PERSONAL FINANCE CANADIAN 6TH EDITION BY KAPOOR TEST BANK

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PERSONAL FINANCE CANADIAN 6TH EDITION BY KAPOOR TEST BANK

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WITH ANSWERS
PERSONAL FINANCE CANADIAN 6TH EDITION BY KAPOOR TEST BANK

02
Student: _______________________________________________________________________________________
1. Opportunity cost refers to:
A. current spending habits.
B. changing economic conditions that affect a persons cost of living.
C. storage facilities to make financial documents easily available.
D. tradeoffs
associated with financial decisions.
E. avoiding the use of consumer credit.
2. A home file should be used for:
A. storing all financial documents and records.
B. obsolete financial documents.
C. documents that require maximum security.
D. financial records for current needs.
E. records that are difficult to replace.
3. Which of the following financial documents would most likely be stored in a safety deposit box?
A. FT4
slips
B. Personal financial statements
C. Warranties
D. Stock certificates
E. Checking account statements
4. An example of a personal and employment document is a:
A. Social Insurance card.
B. passbook.
C. budget
D. property tax bill.
E. lease.
5. A brokerage statement is an example of a(n) ____________ record.
A. investment
B. insurance
C. estate planning
D. tax
E. consumer purchase
6. Warranties are commonly associated with ____________ purchases.
A. investment
B. insurance
C. consumer
D. financial services
E. credit
7. Which of the following are considered to be personal financial statements?
A. Budget and credit card statements
B. Balance sheet and cash flow statement
C. Checkbook and budget
D. Tax returns
E. Bank statement and savings passbook
8. A personal balance sheet presents
A. items owned and amounts owed.
B. income and expenses for a period of time.
C. earnings on savings and investments.
D. amounts budgeted for spending
E. family financial goals.
9. The current financial position of an individual or family is best presented with the use of a(n)
A. budget.
B. cash flow statement.
C. balance sheet.
D. bank statement.
E. time value of money report.
10. A family with $70,000 in assets and $22,000 of liabilities would have a net worth of:
A. $70,000.
B. $22,000.
C. $48,000
D. $92,000.
E. $41,000.
11. Items with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.
12. Liquid assets refer to
A. amounts that must be paid soon.
B. amounts on which taxes must be paid
C. total income available to a family for spending.
D. the value of investments.
E. items that are easily converted to cash.
13. An individual retirement account is an example of a(n) ____________ asset.
A. liquid
B. common
C. investment
D. household
E. budgeted
14. Liabilities are amounts representing
A. taxable income
B. items of value.
C. living expenses.
D. debts
E. current assets.
15. Current liabilities differ from longterm
liabilities based on
A. the amount owed.
B. the financial situation of the creditor.
C. the interest rate charged.
D. when the debt is due.
E. current economic conditions.
16. Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance
sheet would help him decide what amounts are due in the near future?
A. the budget variance
B. investment assets
C. longterm
liabilities
D. current liabilities
E. current assets
17. Which of the following would be considered a longterm
liability?
A. A charge account payment
B. A mortgage
C. An installment loan
D. An amount due for taxes
E. The amount due on a credit card
18. A persons net worth is computed by
A. subtracting total liabilities from total assets.
B. deducting current living expenses from total assets.
C. adding assets and liabilities
D. subtracting assets from current liabilities.
E. adding liabilities and budgeted expenses.
19. Which of the following situations is a person who could be insolvent?
A. Assets $56,000 annual expenses $60,000
B. Assets $68,000 net worth $22,000
C. Liabilities $45,000 net worth $6,000
D. Assets $60,000 liabilities $61,000
E. Annual cash inflows $48,000 liabilities $50,000
20. A persons net worth would increase as a result of
A. decreased value on investments
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. reduced amounts owed to others.
21. A cash flow statement reports a persons or a familys
A. net worth.
B. current income and payments.
C. plan for spending.
D. value of investments.
E. balance of savings.
22. Which of the following presents a summary of income and outflows for a period of time?
A. A cash flow statement
B. A bank statement
C. An investment summary
D. balance sheet
E. An asset report
23. Total earnings of a person less deductions for taxes and other items is called
A. budgeted income.
B. gross pay.
C. net worth.
D. total revenue.
E. takehome
pay.
24. A common deduction from a persons paycheck is for
A. interest.
B. unemployment
C. rent.
D. taxes.
E. current liabilities.
25. This year Taylors gross income is $70,000. Her deductions for federal and provincial taxes, CPP
contributions and employment insurance are $13,500. She also had aftertax
investment earnings of
$6,000. Taylors takehome
pay is:
A. $70,000
B. $76,000
C. $77,500
D. $56,500
E. $62,000
26. Payments that do not vary from month to month are ____________ expenses.
A. fixed
B. current
C. variable
D. luxury
E. budgeted
27. Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate?
A. Get a parttime
job
B. Eat more meals at home than in restaurants
C. Find a place to live with a lower rent
D. Save more money for the future
E. Buy on credit for items that might cost more later
28. Which of the following payments would be considered a variable expense?
A. Rent
B. An installment loan payment
C. A mortgage payment
D. A monthly parking fee
E. A telephone bill
29. A decrease in net worth would be the result of:
A. income greater than expenses for a month.
B. expenses greater than income for a month.
C. assets greater than expenses.
D. increased earnings on the job.
E. income and expenses equal for a month.
30. During the last month, Mary Jane had expenses of $5,000 and an increase in net worth of $700. This
means Mary Janes income for the month was:
A. $700.
B. $4,300.
C. $5,000.
D. $5,700.
E. $5,200.
31. During the past month, Jennifer Sinnet had income of $3,500 and a decrease in net worth of $200.
This means Jennifers payments for the month were:
