Deck 18: Appendix Studentinstructor Review Cards

Question 1

The higher the annual percentage rate, the lesser your interest expense on unpaid balances.

Answer 1

False

Question 2

Investing involves reducing consumption today in order to acquire assets that build future wealth.

Answer 2

True

Question 3

Your credit score is a numerical indicator that determines how much credit you should be able to obtain.

Answer 3

True

Question 4

Candice purchased an iced coffee from the local coffee shop. Candice's purchase is an example of a nondiscretionary payment.

Question 5

One key provision of the Dodd­Frank Act was the establishment of the Consumer Financial Protection Bureau.

Question 6

The FDIC insures individual deposits up to $250,000 per account in FDIC­ insured banks.

Question 7

Federal law allows credit card companies to charge as much as they want for late fees.

Question 8

The Credit Card Accountability, Responsibility, and Disclosure Act of 2009 requires issuers to give a 5­day notice before making significant changes to credit agreements.

Question 9

A grace period is the period of time you have to pay your credit card balance before interest or fees are assessed.

Question 10

A debit card allows you to make "cash­like" purchases, because your bank balance is reduced immediately each time your card is used.

Question 11

Currently, the most commonly used credit scoring system is the Fair, Isaac and Company (FICO) scale.

Question 12

Your ability to purchase goods or resources without making immediate payment is known as an investment.

Question 13

You recently purchased 100 shares of Sand Box Software. One benefit of buying and owning these shares is that you are sure to receive dividends.

Question 14

Nondiscretionary payments include your monthly rent or car payment, which are set by contract.

Question 15

The largest single asset for many households is the equity they have in their home.

Question 16

The difference between discretionary costs and nondiscretionary costs is that discretionary costs are less controllable.

Question 17

You can use your budget to develop your financial plan and to monitor your progress toward achieving your financial goals.

Question 18

The benefits of having a credit card include not having to carry cash and the ability to track expenditures.

Question 19

Credit history is the study of financial markets and their impact on interest rates.

Question 20

A checking account is often referred to as a person's "safety net."

Question 21

One benefit of utilizing commercial personal finance software packages such as Quicken or Moneydance is that these packages:

A) automatically complete and file your annual tax return.
B) alert you when interest rates on your credit cards increases.
C) provide a wide range of features such as online banking services, financial calculators, and stock quotes.
D) provide a discount on online purchases and credit card bills.

Question 22

You have a budget for your personal finances. Which of the following statements best explains this statement?

A) You use your budget to show the difference between what you earn (income) and what you spend (expenditures).
B) Budgets are for poor individuals.
C) You use your budget to measure your creditworthiness.
D) Budgets are a tool students use to figure out whether or not they can afford the next semester.

Question 23

Like a Roth IRA, the contributions made to a 401(k) plan are not tax­ deductible.

Question 24

When you purchase common stock it represents your ownership in the corporation.

Question 25

A Roth IRA is an example of a 403(b) plan and is not tax deductible.

Question 26

Higher education not only increases your income, it also gives you more job security.

Question 27

Studies show that students who have internship experience are offered higher starting salaries.

Question 28

If a company declares to pay dividends to stockholders, common stockholders cannot receive a dividend until all preferred dividend are paid in full.

Question 29

A corporate bond is a formal IOU issued by a corporation.

Question 30

Dividends are a distribution of profits paid out to shareholders of a corporation.

Question 31

It is never a good idea to have a diversified portfolio because your investments are spread out and can result in increased risk.

Question 32

The first step in developing a budget is to analyze:

A) your current interest rates.
B) your revenues and expenses.
C) how you stand financially compared to others your age.
D) your credit card receipts.

Question 33

Bernard is concerned about his current financial condition. In order to handle his finances better, he should:

A) apply for a credit card.
B) borrow money from his friends.
C) ask his rich uncle for a short­term loan.
D) develop a budget.

Question 34

A treasury bill or T­bill is a government security that matures after four years.

Question 35

Companies are legally required to pay dividends on corporate stock.

Question 36

In 2012, traditional and Roth IRAs had a maximum yearly contribution rate of $5,000.

