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5.1 Concept: Homeowners and Renters insurance

Liability is defined as

An insurance program for individuals and households
The legal responsibility for the financial cost of another person’s losses or injuries
Negligence
A loss due to physical damage

Which of the following best defines “actual cash value” in a home or renter’s insurance policy?

Insurance that pays the replacement value of damaged or stolen
Insurance that pays for additional living expense coverage
Insurance that pays the depreciated value of damaged or stolen property
Insurance that pays for the items included in a “rider”

5.2 Concept: Auto insurance

Motor vehicle coverage typically includes all of the following except
Text Location: p. 265, Difficulty: Medium, Question from: Test bank

Most legal expenses
Bodily injury liability up to a specified level for all injured in an accident
Medical payments up to the policy limit
Bodily injury liability of all expenses, no matter the cost, for the most injured

Which type of auto insurance coverage pays if your car is stolen?
Text Location: p. 266, Difficulty: Easy, Question from: SME

Liability
Collision
Comprehensive
Replacement

5.3 Concept: Health insurance

The set amount that you must pay toward medical expenses before he insurance company pays benefits is called

Reimbursement
Out-of-pocket limit
Deductible
Internal limit

Which of the following is NOT a private health care plan?

Health maintenance organization (HMO)
Medicare
Hospital and medical service plan
Preferred provider organization (PPO)

5.4 Concept: Disability insurance

All of the following are sources of disability income except

Worker’s compensation
Social security
Private income insurance programs
All of these are sources of disability income.

What is a function of disability insurance?

Covers medical costs incurred by an insured and their family
Part B covers medical costs for you and passengers of your insured vehicle, if you are at fault.
Provides income replacement to individuals who are unable to work as a result of illness or accident
Covers against the risk that personal property will be stolen or damaged by others

5.5 Concept: Need for Life insurance

Most people buy life insurance to

Pay off a mortgage
Protect the people who depend on the insured from financial losses caused by his or her death
Pay for a vacation
Pay taxes

Which of the following households most likely has the greatest need for life insurance?

Single adult living alone
Adult child living with parents
Retired couple with a pension
Household with children

Judy and James have a 4-year old child. They plan to purchase a life insurance using this formula: Current income X 7 X 70%. Which method are they using to determine their life insurance needs?

Easy method
Formal calculation method
Nonworking spouse method
Family needs method

5.6 Concept: Types of Life insurance policies

Which of the following is NOT a type of permanent insurance?

Whole life
Straight life
Term life
Cash value life

Pam just started working at a company and wants to get insurance coverage. She does not want to take a medical exam to get coverage because she has some underlying health conditions and is concerned that she might not qualify for a policy. Which of the following life insurance policies should she apply for?

Adjustable life
Group life
Limited life
Universal life

5.7 Concept: Saving money on federal taxes

When calculating federal income taxes, what increases “income”?

Tax-exempt income
Tax-deferred income
Exclusions
Alimony received
Fred has been completing his own tax return for many years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation?

Until he files his returns
3 years
6 years
10 years

The form you file with your employer to determine how much income tax is withheld from your check is

W-2
W-4
1098-E
1099

5.8 Concept: Filing a federal tax return

This type of deduction represents the set amount of income on which no taxes are paid

Exemption
Itemized deduction
Standard deduction
Tax deduction

At the end of the year, employees receive a ________ form that reports annual earnings and the amounts deducted for taxes from their employers.

1040
1099
W-2
W-4

Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for them?

Single
Married, filing a joint return
Married, filing individually
Head of household

The major sections of Form 1040 include all of the following except

Filing status and exemptions
Adjustments to income (AGI)
Tax credits
All of these are major sections of Form 1040.

Weeks 1-4

1.3 Concept: Calculate time value of money for financial decisions

To calculate the time value of money, we need to consider all of the following except the

Amount of the savings
Type of investment
Length of time the money is invested
Annual interest rate

2.3.A Concept: Credit reports and scores

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

Close your credit-card accounts as soon as you pay them off.
Never exceed your credit limit
Pay your bills on time
Reduce the amount of credit used

2.3.B Concept: Credit approval process

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

10%
20%
30%
40%

2.5 Concept: Correcting credit report errors

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

Four years
Five years
Six years
Seven years

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3.1 Concept: Advantages and disadvantages of consumer credit

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

Does the purchase fit my budget?
Could I postpone the purchase?
Could I use the credit I need for this purchase in some better way?
All of these are valid questions to ask.

3.3 Concept: Cost of credit using various interest formulas

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest?

$9
$45
$90
$1,009

3.4.A Concept: Effective consumer buying strategies

Before taking out a loan, you should ask yourself whether you can meet all your essential expenses and still afford the monthly loan payments. This can be determined by

Adding up basic monthly expenses then subtracting this total from gross pay
Adding up basic monthly expenses, subtracting this total from take-home pay and, if needed, figuring out what to give up to make the payment
Asking what you plan to give up to make the monthly loan payment
Multiplying your take-home pay by 50% and subtracting your current loan payments

3.4.B Concept: Effective strategies when buying a car

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

Insurance
License and registration
Maintenance and repairs
Monthly loan payment

3.5 Concept: Cost and benefits of renting and buying

Which of the following is NOT correct?

