Midterm 2- Financial Decisions

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

paying for everyday living expenses

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

residual value

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

subtract his deductions

If Brenda wants to pay her fair share of taxes, no more and no less, she should practice

tax avoidance

Your average tax rate is your?

tax liability divided by taxable income.

Who is ultimately responsible for supplying accurate and complete information for completing a tax return?

taxpayer

True or False: About 1% of all tax returns are audited. The process is triggered by computers checking for outlier data (large deductions, drastic drop in income, overlapping SS numbers etc.

true

True or False: If you think that rates will fall in the future, you should buy a long-term CD to lock in your rate now.

true

With a 15 percent marginal tax rate, would a tax-free yield of 7 percent or a taxable yield of 9.5 percent give you a better return on your savings?

Taxable yield of 9.5 percent.

A line of credit is

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

Which one (s) of the following retirement plans have deferred tax benefits? (You may have more than one choice)

Traditional 401 (K), Traditional Regular IRA, SEP Plan

In a Chapter 7 bankruptcy, you may still owe except:

Unpaid hospital or physician bills

Which of the following is NOT correct?

Using credit can increase the amount of money that will be available to spend in the future

If you are denied credit

You are entitled to a free copy of your credit report

All of the following are signs of financial trouble except

You pay your credit card bills in full each period

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go?

a commercial bank

Which of the following is an example of closed-end credit

a mortgage loan

If you expect to have a lower tax rate next year, you want to delay or accelerate the deductions into the current year, and delay or accelerate the receipt of income until next year.

accelerate, delay

Gross income after certain reductions have been made is

adjusted gross income

The tax based on the total tax due divided by taxable income is called the

average tax rate

Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code

chapters 7 and 13

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

Progressive taxation means?

Entering a new bracket results in the next dollar earned being taxed at a higher rate

A potential problem with having a long car loan is

negative equity

What is the annual opportunity cost of a checking account that requires a $500 minimum balance to avoid service charges? Assume an interest rate of 3 percent.

$15

What would be the net annual cost of the following checking accounts:Monthly fee, $5; processing fee, 25 cents per check; checks written, an average of 12 a month:

$96

Assuming you and your family members will receive a total fed tax refund of $5,000 for the year of 2022, based on an interest rate of 5 percent, what would be the lost if you file your federal income tax in mid-May instead of in mid-January of 2023 (assuming you can receive your tax refund from IRS in 15 days for both cases).

$83

Molly and Justin (married) are considering contributing $5,000 to their favorite, tax deductible charity. This contribution will bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to charity, assuming the standard deduction is $25,900 for joint filers of married family?

$0

Molly and Justin (married) are considering contributing $5,000 to their favorite, tax deductible charity. This contribution will bring their total itemized deductions to $20,000. Assuming they are in the 28% marginal tax bracket, how much will they save in taxes by contributing this $5,000 to charity?

$1,400

If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay?

$200

Calculate the cost of buying a motor vehicle: Monthly Loan payment for 48 months $500 Monthly Lease payment for 48 months $500 Opportunity cost interest rate 5% Down payment $2,000 Security Deposit $500 End of lease charges $600 Estimated value at end of loan $4,000

$22,400

If 300,000 people each receive an average refund of $1,500, based on an interest rate of 5 percent, what would be the lost annual income from savings on those refunds?

$22,500,000

Calculate the total cost of leasing a vehicle: Monthly Loan payment for 48 months $500 Monthly Lease payment for 48 months $500 Opportunity cost interest rate 5% Down payment $2,000 Security Deposit $500 End of lease charges $600 Estimated value at end of loan $4,000

$24,700

The U.S. national debt is nearing ___________, which is ________ percent of the total U.S. GDP as of the time of the video?

$29 trillion, 120%

Calculate the total cost of leasing a vehicle: Purchase Costs: Down payment $2,000 Monthly Loan payment for 48 months $850 Estimated value of the car at end of loan $6,000 Interest rate 5% Leasing Costs: Security deposit $1,800 Monthly Lease payment for 48 months $686 End-of-lease charges $1,000

$34,288

Calculate the cost of buying a motor vehicle: Purchase Costs: Down payment $2,000 Monthly Loan payment for 48 months $850 Estimated value of the car at end of loan $6,000 Interest rate 5% Leasing Costs: Security deposit $1,800 Monthly Lease payment for 48 months $686 End-of-lease charges $1,000

$37,200

Based on the data provided here, calculate total annual operating cost of the motor vehicle. Annual depreciation $2,300 Average gasoline price $1.9 Miles per gallon 23 Current year's loan interest $800 Parking/tolls $220 License and registration fees $65 Insurance $580 Annual mileage 20,000 Oil changes/repairs $370

$5,987

Information about a Chapter 7 personal bankruptcy may be reported in your credit file for

10 years

Information about a personal bankruptcy may be reported in your credit file for

10 years

Nicholas earned 12% in his savings account. If he is in the 15% tax bracket, what is his after-tax savings rate of return?

