Finance 321 – Fundamentals of Building Wealth Personal Finance – Multiple Choice

Finance 321 – Fundamentals of Building Wealth
Instructions: 1. This exam contains a total of 40 multiple choice questions. 2. This exam is an open-book, open-notes exam; students are not allowed to communicate with one another about the exam questions or their answers. 3. There is no set time limit for completion of the exam, but please note the due date of the exam on the course website. 4. Please submit your answers using the provided Final Exam Answer Sheet. Submit your Final Exam Answer Sheet through your assignments folder in WebTycho by the stated due date. a. Name the file as: Last Name_First Name_Final Exam Answer Sheet 5. In the Final Exam Answer Sheet, please type in the correct answer choice for each question. Please only write the letter choice. Do NOT copy and paste the text of the correct answer. 6. Each question is worth 2.5 points. The exam is worth 30% of your final grade.
Questions: 1. The balance sheet equation is expressed as follows: A) Total assets = Total Liabilities – Net Worth B) Net Worth = Total assets – Total Liabilities C) Total assets = Net Worth + Total Liabilities D) B and C only are correct E) A and B are correct 2. Below are several individuals and their liquidity ratios. If they were to lose their jobs today, which one would have the most time to pay their current debts until they find their next job? A) Joe has a liquidity ratio of 13% B) Eric has a liquidity ratio of 42% C) Bill has a liquidity ratio of -1 D) There is not enough information to answer this question
Page 2 of 10 3. What is the purpose of companies such as A.M.Best, Moody’s and Standard & Poor’s? A) They sell life insurance directly to consumers with an intermediary B) They provide a blanket, guaranteed amount of coverage to consumers in the event that a life insurance company becomes insolvent C) They evaluate and rate the financial stability of companies within the insurance industry for the benefit of consumers D)They sell low cost Term life insurance via the Internet 4. There is an excellent medical facility in your hometown and it is in the network approved by your health insurance plan. If you go to this clinic, their charges will be reduced and your coinsurance will be lower than if you went to an out-of-network provider. What type of insurance plan do you likely have? A) Preferred provider organization B) Health maintenance organization C) Universal life plan D) None of the above 5. A couple of years ago, you purchased 10 shares of stock in XYZ Co. at $50 per share. You did not purchase any additional shares of XYZ Co. Since that time, the company was found to be in violation of several environmental laws and has several major lawsuits outstanding. Which of the following statements is most correct? A) You cannot lose the value of your investment based on the actions of the company and its employees B) You could lose up to $500 of your investment in XYZ Co. C) You could lose more than your $500 investment in XYZ Co. D) By owning stock in the company, you have also technically violated the law E) None of the above 6. As compared to growth stocks, income stocks pay _________ dividends with ___________ growth in earnings. A) Relatively high; high B) The same; high C) Relatively high; lower D) No; exponential E) Relatively low; the same
Page 3 of 10 7. What would you expect from a company whose stock has a Beta that is significantly greater than 1? A) A high potential return B) A high degree of price volatility C) Returns that exactly mirror those of the broader market D) All but C are correct 8. Which of the following will negatively effect your return on an investment in a mutual fund? A) A back end load B) 12b-1 fees C) Management fees D)All of the above are correct 9. What is the term that describes the requirement that you work for a company for a specified period of time prior to gaining ownership to the contributions maybe by your employer to your retirement fund? A) Tenuring B) Certifying C) Vesting D) Validating E) Retiring 10. Your home and property have a market value of $200,000. Since you want to make sure that you meet the standard coninsurance provisions, you should purchase at least __________ of insurance: A) $160,000 B) $180,000 C) $200,000 D) $220,000 11. Financial obligations are classified as short term liabilities on the personal balance sheet if payment is due: A) Within 5 years B) Within 1 year C) Within 30 days D) Immediately upon sale E) At the discretion of the consumer
Page 4 of 10 12. QuickBoard Inc. is a computer chip manufacturer. Its stock is selling at $50 per share and
earnings are $2.00 per share. Its book value is currently $40 per share. What is the stock’s P/E ratio? A) 50.00 B) 42.00 C) 25.00 D) 27.00 E) None of the above For questions 13 and 14, please use the data below: Jim and Jane have listed the following items on their balance sheet. All items are shown at fair market value. Savings account: $1,200 Checking account: $800 Credit card balance: $1,000 Car loan balance: $12,000 Automobile: $8,000 Furniture: $2,000 Stocks and bonds: $10,000 13. What is Jim and Jane’s current net worth? A) $13,000 B) $22,000 C) $9,000 D) $35,000 E) $(13,000) 14. What is Jim and Jane’s solvency ratio? A) 41% B) 30% C) 63% D) 100% E) Not enough information available
