FIN Exam 2 (Ch. 4-7)

What should a home buyer consider when evaluating a house?

all of these: School system. Property values of the community. Zoning laws. Location of businesses and future construction projects.

An all-in-one account that provides a complete financial services program for a single fee is known as

an asset management account

The Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.

annual percentage yield (APY)

Chloe signed the back of her check with just her signature. She used a(n)

blank endorsement

Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a

certified check

Sally has a major problem with a product and thinks that many others have had the same problem. Which of the following is the best way to resolve the problem?

class action lawsuit

The use of property or savings to secure a loan relates to

collateral

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

which of the following is not mentioned as a financing opportunity for the unbanked?

corporate bonds

Which of the following is the document that transfers ownership of property from one party to another?

deed

A credit report includes

detailed credit information

According to the end of the video, the decision to buy or lease an automobile is a __________________ decision.

difficult

A legal document that includes information about the due date of monthly rent is called a

lease

The owner/landlord is known as the

lessor

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

liquidity

A variable operating cost for a vehicle is

maintenance and repairs

A process used to settle grievances in a nonbinding process is called a(n)

mediation

Kylie went to a post office to obtain a

money order

Which of the following is NOT a valid reason for borrowing?

paying for everyday living expenses

Yvette has a flexible-rate mortgage that limits the amount to which her monthly payments can rise. This feature is called a(n)

payment cap

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called:

points

Which of the following expenses is NOT usually incurred by a tenant?

property taxes

Zoe signed the back of her check with the words "for deposit only." She used a(n)

restrictive endorsement

If a check is lost or stolen, you should use a

stop payment order

The opportunity to have another person take over rent payments and live in the rental unit is called (a)

subletting

The minimum monthly payment on a credit card is

the smallest amount you can pay and remain a borrower in good standing

Why are some financial service operations referred to as financial supermarkets?

they offer a combination of services from one source

individuals are those who have bank accounts, but still use high-cost financial service companies.

underbanked

If you are denied credit,

you are entitled to a free copy of your credit report.

Using the following information, what is the cost to lease a car? •Security deposit$280 •Monthly lease payment$280 per month for a five− year lease •Opportunity cost of security deposit$280 × loan period (in years) × 2% interest •End-of-lease charges $480

$17,308.00 Total lease cost = + Total monthly lease payment (monthly lease payment × 12 months × #years in lease) + Opportunity cost (security deposit × #years in lease × interest rate) + end-of-lease charges

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for?

$238

Using the following information, what is the cost to buy a car? •Down payment$3,000 •Monthly loan payment$350 per month for a six-year loan •Opportunity cost of down payment$3,000 × loan period (in years) × 2% interest •Estimated value of vehicle at end of ownership period$4,000

$24,560 Total vehicle cost = Down payment + Total monthly loan payment + Opportunity cost of down payment − Estimated value at end of ownership = ($3,000) + ($350 × 12 months × 6 years ) + ($3,000 × 6 years × 2%) − ($4,000) = $3,000 + $25,200 + $360 − $4,000 = $24,560.

Landon is looking to obtain a home equity loan. A lender will loan 65% of the home's current market value, which is $200,000. Landon currently owes $90,000 on his original home mortgage. What is his home equity credit limit available?

$40,000 $200,000 x 0.65 = $130,000 $130,000 - $90,000 = $40,000

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for?

$50

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1

Experts suggest that the debt payments-to-income ratio should be a maximum of

20%

Marsha invests $1,350 and earns a $105 return at the end of one year. What is her annual percentage yield (APY)?

7.78% APY =100 (Interest/Principal) 100(105/1,350) = 7.78%

When compared to __________________, ___________________ is often more difficult to obtain because the lender must rely upon your word that you will pay back the loan.

Closed-end credit; open-end credit

A service contract

Covers the repair costs of a product.

Private mortgage insurance (PMI)

Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.

These products are sold by one chain of stores and are low-cost alternatives to famous-name products.

Private-label or store brands.

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except

Providing advice on features to highlight. Screening potential buyers to determine whether they will qualify for a mortgage. Suggesting a selling price. Home appraisal.****** Showing Ingrid's home to potential buyers.

Which of the following is an advantage of renting?

Renters have fewer responsibilities for maintenance than home owners.

The expected value of a vehicle at the end of a lease is called the

Residual value.

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash, and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except

She should do all of these: Stop payment on the missing checks. Cancel her debit card. Get a new debit card with a new personal identification number (PIN). Close her bank account and open a new one.

Which of the following is a disadvantage of renting?

Tenants cannot take tax deductions for mortgage interest and property taxes.

Who is responsible for a loan repayment?

The cosigner and/or the borrower

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

Kelly selected a home and submitted an offer to the seller.

The seller may reject the offer and choose to provide a counteroffer.

Perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Which of the following is an advantage of buying a car compared to leasing that is mentioned in the video?

There are not any additional costs incurred for extra mileage.

All of the following are reasons mentioned in the video of why homeowners obtain home equity loans, except:

To pay for a remodeling project. To pay for family vacations.******** To pay for medical expenses for a family member. To pay for the cost of education for someone in the family. To reduce or eliminate debts.

A standard measurement used to compare the prices of packages of different sizes is

Unit pricing.

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened.

All of the following are warning signs of debt problems except

You use savings to pay for necessities such as food and utilities. The total balance on your credit cards increases every month. You exceed the credit limits on your credit cards. You pay your credit card bills in full each period.******* You receive second and third payment due notices from creditors.

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to

$117,000 Per the Homeowners Protection Act, PMI must be terminated automatically when a home owner's equity reaches 22% of the property value at the time the mortgage was executed. The mortgage would then be $150,000 × (1 − 0.22) = $117,000.

Given the information here, what is the annual cost of owning? •Home value$300,000 •Annual mortgage payments$19,200 •Annual property taxes$4,800 •Annual homeowner's insurance$1,200 •Estimated maintenance and repairs 1% of home value•Growth in equity$3,000 •Tax savings (mortgage interest and property tax)$2,800 •Estimate annual appreciation 1.5% of home value

$17,900 Total annual cost of buying = (annual Mortgage payments + annual Property taxes + annual homeowner's insurance + Maintenance and repairs) − (Growth in equity + Tax savings + Annual appreciation) = {$19,200 + $4,800 + $1,200 + (1% × $300,000)} - {$3,000 + $2,800 + (1.5% × $300,000)} = $28,200 - $10,300 = $17,900.

Using the following information, what is the cost to lease a car? •Security deposit$300 •Monthly lease payment$300 per month for a five-year lease •Opportunity cost of security deposit300 × loan period (in years) × 2% interest •End-of-lease charges500

$18,530 Total cost of lease = + Total monthly lease payment + Opportunity cost of security deposit + end-of-lease charges = ($300 × 5 years × 12 months) + ($300 × 5 years × 2%) + ($500) = $18,530.

Using the following information, what is the cost to buy a car? •Down payment$3,750 •Monthly loan payment$440 per month for a six-year loan •Opportunity cost of down payment$3,750 × loan period (in years) × 2% interest Estimated value of vehicle at end of ownership period $4,750

$31,130.00 Total vehicle cost = Down payment + Total monthly loan payment (monthly loan payment × 12 months × #years in loan) + Opportunity cost (down payment × #years in loan × interest rate) − Estimated value at end of ownership

All of the following are deposit institutions except

- credit union - savings & loan association - commercial bank - finance company*** - mutual savings bank

Heather is currently in a 15% tax bracket and has a 3.4% savings rate of return. What is her after-tax savings rate of return?

2.89% 1.0 - 0.15 = 0.85 0.034 x 0.85 = 2.89%

FICO scores generally range from

350-850

Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return?

5.62% 1.0 - 0.22 = 0.78 0.072 x 0.78 = 5.62%

All of the following are non-deposit institutions except

A credit card company. An investment company. A finance company. A life insurance company. A credit union.****

While evaluating alternatives, comparison shopping will be beneficial for buying all of the following except

A hot dog at the baseball park.******* Musical instrument accessories that you purchase online. Milk and bread that you buy often. A camera. An expensive television.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM

Buying a vehicle can be a challenging process. When researching a vehicle, a consumer may want to consider all of the following vehicle options except

All of these: Aesthetic features like metallic paint. Convenience options such as air conditioning. Mechanical devices to improve performance.

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

All of these: Could I use the credit I need for this purchase in some better way? Could I postpone the purchase? Do I have the cash I need for the down payment? Does the purchase fit my budget?

When misused, credit can result in

All of these: Default. A less satisfying life. Loss of creditworthiness. Bankruptcy.

Which of the following is a disadvantage of a car lease?

At the end of the lease, you have no ownership interest in the vehicle.

_____________ is more common and has a _______________ interest rate charged by most lenders.

Closed-end credit; lower

which of the following is mentioned as a tip or trick regarding high-cost financial services?

Compare the interest rate to the average interest rate for loans from a bank or similar financial institution. Ask questions, read the fine print, and understand the risks involved with the high-cost loans. Determine the annual coupon rate for a prospective loan.

Which of the following is NOT a benefit of home ownership?

Deductibility of real estate taxes Maintenance and costs of repairs and home improvements****** Stability of residence Deductibility of mortgage interest Personalized living location

All of the following are factors mentioned in the video that individuals should consider before obtaining a home equity loan, except:

Deductible interest Location of home********* High annual fees Costs and risks of loan Lender's fees

The largest fixed expense associated with a new automobile is

Depreciation

Paul is looking for a low interest, low down payment loan for his first home, but he is not a veteran. He might be eligible for a(n)

FHA loan

According to the video, the decision to rent or buy a home is an important decision that can affect not only your ________________, but also your _________________.

Financial decisions; quality of life

According to the video, which of the following is an advantage of renting a home?

Individuals can rent a home with a smaller financial commitment than if you were to buy a home, It is easy to move or change homes if you don't like the first home, and There is less maintenance associated with renting a home.

Which of the following is a disadvantage of leasing a car that is mentioned in the video?

Individuals don't have ownership in the vehicle and they must return it to the leasing company at the end of the lease.

The dealer's cost is also known as the

Invoice price.

Which of the following is correct about the lemon law?

It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles.

According to the video, all of the following is a disadvantage of buying a home, except:

It can be difficult to find a buyer that can qualify for a loan to buy your home. It can be hard to maintain ownership of the home.****** It can be difficult to find a buyer that will pay what your home is worth. It can be hard to move if you buy a home because you must sell the home to someone else. The cost of buying a home is greater than the cost of renting a home.

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments.

The text identifies several phases in the research-based buying process. The correct order of the phases is

Pre shopping activities, evaluating alternatives, selection and purchase, post purchase activities.

If you want to pay a set fee to receive unlimited or reduced-fee legal assistance, you should use (a)

Prepaid legal services.

Which of the following is NOT correct?

Renting is usually less costly in the short run. Lifestyle and financial factors should be analyzed to determine if you should rent or buy. Home ownership usually has long-term financial advantages. Renting offers mobility. Traditional financial guidelines suggest that your home should cost about five times your annual income*********

A cash advance

Requires you to pay interest every day until you repay the cash advance

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

a money market account

Which of the following will likely provide the most expensive loans?

a payday loan company

A drawback of a regular savings account is

a relatively low rate of return

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use?

a savings account

Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?

an interest-earning checking account

What step can you take if your credit application is denied?

ask the reasons why you were denied credit

Which of the following is an example of closed-end credit mentioned in the video?

automobile loans

Which of the following is an account used to pay property taxes and homeowner's insurance?

escrow

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time.

full warranty

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?

life insurance company

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts.

limited warranty