Fin 101 Exam

Funds in commercial banks are protected by the:

Federal Deposit Insurance Corporation (FDIC).

When the simple interest method is used to determine finance charges, the interest is calculated based on the:

actual balance of the loan.

You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the

add-on method

Variable auto ownership costs are dependent on the:

miles covered by the automobile.

The financing rate on the car you are leasing is called the

money factor

A budget helps in:

monitoring and controlling spending.

The majority of loans made by savings and loan associations are _____ loans.

mortgage

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n):

negative amortization.

At the end of the lease period, you may be required to

pay for unreasonable wear and tear pay for additional mileage

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called:

prequalification.

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n):

real estate short sale.

A ______ would be most likely to have to pay estimated taxes

self-employed plumber

When an individual gives his or her child an income-producing asset, he or she is:

shifting his or her income.

Which of the following are legal methods of reducing your current tax liability?

shifting income to your children

Long-term financial goals often depend on borrowing funds. The type of loan that does not fulfill the long-term financial goal achievement is ________ loans.

single payment

Tax credits reduce your

tax liability

With a bank credit card, you can often avoid interest charges if:

the account balance is paid in full every month

Home equity loans are similar to other installment loans except

the interest paid is generally tax deductible

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when:

the mileage limits are exceeded.

Commercial banks generally charge lower interest rates than other lending institutions because

they usually take only the best credit risks

Commercial banks are able to charge lower interest rates than other lending institutions because:

they usually take only the best credit risks.

A chattel mortgage is an instrument that gives lenders title to movable personal property in the event of default.

true

A credit card application requests information that is routinely used to predict creditworthiness.

true

A lender will generally require mortgage insurance if the down payment is less than 20%

true

A significant legal difference between a cooperative and a condo is that the condo owner normally holds a title to the property.

true

An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her total expenditures for the year.

true

Anyone can legally prepare taxes and charge a fee for that service.

true

Arranging for and fully repaying a small loan helps improve creditworthiness.

true

Capitalized cost on an auto lease is the same as the amount of the price that is being financed.

true

Compound interest means that a savings account earns interest on the interest previously earned.

true

Convenience and improved record keeping are 2 advantages sited for online bill payment.

true

Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.

true

Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease.

true

If a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money

true

Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items.

true

Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning.

true

Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.

true

One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account

true

Paying a loan on schedule is one way to build a good credit history.

true

Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans.

true

Russ and Lois got married December 30. Since they were single for the most of the year, however, they can legally file as married taxpayers in the year of the wedding.

true

Tax avoidance is legal, whereas tax evasion is illegal.

true

The annual percentage yield (APY) formula considers compounding when determining an interest rate.

true

The cost of a title search and title insurance are typically part of the closing costs on a housing transaction

true

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.

true

The market price of a house is $125,000 and the homebuyer will borrow $100,000. 2 points will equal $2,000.

true

The money factor on an auto lease is similar to the interest rate on a loan.

true

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases.

true

The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender.

true

Visa and MasterCard issue debit cards linked to your checking account.

true

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions

true

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate.

true

Which of the following statements regarding a consumer loan is true?

A consumer loan is used to finance the purchase of very expensive items.

Which of the following statements regarding loan collateral is true?

Collateral is an item of value used to secure the principal portion of a loan.

Mr. and Mrs. Davenport, aged 40 and 38, respectively, have three children aged 3, 6, and 13. For 2019, they have adjusted gross income (AGI) of $65,000 and unreimbursed medical expenses of $6,750. The Davenports' claim for itemized deductions for medical expenses is:

$1,875 (7.5% for 2019)

If you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be (Use time value tables or financial calculator)

$108.16

John Anderson deposited $10,000 in a CD for 3 years at 5%. It should now be worth

$11,580

Sheldon has a home valued at $108,000 and an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of market value, how much could Sheldon borrow using a home equity loan?

$16,400

Bob Shockley borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as it accrues, if Bob dies before the debt is repaid his beneficiary will receive

$225,000

Janie Long has checking and savings accounts in a federally insured financial institution. The max amount of her insurance coverage is

$250,000

The monthly payment on an 8%, 36 month, add-on loan for $10,000 would be

$344

Mr. and Mrs. Davenport have 3 kids, ages 3, 6, and 13. Their financial matters for 2019 are as follows: Adjusted Gross Income: $65,000 Un-reimbursed Medical Expenses: $5,250 How much would the Davenports' medical expenses contribute to their total itemized deductions?

$375 (7.5% for 2019)

Alice lost her ATM card at the lake and forgot it was missing until her monthly statement came 26 days later. She found that $800 had been withdrawn from her savings account. The most Alice will be legally liable for assuming she notifies the bank at this point is

$500

The annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12% is

12%

A money factor of 0.00280 on a lease is equivalent to an annual percentage rate of

6.72

Which of the following statements regarding an individual's income and expense statement is true?

An income and expense statement measures your financial performance over a period of time

Which of the following will lead to a poor credit rating?

Applying for a long-term loan and occasionally being late with a payment

Which of the following statements regarding budgets is true?

Budgets are forward looking.

Which of the following would be best suited to using an Internet bank?

Fred Longoria, a man who uses checking and savings but never goes to his bank

Which of the following statements regarding a budget is true?

It is a detailed financial report that looks forward

Which of the following is an interest-bearing checking account?

Negotiable order of withdrawal (NOW) account

Payments under the provisions of the Federal Insurance Contributions Act (FICA) are also known as:

Social Security tax.

Which of the following is the biggest fixed auto ownership cost?

The cost of installment loan payments

Which of the following statements regarding tax credits is true?

They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.

Which of the following is the correct formula for calculating the debt safety ratio?

Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay

A payment made using a(n) _____ is equivalent to paying by cash.

debit card

The loss of value in a car over time is called

depreciation

The loss in the value of an automobile that occurs over its period of ownership is called:

depreciation.

The Annual Percentage Yield is the same as the

effective rate

All taxpayers have an equal probability of having their tax returns audited.

false

Always paying cash helps in establishing a high level of creditworthiness.

false

Asset management accounts are protected by the Federal Deposit Insurance Corporation.

false

Banks and other financial institutions insure the contents of safe-deposit boxes.

false

Budgeting and record keeping are the same.

false

Cash is the only kind of liquid asset.

false

Extremely low interest rates favor investors and boost the incentive to save.

false

Home equity loans are similar to home equity credit lines because they are also not secured with any collateral.

false

If your debt safety ratio works out to 10%, you are relying too heavily on credit.

false

In a co-op, the buyer receives title to a unit and joint ownership of the common areas.

false

Interest rates on credit cards tend to be lower than most other forms of consumer credit

false

Nondepository institutions are referred to as banks.

false

Tax credits are dollar-for-dollar reductions in taxable income.

false

Tax preparers must be licensed by either the state or federal government.

false

The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions.

false

The add-on method is less expensive than the simple interest method when the stated rates of interest are identical.

false

The best way to balance your annual budget is to increase borrowing to cover shortages.

false

The down payment is typically the only substantial housing cost that must be paid at the time of the purchase.

false

The preparation of an income and expense statement is the first step in the personal financial planning process.

false

A balance sheet describes your:

financial position at a given point in time

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

fixed-rate mortgage.

The ________ is really a second mortgage on your home

home equity line of credit

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:

if the lender wants to recover part of the full interest that would have been earned.

A characteristic of consumer loans is that they

include a negotiated contract are arrived at through a formal process are used to purchase big-ticket durable goods and other items

Besides the finance charge, you should also consider ____ when you shop for a consumer loan.

loan maturity total cost of the loan collateral repayment penalties