Personal Finance Pre-Test

Which describes the best way for people to understand trends in their spending?

• analyzing all expenditures

• saving 10% from each paycheck

• tracking automatic bill payments

• keeping receipts for all purchases over $10

Which payment method is most often used when purchasing a home?

• cash

• check

• mortgage

• credit card

Which feature of using a local bank or financial institution is an advantage for account holders?

• free ATM access

• short lobby hours

• not federally insured

• limited customer service options

What guarantees that sufficient funds for a payment exist in a bank account?

• deposit ticket

• check register

• certified check

• personal check

Tyler is unable to visit the bank during business hours to deposit his paycheck, so he must drop the check into the night depository.

Which type of endorsement should he use on the check?

• special, because he is using a special method of deposit

• blank, because the paycheck is made payable only to him

• restrictive, because he is not presenting the check in person

• none, because the bank will automatically deposit the check

Which statement best explains why Carmen would increase the deductibles on her auto insurance policy?

• to reduce her premium

• to increase her coverage

• to eliminate her liability risk

• to stop worrying about accidents

A car insurance agent reviews applications for risk factors before writing a policy.

Which factor benefits the applicant?

• being married

• being 79 years of age

• having a credit score of 550

• living in a densely populated area

Jasmine, a recent college graduate, is starting her first full-time job. She does not have much savings, but she wants to make several purchases, including a car to drive to work, a vacation to celebrate graduation, some new professional clothes for her job, and new furniture to upgrade from the furniture she used in college.

For which item would a credit card be most appropriate if Jasmine is unable to pay cash at the time of purchase?

• $12,000 for a car

• $4,000 for a vacation

• $2,000 for new furniture

• $1,000 for new professional clothes

Mr. and Mrs. Johanson, both age 55, are planning what to do with the $20,000 they have in savings. Their alternatives include investments such as a money market account, stocks, a mutual fund, a bond, or a combination of these.

In order to make a decision that will best suit their needs, which question is most important for them to ask themselves?

• At our age, what are our most important financial goals?

• Can our $20,000 be invested in a money market or mutual fund?

• Which stocks and bonds can we buy low now and sell high later for a profit?

• Which broker can advise us about the investments with the highest potential return?

Sixty-five-year-old Mr. Smith just retired as a mechanic. He and his wife have $10,000 in savings. In addition, each month, he expects to receive $1,000 from Social Security and $1,000 as a pension from his former employer. Mr. Smith took the money they had in savings and used it to buy stock in his former company.

Was his decision economically sound?

• Yes, because Mr. Smith trusts the company where he worked for so many years.

• No, because another company might outperform Mr. Smith’s company in the stock market.

• No, because without money in the savings account, the Smiths will be unprepared for an emergency.

• Yes, because people earn more money in the stock market over the long run than in savings accounts.