Exam Prep Ch5 Financial Services: Savings Plans and Payment

Personal Finance, 13e (Kapoor)

Chapter 5 Financial Services: Savings Plans and Payment Accounts

1) A "no-fee" checking account that requires a non-interest-earning minimum balance of $500 has an opportunity cost of lost interest earnings.

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

2) An asset management account provides a complete financial services program for a single fee.

Difficulty: 1 Easy

Topic: Asset management accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

3) Using a debit card to make purchases means you are spending your own funds.

Difficulty: 2 Medium

Topic: Debit, credit, and other cards

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

4) Demand deposits are another term for checking accounts.

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

5) A regular savings account usually offers a higher rate of return to savers than a certificate of deposit.

Difficulty: 2 Medium

Topic: Savings and money market accounts

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

6) A certificate of deposit is also known as a demand deposit.

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

7) The more frequently the compounding occurs, the less a person will earn on a savings account.

Difficulty: 1 Easy

Topic: Savings and money market accounts

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

8) A restrictive endorsement on a check to be deposited consists of the words "for deposit only."

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

9) When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

Difficulty: 3 Hard

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

10) The most frequent users of payday loans are workers who have become trapped by debts or poor financial decisions.

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

11) A trust has the purpose of:

A) solving a person's financial problems.

B) obtaining low-interest loans.

C) handling daily money management activities.

D) managing the assets of a person.

E) improving a person's budgeting skills.

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

12) The storage of funds for future use is a purpose of ________, which include savings accounts and certificates of deposit.

A) trust

B) borrowing

C) credit card

D) time deposits

E) cash checking

Difficulty: 1 Easy

Topic: Savings and money market accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

13) An all-purpose account offered by investment brokers that provides a complete financial services program is a(n):

A) NOW account.

B) asset management account.

C) EFT account.

D) mutual fund.

E) money market account.

Difficulty: 2 Medium

Topic: Asset management accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

14) Joan Martin expects interest rates to decline over the next few months. To achieve her long-term financial goals, she will trade off liquidity for a higher return by using a:

A) regular savings account.

B) interest-bearing checking account.

C) five-year certificate of deposit.

D) money market account.

E) money market fund.

Difficulty: 3 Hard

Topic: Certificates of deposit

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.; 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

15) A debit card transaction is processed by a retailer, with the amount of purchases deducted from your checking account by:

A) transferring money electronically.

B) obtaining a discount on consumer purchases.

C) making credit card purchases.

D) quickly obtaining a cash loan.

E) making investments with an investment company.

Difficulty: 2 Medium

Topic: Debit, credit, and other cards

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

16) When interest rates are rising, a person should select:

A) short-term savings instruments.

B) long-term savings instruments.

C) short-term loans.

D) variable-rate loans.

E) five-year certificates of deposit.

Difficulty: 3 Hard

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

17) Checking accounts are frequently referred to as ________ deposits.

A) common

B) time

C) current

D) loan

E) demand

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

18) Time deposits are another name for:

A) checking accounts.

B) loans and charge accounts.

C) savings accounts.

D) government securities.

E) profits earned by a financial institution.

Difficulty: 2 Medium

Topic: Savings and money market accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

19) Which of the following statements regarding debit and credit card liability is correct?

A) A credit card carries more risk of loss to the cardholder.

B) A debit card carries more risk of loss to the cardholder.

C) There is no cardholder liability if either type of card is lost.

D) The Federal Government insures losses on credit but not debit cards.

E) The Federal Government insures losses on debit but not credit cards.

Difficulty: 2 Medium

Topic: Debit, credit, and other cards

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

20) Which of the following is organized as a corporation and owned by stockholders?

A) Credit unions

B) Investment companies

C) Mutual savings banks

D) Savings and loan associations

E) Commercial banks

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

21) To avoid high fees for cash loans, a person should avoid borrowing from a:

A) credit union.

B) savings and loan association.

C) pawnshop.

D) commercial bank.

E) mutual savings bank.

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

22) The profits from a mutual savings bank go to the:

A) creditors.

B) loan applicants.

C) stockholders.

D) depositors.

E) community in which it operates.

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

23) In recent years, membership in credit unions has:

A) become more difficult due to higher taxes.

B) become more flexible.

C) been limited to government employees.

D) declined due to poor credit union management.

