Personal Finance Exam

Personal Finance Exam

True / False Questions

1.Inflation reduces the buying power of money. TRUE

2.When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years.TRUE

3.Short-term goals are usually achieved within the next year or so.TRUE

4.Opportunity costs refer to what a person gives up when making a decision.TRUE

Multiple Choice Questions

5.The main goal of personal financial planning is:
A.saving and investing for future needs.
B.reducing a person's tax liability.
C.achieving personal economic satisfaction
D.spending to achieve financial objectives.
E.saving, spending, and borrowing based on current needs.

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

7.The ability to convert financial resources into usable cash with ease is referred to as:
A.bankruptcy.
B.liquidity.
C.investing.
D.saving.
E.opportunity cost.

8.As Jean Tyler plans to set aside funds for her young children's college education, she is setting a(n) ______goal.
A.intermediate
B.long-term
C.short-term
D.intangible
E.durable

9.Brad Opper has a goal of "saving $50 a month for vacation." Brad'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.

10.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.

11.If a person deposited $50 a month for 6 years earning 8 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

12.Which type of computation would a person use to determine current value of a desired amount for the future?
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

13.If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how long will it take your salary to double?
A.30 years
B.24 years
C.18 years
D.12 years
E.It would never double

14.If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 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

15.The first step of the financial planning process is to:
A.develop financial goals.
B.implement the financial plan.
C.analyze your current personal and financial situation.
D.evaluate and revise your actions.
E.create a financial plan of action.

16.Which of the following is an example of opportunity cost?
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

17.The financial planning process concludes with efforts to
A.develop financial goals.
B.create a financial plan of action.
C.analyze your current personal and financial situation.
D.review the financial plan.
E.review and revise your actions.

18.If you desire your money 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

True / False Questions

19.A tax-exempt employee benefit is usually more advantageous than a tax-deferred benefit.TRUE

20.A job tends to have less of a long-term commitment to a field than a career.TRUE

21.Financial records that may need to be referred to on a regular basis should be kept in a safe-deposit box.FALSE

22.A personal balance sheet reports your income and expenses.FALSE

23.A person's net worth is the difference between the value of the items owned and the amounts owed to others.TRUE

24.Furniture, jewelry, and an automobile are examples of liquid assets.FALSE

25.Current liabilities are amounts that must be paid within a short period of time, usually less than a year.TRUE

26.A personal cash flow statement presents income and outflows of cash for a given time period, such as a month.TRUE

27.Medical expenses, clothing, and telephone are examples of fixed expenses.FALSE

28.If expenses for a month are greater than income, an increase in net worth will result.
FALSE

Multiple Choice Questions

29.Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value of $500 would have a tax-equivalent value of:
A.$694.
B.$528.
C.$500.
D.$360.
E.$140.

30.A home file should be used for:
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.

31.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 owned and amounts owed.
E.family financial goals.

32.A family with $45,000 in assets and $22,000 of liabilities would have a net worth of:
A.$45,000.
B.$23,000.
C.$22,000.
D.$67,000.
E.$41,000.

33.Items that you own with a monetary worth are referred to as:
A.liabilities.
B.variable expenses.
C.net worth.
D.income.
E.assets.

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

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

36.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.

37.A person's net worth would increase as a result of:
A.reduced amounts owed to others.
B.reduced earnings.
C.increased spending for current living expenses.
D.decreased value of personal possessions.
E.decreased value of investments.

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

39.Payments that do not vary from month to month are ______expenses.
A.fixed
B.current
C.variable
D.luxury
E.budgeted

40.During the past month, Jennifer Ernet had income of $3,000 and during the month, her net worth declined by $200. If no other financial activities occurred, this means Jennifer's payments for the month were:
A.$3,200.
B.$3,000.
C.$2,800.
D.$200.

41.Kyle Burroughs has decided to put $25 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 savings is important. This would be an example of:
A.A budget variance
B.An opportunity cost
C.A balance sheet
D.A liquid asset
E.Net worth

42.Patricia McDonald 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 $7,500 and the value of her long term liabilities is $98,000. What is Jamie's net worth?
A.$267,500
B.$105,500
C.$162,000
D.$205,500
E.$132,000

43.In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting
A.a balanced budget.
B.a surplus of $150.
C.a deficit of $150.
D.a surplus of $3,100.
E.a deficit of $2,950.

44.Allen Arnold has determined that the amount of money he spends on his mortgage payment, car insurance payment, and cable bill totals $1,200 each month. What type of expenses has Allen determined with this calculation?
A.Current Liabilities
B.Long Term Liabilities
C.Net worth
D.Variable Expenses
E.Fixed Expenses

True / False Questions

45.Taxes are only considered as financial planning activities in April.FALSE

46.Taxable income is the total earnings of a person.FALSE

47.An exclusion is earnings not included in taxable income.TRUE

48.Exemptions are deductions for yourself, your spouse and qualified dependents that you can deduct from adjusted gross income.TRUE

Multiple Choice Questions

49.A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent.
A.8.6
B.10.3
C.12.3
D.14.2
E.16.7

50.An amount included in gross income is:
A.a tax credit.
B.an exemption.
C.an exclusion.
D.earned income.
E.portfolio income.

51.Which of the following would be deducted from gross income to obtain adjusted gross income?
A.alimony payments
B.mortgage interest
C.medical expenses
D.foreign income exclusion
E.charitable contributions

52.A deduction from adjusted gross income for yourself, your spouse, and qualified dependents is:
A.the standard deduction.
B.a tax credit.
C.an itemized deduction.
D.an exclusion.
E.an exemption.

53.A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by:
A.$10.
B.$28.
C.$14.
D.$50.
E.$35.

54.A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would:
A.receive a refund of $3,975.
B.owe $4,350.
C.owe $375.
D.receive a refund of $4,350.
E.receive a refund of $375.

True / False Questions

1.A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest.TRUE

2.Savers should always attempt to obtain an interest rate that is less than the inflation rate.FALSE

3.Using a "debit" card is basically the same as writing a check.TRUE

4.A certificate of deposit is usually considered to be very liquid.FALSE

5.The liquidity of a savings account refers to the rate of earning a person will receive.
FALSE

6.The more frequent the compounding, the less a person will earn on a savings account.FALSE

7.When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.FALSE

Multiple Choice Questions

8.Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n):
A.regular savings account.
B.interest-bearing checking account.
C.five-year certificate of deposit.
D.six-month certificate of deposit.
E.money market fund

9.The purpose of a debit card is to:
A.obtain a discount on consumer purchases.
B.make credit card purchases.
C.quickly obtain a cash loan.
D.make investments with an investment company.
E.transfer money electronically.

10.When interest rates are rising, a person would be served by:
A.short-term savings instruments.
B.long-term savings instruments.
C.short-term loans.
D.variable-rate loans.

11.What is the difference between a lost debit card and a lost credit card?
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.There is no difference in liability.

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

13.A certificate of deposit usually has:
A.high interest-rate risk.
B.low safety for savers.
C.limited liquidity.
D.a variable rate of return.
E.no minimum deposit amount

14.A $200 savings account that earns $13 interest in a year has a yield of ______percent.
A.6
B.13
C.7
D.11.25
E.6.5

15.Savings compounded ______would have the highest effective yield.
A.daily
B.annually
C.semi-annually
D.monthly
E.weekly

16.When preparing a bank reconciliation, outstanding checks 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.

17.In the bank reconciliation process, service fees 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.

18.Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12; Outstanding checks $145; Interest $3.50; Deposit in transit $80
A.$145
B.$12
C.$157
D.$148.50
E.$80

19.A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent.
A.33
B.27.5
C.20
D.5.5
E.2.75

20.A person borrows $200 from a payday loan company, paying $10 interest for two weeks. This would result in an annual interest rate of approximately ___ percent.
A.260
B.130
C.40
D.20
E.5

21.Your bank statement shows a balance of $670. Your checkbook register shows a balance of $462. You earned interest of $2, and had a service charge of $4. What is the amount of outstanding checks?
A.$210
B.$208
C.$180
D.$12
E.$6

True / False Questions

22.There are very few valid reasons for using credit. FALSE

23.College students are not a prime target for credit card issuers. FALSE

24.With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.FALSE

25.Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.
FALSE

26.You should sign your new credit cards as soon as they arrive.TRUE

27.The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net worth.FALSE

28.The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.FALSE

29.When you cosign a loan, you are being asked to guarantee this debt.TRUE

30.In the 5Cs of credit, capacity refers to the borrower's attitude toward his or her credit obligations.FALSE

Multiple Choice Questions

31.By paying cash for a purchase, you:
A.forgo the opportunity to keep the cash in an interest-bearing account.
B.always get a cash discount.
C.can build a better credit rating.
D.get better personal service from store employees.
E.have a better selection of goods than if you use credit.

32.Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal payments over the next year to pay for it. She is using:
A.closed-end credit
B.Open-end credit
C.Revolving check credit
D.a line of credit
E.none of the choices

33.Experts suggest that you spend no more than ______percent of your net income on credit purchases.
A.10
B.20
C.30
D.40
E.50

34.If you have declared personal bankruptcy, that fact may be reported to credit bureaus for: ______years.
A.5
B.10
C.15
D.20
E.25

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

36.If your credit application is denied, you:
A.can sue the credit rating agency.
B.can file a complaint against the merchant.
C.don't have any rights provided by law.
D.are entitled to know the specific reason you were denied credit.
E.can reapply for credit after 30 days.

37.The way to maintain your credit rating 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.

38.Which of the following is a credit bureau?
A.The Federal Reserve System
B.The Federal Trade Commission
C.Better Business Bureau
D.Experian
E.None of the choices are credit bureaus

True / False Questions
39.Buying on credit is almost always cheaper than paying cash.FALSE

40.With collateral, you'll probably pay a higher interest rate on your loan.FALSE

41.The two most common methods of calculating interest are compound and simple interest formulas.TRUE

42.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

43.In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property.TRUE

Multiple Choice Questions

44.Which is often the source of the expensive loan?
A.parents or family members
B.banks
C.savings and loan associations
D.finance companies
E.loan sharks

45.Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging your interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month?
A.$12
B.$9
C.$21
D.$0
E.None of the choices.

46.If you borrow $100 at 10 percent simple annual interest and repay it in one lump sum at the end of one year, you will have to pay:
A.$100.
B.$105.
C.$110.
D.$115.
E.$120.

47.Which one of the following is one of 16 danger signals of potential debt problems?
A.paying maximum balance due each month
B.receiving notice of prompt payment from creditors
C.using savings to pay for major purchases
D.borrowing money to pay old debts
E.occasionally working overtime and moonlighting

48.Most people who are in debt over their heads are:
A.criminals who take advantage of creditors.
B.living in the poverty-stricken areas.
C.expected to declare Chapter 11 bankruptcy.
D.basically dishonest people.
E.basically honest people.

True / False Questions

1.Overspending is a common cause of financial difficulties.TRUE

2.The opportunity costs associated with consumer purchases refer to the cost of an item and any finance charges if the item was purchased on credit.FALSE

3.The most consistent quality is usually found with nationally known, brand-name products.TRUE

4.An implied warranty is usually in written form.FALSE

5.Most consumer complaints need legal action to be resolved.FALSE

6.Representation by a lawyer is usually required in small claims court.FALSE

7.A class action suit allows many people with the same complaint to take action as a group. TRUE

8.Unit pricing uses a standard unit of measurement to compare prices of packages of different sizes.TRUE

9.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.FALSE

Multiple Choice Questions

10.A personal opportunity cost associated with a consumer purchase refers to:
A.buying on credit.
B.selecting a commonly known brand.
C.the influence of advertising on consumers.
D.time used to compare prices.
E.government regulation of deceptive business-government activities in an effort to prevent consumer fraud.

11.Impulse buying refers to:
A.evaluating alternatives.
B.gathering information.
C.comparison shopping.
D.selecting the least desirable alternative.
E.unplanned purchasing.

12.The highest consistency of quality is associated with ______brand items.
A.generic
B.national
C.regional
D.store
E.manufacturer

13.A 32-ounce package selling for $1.60 would have a unit price of:
A.$1.60.
B.$2.00 a pound.
C.5¢ an ounce.
D.80¢ a quart.
E.12¢ an ounce.

14.Which of the following types of warranties is a specific agreement created by the seller or manufacturer?
A.express
B.implied
C.full
D.contingent
E.limited