PFIN FINAL – Flashcards

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The basic purpose of insurance is to protect you from the results of accidental losses.
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true
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Deciding to sell a motorcycle would be an example of risk sharing.
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false
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Spreading risk among a large number of people is a major principle of insurance.
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true
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Risk avoidance means asking an insurance company to take over the risk for a small payment (the premium).
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false
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Underwriters can predict whether or not you will suffer a loss this year.
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false
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Generally, the primary purpose of life insurance is to provide a tax-advantaged investment plan.
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false
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The multiple of earnings approach to evaluating life insurance needs is simplistic but can be unreliable.
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true
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The needs approach can determine your life insurance requirements with a single step.
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false
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The life insurance needs of beneficiaries are secondary since most proceeds are paid to living policyholders.
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false
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Life insurance needs change dramatically over one's lifetime.
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true
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The basic purpose of insurance is to
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protect you from losses.
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Insurance is a tool that can lessen ____ risk.
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economic
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From the standpoint of the person buying insurance, the central purpose of insurance should be:
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to transfer risks of serious losses.
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Which of the following types of policies is most likely to allow you to switch investments?
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variable life
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Which of the following forms of life insurance requires the lowest premium per dollar of initial death benefits?
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term life
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Which of the following companies does NOT rate the financial strength of life insurance companies?
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Welch's
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If a life insurance policy pays dividends, it is called:
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participating
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The probability of a loss occurring can be reduced by
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loss prevention
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Underwriting is
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the determination of which exposures to insure.
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The underwriting function is designed to be sure that premiums are based on
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the chance of loss
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Millions of Americans are not covered by health insurance.
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true
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Advances in medical technology, prescriptions drugs and treatments have substantially reduced the costs health care in recent decades.
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false
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You would have a better chance to choose your own doctor with a PPO rather than an HMO.
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true
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Health Maintenance Organizations (HMOs) provide pre-paid health care to participants.
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true
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Large employers are less likely to offer health insurance to their employees than small employers.
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false
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If you lose your job, COBRA permits you to continue your group health insurance coverage permanently as long as you pay the premium within 36 months of the termination of employment.
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false
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Hospital insurance will pay daily room and board charges up to a specified number of days and reimbursement for ancillary charges up to a specified dollar amount.
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true
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Hospital insurance policies will pay for all hospital expenditures most of the time.
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false
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Hospital expense coverage is adequate for long-term or catastrophic medical needs of most people.
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false
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Disability occurs only when someone is completely incapable of returning to work.
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false
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The fastest growing segment of the health care industry is
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managed care plans
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Jackie pays $20 every time she visits her doctor. She is covered by a(n)
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could be any of these except indemnity plan
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The "O" in COBRA stands for which of the following words?
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omnibus
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Most employees select ____ for their health insurance needs.
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preferred provider organizations
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Medicare is a government-sponsored health care plan composed of Part A and Part B. Part B covers
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doctor's bills
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Hospital indemnity policies would make payment for
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per day hospital charges
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Surgical expenses now generally are reimbursed on the basis of
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usual, reasonable and customary expenses.
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Miscellaneous sources of health care coverage include
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all of the above
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Terms of payment under your health insurance are governed by
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all of the above
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Your right to continue a health insurance policy if you choose is known as
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renewablility
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Property insurance is meant to protect property owners from two basic types of exposures, physical loss of property and loss through depreciation
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false
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A peril is a cause of loss.
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true
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Property inventories are important to identify insurance needs and to substantiate claims.
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true
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A written inventory of personal property is required by insurance companies for property insured under the unscheduled general contents coverage.
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false
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Floods are specifically defined in homeowner's policies
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true
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Floods are specifically defined in homeowner's policies
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true
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The HO-3 form is a good policy for first-time buyer owners because it is a named perils policy.
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false
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As a tenant, you would purchase a HO-3 policy.