E) stayed at about the same level.

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

24) An advantage credit unions may have over other financial institutions is:

A) interest-bearing checking accounts.

B) lower loan rates.

C) flexible-rate loans.

D) credit cards.

E) variable-rate savings plans.

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

25) A common service offered by investment companies is:

A) interest-bearing checking accounts.

B) variable-rate loans.

C) credit card accounts.

D) savings bonds.

E) money market funds.

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

26) The business hours and ATM locations of a financial institution refer to the ________ feature when selecting a financial institution.

A) safety

B) cost

C) compounding

D) liquidity

E) convenience

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

27) A regular savings account at a credit union is called a ________ account.

A) share

B) NOW

C) club

D) certificate

E) money market

Difficulty: 2 Medium

Topic: Savings and money market accounts

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

28) A certificate of deposit usually has:

A) earnings based on fluctuating market interest rates.

B) no set time period.

C) a penalty for early withdrawal of funds.

D) a variable rate of return.

E) no minimum deposit amount.

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

29) A saver will usually receive higher earnings with which one of the following types of savings plans?

A) Certificate of deposit

B) Debit account

C) Regular savings account

D) Share account

E) Credit account

Difficulty: 1 Easy

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

30) Which one of the following savings plans is not covered by federal deposit insurance?

A) Account at a savings and loan

B) Regular checking account at a commercial bank

C) Money market account at a commercial bank

D) Money market fund with an investment company

E) Certificate of deposit at a commercial bank

Difficulty: 3 Hard

Topic: Savings and money market accounts

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

31) Which is a true of investing in Series EE U.S. Savings Bonds?

A) The interest earned is always exempt from federal income taxes.

B) Federal income tax on earnings may be deferred until the bonds are redeemed.

C) The interest rate on these bonds is adjusted twice a year for inflation.

D) Series EE Bonds must be purchased for set amounts over $100.

E) They can be redeemed any time without forfeiting interest.

Difficulty: 2 Medium

Topic: Bond types; U.S. Treasury securities

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

32) The rate of return on a savings account is also referred to as:

A) liquidity.

B) compounding.

C) yield.

D) opportunity cost.

E) asset turnover.

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

33) A $200 savings account that earns $8.50 interest in a year has a yield of ________ percent.

A) 2.35

B) 13.00

C)  8.50

D) 11.25

E) 4.25

Explanation: $8.50/$200 = 0.0425 = 4.25%.

Difficulty: 1 Easy

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

34) Savings compounded ________ would have the highest effective yield.

A) daily

B) annually

C) semiannually

D) monthly

E) weekly

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

35) The Truth in Savings law requires that financial institutions:

A) provide insurance for savings accounts.

B) send customers monthly bank statements.

C) disclose annual percentage yield on savings accounts.

D) offer adjustable rate savings accounts.

E) become members of the Federal Reserve System.

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

36) Comparison of earnings for different savings plans can best be accomplished using the:

A) discounted present value.

B) compounding frequencies.

C) net present value.

D) annual percentage yield.

E) after-tax rate of return.

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

37) The Federal Deposit Insurance Corporation insures savings plans at:

A) credit unions and mutual savings banks.

B) commercial banks and savings and loan associations.

C) investment companies and finance companies.

D) insurance companies and credit unions.

E) commercial banks and credit unions.

Difficulty: 2 Medium

Topic: Financial institutions; Savings plan features and considerations

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

38) Savers should do which of the following in times of falling interest rates?

A) Use long-term loans to take advantage of current low rates.

B) Use short-term loans to take advantage of lower rates when you refinance the loans.

C) Select short-term savings instruments to take advantage of higher rates when they mature.

D) Select short-term savings instruments to lock-in earnings at current high rates.

E) Select long-term savings instruments to lock-in earnings at current low rates.

Difficulty: 3 Hard

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

39) A limit on the amount you must keep on deposit in a checking account in order to earn interest or avoid a service charge is an example of a:

A) holding period.

B) restriction.

C) overdraft fee.

D) share draft.

E) certified deposit fee.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

40) The purpose of a "special endorsement" is to:

A) cash a check.

B) deposit a check.

C) transfer a check to another person.

D) withdraw cash from your account.

E) reduce the charge for service fees.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

41) A ________ endorsement would be used if a person is presenting a check in person to obtain cash.

