PFP 105 Exam 2 Review Questions with Correct Answers Latest Update 2025-2026
commercial banks - Answers accept deposits and use the funds to provide commercial and
personal loans
credit unions - Answers -nonprofit depository institutions that serve members who have a
common affiliation
-k-state credit union, farm-way credit union, navy federal
-they pay less in taxes
risk-free rate - Answers -a return on an investment that is guaranteed for a specified period
-rate of return of an investment with zero risk
risk premium - Answers -an additional return beyond the risk-free rate that can be earned from a
deposit guaranteed by the government
-risk premium= return on "risky" deposit - risk-free rate
-RP=R-Rf
monetary policy - Answers -why interest rates change
-the actions taken by the federal reserve to control the money supply
-open market operations
-federal funds rate
different types of accounts - Answers checking, savings, money market deposit account
(MMDA), certificate of deposit, money market mutual funds (MMFs), asset management
account
checking account - Answers advantages: liquid, safe, low minimum balance, convenient
disadvantages: minimum balance required, monthly fee, opportunity cost
savings account - Answers advantages: liquid, safe (federally insured), earns higher interest
than a checking account
disadvantages: minimum holding time, charges/fees, low interest rate, inconvenient
money market deposit account (MMDA) - Answers advantages: safe, earn interest, check
writing privileges
disadvantages: high minimum balance/penalties, interest rates below alternatives
, certificate of deposit - Answers advantages: safe, fixed interest rate, convenient
disadvantages: early withdrawal penalty, fixed interest rate, minimum deposit required
money market mutual funds (MMFs) - Answers advantages: higher interest rates, check writing,
limited risk, convenient
disadvantages: administrative fees, minimum initial investment, not insured, minimum checks
asset management account - Answers advantages: monthly statements, coordination of money
management, checks, high return, convenient
disadvantages: costly, minimum, initial investment, not insured
calculating the return on US treasury bills - Answers -also known as T-bills
-return= face value-purchase price/purchase price
credit reports - Answers -reports provided by credit bureaus to document a person's credit
payment history
-equifax, experian, transunion
-free credit reports available annually
-credit opt-out
-credit reports provided by credit bureaus
credit score - Answers -FICO is most widely used
-rating indicating creditworthiness
-creditors rely on this score to help determine whether you get a loan and what interest rate is
-affects the interest rate received on loans
characteristics of credit cards - Answers -retail (proprietary) credit card
-credit limit
-overprotection draft
-annual fee
-cash advance fee
-late fee
-over-the-limit fee
commercial banks - Answers accept deposits and use the funds to provide commercial and
personal loans
credit unions - Answers -nonprofit depository institutions that serve members who have a
common affiliation
-k-state credit union, farm-way credit union, navy federal
-they pay less in taxes
risk-free rate - Answers -a return on an investment that is guaranteed for a specified period
-rate of return of an investment with zero risk
risk premium - Answers -an additional return beyond the risk-free rate that can be earned from a
deposit guaranteed by the government
-risk premium= return on "risky" deposit - risk-free rate
-RP=R-Rf
monetary policy - Answers -why interest rates change
-the actions taken by the federal reserve to control the money supply
-open market operations
-federal funds rate
different types of accounts - Answers checking, savings, money market deposit account
(MMDA), certificate of deposit, money market mutual funds (MMFs), asset management
account
checking account - Answers advantages: liquid, safe, low minimum balance, convenient
disadvantages: minimum balance required, monthly fee, opportunity cost
savings account - Answers advantages: liquid, safe (federally insured), earns higher interest
than a checking account
disadvantages: minimum holding time, charges/fees, low interest rate, inconvenient
money market deposit account (MMDA) - Answers advantages: safe, earn interest, check
writing privileges
disadvantages: high minimum balance/penalties, interest rates below alternatives
, certificate of deposit - Answers advantages: safe, fixed interest rate, convenient
disadvantages: early withdrawal penalty, fixed interest rate, minimum deposit required
money market mutual funds (MMFs) - Answers advantages: higher interest rates, check writing,
limited risk, convenient
disadvantages: administrative fees, minimum initial investment, not insured, minimum checks
asset management account - Answers advantages: monthly statements, coordination of money
management, checks, high return, convenient
disadvantages: costly, minimum, initial investment, not insured
calculating the return on US treasury bills - Answers -also known as T-bills
-return= face value-purchase price/purchase price
credit reports - Answers -reports provided by credit bureaus to document a person's credit
payment history
-equifax, experian, transunion
-free credit reports available annually
-credit opt-out
-credit reports provided by credit bureaus
credit score - Answers -FICO is most widely used
-rating indicating creditworthiness
-creditors rely on this score to help determine whether you get a loan and what interest rate is
-affects the interest rate received on loans
characteristics of credit cards - Answers -retail (proprietary) credit card
-credit limit
-overprotection draft
-annual fee
-cash advance fee
-late fee
-over-the-limit fee
