finance5

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Final Exam

Instructions: Mark the correct answer by highlighting, bold, or changing the answer to a red font. Save the document as “Your Name Final Exam” and upload the document to the Final Exam section.

1. Which of the following appears on a cash flow statement? 

a. Loan payment

b. Net worth

c. Mortgage balance

d. Home value

2. Money management refers to 

a. Preparing personal financial statements

b. Day-to-day financial activities

c. Storing financial records for easy access

d. Trade-offs that occur with financial decisions

3. Which of the following intermediate goals is stated most clearly?

a. Buy a car for less than $17,000 within six months.

b. Retire in ten years at age 65 with $2,000,00 in my 401(k) account.

c. Purchase a home with a mortgage no greater than $150,000 within three years.

d. Set up an emergency fund

4. Fran has a goal of “saving $25 per month for a TV.” Fran’s goal lacks

a. Measurable terms

b. A realistic perspective

c. A specific objective

d. A time frame

5. Attempts to increase income are part of the __________ component of financial planning.

a. Obtaining

b. Planning

c. Saving

d. Spending

6. The Rule of 72 is

a. A tool to determine the number of years until retirement for an employee

b. Used to estimate how long it takes for prices to double using a given annual inflation rate

c. The legal code for requiring companies to provide a match on retirement savings

d. Used to calculate interest rates for savings

7. The stages that an individual goes through based on stages in the family and financial needs is called the

a. Financial planning process

b. Budgeting procedure

c. Adult life cycle

d. Personal economic cycle

8. What are the three types of checking accounts?

a. Interest earning accounts

b. Regular checking accounts

c. Activity accounts

d. All of the above

9. Opportunity cost can be defined as

a. A trade-off of a decision

b. Failing at goals

c. Creating financial wisdom

d. The amount paid for taxes when a purchase is made

10. A family with $50,000 in assets and $30,000 of liabilities would have a net worth of 

a. $10,000

b. $20,000

c. $50,000

d. $80,000

11. Which of the following is an example of closed-end credit? 

1. A mortgage loan

2. Overdraft protection

3. A bank line of credit

4. All of the above  

12. Which of the following is an example of open-end credit? 

a. An automobile loan

b. A department store credit card

c. A mortgage loan

d. Single lump-sum credit

13. Which of the following is the most effective way to improve your credit score?

a. Pay your bills on time.

b. Never exceed your credit limit.

c. Reduce your credit utilization rate.

d. Close your credit card accounts as soon as you pay them off.

14. Which site provides a free credit report from each of the three national credit reporting companies?

a. www.freecreditreport.com

b. www.annualcreditreport.com

c. www.creditreports.com

d. www.freecreditscore.com

15. Which of the following is often the first sign of a stolen identity?

a. You receive bills for a credit card you never opened.

b. You see charges to your account for items you purchased.

c. You receive a duplicate credit card from your credit card company.

d. All of these are typical signs of a stolen identity.

16. When you have serious debt problems, where is the best place to seek help?

a. From a debt consolidation company

b. From an independent consumer credit counseling agency, such as the National Foundation for Credit Counseling

c. From a credit deferral service

d. From a private loan organization, such as a bank or credit union

17. Most information on your credit file can be reported for up to how many years?

a. Three years

b. Five years

c. Seven years

d. Ten years

18. All of the following are signs of financial trouble except:

a. You use savings to pay for necessities such as food and utilities.

b. You exceed the credit limits on your credit cards.

c. You pay your credit card bills in full each period.

d. The total balance on your credit cards increases each month.