A. $3,700.
B. $3,300.
C. $2,800.
D. $1,000.
E. $200.
32. Improvements in a persons financial position are the result of:
A. increased liabilities.
B. reductions in earnings.
C. increased savings and investments.
D. increased purchases on credit.
E. lower amounts deposited in savings.
33. To determine a persons solvency, which financial document should be consulted?
A. Cash flow statement
B. Budget
C. Debt consolidation statement
D. Personal balance sheet
E. Credit report
34. A major expenditure for most families is
A. insurance.
B. contributions.
C. clothing.
D. utilities.
E. transportation.
35. The payment items that should be budgeted first are
A. variable expenses.
B. investment funds.
C. fixed expenses.
D. unplanned living expenses.
E. entertainment expenses.
36. Changes in the cost of living are
A. different in various geographic areas.
B. the same for different locations.
C. constant from month to month.
D. the same for all goods and services.
E. not a factor when preparing a budget.
37. The difference between the amount budgeted and the actual amount is called a
A. financial plan.
B. current liability.
C. change in net worth.
D. budget variance.
E. variable living expense.
38. If a family planned to spend $370 for food during March but only spent $348, this difference would
be referred to as a
A. surplus.
B. deficit.
C. fixed living expense.
D. budget reduction.
E. contribution to net worth.
39. A budget deficit would result when a persons or familys
A. actual expenses are less than planned expenses.
B. actual expenses are greater than planned expenses.
C. actual expenses equal planned expenses.
D. assets exceed liabilities.
E. net worth decreases.
40. The Crown family has a difficult time staying on a budget. In an effort to actually see what funds are
available for various expenses, a ____________ budget would be most appropriate.
A. written
B. computerized
C. physical
D. deficit
E. mental
41. When it comes to savings, most Canadians
A. have an adequate emergency fund.
B. use several different savings techniques.
C. find saving difficult.
D. keep substantial amounts in a regular savings account.
E. reduce the amount they save during their working life.
42. ____________ is the recommended budgeting strategy for dual income households where the two
partners have trust and shared values and goals?
A. Pooled income
B. 50/50
C. Proportionate contributions
D. Sharing the bills
E. Sharing goals
43. Jennifer, a recent Concordia graduate, is struggling to pay off her $15,000 student loan. She has
found employment with an international firm. Jennifer manages to balance her cash flows, but has
only $500 in a chequing account to pay incoming bills. Her monthly aftertax
cash inflows and
expenses equal $2,000. What should be Jennifers number one financial goal?
A. Pay off her student loan immediately.
B. Start an emergency fund.
C. Contribute to an RRSP.
D. Purchase life insurance coverage.
E. Accumulate funds for a down payment on a home
44. Janice spends a total of $1,500 a month to cover all living expenses. Which of the following would
represent the appropriate emergency fund?
A. $1,500 to $4,500
B. $3,000 to $7,500
C. $4,500 to $9,000
D. $5,000 to $10,000
E. $6,000 to $12,000
45. A fiveyear
nonredeemable
GIC is classified as a(n) _______________ asset on the personal balance
sheet.
A. liquid
B. investment
C. personal
D. business
E. marketable
46. Janice spends a total of $1,500 a month to cover all living expenses. Which of the following would
represent the minimum acceptable emergency fund?
A. Zero
B. $1,500
C. $4,500
D. $9,000
E. $3,000
47. Given the following, what is the individuals net worth?
A. $11,810
B. $11,410
C. $10,910
D. $6,810
E. $6,500
48. To calculate your net worth, you need to know your:
A. annual income
B. assets and liabilities
C. monthly car loan cost
D. income after tax
E. pension contributions
49. The main purposes of personal financial statements are to:
A. summarize the value of the items that you own and the amounts that you owe
B. track your cash inflows by source and your outflows by type
C. identify strengths and weaknesses in your current financial situation and provide data for use in filing
your income tax return or applying for credit
D. measure progress toward your financial goals
E. all of the above
50. Which of the following financial documents would most likely be stored in a safety deposit box?
A. Tax records
B. Personal financial statements
C. Warranties
D. Mortgage papers
E. Checking account statements
51. Which of the following financial documents would most likely be stored in a safety deposit box?
A. Company pension information
B. Personal financial statements
C. Warranties
D. Birth, marriage and death certificates
E. Checking account statements
52. Which of the following financial documents would most likely be stored in a home file?
A. Serial numbers of expensive items
B. Personal financial statements
C. Mortgage papers, title deed
D. Birth, marriage and death certificates
E. Guaranteed investment securities
53. A family with $80,000 in assets and $22,000 of liabilities would have a net worth of:
A. $80,000.
B. $22,000.
C. $58,000
D. $102,000.
E. $36,000.
54. A person with $80,000 in assets and $122,000 of liabilities would have a net worth of:
A. $80,000.
B. $122,000.
C. $202,000
D. $42,000.
E. $
42,000.
55. Which of the following would be considered a longterm
liability?
A. A charge account payment
B. A 36 month car loan
C. An installment loan
D. An amount due for taxes
E. The amount due on a credit card
56. Which of the following situations is a person who could be insolvent?
A. Assets $50,000 annual expenses $60,000
B. Assets $68,000 net worth $22,000
C. Liabilities $45,000 net worth $6,000
D. Assets $5,000 liabilities $6,000
E. Annual cash inflows $48,000 liabilities $50,000
57. A persons net worth would increase as a result of
A. increased value on investments
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. increased amounts owed to others.
58. This year Phils gross income is $80,000. His deductions for federal and provincial taxes, CPP
contributions and employment insurance are $16,000. He also had aftertax
investment earnings of
$6,000. Taylors takehome
pay is:
A. $80,000
B. $86,000
C. $70,000
D. $64,000
E. $58,000
59. Payments that do not vary from month to month are ____________ expenses.
A. variable
B. current
C. fixed
D. discretionary
E. budgeted
60. During the last month, Astrid had expenses of $6,000 and an increase in net worth of $100. This
means Astrids income for the month was:
A. $6,000
B. $5,900
C. $6,100
D. $5,700
E. $5,200
61. The main purpose of a budget is to help you
A. Live within your income and spend your money wisely
B. Prioritize and attain your financial goals
C. Prepare for financial emergencies
D. Develop wise financial management habits
E. All of the above
62. Anne spends a total of $2,000 a month to cover all living expenses. Which of the following would
represent the appropriate emergency fund?
