W!SE Test Study Cards

A woman has just received a very expensive piece of jewelry. The woman has homeowner's insurance. Which statement would it be most appropriate for her to make to her insurance agent?

"I think I need a personal property floater." A personal floater is additional property insurance, which is available within a homeowner's policy, to cover damage or loss of a specific item of value.

Ben's annual income is $30,000, and he contributed $3,000 to a traditional IRA in his local bank. What is his taxable income?

$27,000. Ben's annual income is low enough that he can deduct his IRA contribution from his taxable income. His taxable income after deducting the contribution is $27,000 ($30,000 - $3,000), so the amount of tax he has to pay is lower than it would have been if he hadn't made the contribution.

If a person has $1,000 in a savings account and earns $20 a year in interest on that account, the rate of return on the money is close to

2%. Though interest is calculated on a daily basis, the closest Annual Percentage Rate earned is 2% ($20 is 2% of $1000).

An investor bought 40 shares of ABC corporation's stock at $80 a share. Two weeks later, the investor receives notice that the corporation has approved a 2-for-1 stock split. Based on this information, the investor would own at the moment of the split

80 shares of the stock and the price of each share is $40. A stock split is when the existing stock divides into a larger number of shares and the price of each share is then reduced accordingly, i.e., a 2-for-1 split on 40 shares that is worth $80 would result in 80 shares at $40 at the time of the split. Among other reasons, companies often decide to declare a stock split when they want to bring in more investors and do not want to issue more stock. Or, they believe that by bringing down the price of the stock through a stock split, that they will increase activity and interest in the corporation?s stock.

John's company will match his pre-tax contributions to the company's retirement plan, known as

A 401(k). A 401(k) retirement plan is called a salary-reduction plan because the employee must make contributions. Then, the employer may match the employee's contributions up to limits set by the employer. Both the employee and employer contributions are pretax and the earnings are tax-deferred until withdrawn. Employees who choose not to be become part of their company's 401(k) plan by contributing part of their wage or salary to the plan also lose the employer's contribution. They are, in effect, "leaving free money on the table."

Lamar believes that interest rates are going to fall in the near future and remain low for a considerable period of time. She should invest in

A long-term, fixed rate certificate of deposit By investing now in a long-term, fixed rate certificate of deposit, she will lock in the higher current rate over a long period of time. If she waited until later to invest and interest rates had fallen, the certificate of deposit would have a lower interest rate. This is an example of interest rate risk.

The most liquid type of investment is:

A money market account. The most liquid type of savings is a statement savings account. You can withdraw money from it quickly and easily at any time without penalty. Stocks, bonds, and real estate have less liquidity than statement savings accounts because these investments must first be sold before they can be converted to cash. Typically, the greater the liquidity and flexibility, the lower the interest rate paid. The cost of this flexibility and liquidity is a lower interest rate than is paid on certificates of deposit and other investments.

Which statement best describes the relationship between a person's educational level and that person's potential earning power?

A person with a professional degree is likely to earn at least four times as much per year as a person who did not complete high school

What is meant by an uncollateralized loan?

A personal loan without assets to cover the loan amount. Collateral is a tangible asset that is used to secure a loan. In the case of a mortgage, the actual house or apartment serves as the collateral for that loan. The same is true of a car loan. If the person who takes the loan, defaults on that loan, the bank or other lending agency has the right to keep the collateral. Therefore, an "uncollateralized loan" is one that does not have an asset to support the loan.

The type of credit card issued by an oil company, bank, or department store is:

A revolving charge card A revolving charge account has a pre-approved dollar limit that is the most the unpaid balance can be at any specific time. When a consumer charges a purchase on the card, it raises the balance. Making a payment reduces the balance by the amount of the payment minus the finance charge owed that month. Thus, the balance "revolves" up and down as the consumer charges purchases and makes payments.