Question 37

A(n) _____ is a detailed forecast of your expected cash inflows (income) and cash outflows (expenditures), which helps control your financial situation.

A) allowance
B) budget
C) working capital
D) inventory

Question 38

Your Aunt wants advice on how to invest $10,000. During the course of the conversation, she mentions that she is looking for maximum level of financial security. Based on this information, the best suggestion would most likely be for her to invest the $10,000 in corporate stock.

Question 39

The federal government requires mutual funds be invested exclusively in government securities.

Question 40

When you contribute to a traditional IRA, the contributions you make reduce your taxable income in the same year.

Question 41

Ownership of stock offers the possibility, but not the guarantee, of two types of financial returns:

A) dividends and capital rate of return.
B) capital gains and dividends.
C) capital gains and credit.
D) dividends and credit.

Question 42

You recently had a conversation with your neighbor, Ruth Theobald, about her problems with getting a loan. She mentioned in the course of the conversation that she had been turned down at least five times. Based on this information you can conclude:

A) her credit history is neither positive or negative.
B) she has either high credit balances or unpaid credit.
C) she has not tried hard enough to secure a loan.
D) she has an excellent credit history.

Question 43

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

A) Compound interest
B) Return on investment
C) Simple interest
D) Default interest

Question 44

Which of the following is a disadvantage of using a credit card?

A) It is always safer to carry cash than to carry credit cards, because losing the card can cause the issuer to file a case against the card holder.
B) Credit cards make it difficult for users to track their expenditures.
B) The "buy now, pay later" aspect of credit card use makes it hard for some people to maintain financial discipline.
D) Many retailers do not offer warranty for products purchased with credit cards.

Question 45

The Dodd­Frank Act:

A) requires issuers to give a 45­day notice before making significant changes to credit agreements.
B) requires lenders, insurance companies, and others to provide a free copy of the credit score of applicants whose credit card applications have been rejected.
C) 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) created the Federal Financial Institutions Examination Council (FFIEC).

Question 46

One of the most important determinants of the amount of credit you can obtain is your _____, which is a numerical indicator of your creditworthiness.

A) credit interest
B) credit score
C) credit history
D) debit score

Question 47

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

A) capital appreciation
B) capital gain
C) liability
D) dividend

Question 48

_____ refers to your ability to obtain goods or resources without having to make immediate payment.

A) Debit
B) Income
B) Credit
D) Expense

Question 49

One key to establishing a sizable savings balance is to:

A) use the "pay yourself last" approach.
B) automatically deposit a percentage of each paycheck into a savings account.
C) pay the minimum on each credit card bill.
D) use traditional banks instead of online savings banks, since they typically pay higher rates of interest.

Question 50

A _____ allows you to make purchases now and to defer the payment into the future.

A) credit card
B) debt card
C) cashless card
D) debit card

Question 51

The payments you have the most control over are called your _____ payments.

A) credit
B) alternative
C) discretionary
D) planned

Question 52

Financial experts have some good advice about savings. Which answer best describes this?

A) Pay your credit cards off first­­they have the highest interest.
B) Pay yourself first­­let the credit cards worry about themselves.
C) Open savings accounts in traditional banks and avoid opening accounts in online savings banks.
D) Experts recommend saving up about six months of income in the event you lose your job or some other emergency occurs.

Question 53

A financial instrument that allows the stockholders to receive their dividend first, if one is paid by the company, is known as _____.

A) a corporate bond
B) preferred stock
C) common stock
D) a government security

Question 54

As a conservative investor, you are concerned about the preservation of capital and much less concerned with capital gains. Based on this information, you should consider investing in _____, since they are considered very safe investments.

A) government securities
B) corporate bonds
C) corporate stock
D) mutual funds

Question 55

Kenneth, a college student, is addicted to playing video games, and buys new games every other week. He calls his dad asking him to increase his weekly allowance. His dad refuses and tells him to manage his expenses with the agreed upon amount he currently receives. Which of the following would best help Kenneth manage his finances?

