Personal Finance Exam 1
A 5% down payment will result in larger monthly mortgage payments than a 10% down payment on the same house for the same maturity mortgage
T
A PITI payment is composed of principal, interest, real estate taxes, and insurance
T
A credit limit refers to the maximum amount the cardholder can owe the issuer at any point in time
T
A lender will generally require mortgage insurance if the down payment is less than 20%
T
ATM transactions require the use of a PIN
T
As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property
T
Being late on credit payments only 2-3 times per year pay label you a "late payer" in your credit file
T
Capitalized cost on an auto lease is the same as the amount of the price that is being financed
T
Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease
T
Gasoline is a variable cost of automobile ownership
T
Having a checking account tells a creditor that you have some experience in managing your own funds
T
Having arranged and fully repaid a small loan should help improve creditworthiness
T
Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement
T
Mortgage interest and paid home property taxes are both itemized deduction items
T
One can be overusing credit even though he can afford to make minimum monthly payments on time
T
One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents
T
The difference between the market value of your home and the balance of the mortgage is your equity in the property
T
The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000
T
The money factor on an auto lease is similar to the interest rate on a loan
T
The purpose of a credit report is to evaluate the kind of risk you pose to the lender
T
Townhome, condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes
T
One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account
T ( certificate of deposit earns a higher rate of interests because it has less liquidity then a checking account because the less liquidity the more interest)
Money market deposit accounts are insured by the FDIC if purchased at an insured bank
T (a money market is a security and it invests in things like treasuries and very high liquid since its such a high liquid it is insured)
A credit card can provide an interest-free loan if you
pay the entire balance due on or before the due date
what is a reason for owning your own home
pride of ownership, a feeling of permanence, a tax shelter, a sense of stability
The federal income tax is
progressive
Your average tax rate is your
tax liability divided by taxable income
What income is subject to federal taxes
taxable income
Federal withholding taxes
taxes based on the level of earnings and the number of withholding allowances claimed-that an employer deducts from the employee's gross earnings each pay period
A problem with home equity loans is the...
temptation to spread payments over a long term ( home equity loan is good because they have low interest rates and are also tax deductible but failure to repay the money could result in the loss of ones home since home equity puts a second mortgage on your home)
Taxable income
the amount of income subject to taxes; it is calculated by subtracting adjustments, the larger of itemized or standard deductions, and exemptions from gross income
A real estate sales contract will include
the amount you are willing to pay for the property
Money factor
the financing rate on the car you are leasing is called this
residual value
the remaining value of a leased car at the end of the lease term
How do you find the annual percentage rate of a money factor?
to convert the money factor to an annual percentage rate, multiply by 2,4000
If you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be
$108.16 Use compound equation yet divide the 8% for one year by two because it is a semiannual pay interest
If a home is purchased for $100,000 five years ago. If it appreciated 6% annually, what is it worth today
$133,823 use compound interest to solve
if you want to go on a trip in 10 years.If she invests $1,000 per year at the end of each year for 10 years at a 12% interest rate, she will accumulate how much to spend on her trip
$17,549 Use future value of an ordinary annuity FV of annuity=[(1+r)^t-1/r]payment amount
Lease payment calculation is based on these 4 variables:
1. the capitalized cost of the car (the price of the car that is being leased) 2. The forecast residual value of the car at the end of the lease 3. The money factor, or financing rate on the lease (similar to the interest rate on a loan) 4. The lease term
If a home is values at $96,000 with an outstanding mortgage of $60,000 and the lender is willing to provide a home equity loan of up to 75% of market value, how much could they borrow using a home equity loan
Answer: $12,000 96,000 x .75= 72,000 72,000-60,000=12,000
What is a closed-end lease?
At the end of your car lease period you intend to turn in the car, and you will not have to pay extra at that time based on the residual value of the car
All assets are recorded on the balance sheet at their original cost
F
It is safe, and often required, to give your social security number as a form of identification when using a credit card
F
Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly
F
You can stop payment when you purchase an item with your debit card
F ( because the transaction is instantaneous)
The federal personal income tax is a flat tax
F (based on income not flat tax)
Security deposits are controlled by the tenant
F (handled by landlord)
Most states generate the majority of their revenues from property taxes
F (most of it is from income taxes)
Always paying cash is helpful in establishing a high level of creditworthiness
F (no way of pointing cash back to you not trackable)
compound interest
FV=(1+interest)^time/years More reasonable then simple interest because it factors in your interest every year it is the interest earned each year that is left in the account and becomes part of the balance (or principal) on which interest is earned in subsequent years
Simple interest
FV=PV(1+rt) rarely used because dosen't factor in the interest
Present value
If you are wanting to know how much money to invest now in order to get a specified amount in a specified amount a year with a specified interest this is the equation: PV= Future value X Present value factor (interest)
what two things are often paid as part of one's house payment and held in an escrow account
Insurance; real estate taxes
Henry is married to Lillian, and they have two dependent children. Henry can legally file using what filing status?
Married filing jointly
William uses his bank credit card frequently; however, he always pays off the total balance on the card each month what should William look for in a credit card given the way he uses a credit card?
No annual fee and long grace period
What is a benefit of borrowing?
The ability to buy expensive goods while spreading the payments over time, being able to purchase goods and services when checks are not acceptable, providing payments that fit into a budget, having a permanent record of transactions
Rule of 72
To find the number of years it takes to double your money use this equation: 72 / Annual compound interest rate
Borderline credit risks would most likely receive...
a limited line of credit
Purchase option
a price specified in a lease at which the lessee can buy the car at the end of the lease term
What would be an indication of overspending
all of your credit cards are charged up to their limits, Collection agencies are calling you frequently, your checks are bouncing, you have no cash reserves and must borrow for incidentals
If you have a card with an annual fee of $25, 18% interest, and a $1,000 credit limit. If you always pay the total outstanding balance monthly and on time but his charges this month was totaling in $1,500 and a $30 fee what is this in result of?
an over-the-limit fee
The quality of your credit rating is maintained by
meeting credit obligations as contracts require
Depreciation cost
capitalized cost - the residual value ( how much you purchase the car for minus how much the car is sold for)
Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying items. Which following cards would keep her out of debt?
debit
Debt safety ratio
equation: total monthly consumer credit payments / monthly take-home pay to make sure your monthly take-home pay does not exceed 20 %
Interest will almost always begin to accrue immediately when you use a bank credit card to
get cash advances
open-end or finance lease
if the car is worth less than the estimated residual value then you must pay the difference. Primarily used for commercial business leasing. Not as popular
You should use a low APR if
if you have a large balance and only want to use the card for emergencies
Social security taxes
if you make $118,500 or less you pay social security tax of 6.2%, but if you make anything over that amount you are not taxed with social security
Your income tax withholding is dependent on
income level and number of withholding allowances
Appropriate reasons to use credit include for
investments, durable expenses, convenience, emergencies
Capitalized cost reduction
it is a down payment that lowers the potential depreciation and therefore your monthly lease payments. you may be able to negotiate a lower capital cost reduction or find a lease that dosen't require one
consumer loans
loans made for specific purposes using formally negotiated contracts that specify the borrowing terms and repayments. Mainly used to borrow money to pay for big-ticket itmes
Future value of an annuity yearly savings
yearly saving= future amount of money desired/ future value annuity factor
