FP 120 Week 5 Final Exam in class

Instructions

Complete the Comprehensive Final Exam.

Submit your responses in a Microsoft® Word® document to the Assignment Files tab

5.1 Concept: Homeowners and Renters insurance

1. Liability is defined as

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

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

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

5.2 Concept: Auto insurance

3. Motor vehicle coverage typically includes all of the following except

Text Location: p. 265, Difficulty: Medium, Question from: Test bank

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

4. Which type of auto insurance coverage pays if your car is stolen?

Text Location: p. 266, Difficulty: Easy, Question from: SME

1. Liability
2. Collision
3. Comprehensive
4. Replacement

5.3 Concept: Health insurance

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

1. Reimbursement
2. Out-of-pocket limit
3. Deductible
4. Internal limit

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

1. Health maintenance organization (HMO)
2. Medicare
3. Hospital and medical service plan
4. Preferred provider organization (PPO)

5.4 Concept: Disability insurance

7. All of the following are sources of disability income except

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

8. What is a function of disability insurance?

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

5.5 Concept: Need for Life insurance

9. Most people buy life insurance to

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

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

1. Single adult living alone
2. Adult child living with parents
3. Retired couple with a pension
4. Household with children

11. 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?

1. Easy method
2. Formal calculation method
3. Nonworking spouse method
4. Family needs method

5.6 Concept: Types of Life insurance policies

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

1. Whole life
2. Straight life
3. Term life
4. Cash value life

13. 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?

1. Adjustable life
2. Group life
3. Limited life
4. Universal life

5.7 Concept: Saving money on federal taxes

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

1. Tax-exempt income
2. Tax-deferred income
3. Exclusions
4. Alimony received
5. 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?

1. Until he files his returns
2. 3 years
3. 6 years
4. 10 years

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

1. W-2
2. W-4
3. 1098-E
4. 1099

5.8 Concept: Filing a federal tax return

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

1. Exemption
2. Itemized deduction
3. Standard deduction
4. Tax deduction

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

1. 1040
2. 1099
3. W-2
4. W-4

19. 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?

1. Single
2. Married, filing a joint return
3. Married, filing individually
4. Head of household

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

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

Weeks 1-4

1.3 Concept: Calculate time value of money for financial decisions

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

1. Amount of the savings
2. Type of investment
3. Length of time the money is invested
4. Annual interest rate

2.3.A  Concept: Credit reports and scores

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

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

2.3.B Concept: Credit approval process

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

1. 10%
2. 20%
3. 30%
4. 40%

2.5 Concept: Correcting credit report errors

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

1. Four years
2. Five years
3. Six years
4. Seven years

3.1 Concept: Advantages and disadvantages of consumer credit

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

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

3.3 Concept: Cost of credit using various interest formulas

26. 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?

1. $9
2. $45
3. $90
4. $1,009

3.4.A  Concept: Effective consumer buying strategies

27. 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

1. Adding up basic monthly expenses then subtracting this total from gross pay
2. 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
3. Asking what you plan to give up to make the monthly loan payment
4. Multiplying your take-home pay by 50% and subtracting your current loan payments

3.4.B Concept: Effective strategies when buying a car

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

1. Insurance
2. License and registration
3. Maintenance and repairs
4. Monthly loan payment

3.5 Concept: Cost and benefits of renting and buying

29. Which of the following is NOT correct?

1. Home ownership usually has long-term financial advantages.
2. Lifestyle and financial factors should be analyzed to determine if you should rent or buy.
3. Renting is usually less expensive in the short run.
4. 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

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

1. Income
2. Length of the loan
3. Size of the home
4. Current interest rates

3.7.A Concept: Options to pay for college

31. Students should aim to keep their total student loan debt to

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

3.7.B Concept: Repayment requirements of student loans

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

1. Graduated
2. Income-dependent
3. Income-based
4. Standard

4.1 Concept: Why you should establish an investment program

33. A valid, long-term investment goal is

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

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

34. Which of the following risks reduces your buying power?

1. Business failure
2. Inflation
3. Interest rate
4. Market

4.3 Concept: Reducing investment risk

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

1. Asset investments
2. Asset allocation
3. Asset returns
4. Asset combination

4.4.A Concept: Bonds

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

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

4.4.B Concept: Stocks

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

1. Price per share
2. Capital gain
3. Net income
4. Earnings per share

4.4. D Concept: 401(k) and IRA’s

38. Money in a 401(k) grows in what way

1. Tax-deferred
2. Taxable
3. Tax-free
4. Tax-exempt

4.5 Concept: Retirement planning strategy

39. 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?

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

4.6 Concept: Wills and estate planning

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

1. 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.
2. 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.
3. A living will terminates if you become incompetent, while a will continues in force even if you become incapacitated.
4. 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

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

1. Financial planning process
2. Budgeting procedure
3. Adult life cycle
4. Personal economic cycle

42. The Rule of 72 is

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

43. SMART Goals contain all of the following except:

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

44. Which of the following is an example of open-end credit?
45. An automobile loan
46. A department store credit card
47. A mortgage loan
48. Single lump-sum credit

2.2 Concept: Five C’s of credit

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

1. Capacity
2. Collateral
3. Conditions
4. Credit

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

1. Credit payment history
2. Total net worth
3. Present debt
4. None of the above

3.2 Concept: Types and sources of consumer credit

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

48. A credit card
49. Closed-end credit
50. A debit card
51. A gift card

48. 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?

1. The principal paid for the one-year loan will be lower than the principal paid for the four-year loan.
2. The principal paid for the one-year loan will be higher than the principal paid for the four-year loan.
3. The interest paid for the one-year loan will be lower than the interest paid for the four-year loan.
4. 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

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

1. A low rate of return will give you the highest total dollar return.
2. A high rate of return will give you the highest total dollar return.
3. The rate of return does not matter; your total dollar return will be the same with any investment.
4. 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

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

1. Asset allocation
2. Asset combination
3. Asset investments
4. Asset returns