A) restrictive

B) common

C) special

D) blank

E) documented

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

42) A ________ endorsement consists of the words "for deposit only" followed by your signature and account number and is especially useful when you are depositing checks.

A) blank

B) restrictive

C) common

D) special

E) documented

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

43) When preparing a bank reconciliation, outstanding checks should be:

A) added to the bank statement balance.

B) subtracted from the bank statement balance.

C) added to the checkbook balance.

D) subtracted from the checkbook balance.

E) ignored until they have cleared.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

44) In the bank reconciliation process, ATM withdrawals should be:

A) added to the bank statement balance.

B) subtracted from the bank statement balance.

C) added to the checkbook balance.

D) subtracted from the checkbook balance.

E) ignored.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

45) Based on the following information, what amount would be subtracted from the bank statement side of the bank reconciliation? ATM withdrawal $20; Outstanding checks $154; Interest $1.25; Deposit in transit $75.

A) $154.00

B) $20.00

C) $174.00

D) $155.25

E) $75.00

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

46) A personal check with guaranteed payment is called a:

A) traveler's check.

B) bank draft.

C) certified check.

D) money order.

E) cashier's check.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

47) Nick Martin writes a check to pay for day care for his son. What type of financial service is Nick using?

A) Payment service

B) Savings service

C) Credit service

D) Trust service

E) Investment service

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

48) Nate Rogers deposited $2,500 in a 3-year bank certificate of deposit which pays six percent interest. What type of financial service is Nate using?

A) Payment service

B) Savings service

C) Credit service

D) Trust service

E) Budget counseling

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

49) David Wynn gets an auto loan from his credit union for $11,500. David will make monthly payments over the next five years to repay the loan. What type of financial service is David using?

A) Payment service

B) Savings service

C) Credit service

D) Trust service

E) Asset management

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

50) Tim Gleason has set up a legal agreement that allows the First State Bank of Orlando to manage funds set aside for his daughter's college education. What type of financial service is Tim using?

A) Payment service

B) Savings service

C) Credit service

D) Trust service

E) Asset management

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

51) What is the rate that banks charge large corporations for loans called?

A) Prime rate

B) Discount rate

C) Mortgage rate

D) Treasury bond rate

E) Corporate bond rate

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

52) What is the rate that the Federal Reserve banks charge financial institutions for loans called?

A) Prime rate

B) Discount rate

C) Mortgage rate

D) Treasury bond rate

E) Corporate bond rate

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

53) What is the rate an individual will pay to borrow for the purchase of a new home called?

A) Prime rate

B) Discount rate

C) Mortgage rate

D) Treasury bond rate

E) Corporate bond rate

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

54) What is the term used to refer to the yield on a long-term (20-year) debt obligation issued by the U.S. government?

A) Prime rate

B) Discount rate

C) Mortgage rate

D) Treasury bond rate

E) Corporate bond rate

Difficulty: 2 Medium

Topic: U.S. Treasury securities; Bond coupons and yields

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

55) Which of the following is a user-owned, nonprofit, cooperative financial institution?

A) Life insurance company

B) Investment company

C) Mortgage company

D) Pawnshop

E) Credit union

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

56) Which of the following has the main purpose of issuing a policy that provides financial security for dependents?

A) Life insurance company

B) Commercial bank

C) Savings and loan association

D) Credit union

E) Mutual savings bank

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

57) Which of the following institutions is organized primarily to provide loans to purchase homes?

A) Life insurance company

B) Finance company

C) Mortgage company

D) Pawnshop

E) Investment company

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

58) Which of the following institutions makes loans based on the value of tangible possessions, such as jewelry and other valuables?

A) Life insurance company

B) Finance company

C) Mortgage company

D) Pawnshop

E) Investment company

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

59) Which of the following is a drawback of a money market fund from an investment company?

A) Penalty if money is withdrawn early

B) Lower rate of interest if redeemed within the first five years

C) Lacks liquidity

D) Not covered by FDIC insurance

E) Not usually allowed to write checks

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

60) Which CD attempts to attract savers with gifts or special rates?

A) Bump-up

B) Indexed

C) Callable

D) Global

E) Promotional

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

61) Which is a CD that offers a higher rate at set intervals, such as every six months you are invested?