A. $2,000 to $4,000
B. $3,000 to $7,000
C. $6,000 to $12,000
D. $1,000 to $2,000
E. $6,000
63. Common reasons for saving money include:
A. To set aside money for irregular and unexpected expenses
B. To pay for the replacement of expensive items, such as appliances or an automobile, or to have
money for a down payment on a house
C. To buy special items, such as home video or recreational equipment, or to pay for a vacation
D. To provide for longterm
expenses, such as the education of children or retirement.
E. All of the above
64. Liabilities are cash and items of value that can be easily converted to cash.
True False
65. When one money management decision is selected, something else must be given up.
True False
66. Opportunity costs are not only associated with money management decisions involving longterm
financial security.
True False
67. Financial records that may need to be referred to on a regular basis should not be kept in a safety
deposit box.
True False
68. A budget is a record of how a person or family has spent their money.
True False
69. Personal records current budget, cheque book(s) and bank statements.
True False
70. Most income tax documents and records should be kept in a safety deposit box.
True False
71. Insolvency is the inability to pay debts by the due date, because liabilities exceed the value of assets.
True False
72. A persons net worth is the difference between the value of the items owned and the amounts owed to
others.
True False
73. Furniture, jewelry, and an automobile are examples of liquid assets.
True False
74. Current liabilities are amounts that must be paid within a short period of time, usually less than a
year.
True False
75. Insolvency is a result of having an unequal balance of tangible and intangible goods.
True False
76. A personal cash flow statement presents income and outflows of cash for a given time period, such as
a month.
True False
77. Takehome
pay is a persons earnings after deductions for taxes and other items.
True False
78. Medical expenses, clothing, and telephone are examples of fixed expenses.
True False
79. If expenses for a month are greater than income, an increase in net worth will result.
True False
80. A persons lifestyle is a reflection of his or her values, goals, career, and family situation.
True False
81. A personal cash flow statement can serve as the basis for the budget categories used by an individual
or family.
True False
82. Definite financial obligations are referred to as variable expenses.
True False
83. If budgeted spending is less than actual spending, this is referred to as a deficit.
True False
84. Most Canadians have an adequate savings for emergencies.
True False
85. Under a direct deposit system the bank will make an automatic debit from you bank account and have
the funds transferred periodically to an investment account.
True False
86. Sharing the bills is a budgeting strategy for twoincome
households where each partner contributes
an equal amount into the pool.
True False
87. Evidence exists that a persons choice of employment influences his or her lifestyle.
True False
88. Leveraged investing in common shares is expected to increase your net worth.
True False
89. Opportunity costs are only associated with money management decisions involving longterm
financial security.
True False
90. A cash flow statement is a record of how a person or family has earned and spent their money.
True False
91. What types of financial records and documents should be kept in a safety deposit box?
92. What are the main components of a personal balance sheet and a cash flow statement? What is the
main purpose of each of these personal financial statements?
93. Describe the four budgeting strategies suggested for dual income households.
94. List and briefly explain the 4 characteristics of a successful budget.
95. What are the 7 steps in creating and implementing a budget?
02 KEY
1. (p. 50) Opportunity cost refers to:
A. current spending habits.
B. changing economic conditions that affect a persons cost of living.
C. storage facilities to make financial documents easily available.
D. tradeoffs
associated with financial decisions.
E. avoiding the use of consumer credit.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #1
Learning Objective: 1
2. (p. 51) A home file should be used for:
A. storing all financial documents and records.
B. obsolete financial documents.
C. documents that require maximum security.
D. financial records for current needs.
E. records that are difficult to replace.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #2
Learning Objective: 2
3. (p. 52) Which of the following financial documents would most likely be stored in a safety deposit box?
A. FT4
slips
B. Personal financial statements
C. Warranties
D. Stock certificates
E. Checking account statements
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #3
Learning Objective: 2
4. (p. 52) An example of a personal and employment document is a:
A. Social Insurance card.
B. passbook.
C. budget
D. property tax bill.
E. lease.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #4
Learning Objective: 2
5. (p. 52) A brokerage statement is an example of a(n) ____________ record.
A. investment
B. insurance
C. estate planning
D. tax
E. consumer purchase
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #5
Learning Objective: 2
6. (p. 52) Warranties are commonly associated with ____________ purchases.
A. investment
B. insurance
C. consumer
D. financial services
E. credit
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #6
Learning Objective: 2
7. (p. 52) Which of the following are considered to be personal financial statements?
A. Budget and credit card statements
B. Balance sheet and cash flow statement
C. Checkbook and budget
D. Tax returns
E. Bank statement and savings passbook
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #7
Learning Objective: 2
8. (p. 53) A personal balance sheet presents
A. items owned and amounts owed.
B. income and expenses for a period of time.
C. earnings on savings and investments.
D. amounts budgeted for spending
E. family financial goals.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #8
Learning Objective: 3
9. (p. 53) The current financial position of an individual or family is best presented with the use of a(n)
A. budget.
B. cash flow statement.
C. balance sheet.
D. bank statement.
E. time value of money report.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #9
Learning Objective: 3
10. (p. 55) A family with $70,000 in assets and $22,000 of liabilities would have a net worth of:
A. $70,000.
B. $22,000.
C. $48,000
D. $92,000.
E. $41,000.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #10
Learning Objective: 3
11. (p. 53) Items with a monetary worth are referred to as:
A. liabilities.
B. variable expenses.
C. net worth.
D. income.
E. assets.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #11
Learning Objective: 3
12. (p. 53) Liquid assets refer to
A. amounts that must be paid soon.
B. amounts on which taxes must be paid
C. total income available to a family for spending.
D. the value of investments.
E. items that are easily converted to cash.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #12
Learning Objective: 3
13. (p. 54) An individual retirement account is an example of a(n) ____________ asset.