Home ownership usually has long-term financial advantages.
Lifestyle and financial factors should be analyzed to determine if you should rent or buy.
Renting is usually less expensive in the short run.
Traditional financial guidelines suggest that your home should cost about five times your annual income.

3.6 Concept: Process of and costs of buying a home

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

Income
Length of the loan
Size of the home
Current interest rates

3.7.A Concept: Options to pay for college

Students should aim to keep their total student loan debt to

About the total cost of 4 years of their education
Less than the salary they are likely to make their first year out of school
Less than 200% of their first-year salary
Less than 150% of their first-year salary

3.7.B Concept: Repayment requirements of student loans

Which of the following payment plans available for federal student loans is based on income levels?

Graduated
Income-dependent
Income-based
Standard

4.1 Concept: Why you should establish an investment program

A valid, long-term investment goal is

Accumulating $3,000 in a savings account over the next 12 months
Saving $5,000 per year for 40 years for retirement
Spending less than $750 per month for housing
Using credit cards less in the next six months

4.2 Concept: Safety, risk, income, growth and liquidity effects on your investment program

Which of the following risks reduces your buying power?

Business failure
Inflation
Interest rate
Market

4.3 Concept: Reducing investment risk

The process of spreading your assets among several different types of investments to lessen risk is called

Asset investments
Asset allocation
Asset returns
Asset combination

4.4.A Concept: Bonds

What happens to the price of bonds when interest rates go up?

It stays the same. Bond prices are determined by the market dynamics of buying and selling.
Bond prices are unaffected by fluctuations in interest rates.
It goes down.
It goes up.

4.4.B Concept: Stocks

Which of the following is a profitability ratio that uses the number of outstanding shares in the calculation?

Price per share
Capital gain
Net income
Earnings per share

4.4. D Concept: 401(k) and IRA’s

Money in a 401(k) grows in what way

Tax-deferred
Taxable
Tax-free
Tax-exempt

4.5 Concept: Retirement planning strategy

If you start a new job and are offered the opportunity to participate in the company’s 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future?

Participating in the retirement account to reduce income taxes
Participating in the retirement account to take advantage of the employer’s matching contributions
Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk
All of these decisions would have a financial impact.

4.6 Concept: Wills and estate planning

What is the difference between a will and a living will?

A will is used to distribute your property after your death; a living will allows you to specify, in writing, your health care preferences for the time when you no longer have the capacity to provide consent.
A will describes your preferences regarding treatment if you are faced with a serious accident or illness; a living will specifies what physicians are allowed to treat you.
A living will terminates if you become incompetent, while a will continues in force even if you become incapacitated.
A living will appoints someone to act on your behalf in financial or medical matters; a will specifies how your assets will be distributed on your death.

Concept: Influences on financial goals and decisions

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

Financial planning process
Budgeting procedure
Adult life cycle
Personal economic cycle

The Rule of 72 is

A tool to determine the number of years until retirement for an employee
Used to estimate how long it takes for prices to double using a given annual inflation rate
The legal code for requiring companies to provide a match on retirement savings
Used to calculate interest rates for savings

SMART Goals contain all of the following except:

Specific – knowing exactly what the goals are and how to attain them
Action Oriented – the bases for the goals
Manageable – to be able to understand the written goals
Time based – the time frame needed to reach the goal

Which of the following is an example of open-end credit?
An automobile loan
A department store credit card
A mortgage loan
Single lump-sum credit

2.2 Concept: Five C’s of credit

Which of the following is NOT one of the Five C’s of credit?

Capacity
Collateral
Conditions
Credit

Which of the following is a characteristic of this Five C: Capacity?

Credit payment history
Total net worth
Present debt
None of the above

3.2 Concept: Types and sources of consumer credit

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

A credit card
Closed-end credit
A debit card
A gift card

Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both have the same stated rate of interest. Which of the following is true?

The principal paid for the one-year loan will be lower than the principal paid for the four-year loan.
The principal paid for the one-year loan will be higher than the principal paid for the four-year loan.
The interest paid for the one-year loan will be lower than the interest paid for the four-year loan.
The interest paid for the one-year loan will be higher than the interest paid for the four-year loan.

4.1 Concept: Why you should establish an investment program

If you invest $4,000 per year over the next 40 years for retirement, which of the following is correct?

A low rate of return will give you the highest total dollar return.
A high rate of return will give you the highest total dollar return.
The rate of return does not matter; your total dollar return will be the same with any investment.
We cannot compare the total dollar return for a low rate of return or a high rate of return.

4.3 Concept: Reducing investment risk

The process of spreading your assets among several different types of investments to lessen risk is called

Asset allocation
Asset combination
Asset investments
Asset returns