ECO3041 Final

For a federal direct subsidized student loan, eligibility is not based on financial need, but a credit check is required

False

Obtaining a graduate degree will never harm your personal financial position.

False

One of the six components of your financial plan should be maximizing your tax liability.

False

The monetary policy of the Federal Reserve System (the Fed) has very little to do with the changes in interest rates a consumer will experience

False

An ordinary annuity can be defined as

a series of equal payments received or paid at equal intervals of time at the end of each period

the only reason a person would buy life insurance is to eliminate or substantially reduce the financial consequences of that person's death by providing income to his or her dependents

false

As the interest rate increases, the present value of the amount

decreases

The opportunity cost of an activity

depends on the individual's subjective values and opinions

A 7 year ARM means the mortgage must be paid in full within 7 years

false

A credit card statement will not show the method of calculating finance charges

false

A good strategy to avoid identity theft is to carry all important financial documents with you to prevent them from being stolen at home

false

A limit order is an order to execute a transaction to buy or sell a stock at its prevailing price

false

A stock mutual fund that pays higher than normal dividends is called a growth fund

false

Although indemnity plans are less flexible than managed care plans, they charge lower rates

false

An annuity is a stream of equal payments that are received or paid at random periods of time

false

Because interest is usually tax deductible and payments are deferred until you graduate, it is good advice to take out the maximum student loan for which you can qualify.

false

Certificates of deposit are highly liquid and pay the highest investment returns

false

Compounding is the process of obtaining present values; discounting is the process of obtaining future values

false

Comprehensive coverage pays damages to another person's auto in an accident for which you are legally responsible

false

Credit issued by department stores for relatively long periods of time is called non-installment credit

false

Forecasting for more than a month at a time is not helpful because you can't plan for unexpected expenses in the future

false

If it takes you four years to pay off a loan, you have to pay the annual interest four times.

false

If you expect interest rates to rise over time, you should consider investing in bonds with longer maturities

false

If you have good health insurance, you should probably not take out medical payments coverage on your automobile policy

false

If your calculated tax is greater than your withholding tax, you will receive a tax refund

false

Income stocks usually pay no dividends and have greater appreciation of prices

false

Insurance should be considered even when there is a high likelihood than an event will cause a small financial loss.

false

It is easy to predict the level of demand for certain investments since future economic conditions are fairly measurable.

false

It is usually better to lease a vehicle than buy one, since you are not responsible for the repairs or maintenance on a leased car

false

Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use

false

One of the problems with changing jobs is that you will immediately lose your health insurance and may not be able to get new insurance right away

false

Property damage liability covers damages to your car from accidents that are your fault

false

Since there is no limit on how much and how fast adjustable rate mortgages (ARMs) can increase, most homeowners are afraid to take out this kind of loan

false

Tax credits amount to the same savings as tax deductions

false

Tax credits amount to the same savings as tax deductions.

false

The beneficiaries of life insurance policies can only be family members or those directly affected by a person's death

false

The best way to reduce your homeowner's insurance premium is to insure the home for less than the market value

false

The cost of financing with a payday loan is more reasonable than the cost of obtaining credit through a credit card.

false

The present value becomes higher as the number of years increases

false

The smaller the amount used in determining a future value, the greater the future value at the end of the period

false

The time period over which you save money has very little impact on its growth

false

There is very little risk in an initial public offering (IPO) of stock since returns are positive during the first day

false

Unless your identity is stolen by someone out of state, you should only report the crime to local law enforcement.

false

You should claim the standard deduction if itemized deductions exceed the standard deduction

false

You should determine your auto purchase based upon the monthly payment you can afford each month

false

You should invest in risky investments instead of paying off your credit card debt because the return might be higher than the cost of financing

false

Your budget is simply a spreadsheet used to track expenses

false

an advantage to owning bonds is that investors can sell them to other investors in the primary market before the bonds reach maturity

false

investing in your human capital is the second best investment you can make. Investing in your house is the best investment

false

Credit Unions are nonprofit depository institutions that serve members who have a common affiliation (such as the same employer or same community)

True

For a direct subsidized federal loan, you do not pay interest on the loan amount while in school.

