Finance 101 Exam#1

Molly and Justin are considering donating $5,000 to their favorite tax deductible charity. The donation would bring the total itemized deductions to $20,000. They are in the 28% tax bracket. How much will they save donating the $5,000?

$1,400 (step 1: $20,000 + $5,000 = $25,000. step 2: $25,000 x .28 = $7,000. step 3: $20,000 x .28 = $5,600. step 3: $7,000 - $5,600 = $1,400)

If you invest $100 at 8% for one year, compounded semiannually, at the end of the year the balance will be...

$108.16 (step 1: $100 x .08 x 6/12 = $4. step 2: add the $4 to the principle, $104 x .08 x 6/12 = $4.16. step 3: $4 + $4.16 = $8.16. step 4: $100 + $8.16 = $108.16)

If you invest $1,000 per year at the end of each year for 10 years at 12% interest. How much will you accumulate?

$17,549 (yellow sheet)

Harry just received $2,000 for his graduation. He plans on investing this money for 5 years at 8% compounded annually. Harry will have an ending balance of...

$2,938 $2,000(1 + .08)^5

A lump sum deposit of $8,000 left in a bank for 12 years at 9% will result in an ending balance of (closest answer)

$22,480 $8,000(1+.09)^12

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

$344 ( step 1: calculate finance charge using simple interest method = $2,400 step 2: $10,000 + $2,400 = $12,400 step 3: $12,400/36

Diana sold mutual fund shares she had owned for 4 years. She is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would she owe on those gains?

$4,500 (gains held for more than 11 months so taxed at 15%)

You have $450 in your checking account when your ATM card and PIN are stolen. You could lose up to______ if you report the lost ATM card within 8 business days

$450 (ATM cards use YOUR money not the banks money. Therefore there is no guarantee of getting any money back)

Elena purchased a stamp collection for $5,000 thirty years ago. It appreciated 8% annually. What is it worth today?

$50,313 $5,000(1 + .08)^30

If you purchase a $110,000 house and make a 10% down payment, how much would 1 point cost at closing?

$990 (1 point = 1% of the amount borrowed. You are borrowing 90%,or $99,000, so that's 9 points. step 1: $99,000/9 = $11,000 step 2: $11,000/.09 = $990.

This one is too hard

**** it

Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double?

10 (yellow sheet)

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

6.72 (for any money factor problem multiply by 2,400)

A lender will usually require a loan-to-face value ratio of________ or less for you to avoid having to pay private mortgage insurance (PMI)

80% (Loan-to-face value ratio = mortgage amount/appraised vale)

Phil has $2,000 and he needs it to grow to $4,000 in 8 years. He adds no more money. What rate of return would he need to earn?

9% (yellow sheet)

If the maximum loan-to-value ratio that a lender will accept on a $100,000 loan is 90%, then the borrower must make...

A minimum down payment of $10,000 plus closing costs (lender pays 90%, you pay 10%. $100,000 x .10 = $10,000)

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

Actual balance of the loan (simple interest = principle x rate x time)

You want to borrow $1,000 at an interst 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 (add-on method is always most expensive)

______would be a proper use of credit

All of these: purchase of a house, shopping convenience, financial emergency, investing

You have no employer provided pension plan. Your IRA contributions are treated as...

An adjustment to gross income

Historically, the primary purpose of savings and loan associations was to...

Channel savings into mortgages

If you needed a loan to buy furniture, the lowest interest rate would usually be available from a...

Credit Union

The tax rate on capital gains for most people is...

Dependent on the time the asset was owned (Capital gains held less than 12 months, taxed at same rate as salary Capital gains held more than 11 months, usually taxed at 15%)

True or False: A credit card user's rating will be harmed if she only pays the minimum monthly payment on a credit card

False

True or False: Banks and other financial institutions insure the contents of safe-deposits boxes

False

True or False: You can stop payment when you purchase an item with your debit card

False

True or False: One's marginal tax rate is typically lower than one's average tax rate

False (Average tax rate is higher than marginal)

True or False: The balance sheet equation is assets + liabilities = net worth

False (balance sheet is Assets - liabilities = net worth)

Interest will almost always begin to accure immediately when you use a bank credit card to...

Get cash advances

If interest on a savngs account is compounded semiannually, the effective rate of interest will be...

Higher than the nominal rate (nominal rate is stated, no compounding)

You are preparing your own tax return. The least costly source for answering your questions would be...

IRS 800 numbers

Which of the following state and local taxes are deductible on federal income taxes for those that itemize deductions?

Income taxes and property taxes

A legal claim that allows creditors to liquidate loan collateral is a...

Lien

A capital gain is the result of...

Selling an asset for more than purchase price (Capital gain = sold - purchase)

If you do not wish to itemize deductions, you can use the...

Standard deduction

With open account credit, one can often avoid interest charges if...

The account balance is paid in full every month (Open account credit- a form of credit given to a consumer in advance ex: department store credit cards or gas cards)

Sometimes it may be better to use savings rather than to borrow to make a purchase. This would be recommended when...

The cost of borrowing is greater than the interest earned on the savings

Parents can claim children as tax dependant as long as...

They contribute to more than half the support for the year

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single wiht no dependants. Which is true regarding the amount of social security taxes they pay?

They pay same amount (everyone pays same amount regardless of age)

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

They usually take only the best credit risks

The balane sheet equation is...

Total assets - Total liabilities = Net worth

A budget is a detailed financial forecast

True

True or False: A certified check is a personal check that the bank gurantees the funds are available

True

True or False: A charge made on your credit card becomes a liability as soon as the charge is incurred

True

True or False: Capitalized cost on an auto lease is the same as the amount of the price that is being financed

True

True or False: Compound interest means that a savings account earns interest on the interest previously earned

True

True or False: Debt and Atm card transactions are linked to your checking account

True

True or False: If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be repaid is $2,400

True

True or False: If you are eligible to receive a tax refund, you will have to file a tax return to get the refund

True

True or False: One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents

True

True or False: The income and expenditures statement provides a measure of financial performance over a period of time

True

True or False: When comparing two installment loans with the same principle and APR, the loan with the longer maturity will have the lower monthly payment and the higher total costs

True

True or False: You put $1,000 into a 12-month certificate of deposit. After seven months, you really need the money. The bank will let you have it before 12 months, but you will pay a penalty

True

True or False: Your savings will grow faster with monthly interest compounding than with quarterly interest compounding

True

True or Flase: Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date

True

True or False: A short-term capital gain would be taxed at the same rate as your salary

True (Capitals gains held over 11 months usually taxed at 15%)

True or False: If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate

True (nominal interest rate is stated. APY is compounded)

True or False: The annual percentage yield (APY) formula considers compounding when determining an interest rate

True APY = (1 + Interest/time)^time + 1

A______would be most likely to have to pay estimated taxes

self-employed plumber