Deck 18: Appendix: Personal Finance

Question 1

In a credit card agreement,__________is the interest expense charged on a credit card.

A)late fees
B)annual fees
C)annual percentage rate
D)surcharge

Answer 1

C

Question 2

The Federal Deposit Insurance Corporation (FDIC) insures individual deposits up to $250,000 per account in FDIC-insured banks.

Answer 2

True

Question 3

Investors acquire many of their financial assets, including shares of common and preferred stocks, corporate bonds, and certain other financial assets (such as ETFs), by purchasing them in derivatives markets.

Answer 3

False

Question 4

_____ refers to a process by which you earn interest not only on the money you directly invest but also on the interest you've earned in previous years.

A)Compounding
B)Diversifying
C)Recurring
D)Divesting

Question 5

Benedict applies for a credit card with a credit limit of $30,000. However, the issuing bank rejects his application because of his low credit score. While rejecting his application, the bank provides him with a free copy of his credit score. In this scenario, the bank is following the mandate of the _____.

A)Federal Credit Union Act
B)Dodd-Frank Act
C)Glass-Steagall Act
D)Credit Card Accountability, Responsibility and Disclosure Act

Question 6

Investing refers to reducing consumption in the current time period in order to build future wealth.

Question 7

In the context of investing, individual investors can directly participate in securities markets.

Question 8

Taking a pay cut from your temporary job to get experience in your career field most often lowers your chances of landing a good job.

Question 9

One advantage of mutual funds is that they do not charge fees to cover the cost of managing the fund.

Question 10

The Credit Card Accountability, Responsibility and Disclosure Act created the Consumer Financial Protection Bureau.

Question 11

Discount brokers offer a wide range of additional services to their clients free of cost.

Question 12

The benefit of a(n) _____ is that the contributions you make reduce your taxable income in the same tax year and the earnings on your contributions are tax deferred, allowing them to grow more rapidly.

A)mutual fund
B)Roth individual retirement account
C)Exchange Traded Fund
D)traditional individual retirement account

Question 13

The length of time you've held various credit accounts makes an impact on your individual Fair, Isaac and Company (FICO) score.

Question 14

Leena and Rebecca both have accounts in the same bank. They also hold credit cards issued by their bank. Leena, however, can buy more goods on credit than Rebecca as she falls in the below average to fair category of creditworthiness. In the context of the Fair, Isaac and Company (FICO) scale, which of the following scores is Rebecca most likely to have?

A)800-899
B)700-799
C)600-699
D)500-599

Question 15

Lucy has been constantly overstepping the credit limit on her credit card for the past five months. In this case, Lucy's financial advisor will most likely advise her to:

A)approach the issuer of the credit card to increase the credit limit for future transactions.
B)switch to a different credit card issuer who has better plans on credit limits.
C)continue using the card until the issuer sends a notice.
D)place a high priority on eliminating her credit card balance as quickly as possible.

Question 16

Kimberly has opened an account in Northwater City Bank. She receives a 3.5 percent interest rate on the money she deposits in her account. She does not use the funds from the account to meet her minor expenditures but only uses them when there is any major expenditure. In the context of this scenario, which of the following kinds of bank accounts does Kimberly hold?

A)A concentration account
B)A basic checking account
C)A fixed deposit account
D)A savings account

Question 17

Internships usually offer no monetary compensation, but they pay off in other ways.

Question 18

The Credit Card Accountability, Responsibility and Disclosure Act of 2009 allows credit card issuers to raise interest rates when a borrower is more than 45 days late in making required payments.

Question 19

Which of the following statements is true of the Dodd-Frank Act?

A)It requires credit card issuers to give a 45-day notice before making significant changes to credit agreements.
B)It requires lenders, insurance companies, and others who reject your application to provide you with a free copy of your credit score.
C)It requires anyone under the age of 21 who applies for a credit card to either verify proof of income or have an older adult cosign the application.
D)It places caps on certain types of fees that credit card issuers can charge.

Question 20

A budget starts with a forecast of your investments.

Question 21

Owing to his impulsive buying habits, Ronnie's unpaid credit card balances pile up to $9,000. As Ronnie does not have enough money to clear his bills, he is in a deep financial crisis. In this scenario, the first step that Ronnie should take is to:

A)stop using the card so that he does not worsen the situation.
B)consistently pay a substantial amount of the balance each month toward retiring the debt on his card.
C)borrow money from banks and other lenders to make the credit card payments.
D)approach the issuer of the credit card to increase the credit limit for future transactions.

Question 22

Frank bought furniture worth $5,230 for his new house and used his credit card to make the payment. However, because of financial constraints, he was unable to clear the outstanding amount within the bank's stipulated time. This resulted in the bank charging Frank an additional $25. This additional amount that Frank needs to pay to the bank is referred to as the _____.

A)rent for balance
B)charge-off
C)late fee
D)credit pay

Question 23

In the context of credit card practices, a mandate of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 is that:

A)a credit card holder must not hold a joint bank account with his or her spouse.
B)anyone under the age of 21 must have an older adult cosign the credit card application.
C)there should be no caps on the types of fees that credit card issuers can charge.
D)issuers must give a 10-day notice before making significant changes to credit agreements.

Question 24

After reviewing Brenda's current financial situation, Ronald, her friend, assesses that she has an unpaid credit card balance of $4,500, on which an annual percentage rate of 15% is applicable. In this case, the best advice Ronald can give Brenda is to:

A)increase the annual percentage rate on her credit cards.
B)switch credit card companies as many companies offer benefits such as frequent-flier miles.
C)keep using the card and not to worry about the balance because all interest is tax deductible.
D)place a high priority on eliminating her credit card balance as quickly as possible.

Question 25

Dexter invests in Adderson & Lipton Co., a local bank in Arizona. He makes an investment that will reach maturity after a fixed term of two years. Dexter will regularly receive an interest on his investment, and this interest will be substantially higher than the interest he receives on the savings account he has in the same bank. In the context of financial securities, Dexter has invested in _____.

A)corporate stocks
B)government securities
C)certificates of deposit
D)corporate bonds

Question 26

Allen is a college graduate, whereas his friend Glen has only completed high school. As a college graduate, Allen will most likely:

A)earn more during his lifetime than his friend.
B)have less median weekly earnings than his friend.
C)have a higher income but less job security than his friend.
D)be disinterested in internships.

Question 27

A full-service broker:

A)buys and sells securities for the clients but offers few additional services.
B)charges commissions but does not charge fees for the services provided.
C)charges flat fees of a few dollars per trade for simple transactions.
D)identifies good investment opportunities.

Question 28

Which of the following statements is true of common stockholders?

A)They are legally entitled to annual dividends.
B)They are prone to a significant degree of risk.
C)Their average rate of return is lower than that of investors in other financial instruments.
D)They are safe from incurring capital losses.

Question 29

Larkan & Tokodo is a financial institution that sells shares to investors. The funds resulting from the investments are pooled and then invested in large corporate stocks, corporate bonds, government securities, or other assets. Jeremy, a capitalist, invests in Larkan & Tokodo. In this case, Jeremy has invested in a _____.

A)mutual fund
B)credit union
C)commercial bank
D)savings and loan association

Question 30

Jordan paid for his purchases by using a bank card that allowed him to buy goods without having to make immediate payment. He, however, failed to clear the balance on time and was charged with a late fee. In this scenario, Jordan used a _____.

A)debit card
B)loyalty card
C)fleet card
D)credit card

Question 31

Jamie is 19 years old and wants to apply for a credit card in the same bank where he is an account holder. In the context of the Credit Card Accountability, Responsibility and Disclosure Act of 2009, Jamie must:

A)provide proof of his sources of income every three months to prove his repaying ability.
B)have his parents or guardians cosign the credit card application.
C)submit legal papers of his family assets to satisfy credit card application requirements.
D)provide proof that he does not have accounts in other banks.

