Finance 3325 Final Exam Review (Test 2)

Amy has a $300,000 30-year 6% mortgage. Her total payments during the life of the loan would amount to A) $647,515 B) $623,881 C) $676,769 D) $658,550 E) $615,509

A.

Brett bought a house five years ago for $150,000. At that time he borrowed $140,000 from his bank. The house is now worth $162,000. The current value of his mortgage must be no higher than $________ for him to request termination of his PMI policy. A) 126,360. B) 122,000. C) 162,000. D) 150,000. E) 140,000.

A.

Crystal is looking for a new apartment. What are her total annual costs associated with renting? • Monthly rent payments $ 1,000 • Annual renter's insurance $ 250 • Annual interest lost on security deposit $ 20 • Value of apartment $ 150,000

A.

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal? A) 180.50 B) 805.50 C) 665.28 D) 625.00 E) 7,500.00

A.

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts. A) Limited warranty B) Implied warranty C) "As-is" warranty D) Express warranty E) Full warranty

A.

Sam borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge? A) $23.00 B) $225.00 C) $3.00 D) $248.00 E) $20.00

A.

Which of the following is NOT a benefit of home ownership? A) Maintenance and costs of repairs and home improvements B) Deductibility of mortgage interest C) Personalized living location D) Deductibility of real estate taxes E) Stability of residence

A.

Which of the following is an example of open-end credit? A) A department store credit card B) An installment loan for purchasing furniture C) A mortgage loan D) Single lump-sum credit E) An automobile loan

A.

Which of the following is correct about the lemon law? A) It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles. B) It requires a refund for the vehicle after the owner has made repeated attempts to obtain financing. C) It applies when a vehicle has been out of service for 60 days. D) It applies to both new and used vehicle purchases. E) It was enacted in 45 of the 50 states.

A.

Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme? A) $150,000 B) $110,000 C) $80,000 D) $160,000 E) $50,000

B.

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by A) Adding up basic monthly expenses then adding this total to take-home pay. B) Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment. C) Asking what you plan to purchase with the loan. D) Multiplying your take-home pay by 50% and subtracting your current loan payments. E) None of the above

B.

Beth borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin's actual rate of return on the loan? A) 10% B) 4% C) 8% D) 6% E) 2%

B.

Given the information here, what is the total cost of renting per year? • Annual rent payments $ 14,400 • Annual renter's insurance $ 300 • Annual interest lost on security deposit $ 10 • Value of apartment $ 150,000 A)$164,700 B) $14,710 C) $14,700 D) $14,400 E) $150,000

B.

Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio? A) 0.45 B) 0.67 C) 1.00 D) 0.75 E) 1.30

B.

If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay? A) $3.00 B) $200.00 C) $236.00 D) $18.00 E) $182.00

B.

Perhaps the greatest disadvantage of using credit is A) The float from using credit. B) The temptation to overspend. C) The convenience offered instead of using cash. D) The increased satisfaction during present and future income periods. E) The increase in total purchasing power.

B.

Ryan has a $12,000 5-year 3.6% auto loan. His monthly payment is A) $225.67 B) $218.84 C) $230.45 D) $216.25 E) $215.99

B.

The APR is the percentage cost of credit on a(n) ________ basis. A) life-of-loan B) annual C) monthly D) semi-annual E) quarterly

B.

Using the following information, what is the cost to buy a car? • Down payment $3,000 • Monthly loan payment $350 per month for a six-year loan • Opportunity cost of down payment $3,000 × loan period (in years) × 2% interest • Estimated value of vehicle at end of ownership period $4,000 A) $28,200. B) $24,560. C) $25,200. D) $3,000. E) $21,200

B.

Using the following information, what is the cost to lease a car? • Security deposit $300 • Monthly lease payment $300 per month for a five-year lease • Opportunity cost of security deposit 300 × loan period (in years) × 2% interest • End-of-lease charges 500 A) $18,560 B) $18,530 C) $18,830 D) $19,030 E) $18,000

B.

Which of the following expenses is NOT usually incurred by a tenant? A) Utilities (other than water). B) Property taxes. C) Renter's insurance. D) Security deposit. E) None of these are incurred

B.

Which of the following is an advantage of a car lease? A) At the end of the lease, you have no ownership interest in the vehicle. B) Monthly lease payments are usually lower than monthly financing payments. C) A large down payment is required. D) The capitalized cost is usually higher than the list price. E) The total cost of a lease may be higher than a purchase.

B.

Which of the following is often the first sign of a stolen identity? A) You receive a duplicate credit card from your credit card company. B) You receive bills for a credit card account you never opened. C) You receive a phone call from the thief. D) You see charges to your account for things you purchased. E) All of these are typical signs of a stolen identity.

B.

Which of the following is the document that transfers ownership of property from one party to another? A) PMI B) Deed C) Escrow D) Points E) Mortgage

B.

A credit report includes A) Bank statements B) Credit card statements C) Detailed credit information D) All previous employers E) All of these.

C.

Major factors that affect the affordability of your mortgage include all of the following except A) Length of the loan. B) Current mortgage rates. C) Size of the home. D) Income. E) The amount available for a down payment.

C.