A. liquid
B. common
C. investment
D. household
E. budgeted
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #13
Learning Objective: 3
14. (p. 54) Liabilities are amounts representing
A. taxable income
B. items of value.
C. living expenses.
D. debts
E. current assets.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #14
Learning Objective: 3
15. (p. 54) Current liabilities differ from longterm
liabilities based on
A. the amount owed.
B. the financial situation of the creditor.
C. the interest rate charged.
D. when the debt is due.
E. current economic conditions.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #15
Learning Objective: 3
16. (p. 54) Ben Chase needs to pay off some of his debts over the next few months. Which item on his
balance sheet would help him decide what amounts are due in the near future?
A. the budget variance
B. investment assets
C. longterm
liabilities
D. current liabilities
E. current assets
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #16
Learning Objective: 3
17. (p. 55) Which of the following would be considered a longterm
liability?
A. A charge account payment
B. A mortgage
C. An installment loan
D. An amount due for taxes
E. The amount due on a credit card
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #17
Learning Objective: 3
18. (p. 55) A persons net worth is computed by
A. subtracting total liabilities from total assets.
B. deducting current living expenses from total assets.
C. adding assets and liabilities
D. subtracting assets from current liabilities.
E. adding liabilities and budgeted expenses.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #18
Learning Objective: 3
19. (p. 55) Which of the following situations is a person who could be insolvent?
A. Assets $56,000 annual expenses $60,000
B. Assets $68,000 net worth $22,000
C. Liabilities $45,000 net worth $6,000
D. Assets $60,000 liabilities $61,000
E. Annual cash inflows $48,000 liabilities $50,000
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #19
Learning Objective: 3
20. (p. 55) A persons net worth would increase as a result of
A. decreased value on investments
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. reduced amounts owed to others.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #20
Learning Objective: 3
21. (p. 55) A cash flow statement reports a persons or a familys
A. net worth.
B. current income and payments.
C. plan for spending.
D. value of investments.
E. balance of savings.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #21
Learning Objective: 3
22. (p. 55) Which of the following presents a summary of income and outflows for a period of time?
A. A cash flow statement
B. A bank statement
C. An investment summary
D. balance sheet
E. An asset report
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #22
Learning Objective: 3
23. (p. 57) Total earnings of a person less deductions for taxes and other items is called
A. budgeted income.
B. gross pay.
C. net worth.
D. total revenue.
E. takehome
pay.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #23
Learning Objective: 3
24. (p. 57) A common deduction from a persons paycheck is for
A. interest.
B. unemployment
C. rent.
D. taxes.
E. current liabilities.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #24
Learning Objective: 3
25. (p. 57) This year Taylors gross income is $70,000. Her deductions for federal and provincial taxes, CPP
contributions and employment insurance are $13,500. She also had aftertax
investment earnings
of $6,000. Taylors takehome
pay is:
A. $70,000
B. $76,000
C. $77,500
D. $56,500
E. $62,000
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #25
Learning Objective: 3
26. (p. 57) Payments that do not vary from month to month are ____________ expenses.
A. fixed
B. current
C. variable
D. luxury
E. budgeted
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #26
Learning Objective: 3
27. (p. 57) Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate?
A. Get a parttime
job
B. Eat more meals at home than in restaurants
C. Find a place to live with a lower rent
D. Save more money for the future
E. Buy on credit for items that might cost more later
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #27
Learning Objective: 3
28. (p. 57) Which of the following payments would be considered a variable expense?
A. Rent
B. An installment loan payment
C. A mortgage payment
D. A monthly parking fee
E. A telephone bill
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #28
Learning Objective: 3
29. (p. 55) A decrease in net worth would be the result of:
A. income greater than expenses for a month.
B. expenses greater than income for a month.
C. assets greater than expenses.
D. increased earnings on the job.
E. income and expenses equal for a month.
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #29
Learning Objective: 3
30. (p. 55) During the last month, Mary Jane had expenses of $5,000 and an increase in net worth of $700.
This means Mary Janes income for the month was:
A. $700.
B. $4,300.
C. $5,000.
D. $5,700.
E. $5,200.
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #30
Learning Objective: 3
31. (p. 55) During the past month, Jennifer Sinnet had income of $3,500 and a decrease in net worth of
$200. This means Jennifers payments for the month were:
A. $3,700.
B. $3,300.
C. $2,800.
D. $1,000.
E. $200.
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #31
Learning Objective: 3
32. (p. 55) Improvements in a persons financial position are the result of:
A. increased liabilities.
B. reductions in earnings.
C. increased savings and investments.
D. increased purchases on credit.
E. lower amounts deposited in savings.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #32
Learning Objective: 3
33. (p. 53) To determine a persons solvency, which financial document should be consulted?
A. Cash flow statement
B. Budget
C. Debt consolidation statement
D. Personal balance sheet
E. Credit report
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #33
Learning Objective: 3
34. (p. 64) A major expenditure for most families is
A. insurance.
B. contributions.
C. clothing.
D. utilities.
E. transportation.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #34
Learning Objective: 4
35. (p. 63) The payment items that should be budgeted first are
A. variable expenses.
B. investment funds.
C. fixed expenses.
D. unplanned living expenses.
E. entertainment expenses.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #35
Learning Objective: 4
36. (p. 63) Changes in the cost of living are
A. different in various geographic areas.
B. the same for different locations.
C. constant from month to month.
D. the same for all goods and services.
E. not a factor when preparing a budget.
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #36
Learning Objective: 4
37. (p. 63) The difference between the amount budgeted and the actual amount is called a
A. financial plan.
B. current liability.
C. change in net worth.
D. budget variance.
E. variable living expense.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #37
Learning Objective: 4
38. (p. 64) If a family planned to spend $370 for food during March but only spent $348, this difference
would be referred to as a
A. surplus.
B. deficit.
C. fixed living expense.
D. budget reduction.
E. contribution to net worth.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #38
Learning Objective: 4
39. (p. 64) A budget deficit would result when a persons or familys
A. actual expenses are less than planned expenses.
B. actual expenses are greater than planned expenses.
C. actual expenses equal planned expenses.
D. assets exceed liabilities.
E. net worth decreases.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #39
Learning Objective: 4
40. (p. 66) The Crown family has a difficult time staying on a budget. In an effort to actually see what
funds are available for various expenses, a ____________ budget would be most appropriate.