Sally's health insurance policy requires her to pay the first $500 of medical costs each year before the company will pay any of her medical bills. This policy provision is the:

Annual deductible. The deductible is the dollar amount of medical expenses that the insured must pay each year before the insurance company pays anything. Deductibles are used in medical, auto, and property insurance. A basic insurance principle is the higher the deductible, the lower the premium.

The "Rule of 72" is an easy way to

Calculate how fast your savings will double in value at given interest rates The Rule of 72 is a formula to approximate the time it will take for a given amount of money to double at a given compound interest rate. The formula is 72 divided by the interest rate earned. In a little over seven years, $100 will double at a compound annual rate of 10 percent (72/10 = 7.2 years).

Nora needed to make a long-distance call from a pay phone and did not have the cash. She was able to make the call by using her

Cash card Consumers purchase cash cards for a specific amount of money. The amount paid is stored in the card's memory, and the card can be used to pay for goods or services specific to a particular store or action until the amount stored, or "loaded" on the card, has been spent. The type of cash card Nora used is called a phone card. Some retail chain stores sell cash cards which can be used to pay for their products. Cash cards are either disposable or re-loadable. Disposable cash cards cannot be replenished (loaded again). With re-loadable cash cards, the consumer can return to the merchant and pay to have the balance on the card replenished.

Which financial product typically pays the highest rate of interest?

Certificate of deposit. All of these types of accounts and financial products earn interest except for common stock. They all earn interest at different rates. Generally, certificates of deposit have the highest interest rate and savings accounts the lowest. Some companies declare and pay dividends to their shareholders.

Money in the United States includes

Checking account balances on which checks can be drawn. The total amount of money in the United States, termed the money supply, consists of coins, paper currency, checking account balances on which checks can be drawn, savings deposits, and time deposits such as CDs and money market funds. This measure of money, known as M2, is followed by the Federal Reserve as a key indicator of economic well being.

Interest earned on interest is known as

Compounded interest Compound interest enables the saver to earn interest on the interest that was earned earlier.

Which type of financial institution usually pays the highest rate of interest on savings account balances?

Credit unions Credit unions usually pay the highest rates of interest because they have lower risks and costs of operation. They are not-for-profit organizations, and their members have something in common, such as their employer, geographic area, or religious affiliation. Credit unions also offer fewer services than a commercial bank.

Which of the following is considered to be open-end credit?

Department store charge cards. Open-end credit is a revolving live of credit that is offered by banks and other lenders to consumers. There is a limit set on the line of credit and the funds, products or services are accessed using a credit or debit card, check, store charge card or cash advance. Consumers pay interest on the outstanding balance. A car loan is made for a specified amount and a specific length of time and is therefore considered closed-end credit. A mortgage loan is also considered a form of closed-end credit since the house serves as collateral for the loan which is made at a specified interest rate for a specified time period.

New coins and currency make their way into the general economy, consumers and businesses, through the distribution system of the

Federal Reserve System. The U.S. Federal Mint , which is an operating bureau of the Department of the Treasury, makes new coins. The U.S. Bureau of Engraving and Printing prints new currency. The coins and currency are sent to the Federal Reserve Banks, which distribute it as needed. Most new coins and currency replace damaged or worn out coins and currency being taken out of circulation.

The amount a lender charges to borrow money is called the

Finance charge The finance charge is the amount charged by the lender for any kind of credit. Finance charge = principal x stated interest rate x time (in years). The finance charge is used to calculate the annual percentage rate (APR).

If you are denied credit based on your credit report, you are entitled to a:

Free copy of the credit report if you request it within 60 days If requested within 60 days after the denial, you must be provided with a free copy of the credit report from the specific credit reporting agency whose report was the basis for credit, employment, insurance, or housing denial. At all other times, there is a small fee to get a credit report.

Travelers checks, often used for vacations:

Function as cash and are easily replaced if lost. Traveler's checks are documents that function as cash, can be replaced if lost or stolen, and are generally accepted throughout the world. For these reasons, they are often used on vacations and other trips. The purchaser signs a traveler's check immediately after purchasing it and again when paying for a purchase with it.