Private mortgage insurance A) Protects the buyer from financial loss if the value of the home increases. B) Is part of all mortgages. C) Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed. D) Is usually required if the down payment is less than 25%. E) Cannot be avoided.

C.

Sue has a $100,000 30-year 6% mortgage. Her total interest to be paid during the life of the loan would amount to A) $176,196 B) $158,511 C) $115,838 D) $123,981 E) $119,509

C.

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest? A) $450 B) $1,009 C) $90 D) $45 E) $9

C.

The primary benefit of a home equity loan is A) Its limited availability. B) Tax-free income in the form of a loan. C) The deductibility of the loan interest on federal taxes. D) The required monthly payments. E) All of these are primary benefits.

C.

The question "What are your assets and net worth?" relates to A) Capacity. B) Character. C) Capital. D) Collateral. E) Conditions.

C.

Which of the following is an account used to pay property taxes and homeowner's insurance? A) Mortgage B) Points C) Escrow D) Deed E) PMI

C.

Given the information here, what is the annual cost of owning? • Home value $ 300,000 • Annual mortgage payments $ 19,200 • Annual property taxes $ 4,800 • Annual homeowner's insurance $ 1,200 • Estimated maintenance and repairs 1 % of home value • Growth in equity $ 3,000 • Tax savings (mortgage interest and property tax) $ 2,800 • Estimate annual appreciation 1.5 % of home value

C. $17,900

A process used to settle grievances in a nonbinding process is called a(n) A) Arbitration. B) County health department. C) Lawsuit. D) Mediation. E) All of these are correct.

D.

Brett makes a monthly payment of $220 on a 5-year 3.6% auto loan. His initial loan amount is A) $12,690 B) $12,129 C) $12,239 D) $12,064 E) $12,180

D.

FICO scores generally range from A) 100 to 1000. B) 200 to 700. C) 450 to 650. D) 350 to 850. E) 500 to 1000.

D.

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward interest? A) $805.50 B) $665.28 C) $180.50 D) $625.00 E) $7,500.00

D.

Pauline just submitted an offer on her dream home. As evidence of good faith, she also included A) A dual agent. B) An appraisal. C) A contingency clause. D) Earnest money. E) A counteroffer

D.

Resolution of any purchase concerns is part of the ________ phase of the research-based buying process. A) pre-shopping activities B) ordering activities C) selection and purchase D) post-purchase activities E) evaluating alternatives

D.

The use of property or savings to secure a loan relates to A) Character. B) Capital. C) Conditions. D) Collateral. E) Capacity.

D.

Which of the following is a disadvantage of renting? A) Renting can be more convenient for those who move frequently. B) Renters usually do not have to be concerned with maintenance and repairs. C) Taking possession of a rental unit is less expensive than buying a home. D) Tenants cannot take tax deductions for mortgage interest and property taxes. E) Renters have fewer responsibilities than home owners.

D.

A cash advance A) On some cards has a lower interest rate than on purchases. B) Is less expensive than charging a purchase to your credit card. C) Is a loan billed to your bank account. D) Involves a grace period on most cards. E) Requires you to pay interest every day until you repay the cash advance.

E.

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time. A) Implied warranty B) Express warranty C) Limited warranty D) "As-is" warranty E) Full warranty

E.

Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is his finance charge? A) $200.00 B) $20.00 C) $3.00 D) $223.00 E) $23.00

E.

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called: A) PMI. B) Escrow. C) Lock. D) Amortization. E) Points.

E.

The largest fixed expense associated with a new automobile is A) License and registration. B) Maintenance and repairs. C) Insurance. D) Interest on an auto loan. E) Depreciation.

E.

The text identifies several phases in the research-based buying process. The correct order of the phases is A) Pre-shopping activities, selection and purchase, evaluating alternatives, post-purchase activities. B) Evaluating alternatives, selection and purchase, pre-shopping activities, post-purchase activities. C) Post-purchase activities, evaluating alternatives, pre-shopping activities, selection and purchase. D) Evaluating alternatives, pre-shopping activities, selection and purchase, post-purchase activities. E) Pre-shopping activities, evaluating alternatives, selection and purchase, post-purchase activities.

E.

Which of the following are associated with a vehicle lease? A) Capitalized cost. B) Money factor. C) Payment schedule. D) Residual value. E) All of these.

E.

Which of the following can result from a failure to repay a loan? A) Damage to family relationships. B) Loss of income or valuable property. C) Loss of a good reputation. D) Bankruptcy. E) All of the above may result from the failure to repay a loan.

E.

Which of the following is a disadvantage of a car lease? A) You can usually obtain a more expensive vehicle than with an outright purchase. B) The capitalized cost is usually lower than the list price. C) A large down payment is required. D) Monthly lease payments are usually lower than monthly financing payments. E) At the end of the lease, you have no ownership interest in the vehicle.

E.

Which of the following is a valid reason for using credit? A) Purchasing a car so a homemaker can return to work B) Paying for a medical emergency C) Borrowing for a college education D) Purchasing an item that costs less now than it will later E) All of these are valid reasons for borrowing

E.

Zoe has net monthly income of $2,500. She has a monthly auto loan payment of $275, a student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-to-income ratio? A) 20% B) 8% C) 13% D) 17% E) 19%

E.

Typically, credit use is not a contributing factor to living beyond your means.

FALSE