Personal Finance

Definition of speculative risk

potential for gain as well as for loss

Definition of pure risk

potential only for the possibility of loss

Definition of inflation

rise in the general level of prices

Effect of inflation on long-term and short-term interest rates

risk premium increases with expected inflation

Relation of interest rate to time

risk premium increases with increased length of time that the funds are in use

Which of the following investments typically has the largest potential growth?

stocks

Disposable income equals

the amount a person or household has to spend

Who is responsible for a loan repayment?

the cosigner and/or the borrower

Definition of appreciation

the value of the home appreciates (increases in value)

A salary-reduction plan is also known as a

401(k) plan

How are amount for balance sheets determined?

Assets: items of value (what you own) Liabilities: amounts owed (what you owe) Net worth: your wealth

What is the preferred phase of the economic cycle?

Expansion: increasing production and consumption

Which of the following is NOT correct

Traditional financial guidelines suggest that your home should cost about five times your annual income

At the end of the year, employees receive a _____ form that reports annual earnings and the amounts deducted for taxes from their employers.

W-2

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

a debit card

Amanda wants to be part of the most basic form of ownership for a corporation. She should invest in

common stock

Definition of recession

decline in total output, income, employment, and trade

A personal balance sheet reports

Items owned and amounts owed

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal tax rate

The current financial position of an individual or family is best presented with the use of a

balance sheet

Which of the following is NOT a strategy for wise buying?

buying items on impulse

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

collateral

Consumer attitudes during recession

consumers are pessimistic about future buying plans

If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally

decrease in value

Which of the following will increase the net worth of a household?

decrease spending by $5 per day

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a

dividend

Definition of equity in a home

dollar value of the home in excess of the amount owed on it

Calculate take-home pay

$1,000.00 (gross) - $118 (federal income tax - 25% marginal tax rate) - $76.50 (social security & medicare tax - 7.65%) - $48.00 (state income tax - 6%) ------------- $757.50 net

The average used car costs about ____ less than the average new car.

$10,000

Given the information here, what should Jason's adjusted bank balance for his bank reconciliation be? Bank balance: $300 Outstanding checks: $129 Deposit in transit: $50 ATM fees: $26 Interest earned: $5 Checkbook balance: $242

$221

The insurance coverage provided by the FDIC for a savings account is ____ per depositor per insured financial institution.

$250,000

How do you withdraw money from a checking account?

- Write checks - Debit cards - Automatic drafts and direct deposits

Which of the following are major reasons that investors purchase mutual funds

A and B only: - Diversification - Professional management

Which of the following is an example of open-end credit?

A department store credit card

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

A mortgage loan

Definition of "as is"

Buyer takes all risk of nonperformance or other problems despite any salesperson's verbal assurances.

The set amount that you must pay toward medical expenses before the insurance company pays benefits is called

Deductible

All of the following are examples of defined contribution plans except

Defined-benefit plan

Jacob is concerned that his out-of-pocket health care expenses will be quite high, so he is considering adding contributions to a tax-free account that he can use with high-deductible policy to cover catastrophic expenses. What kind of plan does he have?

HAS

A saver or an investor should expect to receive a risk premium for

Higher uncertainty about getting his/her money back

Jill is 45 years old and thinks that her future tax rate will be lower than what she currently pays, so she wants to defer her taxes on her contributions of up to $5,500 in 2014. Which plan would allow her to

Regular IRA

Julian's annual contributions to his retirement are not tax-deductible, but his earnings accumulate tax-free. He is investing in a

Roth IRA

Taxes on earning that fund old age, survivor, and disability insurance benefits are called

Social Security taxes

Items with monetary value are referred to as

assets

The equation to calculate net worth is

assets - liabilities = net worth

Definition of escrow

escrow account: money deposited with lending institution for payment of taxes and insurance - special reserve account at a financial institution in which funds are held until they are paid to a third party - in this case, for home insurance and for property taxes

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

full warranty

The appearance of a used car can be deceptive. When purchasing a used vehicle, it is a good idea to

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

If you miss payments on a home equity loan, you can lose your

house

The time value of money refers to

Increases in an amount of money as a result of interest earned

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of (you will be given certain financial information from which to calculate net worth).

$40,000

An insurance company will

Insure pure risk, but not speculative risk

Given the information here, what should Jason's adjusted checkbook balance be? Bank balance: $600 Outstanding checks: $260 Deposit in transit: $100 ATM fees: $50 Interest earned: $10 Checkbook balance: $480

$440

Evan had three accounts as listed below. In 2014, how much was his total insurance coverage by the FDIC? - Bank A: $150,000 - Bank B: $50,000 - Bank C: $350,000

$450,000

How does a CD work?

- invester commits to a specified term - highest interest rate

A _______ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.

401(k) account

If a $10,000 investment earns interest of $500 in one year, what is its rate of return?

5%

The periodic charge for the use of credit is called

Interest

General rule for deductibility of expenses

All expenses are deductible unless specified by the federal government

General rule for taxability of income

All income is taxable unless exempt by the federal government

If you buy common stock, you may receive income from

All of these are correct: - Dividends - Dollar appreciation of stock value - Possible increases in value from stock splits

How do mutual funds provide returns to their shareholders?

All of these: - Income dividends - Capital gain distributions - Capital gains

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

All of these: - Loss of a good reputation - Damage to family relationships - Bankruptcy - Loss of income or valuable property

Ricky has a conventional mortgage. He can monitor the reduction of his loan balance through his payments by using _____ information.

Amortization

Dependent exemption

An individual may be a dependent on only one tax return

Definition of a mutual fund

An investment vehicle offered by investment companies to those who wish to: - Pool money from many investors - Buy stocks, bonds, and other financial securities - Have buy/sell decisions made by a fund manager An investment company that combines the funds of investors who have purchased shares of ownership in it and then invests that money in a diversified portfolio of stocks and bonds issued by other corporations or governments

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

Escrow

What is the primary purpose of medical expense insurance?

Pay actual medical costs for illness or injury

Which of the following would increase the interest rate for a loan?

Poor credit rating

Which of the following is a deduction to determine take-home pay?

Social Security taxes

The formula for calculating Federal taxable income

Step 1: Total income Step 2: Gross income (subtract exclusions (tax-exempt income)) Step 3: Adjusted gross income (subtract adjustments to income) Step 4: Subtotal (Subtract standard deduction or total itemized deductions) Step 5: Taxable income (subtract value of exemptions) Step 6: Apply tax table or tax-rate schedule to determine tax liability Step 7: Final tax liability (subtract tax credits) Step 8: Calculate balance owed or refund

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

Tax avoidance

Which of the following is a disadvantage of renting?

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

The consumer price index measures

The average change in prices of goods and services of urban consumers

If you hold mutual fund shares in your Roth individual retirement account, the taxes on reinvested income with be

eliminated

Which of the following features is a benefit for investors of municipal bonds?

interest may be tax-exempt at the federal level

Definition of adjustable rate mortgages

interest rate varies over the life of the loan

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

limited warranty

Definition of mortgage

loan to purchase real estate in which the property itself serves as collateral

The amount you would have left if all assets were sold and all debts were paid in full is called your

net worth

Which of the following investments typically has the most risk?

stocks

Definition of progressive tax rate

tax rate increases as income increases

Income that is taxed at a later date is

tax-deferred income

Income that is not subject to tax is called

tax-exempt income

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired

warranty

The APR is the percentage cost of credit on a(n) _______ basis.

yearly