FCS 3450 Exam 2 With Answers

A person with a total tax liability of $4,350 and withholding of federal taxes of $3,975 would

$4,350 - $3,975 = $375

A personal check with guaranteed payment is called a

certified check

To avoid high fees for loans, a person should avoid borrowing from a

pawnshop

A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent. Ignore compounding

33% = 2.75% (12 months)

George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution to a traditional individual retirement account of $1,500, and dividends from mutual funds of $600. George's adjusted income (AGI) would be

$34,000 + $800 - $1,500 + $600 = $33,900

A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of what percent

$5,889/$47,856 = .123 or 12.3%

The total dollar amount you pay to use credit is called the

A. Finance Charge

Which of the following would be deducted from gross income to obtain adjusted gross income?

Alimony Payments

Which interest formula may be used by creditors to determine how much interest you have paid at any point in a loan

D. The rule of 78s

Savings compounded ____________ would have the highest effective yield.

Daily

A certificate of deposit is usually considered to be very liquid

FALSE

Using a credit card, such as Visa or MasterCard, is an example of closed-end creditd

FALSE

Which FICO credit score would represent the least risky borrower

E. 825

Which one of the following agencies can produce for a subscribing member, almost instantaneously, a report about your past and present credit activity?

E. credit bureau

With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts

FALSE

With closed-end credit, loans are made on a continuous basis and you make at least a partial payment each billing period.

FALSE

With collateral, you will probably pay a higher interest rate on your loan than you would without collateral

FALSE

You can deduct interest paid on consumer loans for state and federal income tax returns.

FALSE

What type of tax is imposed on the value of an individual's property at the time of his or her death?

Estate

Which one of the following is not included in gross income

Exclusion

When you cosign a loan, you are being asked to guarantee this debt

TRUE

You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy

TRUE

A tax on the value of automobiles, boats, or furniture is referred to as a personal property tax.

TRUE

An estate tax is imposed on the value of an individual's property at the time of his or her death.

TRUE

An exclusion is earnings not included in taxable income.

TRUE

Credit is an arrangement to receive cash, goods, or services now and pay for them in the future

TRUE

Demand deposits are another term for checking accounts

TRUE

A deduction from adjusted gross income for yourself, your spouse, and qualified dependents is

an exemption

What type of account would be considered the most liquid

checking account

Checking accounts are frequently referred to as

demand deposits

Which one of the following is often the source of the least expensive loan

parents or family members

property tax is based on the value of land and buildings at some point in time.

Real Estate

A state may impose a personal property tax

TRUE

Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income

TRUE

If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month

TRUE

Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years.

TRUE

The annual percentage rate is the percentage cost of credit on a yearly basis

TRUE

The finance charge is the total dollar amount you pay to use credit.

TRUE

The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers

TRUE

Interest earnings of $1,600 from a taxable investment for a person in a 28 percent tax bracket would result in after-tax earnings of

$1,600 x (1 - .28) = $1,152

A person borrows $200 from a payday loan company, and pays $10 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore compounding

$10 x 26 weeks) = $260; $260/$200 = 1.3 or 130%

A $200 savings account that earns $13 interest in a year has a yield of ____________ percent

$13/$200 = .065 or 6.5 percent

Michele Walsh is considering an additional charitable contribution of $2,000 to a tax-deductible charity, bringing her total itemized deductions to $16,000. If Michele is in a 28 percent tax bracket, how much will this $2,000 contribution reduce her taxes?

$2,000 x .28 = $560

A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by

$50.00

A person has $4,000 in medical expenses and an adjusted gross income of $32,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?

.075 x $32,000 = $2,400; $4,000 - 2,400 = $1,600

A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent.

2.88% = 4 %( 1-.28)

Ms. Nelson is a single mom with three children; Dana is 18 and a high school senior, Derrick is 20 and a college sophomore, and Tonya is 25 and unemployed. All three children live at home. How many exemptions can Ms. Nelson claim on her tax return?

4

A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5 Cs of lending?

A. character

The Rule of 78s demonstrates that a borrower pays

A. more interest at the beginning of the loan period

A good example of open-end credit is

A. the use of a bank credit card to make a purchase

If you have declared personal bankruptcy, that fact may be reported by credit bureaus for ____________ years.

B. 10

Shelly Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month. Under the rule of 78s, what is the amount of interest included in her first payment?

B. 14.77 Total interest = ($258 x 12) - $3,000 = $96; First month's interest = [12/(12 + 11 +10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1)] x $96 = $14.77

The debt payments-to-income ratio is

B. calculated by dividing monthly debt payments (not including house payments) by net monthly income.

Which one of the following is a disadvantage of using credit?

B. ease overspending

If you have a problem with your creditor, the best solution is to

B. solve your problem directly with the creditor.

If you borrow $100 at 10 percent simple annual interest and repay it in one lump-sum at the end of one year, you will repa

C. 110 Repayment = $100 + (.10 x $100) = $110

When you complain about your billing error, the creditor must acknowledge your letter within ____________ days

C. 30

Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time

C. Chapter 13

The best way to maintain your credit rating is to

C. repay your debts on time

Which formula dictates that you pay more interest at the beginning of the loan and pay less and less interest as the debt is reduced

C. the rule of 78s

Affan Chawdry has monthly net income of $1,050. He has a house payment of $450 per month, a car loan with payments of $250 per month, a Visa card with payments of $50 per month, and a credit card with a local department store with payments of $100 per month. What is Affan's debt payments-to-income ratio?

D. 0.38 Ratio = ($250 + 50 + 100)/$1,050 = 0.38

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10, what is her total cost of credit?

D. 34 Cost of credit = ($200 x .12) + $10 = $34

The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth

FALSE

The rule of 78s formula dictates that you pay less interest at the beginning of a loan.

FALSE

There are no costs involved in filing for a bankruptcy

FALSE

Which of the following institutions makes loans based on the value of tangibles possessions, such as jewelry and collectibles

pawnshop

When interest rates are rising, a person would be best served by

short-term savings