10.02%

Robert Sampson owns a $175,000 townhouse and still has an unpaid mortgage of $140,000. In addition to his mortgage, he has the following liabilities: Visa Card $805 Master Card $180 Discover Card $505 Education loan $3,000 Personal bank loan $300 Auto loan $2,000 Total$6,790 Robert's net worth (not including his home) is about $42,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. What is Robert's debt-to-equity ratio? Based on previous question, has Robert reached the upper limit of debt obligations?

16.2% and no

Which year was the U.S. debt downgraded from an AAA rating to an AA rating?

2011

A 32-ounce package selling for $7.5 would have a unit price of

23.44 ¢ an ounce

Louise McIntyre's monthly gross income is $5,000. Her employer withholds $860 in federal, state, and local income taxes and $250 in Social Security taxes per month. Louise contributes $300 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $280 and $360, respectively. Her monthly payment on an automobile loan is $375. What is Louise's debt payments-to-income ratio? Based on previous question, has Louise reached the maximum of debt payments-to-income ratio?

28.3% and yes

U.S. has the ____largest debt compared to the size of its GDP in the world.

4th

A payday loan company charges 5 percent interest for a four-week period. What would be the annual interest rate from that company?

65%

What would be the annual percentage yield for a savings account that earned $56 in interest on $800 over the past 10 months?

8.4%

A drawback of a regular savings account comparing with a CD account is

A low rate of return.

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

The tax designed to ensure that those who receive tax breaks also pay their fair share of taxes is called the

AMT

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by

Adding up basic monthly expenses, subtracting this total from take-home pay, and, if needed, figuring out what to give up to make the payment.

Which of the following can result from a failure to repay a loan

All of these answers may be a result of the failure to repay a loan

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

All of these are valid questions to ask

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

All of these steps are appropriate to take if she suspects identity theft.

More than half of the total U.S. government bonds are owned by ________.

Americans and foreign investors

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

When purchasing a used vehicle, it is a good idea to

Have a trained and trusted mechanic of your choice check out the vehicle

Which one of the following saving plans has has a unique triple tax benefit. 1) your contributions are pretax, 2) any investment growth within the account is tax-free, and 3) qualified contribution withdrawals (that is, ones used for medical expenses) are tax-free?

Health Saving Account

Would you prefer a fully taxable investment earning 10 percent or a tax-exempt investment earning 7 percent? (Assume a 30 percent tax rate.)

Indifferent between the taxable investment and the tax-exempt investment

Athena wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is NOT a proper deduction?

Miscellaneous expenses less than 2% of AGI

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

Preshopping activities, evaluating alternatives, selection and purchase, postpurchase activities

George has never bought a car before. Which of the following techniques should he use to get the best deal?

Research the actual dealer cost and begin negotiations from that point

Which one (s) of the following retirement plans have withdrawal exemption from federal and state taxes after age 59.5?

Roth IRA

Which one (s) of the following saving plans have tax exemption on both withdrawal of contributions and accumulated earnings in the future?

Roth IRA, Coverdell Education Saving Account, 529 PLAN

All of the following are variable operating costs for a vehicle except

depreciation

True or False: When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income.

false

True or False: When you don't disclose all of your earned income you are using tax avoidance.

false

True or false: Tax credits are dollar-for-dollar reductions in taxable income.

false

True or false: The adjusted gross income is increased by the itemized or standard deduction

false

True or false: You should itemize deductions when total itemized deductions are less than the standard deduction.

false

true or false: In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability

false

true or false: One of the first steps in a car purchase negotiation should be a discussion of the trade-in vehicle.

false

While Paul was shopping for a new chainsaw, he found a great deal on a new drill and bought it. This is an example of

impulse shopping

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

income tax

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

mediation

Suppose an investor with a tax bracket of 25% has a choice between a corporate bond with a 7% coupon and a municipal bond with a 5.75% coupon. Which bond is more attractive because the after-tax corporate bond's yield is ________.

muni, 5.25%

True or False: The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is a measure for calculating inflation.

true

True or false: Higher returns are associated with higher level of risk.

true

True or false: Owning a home is one of the best tax shelters. Both real estate property taxes and interest on the mortgage are deductible

true

true or false: An advantage of a lease over a purchase is that the buyer can usually obtain a more expensive vehicle for the same monthly payment

true

true or false: Closed-end credit is used for a specific purpose and involves a specific amount.

true

true or false: The I bond has an interest rate based on two components: (1) a fixed rate for the life of the bond, and (2) an inflation rate that changes twice a year.

true

true or false: The I-Bond is kind of U.S. Savings Bonds, which are a low-risk savings program guaranteed by the federal government, hence it is default risk free.

true