A) Bump-up

B) Indexed

C) Callable

D) Global

E) Promotional

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

62) Which CD pays earnings based on the stock market?

A) Bump-up

B) Indexed

C) Callable

D) Global

E) Promotional

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

63) Which CD starts with a higher rate, has a long time to maturity, and can be closed by the bank after a set time period?

A) Bump-up

B) Indexed

C) Callable

D) Global

E) Promotional

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

64) Automatically buying a new CD upon maturity of the current CD is commonly referred to as:

A) creating a CD portfolio.

B) rolling over.

C) refinancing.

D) calling a CD.

E) bumping up.

Difficulty: 2 Medium

Topic: Certificates of deposit

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

65) Which law requires financial institutions to disclose fees, the interest rate, the annual percentage yield, and the other terms and conditions on savings account plans?

A) Truth in Savings Law

B) Truth in Lending Law

C) Expedited Funds Availability Act

D) Equal Employment Opportunity Act

E) Identity Theft Protection Act

Difficulty: 2 Medium

Topic: Financial institutions; Fees and charges

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

66) Which type of organization does not provide home mortgages?

A) Federal credit unions

B) Savings and loan associations

C) Employee credit unions

D) Mutual savings banks

E) Check-cashing outlets

Difficulty: 1 Easy

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

67) What type of account would you expect to provide the poorest yield?

A) Certificate of deposit earning 4% compounded semiannually

B) Savings account earning 4% compounded annually

C) Money market account earning 4% compounded monthly

D) Money market fund earning 4% compounded monthly

E) Savings account earning 4% compounded semiannually

Difficulty: 2 Medium

Topic: Savings and money market accounts; Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

68) What type of account would be considered the most liquid?

A) 3-year certificate of deposit

B) Regular savings account

C) Money market account

D) U.S. savings bond

E) Share of stock

Difficulty: 3 Hard

Topic: Liquidity

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

69) Interest rates charged by a pawnshop:

A) can range from 3% per month to over 100% a year.

B) are usually below 5% per year.

C) are normally lower than a bank.

D) can range from 100% per month to over 300% a year.

E) are insignificant.

Difficulty: 1 Easy

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

70) A person borrows $100 from a payday loan company, and pays $10 interest for two weeks. This would result in an annual interest rate of approximately ________ percent. Ignore compounding.

A) 110

B) 260

C) 10

D) 20

E) 5

Explanation: 52 weeks/2 = 26 × $10 = $260 annual interest; $260 / $100 = 2.60 = 260%.

Difficulty: 3 Hard

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

71) A savings account earns 3 percent. If the saver is in a 22 percent tax bracket, the after-tax savings rate of return would be ________ percent.

A) 22.00

B) 19.00

C) 3.00

D) 2.34

E) 0.66

Explanation: 1.0 − 0.22 = 0.78; 0.03 × 0.78 = 0.0234 = 2.34%.

Difficulty: 2 Medium

Topic: Taxation and Investments

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

72) The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $520,000 in a joint account with her husband, Ted. How much is not covered by FDIC insurance?

A) $20,000

B) $260,000

C) $520,000

D) $250,000

E) $0

Explanation: $520,000 / 2 = $260,000 − $250,000 (coverage) = $10,000 uncovered for each person.

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

73) Sue deposited $1,000 in an account paying 2 percent interest. The inflation rate is 5 percent. What is the buying power of the account after one year?

A) $1,050

B) $1,020

C) $1,000

D) $970

E) $950

Explanation: Loss of buying power equals 3% (2% − 5%); $1,000 × (1 − 0.03) = $970.

Difficulty: 3 Hard

Topic: Time value of money - interest rates and inflation

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

74) Your bank statement shows a balance of $695. Your checkbook register shows a balance of $562. You earned interest of $3 and had a service charge of $5. There are no outstanding deposits. What is the amount of outstanding checks?

A) $135

B) $160

C) $133

D) $6

E) $0

Explanation: $562 + $3 − $5 = $560 checkbook ending balance; $695 − x = $560 bank statement balance; therefore, x = outstanding checks of $135.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

75) Which of the following types of financial institutions are insured by federal government agencies?

A) Credit card companies and finance companies

B) Credit unions and investment firms

C) Mortgage companies, banks, and credit unions

D) Banks, credit unions, and savings and loans associations

E) Banks, credit card companies, and credit unions

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

76) Which of the following represent the use of credit?

