Question 1

John owns a small department store that issues its own credit cards. He has been considering phasing out his own credit card and accepting Visa or MasterCard. If John chooses to do this he will be going from a position of risk to one of risk .

Accepted Answer

By initially issuing his own credit cards, John assumes the risk associated with credit issuance, such as default risk. Switching to Visa or MasterCard transfers this risk to the card issuers, hence from assumption to transfer of risk.

Question 2

Which of the following holds true for term insurance?

Accepted Answer

Term insurance premiums typically increase with age because the risk of death increases as the insured person gets older, making the policy more expensive to maintain.

Question 3

Money purchase plans are Defined Benefit Plans.

Accepted Answer

Money purchase plans are a type of Defined Contribution Plan, where the contributions are defined but the benefit at retirement depends on the investment performance.

Question 4

To have an insurable loss, all of the following criteria apply EXCEPT

Accepted Answer

For an insurable loss, it is not required that the loss be within the control of the insured. Insurance is designed to protect against unforeseen or uncontrollable events, not those within the policyholder's control.

Question 5

Which of the following would involve speculative risk?

Accepted Answer

Speculative risk involves a situation where there is a possibility of either a gain or a loss. Purchasing a lottery ticket is a prime example of speculative risk because there is a chance to win money (gain) or lose the money spent on the ticket (loss). The other options involve pure risks, where the outcome is either a loss or no loss, but no opportunity for gain.

Question 6

When a business practices risk management, the installation of a sprinkler system is risk

Accepted Answer

Installing a sprinkler system is a form of risk reduction because it minimizes the potential damage and impact of a fire, rather than avoiding, assuming, or transferring the risk to another party.

Question 7

Which part of Medicare includes a prescription drug plan?

Accepted Answer

Medicare Part D is specifically designed to cover prescription drugs, offering beneficiaries the option to add drug coverage to their Medicare plan.

Question 8

Risk is a term indicating all of the following EXCEPT

Accepted Answer

Risk involves uncertainty about future outcomes, not certainty. It is characterized by the probability, uncertainty, and variability of outcomes, not their certainty.

Question 9

Which of the following holds true for whole life insurance?

Accepted Answer

Whole life insurance policies have a cash value component, which grows over time and can be borrowed against or withdrawn (under certain conditions). This cash value is a distinguishing feature of whole life policies compared to term life insurance, where premiums are paid solely for the death benefit without accumulating any cash value.

Question 10

When a business practices risk management, the purchase of an insurance policy is risk

Accepted Answer

Purchasing an insurance policy is considered risk transfer because the financial consequences of a risk are transferred to the insurance company.

Question 11

Which of the following would involve speculative risk?

Accepted Answer

Speculative risk involves the chance of either a loss or a gain. Installing a merchandise display case could potentially increase sales (gain) or result in no change (loss), making it speculative. The other options are preventive measures against loss.

Question 12

When a business practices risk management, the decision NOT to issue credit and deal only in cash -only sales is risk

Accepted Answer

This decision is an example of risk avoidance because the business is choosing to avoid the risk associated with issuing credit (such as the risk of non-payment) by not engaging in that activity at all.

Question 13

The IRS states that 401k plans cannot favor highly compensated employees over lower paid workers.

Accepted Answer

The IRS mandates non-discrimination tests for 401(k) plans to ensure they do not disproportionately benefit highly compensated employees over those who are lower paid, promoting fairness and equality in retirement savings opportunities.

Question 14

John owns a small department store that issues its own credit cards. He has been considering phasing out his own credit card and accepting only cash. If John chooses to do this he will be going from a position of risk _ to one of risk _.

Accepted Answer

By initially offering credit cards, John assumes the risk of credit default or fraud. Switching to only accepting cash avoids these risks, hence moving from risk assumption to risk avoidance.

Question 15

To have an insurable loss, all of the following criteria apply EXCEPT

Accepted Answer

The potential loss can actually be reasonably predictable in insurance terms. Insurability requires that losses are estimable and that the insurance company can calculate risk and premiums accordingly. Predictability in terms of statistical likelihood allows insurers to assess risk and set premiums.

Question 16

Which of the following is NOT involved in the function of life insurance?

Accepted Answer

Life insurance primarily involves the creation, maintenance, and distribution of an estate, making none of the listed options an activity not involved in the function of life insurance.

Question 17

Which of the following holds true for whole life insurance?

Accepted Answer

Whole life insurance policies can be used as collateral for loans because they accumulate cash value over time. This cash value can be borrowed against by the policyholder.

Question 18

To have an insurable loss, all of the following criteria apply EXCEPT

Accepted Answer

The loss being catastrophic for the insurance company is not a criterion for an insurable loss. Insurable losses should ideally be non-catastrophic for the insurer to manage risk effectively and ensure solvency.

Question 19

Which of the following holds true for Medicare?
I.	Medicare covers all expenses if medically necessary.
II.	Medicare part B helps cover doctor services, outpatient care, and other items that part A does not cover.
III.	Medicare supplemental insurance plans fill in the gaps that the original Part A and Part B do not cover.
IV.	Medicare is paid to people under 65 if they have a disability for at least 24 months.

Accepted Answer

II, III, and IV are correct. Medicare Part B covers doctor services and outpatient care. Medicare supplemental insurance plans, also known as Medigap, help cover costs not covered by Original Medicare Parts A and B. Medicare is available to those under 65 with disabilities after they have received disability benefits for 24 months. Medicare does not cover all expenses, even if medically necessary, which makes statement I incorrect.

Question 20

A Roth 401k is funded with before -tax dollars.

Accepted Answer

A Roth 401(k) is funded with after-tax dollars, meaning the contributions are made with money that has already been taxed.

Quiz 11: Personal Finance

John owns a small department store that issues its own credit cards. He has been considering phasing out his own credit card and accepting Visa or MasterCard. If John chooses to do this he will be going from a position of risk to one of risk .

Which of the following holds true for term insurance?

Money purchase plans are Defined Benefit Plans.

To have an insurable loss, all of the following criteria apply EXCEPT

Which of the following would involve speculative risk?

When a business practices risk management, the installation of a sprinkler system is risk

Which part of Medicare includes a prescription drug plan?

Risk is a term indicating all of the following EXCEPT

Which of the following holds true for whole life insurance?

When a business practices risk management, the purchase of an insurance policy is risk

Which of the following would involve speculative risk?

When a business practices risk management, the decision NOT to issue credit and deal only in cash -only sales is risk

The IRS states that 401k plans cannot favor highly compensated employees over lower paid workers.

John owns a small department store that issues its own credit cards. He has been considering phasing out his own credit card and accepting only cash. If John chooses to do this he will be going from a position of risk _ to one of risk _.

To have an insurable loss, all of the following criteria apply EXCEPT

Which of the following is NOT involved in the function of life insurance?

Which of the following holds true for whole life insurance?

To have an insurable loss, all of the following criteria apply EXCEPT

A Roth 401k is funded with before -tax dollars.