Finance Test 2 (4-7)

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?

$50.

Buying a vehicle can be a challenging process. When researching a vehicle, a consumer may want to consider all of the following vehicle options except

- Mechanical devices to improve performance. - Convenience options such as air conditioning. - Aesthetic features like metallic paint. All of the options may be considered. Correct - None of the items listed are important when buying a vehicle.

Landon is looking to obtain a home equity loan. A lender will loan 65% of the home's current market value, which is $200,000. Landon currently owes $90,000 on his original home mortgage. What is his home equity credit limit available?

200,000(.65)= 130,000 130,000-90,000= 40,000

Using the following information, what is the cost to buy a car? •Down payment$3,125 •Monthly loan payment$365 per month for a five-year loan •Opportunity cost of down payment$3,125 × loan period (in years) × 3% interest •Estimated value of vehicle at end of ownership period $4,125

3125 + (365 x 5 x 12) + (3,125 x 5 x .03) - 4,125 = 21,368.75

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

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

A payday loan company

A drawback of a regular savings account is

A relatively low rate of return.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

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?

A savings account.

An all-in-one account that provides a complete financial services program for a single fee is known as

An asset management account.

Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?

An interest-earning checking account.

Which of the following is a disadvantage of a car lease?

At the end of the lease, you have no ownership interest in the vehicle.

Chloe signed the back of her check with just her signature. She used a(n)

Blank endorsement.

Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a

Certified check.

A service contract

Covers the repair costs of a product.

Which of the following is the document that transfers ownership of property from one party to another?

Deed

According to the end of the video, the decision to buy or lease an automobile is a __________________ decision.

Difficult

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

Escrow

Paul is looking for a low interest, low down payment loan for his first home, but he is not a veteran. He might be eligible for a(n)

FHA Loan

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

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except

Home appraisal.

Which of the following is correct about the lemon law?

It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles.

The owner/landlord is known as the

Lessor.

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?

Life insurance company.

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts.

Limited warranty

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

Liquidity

All of the following are factors mentioned in the video that individuals should consider before obtaining a home equity loan, except:

Location of home

A variable operating cost for a vehicle is

Maintenance and repairs.

A process used to settle grievances in a nonbinding process is called a(n)

Mediation.

Kylie went to a post office to obtain a

Money order.

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

If you want to pay a set fee to receive unlimited or reduced-fee legal assistance, you should use (a)

Prepaid legal services.

These products are sold by one chain of stores and are low-cost alternatives to famous-name products.

Private-label or store brands.

Which of the following is an advantage of renting?

Renters have fewer responsibilities for maintenance than home owners.

A cash advance

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

The expected value of a vehicle at the end of a lease is called the

Residual value.

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

Restrictive endorsement.

Using the following information, what is the cost to lease a car? •Security deposit$200 •Monthly lease payment$200 per month for a five− year lease •Opportunity cost of security deposit$200 × loan period (in years) × 2% interest •End-of-lease charges$400

(200 x 12 x 5) + (200 x 5 x .02) + 400 = 12,420

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

- Do I have the cash I need for the down payment? - Does the purchase fit my budget? - Could I postpone the purchase? - Could I use the credit I need for this purchase in some better way?

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash, and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except

- Stop payment on the missing checks. - Cancel her debit card. - Get a new debit card with a new personal identification number (PIN). - Close her bank account and open a new one. - All of these steps are appropriate to take if she suspects identity theft.

Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return?

- subtract top percentage to 1 -multiply by savings rate 1-.22= .78(7.2)= 5.62%

According to the video, which of the following is mentioned as a tip or trick regarding high-cost financial services?

-Compare the interest rate to the average interest rate for loans from a bank or similar financial institution. -Determine the annual coupon rate for a prospective loan. -Ask questions, read the fine print, and understand the risks involved with the high-cost loans.

Heather is currently in a 15% tax bracket and has a 3.4% savings rate of return. What is her after-tax savings rate of return?

