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WISE Practice Test- Flash cards
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. - correct answer ✔✔C: fulfill income guidelines. 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? - correct answer ✔✔A: Will I find a balance between financial rewards and personal satisfaction from work? 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. - correct answer ✔✔D: An ATM transaction 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. - correct answer ✔✔B: the total amount of money contributed plus investment earnings. 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. - correct answer ✔✔A: exempt from state and local taxes. Reason : The interest rate on US savings bonds is exempt from state and local taxes. 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. - correct answer ✔✔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.
B: Opportunity cost C: Minimum payment D: Inflation rate - correct answer ✔✔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. Interest earned on interest is known as: A: Simple interest B: True interest C: Compounded interest D: Variable interest - correct answer ✔✔C: Compounded interest Reason : Compound interest enables the saver to earn interest on the interest that was earned earlier. 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 - correct answer ✔✔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. 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. - correct answer ✔✔D: To cover the cost of replacement should the television get damaged or stolen. 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. - correct answer ✔✔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 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. - correct answer ✔✔A: US Treasury Department.
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 - correct answer ✔✔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 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) - correct answer ✔✔D: The Securities and Exchange Commission (SEC) 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 - correct answer ✔✔C: 80 shares of the stock and the price of each share is $40.
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 - correct answer ✔✔Correct Answer: B: Rising interest rates can result in lower business profits 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. - correct answer ✔✔Correct Answer A: there are state usury laws. Reason: Charging excessive interest rates on loans is known as "usury" and that practice is prohibited by law. 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 - correct answer ✔✔Correct Answer: B: Death benefit or face value
Question :Pat has a savings account and a car loan from a not-for-profit financial institution owned by its members. She is probably a member of what type of financial institution? A: Credit union B: Commercial bank C: Savings and loan association D: Investment club - correct answer ✔✔A. Credit Union Question : Scott just got an ATM card to use and must choose a PIN (Personal Identification Number). How should he select a PIN that will give him maximum protection against anyone else being able to find out what the PIN is? A: Use his birth date as his personal identification number B: Use a random selection of letters and numbers C: Use his first initial and last name as his personal identification number D: Use the name of a friend, family member, or pet - correct answer ✔✔Correct Answer : B: Use a random selection of letters and numbers Question :When money is not used and goods and services are exchanged for other goods and services, this system is called: A: Credit B: Money C: Barter D: Checks - correct answer ✔✔Correct Answer : C: Barter Question : Who benefits the most from inflation?
A: Long-term fixed rate borrowers B: Lenders C: Persons on fixed incomes D: The government - correct answer ✔✔Correct Answer A: Long-term fixed rate borrowers Question : Which of the following is the federal law that requires the cost of credit be disclosed to consumers in bold print on loan agreement? A: Fair Credit Reporting Act B: Equal Credit Opportunity Act C: Truth in Lending Act D: Fair Debt Collection Practices Act - correct answer ✔✔Correct Answer C: Truth in Lending Act Reason :The Truth in Lending Act requires that the finance charge and annual percentage rate be disclosed to the consumer in advance and specifies how the annual percentage rate must be calculated. Question :Troy has $50 a month transferred electronically from his checking account to his savings account. This is an example of: A: An installment payment B: A savings plan C: An ATM transaction D: A debit card transaction - correct answer ✔✔Correct Answer :B: A savings plan Question :Patty is selling her car through a newspaper advertisement. When she finds a buyer, she wants a form of payment which is guaranteed to be good. Which form of payment should she avoid? A: Cash B: Certified check
A: The true cost of credit that must be disclosed on a loan agreement B: Always expressed in dollars C: Required by the Securities Exchange Commission D: Required by the Comptroller of the Currency - correct answer ✔✔Correct Answer : A: The true cost of credit that must be disclosed on a loan agreement Question : Debbie owns a clothing store. She is concerned that a customer who is injured in the store will sue. Which type of insurance should Debbie purchase? A: Social insurance B: Life insurance C: Surety bonds D: Liability insurance - correct answer ✔✔Correct Answer : D: Liability insurance Question :Margaret wants to store a valuable coin collection and important papers. Generally, consumers should: A: Store valuables in a cabinet at home B: Rent a safe deposit box for their valuables C: Hand valuables over to their attorney D: Store valuables in locked drawer - correct answer ✔✔Correct Answer : B: Rent a safe deposit box for their valuables Reason : Bank customers can rent safe deposit boxes from the bank. They are metal boxes kept in the bank vault where customers often keep valuable papers, financial records, jewelry, and collections. Question : Before a person borrows money from a bank to make a major purchase, which question is considered most important for the person to answer? A: Will I ever have to borrow money again from this bank? B: Will this item every go on sale or will it increase in value? C: Can I just pay for the item on a credit card and pay off the amount due each month?