19. If you can prove a creditor has discriminated against you for any reason prohibited by this Act, you can sue for actual damages plus punitive damages, up to $10,000.

a. Fair Credit Billing Act

b. Truth in Lending Act

c. Equal Credit Opportunity Act

d. Credit Card Accountability Responsibility and Disclosure Act

20. Experts suggest that the debt payments-to-income ratio should be a maximum of

a. 0%

b. 10%

c. 20%

d. 30%

21. Federal student loans can be discharged only under special circumstances. Which of the following would NOT result in loan discharge?

a. Total and permanent disability

b. Partial disability

c. Death

d. Unemployment

22. This type of financial aid typically does not need to be repaid

a. Pell grants

b. Scholarships

c. Employer tuition benefits

d. All of the above

23. Which of the following best describes the Federal Direct PLUS loan?

a. A need-based loan that lets you borrow up to the full cost of tuition, minus any financial aid that you receive

b. A need-based federal loan with a lower, variable rate for those with high credit scores

c. A $5,500 maximum annual loan with a fixed rate of just 3.4%

d. A loan available to people of all income levels that allows a parent or graduate student to borrow up to the full cost of attending college, minus any financial aid received

24. Major factors that affect the affordability of your mortgage include all of the following except

a. Current mortgage rates

b. Income

c. Length of the loan

d. Size of the home

25. Private mortgage insurance

a. Cannot be avoided

b. Is part of all mortgages

c. Is usually required if the down payment is less than 25%

d. Must be terminated automatically when the home owner’s equity reaches 22% of the property value at the time the loan was initiated

26. Trenton wants to buy a house but can provide only a 10% down payment. He probably will be required to have

a. Amortization

b. Escrow

c. Points

d. Private mortgage insurance

27. Which of the following is NOT correct?

a. Renting is usually less expensive in the short run.

b. Home ownership usually has long-term financial advantages.

c. Lifestyle and financial factors should be analyzed to determine if you should rent or buy.

d. Traditional financial guidelines suggest that your home should cost about five times your annual income.

28. All of the following are fixed operating costs for a vehicle except

a. Insurance

b. Interest on an auto loan

c. License and registration

d. Maintenance and repairs

29. The expected value at the end of a lease is called the

a. Invoice price

b. Sticker price

c. Capitalized cost

d. Residual value

30. Many think that perhaps the greatest disadvantage of using credit is

a. The temptation to overspend

b. The convenience offered instead of using cash

c. The float from using credit

d. The increase in total purchasing power

31. Which of the following steps is NOT a factor to be considered before making your first investment?

a. Work to balance your budget.

b. Manage your credit card debt.

c. Save at least $10,000 to invest.

d. Start an emergency fund.

32. A valid short-term investment goal is

a. Saving $5,000 per year for 40 years of retirement

b. Spending less than $500 per month for housing

c. Accumulating $3,000 in a savings account over the next 12 months

d. Using credit cards less in the next six months

33. Which of the following would be considered a safe investment?

a. Options

b. Collectibles

c. Savings accounts

d. Commodities

34. When choosing an investment, you should consider risk. The four primary risk components are

a. Business failure, inflation, buying power, stock

b. Buying power, inflation, interest rate, market

c. Inflation, interest rate, business failure, market

d. Market, bond, stock, inflation

35. Market risk is associated with fluctuations in the market due to

a. A reduction in buying power

b. Bad management and/or unsuccessful products

c. Economic conditions

d. Predictable sources of income

36. Which of the following investments is most liquid?

a. Certificate of deposit

b. Corporate bond

c. Interest-bearing checking account

d. Preferred stock

37. If your main focus is to be able to buy or sell an investment quickly without substantially affecting the investment’s vale, you are most concerned with

a. Income

b. Growth

c. Liquidity

d. Business failure risk

38. Some financial experts suggest that investors include a percentage of growth investments as part of their portfolio. This can be calculated by subtracting your age from

a. 90

b. 100

c. 110

d. 120

39. A U.S. government security issued in minimum units of $100 with 30-year maturities is called a

a. Treasury bill

b. Treasury note

c. Treasury bond

d. Savings bond

40. Since 1926, the average annual return for stocks has been about

a. 8%

b. 10%

c. 12%

d. 14%