Finance 300 Final Exam

Jessica always thought the graceminus−period feature of her credit card was a wonderful idea because her charges were interestminus−free during the grace period. After taking Dr. Art​ Keown's personal finance​ course, she learned this startling truth about grace periods. A. Most banks eliminate their grace period on new purchases if you​ don't pay your balance in full. B. Grace periods are actually beneficial to the credit card company. C. There are higher fees associated with grace periods. D. All credit cards carry a grace period.

A

One of the following lists constitutes the five Cs of credit. Select the correct one. A. Character, capacity,​ capital, collateral, conditions B. Character, capacity,​ capital, collateral, co−insurance C. Character, capacity,​ capital, collateral, characteristics D. Character, capacity,​ capital, collateral, credence E. Character, capacity,​ capital, collateral, careful

A.

A loan that is paid back in a single lump sum payment at the due date of the loan is commonly called​ a(n) A. secured loan. B. fully amortized loan. C. installment loan. D. balloon loan. E. none of the above.

D.

George and​ Betty, a middleminus−aged ​couple, have watched their savings account dwindle over the years. They both make good incomes and​ can't understand why they​ aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly​ income: $8,000 Income taxes withheld​ monthly: $2,300 Monthly interest income from​ investments: $100 Monthly insurance​ payments: $700 Monthly housing​ expenses: $4,500 Monthly food​ expenses: $800 Miscellaneous​ expenses: $400 George and Betty ask you for financial advice. What would you tell them to​ do? A. They need to live within their means. B. Nothing. With their income they are in good shape financially. C. They should hire a Certified Financial Planner to assist them. D. Both A and C would be good advice for them.

D.

Henry currently has​ $1250 in monetary assets and also has​ $1250 in current liabilities. What is his current​ ratio? A. 1 percent B. 100 percent C. 0 D. 1 time

D.

Jessica is very proud of herself for having​ $5,000 in her savings account that pays 4 percent interest. She currently has a balance of​ $2,300 on her credit card account that charges 21 percent interest. Jessica thinks she is making a wise financial decision by keeping her money in her savings account instead of paying off her credit card balance. What financial principle from Chapter 1 would you use to give her good​ advice? A. Mind​ games, financial​ personality, and your money B. The time value of money C. Taxes affect personal financial decisions. D. Both A and C

D.

Many people who signed up for adjustableminus−rate mortgages during the subminus−prime mortgage debacle were no longer able to afford their payments. Many of these people were misled by their lenders. Which financial principle from Chapter 1 most​ applies? A. The time value of money B. Mind​ games, financial​ personality, and your money C. Stuff​ happens, or the importance of liquidity. D. The best protection is knowledge.

D.

Of the following possible sources of​ credit, which typically has the lowest borrowing​ rates? A. Personal finance company B. Savings and loans C. Commercial bank D. Credit union

D.

On his goals​ worksheet, James has written down his shortminus−term goals for the next year. He has prioritized his goals and determined a feasible due date by which he wants to achieve his goals. According to the​ textbook, the final step James needs to complete in the goals process is to A. contact his financial advisor for approval of his goals. B. email himself a copy of the goals worksheet in case he loses the paper copy. C. post his goals worksheet on his refrigerator so that he can see it every day. D. determine an appropriate cost for each of his listed goals.

D.

Payday lenders A. make money by providing one−time assistance during a time of financial need. B. encourage repeat borrowing. C. make money by keeping borrowers in debt. D. all of the above.

D.

Sometimes retailers will give you up to a​ 5% discount if you pay cash for their products instead of using your credit card.​ Why? A. It is just good customer​ service, especially for repeat customers. B. They are getting close to their monthly charge limit and​ don't want to go over it. C. Its much less paper work to process cash transactions. D. They are saving on the merchants discount fee so they pass the savings on to you.

D.

Step 3 of the personal financial planning process is​ "Develop a Plan of​ Action." According to your​ text, which of the following is not one of the​ "common concerns" that should guide all financial​ plans? A. Protection B. Flexibility C. Minimization of taxes D. Long−term profitability E. Liquidity

D.

Suppose that​ David's only assets are an automobile worth​ $10,000 and a checking account with a​ $5,000 balance. His only liabilities are a student loan balance of​ $12,000 and a balance of​ $9,000 on his car loan. What is his net​ worth? A. $21,000 B. $15,000 C. $6,000 D. Doug is currently insolvent with​ $6,000 negative net worth. E. None of the above statements are correct.

D.

The first section of a balance sheet represents your A. financial goals. B. net worth. C. liabilities. D. assets.

D.

The​ ________ provides a single location for financial protection and oversight−and its mandate is to help consumers make better decisions. A. Center For the People Bureau​ (CFPB) B. Consortium of Fiscal Protection Bureau​ (CFPB) C. Consumer Fiscal Protocol Bureau​ (CFPB) D. Consumer Financial Protection Bureau​ (CFPB)

D.

Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three​ years, their gross household income is​ $5,700 per​ month, and they receive​ $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings​ account: $3,200 Checking​ account: $1,800 Credit card​ balance: $3,000 Car loan​ balance: $18,000 Car market​ value: $15,000 Furniture market​ value: $4,000 Stocks and​ bonds: $15,000 What is their​ month's living expenses covered​ ratio? A. 2 months B. 1.23 months C. 1.75 months D. Not enough information to answer this question

D.

What are the risks to the borrower with adjustable−rate ​loans? A. During times of inflation your salary may increase during the term of the loan. B. It is harder to budget for loan payments that may increase during the term of the loan. C. That the market rates of interest may increase during the term of the loan. D. Both B and C are correct.

D.

What aspect of financial planning might you discuss with a friend who buys fancy coffee drinks twice a​ day, visits the mall at least once a week for recreational​ shopping, and prefers impulse buying to carefully researched​ purchasing? A. Nothing happens without a plan. B. Just do it. C. Mind​ games, financial​ personality, and your money D. Waste​ not, want not long dash—smart spending matters.

D.

What happens when you default on a car loan where your Title is held as​ collateral? A. You damage your credit history but you keep the car. B. You lose the car and damage your credit history. C. You face liability under the deficiency payments clause. D. Only choices B and C are correct. E. All of the above choices are correct.

D.

What is the main distinguishing​ feature(s) for​ T&E cards? A. They do not offer revolving credit. B. The full balance must be paid each month. C. There is no annual fee. D. Both A and B above E. Both A and C above

D.

Which of the five Cs of credit would your actual home be in relation to your​ mortgage? A. Character B. Capital C. Conditions D. Collateral E. Capacity

D.

While reviewing your current financial​ plan, you discover that you most likely​ won't achieve your long term financial goals. What should you do​ now? A. Look at cutting back on your expenses. B. Look at revising your goals. C. Look at increasing your income. D. All of these would be realistic things to do.

D.

You are considering building a new deck on your​ home, what factors should you consider when deciding whether to borrow the money or take the money out of your savings​ account? A. What impact the savings withdrawal will have on your liquidity. B. It's simple, if you can afford to pay cash then you should not take out the loan. C. You should compare the after−tax return on your savings with the after−tax APR on your loan. D. Both A and C are correct.

D.

________ planners charge a fee that is reduced by the amount of the commissions they earn. A. Fee−only B. Commission−based C. Fee−and−commission D. Fee−offset

D.

​A(n) ________ card is a credit card that does not offer revolving credit and requires full payment of the balance at the end of each month. A. single−purpose B. premium C. traditional charge account D. T&E E. affinity

D.

​________ can be more than or less than the price you paid for a given​ asset, depending on what others are willing to pay for that asset today. A. Intrinsic value B. Net value C. Sentimental value D. Fair market value

D.

There are five basic steps to personal financial planning and their related tasks. Arrange these steps and examples of related tasks in the order of their presence during the financial planning process. A. Develop a plan of action. Develop a budget matching income and projected expenses for the remainder of this academic year. B. Evaluate your financial health. Record all expenses for a month to compare income and expenses. C. Review progress on the​ plan, reevaluate the​ plan, and revise the plan or start over with a new one. Based on this​ year, develop a revised budget for next year based on projected income and expenses. D. Define your financial goals. Pay off credit​ card(s) by the end of this school term. E. Implement the plan. Reduce expenses in problem areas so amounts do not exceed budgeted projections. ​(Select the best choice​ below.) A. A→B→D→C→E B. A→D→B→C→E C. B→D→A→C→E D. B→A→D→E→C E. B→D→A→E→C

E.

Under what conditions should people hire a professional financial​ planner? A. When they start receiving late payment penalties from their creditors B. When it is apparent their financial planning skills are limited C. When they need someone to improve or validate the plan they prepared themselves D. When they run into complex tax or legal issues E. All of the above

E.

What is the significance of the financial life​ cycle? A. To help you to compare your situation with other​ people's situation B. To allow you to be more proactive in dealing with expected changes in the future and take steps today to prepare for them C. To better understand how your financial needs will most likely change over time D. To help you realize that your original plan is sufficient and​ doesn't need to change E. Both B and C are significant aspects of the financial life cycle.

E.

What rights would a college friend of yours have whose credit card application was​ denied? A. The right to have the file be accurate B. The right to point out errors in her file C. The right to request mistakes in the file be corrected D. The right to view her credit report E. All of the above are correct answers.

E.

What strategy should you use to obtain the lowest possible APR on a​ loan? A. Keep the term​ (length) of the loan as short as possible. B. Provide collateral. C. Get a variable−rate loan. D. Make a large down payment. E. All of the above

E.

When you find you cannot pay your credit card bills you must take​ action! Which option is​ advisable? A. Change to a less expensive credit card or cards. B. Use a secured loan or home equity loan to get a lower interest rate to pay the cards off. C. Adjust your budget to allow for more money to pay for the cards. D. Use savings to pay off some or all of current credit card debt. E. All of the above

E.

Which of the following apply to getting a cash advance with a credit​ card? A. Cash advances are available at ATM machines. B. There may be a cash advance fee. C. The interest rate may be higher than on regular purchases. D. You begin paying interest immediately. E. All of the above

E.

Which of the following are important to convenience users of credit​ cards? A. Low annual fee B. Interest−free grace period C. Card benefits and perks D. Only A and B E. All of the above

E.

An emergency​ fund, or rainyminus−day ​fund, is comprised of liquid assets sufficient to cover 3.5 years of expenditures. True False

False

Credit card issuers are free to set up shop near large university campuses and offer free giftsminus−anything from free or discounted flights to free Frisbees. True False

False

A convenience user of credit cards is someone who pays off the credit card balance each month. True False

True

Estateminus−planning tools such as​ wills, living​ wills, health​ proxies, powers of​ attorney, and recordminus−keeping should all be in place to help protect​ you, your​ assets, and your heirs. True False

True

Financial planning is an ongoing process. As your financial situation and position in life​ change, the plan changes. True False

True

An economic condition in which rising prices reduce the purchasing power of money is termed A. inflation. B. cash erosion. C. stagflation. D. deflation. E. none of the above.

A.

An expenditure over which you have no​ control, are obligated to​ make, and is generally at a constant level each month is called a​ ________ expenditure. A. fixed B. stationary C. discretionary D. flexible E. none of the above

A.

An expenditure that you can control over time and that you can manage is​ a(n) A.variable expenditure. B. short−term expenditure. C. fixed expenditure. D. constant expenditure. E. adjustable expenditure.

A.

Being financially secure involves balancing what you earn with A.what you spend. .B.your investments. C.your retirement plans. D.your current level of debt.

A.

Brenda found out that reputable lenders use the​ 28/36 rule when determining mortgage qualification. Brenda currently grosses​ $6,000 per month. From this she pays a​ $200 car​ payment; a personal loan of​ $100 and a student loan payment of​ $90. Based on this​ information, would Brenda qualify for a​ mortgage? A.Yes B. No

A.

Chapter 13 personal bankruptcy is characterized by all of the following except A. your creditors vote on restructuring your debt repayments. B. you get relief from harassment by bill collectors. C. you maintain title and possession of your assets. D. you continue to pay at least a portion of most of your debts. E. a new debt repayment schedule is determined.

A.

During which stage of the financial life cycle do many people make their biggest​ investment, the purchase of a​ home? A. Stage​ 1: wealth accumulation B. Stage​ 2: the golden years C. Stage​ 3: the retirement years D.Stage​ 4: the formative years

A.

George and​ Betty, a middleminus−aged ​couple, have watched their savings account dwindle over the years. They both make good incomes and​ can't understand why they​ aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly​ income: $8,000 Income taxes withheld​ monthly: $2,300 Monthly interest income from​ investments: $100 Monthly insurance​ payments: $700 Monthly housing​ expenses: $4,500 Monthly food​ expenses: $800 Miscellaneous​ expenses: $400 What is George and​ Betty's net​ income? A. $(600) B. $(500) C. $1600 D. $1,700 E. Not enough information available to answer question

A.

Hector and Maria Montez are trying to figure out their financial health. They will pay off their car loan in three​ years, their gross household income is​ $3,800 per​ month, and they receive​ $75 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings​ account: $1,200 Checking​ account: $800 Credit card​ balance: $1,000 Car loan​ balance: $12,000 Car market​ value: $8,000 ​Furniture; market​ value: $2,000 Stocks and​ bonds: $10,000 Assuming that they have no current bills other than those that are​ listed, what is their current​ ratio? A. 2 times B. 0.59 times C. 2000/1000 D. Both B and C are correct. E. Not enough information available

A.

Items on the balance sheet that represent amounts owed to others are termed A. liabilities. B. assets. C. expenses. D. revenues. E. none of the above.

A.

Jerome has three major credit cards and makes payments on them each month. He has had one of them for six​ years, another for three​ years, and the last for eleven months. Making just the minimum payment has become automatic at this​ point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be​ faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. Based on his credit card​ usage, which of the following aspects of a credit card should be most important to​ Jerome? A. The APR on the unpaid balance B. A low annual fee C. Perks and​ benefits, like frequent flier miles D. None of the above are important to Jerome.

A.

Many lenders will hold Dave to the​ 28/36 rule in evaluating his application for a mortgage. What does the 36​ mean? A. Debt payments including mortgage must be less than​ 36% of his gross monthly income. B. A down payment of​ 36% is required. C. Mortgage insurance is required during the first 36 months of the loan. D. Debt payments must be less than​ 36% of his monthly take−home pay. E. A down payment of 36 months is required.

A.

One of the most important factors to remember when hunting for your first job is to A. start early. B. procrastinate. C. wait patiently. D. seize every opportunity.

A.

The Credit Card​ Accountability, Responsibility, and Disclosure​ (CARD) Act established fee caps for cards. Card fees cannot total more than​ ________ of the initial credit limit. A. 25 percent B. 40 percent C. 45 percent D. 60 percent

A.

The concept that emphasizes that people should not put all their eggs in one basket is A. diversification reduces risk. B. the time dimension of investing. C. the curse of competitive investment markets. D. the farmers analogy. E. liquidity is first.

A.

The quoted rate on a home equity loan is​ 10% and you are in a​ 28% marginal tax bracket. What is the effective after−tax rate on this​ loan? A. 7.2% B. 5.4% C. 4.1% D. 2.8% E. None of the above

A.

When you use a credit card at a​ store, the store is generally charged a fee ranging from​ 1.5% to​ 5%. What is this fee​ called? A. Merchant discount fee B. Discount rate C. Merchant back−end charge D. Merchant rate

A.

Which basic step to personal financial planning should be considered when examining your current financial​ situation? A.Step 1 B.Step 2 C.Step 3 D.Step 4

A.

Which of the following does not require you to have a good credit rating to issue you a​ loan? A.Your family B. Commercial bank C. Savings and loan D. All of the above require a good credit rating to issue a loan.

A.

Which of the following is a disadvantage of credit​ cards? A. The finance charge that accrues on the account if not paid off in full each month B. Emergency use C. Allows for online shopping D. Allows for consumption before the purchase is fully paid for

A.

Which of the following is an advantage of credit​ cards? A. They allow the consumer the ability to rent cars and make online reservations. B. In general they are an expensive way to borrow money. C. Using them means you will have less spendable money in the future. D. They make it easy to lose control of spending.

A.

Which of the following items would not be included on a balance​ sheet? A. Mortgage payment paid B. Balances owed on your utility bills C. Balances owed on your credit​ card(s) D. Automobile loan balance E. Student loan balance

A.

Which stage in the Financial Life Cycle is the longest in terms of​ years? A. Stage​ 1: wealth accumulation B. Stage​ 2: the golden years C. Stage​ 3: the retirement years D. Stage​ 4: the formative years

A.

Which statement is true about managing personal​ finances? A.Financial difficulties can be a major cause of marital problems. B.Personal finance courses are commonly offered in high school. C.The ability to manage finances is a skill with which you are born. D.Personal financial management is not a skill worth learning.

A.

You won the lottery and can receive either​ (1) $60,000​ today, or​ (2) $10,000 one year from today plus​ $25,000 two years from today plus​ $35,000 three years from today. You plan to use the money to pay for your​ child's college education in 15 years. You should A. take the​ $60,000 today if you can earn​ 6.81% per year or more on your investments. B. take the​ $60,000 today because of the time value of money regardless of current interest rates. C. take the​ $60,000 today only if the current interest rate is at least​ 16.67%. D. take option two because you get​ $70,000 rather than​ $60,000 regardless of current interest rates.

A.

Assuming the APR on your credit card is 24 percent and your average daily balance this month was​ $8,000, what will your interest or finance charges for the month​ be? A. $192 B. $160 C. $240 D. $1.92

B

A federal direct subsidized loan has tremendous advantages over other types of​ loans, including A. they use the ad−on method to determine your monthly payment. B. the interest is deferred while you are in school. C. they have low monthly payments and a​ 20% balloon payment after 5 years. D. none of the above.

B.

A short−term loan that provides funding until a longer−term loan can be secured is called​ a(n) A. gap loan. B. bridge loan. C. amortized loan. D. straddle loan.

B.

A statement that records where your money has come from and where it has gone over some period of time is called​ a(n) A. balance sheet. B. income statement. C. statement of net worth. D. none of the above

B.

Charlie is sixtyminus−four years old and is looking forward to his retirement next year. He currently has all of his​ 401(k) retirement money invested in the stock market. What financial principle from Chapter 1 does he need to understand​ better? A. Stuff​ happens, the importance of liquidity. B. Risk and return go hand in hand. C. Knowledge is the best protection. D. Nothing happens without a plan.

B.

Credit card insurance is usually unnecessary since your liability on credit card losses is limited by law to A. $ 0 B. $50 C. $100 D. $500

B.

From her annual salary of​ $72,000, Kierstan has​ $5,700 automatically deducted for insurance on an annual basis.​ Additionally, $9,000 is deducted each year in taxes. When preparing her personal income​ statement, what figure should Kierstan enter for her​ income? A. $63,000 B. $72,000 C. $66,300 D. $57,300

B.

How would an income statement help you create a financial​ plan? A.Determines your net worth B. Determines whether you are earning more than you spend C. Spot potential areas of gambling. D. Allows you to track future income

B.

In driving around town one​ day, you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods. Why do you think this is​ so? A. Because their terms are so affordable people with low incomes really take advantage of them. B. Payday lenders tend to focus on less experienced borrowers who typically​ don't make a lot of money. C. The rent on these locations is less expensive. D. There are zoning laws that require these types of locations for these types of services.

B.

Jerome has three major credit cards and makes payments on them each month. He has had one of them for six​ years, another for three​ years, and the last for eleven months. Making just the minimum payment has become automatic at this​ point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be​ faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. What advice might you give to​ Jerome? A. Get a cash advance to pay down the balances on the cards. B. Consider using savings to pay off current credit card debt. C. Keep making​ timely, minimum payments. D. All of this advice would be helpful to Jerome.

B.

The main factor that determines the cost of a line of credit is the​ ________, which is also considered the true simple interest rate paid over the life of the loan. A. teaser rate B. annual percentage rate​ (APR) C. penalty rate D. annual merchant rate​ (AMR)

B.

Which statement is true regarding direct unsubsidized​ loans? A. The federal government pays the​ loan's interest while the student is still in school. B. Such loans are made to​ undergraduate, graduate, and professional students. C. Students have to demonstrate financial need in order to receive the loans. D. All of the above are true.

B.

Your net​ worth, or your general level of financial​ worth, is found by A. dividing your monetary assets by your current liabilities. B. subtracting your liabilities from your assets. C. subtracting your expenses from your income. D. dividing monthly debt​ (less a mortgage​ payment) by monthly income. E. subtracting current liabilities from monetary assets.

B.

Your​ ________ is found by dividing total debt or liabilities by total assets. A. current ratio B. debt ratio C. asset ratio D. net worth

B.

​________ is not information generally found in your credit report. A. Past inquiries regarding your credit report B. College​ attended, grades, etc. C. Your public financial history D. Personal credit history E. Employment information

B.

​________ is when a borrower is allowed to temporarily stop making student loan payments for a qualified reason such as an​ illness, financial​ hardship, or serving in a medical or dental internship or residency. A. Deferment B. Forbearance C. Default D. Delinquency

B.

A low FICO score A. is a good credit score. B. may result in a credit card rate half the rate of that paid by those with a high FICO score. C. can cost you quite a bit when you get a mortgage loan. D. is the only factor the lender considers when determining whether to give you credit.

C.

According to a recent Rockefeller Foundation​ report, the financial issue Americans worry about the most is the ability to pay A. debt expenses. B. for medical expenses. C. for retirement expenses. D. home mortgage expenses

C.

According to the Bankcard Holders Association of​ America, about 95 percent of all bank card issuers use the A. adjusted balance method. B. previous balance method. C. average daily balance method. D. daily double balance method.

C.

According to the Keown​ book, a(n)​ ________ is a loan involving a formal contract that details exactly how much​ you're borrowing and when and how​ you're going to pay the loan back. A. balloon loan B. bridge loan C. consumer loan D. installment loan

C.

Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called A. monetary assets. B. intangible assets. C. investment assets. D. all of the above.

C.

Below are several people and their current ratios. If they were to lose their jobs​ today, which one would probably experience financial stress and pressures the​ quickest? A. Dee has a current ratio of 1 time. B. Andy has a current ratio of 2.1 times. C. Elmo has a current ratio of 0.5 times. D. There is not enough information to answer this question.

C.

Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle stating that a person can expect to earn additional return for increasing his or her investment risk is the​ ________ principle. A. "nothing happens without a​ plan" B. "the best protection is​ knowledge" C. "risk and return go hand in​ hand" D. "mind games, financial​ personality, and your​ money"

C.

Consider the​ "Five Cs of​ Credit." The category that considers the size of your investment holding or portfolio is A. capacity. B. collateral. C. capital. D. character. E. none of the above.

C.

Consumers should comparison shop for credit just as they would for any other consumer good or service. How might a​ consumer's stage of the financial life​ cycle, income, net​ worth, or credit score affect the availability of loan sources and the associated cost of the loans​ offered? Which of the following statements is​ correct? ​(Select best answer​ below.) A. Typically, stages of the financial life​ cycle, income, and net worth move inversely with credit​ score, and the cost of the loans tends to be lower in early financial life cycle stages due to a sufficient supply of fund sources. B. Typically, stages of the financial life​ cycle, income, net worth and your credit score move in​ unison, and the cost of the loans tends to be lower in early financial life cycle stages due to a sufficient supply of fund sources. C. Typically, stages of the financial life​ cycle, income, net worth and your credit score move in​ unison, and the cost of the loans tends to be higher in early financial life cycle stages due to an insufficiency of credit scores. D. Typically, stages of the financial life​ cycle, income, and net worth move inversely with credit​ score, and the cost of the loans tends to be higher in early financial life cycle stages due to an insufficiency of credit scores.

C.

Home​ equity/second mortgage loans have two important advantages over most other types of loans. They are A. tax deductibility of payments and longer terms. B. increase in future financing flexibility and no recourse clause. C. tax deductibility of interest and lower interest rates. D.no risk for borrower and less amortization. E. none of the above.

C.

One of the unpleasant secrets about using your credit card for a cash advance is that A. there is usually a 6 to 8 percent upfront fee on the amount. B. the APR on the cash advance is typically lower than the APR for normal purchases. C. payments do not apply to cash advance balances unless the balance for regular credit purchases is zero. D. All but B apply to cash advances.

C.

Patty has​ $9,000 in monetary​ assets, annual living expenses of​ $36,000, a​ $12,000 car loan​ balance, and​ $45,000 in equity in her house. What is her​ month's living expenses covered​ ratio? A. 3.75 times B. 1.125 times C. 3.0 times D. There is not enough information to answer this question.

C.

Suppose that you just completed your first year of college with​ $12,000 in loans and plan to borrow the maximum each year from now until graduation. You have never accounted for the way you spend your​ money, do not have a​ budget, and want to insure that you will be able to repay your loans after college. What is the most important thing you can do right​ now? A. Visit your career counselor at school. B. Ask a friend who took the Personal Finance course for advice. C. Immediately begin to develop a personal financial plan. D. Talk to your parents about an allowance.

C.

Suppose that​ Cathy's assets include an automobile worth​ $10,000 and a checking account with a​ $5,000 balance, while her liabilities include a student loan balance of​ $2,000 and a car loan balance of​ $8,000. What is her net​ worth? A. $8,000 B. $2,000 C. ​$5,000 D. $10,000

C.

The CARD Act of 2009 toned down the actions of credit card issuers by A. banning credit card issuers from locating themselves​ "near campus"​ (defined as within 50​ feet). B. banning the issuance of credit cards to persons under​ 18, unless the borrower can show proof that he or she can repay the credit card loans independently. C. banning offers of freebies such as free pizza and T−shirts. D. banning the issuance of credit cards to persons under​ 18, unless someone over 25 co−signs on the account.

C.

The current ratio is a measure of liquidity that reflects A. the portion of your total liabilities that are considered current liabilities. B. how many times you can pay off your current liabilities by using your liquid assets. C. your debt payments for the current period. D. how many current assets you own free and clear.

C.

The personal financial planning process consists of​ ________ steps. A. ten B. seven C. five D. three

C.

Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three​ years, their gross household income is​ $5,700 per​ month, and they receive​ $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings​ account: $3,200 Checking​ account: $1,800 Credit card​ balance: $3,000 Car loan​ balance: $18,000 Car market​ value: $15,000 Furniture market​ value: $4,000 Stocks and​ bonds: $15,000 Assuming that they have no current bills other than those that are​ listed, what is their current​ ratio? A. 2 times B. 0.79 times C. $5,000/$3,000 D. Not enough information available

C.

What type of a credit card is issued in partnership with a specific charity or​ organization, such as Mothers Against Drunk Driving​ (MADD), the National Rifle Association​ (NRA), or a college or​ university? A. Travel and entertainment card B. Prestige card C. Affinity card D. Social responsibility card

C.

When you are involved in​ ________ planning, you are planning for your eventual death and the distribution of your wealth to your heirs. A. beneficiary B. prenatal C. estate D. actuarial E. none of the above

C.

Which of the following statements applies to obtaining an undergraduate college​ degree? A. They are expensive and rarely pay off in increased earnings. B. There is no relationship between personal wealth and earning a college degree. C. It may be the single best investment you will ever make. D. All of the above.

C.

Which of the following statements is most correct regarding a secured credit​ card? A. It provides a higher level of user​ security, using technology to prevent illegal use. B. Compared to nonminus−secured credit​ cards, it always carries a much lower rate of interest. C. It is useful to someone who has bad credit or no credit established yet. .D. It is a valuable form of credit insurance long dash— you are protected against loss if the card is lost or stolen.

C.

Which of the following statements regarding the riskminus−return relationship is most​ accurate? A. Longer loan length is associated with lower APRs. B. Lower credit scores are associated with lower APRs. C. Higher credit scores are associated with lower APRs. D. Shorter loan length is associated with higher APRs. E. Both B and D are correct.

C.

Which of the following would be included on a personal income​ statement? A. Your​ 401(k) balance B. Buying a flatminus−screen TV on credit C. Making a payment to your credit card company D. All of the above

C.

Which statement is false regarding consumer​ loans? A. Consumer loans are sometimes called​ "planned borrowing." B. Consumer loans are usually used for bigger purchases. C. Consumer loans can range from open credit to credit cards. .D. Consumer loans can range from single −payment loans to installment loans.

C.

Your financial situation is insolvent when A. your expenses exceed your income. B. your net worth is positive. C. your assets are less than your liabilities. D. your debt ratio is too high.

C.

In an​ emergency, you used your credit card for a​ $500 cash advance. You just received your statement and your total balance due is​ $1,859, and the cash advance was the most recent charge. You want to be sure to pay for the cash advance so you send in a payment of​ $700. Your credit card has an APR of 12 percent. How much of your payment will apply to the cash−advance ​balance? A. It​ doesn't make any difference because the​ $1,859 balance includes the cash​ advance, the​ $700 payment will lower your total balance​ regardless, so the amount applied to the cash−advance balance is irrelevant. B. Because it was the most recent​ charge, $500 of the payment will apply to the cash−advance balance. C. There​ isn't enough information to answer the​ question, because the answer depends on the cash​ advance's interest rate. D. None of the above

D

A physical asset such as a highminus−​definition, flatminus−screen TV or a Harley Davidson motorcycle is called​ a(n) A. investment. B. liability. C. financial asset. D. tangible asset.

D.

A plan for controlling and forecasting your cash inflows and cash outflows is called​ a(n) A. income statement. B. statement of changes in financial position. C. balance sheet. D. cash budget. E. none of the above.

D.

A strong recordminus−keeping system allows you to A. track expenses. B. know exactly how much​ you're spending. C. know where​ you're spending your financial resources. D. all of the above.

D.

According the Keown​ book, which Webminus−based personal financial planning website is known as​ "the best free way to manage your​ money?" A. Levelmoney.com B. YahooFinance.com C WSJ.com D. Mint.com

D.

A​ ________ is tied to a market interest​ rate, such as the prime rate or the six−month Treasury bill rate. A. prime−rate loan B. convertible−rate loan C. flexible−rate loan D. variable−rate loan

D.

Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the importance of insurance is the​ ________ principle. A. time value of money B. all risk is not equal C. agency problem long dash— beware the sales pitch D. protect yourself against major catastrophes E. none of the above

D.

Susan has always maintained an excellent credit rating over the years. She has an annual income of​ $63,000, has lived at her current residence thirteen​ years, and has worked at the same job for eight years. Susan works in a clerical​ position, has two credit cards and maintains two bank accounts. Susan is very conservative and has all of her savings​ ($12,000) in a NOW account at her local bank. One of her credit cards has a balance of​ $550 and has an APR of​ 23%. Susan has been making monthly minimum payments on the credit card. Out of curiosity she would like to know how her credit card companies judge her creditworthiness and what she can do to improve her financial situation. What should Susan do in regards to her credit card​ balance? A. She should continue to make minimum monthly payments. B. She should take out a small loan to pay off the credit card. C. She should pay half of the balance this month and the remaining balance next month. D. She should use some of her savings to pay off the balance in full immediately.

D.

The Fair and Accurate Credit Transactions Act​ (FACT) allows everyone to a free copy of their credit report every year. Why is it a good idea to check your credit report every​ year? A. To challenge any unauthorized entries B. To make sure that there are no errors on it C. To make sure that someone has not stolen your identity D. All of the above are good reasons.

D.

The major reason to make a financial plan is to A. account for your spending. B. see where you are overspending or underspending. C. allow for a surplus. D. achieve your financial goals. E. serve as a tax planning guide.

D.

The present value of a single future sum A. is generally larger than the future sum. B. increases as the number of discount periods increases. C. increases as the discount rate increases. D. depends upon the number of discount periods.

D.

The term​ "fair market​ value" refers to A. how the price of an asset has changed since its original purchase. B. what an asset will be worth at some point in the future. C. what you paid when you purchased an asset. D. what an asset could be sold for today.

D.

The​ "Repo Man" recently repossessed your car for failure to make payments. You still owed​ $5,000 on the​ loan, but since it was always​ broken, you were glad to get rid of it anyway. The bank sold the car at a wholesale auction for​ $3,000. The bank also paid the​ "Repo Man"​ $200 and paid attorney fees of​ $300. Based on the deficiency payments clause in your​ loan, what are you liable​ for? A. $0; repossession means the bank must​ "eliminate" the debt B. ​$500 C. $2,000 D. $2,500

D.

When you withdraw cash from an ATM using your credit card A. you're using a relatively inexpensive way to borrow money. B. you are not charged any interest until after the date the payment is due. C. the interest fee is lower than that for purchases. D. you begin paying interest immediately.

D.

Which of the following conclusions would be true if you earn a higher rate of return on your​ investments? A. The greater the present value would be for any annuity you would receive in the future. B. The greater the present value would be for any lump sum you would receive in the future. C. Your rate of return would not have any effect on the present value of any sum to be received in the future. D. The lower the present value would be for any lump sum you would receive in the future.

D.

Which questions do financial ratios help you​ answer? A. Am I saving as much as I think I​ am? B. Do I have adequate liquidity to meet​ emergencies? C. Do I have the ability to meet my debt​ obligations? D. All of the above E. A and B

D.

The finance charges for a loan may include A. required insurance fees. B. fees for a credit check. C. interest payments. D. only choices A and B. E. All of the above choices.

E

Hector and Maria Montez are trying to figure out their financial health. They will pay off their car loan in three​ years, their gross household income is​ $3,800 per​ month, and they receive​ $75 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings​ account: $1,200 Checking​ account: $800 Credit card​ balance: $1,000 Car loan​ balance: $12,000 Car market​ value: $8,000 ​Furniture; market​ value: $2,000 Stocks and​ bonds: $10,000 What is their​ month's living expenses covered​ ratio? A. 2.44 months B. 0.5 months C. 2 months D. 1.69 months E. Not enough information to answer this question

E,

Evaluating your financial health consists of A. preparing a personal balance sheet. B. determining what you are worth. C. determining where your money comes from and where it goes. D. preparing a personal income statement. E. all of the above.

E.

Having completed a personal finance​ class, you are now ready to give some advice to your freeminus−spending friends. Which one is​ unwise? A. Reduce the credit card balance. B. Look for trouble signs in credit card spending. C. Control your spending through discipline. D. Resolve any billing errors. E. Quit using credit cards altogether.

E.

In Chapter​ 1, Principle 3 espouses the time value of money. Why is this principle so important to financial​ planning? A. The principle shows us how important time and interest rates are to the accumulation of wealth. B. The principle allows us to determine how much money we will need to achieve our future goals. C. The principle helps us determine our savings needs​ today, in order to meet our future retirement goals. D. The principle shows us how inflation impacts our money over time. E. All of the above.

E.

Kareem has​ $6000 in monetary assets and​ $2000 in current liabilities. What is his current​ ratio? A. .334 times B. 2,000/6,000 C. 6,000/2,000 D. 3 times E. Both C and D are correct.

E.

One of the five​ C's of credit is capacity. Most​ likely, what information would potential creditors consider in evaluating your​ capacity? A. Your marital status B. Your age C. Your liquidity ratios D. Your leverage ratios E. Both C and D are correct answers.

E.

Personal financial planning can help you to A.minimize your chances of personal bankruptcy. B.minimize your tax payments to Uncle Sam. C.deal with unplanned health issues. D.have enough money for a comfortable retirement. E.all of the above.

E.

Practical uses of an income statement include A. determining if money is available for saving or investing. B. spotting problem areas of overspending. C. determining whether you are spending more than you earn. D. knowing where your money is going. E. all of the above

E.

Suppose that you are interested in buying a​ home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a​ mortgage? A. Determine what your income taxes will be. B. Figure the​ 28/36 rule. C. Determine what your mortgage payment will be. D. Calculate your debt limit ratio. E. Both B and C are correct answers.

E.

The purpose of using financial ratios is to A. save space on your financial statements. B. share your financial figures with your advisors. C. help analyze your raw data to compare how well you are doing. D. better understand how you are managing your financial resources. E. both C and D.

E.

Which of the following financial documents would you to use to create a financial​ plan? A. Budget B. Balance sheet C. Cash budget D. Income statement E. All of the above

E.

Which of the following is outlined in the text as​ reason(s) why many people do not have an adequate financial​ plan? A. Many of us lack the proper knowledge. B. There is never enough time for organizing and planning. C. For most people it is easier to spend than save. D. Procrastination can affect everyone. E. All of the above are common excuses for not planning.

E.

Which of the following regarding credit application analysis is incorrect​? A. Credit card issuers normally assign a minimal acceptable credit cutoff score. B. You are entitled to one free copy of your credit report each year from the three major credit bureaus. C. Bankruptcy remains a mark against you for a period of ten years after it occurs. D. Lenders may not discriminate on the basis of age. E. None of the above statements is​ incorrect; all of the above are true statements.

E.

Which of these are possible options for most people who cannot pay their​ bills? A. Declare Chapter 13 personal bankruptcy. B. Get help from a credit counselor. C. Obtain a debt consolidation loan. D. Declare Chapter 7 personal bankruptcy. E. All of the above are possible options.

E.

Which one of these clauses is not found in a typical loan​ contract? A. Insurance agreement B. Deficiency payments C. Acceleration D. Recourse E. Withdrawal terms

E.

Your credit score affects A. the amount of junk mail offering additional credit cards that you receive. B. the size of your credit line. C. the rate you pay on your credit cards. D. your mortgage rate. E. All of the above are correct answers

E.

​Hector's month's living expenses covered ratio is 0.25 months. He just broke his leg and will not be able to work for six weeks. Without a paycheck for six​ weeks, what will Hector most likely​ experience? A. He may have to liquidate some of his tangible or investment assets to keep current on his monthly bills. B. He​ doesn't have to worry because he has plenty of money in his savings accounts. C. He may have to borrow some money to keep current on his monthly bills D. There is not enough information to answer this question. E. Both A and C are realistic possibilities.

E.

A car manufacturer offers either​ $2,000 cash back or zero percent financing for 5 years. A rational consumer will always take the cash back because money received today is worth more than money received in the future. True False

False

A financial plan is only concerned with your future earnings and expenses. An examination of your current financial situation is not so important. True False

False

A payday loan is a reasonable option if you need a luxury item like a big screen TV. True False

False

A return of​ 12% compounded annually is the same as a return of​ 1% per month. True False

False

A shortminus−term goal might take from one to 10 years to accomplish. True False

False

A wellminus−educated and trained employee is virtually guaranteed job security by​ today's employers.​ Therefore, he or she​ doesn't need to worry about keeping his or her skills current. True False

False

Angela tried to use her​ Macy's credit card at Target but was unsuccessful because Target only accepts Target credit cards. True False

False

Cash advances generally require an upfront fee of 4 to 6 percent of the amount advanced. True False

False

Commissionminus−only planners charge fees and collect commissions on products they recommend. True False

False

Consumer loans are less formal than credit cards​ and/or other open credit. True False

False

Frank ran up a large credit card bill as an undergraduate​ student, he also took out as much in student loans as possible. He is now unable to pay his credit card debt and his student loan debt.​ However, he has decided to declare bankruptcy to eliminate his debt. Frank will be able to eliminate his federally subsidized student loan debt by declaring bankruptcy. True False

False

If the interest rate is​ positive, a sixminus−year ordinary annuity of​ $500 per year must have a present value over​ $3,000. True False

False

If the interest rate is​ positive, then the present value of an annuity due will be less than the present value of an ordinary annuity. True False

False

If your beforeminus−tax cost of a home equity loan is 12 percent and you are in the 30 percent marginal tax​ bracket, your afterminus−tax cost of the home equity loan is 9 percent. True False

False

Insolvency results from earning more than you spend. True False

False

It is against the law for your potential employer to use your credit score for employment considerations. True False

False

Most credit cards offer a 31minus− to 35minus−day grace period from the date of the bill to make payments. True False

False

Most individuals will reach their financial goals without planning or budgeting. True False

False

Net income is used in calculating​ one's net worth. True False

False

Nonminus−profit Credit Counselors should be avoided due to their high fees. True False

False

Once a sound financial plan is in​ place, there should be no need to ever change it. True False

False

Only a Credit Repair company can remove inaccurate data from your credit report. True False

False

The average daily balance method calculates interest payments based on the ending balance of the previous period. True False

False

The house that you are leasing from a landlord is an example of a tangible asset that you would list on your balance sheet. True False

False

The present value of an annuity increases as the discount rate increases. True False

False

To a credit​ user, the perks and benefits are the most important determinant when choosing a credit card. True False

False

Today, most Americans over the age of 65 have adequate savings and income available to them during retirement. True False

False

When comparing two different investment opportunities the investor should always choose the investment that minimizes the total amount of taxes paid. True False

False

When repaying an amortized​ loan, the interest payments increase over time due to the compounding process. True False

False

A credit bureau is a private organization that maintains credit information on​ individuals, which it allows subscribers to access for a fee. True False

True

A recourse clause defines whatever actions a lender can take to recover money from you in case you default on the loan. True False

True

A share of preferred stock that pays the same annual dividend forever is an example of a perpetuity. True False

True

A single−purpose card is a credit card that can be used only at a specific company. True False

True

A timeline identifies the timing and amount of a stream of cash​ flows, along with the interest rate it earns. True False

True

According to a Nellie Mae​ study, 93 percent of graduate students would have liked more information on financial management topics before they started school and would like financial management education made available to them now. True False

True

According to the Keown​ book, Mint and Level Money are two of the best smartphone apps for tracking your spending and setting up a budget. True False

True

According to the Keown​ book, the median net worth for American families in which the head of the household is less than 35 years old is below​ $10,000. True False

True

Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover​ interest, and the later payments have a larger proportion going towards the payment of principal. True False

True

An estimate of your anticipated afterminus−tax income available for living expenses is commonly called takeminus−home pay. True False

True

Before you can hope to achieve your financial​ goals, you will need to first measure your current financial health and develop a plan and a budget. True False

True

Bridge loans provide shortminus−term funding until longerminus−term or additional financing is found. True False

True

Current liabilities are those that can typically be paid off in full within 12 months. True False

True

Defaulting on a secured loan may lead to the collateral being repossessed. True False

True

Direct subsidized loans are made only to undergraduates who demonstrate financial need. True False

True

Financially savvy people take advantage of the grace period on major purchases and pay the balance off in​ full; thus avoiding finance charges. True False

True

For the average consumer there is usually a set limit on open or revolving credit accounts. True False

True

Having negative net income every once in a while is not such a bad thing as long as you have planned for it. True False

True

If the future value of annuity A is greater than the future value of annuity​ B, then the present value of annuity A must also be greater than the present value of annuity B. True False

True

If we invest money for 10 years at 8 percent​ interest, compounded​ semiannually, we are really investing money for 20 sixminus−month ​periods, and receiving 4 percent interest each period. True False

True

If you only earned interest on your initial​ investment, and not on previously earned​ interest, it would be called simple interest. True False

True

Incomeminus−based repayment plans are based on a percentage of discretionary​ income, not the amount​ owed, and provide a 25minus−year term of payments before loan forgiveness. True False

True

It is important to take a close look at the 2008 economic downturn as a means to highlight how vulnerable​ American's finances are. True False

True

Late library fines and unpaid parking tickets can hurt your credit score. True False

True

Not having health insurance could lead to filing for bankruptcy if one has incurred large medical expenses and is unable to pay these bills off in a timely manner. True False

True

Over​ 70% of the 25 biggest credit card issuers do not charge annual fees. True False

True

Student loans are loans with federally subsidized interest rates​ given, based on financial​ need, to students making satisfactory progress in their degree programs. True False

True

Taking a cash advance on your credit card for daily living expenses may not be a wise financial decision because interest begins on the cash advance balance amount immediately. True False

True

The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis. True False

True

The first steps in career planning are conducting a selfminus−assessment and developing an understanding of what sort of lifestyle you wish to lead. True False

True

The interest charge on your credit card statement should be listed on your personal income statement as a variable expense. True False

True

The same underlying formula is used for computing both the future value and present value. True False

True

The simple interest method is the most common method of calculating payments on an installment loan. True False

True

The time value of money is the opportunity cost of passing up the earning potential of a dollar today. True False

True

The​ 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended. True False

True

Tim has​ $100 in a bank account paying​ 2% interest per year. At the end of 5​ years, Tim's bank account balance will be​ $110 if interest is not​ compounded, but will be greater than​ $110 if interest is compounded. True False

True

Under a Federal Direct​ Loan, you​ don't begin making payments until six months after graduation. True False

True

Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet. True False

True

When using a financial​ calculator, cash outflows generally have to be entered as negative​ numbers, because a financial calculator sees money​ "leaving your​ hands." True False

True

Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the​ ________ ratio. A. debt B. long−term debt coverage C. current D. savings E. none of the above

c.