D: Do the benefits of making the purchase outweigh the costs of borrowing the money? - correct answer ✔✔Correct Answer : D: Do the benefits of making the purchase outweigh the costs of borrowing the money? Question : An example of closed-end credit is a A: major credit card. B: debit card. C: mortgage. D: cash card. - correct answer ✔✔Correct Answer : C: mortgage. Question : A consumer is having a dispute regarding an unfulfilled building contract. It is decided that the case will go to mediation, which means that A: a neutral third party will hear both sides and then try to resolve the conflict. B: the judge and jury will decide who is right in court. C: each party involved must agree ahead of time to accept the outcome of the case. D: the dispute will be handled in small claims court. - correct answer ✔✔A: a neutral third party will hear both sides and then try to resolve the conflict. Question : When securities are traded in the secondary market, who makes or loses money? A: Small businesses B: Creditors C: The SEC D: Investors - correct answer ✔✔Correct Answer : D: Investors
A: tax free. B: taxed based on the interest earned. C: taxed at lower rate than regular earnings. D: looked upon as Social Security income. - correct answer ✔✔Correct Answer A: tax free. Reason : A Roth IRA (Individual Retirement Account) does not have immediate benefits, but the investment grows on a tax-free basis and when withdrawals are made, after the age of 59's years of age, the withdrawals are exempt from federal and state taxes. Question : In which situation is a corporation most likely to call (buy back) a bond? A: Its stock prices has fallen from $52 to $20 a share. B: It issued bonds at a 7.5% interest rate, but its current corporate bonds are now being issued at a 5% rate. C: It is planning to issue more stock. D: It wants to diversify its public offerings. - correct answer ✔✔Correct Answer B: It issued bonds at a 7.5% interest rate, but its current corporate bonds are now being issued at a 5% rate. Question : A cash card generally: A: Can be used in the same way that someone uses a check to pay bills by mail B: Is purchased with a specific amount of money that can be used to pay for goods or services C: Is the same as a credit card which means you can use it to pay the minimum on a bill D: Is the same as a debit card and is always linked to a specific checking account - correct answer ✔✔B: Is purchased with a specific amount of money that can be used to pay for goods or services. Question : Which of the following statements is usually true about individuals who are financially literate? A: They have high debt and low savings B: They understand the basics of personal finance and money management C: They almost always choose stocks and bonds that increase in value
D: They achieve all of their financial goals - correct answer ✔✔B. They understand the basics of personal finance and money management Question : Nora needed to make a long-distance call from a pay phone and did not have the cash. She was able to make the call by using her: A: Credit card B: Identification card C: Cash card D: Traveler's check - correct answer ✔✔Correct Answer : C: Cash card Question : Which statement is FALSE about most ATM (Automated Teller Machine) cards? A: You must have an account with a financial institution to have an ATM card. B: You can always get cash anywhere in the world with no fee. C: You can generally obtain information concerning your account balance(s) at an ATM machine. D: You can generally get cash 24 hours a day, seven days a week. - correct answer ✔✔Correct Answer : B: You can always get cash anywhere in the world with no fee. Question : Jami lost her debit card. She did not report it missing for 3 months. If an unauthorized person used her debit card, her maximum liability is: A: $ B: $ C: Unlimited liability D: No liability because she notified the financial institution - correct answer ✔✔C. Unlimited
C: Rents D: Salaries, wages, and tips - correct answer ✔✔Correct Answer : D: Salaries, wages, and tips What does the Federal Reserve use to regulate the nation's money supply? - correct answer ✔✔Correct Answer : C: Monetary policy Question : The Truth in Lending Act of 1968 requires creditors to: A: State the monthly finance charge and the Annual Percentage Rate on the monthly statement B: Adhere to federal fixed interest rates and state the monthly finance charge C: Have a clean record of services to credit card holders D: Limit the amount of money charged for credit - correct answer ✔✔Correct Answer : A: State the monthly finance charge and Question : When Mary bought a DVD player, she charged it on her credit card. Her purchase created a(an): A: Reserve B: Debt C: Savings D: Investment - correct answer ✔✔Correct Answer : B: Debt Question :A government report indicated that the use of Pax's aspirin-free painkiller resulted in 100 cases of stomach poisoning. A large number of Pax's stockholders are likely to: A: Buy shares causing the price of the stock to increase B: Sell shares causing the price of the stock to decline C: Not react, causing the price of the stock to remain about the same D: Buy Pax corporate bonds - correct answer ✔✔Correct Answer : B: Sell shares causing the price of the stock to decline
Reason : The share price is likely to decrease because of the negative publicity and the costs associated with potential lawsuits and expenses the company will likely incur. Question : If a business wants to raise capital but not create debt, it can: A: Float a bond issue B: Issue common stock C: Borrow money from a commercial bank D: Borrow money from the government - correct answer ✔✔Correct Answer : B: Issue common stock Question : Gwen receives a bill from her auto insurance company, and she sends a check to the company to make sure her policy is not cancelled. The cost of her policy is called the: A: Co-insurance clause B: Premium C: Deductible D: Exclusion - correct answer ✔✔Correct Answer : B: Premium Reason : The periodic payment made by a policy owner to keep the policy in force is called the premium. People can choose to pay the premium once a year (annually), semi-annually, quarterly, or monthly. Paying a premium annually will cost the least. Question : When Jessie needs health care, she must first go to her primary care physician who coordinates her care and decides whether Jessie should see a specialist. Jessie pays $10 as the co-pay when she sees her primary care doctor. Jessie has which type of health insurance? A: Fee-for-service health plan B: Managed care health plan C: Medicaid health plan D: Comprehensive health plan - correct answer ✔✔Correct Answer : B: Managed care health plan What tax form will you probably fill out the first time you file taxes? - correct answer ✔✔1040EZ