Page 5 of 10 15. You expect to receive $300,000 gift in 4 years. If you assume a 20% annual rate of return, approximately how much is this gift worth today? A) $144,600 B) $622,200 C) $1,610,400 D) $201,950 E) $300,000 16. Approximately how much should you pay for any annuity that promises to pay you $250 every year for 10 years if you require a 5% return on the investment? A) $407 B) $250 C) $3,145 D) $1,930 E) $154 17. If an individual’s total liabilities are greater than their total assets, the individual is technically: A) Risk averse B) Insolvent C) Diversified D) Fully vested 18. All of the following are common costs associated with home ownership EXCEPT: A) Down payment B) Points C) Property tax D) Maintenance expenses E) Renter’s insurance 19.A monthly mortgage payment generally consists of: A) Interest B) Insurance C) Taxes D) Principal E) All of the above
Page 6 of 10 20. Luke purchased a new home with a mortgage that offers a fixed rate of interest for the first five years. After the fifth year, the mortgage rate adjusts annually based on interest rate movements in the market. This is an example of a: A) Fixed rate mortgage B) Interest-only mortgage C) Growing-equity mortgage D) Adjustable-rate mortgage (ARM) E) Reverse mortgage
21. Greg and Lisa would like to create a “college fund” for their newborn child. They plan to place $300 in a bank account at the end of the year for the next 20 years. There is nothing in the account today. If their account earns 6%, approximately how much will be on deposit at the end of the twentieth year? A) $11,034 B) $963 C) $12, 450 D) $13, 156 E) $9, 906 22. Karen is starting an investment plan. She hopes to retire in 30 years with $1,000,000 in her bank account at that time. How much does Karen need to invest at the end each year, until she retires, if she can earn an 8% rate of return? A) $192,613 B) $8,828 C) $46,030.93 D) $22,045 E) $500 23. A bond that is selling below its par value is trading at a _____________, while a bond that is selling above its par value is trading at a ________________. A) premium; discount B) coupon; yield to maturity C) discount; premium D) bargain; surcharge
Page 7 of 10 24. Tim invested in a growth equity mutual fund that paid him $1.20 in dividends last year. The fund also distributed $4.50 in capital gains. If the NAV of the mutual fund increased from
$26.75 to $32.50 over the year, what is Tim’s rate of return? A) 38.6% B) 23.4% C) 34.6% D) 219.2% E) 398.3% 25. Richard purchased a new home and assumed a $350,000 mortgage. If the stated rate of
interest on the mortgage is 6.0% and the mortgage matures in 30 years, what is Richard’s annual mortgage payment? A) $2,099 B) $25,183 C) $22,546 D) $1,879 26. You have only Part A liability coverage on your automobile. It was damaged in the parking lot by a hit and run driver. What coverage do you have for your damages? A) Their collision coverage B) Their liability coverage C) Your liability coverage D) You do not have coverage 27. When market interest rates go up, bond prices typically go ___________. A) up B) down C) remain the same D) to zero 28. Lisa is concerned that one of her investments might not be able to be converted to cash quickly and at a fair market price. This feature represents: A) event risk B) interest rate risk C) liquidity risk D) market risk E) purchasing power risk
Page 8 of 10 29. John holds 100 shares of ABC Co. stock. The stock is currently trading at $25 per share, but John is worried about the future performance of the company. John requests that his broker sell the position in ABC Co. as quickly as possible and at the best price possible. This is an example of a: A) limit order B) market order C) stop-loss order D) stop-loss limit order
30. Sally’s employer stipulates that after 15 years of service, the company will pay her a fixed amount of money annually in retirement. The amount of money paid to Sally is based primarily on the number of years that she worked and her final 4-year average annual salary. This is an example of a: A) salary reduction plan B) defined contribution plan C) defined benefit plan D) individual retirement arrangement 31. All of the following are requirements of a valid will EXCEPT: A) freedom of choice B) mental capacity C) proper execution D) codicil provision 32. While you are still working, you should be managing your finances with a focus on retirement. Which of the following is not a goal of retirement planning? A) maintaining your standard of living B) effectively passing wealth on to heirs C) acquisition of a vacation home D) travel 33. An asset management account provides a: A) checking account B) money market deposit account C) brokerage account D) line of credit E) all of the above
Page 9 of 10 34. Which of the following does not represent a line of credit? A) retail credit card B) debit card C) overdraft protection D) unsecured personal credit 35. The right of _____________ gives the insurer the right to recover its costs from the at-fault party after the company has paid a claim to its insured. A) subrogation B) indemnity C) insurance interest D) coinsurance E) none of the above 36. The income and expenditures statement examines your financial A) level B) performance C) position D) assets 37. A legal claim that allows lenders to liquidate loan collateral is a: A) A reverse mortgage B) security claim C) lien D) none of the above 38. The federal income tax system is: A) integrative B) regressive C) progressive D) flat rate
Page 10 of 10 39. Roger has been offered an opportunity to buy shares of a diversified collection of securities. Roger will be investing in: A) bonds B) common stock C) stock options D) mutual funds 40. When you buy 300 shares of a company, you have purchased: A) an odd lot B) a round lot C) a combined lot D) a reverse lot E) none of the above