Exam 2 Personal Finance McGraw Hill Review

Why are some financial service operations referred to as financial supermarkets?

They offer a combination of services from one source.

A standard measurement used to compare the prices of packages of different sizes is

Unit pricing.

The insurance coverage provided by the FDIC for a savings account is ________ per depositor per insured financial institution.

$250,000

When misused, credit can result in

***All the choices are correct. A less satisfying life. Loss of creditworthiness. Bankruptcy. Default.

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?

0.67 $30,000/45,000 = 0.67.

Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-to-income ratio?

19% ($275 + $150 + $50)/$2,500 = 0.19 = 19%.

Investments, insurance, and tax assistance are tools for financial planning and are also known as

Financial services.

Yvette has a flexible-rate mortgage that limits the amount to which her monthly payments can rise. This feature is called a(n)

Payment cap.

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called:

Points.

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to

$117,000.

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal?

$180.50 Interest = Principal × interest rate × Time = $150,000 × 5% × 1 month/12 months = $625.00. Principal = Total payment − Interest $805.50 − $625.00 = $180.50.

Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at once after one year, what is your average balance?

$300 Average balance = (Loan balance in first month + Loan balance in last month)/2 = ($300 + $300)/2 = $300 borrowed since it is available during the entire loan period.

Evan had three accounts as listed below. In 2017, how much was his total insurance coverage by the FDIC? Bank A: $150,000 Bank B: $50,000 Bank C: $350,000

$450,000 In 2017, the maximum coverage was $250,000 per insured institution. Therefore, Evan received full coverage for Banks A and B and coverage up to $250,000 at Bank C. His total coverage was $150,000 + $50,000 + $250,000 = $450,000.

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for?

$50.

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

20%

FICO scores generally range from

350 to 850.

Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin's actual rate of return on the loan?

4% Interest rate − Inflation rate = Actual rate of return = 6% − 2% = 4%.

Lease.

A legal document that includes information about the due date of monthly rent is called a

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

A money market account

A drawback of a regular savings account is

A relatively low rate of return.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use?

A savings account.

A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as

A trust.

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash, and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except

All of these steps are appropriate to take if she suspects identity theft.

Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?

An interest-earning checking account.

What step can you take if your credit application is denied?

Ask the reasons why you were denied credit.

Which of the following is a disadvantage of a car lease?

At the end of the lease, you have no ownership interest in the vehicle.

A service contract

Covers the repair costs of a product.

Which of the following is the document that transfers ownership of property from one party to another?

Deed

A fixed operating cost for a vehicle is

Depreciation.

The largest fixed expense associated with a new automobile is

Depreciation.

A credit report includes

Detailed credit information

Which of the following is correct about the lemon law?

It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles.

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?

Life insurance company.

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts.

Limited warranty

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

Liquidity

Which of the following is NOT a benefit of home ownership?

Maintenance and costs of repairs and home improvements

A variable operating cost for a vehicle is

Maintenance and repairs.

Which of the following is NOT a valid reason for borrowing?

Paying for everyday living expenses

The text identifies several phases in the research-based buying process. The correct order of the phases is

Pre shopping activities, evaluating alternatives, selection and purchase, post purchase activities.

These products are sold by one chain of stores and are low-cost alternatives to famous-name products.

Private-label or store brands.

Which of the following is an advantage of renting?

Renters have fewer responsibilities for maintenance than home owners.

A cash advance

Requires you to pay interest every day until you repay the cash advance

The expected value of a vehicle at the end of a lease is called the

Residual value.

Zoe signed the back of her check with the words "for deposit only." She used a(n)

Restrictive endorsement.

The amount printed on a label with the suggested retail price that is posted on a vehicle is called the

Sticker price.

If a check is lost or stolen, you should use a

Stop-payment order.

Which of the following is a disadvantage of renting?

Tenants cannot take tax deductions for mortgage interest and property taxes.

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

Subletting

The opportunity to have another person take over rent payments and live in the rental unit is called (a)

Lessor.

The owner/landlord is known as the

Kelly selected a home and submitted an offer to the seller.

The seller may reject the offer and choose to provide a counteroffer.

The minimum monthly payment on a credit card is

The smallest amount you can pay and remain a borrower in good standing.

Perhaps the greatest disadvantage of using credit is

The temptation to overspend.

If you are denied credit,

You are entitled to a free copy of your credit report.

All of the following are warning signs of debt problems except

You pay your credit card bills in full each period.

Which of the following is often the first sign of a stolen identity?

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

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for?

$238

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward interest?

$625.00 Interest = Principal × interest rate × Time = $150,000 × 5% × 1 month/12 months = $625.00.

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

***All of these questions should be considered. Could I use the credit I need for this purchase in some better way? Could I postpone the purchase? Does the purchase fit my budget? Do I have the cash I need for the down payment?

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1.

Nicholas earned 8% in his savings account. If he is in the 28% tax bracket, what is his after-tax savings rate of return?

5.76% After-tax rate = Return × (1 − Tax rate) = 8% × (1 − 0.28) = 8% × 0.72 = 0.0576 = 5.76%

Which of the following primarily provides loans for home purchases?

A mortgage company

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM.

Buying a vehicle can be a challenging process. When researching a vehicle, a consumer may want to consider all of the following vehicle options except

All of the options may be considered.

While evaluating alternatives, all of the following are appropriate questions you could ask before making a major purchase except

All of these are questions that should be asked.

Which of the following is an account used to pay property taxes and homeowner's insurance?

Escrow

Paul is looking for a low interest, low down payment loan for his first home, but he is not a veteran. He might be eligible for a(n)

FHA loan.

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except

Home appraisal.

The dealer's cost is also known as the

Invoice price.

A process used to settle grievances in a nonbinding process is called a(n)

Mediation.

Kylie went to a post office to obtain a

Money order.

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments.

Private mortgage insurance

Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.

Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme?

$110,000 Maximum home equity loan = Home value × 80% − Mortgage balance = $200,000 × 80% − $50,000 = $110,000.

All of the following are non-deposit institutions except

A credit union.

All of the following are deposit institutions except

A finance company.

While evaluating alternatives, comparison shopping will be beneficial for buying all of the following except

A hot dog at the baseball park.

Which of the following will likely provide the most expensive loans?

A payday loan company

What should a home buyer consider when evaluating a house?

All of these should be evaluated.

An all-in-one account that provides a complete financial services program for a single fee is known as

An asset management account.

Chloe signed the back of her check with just her signature. She used a(n)

Blank endorsement.

Which of the following is NOT a strategy for wise buying?

Buying items on impulse

Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a

Certified check.

Sally has a major problem with a product and thinks that many others have had the same problem. Which of the following is the best way to resolve the problem?

Class action lawsuit

The use of property or savings to secure a loan relates to

Collateral.

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time.

Full warranty

Home equity loans

Have interest that is tax-deductible.

Think about consumer complaints. Which of the following is correct?

If you don't get satisfaction from working with the company headquarters, you may get assistance from a mediator in order to avoid legal action.

The tenant is the

Lessee.

If you want to pay a set fee to receive unlimited or reduced-fee legal assistance, you should use (a)

Prepaid legal services.

Who is responsible for a loan repayment?

The cosigner and/or the borrower

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes.

Property taxes.

Which of the following expenses is NOT usually incurred by a tenant?

The Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.

annual percentage yield (APY)

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

When Sam applied for a loan, he was assured that his rate would not change if he closed within 30 to 90 days. Sam had a(n) ______ on the interest rate.

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