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FINA200
NON-JMSB Second Sample Final Exam
It’s in your best interests to attempt this sample exam before you write the final. Try to do so under
“exam conditions”, i.e. lock yourself up somewhere in a quiet room, give yourself 3 hours with no textbook, and don’t look at the solutions until you have finished. In this way you will be able to identify your own personal areas of strength and weakness.
This sample final consists of 26 multiple choice questions (2 marks each) 13 true/false questions (1 mark each) and two cases (total of 35 marks). The multiple choice and true/false questions are taken evenly from the examinable chapters (1 - 3, 5 - 10, 13 - 15). Your exam this term is slightly different - it will have 33 multiple choice questions - 2 marks each for a total of 66 marks - and two case studies for a total of 34 marks. Chapters 4, 11 and 12 are omitted from the exam.
As well, I will provide templates (e.g. net worth statement) in the case studies as I did throughout the term.
Another change involves the fact that you will write the case study answers directly onto the exam. No exam booklet will be provided. The multiple choice answers will be entered onto a computer sheet.
The use of a non-programmable financial calculator will be permitted in the exam (this means a calculator that has the financial functions, but does not permit you to save alphanumeric data). You will not be permitted dictionaries.
You will not be required to complete a time value of money calculation that requires a financial calculator. However, you can be asked to identify which series of keystrokes would lead to a correct answer.
Please note that according to university regulations, the exam must be written . For in ink
FINA200, this filling out the computer sheet for the mutliple choice and true/false excludes
answers which must be completed in pencil.
1
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Personal Finance - FINA200
Final Examination
Instructor: Penelope A. Ellison
Student Name:
Student ID:
PLEASE READ THESE INSTRUCTIONS CAREFULLY
This is Version A
Section Y.
of the exam for
Write on the:
your name and student ID
Exam
Computer sheet
Booklet
There are thirteen to this exam including the cover page – please (13) pages
ensure that you have all thirteen.
This exam consists of :
three sections
Answer
.
Sections I and II
computer sheet
on the Answer Section III in the exam booklet
.
Please complete the exam entirely in .
ink
You are permitted a and translation non-programmable calculator
dictionaries.
2
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GOOD LUCK!
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Section I: 26 Multiple Choice Questions
Enter your response on the computer sheet. (2 marks each – total of 52 marks)
Question 1
Which of the following describes liquidity risk?
a)
Changing interest rates affect your borrowing costs.
b)
Rising prices cause lost buying power.
c)
Some investments may be more difficult to convert to cash.
d)
Products may be flawed or services may not meet your expectations.
Question 2
You will need $50,000 in 15 years' time to send your child to university. You will invest funds at an annual rate of 5%. How would you determine the beginning of year savings required?
a)
$50,000 PV, 15 N, 5 I, CPT PMT
b)
BGN $50,000 PV, 15 N, 5 I, CPT PMT
c)
$50,000 FV, 15 N, 5 I, CPT PMT
d)
BGN $50,000 FV, 15 N, 5 I, CPT PMT
Question 3
When in the adult life cycle must you carefully manage the increased need for the use of credit?
a)
Older (50+) single.
b)
Older (50+) couple.
c)
Young, dual-income couple, no children.
d)
Young couple with children under 18.
Question 4
Which asset would be included under investment assets on a Net Worth Statement?
a)
Cash surrender value of a life insurance policy.
b)
8-month term deposit.
c)
Bond mutual fund.
d)
Bank account.
4
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Question 5
What happens the more often interest is compounded?
a)
The effective annual rate remains unchanged.
b)
The effective annual rate rises.
c)
The effective annual rate falls.
d)
The effective annual rate is not affected by the compounding frequency.
Question 6
Which statement is false?
a)
Planning for variable expenses is more difficult than planning for fixed expenses.
b)
Budgets should be well planned, realistic, flexible and clearly communicated.
c)
Financial advisors recommend that savings be budgeted as a variable expense.
d)
An emergency fund of 3 months of expenses is adequate for a couple with steady and predictable income.
Question 7
Given the following, what is your average tax rate if your salary is $60,000 and you contribute $5,000 to a Tax Free Savings Account?
Tax Bracket
Rate
0 - $37,885
15%
$37,886 - $75,769
22%
$75,770 - $123,184
26%
a) 15.0%
b) 17.2%
c)
17.6%
d) 22.0%
5
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Question 8
Which of the following are true statements with respect to personal income taxes?
I.
Home office expenses can be deducted if you are self-employed and work at home.
II.
Gifts and inheritances are not taxed in Canada.
III.
Tax credits directly reduce the amount of tax owed.
a)
I and II, only.
b)
I and III, only.
c)
II and III, only.
d)
I, II and III.
Question 9
Which type of income is grossed-up for tax purposes?
a)
Canadian dividends.
b)
Foreign dividends.
c)
Neither (a) nor (b).
d)
Both (a) and (b).
