Fin 101 quiz answers

Patricia, age 28, earns $4780 per month. Every month she saves $460. Additionally, she has $3120 in outstanding credit cards and makes a $260 monthly payment of these cards. What is Patricia's approximate savings ratio?

9.62% (savings/income)

Which of the following entities also reports income that you earned to the IRS?

Employers, financial institutions, and other entities that make substantial payments to you during the tax year.

Which of the following are included in the finance charge for a loan?

Interest charged for the loan. Loan origination fees (the cost of creating the loan). Annual loan account fees

Mary uses her credit card frequently. Which of the following is the best strategy to minimize the amount of interest paid when using a credit card?

Pay off the credit card balance monthly.

Financial educators often recommend that individuals should:

Plan to use government benefits as an emergency source of income.

Which of the following terms best represents the amount of money that is borrowed, and which must be repaid?

Principal.

What is the difference between realized and recognized income?

Realized income occurs when money is earned, and recognized income is when realized income is taxed.

Haley owns a Honda Civic. She is creating her balance sheet and needs to input a value for the car. Which of the following is an indication of the car's fair market value?

The trade-in value of the car.

Abed carries an average monthly balance of $1250 in his checking account. If his bank charges $5.00 per month as a minimum service fee, how much in annual interest must Abed earn to cover the monthly fee?

4.80%

Elizabeth invested $96000 into a startup company this year. For the first time, she received a payment from the company for $6000. What was Elizabeth's rate of return on her investment?

6%

Compared with other developed countries in the world, the United States has a(n) ___________ tax system.

progressive.

A deficit in a budget means you are:

spending more than you are earning.

Income tax rates are determined by the

type of income earned, filing status, and amount of taxable income reported on the tax return.

Risk is the ______ associated with any physical, social, emotional, environmental, workplace, or financial activity.

uncertainty.

Tax evasion is:

underreporting recognizable income.

Failure to file a tax return when you have earned taxable income as an employee

will result in a penalty from the IRS, even if it was an accident.

Someone who strongly agrees with (a) the thought of taking risk is exciting, (b) high returns are more important than safety, and (c) making money in stocks and bonds is based on knowledge is most likely:

willing to take more financial risk.

If you purchase a regularly priced $30 shirt on sale and pay only $20, what will the sales tax be if the sales tax rate in your community is 7 percent?

$1.40. (20x.07)

Kevin makes $3325 per month. He pays $800 in taxes, $690 in rent, $455 on food (which includes eating out), $220 for a car payment, $125 in gas and maintenance, and $695 in recreation every month. What is Kevin's surplus or deficit?

$340

Assume Betty earns $8.30 per hour. If she receives "time and a half" for any hours worked over 40 per week, how much will Betty earn if she works 45 hours this week?

$394.25. (8.30x1.5x5 + 8.30x40)

Eric borrows $4900 on January 1 for one year. Interest is calculated annually. He does not have to make any monthly payments, but he has to repay the entire loan plus interest on December 31 of the same year. If the loan has an annual interest rate of 9% what amount will Eric have to repay on December 31?

$5341

George has the following assets and liabilities: Cash:$500 Clothes and Furnishing:$5000 Car:$15000 Investments:$50000 Credit Card Bills:$300 Car Loan:$5000 Student Loan:$11200

$54000.

Sam has taxable income of $350,000. Sam's nephew Adam has taxable income of $3,500. What federal income tax rate applies to the first taxable dollar of Sam's taxable income and what tax rate applies to the first taxable dollar of Adam's taxable income?

10% and 10%.

Assuming Debra has $2600 today, approximately how long will it take Debra to double her money if she can earn a 6% return on her investment?

12 years (72/6)

Anthony earns $7000 per month. His monthly expenses include $1010 in rent, $950 in recreational expenses, $430 in food, $500 in auto payments, $250 in gas and maintenance, $850 in student loan repayments, $300 in credit card payments, and $1830 in miscellaneous expenses. What is Anthony's debt to income ratio?

38%

The difference between a bank and a credit union is as follows:

A credit union depositor is known as a member but a bank depositor is simply a customer.

When Ann was traveling outside the United States, she found the perfect souvenir. Unfortunately, when she went to make the purchase with her debit card, the transaction was denied. This happened because Ann had only $200 in her account, and the souvenir cost $300. Ann was disappointed and regretted having to pass on her purchase. What could Ann have done before her trip to ensure that she could spend more than what was in her account?

Added overdraft protection transfers from her savings account to her checking account.

All of the following statements are true, except:

As your debt to income ratio increases, your financial flexibility expands.

Rodriguez would like to start his own business making jewelry. If he opens his business as a sole proprietor, in which of the following events would he be personally liable?

Both if a customer sued him for using lead in a child's ring and if his jewelry company failed to pay a debt.

Under current law, which of the following requests is allowed?

Both the Federal Aviation Administration requests your credit report before issuing you a pilot's license and a car dealer requests your credit report before taking you on a test drive.

Which is the most liquid asset?

Cash in your wallet.

To correct inaccurate, fraudulent, or other erroneous information on your credit report, which of the following is the best course of action?

Contact the primary national credit bureaus by writing a letter and notifying them of the inaccurate information.

Which of the following refers to a legal structure that is separate from the owners of the business?

Corporation

Your friend Lucia is a procrastinator. How can you best help her overcome this weakness?

Create deadlines.

Which of the following negative financial behaviors will stay on your credit report the longest?

Declaring bankruptcy.

Which of the following refers to an asset that decreases in value over time?

