pfmm module 4

PFMM Course- Final Exam’s Practice Exam & Answer Key

Below you will find a practice exam for the Final to complete (at the end of the document are the answers and explanations/rationales)

1. Ayla is graduating high school but doesn’t know what she wants to do with her future and has a decent paying job at a restaurant.  Which of these would be the best option for her?

   1. Take a gap year

   2. Sign up for the military 

   3. Apply for college 

   4. Go to technical school

2. Doug’s family are all electricians and he’s had some experience with electrical work for most of his young life, but he also has considered becoming a teacher.  What would be a factor to consider when choosing technical school instead of a 4-year university? 

   1. Social clubs at technical school are more available

   2. There are more opportunities for advancement in technical school

   3. Many trades are higher in demand than degrees from universities

   4. Greatest earning potential through technical school

3. Jasmine has been a legal secretary for 3 years and is now considering going back to school to become a paralegal.  What should she consider?

   1. Tuition cost only

   2. Salary and benefits only

   3. How many credits she will need

   4. The costs and benefits in relation to her time, career, and earning potential

4. Income before taxes and deductions is

   1. Net income

   2.  Gross income

   3. Wages statement

   4. Take home pay

5. Health insurance coverage and Social Security tax are considered:

   1. Net earnings

   2. Gross earnings

   3. Deductions

   4. Current totals

6. Gianna owns a hair salon and during Covid-19 was temporarily shut-down.  She most likely will:

   1. Have a variety of job opportunities close-by

   2. Earn less money temporarily

   3. Ask for a tax-exemption for the next year

   4. Receive a salary increase when she returns

7. Ralph and Vivana bought the exact same patio furniture with 6.5% sales tax on it for $800.  Viviana makes three times the amount of income as Ralph.  Which tax system does this best portray? 

   1. Progressive

   2. Regressive

   3. Indirect

   4. Direct

8. Dominika works for a company that recently downsized and her salary has been reduced.  She needs to cut 10% from somewhere in her budget. What would be the best categories for her to logically cut from? 

   1. Rent and food

   2. Gas and rent 

   3. Hobbies and clothing

   4. Gas and savings 

9. It’s important to figure in factors like warranties and how long an item will last when purchasing:

   1. A non-durable good

   2. A durable good

   3. An expensive item

   4. An inexpensive item

10. A furniture store advertises a patio set as $43.75 a month for 12 months instead of $525.  What is their motive in doing this?

    1. To encourage credit card applications

    2. Because they offer monthly plans in-store

    3. To minimize the amount the consumer has to pay

    4. To make it look like a deal

11. Which type of account do you need more money to open but will yield a higher interest return for you than traditional savings?

    1. CD

    2. Real estate

    3. Money market

    4. Checking

12. Morgan is 25 and just got promoted to Publix manager.  If Morgan wants to start saving for retirement now, which is the best option for her?

    1. Putting money into stocks

    2. A pre-paid plan

    3. A money market account

    4. A matching contributions plan

13. Which option offers tax savings when investing?

    1. Checking accounts

    2. Stocks

    3. Roth IRA

    4. Real estate

14. Which of these should Heather call if she feels a product was advertised one way, and when she received it she found it wasn’t at all what was displayed?

    1. Office of the Comptroller

    2. The Federal Trade Commission

    3. The Bureau of Consumer Protection

    4. Her State Senator

15. Which is not a factor to consider when using a 529 plan?

    1. It impacts the ability to qualify for financial aid

    2. You can use the money for anything

    3. There are tax benefits to be had

    4. Fees can be assessed for early withdraw

16. Andrew receives a $1500 bonus and wants to put it in a savings account.  Which is his best option if the current rate of inflation is 2.7%?

    1. A nominal interest rate of 3.2%

    2. A real interest rate of 3.2%

    3. A nominal interest rate of 3%

    4. A real interest rate of 2.7%

17. LaTosha deposited $2000 in a savings account that has a 3.4% interest rate.  What is her real interest rate if the current rate of inflation is 2.2%?