True

It is a good idea to list all of your personal items, estimate the market value of each item, and then film the contents of your house with a video camera to be able to show proof of their existence

true

Maintenance and insurance are both part of the costs of auto ownership

true

Most large employers offer cafeteria-style plans, which offer a variety of plans for employees to choose from.

true

Most people obtain health insurance through group plans offered by employers.

true

Most real estate agents agree that location is the most important influence on a home's future resale value

true

Municipal bond funds have tax advantages over other kinds of mutual funds

true

Mutual funds pool money from investors to purchase portfolios of investments

true

New cars average 15-25% depreciation each year.

true

Nondepository institutions are financial institutions that provide various financial services, but their deposits are not federally insured

true

One method of managing risk is to limit your exposure to a financial loss.

true

One of the attractive features of mutual funds is that they offer small investors a diversified portfolio and professional management

true

One of the six components of your financial plan should be financing your large purchases

true

Only the income that remains after deductions and exemptions are subtracted from adjusted gross income is taxable.

true

Private mortgage insurance generally is required if the borrower makes a down payment of less than 20%

true

Refinancing a home requires you to pay many of the same costs as the original loan and should therefore be thoroughly investigated.

true

Since insurance companies rely mostly on their premiums to cover claims, they price their insurance policies to reflect the probability of a claim and the size of the claim.

true

Since interest rates vary widely between lenders, you should obtain at least two quotes when selecting an auto finance company

true

Term life insurance is considered temporary insurance, since the policy is only in effect for a specified period of time

true

The decision to purchase versus lease a car is highly dependent on the estimated market value of the car at the end of the lease period.

true

The deductible is the amount of damage to your car that you are responsible for paying before any coverage is provided by the insurance company

true

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

true

The standard deviation of returns is one measure an investment's risk

true

The opportunity cost of building a park in your hometown would be the

highest valued bundle of other goods and services that must be forgone because of the park construction

___ is not a suggested risk management method

ignoring risks

___ management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short-term investment instruments

money

After your financial plan is developed it should be

monitored and updated annually

Which of the following describes the opportunity cost of attending an economics class?

the value of the highest valued alternative that must be forgone because of attending the class

___ bonds are the least risky of all bonds and, therefore, pay a lower rate of interest

treasury

A PPO health insurance plan allows individuals a better selection of health care providers, but is more expensive than an HMO

true

A company has a choice of whether to distribute dividends to common shareholders or to keep their profits in the company as retained earnings.

true

A good way to estimate the market value of a home is to multiply the number of square feet by the average price per square foot of similar homes in the area

true

A long term capital gain results from profit on the sale of capital assets that were held longer than 12 months

true

A margin call is a request from a brokerage firm for the investor to increase the cash in the account in order to bring the margin back up to the minimum level

true

A risk premium is the amount of interest you might receive over and above the risk free return insured by the federal government

true

A shorter financing period will reduce the total interest you pay for an auto.

true

An annuity is a stream of equal payments that are received or paid at equal intervals in time

true

Because they have lower expneses, web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches

true

Before you start an investment program, you should ensure liquidity by having your money in financial institutions or in money market securities

true

Bonds with longer maturities are more sensitive to interest rate movements than bonds that have shorter maturities

true

Which of the following is a credit management decision?

obtaining a student loan to attend college

Using e-mail messages that pretend to be from a legitimate source to obtain account information for the purpose of identity theft is referred to as

phising

You are investigating a financial asset that is expected to increase from an amount today to $5,000 in five years at 6% interest. What is the missing variable you need to solve this problme?

present value

Closed-end mutual funds have a limited number of shares that are sold when the funds are first created; the shares are than resold over the stock exchanges

true

Credit cards are an example of revolving open-end credit.

true

Credit should only be used when necessary, since it usually involves borrowed funds that you will need to pay back with interest

true

Different tax rates are associated with each filing status such as single, married filing jointly, and head of household.

true

FICA taxes include two components, which consist of

true

The smaller amount used in determining a future value

the smaller the future value at the end of the period

Federal direct unsubsidized student loans are made to eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need

true

Health care providers who are part of an HMO are paid a predetermined amount of compensation per month for each patient who participates in the plan

true

If you are a victim of identity theft, you may be turned down for employment as a result of incorrect background information.

true

In getting recommendations from brokers and analysts, you need to be careful that frequent suggestions to buy or sell are not being made in order to generate revenues for these traders.

true

In order to have good credit in the future, you must have used it wisely in the past

true

Index funds usually have lower capital gains on their investments and are, therefore, advantageous to investors in higher income tax brackets.

true

Insurance can protect your existing net worth and also increase the likelihood that you will be able to increase your net worth in the future.

true

Deposits at commerical banks are insured up to ___ per depositor by the Federal Deposit Insurance Corporation (FDIC)

$250,000

Which of the following ranges of returns would indicate a less risky, more stable investment

.4% to 1.4%

You want to know how much you need to save today to have $5,000 in five years at 7% interest rate. Which of the following calculations should you complete?