Depreciating asset.

Which of the following individuals will likely pay the highest rate of interest on borrowed money from a bank?

Douglas, who is borrowing money to pay for a vacation.

Tara's budget shows a projected deficit. What does this mean for Tara?

Either it means that she will need to borrow money to fund the deficit or it means that she will need to sell assets to fund the deficit.

In order to earn a higher rate of interest on your savings, you must:

Either loan your money for a longer period of time or take on more risk.

Example(s) of human capital include which of the following?

Formal education. Health. Skill development.

Which of the following events will trigger the creation of a credit report?

I.Declaring bankruptcy. II.Taking out a student loan. III.Borrowing money from a company.

Which of the following strategies is most likely to increase your confidence about your financial future?

I.Saving money on a regular basis II.Paying down debt as quickly as possible.

ROTH IRAs may allow you to achieve which of the following?

I.Tax free distributions. II.Tax-deferred growth.

Which of the following are potential liabilities associated with business ownership?

I.Taxes II.Debts III.Lawsuits.

Which of the following elements influence your view of the financial world?

I.Your risk tolerance II.How much you believe you control your financial future. III.Knowledge about personal finance topics

Traditional IRAs may allow you to achieve which of the following?

II.Tax-deferred growth. III.Reduce current taxable income.

Yolinda and Wes decide to go into business together as a partnership. As part of their business, they lease a car, with each paying half the monthly expenses. Unfortunately, the business does not make any money. After 2 years, Yolinda decides to leave and take a job with another employer. Wes, on the other hand, decides to make a go of the business. Given this information, which of the following is true?

If Yolinda stops making her share of the car expenses, Wes will be liable for Yolinda's share.

Jorge opened a no-cost checking account at a local bank last month. He was surprised when he was charged several service fees. Under federal law, which of the following service fees is allowed in a no-cost checking account?

Inactive account fee.

Which of the following statements is true?

Individuals who save in an employer-sponsored retirement plan will have greater after-tax income and wealth than those who do not save in this plan.

Which of the following statements regarding access to individual credit reports is most accurate?

Insurance companies can view a customer's credit report when underwriting insurance policies.

Who is most likely to accumulate more wealth?

The person who is willing to take risk after adequate research.

Loraine is thinking about her future retirement goals and needs. She has 25 years until retirement. She needs to save quite a bit of money to reach her retirement goal. Unfortunately, Loraine's risk tolerance is low. Given these facts, what the best recommendation for Loraine?

Invest more aggressively knowing that she has time on her side to withstand any temporary setbacks with these riskier investments.

It is possible to increase your financial risk tolerance over time. What is the process of risk tolerance change?

Knowledge leads to confidence, which leads to experience, understanding and an increase in risk tolerance.

Which of the following shields the personal assets of the owner(s) from the liabilities of the business?

Limited liability company.

Which of the following people is most likely to be considered financially knowledgeable?

Michelle, who gives regularly to charity, reads about investing, and is self-confident.

TVM calculations should be used when the following three things are part of a financial goal.

Money, time, and interest.

Nedra uses her debit card on a daily basis. The last time she used it was the evening before at a restaurant. This morning, she noticed that the card was missing. How long does she have to report the card as lost to have 100% protection against fraudulent use?

She must report the card immediately before any unauthorized withdrawals are made.

Which of the following refers to the "S" in SMART goals?

Specific.

Tax planning activities take advantage of which of the following?

Tax loopholes and tax-deferral.

Roger owns a boat. As he prepares his balance sheet, what value should he use as a liability input for the boat?

The amount remaining on the boat loan.

What should installment loan lenders disclose to credit applicants?

The interest rate (as an APR) and the finance charge (in dollars).

Which of the following statements is true about compound growth?

The longer you let your money grow, the more it will produce.

The three primary national credit bureaus are:

TransUnion, Equifax, and Experian.

If you are claimed as a dependent on someone else's tax return, which of the following statements is correct:

You may lose certain tax benefits for yourself.

Which of the following statements is true?

You will be taxed each year that you receive a dividend from an investment.

Generally, filing a joint tax return with your spouse results in ____ tax liability compared with filing separately.

a lower

Tax avoidance is:

both legal and expected of taxpayers and structuring transactions so that taxes are minimized.

Someone who feels that investing is too difficult to understand likely

has a lower level of financial literacy

One purpose of a budget is to:

help you see where you are spending money on a regular basis.

All of the following are examples of earned income except:

interest received from a savings account.

Someone who takes risks with his/her money by buying assets or shares in a company in hopes of receiving unearned income in the form of dividends is called a(n):

investor

Jerry recently earned $200 on an investment. Unfortunately, the investment fell in value, and he lost $200. Afterward, Jerry felt miserable. He hated losing the money much more than he enjoyed seeing the investment grow. Jerry's experience is an example of:

loss aversion.

Nigel believes that most "rich people" obtained their wealth either through hard work or by investing wisely. Assuming Nigel adopts this same perspective as a guide to his own spending and saving behavior, he is most likely to become:

more knowledgeable about the financial marketplace over time and increase his personal wealth.

Swarn is a risk-taker. His core life philosophy is that nothing bad can happen to him. When he thinks back over his life, he can't remember any serious negative events. When he looks ahead, he simply can't imagine a painful loss occurring to him. Swarn likely suffers from a(n):

optimism bias.

Because of the TVM concepts learned in this topic, you should _________ receiving $1,000 in 1 year if given the opportunity to receive $1,000 in 2 years from today.

prefer.