W!SE Review

1. W!SE Review Make yourself $marter

2. Question : To qualify for a Federal Housing Administration (FHA) loan, a person must generally A: have at least a high school diploma. B: have one-quarter of the cost of the home for a down-payment. C: fulfill income guidelines. D: provide two individuals to co-sign the loan.

3. C: fulfill income guidelines. Reason : The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.

4. A high school student has begun to investigate the field of finance as a career choice. In deciding about the field, the student should focus on which question first? A: Will I find a balance between financial rewards and personal satisfaction from work? B: How many people do I know who work in this field? C: Once I train for this area, how long before I will be at the top of the field? D: Are there people in this field who are dissatisfied with their jobs?

5. A: Will I find a balance between financial rewards and personal satisfaction from work? Reason : It is important to investigate a career with the idea of not only getting a sense of earning potential, types of positions available and the training necessary to acquire these positions but what are the chances that the individual will enjoy working in this field.

6. A type of electronic funds transfer (EFT) is: A: A transaction made with a check B: A deposit made with a bank teller C: Not widely used by consumers D: An ATM transaction

7. D: An ATM transaction Reason : According to the Electronic Funds Transfer Act, Electronic funds transfers (EFTs) are any transfers of funds, other than a transaction originated by check, draft, or other paper instrument, initiated through electronic terminal, telephone, or computer, to authorize a financial institution to debit or credit an account. EFT's can be used to carry out many financial transactions, for example, to pay utility bills, make installment loan payments, and transfer funds from a savings account to a checking account or vice versa.

8. A company offers a defined-contribution pension plan which means that upon retirement the employee will receive A: one-half of the employee’s last year’s salary. B: the total amount of money contributed plus investment earnings. C: an amount of money based only on the length of time the employee worked for the company. D: a specified amount of money based totally on the profit earned by the company while the employee worked there.

9. B: the total amount of money contributed plus investment earnings. Reason : A defined-contribution plan has an individual account for each employee. The document that explains the plan indicates how much the employer will contribute and does not promise any particular benefit. On retirement, or when the individual becomes eligible for benefits, the benefit is the total amount in the participant’s account, including investment earnings on the funds in the account.

10. The interest earned on United States Series EE Savings Bonds is A: exempt from state and local taxes. B: paid in a lump sum at the time the face value on the bond is reached. C: equal to the money paid to purchase it.

11. A: exempt from state and local taxes. Reason : The interest rate on US savings bonds is exempt from state and local taxes.

12. Buying a treasury bill (T-bill) is best for investors who are looking for A: a place to invest between $100-$500. B: a secure, low risk investment. C: a higher yield on their investment than corporate bonds offer. D: an investment that matures in 10-30 years.

13. B: a secure, low risk investment. Reason : These bills are backed by the full faith and credit of the US government, therefore considered relatively risk free.

14. Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the A: investor will pay only $5000 for the shares. B: investor is buying 2000 shares. C: brokerage firm is lending the investor 50% of the money. D: brokerage firm will own 50% of the 1000 shares of stock that were purchased.

15. C: brokerage firm is lending the investor 50% of the money. Reason : Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.

16. To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and A: her total income. B: the rate of inflation. C: whether the account is FDIC protected. D: whether the bank offers overdraft protection.

17. B: the rate of inflation. Reason : The “time value of money?” is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person’s earning power. For example, it may not seem as though depositing $100 a month in a retirement account when someone is 23 makes a whole lot of sense; why not wait until age 40 when it will probably be a lot easier to deposit $250 or $300 a month in the account. However, because of the miracle of compounding interest, that $100 will be worth a lot more when the person is older than the money that is deposited at age 40. However, the other factor to consider in making deposits to a regular savings account is the rate of interest as compared to the rate of inflation. If the annual rate of inflation is 03% and the interest earned on money is 01%, the deposit is actually going to have less purchasing power at the end of the year than it did at the start.

18. The amount a lender charges to borrow money is called the: A: Principal B: Annual Percentage Rate (APR) C: Loan balance D: Finance charge

19. The amount a lender charges to borrow money is called the: Correct Answer : D: Finance charge Reason : The finance charge is the amount charged by the lender for any kind of credit. Finance charge = principal x stated interest rate x time (in years). The finance charge is used to calculate the annual percentage rate (APR).

20. The cost to use someone else's money for a period of time is called the: A: Interest rate expressed as a percentage B: Opportunity cost C: Minimum payment D: Inflation rate

21. A: Interest rate expressed as a percentage Reason : Consumers usually pay a price for the goods and services they buy. The cost to buy the right to use someone else's money for a period of time is called the interest rate.

22. Interest earned on interest is known as: A: Simple interest B: True interest C: Compounded interest D: Variable interest

23. C: Compounded interest Reason : Compound interest enables the saver to earn interest on the interest that was earned earlier.

24. Money received today is worth more than the same amount of money received sometime in the future is: A: The Rule of 72 B: The time value of money C: Not true D: Investing

25. B: The time value of money Reason : The time value of money is the concept that money received today is worth more than the same amount of money received in the future. If you receive $100 today, you can put it to work immediately through savings or investing immediately.

26. A person buys a flat screen, plasma, theater-like television. The person has homeowner’s insurance. Why would it be appropriate to add a personal property floater to that insurance? A: To reduce the premium on the homeowner’s insurance. B: To protect the person who owns the television from liability for damages. C: To show the insurance company a good faith investment has been made. D: To cover the cost of replacement should the television get damaged or stolen.

27. D: To cover the cost of replacement should the television get damaged or stolen. Reason : An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or “floater”to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the “floater” coverage.

28. For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive A: one-fifth of the $20,000 face value. B: $20,000 less the premiums paid. C: a calculated amount of money which includes the premiums paid as well as the interest on that money. D: a calculated amount of money that must be converted to a term life insurance policy.

29. C: a calculated amount of money which includes the premiums paid as well as the interest on that money. Reason : The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.

30. If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the A: US Treasury Department. B: Federal Deposit Insurance Corporation. (FDIC). C: State Banking Commission. D: Federal Reserve Board.

31. A: US Treasury Department. Reason : In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.

32. Employees prefer direct deposits because: A: There is a small fee for the service B: The danger of losing a paycheck is slightly reduced C: The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person D: Direct deposits earn a higher rate of interest

33. C: The money is generally deposited in their checking account sooner than it would be if they had to deposit it in person Reason : Instead of a negotiable check, the wage earner receives a pay stub which lists the amount that was directly deposited and the amounts withheld for taxes, health insurance, etc. Through direct deposit, earnings are transferred electronically into the recipient's bank account. Direct deposit is more convenient, safer, and usually faster than receiving and manually depositing a paycheck.

34. Which documents should be stored in a safe-deposit box? A: Checkbook statements. B: Copies of current and past budgets. C: Current paycheck stubs. D: Mortgage loan papers.

35. D: Mortgage loan papers. Reason : The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.

36. A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take? A: Notify a credit reporting agency in order to avoid a late fee. B: File for bankruptcy in order to maintain ones current credit score. C: Notify the credit card companies in order to negotiate a new payment plan. D: Contact the Internal Revenue Service in order to avoid paying income tax this year.

37. C: Notify the credit card companies in order to negotiate a new payment plan. Reason : When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.

38. Which statement best describes the relationship between a person's educational level and that person's potential earning power? A:Education has no effect on a person's potential earning power B: A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school C: Attaining a higher educational level affects the earning potential only for people over 40 years old D: Attaining a higher educational level decreases potential earning power

39. Which statement best describes the relationship between a person's educational level and that person's potential earning power? B: A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school Reason: There is a direct relationship between educational level and potential earning power. A person with a professional degree, for example, is likely to earn at least four times as much per year as a person who never completed high school.

40. Question : Before the Kiss Corporation can issue stocks or bonds, it must register the issue with: A: Its Board of Directors B: The Federal Reserve C: The World Bank D: The Securities and Exchange Commission (SEC)

41. D: The Securities and Exchange Commission (SEC) SEC

42. Question :An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split A: 20 shares of the stock and the price of each share is $80. B: 40 shares of the stock and the price of each share is $40. C: 80 shares of the stock and the price of each share is $40. D: 80 shares of the stock and the price of each share is $80.

43. C: 80 shares of the stock and the price of each share is $40. • The 2 – for -1 tells you what you need to know. A $100 stock, you would get 2 $50 shares instead of 1 $100 share. THE VALUE OF YOUR STOCK DOES NOT CHANGE WITH A SPLIT! When Apple had a 7 - for – 1 split, seven $100 shares were given for every one $700 a share Apple stock. It makes the stock more affordable and easily tradeable.

44. Question : Why might rising interest rates depress stock prices: A: Stock investors are lured away from interest-paying investments to stocks B: Rising interest rates can result in lower business profits C: Rising interest rates usually means the economy has less D: Rising interest rates can result in higher business profits

45. Question 24 : Why might rising interest rates depress stock prices: Correct Answer : B: Rising interest rates can result in lower business profits Reason : Rising interest rates might depress stock prices if investors move their money from stocks to the fixed rate instruments with higher interest rates. This movement reduces the demand for stocks, causing their prices to go down.

46. Question :A person is convinced that a lending institution is charging too much interest for a loan. This person should be aware that A: there are state usury laws. B: lending institutions all have their rates of interest set by the SEC. C: interest rates depend entirely on the borrower’s ability to pay back the loan. D: the Federal Trade Commission has laws against intimidating borrowers.

47. Q: A person is convinced that a lending institution is charging too much interest for a loan. This person should be aware that Correct Answer A: there are state usury laws. Reason:Chargingexcessive interest rates on loans is known as “usury” and that practice is prohibited by law.

48. Question :Mr. Akon's wife died. The money he received as the beneficiary on her life insurance is called the: A: Cash value B: Death benefit or face value C: Separate value D: Premium or annuity value

49. Question 29 : Mr. Akon's wife died. The money he received as the beneficiary on her life insurance is called the: Correct Answer : B: Death benefit or face value Reason : The face value, face amount, or death benefit is the amount of money that a life insurance policy will pay to the beneficiary on the death of the insured person. Any outstanding policy loans will reduce the death benefit by an amount equal to the unpaid loan balance. $250,000 policy = $250,000 death benefit or face value $1,000,000 policy = $1,000,000 death benefit or face value $50,000 policy = $50,000 death benefit or face value $125,000 policy = $125,000 death benefit or face value

50. Question :Which statement does NOT accurately describe a characteristic of cash value for whole life insurance? A: Cash value grows gradually over time B: If the policy is cancelled, you may be entitled to some or all of the accrued cash value C: Policy that accumulates cash value is less expensive than a policy that does not accumulate cash value D: When an insured person dies, the beneficiary will receive the death benefit but the insurance company keeps the cash value