Personal Finance - Unit 6 (Part 1) Question Preview (ID: 42192)


Part 1. TEACHERS: click here for quick copy question ID numbers.

The financial counselor that Ariel consulted about her use of credit recommended that she keep her use of credit within safe boundaries. Ariel’s financial counselor most likely told her to:
a) keep the total amount of money she has borrowed, including her mortgage and her car loan, under 20% of her net income.
b) keep the total amount of money she has borrowed, including her mortgage and her car loan, under 40% of her net income.
c) keep the total amount of money she has borrowed, not including her house, under 40% of her net income.
d) keep the total amount of money she has borrowed, not including her house, under 20% of her net income.

The equity that one builds by making mortgage payments is:
a) purchasing a housing unit as rental property.
b) a home loan where the real estate is collateral.
c) the value of the home after the mortgage debt is subtracted.
d) the amount of money paid on the home at the time of purchase.

It is recommended that life insurance be purchased when the:
a) individual reaches the age of 50.
b) individual flies in an airplane.
c) individual has dependents.
d) individual gets their first job.

If a person drives an automobile, they are required by law to have automobile liability insurance. In which situation would this type of policy protect the policyholder?
a) James’ car was in the parking lot at work during a severe hailstorm where $2,000 damage was done to his vehicle.
b) He backed into a car in the parking lot and caused $2,000 in damages to his own car and $3,000 in damages to the other car.
c) James hit a deer while driving to work on a foggy morning, killing the deer and causing $2,000 in damage to his car.
d) An uninsured driver ran a stoplight, hit his car, and caused $2,000 in damages to his car and $3,000 in damage to his own

When may a person view his/her credit report for free?
a) When a person has sufficient financial resources
b) Once a year, from each of the three main credit reporting agencies
c) A person may not review his/her credit report
d) At any time and an unlimited number of times

Evan is writing a scholarship essay about the importance of responsible money management. He wants to explain the meaning of borrowing. Which would explain the importance of understanding the process of borrowing money?
a) Borrowing builds a strong credit history because it requires individuals to file a credit report.
b) When you are borrowing, you are spending future income.
c) Borrowing strongly affects the present self but has less impact on the future self.
d) Borrowing is an important part of a responsible financial plan.

What is the difference between property and liability insurance?
a) Property insurance pays for loss to the insured person whereas liability insurance pays for loss to other people.
b) The difference between property and liability insurance depends on whether automobile, homeowners, or renters insurance is pu
c) Property insurance pays for loss to other people whereas liability insurance pays for loss to the insured person.
d) The difference between property and liability insurance depends on the specific insurance policy purchased.

Patty recently moved into a new apartment with her friend Emma. Who is responsible for purchasing renter’s insurance?
a) Patty and Emma
b) The property manager
c) Patty and Emma’s parents
d) Renter’s insurance is not necessary

Which best describes the benefits of having insurance?
a) Insurance combined with emergency savings provides a sense of financial security and peace of mind.
b) It is required by law to purchase insurance so the benefits do not matter.
c) The policyholder may become better off financially if an accident occurs.
d) The policyholder no longer has to worry about paying for financial losses; all risk is transferred to insurance company.

What is not an example of a durable good?
a) Automobile
b) Food
c) Cell phone
d) Clothing

Maggie will need to pay $120 per month in order to purchase a health insurance policy. This monthly payment is known as the:
a) deductible.
b) moral hazard.
c) co‐insurance.
d) premium.

Which action will not make an individual vulnerable to identity theft?
a) Using a computer without updated spyware protection
b) Paying cash for a movie ticket
c) Responding to an email from one’s depository institution
d) Throwing mail in the garbage

To answer the essay test question about the meaning of open‐end credit, Ryan should include which statement?
a) Payments are equal and required to be paid on a regular basis.
b) Credit is extended in advance so the borrower does not have to apply for credit each time credit is desired.
c) A down payment must be made before receiving a loan.
d) Individuals are allowed to borrow an unlimited amount of money as long as they pay it back.

Why is investing in product research an important part of the planned buying process?
a) Research enhances satisfaction.
b) Research decreases satisfaction.
c) Research is only necessary for big purchases.
d) Research is too time consuming.

Jenny is 18 years old and has applied for credit for the first time. Her credit application was declined because she has no credit history. What should be recommended in order for Jenny to build a positive credit history?
a) Jenny should acquire several credit cards to establish that she can manage them responsibly.
b) She should reapply for the credit but include a letter of recommendation from someone who can vouch for her character.
c) Jenny should apply for a different type of credit. Since she was applying for a bank loan, she should apply for a credit card
d) Jenny should obtain a secured credit card

David earns $5,000 per month at his accounting job. He has a student loan payment of $120, a car loan of $300. Which statement is true?
a) David’s student loan payment is within the safe range but his car loan is not.
b) David’s credit payments are within the safe range for someone with his income.
c) The student loan payment must be subtracted from his car payment to see if his credit payments are within safe range.
d) David’s total credit payments are higher than the recommended amount for someone earning his income.

Brett borrowed money to purchase a vehicle without making a down payment and now he owes more on the vehicle than it is worth. This situation is referred to as:
a) leasing.
b) depreciation.
c) a hidden cost.
d) being upside down on the loan.

As part of Nicholas’ new job, his employer will provide health, life, and disability insurance. Access to this insurance is provided in addition to his regular salary. This is known as:
a) household production.
b) employee benefits.
c) coverage.
d) government programs.

Tiffany was recently involved in a vehicle accident. In order to get her car fixed, her insurance company is requiring her to pay the first $500 of the repair bill because:
a) she did not call her agent and report the accident quickly enough.
b) the cost of the repairs is higher than her policy covers.
c) her policy’s deductible is $500.
d) she will be reimbursed by the insurance company later.

When Bryce attempted to borrow money at the bank, he learned that his credit score is low. Which best describes what this is likely to mean for Bryce?
a) The interest rates on his loan will be lower, since his credit score is low.
b) The purchase price of the item he needs the loan for will be higher due to his low credit score.
c) The monthly loan payments will be lower due to his lower credit score.
d) The interest rates on his loan will be higher, since his credit score is low.

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