    1. 1.5%

    2. 2.2%

    3. 3.4%

    4. 1.2%

18. What is synonymous to APR when applying for a credit card?

    1. Late fees and penalties

    2. Interest rates

    3. Annual fee

    4. Balance limit

19. If you only make the minimum payments on a credit card with a $500 balance what might be the consequence?

    1. A longer period of being in debt

    2. Credit card canceled

    3. Credit is reduced

    4. Added fees

20. Which statement is false about down payments?

    1. The lender sees you as less of a risk

    2. You have more equity toward being an owner at a faster rate

    3. It takes less time to repay the full amount back

    4. t makes insurance payments lower 

21. If Dakota wants to purchase a new vehicle, what agency can she expect the dealership to check first before offering her a vehicle loan?

    1. National Insurance Institute

    2. A credit bureau

    3. The Bureau of Consumer Protection

    4. The Office of the Comptroller

22. Roberto has his wages garnished for failing to pay student loans in a timely manner.  Which of the following is not true in terms of wage garnishment?  

    1. It can impact your ability to acquire new loans in the short-term

    2. Up to 25% of your income can be garnished as per federal law

    3. Getting a new job will release you from your wage garnishment

    4. Garnishments are generally court-ordered

23. Why are payday loans often considered a bad idea?

    1. They give you money right away before your payday

    2. They have a very high interest rate and can be difficult to repay

    3. They lower your credit score

    4. They will only give you enough for food and gas

24. Desiree is a young professional with a great career started and no dependents to provide for.  She wants to start an investment portfolio.  What might a financial advisor suggest for her?

    1. Only invest in foreign stocks

    2. Put her money primarily into savings and CDs

    3. Start with a high-risk portfolio of stocks since she’s young and can change it as needed

    4. Start moderate and gradually increase to high risk as she gets older toward the end of her career

25. Serenity is a successful young investor and purchased stocks in a new, adventurous company being hyped in the media.  She probably did this because:

    1. She likes investing moderately

    2. New companies get tax breaks she’d like to take advantage of

    3. She sees the potential for growth and can rebound more easily if there’s a downfall

    4. She doesn’t need all of her money and enjoys a gamble

26. How often will you pay a deductible for insurance?

    1. Only once the first time you make a claim with that insurance company

    2. Every time you make a new claim

    3. Never if you have a good lawyer

    4. Every month

27. If Kadee chooses a car insurance plan with a low monthly payment, what might be true for her?

    1. She may have to pay a higher deductible if she’s in an accident

    2. She might not have chosen a good insurance company

    3. She will pay a lower deductible if she’s in an accident

    4. She won’t have to pay any deductible if she’s in an accident

28. Phishing scams are:

    1.  Fraudulent attempts to obtain your sensitive information via electronic communication or telephone

    2. Banking tactics to help consumers verify their information 

    3. Attempts to make you by deep-sea boating excursions

    4. Created to obtain your school records and medical information

29. The Federal Trade Commission (FTC) is:

    1. In charge of crimes pertaining only to trade and commerce

    2. Your first point of contact if you are a victim of identity theft

    3. Monitors semi-trucks and boats that might be part of fraud

    4. Who the Federal Reserve reports to directly

30. Who is in charge of monetary policy?

    1. Congress

    2. The President

    3. The Federal Reserve

    4. The House of Representatives 

Answer Key

1.  a. Take a gap year- When unsure of what to do for the future this is a great option to utilize to give you time to research your interests.