A) Demand deposits

B) Home mortgage

C) ATM withdrawals

D) Time deposits

E) Debit card

Difficulty: 1 Easy

Topic: Sources of consumer credit

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

77) Which of the following is a way to reduce ATM fees?

A) Withdraw larger amounts rather than making several smaller withdrawals.

B) Withdraw the minimum amount each time you withdraw.

C) Withdraw from ATMs closest to you regardless of which bank owns the ATM.

D) Withdraw from ATMs that can be used by customers from many different banks.

E) Make a separate withdrawal for each purchase to maintain a record of your spending.

Difficulty: 2 Medium

Topic: Fees and charges

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

78) Series EE U.S. Savings Bonds can be purchased:

A) in increments of $25 only.

B) for any amount above $25.

C) for less than face value.

D) in increments of $50 only.

E) in whole dollar amounts only.

Difficulty: 2 Medium

Topic: Bond types; U.S. Treasury securities

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

79) Determine the rate of return on a savings account in which you deposited $200.00 and earned $5.00 in interest after one year.

A) 5.00%

B) 0.05%

C) 2.50%

D) 0.20%

E) 18.00%

Explanation: $5 / $200 = 0.025 = 2.50%.

Difficulty: 1 Easy

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

80) What is the term used to refer to the cost of borrowing for large U.S. corporations?

A) Prime rate

B) Discount rate

C) Corporate bond rate

D) Treasury bond rate

E) T-bill rate

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

81) An estimated ________ people in the U.S. are "unbanked," using a variety of alternative services rather than having a bank account.

A) 1 million

B) 6 million

C) 8 million

D) 10 million

E) 25 million

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

82) Which one of the following financial service providers should be avoided, because the interest rates charged on loans can be over 100% a year?

A) Pawnshop

B) Credit union

C) Savings and loan association

D) Mutual savings bank

E) Life insurance company

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

83) Series EE bonds continue to earn interest for how many years?

A) 10

B) 20

C) 25

D) 30

E) 35

Difficulty: 3 Hard

Topic: Bond types; U.S. Treasury securities

Learning Objective: 05-03 Assess the costs and benefits of various savings plans.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

84) A higher rate of return would result from a savings account that had which of the following compounding frequencies?

A) Daily

B) Weekly

C) Biweekly

D) Monthly

E) Yearly

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

85) An asset management account typically offers the following service:

A) online banking.

B) checking account.

C) a line of credit.

D) mobile apps.

E) All of these

Difficulty: 2 Medium

Topic: Asset management accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

86) This type of financial institution is known to frequently offer lower fees and lower loan rates:

A) Commercial bank

B) Savings and loans association

C) Mutual savings bank

D) Credit union

E) Investment companies

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-02 Compare the types of financial institutions.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

87) This type of savings plan is usually considered to be very liquid:

A) Bonds

B) Stocks

C) Certificate of deposit

D) Regular savings account

E) Investment account

Difficulty: 2 Medium

Topic: Liquidity

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Analyze

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

88) Demand deposits are another term for:

A) savings accounts.

B) savings bonds.

C) checking accounts.

D) certificates of deposit.

E) investment accounts.

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

89) Which one of the following is not true for PayNearMe transactions?

A) It is used by people without a credit or debit card.

B) It is used for online transactions.

C) It allows buyers to make a purchase and then pay cash at a local store.

D) The customer does not receive a receipt.

E) The seller is notified of the payment.

Difficulty: 2 Medium

Topic: Payment systems and methods; Electronic payments

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

90) Prepaid debit cards are used for:

A) Social Security benefits.

B) school lunches.

C) highway tolls.

D) telephone service.

E) All of these

Difficulty: 2 Medium

Topic: Debit, credit, and other cards

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

91) Which one of the following is true for an interest-earning account?

A) It usually requires a minimum balance.

B) It is an account that charges a fee for each check written.

C) It does not earn interest.

D) It does not require a minimum balance.

E) None of these are true.

Difficulty: 1 Easy

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

92) Which one of the following will help to avoid identity theft?

A) Put your Social Security number on checks.

B) Put your full name on checks.

C) Put your full account number on checks when paying a bill.

D) Use passwords involving both letters, special characters, and numbers.

E) Check your credit report once every three years.

