FIN 330 - Chapters 1,4,5, FIN 330 Final Exam, FIN 330

Your home insurance policy has a $490 deductible. If a windstorm causes $2,200 of damage to your home, what amount of the claim would the insurance company pay?

$2,200 - $490 = $1,710 $1,710

Which on of the following is an ordinary annuity, but not a perpetuity?

$25 paid weekly for 1 year, starting one week from today

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanna has $517,000 in a joint account with her husband, Ted. How much is not covered by FDIC insurance?

$250,000 x 2 = $500,000 $517,000 - $500,000 = $17,000 $17,000

Chloe Jones has determined the following information about her own financial situation. Her checking account is worth $450 and her savings account is worth $1,000. She owns her own home that has a market value of $100,000. She has furniture and appliances worth $10,000 and a home computer and laptop worth $3,800. She has a car worth $10,500. She has recently purchased an annuity worth $5,100 and she has a retirement account worth $39,000. What is the value of her liquid assets?

$450 Check $1,000 Savings $450 + $1,000 = $1,450 $1,450

A family with $46,000 in assets and $22,000 of liabilities would have a net worth of:

$46,000 Assets $22,000 Liabilities $46,000 - $22,000 = $24,000 $24,000

Ruth Fraser has determined that the value of her liquid assets is $4,200, the value of her real estate is $130,000, the value of her personal possessions is $64,000, and the value of her investment assets is $75,000. She has also determined the value of her current liabilities is $7,300 and the value of her long-term liabilities is $92,000. What is the total value of her debts?

$7,300 Current liabilities $92,000 Long-term liabilities $92,000 + $7,300 = $99,300 $99,300

A $200 savings account that earns $8.50 interest in a year has a yield of what percent?

$8.50 / $200 = .0425 x 100 = 4.25%

Which statement is true?

All else equal, an increase in the discount rate decreases the present value and increases the future value of an annuity

Credit bureaus obtain data from which of the following?

All of these Banks, Credit card companies, Merchants, Finance companies

An organized system of financial records provides a basis for:

All of these Completing required tax reports, Planning and measuring financial progress, Handling daily business activities, Making effective investment decisions

Possible sources of income for many retirees includes:

All of these Other public pension plans, Employer pension plans, Personal retirement plans, Social Security

Life insurance proceeds may be used to:

All of these Pay estate taxes, Pay off a home mortgage, Make charitable bequests, Cover funeral costs

Bill just financed a used car through his credit union. His loan requires payments of $275 a month for five years. Assuming that all payments are paid on time, his last payment will pay off the loan in full. What type of loan does Bill have?

Amortized

Letitia borrowed $6,000 from her bank two years ago. The loan term is four years. Each year, she must repay the bank $1,500 plus the annual interest. Which type of loan does she have?

Amortized

What concerning annuities is correct?

An annuity due has payments that occur at the beginning of each time period

A 30-year home mortgage is a classic example of:

An ordinary annuity

Lee pays 1 percent per month interest on his credit card account. When his monthly rate is multiplied by 12, the resulting answer is referred to as the:

Annual percentage rate

You are comparing two annuities. Annuity A pays $100 at the end of each month for 10 years. Annuity B pays $100 at the beginning of each month for 10 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information?

Annuity B has both a higher present value and a higher future value than Annuity A

What applies to a general partnership?

Any one of the partners can be held solely liable for all of the partnership's debt

What qualifies as an annuity payment?

Auto loan payment

What would be covered by a home insurance policy?

Damage to your roof from hail

All else constant, the present value of an annuity will decrease if you:

Decrease the annuity payment

Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age?

Defined-benefit plan

Working capital management includes what?

Determining which customers will be granted credit

The interest rate used to compute the present value of a future cash flow is called the:

Discount rate

Computing the present value of a future cash flow to determine what that cash flow is worth today is called:

Discounted cash flow valuation

Lucas expects to receive a sales bonus of $7,500 one year from now. The process of determining how much that bonus is worth today is called:

Discounting

What can be classified as an annuity but not as a perpetuity?

Equal annual payments for life

Perpetuities have:

Equal payments and an infinite life

What is a capital structure decision?

Establishing the preferred debt-equity level

The information in your credit report is used by the credit bureau to calculate your:

FICO credit score

What is true of investing in Series EE U.S. Savings Bonds?

Federal income tax on earnings may be deferred until the bonds are redeemed

What should you do if your identity is stolen?

File a police report

Payments that do not vary from month to month are __________ expenses.

Fixed

Marcos is investing $5 today at 7 percent interest so he can have $35 later. This $35 is referred to as the:

Future value

The relationship between the present value and the investment time period is best described as:

Inverse

A corporation:

Is a legal entity separate from its owners

Stacey deposits $5,000 into an account that pays 2 percent interest, compounded annually. At the same time, Kurt deposits $5,000 into an account paying 3.5 percent interest, compounded annually. At the end of three years:

Kurt will have a larger account value than Stacey will

What has the main purpose of issuing a policy that provides financial security for dependents?

Life insurance company

Which of the forms of business organization offers liability protection to some of its owners but not to all of its owners?

Limited partnership

What is an advantage of being a limited partner?

Losses limited to capital invested

What is a source of government health insurance?

Medicare

What would be considered a long-time liability?

Mortgage

What is a drawback of a money market fund from an investment company?

Not covered by FDIC insurance

What correctly applies to a sole proprietorship?

Obtaining additional equity is dependent on the owner's personal finances

One example of a primary market transaction would be the:

Sale of 1,000 shares of newly issued stock by Alt Company to Miquel

Jessica invested $2,000 today in an investment that pays 6.5 percent annual interest. Which one of the following statements is correct, assuming all interest is reinvested?

