Fin101 Exam I & II
T/F Bondholders will receive interest payments after the stockholders receive dividends.
False
T/F Buying a single company's stock usually provides a safer return than a stock mutual fund.
False
T/F Earnings per share (EPS) tell the stockholder the amount of dividend earned
False
T/F From a financial planning perspective, you should ask yourself how low of a payment you can get when considering using consumer loans.
False
T/F If wristwatch arm corporation (WAC) has assets of $10 million, liabilities of $5 million, and preferred stock of $1 million, its book value is $6 million.
False
T/F Installment loans are typically repaid in one payment
False
T/F It is safe, and often required, to give your social security number as a form of identification when using a credit card.
False
T/F Most states generate the majority of their revenues from property taxes
False
T/F Owning common stock represents a debt investment
False
T/F Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.
False
T/F Preferred stocks are the common stocks of ultra blue-chip companies
False
T/F Property insurance is meant to protect property owners form two basic types of exposures, physical loss of property and loss through depreciation.
False
T/F The federal personal income tax is a flat tax.
False
T/F You can stop payment when you purchase an item with your debit card
False
T/F security deposits are controlled by the tenant.
False
T/F A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less
True
T/F 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.
True
T/F A PITI payment is composed of principal, interest, real estate taxes, and insurance.
True
T/F A credit limit refers to the maximum amount the cardholder can owe the issuer at any point in time.
True
T/F A lender will generally require mortgage insurance if the down payment is less than 20 percent
True
T/F ATM transactions require the use of a PIN.
True
T/F As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property
True
T/F Being late on credit payments only 2-3 times per year pay label you a "late payer" in your credit file.
True
T/F Bond return can include both interest and capital gains.
True
T/F Capitalized cost on an auto lease is the same as the amount of the price that is being financed.
True
T/F Collateral is an item of value used to secure the principal portion of a loan.
True
_____ would be an indication of overspending
Your checks are bouncing You have cash reserves and must borrow for incidentals Collection agencies are calling you frequently All of your credit cards are charged up to their limits (all of the above)
At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have ___ lease.
a closed-end
_____ is a reason for owning your home
a tax shelter a sense of stability pride of ownership a feeling of permanence (all of the above)
You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the
add-on method
the quality of your credit rating is maintained by
meeting credit obligations as contracts require
The financing rate on the car you are leasing is called the
money factor
Homeowners may be allowed to deduct the following on their taxes
mortgage interest
You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in
mutual funds
A credit card can provide an interest-free loan if you
pay the entire balance due on or before the due date
The _____ of a stock reflects stockholder confidence
price/earnings ratio
The federal income tax is
progressive
Cash dividends on common stock are most often paid
quarterly
When you buy 300 shares of a company you have purchased a
round lot
Earnest money is the sum of money the home buyer deposits with the
seller to indicate the intent of purchase
Over the past 70 years, the type of investment that has earned the most money, or the highest rate of return, for investors has been
stocks
your average tax rate is your
tax liability divided by taxable income
_____ income is subject to federal taxes
taxable
A problem with home equity loans is the
temptation to spread payments over a long term
If the objective of your life insurance program is to get the greatest death protection now for your insurance dollars, you should choose ____ insurance.
term
A real estate sales contract will include
the amount you are willing to pay for the property
Home equity loans are similar to other installment loans except
the interest paid is generally tax deductible
T/F A personal liability umbrella policy typically includes coverage for auto related liability losses in excess of the limits purchased in a personal auto policy.
true
T/F If your insurance 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
T/F The value of a stock at any time is a function of future returns rather than of past performance.
true
T/F in order to receive student loans, the student must be making satisfactory progress in his academic program
true
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, she will accumulate ___ to spend on her trip.
$17,549
Your son left his skateboard at the bottom of the basement stairs. You fall on the skateboard. How much will the policy pay for the accident?
$0
If you invest $100 at 8% for one year, compounded semiannually, at end the year your balance will be
$108.16
Russ and Lois have a home valued at $96,000 and an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% market value, how much could they borrow using a home equity loan?
$12,000
Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth today?
$133,823
Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, 4800 on gas and maintenance, and 2500 on interest. What was her depreciation cost on this vehicle?
$20,000
A lump sum deposit of $8000 left in the bank for 12 years at 9% compounded annually will result in an ending balance of
$22,480
The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be
$344
Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires total installment loan payments not exceed 35% of gross monthly income. Based on Barb and Bob's financial data below, what is the maximum monthly mortgage payment for which they can qualify? Monthly gross income: $4,000 Car Payment: $350 Student loan payment: $200
$850
The annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12% is
12%
The Smith family owns 200 shares of Elta stock. The company declared a 5% stock dividend. The Smiths now own
210 shares
a money factor of 0.00360 on a lease is equivalent to an annual percentage rate of
8.64
Theresa invested $5000 in an account she expects will earn 8% annually. Approximately how many years will it take for the account to double in value?