1-.15=.85(3.4)=2.89%

All of the following are non-deposit institutions except

A credit union.

All of the following are deposit institutions except

A finance company.

While evaluating alternatives, comparison shopping will be beneficial for buying all of the following except

A hot dog at the baseball park.

A legal document that includes information about the due date of monthly rent is called a

A legal document that includes information about the due date of monthly rent is called a

Which of the following is an example of closed-end credit mentioned in the video?

Automobile Loans

Sally has a major problem with a product and thinks that many others have had the same problem. Which of the following is the best way to resolve the problem?

Class action lawsuit

____________________________ is more common and has a _______________ interest rate charged by most lenders.

Closed-end credit; lower

According to the video, which of the following is not mentioned as a financing opportunity for the unbanked?

Corporate Bonds

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

Monthly lease payments are usually lower than monthly financing payments.

Which of the following is NOT a valid reason for borrowing?

Paying for everyday living expenses

___________________ individuals are those who have bank accounts, but still use high-cost financial service companies.

Underbanked

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

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

Perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Which of the following is an advantage of buying a car compared to leasing that is mentioned in the video?

There are not any additional costs incurred for extra mileage.

Why are some financial service operations referred to as financial supermarkets?

They offer a combination of services from one source.

Using the following information, what is the cost to buy a car? •Downpayment$3,000 •Monthly loan payment$350 per month for a six-year loan •Opportunity cost of down payment$3,000 × loan period (in years) × 2% interest •Estimated value of vehicle at end of ownership period$4,000

Total vehicle cost= down payment+opportunity cost of down payment- estimated value at end of ownership 3,000+ (350 x 12 months x 6 years) + (3,000x6x.02) -4,000 = 24,560

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

Unit pricing.

What step can you take if your credit application is denied?

What step can you take if your credit application is denied?

If you are denied credit,

You are entitled to a free copy of your credit report.

All of the following are warning signs of debt problems except

You pay your credit card bills in full each period.

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 Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.

annual percentage yield (APY)

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?

$238

When misused, credit can result in

- Default. - Bankruptcy. - Loss of creditworthiness. - A less satisfying life

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1.

Experts suggest that the debt payments-to-income ratio should be a maximum of

20%

FICO scores generally range from

350 to 850.

Marsha invests $1,350 and earns a $105 return at the end of one year. What is her annual percentage yield (APY)?

APY= 100 (interest/principal) 100(1350/105) = 7.78%

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM.

When compared to __________________, ___________________ is often more difficult to obtain because the lender must rely upon your word that you will pay back the loan.

Closed-end credit; open-end credit

The use of property or savings to secure a loan relates to

Collateral.

A credit report includes

Detailed credit information

Which of the following is a disadvantage of leasing a car that is mentioned in the video?

Individuals don't have ownership in the vehicle and they must return it to the leasing company at the end of the lease.

The dealer's cost is also known as the

Invoice price.

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called:

Points

Which of the following expenses is NOT usually incurred by a tenant?

Property taxes

If a check is lost or stolen, you should use a

Stop-payment order.

Which of the following is a disadvantage of renting?

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

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

The largest fixed expense associated with a new automobile is

The largest fixed expense associated with a new automobile is

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

The minimum monthly payment on a credit card is

The minimum monthly payment on a credit card is

All of the following are reasons mentioned in the video of why homeowners obtain home equity loans, except:

To pay for family vacations.

What should a home buyer consider when evaluating a house?

Zoning laws. Location of businesses and future construction projects. School system. Property values of the community.

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

•Using the following information, what is the cost to lease a car? Security deposit$300 •Monthly lease payment$300 per month for a five-year lease •Opportunity cost of security deposit300 × loan period (in years) × 2% interest •End-of-lease charges500

total cost of lease= total monthly lease payment + opportunity cost of security deposit+ end-of-lease charges (300 x 5 years x 12 months) + (300 x 5 years x .02) +500 = 18, 530