FIN 101 FINAL
suppose the EPS of wal-mart stock was $2 and the current price per earnings ratio is 10. what is the current price of wal-mart stock>
$20
anna purchased a vehicle 6 yrs ago for $25,000 and recently sold it for $5,000. over the yrs she paid $5,800 on auto insurance, $4,800 on gas & maintenance, and $2,500 in interest. what was her depreciation cost on the vehichle
$20,000
suppose a person has a health insurance policy with a $500 year deductible, a $2000 out-of-pocket cap, and an 80% coinsurance provision. if this person suffers a $600 covered loss, how much will the insurance company pay?
$80
a money factor of 0.00360 on a lease is equivalent to an annual percentage rate of
0.00360 x 2,400 = 8.64
the monthly payment on an 8%, 36-month, add-on loan for $10,000, would be
10,000x8%x3=2,400 10,000+2,400=12,400 12,400/36=344 $344
if you purchase a $110,000 house and make a 10% down payment, how much would 1 point cost at closing?
110,000x10%=11,000 110,000-11,000=99,000 99,000x1%=990 $990
if your total assets equal $50,000 and your total liabilities equal $15,000; your debt ratio is
15,000/50,000 = 30%
as a percent of take-home pay, monthly consumer credit payments should not exceed
20%
janice plans on saving $12,000 for 3 yrs. she would like to receive a fixed rate of return over that period. which would you recommend
3-year certificate of deposit
You wish to accumulate a retirement fund of $300,000 in 25 years. If you can invest at 7%, what single lump-sum deposit must you make today in order to achieve your goal?
300,000 = (1 +.07 )^25 + x x=55,274.75 lump-sum: $55,274.75
Inflation this year is expected to be 4%. If Mr. Gonza earned $37,000 this year, how much must he earn the following year just to keep up with inflation and maintain the balance between his income and his increasing expenditures?
37,000x.04=1,480 37,000+1,480=38,480 must earn: $38,840
a lump sum deposit of $8,000 left in the bank for 12 years at 9% compounded annually will result in an ending balance of
8,000 x (1.09)^12 = 22,501 answer: $22,480
a lender will usually require a loan-to-value ratio of ___ or less for you to avoid having to pay private mortgage insurance (PMI)
80%
Kim's net worth is $85,000 and her total assets are $100,000. What is her solvency ratio?
85,000/100,000 = 85%
Sammi and Jason have $4,000 to deposit in a money market fund earning 5%. If they add $2,000 to that account annually, how much will they have accumulated in 15 years?
FV: 4,000x2.07893=8,315.72 FVA: 2,000x21.57856=43,157.12 8,315.72+43,157.12= $51,472.84
Sandy wants 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 how much will she accumulate?
TVA Table @ 12% for 10 yrs: 17.54874 1,000x17.54854= $17,549
Jamie wants to have $1,000,000 for her retirement in 25 years. How much should she save at the END of each year if she thinks she can earn 10% on her investments?
TVM Table @ 10% for 25 yrs: 98.34706 1,000,000/98.34706=10,168.07 save: $10,168.07
which of the following best describes a "pre-existing" condition?
a physical/mental problem you had at the time you bought the policy
_____ is a common provision in many term policies
a renewable clause
for tax purposes, head-of-household refers to
a single individual with dependents
you want to borrow $1,000 at an interest rate of 10%. the most expensive method of calculating the dollar of cost of the interest on this installment loan will be the
add-on method
the most important investment prerequisites are
adequate income and insurance
underwriting helps protect life insurance companies from which of the following
adverse selection
the term condominium refers to a style of architecture
false
a testator can revoke a will in the following ways
making a later will that will revoke prior wills, making a codicil that revokes prior wills, burning the will
which of the following are requirements of a valid will
mental capacity, freedom of choice, proper execution
which of the following bond mutual funds would provide tax-free income
municipal bond refund
you have been offered an opportunity to buy shares of a diversified collection of securities. you will be investing in
mutual funds
using the ____ approach is the most accurate method to determine life insurance needs
needs
annual percentage rate is equivalent to
simple interest method
______ is a short-term investment activity
speculating in common stock
_______ would not be a reason for purchasing mutual funds
tax advantage
_______ income is subject to federal taxes
taxable
which of the following is a potential advantage of online bill payment systems
time and postage savings
points paid to secure a mortgage to purchase a primary residence will generally be tax deductible as interest in the year they are paid
true
protection for personal property both at home and away from home is a provision of the homeowner's policy
true
Rosa & Jose have liquid assets of $5,000 and other assets of $50,000. Their total liabilities equal $26,000. What is their net worth?