A stock broker or financial consultant

Gives financial advice to clients. Stockbrokers represent individual investors who want to buy or sell stocks, bonds, and other securities, give financial advice to their clients and they work for a securities firm also known as a broker-dealer.

Which of the following provides an increase in assets or wealth?

Having capital gains. Volunteering and running in a marathon are examples of giving one's time for a good cause. Taking out a loan creates debt not wealth. Capital gains are the profits from selling an investment product and will add to financial assets.

The cost to use someone else's money for a period of time is called the

Interest rate expressed as a percentage. Consumers usually pay a price for the goods and services they buy. The cost to buy the right to use someone else's money for a period of time is called the interest rate.

A cash card generally

Is purchased with a specific amount of money that can be used to pay for goods or services. Consumers purchase cash cards for a specific amount of money. The amount paid is stored in the card's memory, and the card can be used to pay for goods or services specific to a particular store or action until the amount stored, or "loaded" on the card, has been spent. Some retail chain stores sell cash cards which can be used to pay for their products. Cash cards are either disposable or re-loadable. Disposable cash cards cannot be replenished (loaded again). With re-loadable cash cards, the consumer can return to the merchant and pay to have the balance on the card replenished.

When John bought a Microsoft bond, he was:

Lending money to Microsoft A bond is any interest-bearing or discounted government or corporate security that obligates the issurer to pay the bondholder a specified sum of money, usually at specific intervals, and to repay the principal amount of the loan at maturity. Bondholders have an IOU from the issuer, but no corporate ownership privileges, as stockholders do. The bond investor does not have to hold the bond to the maturity date; he/she can sell the bond to another investor prior to that date.

Debbie owns a clothing store. She is concerned that a customer who is injured in the store will sue. Which type of insurance should Debbie purchase?

Liability insurance A liability is legal responsibility for the financial cost of another person's losses or injuries. Despite taking great care, a person may still be held liable in a situation. Most basic property insurance covers liability up to a specific dollar amount. Additional amounts are frequently recommended.

Who benefits the most from inflation?

Long-term fixed rate borrowers. Inflation reduces the purchasing power of money, so every dollar you spend in the future has less value than it has now. Since the payments on long-term fixed rate loans, like 30-year mortgages remain the same for the term of the loan, future payments will take place with dollars that have less purchasing power. Inflation also raises long-term interest rates, so if you are already locked into a fixed rate loan. your interest rate looks more and more favorable.

Which of the following does the Federal Reserve use to regulate the nation's money supply?

Monetary policy. The Federal Reserve uses monetary policy to regulate the nation's money supply. Monetary policy is directed at expanding or contracting the supply of money and credit in the U.S. economy. In theory, if there is too little money in circulation, consumers will spend less, interest rates will be high, and unemployment will rise. In this situation, the Fed can deliberately increase the amount of money in circulation, leading to lower interest rates, increases in consumer spending, and higher employment rates. If there is too much money in circulation, however, prices rise and the value of the dollar decreases (inflation).

The best reason for depositing money in a bank or credit union savings account instead of keeping your money "under the mattress" is that:

Money deposited in savings accounts are F.D.I.C. insured. Deposits in virtually all banks or credit unions earn interest. Banks send statements showing all deposits, withdrawals, and current account balances each month. Money earns a higher rate of interest in a savings account than in a checking account that pays interest. Money is easy to withdraw from a checking or a savings account. Money kept "under the mattress" could be stolen or lost in a fire and does not earn interest.

Which documents should be stored in a safe-deposit box?

Mortgage loan papers. The purpose of having a safe deposit box is to have a fireproof, secure place to store valuables and irreplaceable items including legal documents such as a birth certificate and precious jewelry.

What is the largest equities market in the world?