A. written
B. computerized
C. physical
D. deficit
E. mental
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #40
Learning Objective: 4
41. (p. 67) When it comes to savings, most Canadians
A. have an adequate emergency fund.
B. use several different savings techniques.
C. find saving difficult.
D. keep substantial amounts in a regular savings account.
E. reduce the amount they save during their working life.
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #41
Learning Objective: 5
42. (p. 68) ____________ is the recommended budgeting strategy for dual income households where the
two partners have trust and shared values and goals?
A. Pooled income
B. 50/50
C. Proportionate contributions
D. Sharing the bills
E. Sharing goals
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #42
Learning Objective: 5
43. (p. 61) Jennifer, a recent Concordia graduate, is struggling to pay off her $15,000 student loan. She has
found employment with an international firm. Jennifer manages to balance her cash flows, but
has only $500 in a chequing account to pay incoming bills. Her monthly aftertax
cash inflows
and expenses equal $2,000. What should be Jennifers number one financial goal?
A. Pay off her student loan immediately.
B. Start an emergency fund.
C. Contribute to an RRSP.
D. Purchase life insurance coverage.
E. Accumulate funds for a down payment on a home
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #43
Learning Objective: 4
44. (p. 61) Janice spends a total of $1,500 a month to cover all living expenses. Which of the following
would represent the appropriate emergency fund?
A. $1,500 to $4,500
B. $3,000 to $7,500
C. $4,500 to $9,000
D. $5,000 to $10,000
E. $6,000 to $12,000
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #44
Learning Objective: 4
45. (p. 54) A fiveyear
nonredeemable
GIC is classified as a(n) _______________ asset on the personal
balance sheet.
A. liquid
B. investment
C. personal
D. business
E. marketable
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #45
Learning Objective: 3
46. (p. 61) Janice spends a total of $1,500 a month to cover all living expenses. Which of the following
would represent the minimum acceptable emergency fund?
A. Zero
B. $1,500
C. $4,500
D. $9,000
E. $3,000
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #46
Learning Objective: 4
47. (p. 55) Given the following, what is the individuals net worth?
A. $11,810
B. $11,410
C. $10,910
D. $6,810
E. $6,500
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #47
Learning Objective: 3
48. (p. 55) To calculate your net worth, you need to know your:
A. annual income
B. assets and liabilities
C. monthly car loan cost
D. income after tax
E. pension contributions
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #48
Learning Objective: 3
49. (p. 53) The main purposes of personal financial statements are to:
A. summarize the value of the items that you own and the amounts that you owe
B. track your cash inflows by source and your outflows by type
C. identify strengths and weaknesses in your current financial situation and provide data for use in filing
your income tax return or applying for credit
D. measure progress toward your financial goals
E. all of the above
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #49
Learning Objective: 3
50. (p. 52) Which of the following financial documents would most likely be stored in a safety deposit
box?
A. Tax records
B. Personal financial statements
C. Warranties
D. Mortgage papers
E. Checking account statements
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #50
Learning Objective: 2
51. (p. 52) Which of the following financial documents would most likely be stored in a safety deposit
box?
A. Company pension information
B. Personal financial statements
C. Warranties
D. Birth, marriage and death certificates
E. Checking account statements
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #51
Learning Objective: 2
52. (p. 52) Which of the following financial documents would most likely be stored in a home file?
A. Serial numbers of expensive items
B. Personal financial statements
C. Mortgage papers, title deed
D. Birth, marriage and death certificates
E. Guaranteed investment securities
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #52
Learning Objective: 2
53. (p. 55) A family with $80,000 in assets and $22,000 of liabilities would have a net worth of:
A. $80,000.
B. $22,000.
C. $58,000
D. $102,000.
E. $36,000.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #53
Learning Objective: 3
54. (p. 55) A person with $80,000 in assets and $122,000 of liabilities would have a net worth of:
A. $80,000.
B. $122,000.
C. $202,000
D. $42,000.
E. $
42,000.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #54
Learning Objective: 3
55. (p. 55) Which of the following would be considered a longterm
liability?
A. A charge account payment
B. A 36 month car loan
C. An installment loan
D. An amount due for taxes
E. The amount due on a credit card
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #55
Learning Objective: 3
56. (p. 55) Which of the following situations is a person who could be insolvent?
A. Assets $50,000 annual expenses $60,000
B. Assets $68,000 net worth $22,000
C. Liabilities $45,000 net worth $6,000
D. Assets $5,000 liabilities $6,000
E. Annual cash inflows $48,000 liabilities $50,000
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #56
Learning Objective: 3
57. (p. 55) A persons net worth would increase as a result of
A. increased value on investments
B. reduced earnings.
C. increased spending for current living expenses.
D. decreased value of personal possessions.
E. increased amounts owed to others.
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #57
Learning Objective: 3
58. (p. 57) This year Phils gross income is $80,000. His deductions for federal and provincial taxes, CPP
contributions and employment insurance are $16,000. He also had aftertax
investment earnings
of $6,000. Taylors takehome
pay is:
A. $80,000
B. $86,000
C. $70,000
D. $64,000
E. $58,000
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #58
Learning Objective: 3
59. (p. 57) Payments that do not vary from month to month are ____________ expenses.
A. variable
B. current
C. fixed
D. discretionary
E. budgeted
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #59
Learning Objective: 3
60. (p. 55) During the last month, Astrid had expenses of $6,000 and an increase in net worth of $100. This
means Astrids income for the month was:
A. $6,000
B. $5,900
C. $6,100
D. $5,700
E. $5,200
Difficulty: Hard
Gradable: automatic
Kapoor Chapter
02 #60
Learning Objective: 3
61. (p. 60) The main purpose of a budget is to help you
A. Live within your income and spend your money wisely
B. Prioritize and attain your financial goals
C. Prepare for financial emergencies
D. Develop wise financial management habits
E. All of the above
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #61
Learning Objective: 4
62. (p. 61) Anne spends a total of $2,000 a month to cover all living expenses. Which of the following
would represent the appropriate emergency fund?
