Assessment, Chapter 1 to 5

Russ and Lois were married on December 30. Even though they were single for most of the year, they can legally file as married filing jointly taxpayers in the year of the wedding.

True

Short-term planning should include creating and maintaining an emergency fund with at least 6 months' worth of income.

True

The balance sheet shows an individual's financial condition as of the time the statement is prepared.

True

The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000.

True

The minimum amount that you must keep in an account every day is an important criterion when comparing the features and requirements of different checking accounts offered by a bank.

True

The most effective way to achieve financial objectives is through personal financial planning.

True

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 a(n) _____ lease.

Closed-End

If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the size of the down payment.

private mortgage insurance (PMI)

The best approach to solve the problem of an annual budget deficit is to:

reduce flexible expenditures on nonessential items.

The Hamptons want to have $1,750,000 for their retirement in 30 years. How much should they save annually if they expect to earn 8% per year on their investments?Use a PMT formula.

$15448.01

Melinda sold mutual fund shares, which she had owned for 5 years, so that she could use the proceeds to travel with her sister. Melinda is in the 32% ordinary tax bracket, and her capital gains from the sale were $40,000. Melinda's tax liability on the gain is:

$6000

Mr. and Mrs. McMurray have three children, aged 6, 12, and 18 in 2018. The tax liability calculated per the tax schedule is $10,000 before applying the child tax credit. The McMurrays' tax liability after applying the child tax credit is:Note: In 2018 the tax credit per child under the age of 17 was set to $2,000.

$6000

Peter's tax computed per the tax rate schedule amounts to $2,000, and his tax credits amount to $500. His total tax liability is:

1,500

Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value? (Round the number of years to the nearest whole number.)You can solve using:a BAII+ calculator finding for nor Appendix A in your textbook Table of Future Value Factors to find the closest factor under 7% that would double which is 2 (or 1.967). or the quickest way to find the answer is the Rule of 72.

10

John Anderson deposited $10,000 in a certificate of deposit (CD) for 3 years at 5%. At maturity, it will be worth: (Select the closest answer.)Use a FV formula or the Future Value Factor in your textbook's appendix.

11580

Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan from a credit society, what is the maximum loan amount Jana can afford? (Round to the nearest dollar.)Use a PV formula to find out how much can be afforded on a $300 payment. The $1,500 down payment does not impact the loan amount.

12528

If your lender charges 1.5 mortgage points on a house selling for $100,000, on which there is a $90,000 loan, the points will cost you:

1350

Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value? (Round answer to one decimal place.)You can solve using:a BAII+ calculator finding for nor Appendix A in your textbook Table of Future Value Factors to find the closest factor under 5% that would double which is 2 (or 1.980). or the quickest way to find the answer is the Rule of 72.

14.2

Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round to the nearest dollar.)Use a PV formula to find out how much can be afforded on a $400 payment. Then add in the amount of down payment that can be afforded.

15265

Assume that your total income for the current year is $35,000. Your total expenses, including taxes of $5,000, are $30,000. Your savings ratio is:

16.7%

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round to the nearest dollar.)Use a PV formula to find out how much can be afforded on a $300 payment. Then add in the amount of down payment that can be afforded.

17028

A lump-sum deposit of $8,000 left in a bank for 12 years at 9%, compounded annually, will result in an ending balance of: (Select the closest answer.)Use a FV formula or the Future Value Factor in your textbook's appendix.

22503

Judy has $2,000 for a down payment on a vehicle and she can afford monthly payments of $400. If lenders are currently offering 6% interest on 5-year loans, what is the maximum price Judy can pay for a vehicle?Use a PV formula to find out how much can be afforded on a $400 payment. Then add in the amount of down payment that can be afforded.

22690

The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down payment of:

28000

Harry received a scholarship of $2,000. He plans to invest this money for 5 years at 8%, compounded annually. If he accomplishes this, Harry will have an ending balance of: (Select the closest answer.)Use a FV formula or the Future Value Factor in your textbook's appendix.

2938

Jacques's total monthly loan payments amount to $1,020, while his gross income is $3,000 per month. What is his debt service ratio?

34%

Which of the following age groups tends to have the highest income?

45-54

Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%, 3-year financing. Greg is also able to get 7%, 3-year financing from his credit union. If Greg plans to finance $18,000 over 3 years, should he take the 3.9% financing or the 7% financing? (Show all work and round to two decimal places.)Hint:Do not use the $1,500 rebate in the formulas to find which is a better deal.1. Use a PMT formula to find out how much Greg will pay monthly for the manufacturer loan and also how much he would pay monthly for the credit union loan.2. Subtract the difference in monthly payments. Manufacturer payment minus credit union payment.3. Multiply the monthly payment difference by 36 months. Will he save more or less than $1,500 over the life of the loan?4. If he saves more than $1,500 he should take the manufacturer financing at 3.9%. If he saves less than $1,500 he should take the credit union loan even though it has a much higher rate of 7% because he can now save $1,500 on the rebate.

7% financing

Barb and Bob want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires that the total installment of loan payments does not exceed 35% of the monthly income. Based on Barb and Bob's financial data given below, what is the maximum monthly mortgage payment for which they can qualify?

