Exam: 02.10 Module Two Exam
1. If an investor possesses a portfolio heavily concentrated in bank checking accounts, a financial advisor would most likely suggest which of the following aggressive investments to diversify the portfolio?
A. A money market account
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B. An Individual Retirement Account
C. Certificates of Deposit
2. Johann maintains a $75,000 insurance policy on his boat. He pays $50 per month in premiums and his deductible is $2,500. If he is involved in an accident that does $2,000 worth of damage to the boat, how much will he have to pay?
3. Gerald usually buys name brand pain relievers to treat his headaches, but he recently noticed the generic store brand is two dollars cheaper. Upon trying the product, he discovers it works equally as well as the name brand. This example shows how Gerald
A. allowed his preferences to continually cost him more money
B. compared the price of alternatives and saved money
C. failed to take advantage of a better offer at another store
D. switched product loyalty because his income changed
Answer: compared the price of alternatives and saved money
4. Jonah has a high-paying job and would like to start saving for retirement. He has evaluated his budget in order to add savings to his expenses. He has a moderate amount of debt, and he spends a great deal on housing. His utilities, transportation, and health, expenses are fixed, and he spends little on recreation or eating out. Which action is he most likely to take?
A. Consider less costly housing options
B. Pay off his debt
C. Reduce his recreation expenses
D. Search for a job with a higher salary
Answer: Consider less costly housing options
5. Compared to earning a four-year degree, a technical certification allows you to
A. increase lifetime earning potential
B. increase opportunities for advancement
C. have unlimited career choices
D. start earning sooner
Answer: start earning sooner
6. What is likely to happen if a borrower is late on a payment for a credit card account?
A. The credit card company requires the entire balance be paid in full immediately.
B. The credit card company cancels the card after the first tardy payment.
C. The credit card company doubles the credit limit.
D. The credit card company applies a penalty rate, increasing the card’s interest rate.
Answer: The credit card company applies a penalty rate, increasing the card’s interest rate.
7. Samuel needs to decrease his expenses. To which category should he make cuts first?
8. Which of the following investment plans best reflects diversification?
A. Ben has an investment portfolio with numerous stocks and futures.
B. Kenya invests in stocks, bonds, and mutual funds.
C. Jeremiah takes out a CD and keeps the rest of his money in a savings account.
D. Molly splits her investment between mutual funds and a money market account.
Answer: Kenya invests in stocks, bonds, and mutual funds
9. Making a down payment reduces the
A. desire of a lender to loan money
B. creditworthiness of a buyer
C. sale price of a house
D. loan principle amount
Answer: sale price of a house
10. Which of these are loans to businesses or governments?
C. Mutual funds
11. Your friend’s job pays $5.00 per hour, and he works 20 hours per week. His tax rate is 20 percent. Assuming he works 50 weeks of the year, his yearly gross income is
12. Which of the following actions would likely raise homeowner’s insurance premiums?
A. Building the home in the floodplain of a river
B. Installing a monitored alarm system
C. Living in a safe neighborhood with little crime
D. Choosing not to install a swimming pool
Answer: Building the home in the floodplain of a river
13. Principal Interest Year 1 Interest Year 10 Interest Year 20 Total Savings After 20 Years
$12,000 in Simple Interest Account $12,000 x 5%
= $12,600 $12,000 x 5%
= $18,000 $12,000 x 5%
= $24,000 $12,000 + 20 years of simple interest
$12,000 in Compound Interest Account $12,000 x 5%
= $12,600 ($12,000 + $6,615.94)
$18,615.94 x 5%
= $19546.74 ($12,000 + $18,323.40)
$30,323.40 x 5%
= $31,839.57 $12,000 + $20 years of compound interest
Laurent saves money from his lawn service to buy a new $20,000 mower and trailer. He would like to buy the new equipment as soon as possible but only has $12,000 in his simple interest savings account. To reach his goal sooner, Laurent should
A. keep his money where it is and be patient
B. move his money to an IRA or Certificate of Deposit
C. Move his money to a compound interest account
D. Move his money to a business checking account
Answer: Move his money to a compound interest account
14. If the Federal Reserve lowers the federal funds rate, what will happen to bank savings accounts?
A. The interest rate offered will decrease
B. The interest rate offered will increase
C. The interest rate will automatically be set to zero
D. The interest rate will remain the same
Answer: The interest rate offered will decrease
15. A common marketing strategy used by retailers to make products appear more attractive is to list a $100 item for
16. Which type of credit is usually used for cars, mortgages, and student loans?
A. Consumption credit
B. Installment credit
C. Secured credit cards
D. Service credit
Answer: Installment credit
17. Austin earns $18,000 per year. His earnings put him in the 15% tax rate. What is his tax owed?
18. A young investor would be best served by which kind of portfolio?
A. Diverse and aggressive
B. Diverse and conservative
C. Uniform and aggressive
D. Uniform and conservative
Answer: Diverse and aggressive
19. Which tax uses the same rate for all income levels?
20 Edward paid an annual premium of $2,000 in total coverage for his homeowner’s insurance, including $250,000 in damage coverage and $250,000 in liability coverage. Six years into his policy, a tree fell on Edward’s home and caused $50,000 worth of damage. Edward’s insurance company paid the claim.
Did the cost of the annual premiums outweigh the benefit of transferring the risk to the insurance company?
A. No, the cost of the annual premium for six years was more than the accident claims
B. Yes, the cost of the annual premium for six years was the same as the accident claims
C. Yes, the cost of the annual premium for six years was more than the accident claims
D. No, the cost of the annual premium for six years was less than the accident claims
Answer: No, the cost of the annual premium for six years was more than the accident claims
21. The purple section (C) for a nearly-retired investor would most likely represent
A. a money-market account
C. an IRA
Answer: a money-market account
22. Your congresswoman supports wealthy Americans paying a greater percentage of their income in taxes than those who are less wealthy. She would most likely support
A. the current federal income tax system
B. the Fair Tax proposal
C. a national flat tax
D. a more regressive income tax system
Answer: a more regressive income tax system
23.”Tax bracket” is a term associated with which type of taxation?
24. Chloe’s history of non-payment of monthly utility bills will probably cause a lender to
A. deny her a line of credit
B. extend more credit to her
C. improve her credit score
D. offer her a large loan
Answer: deny her a line of credit
25. Anna’s job pays $10 per hour, and she works 40 hours per week. Her tax rate is 20 percent. Assuming she works 50 weeks per year, the amount she will pay in taxes is
Answered Question If Activity Level Increases 10 Total Variable Costs Will