ch 4 knowledge check/quiz

Robert Sampson owns a townhouse valued at $184,000 and still has an unpaid mortgage of $149,000. In addition to his mortgage, he has the following liabilities: Total $ 11,520 Robert's net worth (not including his home) is about $38,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. a. What is Robert's debt-to-equity ratio? (Round your answer to 2 decimal places.) b. Has he reached the upper limit of debt obligations?

a. Debt-to-equity ratio = Total debt excluding mortgage/Net worth excluding home= $11,520/$38,000= 0.30 b. The upper limit of the debt-to-equity ratio is 1, so he has not reached his upper limit.

outstanding checks

checks written that have no been presented to the bank for payment

According to the video, which is not a fee that is mentioned for pre-paid cards?

cash deposit fee

before choosing a high cost loan option, consider:

- determine annual interest rate for prospective loan - compare to average interest rate for loans from a bank/other financial institution - ask questions and read the fine print

APY =

100 * interest/principal

Experts suggest that the debt payments-to-income ratio should be a maximum of:

20%

Marsha invests $1,350 and earns a $105 return at the end of one year. What is her annual percentage yield (APY)?

7.78% (105/1350 = 0.078 // 0.078*100 = 7.78)

Which of the following is NOT associated with credit cards?

A debit to your checking account

deposits in transit

deposits made but have not yet been processed by the bank

According to the video, what is the most common reason that the adjusted bank balance and your checkbook balance don't agree?

either you or the bank made a mistake

According to the video, all of the following are advantages of pre-paid cards, except:

unlimited purchasing

Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio?

$30,000/$45,000 = 0.67

steps to determine after-tax savings rate of return calculated

1 - determine top (marginal) tax rate 2 - subtract tax rate from 1.0 3 - multiply the yield on savings account by the answer from step 2

According to the video, which of the following is not mentioned as a financing opportunity for the unbanked? - car title loans - cash checking outlets - pawn shops - corporate bonds - payday loans

corporate bonds

disadvantages of debit card

fees for most financial activities (ex = activation fee, monthly fees, cash withdrawal fees, transaction fees, balance inquiry fees, adding funds fees, dormancy fee)

unbanked people

individuals without bank accounts who regularly utilize financial service companies that charge high fees

___________________ individuals are those who have bank accounts, but still use high-cost financial service companies.

underbanked

4 step process to reconciling your checking account

1 - subtract all outstanding checks from balance shown on monthly bank statement 2 - add deposits in transit to balance shown on bank statement 3 - subtract any bank fees, ATM withdrawals, automatic payments, and other charges made by the bank that haven't been added to your checkbook 4 - add interest and direct deposits not yet recorded in your checkbook

Which of the following is often the first sign of a stolen identity? A. You receive bills for a credit card account you never opened. B. You see charges to your account for things you purchased. C. You receive a phone call from the thief. D. You receive a duplicate credit card from your credit card company. E. All of these are typical signs of a stolen identity.

A. You receive bills for a credit card account you never opened.

Sidney took a cash advance of $850 by using checks linked to her credit card account. The bank charges a cash advance fee of 3 percent on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. What was the cash advance fee?

Cash advance fee = Cash advance fee percent × Cash advance amount = 0.03 × $850 = $25.50

All of the following are warning signs of debt problems except: A. You use savings to pay for necessities such as food and utilities. B. You receive second and third payment due notices from creditors. C. You exceed the credit limits on your credit cards. D. You pay your credit card bills in full each period. E. The total balance on your credit cards increases every month.

D. You pay your credit card bills in full each period.

Which of the following can result from a failure to repay a loan? A. Bankruptcy B. Loss of income or valuable property C. Loss of a good reputation D. Damage to family relationships E. All of the above may result from the failure to repay a loan.

E. All of the above may result from the failure to repay a loan.

If you think a bill is wrong or you want more information about the bill, then you and your creditor should follow all of the steps here except: A. You should notify your creditor in writing. B. You should pay the portion of the bill that is not in question. C. Your creditor must acknowledge your letter within 30 days. D. Your creditor must adjust your account or tell you why the bill is correct within two billing cycles. E. Your creditor must reimburse you for your time spent researching the error.

E. Your creditor must reimburse you for your time spent researching the error.

Sidney took a cash advance of $850 by using checks linked to her credit card account. The bank charges a cash advance fee of 3 percent on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. What was the interest for one month at an APR of 12 percent? (Round your answer to 2 decimal places.)

Monthly interest = (Annual rate/12) × Cash advance amount = (0.12/12) × $850 = $8.50

According to the video, which is one of the main advantages of pre-paid cards versus cash?

Pre-paid cards are more secure, easier to track the expenses, and loyalty points are available with certain stores.

Heather is currently in a 15% tax bracket and has a 3.4% savings rate of return. What is her after-tax savings rate of return?

Step 1: Determine your top (marginal) tax rate = 15% Step 2: Subtract your tax rate from 1.0 = 1.0 − 0.15 = 0.85 Step 3: Multiply the yield on your savings account with step 2 answer. = 0.034 × 0.85 = 2.89%

Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return?

Step 1: Determine your top (marginal) tax rate = 22% Step 2: Subtract your tax rate from 1.0 = 1.0 − 0.22 = 0.78 Step 3: Multiply the yield on your savings account with step 2 answer. = 0.072 × 0.78 = 5.62%

Many people expect which of the following?

Their incomes to increase to make it easier to make payments on past credit purchases

Sidney took a cash advance of $850 by using checks linked to her credit card account. The bank charges a cash advance fee of 3 percent on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. What amount would she have paid if she had made the purchase with her credit card and paid off her bill in full promptly? Assume the credit card has a 30-day grace period.

Total amount paid = Cash advance amount = $850.00 // If her credit card did not have a grace period, then she would also have owed $8.50 for monthly interest

Sidney took a cash advance of $850 by using checks linked to her credit card account. The bank charges a cash advance fee of 3 percent on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. What was the total amount she paid?

Total amount paid = Cash advance fee + Monthly interest + Cash advance amount = $25.50 + $8.50 + $850 = $884.00

_______________________ is a check that you have written but has not been presented to the bank for payment.

outstanding check

why is after-tax savings rate of return calculated?

taxes will reduce actual return earned on savings and investments

APY is the % rate expressing

total amount of interest received on a $100 deposit (based on annual rate, frequency of compounding in 1 year period)