Final Exam

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Question #1

Maria and John Sanchez have just completed their third annual set of financial statements. They met in a personal finance class while in college and still remember their instructor’s advice regarding the importance of knowing their financial condition and progress. Even before they got married, they decided that each year on February 2 (Groundhog Day) they would update their cash-flow statement and their balance sheet.

The following information is taken from their latest financial statements:
Financial information
Annual gross income = $48,000
Annual take-home income = $35,000
Annual expenses (including taxes and debt repayment) = $46,800
Annual debt repayment = $8,700
Calculate Maria and John’s surplus (loss) for the year.

A -$11,800

B -$1,200

C $2,503

D $1,200

Question #2

Monetary assets = $4,060
Tangible assets = $35,800
Investment assets = $15,005
Short-term liabilities = $3,690
Long-term liabilities = $27,350

Calculate Maria and John’s current net worth.

A $25,025

B $23,825

C $16,325

D $26,325

Question #3

If Fred and Wilma borrows $500,000 to purchase a home with an interest rate of 7.5 percent for 25 years and a monthly payment of $3,150, how much total interest will they pay over the life of the loan (25years).

A $503,280

B $350,380

C $445,000

D $403,000

Question #4

John is buying a home with a $300,000 mortgage using a 6.5 percent, 15-year loan. If the payment per $1,000 debt under these terms is $8.7111, how much is the monthly payment?

A $2,010.00

B $2613.33

C $1,850.00

D $2,450.00

Question #5

Which of the following is most likely to have to go through probate?

A A retirement account

B A home owned by a married couple

C Ownership of a vehicle

D A joint bank account

Question #6

Present value is the value of an asset projected to the end of a particular time period in the future.

A TRUE

B FALSE

Question #7

Which of the following purposes is never allowed as an early withdrawal from a Roth individual retirement account (IRA)?

A education expenses

B purchase of a vehicle

C purchase of a home

D medical expenses

Question #8

Which of the following is designed for employees of large, private profit-seeking corporations?

A 401(k) plan.

B SIMPLE IRA.

C 403(b) plan.

D 457 plan.

Question #9

Which of the following would be considered smart financial planning?

A Contribute to your employer-sponsored 401(k) retirement plan at least up to the amount of the employer’s matching contribution.

B Ignore the impact of income taxes in your personal financial planning.

C Withhold too much income in order to receive a refund next year.

D Turn all your income tax planning over to someone else.

Question #10

The age at which retirees born in 1960 or later will be able to receive full Social Security benefits

A 65

B 67

C 59 1/2

D 72

Question #11

A direct trustee-to-trustee rollover will avoid the IRS’s 20 percent withholding on retirement rollover.

A TRUE

B FALSE

Question #12

Open-end mutual funds

A are sold only through brokers.

B are sold at their current net asset value.

C make up about 75 percent of all mutual funds.

D are sold to other investors on a secondary market.

Question #13

Mutual funds that charge a load do so to compensate

A fund managers.

B the SEC.

C shareholders.

D Brokers and salespeople.

Question #14

The most widely reported security market index is the

A New York Stock Exchange Index.

B Standard & Poor’s 500.

C Nikkei Dow.

D Dow Jones Industrial Average.

Question #15

Anderson Equipment Corporation has total after-tax earnings of $650,000 and 500,000 shares of common stock outstanding. What are the earnings per share for Anderson Equipment?

A $1.89

B $1.30

C $1.97

D $1.50

Question #16

Which is not a characteristic of bonds?

A Maturity date

B Coupon

C Par value

D Net Asset Value

Question #17

Which of the following is the most diversified investment portfolio?

A Municipal bonds issued by New York, Houston, and Chicago

B One-year, five-year, and ten-year certificates of deposit

C 100 shares of Wal-Mart stock, an IBM bond, and a two-year certificate of deposit

D Equal amounts of stock in IBM, Intel, and Microsoft

Question #18

Which investment would not be an appropriate choice for a conservative investor?

A Aggressive-growth stocks

B High-quality corporate bonds

C Treasury bills

D Municipal bonds

Question #19

Selling shares of stock for more than you originally paid is called

A leverage.

