Fin 101 Exam 1 Review

A single-payment loan is advantageous only if

funds will be available to repay the lump sum

Interest will almost always begin to accrue immediately when you use a bank credit card to

get cash advances

If you borrow money on a single payment loan and discover you cannot pay it back when it is due you should

negotiate a rollover

For tax purposes, head-of-household refers to ...

single individual with dependents

In 2014, the total social security tax was ...

6.2%

If you wanted to purchase investment advice, as well as stocks, bonds, and other investments, which type of non-depository institution should you contact?

A stock brokerage firm

Funds invested in this account are pooled to purchase very short-term debt securities

AMA and MMF

In an arrangement that seems inconsistent, mutual savings banks are insured by the

BIF

This is the general name given to an account that allows the account holder to access the funds through a variety of banking options such as ATM withdrawals, online banking, using debit card, or through a teller

Demand deposit

In this program, the insuring agency guarantees the safety of the account holder's total deposits up to specified amount

Deposit insurance

These financial institutions are legally allowed to solicit and accept monetary deposits from individuals or entities

Depository Institution

The loss of value in a car over time is called ...

Depreciation

Which of the following formulas would you choose to calculate the future balance on an account that earns compound interest?

FV = PV x (1 + i)n

TRUE OR FALSE: A home and land should be recorded on the personal balance sheet at their original cost.

False

TRUE OR FALSE: According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid down to 80% of the homes current market value

False

TRUE OR FALSE: Always paying cash is helpful in establishing a high level of creditworthiness

False

TRUE OR FALSE: As a single taxpayer with no dependents, one is generally eligible to file as "head of household"

False

TRUE OR FALSE: Money I loaned to a friend is a liability on my balance sheet.

False

TRUE OR FALSE: One's marginal tax rate is typically lower than one's average tax rate

False

TRUE OR FALSE: Using credit is the ideal way to provide for financial emergencies

False

Last week, Ethan's brother said that FDIC or NCUSIF deposit insurance on Ethan's account covers the funds on deposit, but not his accrued interest. Ethan's brother's information is ...

Incorrect

To settle a disagreement that they had last night, José and Matthew called you. José argued that FDIC and NCUSIF deposit insurance will cover mutual fund investments as well as insurance policies in the event the firms fail. Matthew argued that the programs would not protect these assets. Who is right: José or Matthew?

Matthew

funds held in federally chartered credit unions are insured by the

NCUSIF

The balance sheet equation is

Total assets - total liabilities = net worth

TRUE OR FALSE: Collateral is an item of value used to secure the principal portion of a loan.

True

TRUE OR FALSE: Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.

True

TRUE OR FALSE: To refinance a mortgage, the lender typically requires at least 20% equity in the home

True

You are solvent if your ....

total assets exceed total liabilities

If you installment loan has a variable interest loan ...

you cannot accurately predict the total interest you will pay on the loan.

Tom sold mutual fund shares he had owned 3 years so that he could use the proceeds to return to college. Tom is in the 15% marginal tax bracket and his capital gains from this sale were $11,000. How much tax would Tom owe on those gains?

$0

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities?

$115,000

Sam and his wife Ann purchased a home in Lubbock, Texas in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet?

$175,000 asset and $55,000 liability

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, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle?

$20,000

Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as in accrues, if Bob dies before the debt is repaid his beneficiary will receive

$225,000

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed

$300

Clare's gross salary is $36,000 annually and her after tax-income is $28,800. What is Clare's maximum recommended monthly consumer credit payment?

$480

Depository institutions are required to _____________ and ___________, although the general terms used to describe these financial products may vary across the various types of institutions. Non-depository institutions, in contrast, accept cash contributions from their customers, but the cash inflows are not called __________; instead, they're called shares or premiums.

-Accept deposits -Make loans -Deposits

The FDIC oversees and manages two separate insurance funds that apply to banks and savings associations. These two funds include the Bank Insurance Fund (BIF), which provides coverage for ______ and the Savings Association Insurance Fund (SAIF), which insures deposits in _______.

-Commercial banks -Savings associations

Which of the following are examples of an interest-earning checking account?

-Share draft account -Negotiable order of withdrawal (NOW) account

Just as depository institutions differ from non-depository institutions, there are also differences between the structure and activities of, and the financial products and services provided by, various depository institutions. Read the following statements and indicate which, if any, are true. Check all that apply. 1. Compared with commercial banks and savings banks, credit unions tend to pay the highest interest rates on their deposits. 2. Not all savings banks are mutual savings banks. Some exhibit a mutual structure, while others are organized as corporations. 3. Members of both credit unions and mutual savings banks share a common bond or affiliation.

1 and 2

This is the process of verifying accuracy by comparing the balance on the check register, or ledger with the balance on the bank's statements

Account reconciliation

Ian says that it is critically important to have access to his money market funds via an ATM. In which account should Ian NOT invest?

An MMMF

Your ________ is an example of a liquid asset. a) home b) charge account c)checking account d)life insurance cash value e) car

C

This is the term applied to the practice of routinely managing an individual's or family's cash and near cash-assets

Cash management

This form of check is drawn on the account of a financial institution and is backed by the creditworthiness of the institution. It is often required by sellers in lieu of a personal check

Cashier's check

This is the name applied to interest earned on the initial deposit amount plus the previously earned interest

Compound Interest

TRUE OR FALSE: All assets, regardless of category, should be recorded on your balance sheet at their current fair market value.

False

TRUE OR FALSE: When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.

False

Even though funds held in this account are not protected by deposit insurance, they are extremely safe due to the securities backing the funds.

MMMF

Non-depository institutions include:

Mutual funds, insurance companies, brokerage firms, and financial service companies

The National Credit Union Administration (NCUA) administers and manages the:

National Credit Union Share Insurance Fund (NCUSIF)

This is the technical name of the condition that results when an account holder bounces a check

Overdraft

This is the name given to interest that is paid only on an investor's initial investment and not on any previously earned interest

Simple interest

This is a deposit held in a financial institution for a fixed period of time. Usually depositors can withdraw the money from the account after the committed time period.

Time deposit

TRUE OR FALSE: A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay off

True

TRUE OR FALSE: A short sale does not affect a distressed homeowner's credit score as much as a foreclosure

True

TRUE OR FALSE: Credit report is routinely used to predict credit worthiness

True

TRUE OR FALSE: Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.

True

TRUE OR FALSE: Having a checking account tells a creditor that you have some experience in managing your own funds.

True

TRUE OR FALSE: Renting affords more flexibility than home ownership

True

TRUE OR FALSE: Social security taxes are paid on earned income but not investment income

True

TRUE OR FALSE: Tax avoidance is legal, tax evasion is illegal

True

TRUE OR FALSE: The Medicare portion of the Social Security tax is paid on 100% of earnings

True

TRUE OR FALSE: The main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes you pay

True

TRUE OR FALSE: The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan

True

TRUE OR FALSE: Variable rate loans are desirable if interest rates are expected to fall in the future.

True

TRUE OR FALSE: 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

TRUE OR FALSE: When the market interest rate goes up, the rate on variable rate loan goes up.

True

TRUE OR FALSE: You may be under-budgeting for food if you continually have monthly deficits in the food category.

True

The income and expense statement is specific to ...

a specific period of time

The financing rate on the car you are leasing is called the ...

money factor

The federal income tax is ....

progressive