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false
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While you were away on your summer vacation, raccoons took up residence in your attic. They did $5,000 damage. Your H0-2 policy will cover this loss.
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false
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Covered liability perils do not include claims for libel, slander, or character defamation.
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true
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All property insurance companies require you to show the following when making a claim:
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all of the above
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The basic principles of property and liability insurance pertain to:
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all of the above
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Your standard HO policy will not include coverage for damage done by
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flood
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Which Homeowners' policy is best suited for a resident of a rented apartment to cover that person's personal property?
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HO-4
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Negligence results when a person
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fails to act as a "reasonable person."
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The principle of ____ states that an insured should not be compensated by an insurance company in an amount exceeding the economic loss.
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indemnity
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The condominium owner would choose a ____ policy.
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HO-6
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Homeowner's property insurance does not provide protection on the
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vacant lot
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Common types of property that are subject to internal limits on homeowner's policies include
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jewelry
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Liability coverage provides payment to the
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non-family members involved in the accident
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Investing is considered a short-term activity that involves the buying and selling of securities.
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false
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Investing and speculating are two entirely different activities.
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true
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Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.
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true
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The term "investment' refers to money placed in some medium where value and level of return are totally unpredictable
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false
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A statement specifying how investment capital will be invested in order to reach targeted goals is called a marketing plan.
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false
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Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.
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true
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Listed securities are traded on organized exchanges.
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true
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Preferred stock combines the fixed income features of bonds with the same price appreciation potential as common stocks.
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false
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A retail stockbroker buys and sells securities on behalf of clients.
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true
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NASDAQ is now the second largest securities market in the U.S.
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true
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____ is a short-term investment activity.
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Speculating in common stock
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Which of the following is not a securities market
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capital market
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During a bull market
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prices go up
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You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in
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mutual funds
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Securities sold in the primary markets are usually handled by a(n)
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investment banker
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The SEC requires corporations to issue ____ describing the firm and the security issue it wishes to sell.
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a prospectus
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The ____ is not an organized security exchange
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Over-The-Counter Exchange
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Unlisted securities are traded on the
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OTC market
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Instructing your broker to buy or sell a stock at a particular price is a
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limit order
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A collection of investments is called
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a portfolio
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Market risk considers the possibility that the firm may fail.
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false
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Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
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true
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Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.
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true
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The returns you expect from securities are income and growth.
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true
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Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.
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true
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A lower expected return will mean a higher risk will have to be accepted.
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false
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All securities involve risk of some kind.
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true
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Bondholders will receive interest payments after the stockholders receive dividends.
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false
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You received a cash dividend from your stock investment this year. This is taxable income.
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true
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A stocks beta is an indication of its relationship to the general market.
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true
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In which of the following type of investment is the most liquidity risk?
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land
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Which of the following types of risk affect owners of fixed income securities more than owners of equity securities
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purchasing power risk
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Companies with a great deal of long-term debt would rate fairly high in ____ risk.
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financial
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Bond prices and current interest rates are ____ related.
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inversely
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Corporate ownership is evidenced by
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common stock
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The ____ of a stock reflects stockholder confidence.
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price/earning ratio
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Market risk is often measured using
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beta
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Only the strongest, most stable and safe-return companies can be called
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blue chips stocks
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A bond selling below par value is selling at
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a discount
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Bonds issued by subdivisions of the U.S. government but not guaranteed by the government are called
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agency bonds.
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Closed-ended mutual funds are guaranteed, they cannot lose value.
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false
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Investors select and purchase securities held within mutual funds.
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false
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Exchange traded mutual funds are known as closed-end mutual funds
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true
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Exchange traded funds can create new shares to meet demand.
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true
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Exchange-traded funds have characteristics of both closed-end and open-end funds.
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true
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Mutual funds may be classified by the types of securities they purchase.
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true
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Growth funds are mutual funds designed for short term investing.
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false
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Aggressive growth funds typically buy stocks with high PE ratios and stocks with volatile price fluctuations.
