Family Finance: exam 2

When should you purchase renter's insurance?

if you rent and have items of value in building your are renting

Payday loans

short-term loans of one or two weeks which are secured with a postdated check

What does homeowners insurance generally cover?

structure (damage to house itself) contents (damage, loss to items within) liability (damage to people on property or property itself)

excise tax?

tax levied against certain specific products or services on a per unit baasis

What is property tax?

tax levied on value of land/buildings

Social Security tax?

tax on earnings of workers to fund SS System

What is the grace period?

the period between when a payment is due and penalties are incurred

What are the cons of whole life insurance?

very expensive high commissions low rate of return vs stock investments (invest yourself = more wise) complex illustrations misleading

What are the 4 ways to manage risk?

1) Avoid 2) Reduce 3) Assume 4) Transfer (i.e. insurance)

What are the cardinal rules when using credit cards?

1) pay it off on time 2) keep track of spending 3) perform "plastic surgery" if needed - but leave accounts open

Personal property taxes?

A state and local tax against certain personal assets

Who needs life insurance?

If you provide for one or more people who depend on your income for survival, you have a moral obligation to have sufficient life insurance to take care of their needs in case of your death

What is excluded on gross income?

Roth IRA/401K Interest on municipal bond Life insurance proceeds

On which income tax form you report itemized deductions?

Schedule A Itemized Deductions

What are the steps for getting out of debt?

1) recognize have debt problem 2) Stop incurring debt 3) Make list of all debts 4) Look for different ways of reducing debt (savings, garage sale, etc.) 5) Organize repayment/debt-reduction strategy (i.e. debt-elimination)

Bob hasn't been managing his finances very well and is in need of an emergency loan to pay rent. On July 10, he goes to Cash4U for a payday loan and borrows $500. Bob writes a postdated check for $555 which Cash4U will cash 6 days later on July 16. What is Bob's APR on his $500 loan? (see Example 4.4) A. 1.50% B. 548.24% C. 175.45% D. 640.41%

B. 548.24%

______________ automobile insurance covers the insured's vehicle against things such as hail damage, theft, falling objects, collision with a giraffe, and windshield damage. A. Collision B. Comprehensive C. BOTH collision and comprehensive D. No fault E. Liability

B. Comprehensive

What component makes up the greatest proportion of your credit score? A. Debt of income ratio B. Payment history C. New credit D. Total amount of assets

B. Payment history

What are the pros of whole life insurance?

Builds cash value premium stays level (regardless of age) pay own premium within policy tax-deferred growth of cash value

What are the 5 Cs of Credit?

Character, Capacity, Capital, Collateral, Conditions

What is a refundable tax credit that is particularly beneficial to married BYU students with children?

Earned income credit.

What are the 4 items that are deductible?

Home mortgage interest Charitable donations State/local taxes (limit of $10,000) Medical and dental (if 10% of AGI or higher)

What does collision cover?

Pays for damage to your car is a collision with another car (regardless of who is at fault) Collision with a non-living object, rollovers

What is sales tax?

Percentage tax on the sales price of goods

What kind of insurance is often overlooked by BYU students?

renter's insurance

What are single-payment loans?

type of short-term lending repaid in one lump sum that may be used to temporarily finance a purchase until permanent long-term financing can be arranged (i.e balloon loans)

What do the numbers for liability insurance mean? (100/300/50)

100 - $100,000 per person per accident 300 - $300,000 per accident 50 - $50,000 property coverage

What ammendment gave congress the power to impose income tax?

16th ammendment

How many credit cards is recommended to use at a time?

2-3

What's the FICO score range for those with excellant credit?

720-850

Marcus is planning to propose to his girlfriend Melody next week. Since he is a poor college student, Marcus decides that he needs to get a loan so that he can get Melody the ring of her dreams. The engagement ring he chooses costs $3,500 and is financed with a 3 year, 4% (compounded monthly) interest rate. If Marcus takes all 3 years to pay the ring off, how much will he have really ended up spending on Melody's ring? (see example 4.1) A. $3720.02 B. $3783.66 C. $3920.00 D. $3937.02

A. $3720.02

Elder Marvin J. Ashton stated that it is necessary to have four types of insurance. What are they? A. Automobile insurance, medical insurance, homeowner's insurance, and adequate life insurance program B.Dental insurance, travelers insurance, credit card insurance, and rental car insurance C. Home equity insurance, private mortgage insurance, flight insurance, and mortgage life insurance D. Unemployment insurance, disease insurance, accidental-death insurance, life insurance

