PERSONAL FINANCE Final Exam

1. Fill in the blanks with the correct responses. If you follow the 50-20-30 rule of budgeting, you'll be putting 50% of your monthly income toward _______________, 20% of your monthly income toward _____________, and 30% of your monthly income toward ______________.

• a. Needs, wants, savings
• b. Savings, needs, wants
• c. Needs, savings, wants
• d. Wants, needs, savings

2. What does the term "withholding" mean in reference to your paycheck?

• a. The amount of your paycheck that you are NOT being taxed on
• b. How much you are going to owe the government when you file your annual tax return
• c. How much you earn and includes salary, bonus and commissions
• d. How much is being taken out of your paycheck for things like taxes, employer sponsored health insurance, and retirement

3. Medicare and Social Security are mandatory spending categories funded by which type of taxes that are withheld from your paycheck?

• a. Local
• b. State
• c. Federal
• d. FICA

4. Why is diversification a recommended investment strategy?

• a. Diversifying your portfolio helps reduce risk
• b. Investing in a diversified portfolio guarantees that you won’t lose money with your investments
• c. If you tell your fund manager to use diversification, they’ll charge you lower fees
• d. If you diversify your portfolio, you will definitely earn a high return

5. How can someone make money from investing in a stock?

• a. They sell the stock for a lower price than what they bought it for
• b. They receive dividends or they sell the stock at a higher price than what they bought it for
• c. The stock loses value but the overall market experiences a positive return
• d. They sell the stock for the same price they bought it for

6. A fully amortized payment is split into which two components?

• a. The principal and the payment
• b. The principal and the interest
• c. The loan term and the interest
• d. The interest rate and the total interest

7. Experts recommend that you accumulate enough to cover 3-6 ________ of expenses in your emergency fund.

• a. Days
• b. Weeks
• c. Months
• d. Years

8. FDIC Insurance is ...

• a. Optional coverage consumers can purchase so that their bank deposits remain safe
• b. Insurance bank branches can buy to protect their business against fraud and scams
• c. Required if you want to do online or mobile banking.
• d. Protection for bank customers' deposits up to $250,000, guaranteeing their money is still available if the bank goes out of business.

9. Why are secured loans considered less risky to the lender?

• a. Lenders are allowed to conduct background checks for secured loans
• b. Lenders can take valuable collateral if you fail to repay your loan
• c. Lenders give secured loans all the time, so they're more comfortable doing them
• d. Lenders can check your credit score before giving a secured loan, which they can't do for an unsecured loan

10. Which of the statements below BEST describes the relationship between risk & return when considering an investment?

• a. Investors expect to earn a lower return when they invest in a high risk asset
• b. Investors expect to earn a higher return when they invest in a low risk asset
• c. Investors expect to earn a higher return when they invest in a high risk asset
• d. Investors expect to earn a zero return when investing in a low risk asset