5,000+50,000=55,000 55,000-26,000=29,000 net worth: $29,000
the margin required on the purchase of common stock is currently set at
50%
which of the following best describes the personal articles floater
an endorsement providing coverage for items of expensive personal property not adequately covered under the standard homeowners policy
the first step in the auto-buying process should be
analyze how much car you can afford
the most valuable technique in personal risk management to assist an individual in determining how much life insurance is needed is:
assessing the family's total economic needs and subtracting financial resources available to meet those needs
if your net worth on the balance sheet would have increased from one period to the next
assets increased and liabilities remain constant
most mutual funds allow investors to participate in
automatic reinvestment plans & automatic investment plans
corporate ownership is evidenced by
common stock
assume that the price of ABC common stock fell from in a short period of time from $105 to $84. which of the following investors probably made the most money, if all of these transactions occurred prior to the drop in price?
darren shorted 2000 shares of ABC loan using a margin loan
medicare is a gov-sponsored health care plan composed of part A and part B. part B covers
doctor's bills
insurance is a tool that can lessen ______ risk
economic
a codicil is an
executor's revision of a will
a life insurance policy should contain a co-insurance clause
false
a long-term capital gain is taxed at the same rate as ordinary income
false
a market order to sell would be filled at the highest price available that day
false
always paying cash is helpful in establishing a high level of credtiworthiness
false
bondholders will receive interest payments after the stockholders receive dividends
false
earthquakes are covered under most homeowners policies
false
fdic covers stocks, bonds, and mutual funds purchased at banks
false
if you use net salary income on your budget, the expenditures section must include income and social security taxes
false
installment loans are typically repaid in one payment
false
interest you earned on your savings account would be an entry on the balance sheet
false
investors select and purchase securities held within mutual funds
false
nancy's house has been completely destroyed by fire. the house had a value of $100,000. nancy has two separate policies totaling $60,000 each, she may collect $60,000 from each
false
one's marginal tax rate is typically lower than one's average tax rate
false
only the current month's payment on your mortgage loans would be listed on the balance sheet as a liability
false
the equity in your home is the difference between the loan balance and the purchase price
false
the major reason most people invest is to shelter current income from taxes
false
the rate of return on liquid assets is relatively high compared to other types of investments
false
there is an inverse relationship between the bond prices and current interest rates
false
two prerequisites to investing are above average risk and clear understanding of market direction
false
underwriters can predict whether or not you will suffer a loss this year
false
when you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill
false
whole life policies typically provide a high investment rate of return
false
with the discount method, the finance charges are calculated and then added to the amount borrowed
false
you a received a stock dividend this year instead of cash. this is taxable income
false
prices are rising in bear markets, indicating economic optimism
false (bear markets: pessimistic, falling prices, economic slowdown)
earnings per share tell the stockholder the amount of dividend earned
false (indicator of a company's profitability)
interest rate risk is greater for short-term bonds than for long-term bonds
false (long-term bonds face higher risk due to risk of raising interest rates)
a discount bond has a market value above par value
false (lower than)
stock dividends are taxed at long term capital gains rates
false (not taxed, they are earned)
_____ would be a proper use of credit
financial emergency, purchase of a house, investing, shopping convenience (all of these)
a single-payment loan is advantageous only if
funds will be available to repay the lump sum
future fund performance is the real key to investment success with mutual funds. one important element to examine when attempting to predict a fund's future performance is the
future course of the market
the stated interest rate on your account is 7.12%, interest paid semi-annually. your effect rate of interest (APY) will be
greater than 7.12%
your take-home pay is what you are left with after subtracting from your
gross earnings
installment loans using the simple interest method
have interest charged only on the monthly loan balance
higher interest rate on certificates of deposit are associated with
higher account balances & longer maturities
if interest on a savings account is compounded semiannually, the effective rate of interest will be
higher than the nominal rate
if you die without a will you are said to have died
in probate
____ and ____ are often paid as part of one's house payment and held in an escrow account
insurance; real estate taxes
which of the following is tax deductible if one itemizes deductions?
