FINANCE FINAL EXAM

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

Insolvency.

All of the following are fixed expenses except

Utilities

A joint account with Sara and John allows

John and Sara to both write checks on the account.

The owner/landlord is known as the

Lessor

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

Liquidity

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

Liquidity ratio

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened

The largest fixed expense associated with a new automobile is

Depreciation

The insurance coverage provided by the FDIC for a savings account is ________ per depositor per insured financial institution.

$250,000

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 Roth IRA

Which of the following is an example of open-end credit?

A department store credit card

All of the following are deposit institutions except

A finance company.

Which of the following will likely provide the most expensive loans?

A payday loan company

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. Answer 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

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.

Gross income less Adjustments to Income equals

Adjusted gross income.

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?

Annuity given a future value

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

Average Tax Rate

The document that would report your current financial position is the

Balance Sheet

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

Borrowing

The question "What are your assets and net worth?" relates to

Capital

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

Cash Flow Statement

Money management refers to

Day-to-day financial activities

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)?

Debt payments ratio

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

Financial plan.

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

Forgoing wages to attend school

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.

Full warranty

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?

Future value of a single amount

An investor should expect to receive a risk premium for

Higher uncertainty about getting his/her money back

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments.

Private mortgage insurance

Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.

A worker's primary goal should be to

Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.

A vehicle lease has several costs. Which of the following is the amount paid monthly and the number of payments?

Payment schedule

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

Poor credit rating

The text identifies several phases in the research-based buying process. The correct order of the phases is

Pre-shopping activities, evaluating alternatives, selection and purchase, post-purchase activities.

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?

Present value of an annuity

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

Purchase a house within the next 5 years with a mortgage no greater than $150,000

If you have a problem whose remedy will be between $1,500 and $3,000, the appropriate tool to use would be (a)

Small claims court.

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

Social Security taxes.

The opportunity to have another person take over rent payments and live in the rental unit is called (a)

Subletting

Income that is taxed at a later date is

Tax-deferred income

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

A money market account

Amber wants to open an account, but she doesn't know which kind is appropriate. She is interested in earning a higher interest rate and plans to keep at least $1,000 in her account so she can avoid paying a fee. Amber wants to open her account at an investment company and understands that her account will not be covered by federal deposit insurance. What kind of account should she open?

A money market fund

A drawback of a regular savings account is

A relatively low rate of return.

A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as

A trust

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 Answer D

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

All of these are major sections of Form 1040 A) Adjustments to income (AGI). B) Signature. C) Filing status and exemptions. D) Tax credits

Which of the following is a valid reason for using credit?

All of these are valid reasons for borrowing: A) Borrowing for a college education B) Purchasing an item that costs less now than it will later C) Purchasing a car so a homemaker can return to work D) Paying for a medical emergency

What should a home buyer consider when evaluating a house?

All of these should be evaluated: A) Property values of the community. B) Zoning laws. C) Location of businesses and future construction projects. D) School system.

When misused, credit can result in

All the choices are correct: A) Bankruptcy. B) A less satisfying life. C) Default. D) Loss of creditworthiness.

Which of the following is NOT a strategy for wise buying?

Buying items on impulse

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

Excise tax

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

Discretionary income.

Pauline just submitted an offer on her dream home. As evidence of good faith, she also included

Earnest money.

Which of the following is an account used to pay property taxes and homeowner's insurance?

Escrow

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?

Future value of an annuity

To develop financial goals, one should

Identify specific, realistic goals that are measurable along with a time frame and an action plan

Which of the following is correct about inflation?

In order to increase buying power, you need to earn a rate higher than the rate of inflation.

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

Income tax

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

Increase their debt ratio

An advantage of effective personal financial planning is:

Increased control of financial affairs

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

Invest $50 per month for the next 12 years for my newphew's college fund

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

Marginal Tax Rate

Credit bureaus get their information from all of the following sources except

References

Zoe signed the back of her check with the words "for deposit only." She used a(n)

Restrictive endorsement.

A standard measurement used to compare the prices of packages of different sizes is

Unit Pricing

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

Taxpayer

Which of the following is a disadvantage of renting?

Tenants cannot take tax deductions for mortgage interest and property taxes.

Most tenants sign a lease. Which of the following is part of a lease agreement?

The conditions under which the landlord may enter the apartment.

Who is responsible for a loan repayment?

The cosigner and/or the borrower

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes.