Finance 101 Exam 1

Theresa invested $5,000 in an account she expects will earn 7% annually. Approximately how many years will it take for the account to double in value?

10

The annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12% is

12%

As a percent of take-home pay, monthly consumer credit payments should not exceed

20%

Elena purchased a stamp collection for $5,000 thirty years ago. If it appreciated 8% annually, what is it worth today?

50,313

Itemized deductions are listed on Schedule

A

Financial planning and budgeting [do | do not] mean the same thing.

Do not

The rate of return on liquid assets is relatively high compared to other types of investments.

False

You are preparing your own tax return. The least costly source for answering your questions would be

IRS 800 numbers

The purpose of the debt service ratio is to show the amount of your income needed to pay your[current liabilities | monthly loan payments].

Monthly loan payments

William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card?

No annual fee and long grace period

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 68) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay?

They will pay the same amount of Social Security taxes.

A short-term capital gain would be taxed at the same rate as your salary.

True

You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the

add-on method

A ____ is often a source of low-rate automobile financing on specific models of vehicles.

captive finance company

Which loan sources is the most expensive?

consumer finance companies

If you needed a loan to buy furniture, the lowest interest rate would usually be available from a

credit union

A credit card user's credit rating will be harmed if she pays only the minimum monthly payment on a credit card.

false

Banks and other financial institutions insure the contents of safe-deposit boxes.

false

The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.

false

You can stop payment when you purchase an item with your debit card.

false

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

get cash advances

Which state and local taxes are deductible on federal income taxes for those that itemize deductions?

income taxes and property taxes.

Payments made on your loan obligations should [increase | decrease] your net worth.

increase

A legal claim that allows creditors to liquidate loan collateral is a

lien

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

the account balance is paid in full every month.

A 5 percent down payment will result in larger monthly mortgage payments than a 10 percent down payment on the same house for the same maturity mortgage.

true

A certified check is a personal check that the bank guarantees the funds are available.

true

A closed-end automobile lease is the most popular type of lease.

true

A lender will generally require mortgage insurance if the down payment is less than 20 percent.

true

A significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property.

true

Compound interest means that a savings account earns interest on the interest previously earned.

true

Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date

true

Credit cards often have penalties for late payment and for exceeding credit limits.

true

Debit and ATM card transactions are linked to your checking account.

true

Dividends received from the stock you own will be taxable income.

true

From the bank's perspective, ATM transactions are more costly than on-line banking transactions.

true

If a 12-month installment loan is prepaid at the end of 6 months, less than one half of the interest would be saved.

true

If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be repaid is $2,400.

true

If you are eligible to receive a tax refund, you will have to file a tax return to get the refund.

true

If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.

true

Joint checking accounts typically imply the right of survivorship if one party should die.

true

Most new car warranties cover a minimum of the first 36,000 miles or 3 years of ownership.

true

One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents.

true

One's average tax rate is typically lower than one's marginal tax rate.

true

Revolving credit lines are often accessed by writing checks.

true

The Federal personal income tax is a progressive tax.

true

The annual percentage yield (APY) formula considers compounding when determining an interest rate.

true

The difference between the market value of your home and the balance of the mortgage is your equity in the property.

true

The income and expenditures statement provides a measure of financial performance over a period of time.

true

When comparing two installment loans with the same principal and APR, the loan with the longer maturity will have the lower monthly payment and the higher total costs.

true

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.

true