Finance Exam 1 Test Corrections

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?

a) $1,000 B) $250 c) $50 d) $500 e) $25

A family with $67,000 in assets and $40,200 of liabilities would have a net worth of

a) $13,400. b) $107,200. c) $67,000. d) $40,200. E) $26,800.

If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?

a) $15,000 b) $10,700 c) 10,000 d) $15,100 E) $15,007

If you begin saving $2,000 a year at 5% (from age 22 to age 30 or 9 years), what will these funds grow to in this time period?

a) $18,000 b) $2,000 c) $11,970 d) $30,500 E) $22,054

Rebecca Wilson budgeted $1262 for housing and utilities in July. She actually spent $1180. What is her budget variance?

A) $1180 Surplus B) $1180 Deficit C) $41.0 Deficit D) $82 Deficit E) $82 SURPLUS

Randy Hill wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar.

A) $17,460 b) $18,000 c) $25,000 d) $5,727 e) None of these choices are correct.

Using the following table, calculate the taxes for an individual with taxable income of $30,000. 10% Up to $10,000 15% $10,000-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

A) $4,000 b) $6,025 c) $2,215 d) $850 e) $4,500

Rebecca Wilson budgeted $1,200 for housing and utilities in July. She actually spent $1,160. What is her budget variance?

A) $40 SURPLUS B) $1,160 surplus C) $40 deficit D) $1,160 deficit E) $60 deficit

Janet is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? • AGI: $42,000 • Total medical and dental expenses: $1,100 • State income taxes: $1,000 • Mortgage interest: $7,000 • Charitable contributions: $1,250

A) $9,250 b) $3,350 c) $10,350 d) $8,250 e) $7,000

George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate?

A) 13.7% b) 15% c) 28% d) 10% e) 25%

If inflation is expected to be 8 percent, how long will it take for prices to double?

A) 9 years b) 18 years c) 7 years d) 12 years e) 6 years

All of the following are fixed expenses except

A) A mortgage or rent payment. B) A monthly train ticket for commuting to work. C) An installment loan payment. D) A monthly allocation for life insurance. E) UTILITIES.

Gross income less Adjustments to Income equals

A) ADJUSTED GROSS INCOME. B) Exclusions from income. C) Tax-deferred income. D) Earned income. E) Tax-exempt income.

The tax rate based on the total tax due divided by taxable income is called the

A) AMT. B) Marginal tax rate. C) AVERAGE TAX RATE. D) Total tax rate. E) Income tax rate.

Income that is taxed at a later date is

A) Adjusted gross income. B) Exclusions from income. C) Earned income. D) TAX-DEFERRED INCOME. E) Tax-exempt income.

The major sections of Form 1040 include all of the following except

A) Adjustments to income (AGI). B) Signature. C) Filing status and exemptions. D) Tax credits. E) ALL OF THESE ARE MAJOR SECTIONS OF FORM 1040.

The document that would report your current financial position is the

A) BALANCE SHEET. B) Credit card statement. C) Cash flow statement. D) Budget. E) Bank statement.

The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning.

A) BORROWING B) Sharing C) Protecting D) Savings E) Obtaining

The document that would tell you what you received and spent over the past month is the

A) Budget. B) Bank statement. C) Balance sheet. D) CASH FLOW STATEMENT. E) Credit card statement.

Which of the following long-term goals is stated most clearly using the SMART approach?

A) Buy a car for less than $15,000 within 6 months B) Retire in 10 years at age 65 C) Purchase a house with a mortgage no greater than $150,000 within 5 years D) Set up an emergency fund E) INVEST $50 PER MONTH FOR THE NEXT 12 YEARS FOR MY NEPHEW'S COLLEGE FUND

Which of the following intermediate goals is stated most clearly using the SMART approach?