A. $2,000 to $4,000
B. $3,000 to $7,000
C. $6,000 to $12,000
D. $1,000 to $2,000
E. $6,000
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #62
Learning Objective: 4
63. (p. 67) Common reasons for saving money include:
A. To set aside money for irregular and unexpected expenses
B. To pay for the replacement of expensive items, such as appliances or an automobile, or to have
money for a down payment on a house
C. To buy special items, such as home video or recreational equipment, or to pay for a vacation
D. To provide for longterm
expenses, such as the education of children or retirement.
E. All of the above
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #63
Learning Objective: 5
64. (p. 54) Liabilities are cash and items of value that can be easily converted to cash.
FALSE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #64
Learning Objective: 3
65. (p. 50) When one money management decision is selected, something else must be given up.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #65
Learning Objective: 1
66. (p. 50) Opportunity costs are not only associated with money management decisions involving longterm
financial security.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #66
Learning Objective: 1
67. (p. 51) Financial records that may need to be referred to on a regular basis should not be kept in a safety
deposit box.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #67
Learning Objective: 2
68. (p. 60) A budget is a record of how a person or family has spent their money.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #68
Learning Objective: 4
69. (p. 52) Personal records current budget, cheque book(s) and bank statements.
FALSE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #69
Learning Objective: 2
70. (p. 52) Most income tax documents and records should be kept in a safety deposit box.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #70
Learning Objective: 2
71. (p. 55) Insolvency is the inability to pay debts by the due date, because liabilities exceed the value of
assets.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #71
Learning Objective: 3
72. (p. 55) A persons net worth is the difference between the value of the items owned and the amounts
owed to others.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #72
Learning Objective: 3
73. (p. 53) Furniture, jewelry, and an automobile are examples of liquid assets.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #73
Learning Objective: 3
74. (p. 54) Current liabilities are amounts that must be paid within a short period of time, usually less than a
year.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #74
Learning Objective: 3
75. (p. 55) Insolvency is a result of having an unequal balance of tangible and intangible goods.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #75
Learning Objective: 3
76. (p. 55) A personal cash flow statement presents income and outflows of cash for a given time period,
such as a month.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #76
Learning Objective: 3
77. (p. 57) Takehome
pay is a persons earnings after deductions for taxes and other items.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #77
Learning Objective: 3
78. (p. 57) Medical expenses, clothing, and telephone are examples of fixed expenses.
FALSE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #78
Learning Objective: 3
79. (p. 57) If expenses for a month are greater than income, an increase in net worth will result.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #79
Learning Objective: 3
80. (p. 60
& 61) A persons lifestyle is a reflection of his or her values, goals, career, and family situation.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #80
Learning Objective: 4
81. (p. 55) A personal cash flow statement can serve as the basis for the budget categories used by an
individual or family.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #81
Learning Objective: 3
82. (p. 57) Definite financial obligations are referred to as variable expenses.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #82
Learning Objective: 3
83. (p. 64) If budgeted spending is less than actual spending, this is referred to as a deficit.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #83
Learning Objective: 4
84. (p. 67) Most Canadians have an adequate savings for emergencies.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #84
Learning Objective: 5
85. (p. 67) Under a direct deposit system the bank will make an automatic debit from you bank account and
have the funds transferred periodically to an investment account.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #85
Learning Objective: 5
86. (p. 68) Sharing the bills is a budgeting strategy for twoincome
households where each partner
contributes an equal amount into the pool.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #86
Learning Objective: 5
87. (p. 61) Evidence exists that a persons choice of employment influences his or her lifestyle.
TRUE
Difficulty: Easy
Gradable: automatic
Kapoor Chapter
02 #87
Learning Objective: 4
88. (p. 54) Leveraged investing in common shares is expected to increase your net worth.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #88
Learning Objective: 3
89. (p. 50) Opportunity costs are only associated with money management decisions involving longterm
financial security.
FALSE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #89
Learning Objective: 1
90. (p. 55) A cash flow statement is a record of how a person or family has earned and spent their money.
TRUE
Difficulty: Medium
Gradable: automatic
Kapoor Chapter
02 #90
Learning Objective: 3
91. (p. 52) What types of financial records and documents should be kept in a safety deposit box?
Examples of items stored in a safedeposit
box include stock certificates, contracts, insurance policies, a
record of personal belongings, mortgage papers, rare coins, collectibles, and other rare and valuable
items.
Difficulty: Medium
Gradable: manual
Kapoor Chapter
02 #91
Learning Objective: 2
92. (p. 5355)
What are the main components of a personal balance sheet and a cash flow statement? What is
the main purpose of each of these personal financial statements?
A personal balance sheet is a net worth statement it reports what you own (assets) and what you owe
(liabilities). A cash flow statement is designed to report the actual inflow and outflow of cash during a
given time period for a person it includes current income, and cash flow payments.
Difficulty: Medium
Gradable: manual
Kapoor Chapter
02 #92
Learning Objective: 3
93. (p. 68) Describe the four budgeting strategies suggested for dual income households.
Pooled Income: both incomes are combined, and bills are paid from the pool. This method requires trust
and shared goals and values. Sharing the bills: each person is responsible for paying predetermined bills.
50/50: each person contributes an equal amount into the pool to cover shared expenses. Proportionate
Contributions: where each partner contributes a percentage of his/her income. This method is
unfavorable when one partner earns a higher income than the other.
Difficulty: Hard
Gradable: manual
Kapoor Chapter
02 #93
Learning Objective: 5
94. (p. 66) List and briefly explain the 4 characteristics of a successful budget.
Money management experts advise that a successful budget should be
Well planned. A good budget takes time and effort to prepare. Planning a budget should involve
everyone affected by it. Children can learn important money management lessons by helping to develop
and use the family budget.
Realistic. If you have a moderate income, dont immediately expect to save enough money for an
expensive car or a lavish vacation. A budget is designed not to prevent you from enjoying life but to help
you achieve what you want most.