Question 32

Isabella, who has worked for the last 30 years, has reached her retirement age and is eligible for the 403(b) employee-contribution retirement plan. Which of the following organizations is Isabella most likely working in?

A)A Christian missionary school that is managed by a trust
B)A business-to-business company that sells construction equipment
C)A municipal corporation in the United States
D)An advertising agency run by a media baron

Question 33

One technique for establishing a sizable savings balance is to:

A)follow the "pay yourself last" approach.
B)have a predetermined amount from each paycheck automatically deposited into the savings account.
C)invest in one specific financial security rather than invest in a diversified financial portfolio.
D)use traditional banks instead of online savings banks because they typically pay higher rates of interest.

Question 34

Norman, a musician, needs to buy sound equipment for his stage shows, but he does not have the required funds for it. He, therefore, purchases the equipment using a card issued by his bank that lets him clear the balance later. Although Norman does not need to pay the due amount immediately, he can only make purchases using the card for a limited amount of money. In this scenario, Norman's purchases are limited because he has a low _____.

A)loan-to-value ratio
B)annual shopping percentage
C)tax benefit
D)credit score

Question 35

Clara holds common stock in a telecommunications company. The board of directors of the company declares that each stockholder will receive 2 percent of the company's profits relative to the proportion of shares he or she holds. Thus, as a stockholder, Clara receives a sum of $4,800 out of the company's profits. In this scenario, the money that Clara has received is called _____.

A)a dividend
B)interest income
C)the principal
D)a capital gain

Question 36

__________are expenditures for which the spender has significant control in terms of the amount and timing.

A)Obligatory payments
B)Irremissible payments
C)Discretionary payments
D)Compulsory payments

Question 37

_____ are offered by banks and other institutions like credit unions.

A)Corporate bonds
B)Certificates of deposit
C)Common stocks
D)Government securities

Question 38

Derrick, a finance graduate, has joined an accounting firm. The firm opens a bank account for him in which his salary gets automatically deposited. He receives a modest but consistent amount of interest on the deposited amount. He does not use the money from the account for his daily expenses but keeps it aside to cover major future expenses. In the context of this scenario, which of the following accounts has the firm opened for Derrick?

A)A concentration account
B)A basic checking account
C)A fixed deposit account
D)A savings account

Question 39

_____ is a distribution of profits paid out to stockholders by a corporation.

A)Capital appreciation
B)A capital gain
C)A salary
D)A dividend

Question 40

Which of the following statements is true of internships?

A)Internships offer high monetary compensation.
B)In 2010, the U.S.Department of Labor issued a ruling that makes it easier for profit-seeking firms to offer paid or high-wage internships.
C)Internships help students determine whether a specific career is right for them.
D)Internships make it harder for students to get a job in their field of interest.

Question 41

Nancy holds common stock in Suiznon Inc., an electrical goods manufacturing company. Although Nancy paid only $4,300 for the stock at the time of its purchase, the price of the stock goes up by $400 in the market after six months. In this case, Nancy will earn _____.

A)a dividend
B)interest income
C)a principal amount
D)a capital gain

Question 42

Gladia is fond of shopping. However, most of the time she does not have cash at her disposal. Gladia hence purchases items by using a card issued by her bank that allows her to pay later. In the given scenario, Gladia is using a _____.

A)debit card
B)loyalty card
C)fleet card
D)credit card

Question 43

Identify a true statement about discount brokers.

A)They provide a wide range of services-such as research to identify good investment opportunities, financial planning, and tax advice.
B)They charge commissions based on the dollar value of the orders their clients place.
C)They limit their service to stocks and refrain from buying and selling bonds.
D)They charge lower commissions and fees than full-service brokers.

