1.     The first step in making consumer purchase decisions is to:

A)   Determine what you can afford

B)   Research your alternatives

C)   Determine what you need

D)   Negotiate the best price

1.     Which of the following is an example of a fixed cost of automobile ownership?

A)   Gasoline

B)   Maintenance

C)   Loan or lease payment

D)   Registration

1.     Which of the following is a variable operating expense of an automobile?

A)   Taxes

B)   Insurance premiums

C)   Finance charges

D)   Toll fees

1.     What is depreciation?

A)   The increase in the value of an asset due to wear and tear and other factors

B)   The proportion of an asset that will not decline in value for any reason

C)   The result of all expenses incurred while using an asset

D)   The decline in the value of an asset over time as a result of normal wear and tear and other factors

1.     The dealer’s invoice price is the price that the dealer

A)   uses when selling the car to a buyer

B)   pays to purchase a new vehicle from the manufacturer.

C)   uses as the beginning negotiating price with the buyer.

D)   puts on a car after purchasing it from the manufacturer.

1.     Sarah has saved $3,000 for a down payment on a car. She has determined that she can afford a monthly payment up to $350 per month for auto financing costs. Her credit union has quoted her a 6 percent rate on a 60-month car loan. What is the maximum amount Sarah can afford to finance? (Round to the nearest $100.)

A)   $21,100

B)   $18,100

C)   $14,900

D)   $17,900

1.     You are deciding between a car that gets 40 miles per gallon and one that gets 20 miles per gallon. If gasoline costs $4 per gallon and you typically drive 15,000 miles per year, how much will you save each year by choosing the more fuel-efficient vehicle?

A)   $750

B)   $1,500

C)   $2,250

D)   $3,000

1.     How long will it take to recoup the $1,800 price difference between a hybrid and a regular sedan assuming gas costs $3 per gallon, you drive 12,000 miles per year, and the hybrid gets 45 miles per gallon (MPG) on the highway and the regular sedan gets 30 MPG on the highway?

A)   4 years

B)   4.5 years

C)   6 years

D)   1 year

1.     The decline in value of an asset over time is known as

A)   Depreciation

B)   Minimization

C)   Amortization

D)   Discounting

1.     What is normally referred to as the "sticker price" on a new car is actually the

A)   manufacturer's suggested retail price

B)   dealer's invoice

C)   manufacturer's invoice

D)   dealer's retail price

1.     Jim owns a SUV which gets approximately 18 miles per gallon. If Jim drives 13,000 miles in a year and the average cost of a gallon of gasoline is $2.50, what is Jim's approximate annual gasoline cost?

A)   $1,805

B)   $289

C)   $2,137

D)   $9,360

1.     Which of the following statements about hybrid cars is true?

A)   They typically cost about $3,000 more than similarly equipped non-hybrid cars.

B)   The current models have a limited range.

C)   They currently qualify for a $5,000 tax credit.

d) All of the above are correct    

1.     Which of the following statements concerning extended warranties is true?

A)   They often cost more than expected costs of covered repairs.

B)   They can only be purchased from manufacturers.

C)   They generally are more comprehensive in coverage than original warranties.

D)   They are not transferable.

1.      A lessee is a person who

A)   owns property and charges someone money to use that property for a period of time.

B)   purchases property from another person, but sells it back after a period of time.

C)   sells property to another person with the intention of purchasing it back after a period of time.

D)   pays money for the privilege of using someone else’s property for a period of time.

1.     A closed-end lease is a lease in which the

A)   lessee takes the risk that the resale value of the car at the end of the term will be less than what was originally assumed.

B)   lessor takes the risk that the resale value of the car at the end of the term will be less than what was originally estimated.

C)   terms of the lease contract are nonnegotiable by the lessee.

D)   terms of the lease contract are nonnegotiable by the lessor or lessee.

1.     Gross capitalized cost in an automobile lease is equivalent to ___________ in a new car purchase.

A)   a down payment

B)   a negotiated purchase price

C)   a finance charge

D)   depreciation

1.     If a car is worth $29,000 today and is expected to be worth $15,000 in two years, then the finance charges on a two-year lease will be based on

A)   $44,000.

B)   $29,000.

C)   $15,000.

D)   $14,000.

1.     The person who pays money for the privilege of using someone else's vehicle for a set period of time is known as a:

A)   lessee.

B)   lessor.

C)   renter.

D)   party of the first part.

1.     A walk-away lease is a(an):

A)   closed-end lease.

B)   open-end lease.

C)   contingent lease.

D)   capitalized lease.

1.     If you must pay a fee at the end of the lease term if you choose not to purchase the vehicle, this is known as a:

A)   capitalized cost reduction.

B)   purchase fee.

C)   back-end fee.

D)   disposition fee.

1.     Which of the following is not one of the main sources of auto dealer profits?

A)   licensing fees

B)   profit on vehicles traded in for less than resale value

C)   manufacturer allowances

D)   service contracts

1.     State laws that protect consumers against defective vehicles are known as

A)   Lemon laws

B)   Orange laws

C)   Plum laws

D)   Apple laws

a. lemon laws

1.     Generally, a person should consider leasing a car under a closed-end lease contract rather than purchase a new car if

A)   she wants to lower her monthly payments

B)   she does not want to take the risk of residual value fluctuation.

C)   she does not drive a lot of miles annually.

D)   all of these are true.

1.     Ginny has researched several cars and she has narrowed down her choices to two cars. The car on the top of her list can be purchased with a bank loan or leased through the manufacturer's program. Ginny had a bad experience with her previous car, which gave her a lot of mechanical trouble and quickly lost its value at the time of trade-in. Ginny does not want to go through a similar experience again. She normally changes her cars every three to four years. Given her unpleasant experience, Ginny should consider

A)   leasing her next car under a closed-end lease.

B)   leasing her next car under an open-end lease.

C)   buying her next car.

D)   walking everywhere she needs to go.

1.     Michael is considering getting a closed-end lease on a car for 48 months. The car dealer quotes him a monthly payment of $349. If Michael were to buy the car with the same down payment, his monthly payment would be $465 a month. Michael's lease payment is lower because

A)   he is not paying for the residual value of the car at the end of four years.

B)   he is paying finance charges only on the amount of the car that will be depreciated over four years.

C)   car dealers make a lower profit on leased cars.

d. leased cars do not come with a manufacturer's warranty    

b

1.     Janelle is debating whether to buy or lease her favorite car. Under a closed-end lease, Janelle will

A)   not be required to compensate the lessor for fluctuations in the resale value at lease end.

B)   have to purchase the car at lease-end.

C)   be required to compensate the lessor for fluctuations in the resale value of the car at lease end.

D)   be able to walk away from her lease no matter the condition of the car.

1.     Mona is comparing financing rates from a car dealer and her local bank. The dealer is offering zero down and zero percent financing for 36 months, whereas her bank is offering her a 3.5% annual rate on a five year loan and requires a 10 percent down payment. If Mona accepts dealer financing,

A)   her payments may be higher than bank financing.

B)   her payments will always be less than bank financing.

C)   the dealer will make a lower profit.

D)   the dealer will require a higher down payment.

1.     Which of the following personal financial plan components should be completed before you begin an investing plan?

A)   Identify and prioritize financial goals

B)   Develop a budget

C)   Establish a liquid emergency fund

D)   All of the above

d all of the above

1.     Which of the following is not one of the steps in the investment planning process?

A)   Sign up for your employer’s FSA (flexible spending account)..

B)   Monitor your investment planning.

C)   Select appropriate investments.

d. Estimate how much can apply to your investment program    

1.     You want to have $1,000 accumulated in 3 years and you already have $250 in a savings account earning 6 percent.  If you don’t contribute any additional funds, how much will you be short in three years?

A)   $702

B)   $750

C)   $407

D)   $634

1.     You want to invest annual amounts over the next 15 years.  If your goal is to have $15, 000 at the end of that time and if you can earn 8 percent on your invested funds, how much do you need to invest annually to reach your goal?

A)   $552

B)   $1,093

C)   $1,752

D)   $4,728

1.     Which of the following statements concerning federal and municipal debt is true?

A)   Interest on municipal debt is tax exempt from federal income taxes and state income taxes if the investor is a resident of the state that issued the bond. Federal debt is exempt from state and local income taxes.

B)   Municipal debt is exempt only from federal income taxes. Interest on federal debt is tax exempt from all federal, state, and local income taxes

C)   Interest on federal and municipal debt is tax exempt from all federal, state, and local income taxes.

D)   Interest on municipal debt is tax exempt from both federal and state income taxes regardless of the state in which the investor lives. Federal debt is tax exempt only from federal income taxes.

1.     Which of the following is not one of the strategies for successful investing?

A)   Understand and take advantage of tax rules.

B)   Do your homework.

C)   Hire a full-service broker to make your investment decisions.

D)   Keep accurate records.

1.     If you purchase $100 of stock every month, you are practicing:

A)   dollar cost averaging.

B)   diversification.

C)   market timing.

D)   asset allocation.

a dollar cost averaging 

1.     Dollar cost averaging will result in

A)   a smaller return than a buy-and-hold strategy if prices are rising.

B)   a greater return than a buy-and-hold strategy if prices are rising.

C)   a higher average purchase price than the average price over the long term.

D)   a lower average purchase price than the average price over the long term.

1.     Municipal bonds are a(n) ___________ investment.

A)   tax deferred

B)   equity

C)   tax exempt

D)   guaranteed

1.     Mandy is subject to a marginal tax rate of 25%. She earned $400 in dividends from a taxable brokerage account last year. How much of the dividend income will Mandy pay in taxes?

A)   $300

B)   $100

C)   $10

D)   $0, because dividend income is tax exempt

1.     The following amounts were earned on Ernesto’s portfolio last year: $240 interest income, $100 dividend income, $500 short-term capital gain, and $1,000 long-term capital gain.  If Ernesto is in the 25% tax bracket, what is the total amount he will pay in taxes on his investment earnings?

A)   $276

B)   $376

C)   $360

D)   $460

1.     When making investment decisions within a portfolio, which of the following is NOT a factor to be considered?

A)   Institutional risk

B)   Risk tolerance

C)   Time horizon

D)   Tax laws and tax rates

1.     Which of the following is the best strategy for building sufficient wealth for retirement?

A)   Start saving early and take advantage of compound interest.

B)   Invest at the highest rate possible.

C)   Take very high risks.

D)   Work with a full-service stockbroker.

1.     Justin is comparing two investments, A and B. A pays its return in interest, whereas B is a growth investment whose return is in the form of price appreciation. Assume Justin sells investment B after one year. What is the difference between investments A and B on an after-tax return basis after one year if Justin is in the 33% tax bracket and both investments are expected to earn 10% on an initial investment of $50,000?

A)   Investment B is better by $900.

B)   Investment A is better by $900.

C)   There is no difference between the two.

D)   Investment B is better by $1,200.

1.     A person can invest by being

A)   either an owner or a lender.

B)   an owner but not a lender.

C)   a lender but not an owner.

D)   neither an owner nor a lender.

1.     Which of the following would be an example of a fixed-income investment?

A)   Commodities

B)   Bonds

C)   Stocks

D)   Mutual funds

1.     Your accountant has just told you that one of your investments had a capital gain over the year. This would mean that

A)   the value of the investment appreciated.

B)   the investment paid a large dividend.

C)   the investment made a large interest payment.

D)   you received a tax refund related to the investment.

1.     Debt investments pay lower returns compared to equities in general. This is because debt investments are ________ equities.

A)   less risky than

B)   more risky than

C)   as risky as

D)   a subgroup of

1.     Which of the following is a disadvantage of debt investments?

A)   They tend to be riskier than many other types of investments.

B)   They tend to have lower liquidity than many other types of investments.

C)   They tend to have lower rates of return than many other types of investments.

D)   All of the above are disadvantages of debt investments.

1.     Melvin owns ten 20-year corporate bonds, each with a face value of $1,000. If the bonds pay an interest rate of 7.5 percent, how much total interest will Melvin earn in one year on this investment?

A)   $75

B)   $100

C)   $375

D)   $750

1.     Which of the following would be considered a commodity?

A)   raw materials

B)   an option

C)   a government bond

D)   real estate

1.     Which of the following is the riskiest asset class?

A)   Treasury bonds

B)   Derivative securities

C)   Large company stocks

D)   Corporate bonds

1.     Which of the following is the least risky asset class?

A)   Treasury bonds

B)   Derivative securities

C)   Large company stocks

Corporate bonds    

1.     Which of the following would be considered a pooled investment?

A)   mutual funds

B)   preferred stock

C)   bonds

D)   common stock

1.     An example of a tax-deferred investment is a(an):

A)   IRA.

B)   U.S. Treasury bond.

C)   mutual fund.

D)   municipal bond.