Flexible. Unexpected expenses and changes in your cost of living will require a budget that you can
easily revise. Also, special situations, such as twoincome
families or the arrival of a baby, may require
an increase in certain types of expenses.
Clearly communicated. Unless you and others involved are aware of the spending plan, it will not work.
The budget should be written and available to all household members. Many variations of written
budgets are possible, including a notebook or a computerized system
Difficulty: Hard
Gradable: manual
Kapoor Chapter
02 #94
Learning Objective: 4
95. (p. 61) What are the 7 steps in creating and implementing a budget?
[1] Setting financial goals.
[2] Estimating income.
[3] Budgeting emergency fund and savings.
[4] Budgeting fixed expenses.
[5] Budgeting variable expenses.
[6] Recording spending amounts.
[7] Reviewing spending and saving patterns.
Difficulty: Hard
Gradable: manual
Kapoor Chapter
02 #95
Learning Objective: 4
02 Summary
Category # of Questions
Difficulty: Easy 33
Difficulty: Hard 13
Difficulty: Medium 49
Gradable: automatic 90
Gradable: manual 5
Kapoor Chapter
02 95
Learning Objective: 1 4
Learning Objective: 2 13
Learning Objective: 3 53
Learning Objective: 4 18
Learning Objective: 5 7

 

08
Student: _______________________________________________________________________________________
1. Peril is defined as
A. the refusal by an insurance company to pay for the covered loss.
B. the cause of risk.
C. the cause of a possible loss.
D. an uncertainty as to loss.
E. risk
2. Defective house wiring is an example of a
A. hazard.
B. peril.
C. risk.
D. speculation.
E. negligence.
3. The uncertainties of direct and indirect losses due to fire, wind, accident, theft, etc., are called
____________ risks.
A. personal
B. business
C. property
D. liability
E. speculative
4. Purchasing a technology stock that may or may not increase in price is an example of ___________
risk.
A. speculative
B. pure
C. commercial
D. personal
E. liability
5. Which of the following would be covered by a home insurance policy?
A. earthquake damage
B. flooding
C. brush fires
D. wind damage to your roof
E. theft of business supplies from your office
6. The legal responsibility for the financial cost of another persons losses or injuries is referred to as
A. theft.
B. robbery.
C. liability.
D. assigned risk.
E. collusion.
7. If a homeowner leaves toys on stairs that result in injury to a delivery person, this may be ruled as
A. vicarious liability.
B. negligence.
C. assigned risk.
D. umbrella coverage.
E. coinsurance.
8. Vicarious liability refers to
A. failure to take ordinary and reasonable care.
B. when a person is held responsible for actions of another person.
C. property damage.
D. high risk insurance coverage.
E. common hazards in our society.
9. While cleaning your home, a worker damages some furniture. You take action against the workers
employer to cover the cost of the damage. This is an example of a(n) ____________ liability.
A. umbrella
B. assigned
C. common situation
D. peril
E. vicarious
10. High winds cause damage to trees, shrubs, and other plants. This insurance claim would be covered
under the ____________ component of homeowners insurance.
A. additional living expenses
B. personal property
C. building and other structures
D. personal liability
E. property damage
11. The additional living expenses component of a home insurance policy is designed to
A. pay for temporary housing while your home is repaired.
B. cover damage to property while away from home.
C. reimburse a homeowner for damage done by a visitor.
D. pay for medical expenses of people injured on your property.
E. pay for repairs caused by fire or other hazards.
12. Which of the following is considered personal property for home insurance coverage?
A. an automobile
B. a garage
C. a house
D. appliances
E. trees and shrubs
13. Georgette Valentine has expensive photography equipment for use in her hobby. Which coverage
from the following list would pay for damage or theft of this equipment?
A. an umbrella policy
B. a household inventory
C. additional living expense coverage
D. a personal articles endorsement
E. a coinsurance floater
14. The purpose of a household inventory is to
A. reduce insurance costs.
B. lower the chance of negligence
C. obtain personal property floater coverage.
D. increase liability coverage.
E. verify owned property.
15. The ____________ coverage of a home insurance policy would cover accidental damage to another
persons property by a member of your family.
A. voluntary property damages
B. personal property
C. medical payments
D. additional living expenses
E. personal liability
16. An umbrella policy is designed to cover
A. expensive personal property.
B. additional buildings on your property.
C. property when traveling away from home.
D. flood damage
E. major personal liability suits.
17. Most home insurance policies provide coverage for
A. earthquake damage.
B. flood damage.
C. an umbrella liability.
D. basic personal liability.
E. medical payments.
18. Tenants insurance would include coverage for all of the following except
A. additional living expense coverage.
B. personal liability.
C. building and other structures.
D. personal property.
E. protection against financial loss due to damage.
19. Which of the following are not covered by tenants insurance?
A. medical expenses for injuries to visitors
B. fire damage of the buildings roof
C. additional living expenses
D. accidental damage to the property of others
E. cost of legal action due to personal liability
20. Your home insurance provides for replacement value for personal property losses. A microwave is
stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave
costs $200 today. What amount will the insurance company pay?
A. $100
B. $150
C. $200
D. $350
E. $300
21. Which of the following insurance policy provisions requires that the insured must pay for part of the
loss of a claim if the property is not insured for the specified percentage of replacement value?
A. personal property floater
B. an endorsement
C. assigned risk clause
D. umbrella coverage
E. coinsurance clause
22. The ____________ method to settle claims is based on the current replacement cost of a damaged or
lost item less depreciation.
A. replacement value
B. actual cash value
C. umbrella
D. endorsement
E. personal articles endorsement
23. Home insurance costs are affected most directly by
A. the number of claims in an area.
B. insurance agents commission.
C. government regulations that set premiums.
D. processing costs of claims.
E. the profits of the insurance company.
24. The purpose of minimum insurance legislation is to
A. risk of injury or death.
B. possibility of damage, destruction or theft.
C. third party liability.
D. A and B are correct.
E. A, B and C are correct.
25. ____________ provides coverage for the risk of financial loss due to legal expenses, medical
expenses, lost wages, and other expenses associated with injuries caused by an automobile accident
for which you were responsible.