B modern portfolio theory.

C current income.

D capital gain.

Question #20

Which of the following would not be considered as securities?

A bonds

B real estate

C stocks

D mutual funds

Question #21

Adjustable life insurance allows you to change ____ on your policy.

A he premium

B the face amount

C the rate of cash-value accumulation

D any of these

Question #22

Credit term life insurance is a ____ policy with ____ named as beneficiary.

A decreasing term; the creditor

B level term; the creditor

C cash-value; your spouse

D group term; your employer

Question #23

A longer waiting period on a disability income policy will

A reduce the disability income insurance premium.

B require a smaller emergency fund.

C extend the benefit period.

D all of these.

Question #24

Craig and Jan Johnson have a health insurance policy with a $1000 deductible and 20 percent coinsurance. Craig recently sustained $12,500 in medical expenses. How much will Craig and Jan pay?

A $2,538

B $1,788

C $6,500

D $3,300

Question #25

When one forgoes buying a new television set because he or she spends the money on college books, the television set is the opportunity cost of buying the books.

A TRUE

B FALSE

Question #26

Risk retention would be most appropriate in which of the following cases?

A Liability coverage for a middle-income individual

B Collision coverage on a $14,000 car

C Coverage for loss of a contact lens

D Medical expenses for a healthy young adult

Question #27

The concept of “pay myself first,” saving and investing before you pay other expenses, is a characteristic of successful financial managers.

A FALSE

B TRUE

Question #28

Which of the following is a not a peril?

A Wind

B Frozen water pipes

C Fire

D Smoking

Question #29

The PITI acronym in mortgage lending stands for

A principal, interest, taxes and insurance.

B principal, investment, taxes and interest.

C principal, insurance, taxes and interest.

D principal, interest, taxes and investment.

Question #30

The tax deductible expenses related to home ownership are

A mortgage interest and property taxes.

B homeowner’s insurance and property taxes.

C homeowner’s insurance and home improvements.

D home improvements and mortgage interest.

Question #31

You can use the asset-to-debt ratio to determine the number of months that you could continue to meet your expenses using only your monetary assets should all income cease.

A TRUE

B FALSE

Question #32

An increase in the value of a home is called

A equity.

B appreciation.

C depreciation.

D amortization.

Question #33

The process of comparing products or services to find what you think is the best buy is called

A preshopping research.

B decision making.

C comparison shopping

D negotiating.

Question #34

A balance sheet describes an individual’s financial progress over a period of time, generally a year.

A FALSE

B TRUE

Question #35

Zelda was approved for a $3,000, two-year, 11 percent loan with the finance charges figured using the discount method. How much cash will Zelda receive from this loan?

A $2,670

B $2,340

C $3,000

D $3,330

Question #36

The investment assets-to-total assets ratio compares the value of your investment assets with your total assets.

A TRUE

B FALSE

Question #37

You have an acceptable level of debt if your debt payments-to-disposable income ratio is

A 15-18 percent

B 0-14 percent

C 19-28 percent

D 29+ percent

Question #38

Disposable income is the money left over once the necessities of living are covered.

A TRUE

B FALSE

Question #39

Which of the following items is least appropriate to purchase with a credit card unless you will pay the bill in full when the statement is received?

A Smart phone

B A new suit

C Groceries

D Microwave oven

Question #40

Your standard of living is where you would like to be and your level of living is where you actually are.

A TRUE

B FALSE

Question #41

Taxable income is determined by subtracting all but which one of the following from gross income?

A exclusions

B adjustments

C deductions

D credits

Question #42

Simple interest will produce larger investment values than compound interest.

A TRUE

B FALSE

Question #43

Which of the following is the best example of a well-stated financial goal?

A Buy a $3,000 computer in 18 months

B Purchase a three-bedroom home in five years

C Pay off your credit cards as soon as possible

D Buy a $2,000 stereo

Question #44

Chapter 7 of the Bankruptcy Act is permitted when it would be highly unlikely that substantial repayment could ever be made.

A FALSE

B TRUE

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