A) Buy a car for less than $15,000 within 6 months B) Retire in 10 years at age 65 with $2,000,000 in my 401(k) account C) PURCHASE A HOUSE WITHIN THE NEXT 5 YEARS WITH A MORTGAGE NO GREATER THAN $150,000 D) Set up an emergency fund E) Invest $50 per month for the next 12 years for my nephew's college fund

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?

A) DEBT PAYMENTS RATIO B) Savings ratio C) Liquidity ratio D) Debt ratio E) Current ratio

Which of the following ratios indicates the number of months in which living expenses 46) can be paid if an emergency arises?

A) Debt payments ratio B) Debt ratio C) Savings ratio D) Current ratio E) LIQUIDITY RATIO

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)

A) FINANCIAL PLAN. B) Budget. C) Statement. D) Investment forecast. E) Insurance prospectus.

An investor should expect to receive a risk premium for

A) Higher interest rates B) Lower consumer prices C) HIGHER UNCERTAINTY ABOUT GETTING HIS/HER MONEY BACK D) Reduced credit ratings E) Expected lower inflation

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

A) INCOME TAX B) Sales tax C) Excise tax D) Estate tax E) Real estate property tax

A tax due on the purchase of gasoline is called a(n)

A) Inheritance tax. B) Estate tax. C) Income tax. D) Real estate property tax. E) EXCISE TAX.

The inability to pay debts when they are due because liabilities far exceed the value of assets is called

A) Liquid assets. B) INSOLVENCY. C) Net worth. D) Cash flow. E) Liabilities.

The rate used to calculate the tax due on the next dollar of income is referred to as the

A) MARGINAL TAX RATE. B) Total tax rate. C) Income tax rate. D) AMT. E) Average tax rate.

The money left over after paying for housing, food, and other necessities is called

A) Monthly savings. B) Gross income. C) DISCRETIONARY INCOME. D) Take-home pay. E) Disposable income.

An advantage of effective personal financial planning is:

A) More credit card debt B) The use of low-interest savings C) INCREASED CONTROL OF FINANCIAL AFFAIRS D) Increased impulse spending E) Less monitoring of investments

Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?

A) Municipal bonds B) A 401(k) plan C) A ROTH IRA D) A Section 529 savings plan E) A tax-deferred annuity

Which of the following would increase the interest rate for a loan?

A) POOR CREDIT RATING B) Expected lower inflation C) Higher down payment D) Lower consumer prices E) Short time to maturity

A worker's primary goal should be to

A) Pay no taxes of any type. B) Pay his or her taxes using estimates for income and deductions. C) PAY HIS OR HER FAIR SHARE OF TAXES WHILE TAKING ADVANTAGE OF APPROPRIATE TAX BENEFITS. D) Pay no income taxes. E) Pay the average tax rate for people working in his or her industry.

Money management refers to

A) Preparing personal financial statements. B) Storing financial records for easy access. C) DAY-TO-DAY FINANCIAL ACTIVITIES. D) Spending money on current living expenses. E) Trade-offs that occur with financial decisions.

Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have accumulated for his purchase?

A) Present value of a single amount B) FUTURE VALUE OF AN ANNUITY C) Simple interest D) Present value of an annuity E) Future value of a single amount

Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?

A) Present value of a single amount B) Present value of an annuity C) Simple interest D) Future value of an annuity E) FUTURE VALUE OF A SINGLE AMOUNT

Rhonda Miller wants to accumulate $12,000 in her savings account for her dream vacation. What type of computation would she use to calculate her monthly deposits to her account?

A) Present value of an annuity B) Future value of an annuity C) Future value of a single amount D) ANNUITY GIVEN A FUTURE VALUE E) Annuity given a present value

Which of the following is an example of a financial opportunity cost?

A) Purchasing automobile insurance B) FORGOING WAGES TO ATTEND SCHOOL C) Using a personal computer for financial planning D) Organizing income tax records E) Renting an apartment near school

All of the following are ways that households can increase their net worth except

A) Reduce spending. B) Increase their savings. C) Decrease their debt ratio. D) Increase value of investments. E) INCREASE THEIR DEBT RATIO.

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

A) SOCIAL SECURITY TAXES. B) Real estate property taxes. C) Sales taxes. D) Excise taxes. E) Estate taxes.

Which of the following goals would be the easiest to implement and measure?

A) Save funds for an annual vacation. B) SAVE $100 A MONTH TO CREATE A $2,400 EMERGENCY FUND IN 2 YEARS. C) Spend less each month. D) Put money into an investment fund. E) Reduce credit card debt.

To develop financial goals, one should

A) Set several general goals for the short-term B) Only set long-term goals after short-term goals have been accomplished C) IDENTIFY SPECIFIC, REALISTIC GOALS THAT ARE MEASURABLE ALONG WITH A TIME FRAME AND AN ACTION PLAN D) Not worry about whether or not the goals can be achieved based on one's income and life situation E) Focus on intermediate goals first

Rhonda Miller wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

A) Simple interest B) PRESENT VALUE OF AN ANNUITY C) Future value of an annuity D) Present value of a single amount E) Future value of a single amount

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

A) Taxpayer's dependents B) IRS enrolled agent C) Taxpayer's attorney D) TAXPAYER E) Professional tax preparer

Which of the following situations describes a person who could be insolvent?

A) annual cash inflows $45,600; liabilities $51,700 B) Liabilities $45,600; net worth $7700 C) Assets $78,600; net worth $23,700 D) ASSETS $40,600; LIABILITIES $46,700 E) Assets $56,600; annual expenses $61,700

The difficulty of converting savings and investments to cash is referred to as ________ risk.

A) income B) LIQUIDITY C) personal D) interest-rate E) inflation

Susan Smith wants to buy a new car. She needs to borrow $ 16,000. The bank offers a rate of 5% for five year loans. How much does she have to pay annually to cancel the loan?

a) $3,226 B) 3,696 c) $3,897 d) $3,512 e) 3,856

If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?

a) $50 b) $25 c) $500 D) $1,000 e) $250

Given the following information, calculate the current ratio: Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

a) 0.16 b) 2.44 c) 0.41 D) 2.50 e) 2.50

Given the following information, calculate the liquidity ratio: (Round your answer to 2 decimal places.) Liabilities = $33,500 Liquid assets = $6700 Monthly credit payments = $1250 Monthly savings = $1030 Net worth = $86,000 Current liabilities = $2500 Take-home pay = $3200 Gross income = $6200 Monthly expenses = $3840

a) 2.68 b) 16.61 C) 1.74 d) 38.95 e) 39.06

Given the following information, calculate the debt payments ratio: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

a) 33.79% B) 34.78% c) 2.40% d) 3.06% e) 21.71%

Sue has the following tax records for tax year 2018: Standard Deduction: $12,000 Interest: $1,200 Dividends: $2,300 Mortgage Interest: $7,000 (itemized) IRA contributions: $6,000 Charitable Contribution: $4,500 (itemized) Property Taxes: $3,500 (itemized) Wages: $ 63,500 Sue's Taxable Income is

a) 34,000 b) 45,300 c) 49,700 d) 54,300 E) 46,000

Brett has the following tax records for tax year 2018: Standard Deduction: $12,000 Interest: $1,200 Dividends: $2,300 Mortgage Interest: $3,000 (itemized) IRA contributions: $6,000 Medical Expenses: $1,800 (itemized) Property Taxes: $3,500 (itemized) Wages: $ 63,500 Brett's Taxable Income is

a) 52,700 b) 48,300 C) 49,000 d) 40,700 e) 57,300

Susan Smith wants to buy a new car. She can afford to pay $ 1,850 a year. The bank offers a rate of 5% for five year loans. How much would she be able to borrow from the bank?

a) 7,908 B) $8,010 c) 8,346 d) 8,490 e) 8,301