New York Stock Exchange (NYSE) The largest of these markets is the New York Stock Exchange. It was founded in 1792 under a tree on Wall Street. Also known as the "Big Board" and "the Exchange." the NYSE has the most stringent listing requirements and is governed by a board of directors. Recent events have led the NYSE to develop and enforce stricter rules of corporate governance.

A person has three credit cards with very large outstanding balances and is unable to make payments on any of them. Which action should the person take?

Notify the credit card companies in order to negotiate a new payment plan. When experiencing financial difficulties, the first action to take is to notify creditors, in this case the three credit card companies. Quite often the company will assist in negotiating new terms.

What should a person do when he believes he is being charged too high a rate of interest for a loan by a lending institution?

Notify the lending institution about state usury laws. Charging excessive interest rates on loans is known as "usury" and that practice is prohibited by law.

Margaret wants to store a valuable coin collection and important papers. Generally, consumers should:

Rent a safe deposit box for their valuables. Bank customers can rent safe deposit boxes from the bank. They are metal boxes kept in the bank vault where customers often keep valuable papers, financial records, jewelry, and collections.

The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are

Salaries, wages, and tips. The primary sources of income for most people between the ages of 20 and 35 are salaries, wages, and tips from their employment, also known as earned income. Earned income is also the primary source of income for most other age groups. Very few people have sufficient unearned income - dividends, interest, rents, or profits - to live on without holding a job or running a business.

A bank Certificate of Deposit is a:

Savings instrument that requires a deposit for a period of time during which there is a penalty for withdrawals. A certificate of deposit (CD) is a savings instrument that requires a deposit for a period of time (term) during which the saver cannot withdraw money from the plan without a penalty. CDs are issued with terms from 31 days up to eight years. The longer the consumer agrees to loan the money to the bank or credit union, generally the higher the interest rate. It is considered a form of savings because the consumer is paid interest based on the dollar amount and term of the CD. If the consumer does not collect his/her money at the end of the term, the money may be rolled over into another CD.

A pharmacy is to drugs as the American Stock Exchange is to:

Securities (stocks and bonds) A pharmacy, run by a licensed pharmacist, is authorized by a state government to fill prescription orders. A stock or bond exchange is where registered stockbrokers buy and sell securities such as stocks or bonds (fill orders) for investors. Exchanges are similar to other marketplaces in that the prices of the goods (equities) change based upon the basic laws of supply and demand.

Which financial product can you buy for $25, is safe, and will be worth $50 at a future date?

Series EE savings bond. Series EE savings bonds, which are issued and backed by the U.S. Treasury, are purchased for one-half of their face value. These bonds earn interest monthly, and a $50 Series EE bond, which is purchased for $25, is guaranteed to reach face value within 17 years, and may reach face value sooner.

Which investment would you choose today if you believe interest rates will go up?

Short-term savings instruments. By investing money in short-term savings instruments, your money will be available to invest in a higher interest instrument in the near future.

Neil will be traveling by air in Southeast Asia for a six-week vacation. Which step will not provide protection during the trip?

Take his passport Many medical insurance policies do not cover or severely limit medical care received outside the U.S. when traveling to certain areas of the world. Luggage is more likely to be lost during international travel with multiple stops, and airlines will reimburse travelers only up to a certain dollar amount for lost luggage. Most international airline tickets are expensive, and flight insurance reimburses the traveler if he/she cannot take the flight due to illness or accident.

Doug wants to buy a car in two months, but does not have enough money. What is the best way for Doug to get the money he needs?

Take out a cash loan. In order to get the money now, he could borrow the money by getting a car loan from an automobile dealer, bank, or credit union. Some people borrow money from family members or friends to buy a car or for the down payment on a car loan.

The only type of life insurance that does not develop a cash value is:

Term life insurance. Term life insurance provides a death benefit at a low premium cost. All other types of life insurance are described as cash value life insurance because they develop some type of cash value or cash accumulation.