Question 44

Gracie has retired after serving 40 years as a teacher. She wants to supplement her retirement savings by investing in some form of low-risk financial instrument. She, however, is particular about investing in bonds where the interest income earned would be exempted from federal income taxes. In this scenario, Gracie should invest in _____.

A)corporate stocks
B)government securities
C)preferred stocks
D)exchange traded funds

Question 45

Which of the following is a difference between preferred stock and common stock?

A)Unlike common stockholders, preferred stockholders have a guaranteed legal right to receive a dividend.
B)Unlike common stockholders, preferred stockholders are not paid their dividends in full.
C)Unlike common stock, preferred stock is normally issued with a stated dividend.
D)Unlike common stock, preferred stock dividends are paid in irregular time intervals.

Question 46

In 2010, the _____ issued a ruling that makes it more difficult for profit-seeking firms to offer unpaid or low-wage internships.

A)U.S.Department of Education
B)U.S.Department of Finance
C)U.S.Department of Revenue
D)U.S.Department of Labor

Question 47

One widely accepted financial principle is that a tradeoff exists between:

A)discount brokers and full-service brokers.
B)common stock and corporate stock.
C)risk and return.
D)savings and bonds.

Question 48

Tom, a finance graduate, wants to identify the average credit scores among trainees in an organization. His research results show that the average credit score based on the Fair, Isaac and Company (FICO) scale is 695. This average credit score indicates that the trainees fall under the _____ category of creditworthiness.

A)excellent
B)poor to below average
C)fair to good
D)below average to fair

Question 49

Joseph has been contributing to the 457 retirement plan ever since he started working. In the context of employee-contribution retirement plans, Joseph most likely works as a:

A)clergyman in a church.
B)counselor in a corporate company.
C)teacher in a private school.
D)lawyer in a district court.

Question 50

A disadvantage of using a credit card is that:

A)it is riskier than carrying cash because losing the card can cause the credit card issuer to file a case against the cardholder.
B)it makes it difficult for the credit card users to track their expenditures.
C)it makes it hard for some people to maintain financial discipline.
D)many retailers do not offer warranty for products purchased with credit cards.

Question 51

Frieda works at Zurisco Corp., a private company. She is eligible for the employee-contribution retirement plan. This plan is implemented through a payroll-deduction process. In this case, which of the following plans is offered to Frieda?

A)403(b)
B)457 plan
C)HR10 plan
D)401(k) plan

Question 52

Sarah uses a card issued by Northend Bank for all her purchases. Her transactions are cashless, and the purchase amount is immediately withdrawn from her bank account. In this case, Sarah uses a _____.

A)credit card
B)debit card
C)prepaid card
D)charge card

Question 53

Charles, who is working for Impulsive Motors for the last 34 years, wants to take voluntary retirement from the company. However, he does not want to leave without receiving the full benefits of the company's retirement plan and therefore stalls his retirement for another year. It is stated in the company policies that a person will only receive all the retirement benefits if he or she has worked in the company for at least 35 years. In this case, the period of 35 years is the _____.

A)grace period
B)upliftment period
C)vesting period
D)tie-up period

Question 54

Rhonda has been working for 42 years and has reached retirement age. She is eligible for the 401(k) employee-contribution retirement plan. Based on the given information, Rhonda most likely works in:

A)a Christian mission hospital.
B)the United Nations Security Council.
C)the U.S.Department of Treasury.
D)a steel manufacturing company owned by an industrialist.

Question 55

Wendy has purchased several furnishing items from a home decor store. She pays for the entire purchase through her credit card. Wendy has 21 days to pay back the amount to the issuer of the credit card. In the context of credit cards, the number of days Wendy is given to pay back the balance is called the _____.

A)grace period
B)face value period
C)vesting period
D)tie-up period

Question 56

Albert, a first-time investor in the stock market, has limited knowledge in trading in the stock market. He thus needs someone to guide him while buying and selling shares. He also needs assistance in financial planning and identifying good investment opportunities. In this scenario, Albert should hire a(n) _____.

A)full-service broker
B)preferred stockholder
C)securities dealer
D)investment banker

Question 57

Quinton is a wine connoisseur. Every month, he spends a substantial amount of his income to purchase wine from a boutique that sells a variety of imported wines. In this scenario, Quinton's expenditure on wines is an example of a(n):

A)obligatory payment.
B)statutory payment.
C)discretionary payment.
D)compulsory payment.

Question 58

Crosmane Growth and Income, a financial institution, sells shares to investors. It accumulates the money received from the sold shares to invest in financial instruments such as corporate stocks, corporate bonds, government securities, and other assets. In this scenario, Crosmane Growth and Income represents a _____.

A)mutual fund company
B)credit union
C)commercial bank
D)savings and loan association

Question 59

Which of the following is an employee-contribution retirement plan?

A)A Roth individual retirement account
B)A 401(k) plan
C)A traditional individual retirement account
D)A stock bonus plan

Question 60

Which of the following is a result of competition among brokerage firms?

A)Many full-service firms have lowered their commissions, while many discount brokers have begun offering investment advice and other services.
B)Most full-service firms do not charge fees for the services they provide, while most discount brokerage firms charge commissions based on the dollar value of the orders their clients place.
C)The commissions and fees charged by discount brokers are usually significantly higher, while full-service brokers charge flat fees of a few dollars per trade for simple transactions.
D)Discount brokers provide a wide range of services-such as research to identify good investment opportunities, financial planning, and tax advice, while full-service brokers buy and sell securities for their clients but offer few additional services.

Question 61

Genelia holds shares in a motorcycle manufacturing company. Genelia gets a stated amount of dividend from the company only if the board of directors declares it. In this case, Genelia is a(n) _____.

A)exchange trader
B)preferred stockholder
C)full-service stock broker
D)trade union partner

Question 62

Robin is a bondholder in Nacron Corporation, a software company. He receives an interest payment on the bond every year. When the bond reaches maturity, Robin will also receive an additional amount of money. In this case, the money that will be received by Robin when the bond matures is known as the _____.

A)capital gain
B)dividend
C)principal
D)interest income

Question 63

Thomas is a bondholder in the municipal corporation of Oklahoma. Not being much of a risk-taker, Thomas prefers these kinds of bonds as they are usually viewed as safe investments and interest income earned on these bonds is exempt from federal income taxes. Given this information, one can conclude that Thomas holds _____.

A)corporate stocks
B)government securities
C)capital assets
D)deferred shares

Question 64

Which of the following is a similarity between stockholders and bondholders?

A)Both can experience capital gains or losses.
B)Both are legally entitled to receive annual interest payments from the issuing corporation.
C)Both are creditors of a corporation.
D)Both are owners of a corporation.

Question 65

Patricia, a senior employee working in a state museum, retires from her job. She, however, does not receive the full benefits of her retirement plan as she did not fulfill the requirement laid down by the government. The government policies state that an employee of any government organization has to work in the same organization for at least 30 years for him or her to receive the retirement benefits. In this case, Patricia has failed to receive the benefits because she did not complete the _____.

A)grace period
B)benefit period
C)vesting period
D)upliftment period

Question 66

On the Fair, Isaac and Company (FICO) scale, Donald falls in the poor to below average category of creditworthiness. Based on the FICO scale, Donald is most likely to have a credit score between:

A)400 and 499.
B)500 and 599.
C)600 and 699.
D)700 and 799.

Question 67

Unlike his friend who has a credit score of 450, Rashid has a credit score of 688, which lets him purchase more goods on credit than his friend. In the context of the Fair, Isaac and Company (FICO) scale, Rashid falls under the _____ category of creditworthiness.

A)excellent
B)poor to below average
C)fair to good
D)below average to fair

Question 68

To supplement his income, Billy has invested in a financial instrument. Each year, he receives an interest payment on his investment. He will also receive an amount known as the principal on the maturity of the investment. Based on the given information, Billy has most likely invested in a(n) _____.