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true
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Conversion privileges allow investors to exchange one fund's shares for that of another, as long as the funds are in the same fund family.
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true
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An investor with a small amount of money should stick to using loaded-funds instead of no-load funds.
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false
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Investors tend to use mutual funds for which of the following reasons
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all of the above
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A(n) ____ sells fund shares, either directly to the public or through certain authorized dealers
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distributor
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A(n) ____ actually runs the portfolio and makes the buy and sell decisions
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money manager
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What type of REIT is most attractive to income oriented investors?
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mortgage
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Redeeming your mutual fund shares might result in a charge called
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back end load
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The fund whose main objective is growth is known as a(n) ____ fund.
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none of these
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The fund whose main objective is to simply match the market known as a(n) ____ fund
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none of these
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A(n) ____ fund is quite speculative.
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aggressive growth
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Asset allocation funds invest money in
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all of the above
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Which of the following is not a source of mutual fund returns
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changes in IDB.
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Most people are too conservative when investing their retirement funds.
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true
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It really makes little difference whether you start retirement savings at age 25 or at age 45.
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false
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Starting later in life and being too conservative when investing are both common retirement planning mistakes.
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true
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Having an accurate current income and expenditures statement would be very useful when calculating retirement needs.
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true
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Self-employed workers pay twice as much for Social Security coverage compared to employed workers.
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true
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More than 50 percent of all wage earners and salaried workers today are covered by some type of employer-sponsored retirement or profit-sharing plan.
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true
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With a non-contributory pension plan, the employer makes no financial contribution to the account.
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false
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The current trend in retirement plans is towards contributory plans.
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true
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A company using cliff vesting would legally have to give you vesting rights if you worked at a company 3 or more years.
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true
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Payments from a defined benefits plan will be determined by the investment performance of the retirement funds.
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false
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The need for retirement planning is increased by the uncertainties of
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all of these.
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The major financial benefit of beginning your retirement funding early is related to
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compound interest
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The biggest unknown factor that retirees have when estimating their retirement needs and income is
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inflation
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The major mistake(s) people make in retirement planning is(are)
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saving too little
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Dr. Johnson is surgeon at University Hospital. She will pay ____ taxes on all of her $170,000 salary.
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Medicare
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Fully insured status requires 40 ____ of employment covered by social security.
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quarters
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Annual increases in the social security benefit check are related to the
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current cost of living
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Social security benefits for retirees less than 65 years of age may be reduced if
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wages and salaries exceed certain limits
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Earnings limitations on social security benefits cease at age
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65
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If you are gradually vested in a retirement plan over a 4-year period, the plan is a
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graded plan
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The main objective of estate planning is to save attorney's fees.
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false
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Estate planning requires knowledge of wills, trusts, and investments.
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false
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A potential estate planning problem is improper distribution of assets.
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true
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Insufficient capital can cause problems paying estate taxes.
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true
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Custodial accounts are used to protect the property of minor children.
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true
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The intestate process is federally mandated, and is similar from state to state.
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false
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The appointment clause affirms that the will in question was really made out by the deceased.
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false
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A trust is a means of transferring property.
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true
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The unlimited marital deduction requires the filing of a separate tax return.
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false
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The gift tax law allows a person to give gifts up to $10,000 tax free.
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false
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Estate planning is closely related to
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retirement and insurance planning
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The goal of estate planning is to:
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all of the above
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Estate planning us designed to:
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all of the above
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____ would be a first-level death-related cost.
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funeral expenses
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Your real and personal property that can be transferred according to the terms of a will is called your
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probate estate
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When writing a will, you should seek the professional services of
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attorneys
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A "trustee" is also called the
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none of the above
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Which of the following qualities are essential in a trustee
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Possess sound business knowledge and judgment
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A trust designed to provide liquidity for an estate without increasing the size of the estate is a(n) ____.
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irrevocable life insurance
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The unified rate schedule applies to federal ____ taxes.
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gift and estate
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