Before the Kiss Corporation can issue stocks or bonds, it must register the issue with:

The Securities and Exchange Commission (SEC) Before a company can raise capital by issuing stocks or bonds, it must register the stock or bond issue with the Securities and Exchange Commission (SEC). An investment banking firm assists the corporation in completing the registration forms and serves as an intermediary between the issuing corporation and the initial investors.

Which of the following is necessary for successful budgeting?

The ability to adjust spending to money available. The steps in developing a realistic, usable budget once goals have been established are (1) identify the source and amount of all expected income, (2) identify probable fixed and variable expenses, and (3) adjust spending to match the expected income.

The information that a lender must disclose to consumers applying for a cash loan is

The annual percentage rate (APR), and/or the finance charge The Consumer Credit Protection Act of 1968, known as the Truth in Lending Act, stipulates that consumers be told annual percentage rate (APR), the finance charge, and any special loan terms for mortgages, cash loans, vehicle loans, etc.

Why is term life insurance usually the least expensive type of life insurance?

The policy only pays a death benefit. Term life insurance is the least expensive type of life insurance because it is only a death benefit and insures the individual for a limited number of years... There is no cash value accumulation. The death benefit is paid only if the insured dies during the term of coverage.

Money received today is worth more than the same amount of money received sometime in the future is

The time value of money The time value of money is the concept that money received today is worth more than the same amount of money received in the future. If you receive $100 today, you can put it to work immediately through savings or investing immediately.

A person buys a flat screen, plasma, theater-like television. The person has homeowner?s insurance. Why would it be appropriate to add a personal property floater to that insurance?

To cover the cost of replacement should the television get damaged or stolen. An extremely expensive item such as furs or jewelry or, in this case, the theater-like television, would usually not be covered in a standard insurance policy. As a result, policy holders often opt to attach a rider or "floater" to the policy to cover replacement or repair of these items. The policy holder also must pay an additional premium for the "floater" coverage.

If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the:

US Treasury Department. In order to track large deposits, the federal government requires that deposits of $10,000 or more be reported to the Treasury Department. Some concerns may be that a person might be trying to avoid paying taxes on game winnings or perhaps illegal gains.

Ben's truck is crushed by a hit-and-run driver. Scott is hit by an uninsured driver. How will they receive payments?

Uninsured or no-fault motorist coverage Uninsured or no-fault motorist's protection covers the cost of injuries to the policyholder and family members. Uninsured or no-fault motorist's protection also covers car repairs, financial losses due to injuries, car damage caused by a hit-and-run driver, or the cost of other people's injuries by a driver who has insufficient coverage.

Scott just got an ATM card to use and must choose a PIN (Personal Identification Number). How should he select a PIN that will give him maximum protection against anyone else being able to find out what the PIN is?

Use a random selection of letters and numbers. A PIN (personal identification number) is a secret code that protects the privacy of your accounts and allows only you to access them. The numbers should not be composed of numbers easily associated with the person choosing the PIN such as birth date, telephone number, or street number address. It should be a random series of numbers and letters that would be hard for unauthorized users to guess. Also, never write your PIN on your ATM or debit card or in your check book because then a thief would you're your confidential information needed to make purchases or withdraw all the money out of your account

If you have a managed health care plan, it means that you:

Usually must first meet with your primary health care physician. A managed care health plan refers to prepaid health plans that provide comprehensive health care to members. They are offered by health maintenance organizations, preferred provider organizations, exclusive provider organizations, point-of-service plans, and traditional health insurance companies. While differing from one another, almost all managed care plans require the meeting with the primary care physician first, referral by the primary care physician to specialists, and co-payments

A high school student has begun to investigate the field of finance as a career choice. In deciding about the field, the student should focus on which question first?

Will I find a balance between financial rewards and personal satisfaction from work? It is important to investigate a career with the idea of not only getting a sense of earning potential, types of positions available and the training necessary to acquire these positions but what are the chances that the individual will enjoy working in this field.