Present value of a lump sum

Anything you do to increase your knowledge and skills is called investment in human capital

True

Income earned from the sale of an asset for more than you paid for it is classified as

a capital gain

Since a key purpose of life insurance is to provide for dependents in the event of a main earner's death, it is logical that the amount of insurance purchased should be

a multiple of the insured's annual earnings

To earn the highest possible return in the stock market, you will need to

accept a high level of risk

Reductions of gross income for such items as individual retirement accounts (IRAs), moving expenses, and student loan interest payments will result in

adjusted gross income

Your home value is likely to be higher with all of the following except

being in an area that has just been zoned for industrial use

Which of the following pays damages for people injured or killed in an accident for which you are legally responsible

bodily injury liability coverage

Retired persons travel by bus and automobile more frequently than do business executives, who more commonly use air travel. An economic explanation for this would be that

business executives value their time more highly

In making the purchase versus leasing decision, it is important to remember that

dealers may impose an additional mileage cost

Which of the following federal student loans requires financial need to be demonstrated for eligibility

direct subsidized

Index funds offer tax advantages because they ________ in much trading and, therefore, ________ capital gains. A) engage; generate B) do not engage; generate C) engage; do not generate D) do not engage; do not generate

do not engage; do not generate

Which of the following is not a characteristic of Treasury bonds

exempt from federal tax

You are investigating a financial asset that is expected to increase from $700 today to an amount in five years at 6% interest. What is the missing variable you need to solve this problem?

future value

To determine how long it would take an investment to double at 10% interest, which interest rate calculation would you use?

future value of a lump sum

You want to know how much savings you would accumulate in 15 years if you save $2,000 per year and earn 4% per year. You need to determine the

future value of an annuity

unlke discount brokers, full-service brokers

give stock advice to their clients

Auto insurance rates are based upon all of the following except your

height and weight

Which of the following statements is not true regarding education and financial position

higher education always guarantees a higher income

Credit scores in the 500-600 range will likely result in

higher interest rates

As the time period decreases, the present value of the amount at a fixed interest rate

increases

Investors can earn a return on an investment in a stock mutual fund in all of the following ways except

interest distributions

When making payments on a credit card, the amount paid is first applied to ________ and the remainder is applied to ________.

interest for the month; balance due

You are investigating a financial asset that is expected to increase from $1,000 today to $5,000 in five years. What is the missing variable you need to solve this problem

interest rate

Growth stocks tend to pay ________ dividends and have ________ appreciation of stock prices.

lower;higher

When obtaining a mortgage you should

maintain some funds for liquidity purposes to cover unanticipated bills.

Before investing in a mutual fund the very least you should do is

read the prospectus

When the federal reserve wishes to ___ interest rates, it ____ the amount of funds at commercial banks

reduce; increases

The cost of health care has risen dramatically in recent years due to all of the following except

reduced litigation costs

Making extra mortgage payments does which of the following

reduces the length of the loan

The ___ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government

risk premium

Interest income would come from earnings on

savings accounts

If a stock was purchased in march 2016 for $10,000 and sold in December 2016 for $13,000, a ____ of $3,000 results

short-term capital gain

The least expensive form of life insurance is

term

Which of the following is the primary reason that a mortgage lender may allow a rate modification to an existing mortgage holder with a fixed-rate mortgage

the borrower may obtain a new mortgage from another lender

There is no Social Security tax on income beyond a certain level.

true

Thirty year bonds are more sensitive to interest rate movements than ten year bonds

true

When choosing a home, a convenient location can save you considerable travel time and expenses

true

When money earns interest on interest, it is said to be compounding.

true

a dollar's worth of tax credits is more valuable than a dollar's worth of deductions

true

liquidity is necessary because there are times during the year when your cash inflows are not adequate to cover your cash outflows

true

Fees charged by brokerage firms

vary according to the services offered.

All of the following are reasons to avoid payday loans except

you don't want to pay interest on your credit card that charges an annual rate of 18%