2.  c. Many trades are higher in demand than degrees from universities- You can eliminate social clubs knowing that most tech schools are geared toward specific careers and don’t have on-campus clubs.  More opportunities for advancement can be true but can also be true for university and upper-level degrees so eliminate this choice.  Greatest earning potential is not accurate as learned in the lesson notes, greatest earning potential is statistically through upper-level degrees.  (This doesn’t mean you can’t earn more than someone with a higher degree, just a generality)

3.  d. The costs and benefits in relation to her time, career, and earning potential- while she should consider a, b, and c, she shouldn’t ONLY consider those factors

4.  b. Gross income-before taxes and any deductions are taken out

5.  c. Deductions- Anything taken out of your gross pay is a deduction (health insurance, taxes, garnishments, retirement, and more)

6.  b. Earn less money temporarily- Being a business owner and doing (presumably) work she’s already passionate about, she won’t go looking for another job.  Tax exemptions being asked for is not common (or the IRS will laugh and laugh and still make you pay taxes).  Getting a salary increase when she’s already the owner is not likely without her moving up prices so b. is the most likely

7.  b. Regressive- Because Ralph makes less money than Vivana the burden will hit Ralph harder

8.  c. Hobbies and clothing Eliminate choices a. and b. because you can’t just change your rent amount (a fixed expense), and while she could try to carpool/use less gas, it’s unwise to diminish emergency savings to zero.  Clothing and hobbies are variable expenses that you can more easily cut back on.

9.  b. A durable good- A durable good is one that does not quickly wear out or isn’t good for just one use (like food) so making them last (whether they cost a lot or a little, like a weed-eater vs. a car, presumably you want both to last as long as possible even though one is way more money than the other) is ideal through measures like warranties.

10.  d. To make it look like a deal

11.  c. Money market- CDs, real estate, and checking are not going to yield higher for you

12.  d. A matching contributions plan- Stocks and money market might be great ideas for him to use, but are riskier and a matching contributions plan with an employer safely grows retirement money

13.  c. Roth IRA- no other choices offer tax savings

14.  c. The Bureau of Consumer Protection- This agency takes complaints about businesses that don’t make good on their promises or cheat people out of money.

15.  b. You can use the money for anything- This is false, you can only use it for education

16.  b. A real interest rate of 3.2%- Real interest rates have already adjusted for inflation unlike nominal so the highest real interest rate is the best option

17.  d. 1.2%- Subtract the two figures to find the real interest rate, 3.4-2.2 = 1.2

18.  b. Interest rates- APR is synonymous with interest rates on a Schumer box

19.  a. A longer period of being in debt- Making minimum payments on time will not reduce your credit, add fees, or cancel your credit card, it will just take you a lot longer to pay off and leave you in debt

20.  d. It makes insurance payments lower- down payments will do all but this, insurance payments are based on many factors (like location for homes or type of car/age of driver) but not based on down payments made or not made

21.  b. A credit bureau- This is checked by most lenders whether for car, home, or credit card before offering a loan and base interest rates on your credit as well

22.  c. Getting a new job will release you from your wage garnishment- Since wage garnishments are court ordered, any job you become employed with will be notified of wage garnishments once your Social Security number and info have been obtained by a new employer

23.  b. They have a very high interest rate and can be difficult to repay- If you are already struggling with debt these can be especially difficult and will only exacerbate your debt problems

24.  c. Start with a high-risk portfolio of stocks since she’s young and can change it as needed- Young investors making good money without a family to support have the time to wait out a dip in the market and can change their portfolio to lower risks over time

25.  c. She sees the potential for growth and can rebound more easily if there’s a downfall

26.  b. Every time you make a new claim- Deductibles are, unfortunately, not a one-time payment or a monthly part of your premium and are paid each time you file a new claim (whether it is for home or auto or any other insured item)

27.  a. She may have to pay a higher deductible if she’s in an accident- Generally if you choose lower payments for insurance it means you will have a higher deductible if you file a claim later

28.  a. Fraudulent attempts to obtain your sensitive information via electronic communication or telephone

29.  b. Your first point of contact if you are a victim of identity theft- it is not any of the other choices listed

30.  c. The Federal Reserve- The FED is in charge of monitoring and controlling the money supply in and out of banks using the discount rate, reserve requirement, and open market operations.