9
Bob is 22 years old and wants to start saving now for his retirement in 43 years. Of these choices, where should Bob put most of his money now for this long-term goal?
A mutual fund that invests in stocks
____ is a benefit of borrowing
Being able to purchase goods and services when checks are not acceptable Having a permanent record of transactions Providing payments that fit into a budget The ability to buy expensive goods while spreading the payments over time (all of the above)
Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying things. Which of the following cards would keep her out of debt?
Debit
If interest rates rise, what will typically happen to bond prices?
Fall
T/F All assets are recorded on the balance sheet at their original cost.
False
T/F Always paying cash is helpful in establishing a high level of creditworthiness.
False
____ and _____ 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 which of the following filing statuses?
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.
Which of the following events would probably increase your auto premiums?
None: your 25th birthday you get married increasing your collision deductible trading in your 1999 mercedes for a 2000 ford escort
Carlos has saved some cash and faces these choices. What would be the best thing for him to do?
Pay off the balance on his credit card that charges 18% interest.
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.
T/F 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 your lease.
True
T/F Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.
True
T/F Gasoline is a variable cost of automobile ownership.
True
T/F Having a checking account tells a creditor that you have some experience in managing your own funds.
True
T/F Having arranged and fully repaid a small loan should help improve creditworthiness.
True
T/F If you buy a zero coupon bond, you will receive no cash from the corporation until the bond matures.
True
T/F Interest rate risk is greater for stocks than for bonds
True
T/F Investing and speculating are two entirely different activities
True
T/F Liability claims may result from alleged negligent acts.
True
T/F 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.
True
T/F Money market deposit accounts are insured by the FDIC if purchased at an insured bank.
True
T/F Mortgage interest and paid home property taxes are both itemized deduction items.
True
T/F One can be overusing credit even though he can afford to make minimum monthly payments on time.
True
T/F One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account.
True
T/F One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents.
True
T/F The difference between the market value of your home and the balance of the mortgage is your equity in the property.
True
T/F The market price of a house is $125,000 and the homebuyer will borrow $100,000. two points will equal $2,000.
True
T/F The money factor on an auto lease is similar to the interest rate on a loan
True
T/F The student loans with the best loan terms are the Stafford and the Perkins loans
True
T/F Townhome, condominium, and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes.
True
T/F When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away
True
The purpose of a credit report is to evaluate the kind of risk you pose to the lender.
True
Which of the following losses is most likely to be covered under your auto liability insurance?
a legal bill incurred by your insurer defending you from a claim related to an accident caused by your negligence
Borderline credit risks would most likely receive
a limited line of credit
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.
Mike has a mastercard with an annual fee of $25, 18% interest, and $1,000 credit limit. He always pays the total outstanding balance monthly and on time. His most recent monthly statement lists last month's payment, new charges this month totaling $1500, and a $30 fee. That fee is most likely the result of
an over-the-limit fee
A market order would be transacted at the
best price when the order is entered
Homeowner's insurance premiums are determined by
deductibles chosen perils covered policy limits (all of these)
Monique owns a wide variety of stocks, bonds, and mutual funds to lessen her risk of losing money. This is called
diversifying
The 80% coinsurance clause in a homeowner's policy would cause a reduction in the claim payment for a covered loss to the dwelling of $30,000 in which of the following cases:
dwelling limit of $75,000, replacement cost of dwelling $100,000, actual cash value of dwelling $90,000
appropriate reasons to use credit include for
emergencies durable expenses investments convenience (all of the above)
Negligence results when a person
fails to act as a "reasonable person"
T/F Nancy's house has been completely destroyed by fire. prior to the accident, the house had a value of $100,000. Nancy had two separate policies totaling $60,000 for each. She may collect $60,000 from each insurance company
false
T/F The cash value of a whole life insurance policy can be used as a source of loan collateral.
false
T/F you received a stock dividend this year instead of cash. this is taxable income
false
Your standard HO policy will not include coverage for damage done by
flood
Interest will almost always begin to accrue immediately when you use a bank credit card to
get cash advances
Installment loans using the simple interest method
have interest charged only on the monthly loan balance
Your income tax withholding is dependent on
income level and number of withholding allowances
A bull market is characterized by
investor optimism
Imagine that the interest rate on your savings account is 1 percent a year and inflation is 2 percent a year. After one year, would the money in the account buy more than it does today, exactly the same, or less than today?
less
A legal claim that allows creditors to liquidate loan collateral is a
lien
Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paid off as quickly as possible and wants to roll the balance onto a new credit card. She now uses a credit card only for emergencies What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card?
low APR
If you buy the stock of a new company,
you can lose all the money you used to buy the stock
If you buy a company's stock,
you own a part of the company
a liability suit could result when
your dog bites the neighbor