A) Applying for a credit card
B) Buying his games on credit
C) Creating a budget
D) Applying for loans from banks

Question 56

A _____ account is an interest­earning account that is intended to satisfy obligations that your checking account cannot handle.

A) debit
B) savings
C) joint
D) correspondent

Question 57

The first rule when you have credit card difficulties is to:

A) put the card down.
B) take loans from the bank.
C) use the card for essential items or grocery purchases.
D) cancel your debit card.

Question 58

The most important distinction between preferred stock and common stock is that:

A) owners of common stock are more likely to receive a dividend than owners of preferred stock.
B) owners of preferred stock are more likely to receive a dividend than owners of common stock.
C) while preferred stockholders are owners of a corporation, common stockholders are its creditors.
D) while common stockholders are owners of a corporation, preferred stockholders are its creditors.

Question 59

Why is investing earlier in life preferable?

A) You can avoid any financial risks that the future market conditions might bring..
B) Your compounding effect becomes more powerful.
C) You become richer quicker, as investors younger than 25 enjoy tax benefits.
D) You can retire when you're 40 years old.

Question 60

After a review of your friend's current financial situation, you discovered she was carrying a $4,500 credit card balance with an APR of 12%. The best advice you can give to your friend is to:

A) eliminate using her debit card for nonessential purchases.
B) switch credit card companies, since many companies offer benefits like frequent­flier miles.
C) keep using the card and not to worry about the balance, since all interest is tax deductible.
D) place a high priority on eliminating her credit card balance.

Question 61

As a college graduate, Allen can expect:

A) to earn more during his lifetime than his friend who only earned a high school diploma.
B) to always have a professional job.
C) to accumulate a lot of wealth and be respected.
D) that his path to financial independence will be easy.

Question 62

All contributions to a Roth IRA are:

A) tax­free but earnings are taxable.
B) taxable but earnings are tax­free.
C) passive but withdrawals are tax­free.
D) tax­free but withdrawals are subject only to state taxes.

Question 63

Alleciana has a 457 retirement plan. What does this mean?

A) She receives a 50 percent tax deduction on the income she invests in the plan.
B) She has to pay higher taxes on the earnings received from these investments.
C) She is vested in her company.
D) She likely works for state government.

Question 64

Discuss the traditional ways to wealth accumulation.

Question 65

Evaluate strategies to help build a sufficient savings and emergency fund.

Question 66

One advantage of participating in a company­sponsored retirement plan is:

A) you pay taxes on these contributions only during the year you contribute.
B) you are allowed to contribute only half as much as you would contribute to an IRA, so you get to keep more of your earnings.
C) time value of money does not apply.
D) companies will often participate in a matching process, where they will contribute a percentage of the amount you contribute.

Question 67

Karen wants to begin building her retirement fund, but she is very apprehensive about the stock market and wants nothing to do with it. She wants something that, historically, has been very stable. Which of the following would you recommend that she invest in?

A) Mutual funds
B) Corporate bonds
C) Government securities
D) Exchange traded funds

Question 68

Evaluate various options for investing to build wealth.

Question 69

List and describe the main conditions to consider when using a credit card.

Question 70

_____ are professionally­managed funds that pool the contributions of thousands of investors.

A) Mutual funds
B) Exchange Traded Notes (ETN)
C) T­bills
D) Certificates of deposit funds

Question 71

As a small investor, Bernie has decided to invest in the Alpha Fund. This mutual fund only invests in the common stock of companies located in the United States. One benefit of investing in mutual funds is:

A) all capital gains are guaranteed tax free.
B) they usually offer more diversification.
C) these funds are passive investments.
D) they are guaranteed by the SEC.

Question 72

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 IRA
C) exchange traded fund
D) traditional IRA

Question 73

An example of an employee­contribution retirement plan is a:

A) Roth IRA.
B) 401(k).
C) traditional IRA.
D) mutual fund.

Question 74

A full­service broker:

A) provides financial planning services exclusively.
B) provides only tax advice.
C) charges a flat fee per trade.
D) identifies good investment opportunities.

Question 75

What is a budget? How can you apply the principles of budgeting to your own finances?