A man budgeted $200 a month for clothing. This month the man spent $150 on clothing therefore that budget item is considered to have

a budget variance. The difference between the amount of money budgeted for items ($200 for clothing) and the actual amount of money spent for those items ($150 for clothing) is called a budget variance.

For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive

a calculated amount of money which includes the premiums paid as well as the interest on that money. The cash value of a whole life insurance policy is based on premiums paid plus some of the interest earned.

When a person brings an item to a pawnshop to obtain cash, the transaction is considered

a collateralized loan. Since pawnshops make loans based on determining the value of collateral (a tangible object such as jewelry, cameras, musical instruments) they receive, the loan is considered a collateralized loan.

Buying a treasury bill (T-bill) is best for investors who are looking for

a secure, low risk investment. These bills are backed by the full faith and credit of the US government, therefore considered relatively risk free.

Financial plans need to

be changed during different stages in life Financial planning is the process of developing and implementing a coordinated series of actions to achieve financial success. Financial plans need to be reviewed and adjusted to accommodate changing needs and goals. They also need to be adjusted when an individual or family moves from one life stage to another, or when an event changes the individual's or family's financial conditions (for example, marriage, birth of a child, divorce, layoff, major disability, or retirement).

A person's debt ratio shows the relationship between debt and net worth. The lower the ratio the

better off financially the person is. Since the debt ratio is calculated by dividing liabilities by net worth, the lower the debt ratio the better; that is the better off the person is financially.

Using a brokerage firm, a qualified investor buys 1000 shares of a common stock at $50 a share on 50% margin. This means that the

brokerage firm is lending the investor 50% of the money. Margin is a speculative method whereby an investor borrows up to 50% of the money needed from a brokerage firm in order to buy a wanted stock and pays a fee for the privilege.

One of the benefits of holding an investment for over a year rather than selling it in less than a year is that the

capital gains on the investment will be taxed at a lower rate. Capital gains are profits made from the sale of capital assets such as stocks and bonds and are tax deferred until the asset is sold. Capital assets that are held over one year are considered long-term capital gains and are taxed at a lower tax rate or in some cases are not taxed at all.

You want to gain control over your income and spending so that you will be able to save money. Which step will help you the most?

developing a budget A budget is a realistic estimate of your sources and amounts of income and your expenses for a period of time. Developing and using a realistic budget can help you gain control over your income and spending. Developing, but not using a budget, does not help you gain control. Expenses may need to be reduced or eliminated, in order to develop have money left over (discretionary) to use for savings.

The interest earned on United States Series EE Savings Bonds is

exempt from state and local taxes. The interest rate on US savings bonds is exempt from state and local taxes.

When a person declares bankruptcy that fact will appear on the person?s credit report

for a 10 year period. Most of the adverse information on a credit report appears for 7 years. After a declared bankruptcy, the limit is 10 years.

To qualify for a Federal Housing Administration (FHA) loan, a person must generally

fulfill income guidelines. The Federal Housing Administration (FHA) insures lenders who make mortgage loans that are riskier than regular bank loans because FHA loans are made to individuals who usually would not qualify for regular low-cost mortgages from banks (usually first-time home buyers with lower income and a weaker credit score). The objective of this federal agency is to encourage home ownership while helping to protect the lenders at the same time.

A company offers direct deposit of employees' earnings. The company will still provide each employee with a statement that lists the employee?s

gross pay, the amount and type of deductions and net pay. Employees who take advantage of a direct-deposit program for depositing their pay checks still receive a complete payroll statement at the end of each pay period. These statements indicate gross and net pay, deductions for items such as taxes and company retirement savings plans as well as earnings to date. Health insurance as well as payroll taxes are also shown on the statement.

A person owns a stock that pays a $2.00 a share dividend. If the person chooses to reinvest that dividend, this means that the $2.00 will go toward buying

more of the same stock. A dividend reinvestment plan is designed to help the shareholder acquire additional shares (or partial shares if there is not enough money) of the stock by immediately reinvesting the dividend in the same company's stock as soon as the dividend is declared. The shareholder is still responsible for paying taxes on the dividends earned.

A good practice when using credit cards is to routinely

pay the complete balance each month. Credit card companies charge considerable interest for not paying the complete balance each month. Therefore having a monthly balance shows the person is spending more money (charging) than the person can afford and therefore the individual is not a good money manager. It also might be a situation where the individual does not realize just how much buying on credit and not paying off the entire balance is actually costing in the long run.

In addition to monthly mortgage payments, each year a homeowner can expect to pay

property taxes. Real estate taxes are a major expense of homeowners and may increase yearly. These taxes are used to pay for a community's schools, police, fire, road repairs and many other town budget items.

Financial planning is important because it helps you to

reach financial goals and protect your assets Financial planning is the process of identifying individual financial goals and tailoring activities and resources toward their achievement. The goal of financial planning is to make money work for you rather than against you and to help you live within, instead of beyond, your means. Financial planning includes strategies to protect your assets from taxes and unforeseen events.

Money set aside to grow is typically called

savings or investments Current income that is not spent on current expenses or discretionary income can be saved for future use. It can be used to build an emergency fund to cover short-term emergencies or invested for long-term goals such as buying a house or retirement.

A term that best describes your gross pay after taxes are deducted is

take-home pay Gross pay minus taxes and other items, such as health insurance, child support, union dues or United Way contributions, is take-home pay. The dollar amount of your paycheck is your take-home pay, and is also referred to as your net income.

As an investment, a person decides to buy a small house that has three rental apartments. The profits from this investment may be lower then expected if the

taxes on the house are lowered. The investor regards the house as a small business. Any time that any apartment is not rented, the investor is losing income and therefore profits on the investment.

Our values are

the basic principles that guide our actions and beliefs Our values are the beliefs that determine what we hold to be most important and worthwhile for ourselves and society. A person's values are likely to include beliefs about religion, the role of government, the importance of family, and social responsibility. One person may value financial success above all while another may place a higher priority on community service.

A person complains about how expensive it is to be a cigarette smoker. One of the reasons cigarettes are so expensive is that

the government imposes an excise tax on them. The government may impose a tax on specific goods and services such as alcohol, cigarettes, gasoline, and airline services, which are called excise taxes. These taxes produce revenue for the government and are usually placed on items not considered necessities. Often, as in the case of alcohol and cigarettes, these taxes are also levied as away to try to deter certain behaviors. As a result, these taxes have become known as "sin taxes."

To determine the time value of depositing $100 in a savings account, a person needs to know the interest rate and

the rate of inflation. The "time value of money" is a way of looking at how much a saving or investment is worth at the end of a period of time when it is compared to the rate of inflation during that period and the person?s earning power. For example, it may not seem as though depositing $100 a month in a retirement account when someone is 23 makes a whole lot of sense; why not wait until age 40 when it will probably be a lot easier to deposit $250 or $300 a month in the account. However, because of the miracle of compounding interest, that $100 will be worth a lot more when the person is older than the money that is deposited at age 40. However, the other factor to consider in making deposits to a regular savings account is the rate of interest as compared to the rate of inflation. If the annual rate of inflation is 03% and the interest earned on money is 01%, the deposit is actually going to have less purchasing power at the end of the year than it did at the start.

A person is convinced that a lending institution is charging too much interest for a loan. This person should be aware that

there are state usury laws. Charging excessive interest rates on loans is known as "usury" and that practice is prohibited by law. The first thing the person should do is inform the institution that he is aware of the law and will not pay the exorbitant rates.

Electricity and food expenditures are

variable expenses that change from one period to another. All expenses can be divided into fixed and variable expenses. Variable expenses are those that change each time period. These include the cost of utility bills, food, clothing, entertainment, and education. Fixed expenses are those that are the same dollar amount each time period. They generally include mortgage, rent, and car payments.