FIN101 LECTURE & HOMEWORK QUIZZES

All of the following are useful ways to build a strong credit rating except

a. Make payments on time b. Talk with the lender if you foresee difficulty in making a payment. c. Open checking and savings accounts. d. Apply for a long-term loan and occasionally be late with a payment. e. Open and use a charge account.

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 ____ lease.

a closed-end

For tax purposes, head-of-household refers to

a single individual with dependents

The income and expense statement is specific to

a specific period of time

In which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease?

mileage limits were exceded

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

money factor

Whenever you write a check or make a deposit, an entry should be made on your....

checkbook ledger

Your ________ is an example of a liquid asset.

checking account

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

The federal income tax is

progressive

At the end of a lease period you are never required to

purchase the vehicle at its residual value

Lower interest rates on certificates of deposit are associated with....

shorter maturities

A progressive tax system is one in which higher-income people pay ________ than lower-income people

tax at a higher rate

With open account credit, one can often avoid interest charges if

the account balance is paid in full every month

With open account credit, one can often avoid interest charges if....

the account balance is paid in full every month

Kathy purchased new furniture for $10,000. She put $1,000 down and financed $9,000. She will pay $350 per month until the loan is paid off. Which of the following are true?

the furniture should be recorded as an asset of $10,000 on Kathy's balance sheet the $9,000 is entered as a liability on Kathy's balance sheet the $350 payments are expenditures on Kathy's income and expenditure statement

The balance sheet equation is

total assets - total liabilities = net worth

You are solvent if your

total assets exceed total liabilities

You are solvent if your....

total assets exceed your total liabilities

T/F....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 it off.

true

T/F....A short sale does not affect a distressed homeowner's credit score as much as a foreclosure.

true

T/F....Collateral is an item of value used to secure the principal portion of a loan.

true

T/F....Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.

true

T/F....Having a checking account tells a creditor that you have some experience in managing your own funds.

true

T/F....Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.

true

T/F....Renting affords more flexibility than home ownership.

true

T/F....Social security taxes are paid on earned income but not on investment income.

true

T/F....Tax avoidance is legal, tax evasion is illegal

true

T/F....The Medicare portion of the Social Security tax is paid on 100% of earnings.

true

T/F....The main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes you pay.

true

T/F....To refinance a mortgage, the lender typically requires at least 20% equity in the home.

true

T/F....Variable rate loans are desirable if interest rates are expected to fall in the future.

true

T/F....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

T/F....When the market interest rate goes up, the rate on variable rate loans goes up.

true

T/F....You may be under-budgeting for food if you continually have monthly deficits in the food category.

true

T/F....a balance sheet shows your financial condition as of the time the statement is prepared

true

T/F....a certified check is a personal check that the bank guarantees the funds are available

true

T/F....a charge made on your credit card becomes a liability as soon as the charge is incurred

true

T/F....a closed-end automobile lease is the most popular type of lease

true

T/F....a short sale does not affect a distressed homeowner's credit score as much as a foreclosure

true

T/F....compound interest means that a savings account earns interest on the interest previously earned

true

T/F....convenience and improved record keeping are two advantages sited for online bill payment

true

T/F....credit report is routinely used to predict credit worthiness

true

T/F....credit union members are expected to have some common bond

true

T/F....debit and ATM card transactions are linked to your checking account

true

T/F....having a checking account tells a creditor that you have some experience in managing your own funds

true

T/F....join checking accounts typically imply the right of survivorship if one party should die

true

T/F....low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer and then negotiates the price upward prior to signing the sales agreement

true

T/F....renting affords more flexibility than home ownership

true

T/F....the balance sheet equation is assets plus liabilities equals net worth

true

T/F....the monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.

true

T/F...the value of assets purchased on credit should be included on the asset side of your personal balance sheet

true

If your installment loan has a variable interest rate...

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

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 percent, 4-year loan, what is the maximum amount he can afford to spend on the car?

$17,028

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

T/F....A home and land should be recorded on the personal balance sheet at their original cost.

false

T/F....According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid down to 80% of the home's current market value.

false

T/F....All assets, regardless of category, should be recorded on your personal balance sheet at their current fair market value.

false

T/F....Always paying cash is helpful in establishing a high level of creditworthiness.

false

T/F....As a single taxpayer with no dependents, one is generally eligible to file as "head of household."

false

T/F....Money I loaned to a friend is a liability on my balance sheet.

false

T/F....One's marginal tax rate is typical lower than one's average tax rate

false

T/F....Using credit is the ideal way to provide for financial emergencies.

false

T/F....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

T/F....a bank could advertise as "free" a checking account that requires a minimum balance of $3,000 to avoid monthly service charges

false

T/F....asset management accounts are offered by most banks and are typically FDIC insured

false

T/F....if Lois has $2,000 in checking, $50,000 in a money market account and $75,000 in certificates of deposit at her local bank, her accounts would be insured through FDIC for $100,000

false

T/F....it is safe, and often required, to give your Social Security number as a form of identification when using a credit card

false

T/F....money I loaned to a friend is a liability on my balance sheet

false

T/F....one's marginal tax rate is typically lower than one's average tax rate

false

T/F....the equity in your home is the difference between loan balance and purchase price

false

T/F....you can stop payment when you purchase an item with your debit card

false

A single-payment loan is advantageous only if

funds will be available to repay the lump sum

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

get cash advances

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

get cash advances

Installment loans using the simple interest method....

have interest charged only on the monthly loan balance

The _______ is really a second mortgage on your home

home equity line of credit

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

88.5%

A money factor of 0.0036 on a lease is equivalent to an annual percentage rate of

8.64 (0.0036 * 24)

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

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 ($25,000 - $5,000)

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

Diane sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diane is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diane owe on those gains?

$4,500

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

Your total cash income is $40,000. You pay $5,000 in taxes and $30,000 in other expenses. Your savings ratio is

14.3%

In 2014, the total social security tax was

15.3%

When the simple interest method is used to determine finance charges, the interest is calculated based on the....

actual balance of the loan

When comparing credit cards, a person who pays his total outstanding balance off monthly would want a card with....

an adequate grace period and no annual fee

Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely the result of....

an over-the-limit fee

If you write a check for an amount greater than your account balance, the result will be....

an overdraft

The first step in the auto-buying process should be

analyze how much car you can afford

If your _____, your net worth on the balance sheet would have increased from one period to the next

assets increased and liabilities remain constant

The loss of value in a car over time is called

depreciation