Personal Finance Chapter 5

If a person has ATM fees each month of $24 for 9 years, what would be the total cost of those banking fees?

Total cost = Cost per month × 12 months per year × Number of years = $24 × 12 × 9 = $2,592

A " no-fee" checking account that requires a non-interest-earning minimum balance of $500 has an opportunity cost of lost interest earnings.

True

A restrictive endorsement consists of the words "for deposit only."

True

An asset management account combines a complete financial services program for a single fee.

True

Demand deposits are another term for checking accounts.

True

A $320 savings account that earns $24 interest in a year has a yield of ____________ percent. 24.0 7.5 12.2 7.0 8.0

7.5

A regular savings account usually offers a higher rate of return to savers than other savings plans.

False

What is the term used to refer to the cost of borrowing for large U.S. corporations? Prime rate Discount rate Corporate bond rate Treasury bond rate T-bill rate

Corporate bond rate

The more frequent the compounding, the less a person will earn on a savings account.

False

When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.

False

Based on the following information, what amount would be subtracted from the bank balance side of a checking account reconciliation? Service charge $27; Outstanding checks $137; Interest $4; Deposit in transit $84 $137 $84 $142 $27 $164

$137

Based on the following information, what amount would be subtracted from the bank balance side of a checking account reconciliation? Service charge $25; Outstanding checks $145; Interest $3; Deposit in transit $84 $148 $170 $145 $25 $84

$145

A saver has $2,500 on deposit in an account earning 3 percent interest. During this year, the inflation rate was 5 percent. After one year, what is the buying power of the amount in savings for that person? $2,381 $2,700 $2,500 $14,925 $2,452

$2,452

Your bank statement shows a balance of $683. Your checkbook register shows a balance of $453. You earned interest of $8, and had a service charge of $12. What is the amount of outstanding checks, assuming there are no outstanding deposits? $242 $464 $234 $305

$234

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. If a person has $186,000 in an individual account, and $129,000 in a joint account, what amount exceeds the FDIC coverage for that person? $0 $500 $250,500 $1,550 $250,000

$500

A person borrows $320 from a payday loan company, paying $16 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore interest rate compounding. 20.00 5.00 260.00 40.00 130.00

130.00

A pawnshop with a monthly interest rate of 1.95 percent would have an annual interest rate of ____ percent. 3.90 1.95 23.40 11.70 19.50

23.40

A savings account earns 6 percent. If the saver is in a 35 percent tax bracket, the after-tax savings rate of return would be ____ percent. 2.10 35.00 6.00 3.79 3.90

3.90

A savings account earns 7 percent. If the saver is in a 35 percent tax bracket, the after-tax savings rate of return would be ____ percent. 35.00 2.45 4.55 3.25 7.00

4.55

What would be the annual percentage yield for a savings account that earned $24.50 in interest on $500 over the past 365 days?

APY = 100 (Interest / Principal) = 100 ($24.50 / $500) = 4.90%

A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $24,000, 4 percent CD?

Annual interest = Annual interest rate × Investment = 0.04 × $24,000 = $960 Penalty = 2 months of interest = (2 / 12) × Annual interest = (2 / 12) × $960 = $160

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 5 percent.

Annual opportunity cost = Minimum balance × Interest rate = $500 × 0.05 = $25

A payday loan company charges 6.25 percent interest for a two-week period. What is the annual interest rate?

Annual percentage rate = Rate per period × Number of periods per year = 0.0630 × (52 weeks / 2 weeks) = 1.625, or 162.50%

Which is a CD that offers a higher rate for every six months you are invested? Bump-up Indexed Callable Global Promotional

Bump-up

Based on the following information, determine the true balance in your checking account. Balance in your checkbook $357 Balance on bank statement $481 Service charge and other fees $16 Interest earned on the account $3 Total of outstanding checks $199 Deposits in transit $62

Checking Account Balance Current checkbook balance $357 -Service charge $16 +Interest earned $3 Adjusted checkbook balance $ 344 Current bank statement balance $ 481 +Deposits in transit 62 -Outstanding checks $199 Adjusted bank balance $ 344

Which of the following types of financial institutions provide Federal Deposit Insurance coverage? Credit card companies and finance companies Credit unions and brokerage firms Mortgage companies, commercial banks, and credit unions Commercial banks, credit unions, and savings and loans Commercial banks, credit card companies, and credit unions

Commercial banks, credit unions, and savings and loans

What amount would you have if you deposited $3,100 a year for 25 years at 9 percent (compounded annually)? Use Exhibit 1-B.

FV = $3,100 × 84.701 = $262,573.10

What would be the value of a savings account started with $3,800, earning 7 percent (compounded annually) after 11 years? Use Exhibit 1-A.

FV = $3,800 × 2.105 = $7,999.00

A certificate of deposit is also known as a demand deposit.

False

What would be the net annual cost of the following checking accounts? Monthly fee, $4.50; processing fee, $0.10 cents per check; checks written, an average of 15 a month.

Net annual cost = (Monthly fee × 12) + (Fee per check × Number of checks per month × 12) = ($4.50 × 12) + ($0.10 × 15 × 12) = $72.00

What would be the net annual cost of the following checking accounts? Interest earnings of 6 percent with a $500 minimum balance; average monthly balance, $700; monthly service charge of $22 for falling below the minimum balance, which occurs three times a year (no interest earned in these months).

Net annual cost = Service charges - Interest earnings = ($22 × 3) - (0.06 × $700 × 9 / 12) = $34.50

Brenda Young desires to have $17,000 eight years from now for her daughter's college fund. If she will earn 7 percent (compounded annually) on her money, what amount should she deposit now? Use the present value of a single amount calculation. Use Exhibit 1-C.

PV = $17,000 × 0.582 = $9,894

Which of the following institutions makes loans based on the value of tangibles possessions, such as jewelry and other valuables? Life insurance company Finance company Mortgage company Pawnshop Investment company

Pawnshop

The most frequent users of payday loans are workers who have become trapped by debts or poor financial decisions.

True

Using a "debit card" to make purchases means you are spending your own funds.

True

An all-purpose account offered by investment brokers that provides several services is a: NOW account. asset management account. EFT account. mutual fund. money market account.

asset management account.