Question 10
Which of the following financial institutions is non-profit?
a)
Schedule 1 Bank.
b)
Credit union or Caisse Populaire.
c)
Trust company.
d)
Life insurance company.
Question 11
Which best describes a credit card?
a)
An “electronic wallet” that stores prepaid amounts and personal information.
b)
A point-of-sale card that accumulates transactions that are billed monthly.
c)
A prepaid card for purchasing certain services.
d)
A payment solution to improve the safety of web purchases.
6
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Question 12
Which of the following is an example of revolving credit?
a)
Consumer loans.
b)
A line of credit.
c)
A demand loan.
d)
A home mortgage.
Question 13
Which of the 5 Cs of credit refers to a borrower’s attitude toward credit obligations?
a) Character.
b) Capacity.
c)
Capital.
d) Collateral.
Question 14
What should be the first step in buying a home?
a)
Apply for a mortgage.
b)
Determine the most affordable mortgage.
c)
Find the property.
d)
Price the property.
Question 15
You take out a 5-year, $150,000 fixed-rate mortgage to be amortized over 25 years. The quoted mortgage rate is 6% and payments are monthly. Which statement is false?
a) The rate will be compounded semi-annually even though payments are monthly.
b) The 6% mortgage rate is locked in for 25 years.
c) If you pay 10% of the principal every anniversary, you will reduce the total interest paid.
d) If the mortgage is high ratio, you will need to obtain mortgage default insurance.
Question 16
What is a mutual fund load?
a) A commission paid by the investor at time of purchase or sale of mutual fund units.
b) A management fee and operating costs charged to mutual fund unitholders.
c) An annual RRSP, RRIF and RESP trustee fee.
d) A fee charged for switching among funds in the same family.
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Question 17
In Canada, what is the minimum down payment to qualify for a conventional mortgage?
a) 30%
b) 25%
c)
20%
d) 10%
Question 18
Which of the following permits you to deduct the contributions you make from your income subject to taxation?
a)
Tax Free Savings Account (TFSA).
b)
Registered Retirement Savings Plan (RRSP).
c)
Registered Education Savings Plan (RESP).
d)
Guaranteed Investment Certificates (GICs).
Question 19
Which type of life insurance has a flat premium for life?
a)
Whole life insurance.
b)
Universal life insurance.
c)
Term insurance.
d)
Declining term insurance.
Question 20
Which statement is correct with respect to car insurance?
a)
The type of car you drive generally affects your third-party liability premium.
b)
Car insurance premiums may decline if the deductible is increased.
c)
No-fault insurance allows you to collect payments from another party’s insurer if you were not at fault in an accident.
d)
Collision insurance pays for damage to another’s property in the event of an accident.
8
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Question 21
Which is correct in terms of increasing (low to high) investment risk?
a)
Deposits, junk bonds, income stocks.
b)
Rental property, government bonds, options.
c)
Government bonds, growth stocks, commodities.
d)
Precious metals, provincial bonds and growth stocks.
Question 22
What type of investment is similar to a mutual fund but is insured by a life insurance company?
a)
Real estate investment trust (REIT).
b)
Segregated fund.
c)
Hedge fund.
d)
Income trust.
Question 23
Which statement about public pension plans is false?
a) If you meet certain residency requirements, you will qualify for the Old Age Security.
b) The guaranteed Income Supplement is not taxable.
c) The Canada or Quebec Pension Plan pay pension benefits as early as age 50.
d) Employees must contribute to the Canada Pension if they earn more than $3,500.
Question 24
Which type of will is prepared with an attorney's assistance and must be signed in the presence of two witnesses?
a) Notarial will.
b) Formal will.
c) Holograph will.
d) Trusteed will.
9
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Question 25
What are the advantages of a testamentary trust?
I.
Assets are protected from the beneficiary's creditors.
II.
A testamentary trust can prevent the beneficiary from commingling assets with
a spouse.
III.
Income earned in a testamentary trust is taxed at the lowest marginal tax rate.
a) I and II, only.
b) II and III, only.
c) I and III, only.
d) I, II and III.
Question 26
What type of corporate pension plan specifies the income an employee will receive at normal retirement age?
a)
Defined Benefit Pension Plan.
b)
Defined Contribution Pension Plan.
c)
Deferred Profit Sharing Plan.
d)
Registered Retirement Savings Plan.
Section II: 13 True/False
Enter your response on the computer sheet.
(1 mark each – total of 13 marks)
Question 27
Home Buyers' Plan withdrawals from an RRSP must be paid back over a period not exceeding 10 years.
a) True
b) False
Question 28
Getting married will usually void an existing will.
a) True
b) False
10
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What are the future value and the interest earned if $4000 is invested for 3 years at 8% compounded quarterly? (Round your answers to the nearest cent.)
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