A. Automobile insurance, medical insurance, homeowner's insurance, and adequate life insurance program

Which of the following is NOT a feature of the Affordable Care Act (ACA)? A. Dental check-ups are fully covered B. If anyone gets extremely sick, insurance companies cannot terminate coverage or limit the amount of coverage C. Wellness and pregnancy exams are now free to the patient D. Young adults may stay on their parents' health insurance until the age of 26 E. ALL of the above ARE features of the Affordable Care Act (ACA)

A. Dental check-ups are fully covered

In June, Jake and Jill sign up for a American Express credit card which has the following terms: Interest rate = 19% (compounded daily) Statement Cycle = June 15th - July 14th Grace Period = 22 days (bill due on 5th of the following month) Minimum payment = Greater of $25 or 2% statement balance Late fee = $35 On July 3, Jake and Jill make their only purchase with the card (new furniture for $1,200). They are struggling to understand how credit cards work. Help them answer the following three questions (see examples 4.5 and 4.6). If Jake and Jill forget to a payment by their due date (Aug. 5), what will be their credit card balance on August 6? A. $1,221.42 B. $1,255.79 C. $1,256.42 D. $1,235.62

C. $1,256.42

What is the cost per thousand for auto liability insurance of 150/450/100 with a monthly premium of $70? (see example 6.13) A. $0.13 B. $0.12 C. $1.53 D. $1.40

C. $1.53

Which of the following is (are) not an advantage(s) of term life insurance? A. Low Commissions B. Inexpensive C. Builds Cash Value D. A & B E. All of the above

C. Builds Cash Value

As the main provider, James has determined he needs to purchase life insurance. He needs to provide a real $65,000 per year until his youngest, who is currently 3, is 23 years old. James expects a return of 4% and falls in the 15% marginal tax bracket. James also expects a 1.8% inflation rate. Using the needs analysis method, how much life insurance should James purchase? Round all interest rate calculations to 4 decimal places. (see example 6.3) A. $976,492.09 B. $989,348.46 C. $1,005,459.36 D. $1,108,298.72 E. $1,125,699.01

D. $1,108,298.72

Heather is looking at life insurance policies for her family. Heather makes $65,000 per year. Using the multiple of income method and a multiple of 20, how much life insurance does she need? (see example 6.1) A. $500,000 B. $900,000 C. $1,200,000 D. $1,300,000 E. Not enough information is provided to calculate how much life insurance she needs.

D. $1,300,000

Clive, a CNA (certified nursing assistant), hurts his back while transferring a client at his work. Chiropractic work and physical therapy cost Clive $6,000. Clive's health insurance policy has a $1,700 deductible, and 80/20 coinsurance with a maximum copayment of $1,200. (see example 6.5.) What is Clive's maximum annual out-of-pocket cost? A. $900 B. $1,200 C. $1,700 D. $2,900

D. $2,900

According to church leaders, what are potentially legitimate types of debt? A. Modest home mortgage B. Education C. Basic Transportation D. All of the above

D. All of the above

According to the textbook, how often should you review your credit report to ensure its validity? A. Daily B. At least weekly C. At least monthly D. At least annually E. At least once every three years

D. At least annually

In return for covering certain losses, you pay the insurance company a __________ on a regular basis. A. Cash Value B. Deductible C. Monthly Payment D. Premium

D. Premium

What is the amount the insured must pay before the insurance company pays anything

Deductable

True or false. It may be useful to obtain and use a credit card in order to build up a credit history to enable you to qualify for a home mortgage when the time comes to buy a home. True False

True

What are the components included in gross income?

Wages Salaries Tips Investment income Scholarships and grants (excess) Prizes, awards, gambling, et.c Retirement from Traditional 401K/IRA

What are the 4 most caring words?

We can't afford it

Following his high school graduation, Brandon buys a new laptop for $1,500 through BestSpend's payment program which requires no money down and only a $40/month payment at the end of each month. Interest on purchases through this program accrues at 25% APR compounded monthly. How much total interest will Brandon end up paying if he only ever makes the minimum $40/month payment? (See example 4.1) A. $1,448 B. $1,312 C. $1,768 D. $724

A. $1,448

True or false. A higher premium payment generally means you'll have a lower deductible. A. True B. False

A. True

Grant is a graduate student at BYU and needs to purchase life insurance to protect his wife and two children should he die. How much life insurance should he purchase if he makes $70,000 a year and has an insurance multiple of 15? (see example 6.2) A. $1,025,000 B. $1,050,000 C. $2,000,000 D. $2,050,000

B. $1,050,000

Eight years ago, you bought a 2000 Honda Civic. For the past eight years, you have faithfully paid $232 every 6 months for collision coverage that has a $500 deductible. This morning your car had a book value of $1,600. On your way home from work you crash into a tree. The car can still be driven but has $1,800 damage to the car body. If your file a claim, how much money will you receive from your insurance company? (see example 6.14) A. $0 B. $1,100 C. $1,300 D. $1,800 E. Cannot be determined

B. $1,100

In June, Jake and Jill sign up for a American Express credit card which has the following terms: Interest rate = 19% (compounded daily) Statement Cycle = June 15th - July 14th Grace Period = 22 days (bill due on 5th of the following month) Minimum payment = Greater of $25 or 2% statement balance Late fee = $35 On July 3, Jake and Jill make their only purchase with the card (new furniture for $1,200). They are struggling to understand how credit cards work. Help them answer the following three questions (see examples 4.5 and 4.6). What is the minimum payment that Jake and Jill owe on August 5? A. $0 B. $24 C. $25 D. $35

C. $25

Clive, a CNA (certified nursing assistant), hurts his back while transferring a client at his work. Chiropractic work and physical therapy cost Clive $6,000. Clive's health insurance policy has a $1,700 deductible, and 80/20 coinsurance with a maximum copayment of $1,200. (see example 6.5.) What is the insurance company's responsibility? A. $0 B. $2,560 C. $3,440 D. $4,300

C. $3,440

Using the needs analysis, how much life insurance should Robyn purchase if she wants to provide $48,000 at the beginning of each year for 10 years and expects a return of 3.95% to care for her family should she die? (see example 6.3) A. $410,639.56 B. $390,293.86 C. $405,710.47 D. $471,423.21

C. $405,710.47

Against what losses should you most likely insure yourself (transfer risk to others)? A. Low severity and low frequency B. Low severity and high frequency C. High severity and low frequency D. High severity and high frequency

C. High severity and low frequency

President J. Reuben Clark Jr. once warned that "Once in debt, ___________ is your companion every minute of the day and night, you cannot shun it or slip away from it ... and whenever you get in its way or cross its course or fail to meet its demands, it crushes you..." A. A Bill Collector B. Depression C. Interest D. Worry

C. Interest

When you combine the total personal debt in the United States with the national debt of the United States, how much debt is there for each person in the United States? A. About $1,400 B. About $8,900 C. About $57,000 D. About $63,000 E. About $120,000

E. About $120,000

Which of the following is NOT one of the 5 C's of credit? A. Capital B. Character C. Capacity D. Collateral E. Confidence F. All of the above are the five C's of credit

E. Confidence

What is the easiest way to reduce insurance premiums?

increase the deductible

What are the pros of term life insurance?

inexpensive easy understand low commissions can convert to whole life insurance later

unsecured loan?

no collateral...only offered to those with good credit

What is term life insurance?

premiums cover death benefit only, pure insurance

What is whole life insurance

premiums cover death benefit plus an investment plan with modest but guaranteed returns.

What are the cons of term life insurance?

premiums increase as insured ages no cash value can be purchased after age 65

What is the marginal tax rate?

rate of tax paid last - amount of tax payable on the next dollar earned

Inheritance tax?

tax on money received by heirs

What is estate tax?

tax on value of estate should someone pass

What is tax freedom day?

the date when taxpayers have earned enough income to pay their annual tax burden

What are some popular benefits of of the Affordable Care Act

young adults stay until age 26 (on parents) If anyone gets really sick, insurance companies cannot terminate coverage Wellness and pregnancy exams are free to the patient. Health insurance companies are required to use at least 80% of premiums on providing actual medical services.

How much life insurance should Kaden purchase to protect his family should he die using the needs analysis if he wants to provide $70,000 per year in after-tax income for 20 years and expects 2.5% return and falls in the 15% marginal tax bracket? (see example 6.3) A. $1,130,912.46 B. $1,091,241.36 C. $1,154,944.35 D. $1,118,522.39

A. $1,130,912.46

Clive, a CNA (certified nursing assistant), hurts his back while transferring a client at his work. Chiropractic work and physical therapy cost Clive $6,000. Clive's health insurance policy has a $1,700 deductible, and 80/20 coinsurance with a maximum copayment of $1,200. (see example 6.5.) What is Clive's responsibility for his back? A. $1,700 B. $2,560 C. $4,800 D. $6,000

B. $2,560

Following his high school graduation, Brandon buys a new laptop for $1,500 through BestSpend's payment program which requires no money down and only a $40/month payment at the end of each month. Interest on purchases through this program accrues at 25% APR compounded monthly. How much total money will Brandon end up spending on the laptop if he only ever makes the minimum $40/month payment? (see Example 4.1) A. $3,268 B. $2,948 C. $2,224 D. $2,812

B. $2,948

Following his high school graduation, Brandon buys a new laptop for $1,500 through BestSpend's payment program which requires no money down and only a $40/month payment at the end of each month. Interest on purchases through this program accrues at 25% APR compounded monthly. Instead of the $40/month minimum payment, assume that Brandon decides to pay $100 each month. How long will it take Brandon to pay off his laptop now? (see Practice Problem 4) A. 20.1 months B. 17.7 months C. 18.2 months D. It will take Brandon just as long to pay off the loan as the $40/month payment would.

C. 18.2 months

Upon graduating with his master's degree, Stephen has $25,000 in student loans! The interest rate on his loans is 4% compounded monthly. If Stephen would like to pay off his student loans over five years, what will his monthly payment be? (see example 4.2) A. 449.97 B. 458.83 C. 460.41 D. 467.97 E. Not enough information

C. 460.41

Following his high school graduation, Brandon buys a new laptop for $1,500 through BestSpend's payment program which requires no money down and only a $40/month payment at the end of each month. Interest on purchases through this program accrues at 25% APR compounded monthly. If Brandon only ever makes the minimum payment, how long will it take to pay off the debt? Round to the nearest tenth of one month. (see Example 4.1) A. 55.6 months B. 70.3 months C. 73.7 months D. 81.7 months

C. 73.7 months

Which of the following is NOT a way to manage risk? A. Assume it B. Avoid it C. Consume it D. Reduce it E. Transfer it

C. Consume it

What categories make up the FICO credit score scale?

Excellent Good Fair Poor

In June, Jake and Jill sign up for a American Express credit card which has the following terms: Interest rate = 19% (compounded daily) Statement Cycle = June 15th - July 14th Grace Period = 22 days (bill due on 5th of the following month) Minimum payment = Greater of $25 or 2% statement balance Late fee = $35 On July 3, Jake and Jill make their only purchase with the card (new furniture for $1,200). They are struggling to understand how credit cards work. Help them answer the following three questions (see examples 4.5 and 4.6). True or False. As long as Jack and Jill make the minimum payment by August 5, they will get a grace period for their next month's statement cycle (July 15-August 14 statement cycle, due on September 5).

FALSE

True or false. If you do not use a credit card, you generally should close the credit card account. True False

FALSE

True or false. Installment loans are also known as balloon loans. Normally these loans are used for short-term lending of one year or less. This type of loan is repaid in one lump sum, including interest, at the end of the specified term. True False

FALSE

What is a great place to get information about the ACA?

Kaiser Family Foundation Health Reform Website

convertible loans

Loans in which the interest-rate structure can change

What are installment loans?

Loans that are repaid at regular intervals

What has the greatest impact to your credit score?

Payment history (on time?)

Which level/s programs (lower deductibles) may be least costly for those who use more health services than average

Silver & Gold

Premiums for term life insurance generally increase as you get older. Premiums for traditional whole life insurance generally do not increase as you get older. True False

TRUE

T or F: Bronze level programs (high deductibles) are least costly for those who are healthier than average

TRUE

T or F: The Affordable Care Act requires almost everyone in the United States to have health insurance or pay a penalty.

TRUE

T or F: Your spouses credit score is considered along with your own credit when you are getting a mortgage?

TRUE

True or false. Purchasing insurance and investing products separately usually results in a higher yield on investment than if you were to bundle the two together (e.g., whole life insurance). True False

TRUE

True or false. Secured loans use one of your assets, such as a car or boat, as collateral to guarantee that the lending institution will get at least some of the loan back even if you fail to make payments. True False

TRUE

loan contract

a document which describes what the lender requires of your family once you are granted the loan

What are consumer loans?

amount of money lent to individual for personal, family, or household purposes

Insurance is one way we can minimize risk. In family finance, insurance is most effective when it minimizes which kinds of risks? a) Common and Expensive Events b) Rare and Expensive Events c) Common and Affordable Events d) Rare and Affordable Events e) All of the Above

b) Rare and Expensive Events

Secured loans?

loans that have collateral - get amt even if fail to make payment

variable-rate loans

loans which have an interest rate that is adjusted at different intervals over the life of the loan

The higher your credit score the ________ your interest rates on loans

lower

Income tax

main source of gov. funds tax earnings of workers

fixed-rate loans?

maintain the same interest rate for the duration of the loan.