A)common stock
B)corporate bond
C)individual retirement account
D)free-service fund

Question 69

Which of the following is a condition included in a credit card agreement?

A)A charge is levied just for the privilege of having a credit card.
B)Transfer of balance from one credit card to another is not charged.
C)A late fee is not assessed if a payment is not received within the grace period.
D)An annual fee is charged only if your charges exceed your credit limit.

Question 70

Karen is the sole breadwinner of her family. Every month, Karen has to pay electricity bills, water bills, and house rent. In this scenario, Karen's fixed monthly expenses are referred to as _____.

A)obligatory payments
B)statutory payments
C)nondiscretionary payments
D)compulsory payments

Question 71

Hans has an account in Grancore Bank and uses a credit card issued by the bank. He uses the credit card for various forms of transactions. In the context of credit card usage, when Hans has unpaid balances, Grancore Bank will charge him a(n) _____ on the due amount.

A)annual percentage rate
B)nominal interest rate
C)monthly surcharge rate
D)floating interest rate

Question 72

Christopher is a music teacher at St. Lucius School, an educational institution run by a charitable trust. Based on the nature of his organization, Christopher is eligible for the _____ employee-contribution retirement plan.

A)403(b)
B)457
C)HR10
D)401(k)

Question 73

After working for 52 years as an accountant in a government agency in the state of Virginia, Angela retires from her job. On retirement, she receives a sum of $63,000, which had been accumulated over the entire period of her service. In this case, the employee-contribution retirement plan that Angela benefits from is the _____.

A)403(b) plan
B)457 plan
C)HR10 plan
D)401(k) plan

Question 74

In the context of investing in your career, securing an internship during your college years:

A)reduces the chances of receiving monetary compensation from firms.
B)allows you to gain first-hand experience that supplements what you learn in the classroom.
C)reduces your prospective starting salary as internships are not valued by firms.
D)leads to a cut in your college grades as internships require you to miss classes.

Question 75

Max wants to invest in the stock market. Although he has expert knowledge in trading in the stock market, he does not have the time needed to engage in these transactions and hence needs someone to buy and sell stocks on his behalf. In this case, Max should hire a(n) _____ to fulfill his requirement.

A)angel investor
B)discount broker
C)securities dealer
D)investment banker

Question 76

Which of the following statements is true of an annual percentage rate (APR)?

A)The higher the APR, the greater the interest expense on unpaid balances.
B)All credit card companies charge the same APR for all transactions.
C)Credit card companies do not charge the APR on discounted products.
D)The lower the APR, the lower the cardholder's credit score.

Question 77

Roderick has made an investment in a credit union for a fixed term of four years. He receives a high interest rate on it. However, because of unexpected financial difficulties, Roderick is forced to cash in before the investment reaches its maturity and ends up incurring a heavy penalty. In the context of financial securities, Roderick has most likely invested in:

A)corporate stocks.
B)government securities.
C)certificates of deposit.
D)corporate bonds.

Question 78

__________sell shares to investors and pool the resulting funds to invest in financial instruments such as corporate stocks, corporate bonds, or other assets.

A)Exchange Traded Funds
B)Certificates of deposit
C)Government securities
D)Mutual funds

Question 79

Which of the following statements is true of government securities?

A)They pay their holders a stated rate of interest after the securities mature.
B)The interest income earned on municipal bonds is subject to federal income taxes.
C)The biggest single issuer of government securities is the federal government.
D)They are IOUs issued to government entities when corporate entities borrow money.

Question 80

Pablo has purchased several items from a gadget store. As the storekeeper bills the items, Pablo realizes that he does not have enough money in his bank account to make the payment. In these circumstances, Pablo can use his _____, which would allow him to make the purchase now and clear the balance later.

A)debit card
B)loyalty card
C)fleet card
D)credit card