850

If your total assets equal $87,000 and your total liabilities equal $10,000, your solvency ratio is:

88.5%

Phil has $2,000, and he needs it to grow to $4,000 in 8 years. Assuming he does not add any more money to this fund, what rate of interest would he need to earn? (Round the rate of interest to the nearest whole number.)You can solve using:a BAII+ calculator finding for i (i/y)or Appendix A in your textbook Table of Future Value Factors to find the closest factor that would double which is 2 (or 1.993). or the quickest way to find the answer is the Rule of 72.

9%

_____ is something we owe, which is measured by the amount of debt we incur.

A liability

Joe Gustafson is a very busy person who prefers to use one account to handle all his financial services needs like checking, investing, and borrowing. Which of the following types of accounts is most suitable for Joe?

An asset management account

When your liabilities exceed your assets, you:

Are Insolvent

Ben invests $10,000 at a rate of compound interest of 5 percent compounded for 40 years. Which of the following statements about the return on the investment is true?

Ben will receive a significant amount at the end of the investment period, due to the feature of compounding.

Which of the following statements regarding budgets is true?

Budgets are forward looking.

A decrease in the gross domestic product (GDP) would indicate that the economy is experiencing a(n):

Deflation

It is very easy to change your partner's financial style, so there is no need for financial planning to resolve conflicts regarding money matters.

False

Qualified dividends are taxed at the highest capital gain rates.

False

Recessions and financial crises will always result in you losing your job.

False

Tax credits are dollar-for-dollar reductions in taxable income.

False

You should limit your spending to no more than 20 percent more than what you earn.

False

A declaration of estimated taxes is made on:If you are using the 6th edition or older the tax code has been updated.

Form 1040-ES

A person's ______ leads to an increase in income potential in his or her career. Correct!

Formal Education

The total amount of salary you earn before taxes are deducted is your ______ salary.

Gross

Which of the following statements about the earning power of an individual is true?

Income varies across different geographic locations due to varying costs of living.

The majority of each monthly payment at the beginning of the loan goes to pay the:

Interest

The purchase of a car is an example of:

Investing

Which of the following statements regarding the tax levied under the Federal Insurance Contributions Act (FICA) is true?

It is paid equally by employer and employee.

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

Which of the following are protected by the Federal Deposit Insurance Corporation (FDIC)?

Money market deposit accounts

A check you wrote to buy shoes last week has not yet been approved by the bank. It is said to be:

Outstanding

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. _____ will help him identify and correct any problems such as credit report errors that may arise on his application.

Prequalification

The consumer price index (CPI) is a measure of:

Recession

A check you issued last week has been stolen. You can prevent the amount on the check from being withdrawn from your account by an unauthorized person by:

Requesting a stop payment

The interest earned on an individual's _____ is free of state and local income taxes.

Series EE bonds

Sue and Tim are married taxpayers in the 32% marginal tax bracket. In 2018, they sold common stock shares, which they held for more than 3 months, for a capital gain of $3,800. They also sold some technology stock for a short-term capital loss of $9,000. In addition, they sold the home they had lived in for the past 10 years and experienced a $75,000 gain on the house.Q 1. How much will their net capital gains (or losses) be for 2018?Q 2. How much will they pay (or save) in taxes as a result of these transactions?

The net loss is $9,000 - $3,800 = $5,200-$3,000 of the capital loss can be written off against active income this year.The remaining capital loss of $2,200 will be carried over to the next year.-The capital gain on the house is tax free because a gain on the sale of a principal residence is excluded up to $500,000 for married couples.-The savings in tax as a result of the capital loss is $960, calculated as 32% of $3,000.

Which of the following statements regarding tax credits is true?

They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.

Which of the following statements regarding low interest rates is true?

They encourage investors to search for stocks paying high dividends.

An income and expense statement provides a measure of financial performance over a period of time.

True

An individual's auto loan payments are listed as an expense on the income and expense statement.

True

Compound interest means that a savings account earns interest on the interest previously earned.

True

Debit cards are a form of electronic funds transfer system (EFTS).

True

_____ is equal to the net total value of all the items that an individual owns.

Wealth

Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage payment was $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 of their home mortgage payment. In their current balance sheet, their home will be reflected as:

a $175,000 asset for the market value and a $55,000 liability for the outstanding mortgage.

Sarah is a homeowner and a single taxpayer. She has owned and occupied the house as a principal residence for the last 8 years. In the current taxable year, she receives a promotion. She sells her home and moves to another area. The capital gain on the sale of the principal residence will:

be taxable excluding the first $250,000 of the gain.

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n):

fixed-rate mortgage.

The three key groups in the economic environment are:

government, consumers, and business.

Low interest rates:

increase the demand for lower-grade, riskier bonds.

Henry is married to Lillian, and they have two dependent children. Both of them want to file their own tax returns, reporting only his or her own income, deductions, and exemptions. The filing status of Henry and Lillian is:

married filing separately.

Credit unions are:

member-owned financial cooperatives.

If you do not wish to itemize deductions, the other deduction you can take is the:

standard deduction.

A foreclosure happens when:

the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral.