Chapters 3-5

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use? Correct Answer A) A savings account. B) A trust. C) A home mortgage. D) A loan. E) A credit card.

a savings account

Which of the following is often considered to offer the least expensive loans (loans with low interest)? A) Loan companies. B) Savings and loan associations. C) Parents or family members. D) Banks. E) Finance companies.

Parents or family members.

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is A) Open-end credit. B) An installment cash credit. C) A bank line of credit. D) Single lump-sum credit. E) A credit card.

Single lump-sum credit.

Income that is taxed at a later date is A) Earned income. B) Tax-deferred income. C) Tax-exempt income. D) Adjusted gross income. E) Exclusions from income.

Tax-deferred income

Income that is not subject to tax is called A) Tax-deferred income. B) Adjusted gross income. C) Earned income. D) Passive income. E) Tax-exempt income.

Tax-exempt income

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for? A) $238 B) $188 C) $0 D) $50 E) $500

$238

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for? A) $0. B) $173. C) $25. D) $500. E) $50.

$50

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about A) 0.2. B) 0.5. C) 0.25. D) 0. E) 1.

1.

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a A) 1099. B) Schedule A. C) 1040. D) W-2. E) W-4.

1099

Experts suggest that the debt payments-to-income ratio should be a maximum of A) 25% B) 50% C) 15% D) 20% E) 100%

20%

A typical grace period offered by many credit card issuers is A) 10-20 days. B) 45-60 days. C) 20-25 days. D) 30-40 days. E) 0-10 days.

20-25 days.

Penny knows that she needs to file her federal income taxes, but she is unable to do so by April 15. What form does she need to complete to obtain an automatic six-month extension? A) 1099 B) W-2 C) 4868 D) 1040 E) W-4

4868

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

A department store credit card

Which of the following is an example of closed-end credit? A) A department store credit card. B) Overdraft protection. C) Travel and entertainment cards. D) A mortgage loan. E) All of these are examples of closed-end credit.

A mortgage loan.

Gross income less Adjustments to Income equals A) Earned income. B) Tax-exempt income. C) Adjusted gross income. D) Tax-deferred income. E) Exclusions from income.

Adjusted gross income

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

All of the above may result from the failure to repay a loan.

A direct loan for personal purposes, home improvements, or vacation expenses is called A) A bank line of credit. B) An installment cash credit. C) A credit card. D) Single lump-sum credit. E) Open-end credit.

An installment cash credit.

Home equity loans A) Will cause you to lose your car if the loan is not repaid. B) Have interest that is tax-deductible. C) Require you to be a member of a credit union. D) Are based on the original purchase price of a home. E) Charge high interest rates ranging from 12 to 25%.

Have interest that is tax-deductible.

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A) Excise tax B) Income tax C) Real estate property tax D) Sales tax E) Estate tax

Income Tax

Home equity loans should be used for A) Major expenses such as home improvements or education. B) Borrowing money for impulse purchases. C) Getting cash for weekend entertainment. D) Buying dinner at a restaurant. E) Selling a car.

Major expenses such as home improvements or education.

The tax that is a major source of revenue for local governments is called a(n) A) Estate tax. B) Real estate property tax. C) Gift tax. D)Income tax. E) Sales tax.

Real Estate Property Tax

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

Requires you to pay interest every day until you repay the cash advance.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a A) W-2. B) W-4. C) 1040. D) Schedule A. E) 1099.

W-2

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go? A) A pawnshop B) A commercial bank C) A rent-to-own center D) A check-cashing outlet E) A payday loan company

a commercial bank

Billy accepted a job at a company that specializes in providing money for short-term retail lending. Where did he go to work? A) A life insurance company B) A finance company C) An investment company D) A credit card company E) A payday loan company

a credit card company

All of the following are non-deposit institutions except A) A credit card company. B) A finance company. C) A credit union. D) An investment company. E) A life insurance company.

a credit union

All of the following are deposit institutions except A) A mutual savings bank. B) A credit union. C) A savings and loan association. D) A finance company. E) A commercial bank.

a finance company

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) A money market fund B) A certificate of deposit C) An interest-earning checking account D) A money market account E) A regular savings account

a money market account

Harvey needed some cash quickly, so he received a short-term loan based on the value of an old ring. Where did he go? A) A pawnshop B) A payday loan company C) A rent-to-own center D) A check-cashing outlet E) A commercial bank

a pawnshop

Which of the following will likely provide the most expensive loans? A) An investment company B) A life insurance company C) A credit card company D) A finance company E) A payday loan company

a payday loan company

Claudette's grandchildren are 7 and 9 years old. When Claudette passed away, her grandchildren inherited her money. However, the will stipulated that they should not get control of the money until age 25. Which of the following should be set up to provide for the management and control of the funds? A) A checking account B) A loan C) A certificate of deposit D) A trust E) A savings account

a trust

Which of the following usually offers money market mutual funds? A) A life insurance company B) A finance company C) An investment company D) A payday loan company E) A credit card company

an investment company

The tax based on the total tax due divided by taxable income is called the A) AMT. B) Marginal tax rate. C) Average tax rate. D) Income tax rate. E) Total tax rate.

average tax rate

Fees, tips, and bonuses are forms of A) Passive income. B) Earned income. C) Tax-deferred income. D) Tax-exempt income. E) Exclusions from income.

earned income

Tanya is a single low-income working parent, and Fred is a single high-income working parent. Because of her status, Tanya, but not Fred, may be eligible for the A) Alternative minimum tax. B) Itemized deduction credit. C) Withholding credit. D) Student deduction. E) Earned income credit.

earned income credit

When Jack picked up a personal computer from the ________, he was really leasing it. A) commercial bank B) rent-to-own center C) check-cashing outlet D) pawnshop E) payday loan company

rent-to-own center

When Paul completes his taxes, he can include all of the following as exemptions except A) His 20-year-old son who is working full-time and living in an apartment. B) Himself. C) His wife. D)His 22-year-old daughter who is a full-time student. E) His 12-year-old son.

his 20-year-old son who is working full-time and living in an apartment

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with? A) Investment company. B) Finance company. C) Payday loan company. D) Life insurance company. E) Credit card company.

life insurance company

Louise got caught in a cash flow trap and desperately needed money quickly. Unfortunately, she didn't shop around and she went to a ________. As a result, her annual percentage rate was higher than 780%. A) check-cashing outlet B) commercial bank C) pawnshop D) rent-to-own center E) payday loan company

payday loan company

Which of the following is NOT a valid reason for borrowing? A) Paying for a medical emergency B) Buying a car so a homemaker can return to work C) Paying for everyday living expenses D) Borrowing for a college education E) All of these are valid reasons for borrowing

paying for everyday living expenses