A. Medical payments
B. Nofault
insurance
C. Uninsured motorists protection
D. Bodily injury liability
E. Comprehensive insurance
26. Ahmed Hadad was injured in an accident caused by another driver who did not have insurance.
Ahmeds medical expenses would be covered by
A. medical payments.
B. collision.
C. bodily injury liability.
D. uninsured motorists protection.
E. nofault
coverage.
27. Which of the following coverages would pay for medical care for people who were injured in your
automobile?
A. comprehensive
B. bodily injury liability
C. collision
D. accident benefits
E. nofault
insurance
28. Which of the following is a system in which drivers involved in an accident collect medical expenses,
lost wages, and related injury costs from their own insurance company?
A. assigned risk pool
B. nofault
insurance
C. comprehensive system
D. financial responsibility coverage
E. uninsured motorists protection
29. Comprehensive coverage would cover financial losses due to
A. injuries caused by a driver without insurance.
B. damage to your car in an accident for which you were at fault.
C. damage to your car caused by wind or hail.
D. legal action against you for an accident.
E. damage to a neighbors tree with your car.
30. Your geographic location is a major factor in determining the ____________ used to calculate your
automobile insurance premiums.
A. driver classification
B. assigned risk pool
C. coverage level
D. legal responsibilities
E. rating territory
31. Wind damage occurs to your car costing $1,000 to repair. If you have a $300 deductible for collision
and full coverage for comprehensive, what portion of the claim will the insurance company pay?
A. $300
B. $1,300
C. $500
D. $700
E. $800
32. Which of the following refers to a category based on age, sex, marital status, and driving habits that
is used to set automobile insurance premiums?
A. rating territory
B. assigned risk pool
C. nofault
system
D. driver classification
E. use of the vehicle
33. Which of the following factors is used to determine a persons driver classification?
A. Age
B. Type and age of vehicle
C. Claims in your geographic area
D. Insurance company claim processing costs
E. State insurance premium regulations
34. The purpose of a highrisk
pool is to
A. provide insurance for poor drivers.
B. reduce medical costs associated with auto accidents.
C. take unsafe drivers off the road.
D. reduce auto insurance premiums with state regulation.
E. offer premium discounts to safe drivers.
35. A system that allows insurance companies to provide coverage to several individuals with poor
driving records is referred to as
A. nofault
insurance.
B. an assigned risk pool.
C. premium discounts.
D. comprehensive coverage.
E. collision coverage.
36. Identify the areas covered by tenants insurance.
I Personal property protection.
II Additional living expenses.
III Personal liability.
IV Replacement value of premises.
A. I, II and III only
B. I and III only
C. II, III and IV only
D. I, II, III and IV
E. I, II, and IV
37. Which of the following home insurance policies will have the highest premium?
A. Standard
B. Broad
C. Comprehensive
D. All forms will have the same cost.
E. Broad and Comprehensive are equally expensive
38. In the insurance industry, the term peril represents ________________.
A. the chance that something may be lost
B. the cause of the possible loss
C. a habit that increases the likelihood of loss
D. the actual loss experienced
E. your record of past losses
39. The requirement for a minimum level of home insurance coverage refers to which of the following?
A. Deductible
B. Specified perils
C. Endorsement
D. Coinsurance
E. Basic
40. Which of the following is likely to increase your car insurance premium?
I. You live in a rural area.
II. You are over 70.
III. You usually carry several passengers.
A. I and II, only
B. II and III, only
C. I and III, only
D. I, II and III
E. I only
41. Risk is
A. the chance that something may be lost.
B. is the cause of a possible loss.
C. the increased likelihood of loss through some peril.
D. uncertainties of direct or indirect losses to property due to fire, windstorms, accidents, theft, and other
hazards.
E. loss possibilities due to negligence resulting in bodily harm or property damage to others.
42. Peril
A. is the chance that something may be lost.
B. is the cause of a possible loss.
C. increases the likelihood of loss through some peril.
D. is the uncertainty of direct or indirect losses to property due to fire, windstorms, accidents, theft, and
other hazards.
E. is loss possibilities due to negligence resulting in bodily harm or property damage to others.
43. Hazard
A. is the chance that something may be lost.
B. is the cause of a possible loss.
C. increases the likelihood of loss through some peril.
D. is loss possibilities due to negligence resulting in bodily harm or property damage to others.
E. is a risk that carries a chance of either loss or gain.
44. Property risks
A. are the chance that something may be lost.
B. are the cause of a possible loss.
C. are legally defined as uninsurable.
D. are the uncertainties of direct or indirect losses to property due to fire, windstorms, accidents, theft,
and other hazards.
E. are loss possibilities due to negligence resulting in bodily harm or property damage to others.
45. Liability risk
A. carries a chance of either loss or gain, such as gambling or investing in a new business.
B. is the cause of a possible loss.
C. increases the likelihood of loss through some peril.
D. are the uncertainties of direct or indirect losses to property due to fire, windstorms, accidents, theft,
and other hazards.
E. is loss possibilities due to negligence resulting in bodily harm or property damage to others.
46. A speculative risk
A. is the chance that something may be lost.
B. is the cause of a possible loss.
C. increases the likelihood of loss through some peril.
D. is the uncertainty of direct or indirect loss to property due to fire, windstorms, accidents, theft and
other hazards.
E. is a risk that carries a chance of either loss or gain and are legally defined as uninsurable.
47. Which of the following would be covered by a home insurance policy?
A. earthquake damage
B. flooding
C. brush fires
D. fire damage to your garage
E. theft of business supplies from your office
48. Which of the following is considered personal property for home insurance coverage?
A. your automobile
B. a fence
C. a house
D. furniture
E. trees and shrubs
49. Anne has an expensive diamond ring. Which coverage from the following list would pay for damage
or theft of this item?
A. an umbrella policy
B. a household inventory
C. additional living expense coverage
D. a personal

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