Difficulty: 2 Medium

Topic: Payment systems and methods; Electronic payments

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

93) The Check Clearing for the 21st Century Act (known as Check 21) shortens the processing time for deposited checks by:

A) verifying the identity of the depositor.

B) establishing the substitute check.

C) verifying the identity of the financial institution.

D) eliminating paper checks.

E) making the funds immediately available upon deposit.

Difficulty: 2 Medium

Topic: Checking accounts

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

94) "Loading" of prepaid debit cards may occur by:

A) cash or check.

B) direct deposit.

C) online transfer.

D) smartphone check photo

E) All of these

Difficulty: 2 Medium

Topic: Debit, credit, and other cards

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

95) Which one of the following will help to avoid identity theft?

A) Download apps from any app store.

B) Avoid sharing personal data on social media.

C) Use public Wi-Fi networks.

D) Avoid anti-spam software.

E) Mail bill payments from home mailbox.

Difficulty: 2 Medium

Topic: Payment systems and methods; Electronic payments

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

96) One way to reduce payday loans is the use of Instant Financial's app that allows employees access to:

A) 100% of their pay on payday.

B) 50% of their pay each month they work.

C) 50% of their pay each week they work.

D) 50% of their pay each day they work.

E) 100% of their pay each day they work.

Difficulty: 2 Medium

Topic: Financial services

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

97) Which of the following is not a "High-Cost Financial Service Provider"?

A) Pawnshops

B) P2P lending intermediaries

C) Payday loan companies

D) Rent-to-own centers

E) Car title loan companies

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

98) What are the main types of deposit institutions and nondeposit institutions used by consumers?

Difficulty: 2 Medium

Topic: Financial institutions

Learning Objective: 05-01 Analyze factors that influence the selection and use of financial services.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

99) Evan Nolan is a college graduate who has just landed a great job. He feels it is time for him to start saving a portion of his earnings. What factors would you recommend he consider when evaluating and comparing different savings plans?

When evaluating a savings plan, consider the rate of return (yield), the APY, inflation, taxes, the interest compounding method, liquidity, safety, restrictions, and fees on the account.

Difficulty: 2 Medium

Topic: Savings plan features and considerations

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

100) Brad Kellogg maintains a monthly balance in his checking account of approximately $150, writes about 25 checks a month, and makes three deposits each month. How would Brad decide which one of the following checking accounts he should use?

Bank A: regular checking account with a monthly fee of $4.50 for an unlimited number of checks, no monthly balance requirement, and no interest earnings.

Bank B: interest-bearing checking account paying 4 percent interest on balances over $300 and a monthly service charge of $6 if the balance falls below $300.

Bank C: special checking account that charges 35 cents a check and 20 cents for each deposit, no interest earnings.

Bank D: minimum-balance account that requires a $200 minimum balance to avoid the $10 monthly fee, two percent interest paid if the balance remains above $400.

Bank A: seems most fitting since his total charges will not exceed $4.50 and he need not keep a minimum balance.

Bank B: not a good option unless Brad can maintain the minimum $300 balance.

Bank C: will cost him approximately $9.35 monthly, computed as (25 × $0.35) + (3 × $0.20).

Bank D: not a good option unless Brad can maintain the $200 minimum balance.

Difficulty: 2 Medium

Topic: Checking accounts; Fees and charges

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

101) You are planning to purchase a house in five years and intend to save a fixed amount of money each month for a down payment. What are three important considerations in selecting a savings plan?

When evaluating a savings plan, consider plans with a high rate of return (yield), the APY, inflation, taxes, the interest compounding method, liquidity, safety (FDIC coverage), restrictions (sufficient liquidity when needed for the down payment), and fees on the account.

Difficulty: 2 Medium

Topic: Savings plan features and considerations

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

102) Josh earned $84 on $1,200 invested in a high yield money market account. He is taxed at 22% of his earnings. What is the after-tax yield on his investment?

Difficulty: 2 Medium

Topic: Dollar and percentage yields and returns; Taxation and Investments

Learning Objective: 05-04 Identify the factors used to evaluate different savings plans.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

103) Describe mobile transfer apps and how they work.

Difficulty: 2 Medium

Topic: Payment systems and methods; Electronic payments

Learning Objective: 05-05 Evaluate the costs and benefits of different types of payment accounts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual