a. |depreciation |c. |replacement value |
|b. |cash value |d. |endorsement |
____ 108. Collision insurance covers ____.
|a. |injuries to persons in an auto accident the insured person causes |
|b. |damage to the auto of the insured person no matter who is at fault |
|c. |damage to an uninsured auto in an accident the uninsured causes |
|d. |medical expenses for anyone injured in the auto of the insured |
____ 109. Many states with no-fault insurance systems require ____.
|a. |wage loss insurance |c. |rental reimbursement coverage |
|b. |emergency road service coverage |d. |property damage liability |
____ 110. A driver’s insurance premium rates will probably increase if he or she ____.
|a. |moves to a rural area |
|b. |buys an auto that requires simple repairs |
|c. |takes a driver training course |
|d. |receives several traffic tickets |
____ 111. Which cost does physician expense coverage usually meet?
|a. |local ambulance service |c. |anesthesia |
|b. |routine nursing care |d. |doctor visits |
____ 112. A provision that requires a policyholder to pay all costs up to a certain amount after which the insurance company pays 100 percent of the remaining is called ____.
|a. |stop-loss |c. |copayment |
|b. |coinsurance |d. |comprehensive major medical |
____ 113. Policyholders are paid in cash under ____.
|a. |dental expense insurance |c. |hospital indemnity policies |
|b. |dread disease policies |d. |long-term care insurance |
____ 114. Policyholders pay higher premiums for health insurance with ____.
|a. |high deductibles |c. |internal limits |
|b. |out-of-pocket limits |d. |aggregate limits |
____ 115. Private companies offer ____.
|a. |Medicare Part A |c. |Medigap |
|b. |Medicare Part B |d. |Medicaid |
____ 116. Which government Web site provides information about the safety of various medical devices?
|a. |Healthfinder |
|b. |Medline |
|c. |National Institute of Health Information Page |
|d. |Food and Drug Administration |
____ 117. Worker’s compensation is available only to workers who ____.
|a. |are injured on the job |c. |work for the state |
|b. |do not have Social Security |d. |are injured at home |
____ 118. Which provision in a disability insurance policy is most likely to raise the premium?
|a. |a long elimination period |c. |benefits for accidents only |
|b. |benefit payments to age 65 |d. |guaranteed renewability |
____ 119. Life insurance that pays less to the beneficiary as time passes is known as ____.
|a. |renewable term |c. |conversion term |
|b. |multiyear level term |d. |decreasing term |
____ 120. Term life insurance with a cash value is called a ____.
|a. |limited payment policy |c. |universal life policy |
|b. |variable life policy |d. |credit life insurance policy |
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