She could have the same future value and invest less than $2,000 initially if she could earn more than 6.5 percent interest

A common deduction from a person's paycheck is for:

Social Security taxes

Vera opened a used bookstore and is both the 100 percent owner and the store's manager. Which type of business entity does Vera own if she is personally liable for all the store's debts?

Sole proprietorship

If a family planned to spend $400 for food during April but only spent $350, this difference would be referred to as a:

Surplus

What does not refer to permanent insurance?

Term life

What correctly defines a common chain of command within a corporation?

The controller reports directly to the chief financial officer

Which of the following is a correct statement, all else held constant?

The future value is directly related to the interest rate

You are comparing three investments, all of which pay $100 a month and have an interest rate of 8 percent. One is ordinary annuity, one is an annuity due, and the third investment is a perpetuity. Which statement is correct given these three investment options?

The present value of the perpetuity must be higher than the present value of either the ordinary annuity or the annuity due

Which of the following statements is correct?

The primary purpose of the NYSE is to match buyers and sellers

In a general partnership, each partner is personally liable for:

The total debts of the partnership, even if he or she was unaware of those debts

What statement about a limited partnership is correct?

There must be at least one general partner

What features distinguishes an ordinary annuity from an annuity due?

Timing of the annuity payments

Christie is buying a new car today and is paying a $500 cash down payment. She will finance the balance at 6.3 percent interest. Her loan requires 36 equal monthly payments of $450 each with the first payment due 30 days from today. Which one of the following statements is correct concerning this purchase?

To compute the initial loan amount, you must use a monthly interest rate

What is an example of perpetuity?

Trust income of $1,200 a year forever

What type of personal liability coverage is also called a personal catastrophe policy?

Umbrella policy

A credit card has an annual percentage rate of 12.9 percent and charges interest monthly. The effective annual rate on this account:

Will be greater than 12.9 percent

The daily financial operations of a firm are primarily controlled by managing the:

Working capital

If you cosign a loan:

You will be required to pay the loan in full if the borrower does not pay

Rob wants to invest $15,000 for 7 years. Which one of the following rates will provide him with the largest future value?

4 percent interest, compounded annually

What has the highest effective annual rate?

6 percent compounded daily

Jenny needs to borrow $5,500 for four years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

6.5 percent simple interest

Copies of tax returns and supporting data should be kept for how many years?

7 years

Up to what percent of your Social Security benefits may be subject to federal income tax?

85%

What will increase the present value of a lump-sum future amount to be received in 15 years?

A decrease in the interest rate

One advantage of the corporate form of organization is the:

Ability to raise larger sums of equity capital than other organizational forms

What is not a basic area of finance as described by the text?

Accounting

What would not be a good use of a home equity loan?

Buying a new boat

Which CD starts with a higher rate, has a long time to maturity, and can be closed by the bank after a set time period?

Callable

What functions should be assigned to the corporate treasurer rather than to the controller?

Cash management

A cash flow statement reports a person's or a family's:

Cash receipts and payments

A personal check with guaranteed payment is called a:

Certified check

Lester has $6,270 in his savings account at the beginning of this year. This amount includes both the $6,000 originally invested at the beginning of last year plus the $270 he earned in interest last year. This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant. This $282.15 is best described as:

Compound interest

Tomas earned $89 in interest on his savings account last year and has decided to leave the $89 in his account this coming year so it will earn interest. This process of earning interest on prior interest earnings is called:

Compounding

Alia Maxwell is required to pay 20 percent of her medical costs after the deductible has been paid. What is this requirement called?

Copayment

Jordan and Carmen created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis. Which type of entity did they create if they have no personal liability for the firm's debts?

Corporation

Deandre and Mason both enjoy sunshine, water, and surfboards. Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California. Deandre and Mason will equally share in the decision making and in the business profits or losses. Which type of business did they create if they both have full personal liability for the firm's debts?

General partnership

A sole proprietorship:

Has its profits taxed as personal income

Corporate sharholders:

Have the ability to change the corporation's bylaws

Assume all else is equal. When comparing savings accounts, you should select the account that has the:

Highest effective annual rate

What is a working capital decision?

How much cash should the firm keep in reserve?

The future value of a lump sum investment will increase if you:

Increase the time period

Kendall is investing $3,333 today at 3 percent annual interest for three years. Which one of the following will increase the future value of that amount?

Increasing the interest rate

Jamie earned $14 in interest on her savings account last year. She has decided to leave the $14 in her account so that she can earn interest on the $14 this year. The interest earned on last year's interest earnings is called:

Interest on interest

You just borrowed $3,000 from your bank and agreed to repay the interest on an annual basis and the principal at the end of three years. What type of loan did you obtain?

Interest-only

Alex Ling has decided to put $30 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his emergency fund is important. This would be an example of a(n):

Opportunity cost

What is the correct formula for the current value of $600 invested today at 5 percent interest for 6 years?

PV = $600/(1+.05)^6

A limited liability company (LLC):

Prefers its profits be taxed as personal income to its owners

Katlyn needs to invest $5,318 today for her savings account to be worth $8,000 six years from now. Which one of the following terms refers to the $5,318?

Present value

What is contained in the corporate bylaws?

Procedures for electing corporate directors

Limited liability companies are primarily designed to:

Provide limited liability while avoiding double taxation

Cindy is taking out a loan today. The cash amount that she is receiving is equal to the present value of the lump sum payment that she will be required to pay two years from today. Which type of loan is this?

Pure discount

Scott borrowed $2,500 today at an APR of 7.4 percent. The loan agreement requires him to repay $2,685 in one lump sum payment one year from now. This type of loan is referred to as a(n):

Pure discount loan

What type of savings plan is usually considered to be very liquid?

Regular savings account

Given an interest rate of zero percent, the future value of a lump sum invested today will always:

Remain constant, regardless of the investment time period