interest, PMI, and real estate taxes
you would typically not include _____ in your gross income
life insurance death benefits
the probability of a loss occurring can be reduced by
loss prevention
a characteristic of dental insurance is
low maximum limits
a "coordination of benefits" provision in a health insurance policy provides which of the following benefits
often results in lower cost insurance premiums
to establish creditworthiness you probably should first
open savings and checking accounts
the fund whose main objective is to simply match the market is known as a(n) _____ fund
preferred stock/index/balanced/money market/none of these answer: none of these
term life insurance is characterized by
premium amounts related to age
during a bull market
prices go up
the basic purpose of insurance is to
protect you from losses
whole life insurance is designed to provide
protection and savings
cash dividends on common stock are most often paid
quarterly
through insurance, society is able to
reduce financial risks and share losses
_____ are required by many insurance plans to reduce the number of unnecessary surgies
second opinions
earnest money is the sum of money the home buyer deposits with the
seller to indicate intent of purchase
a capital gain is the result of
selling an asset for more than the purchase price
selling stock that you have borrowed is known as
short sale
which of the following forms of life insurance requires the lowest premium per dollar of initial death benefits
term life
a real estate sales contract will include
the amount you are willing to pay for the property
the more frequently a bank compounds interest, ____ will be.
the greater the effective rate of interest
home equity loans are similar to other installment loans, except
the interest paid is generally tax deductible
requirements for a valid will do not include
the will must be drawn up by an attorney
ben and jack both earned $60,000 this year. ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following is true regarding the amount of social security taxes they will pay?
they will pay the same amount of social security taxes (b/c they earned the same amount)
from the standpoint of the person buying insurance, the central purpose of insurance should be:
to transfer risks of serious losses
a budget is a detailed financial forecast
true
a budget is an orderly estimate of income and expenditures
true
a cash surplus will typically produce positive savings ratio
true
a certified check is a personal check that the bank guarantees the funds are available
true
a charge made on your credit card becomes a liability as soon as the charge is incurred
true
a house with a replacement value of $110,000 is currently insured for $90,000. the house has suffered a $15,000 loss from windstorm damage. the insurance company will pay the full $15,000 less the deductible
true
a potential estate planning problem is improper distribution of assets
true
a retiree's principal source of retirement income is social security
true
a round lot consists of multiples of 100 shares of stock
true
a short-term capital gain would be taxed at the same rate as your salary
true
a trust is a means of transferring property
true
a vested employee has a right to receive benefits from an employer's retirement funds even if he no longer works there
true
a will is revoked if a second legitimate will is created
true
actual cash value is defined as replacement cost minus depreciation
true
all securities involve risk of some kind
true
an advantage of a mutual fund is pooled diversification
true
an investment is acceptable if the expected rate of return is greater than the desired rate of return
true
an investment must be owned over one year in order to qualify for long-term capital gains treatment
true
annual term insurance premiums increase as you get older while whole life insurance premiums remain constant
true
anyone with an earned income can contribute to some type of IRA
true
automobiles tend to decrease in value over time
true
bond prices are impacted by both the direction and magnitude of interest rate changes
true
buying on margin would allow you to purchase securities using borrowed funds
true
by using automatic reinvestment plans, dividend and capital gains are used to automatically buy additional shares in the fund
true
common stock generally allows the stockholder to vote on issues of corporate governance
true
compound interest means that a savings account earns interest on the interest previously earned
true
condo and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes
true
credit report is routinely used to predict credit worthiness
true
dividend income and capital gains distributions are taxed at identical tax rates
true
dividend income, capital gains distributions, and changes in the fund's share price are all sources of return for a mutual fund
true
event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition
true
generally, insurance is more reasonably priced through group plans than as individual policies
true
gift giving can reduce estate tax liability
true
guaranteed renewable term insurance allowed you to renew the policy for another term without qualifying medically
true
having an accurate current income and expenditures would be very useful when calculating retirement needs
true
hospital insurance will pay daily room and board charges up to a specified number of days and reimbursement for ancillary charges up to a specified dollar amount
true
if a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money
true
if you are eligible to receive a tax refund, you will have to file a tax return to get the refund
true
if your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate
true
if your insruance company makes a payment to you, subrogation is the right of the company to collect from the person causing the accident or from his/her insurance company
true
increasing the deductible is likely to lower the premium on a comprehensive major medical policy
true
joint checking accounts typically imply the right of survivorship if one party should die
true
life insurance needs change dramatically over one's lifetime
true
living a health lifestyle is an example of loss prevention and control
true
low price/earnings ratio indicate limited of low investor confidence
true
miles has no retirement plan at work, therefore, $2,000 contributed to his regular IRA will be tax deductible
true
most people are too conservative when investing their retirement funds
true
most types of personal property depreciate, or decline in value, shortly after being put into use
true
municipal bonds can be attractive investments, despite their lower interest rate, since their interest income is exempt from federal income tax
true
mutual funds provide professional management and diversification that individual investors-especially those with limited resources-can rarely obtain on their own
true
one could expect to earn a higher rate of interest on a certificate of deposit than on a checking account
true
qualified dividends are taxed at the same rates as the long-term capitals
true
saving is the preferred way to provide for financial emergencies
true
short sale transaction will be profitable when prices are falling
true
single-payment loans are often used as a form of interim financing
true
social security taxes are paid on earned income but not on investment income
true
spiders and diamonds are examples of ETF's
true
spreading rick among a large number of people is a major principle of insurance
true
tax avoidance is legal, tax evasion is illegal
true
term insurance is generally the most economical form of life insurance for young families
true
the federal personal income tax is a progression tax
true
the higher the tax bracket you are in, the more attractive the purchase of municipal bonds becomes
true
the income and expense statement is a summary of actual income earned and expenses made over a specific point of time
true
the key to a successful savings program is to save regularly
true
the key to a successful savings ratio is to save regularly
true
the liquidity ratio is an indicator of a family's ability to pay current debts if there is an interruption in income
true
the main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes you pay
true
the most important advantage of a mutual fund is pooled diversification
true
the multiple of earnings approach to evaluating life insurance needs is simplistic but can be unreliable
true
the principle of indemnity states that the insured can be compensated for an amount equal to his economic loss
true
the savings ratio indicates the percentage of after-tax income that is saved
true
the student loans with the best loan terms are the stafford and the perkins loans
true
when a child qualifies as a dependent on her parent's return, the child cannot take a personal exemption for herself
true
when simple interest is used, the standard rate of interest on single payment loans is equal to the annual percentage (APR)
true
with traditionally whole life policies sold by an agent, sales commission and marketing expenses account for between 20%-25% of total premiums paid over the life of the policy
true
you have a balanced budget when total income for the year equals or exceeds total expenditures for the year
true
you may be under-budgeting for food if you continually have monthly deficits in the food category
true
you received a cash dividend from your stock investment this year. this is taxable income
true
you should invest in long-term CD's when you expect interest to fall
true
you would be considered negligent when you, a dependent, or another named insured's action causes harm or property loss
true
your health insurance has an 80% co-insurance clause, once the deductible is satisfied your insurance company will pay 80% of your covered losses up to the stated limits
true
your homeowner's policy will pay damage to the neighbor's property when your 10 year old son throws a rock through her window
true
your savings will grow faster with monthly interest compounding than with quarterly interest compounding
true
the worksheet listing your investment holdings should include
type of investment, original amount, cumulative return, latest market value
Kurt purchased a policy with a face value of $100,000 and can accumulate cash value. what type of life insurance has Kurt purchased?
universal life
surgical expenses now generally are reimbursed on the basis of
usual, reasonable, and customary expenses
