Personal Finance Final

Alice lost her ATM card at the lake and forgot it was missing until her monthly statement came 26 days later. She found that $800 had been withdrawn from her savings account. The most Alice will be legally liable for assuming she notifies the bank at this point is a. $0 b. $25 c. $50 d. $500 e. $800

D

Assume that the price of ABC common stock fell from in a short period of time from $105 to $84. Which of the following investors probably made the most money, if all of these transactions occurred prior to the drop in price? a. Abe took a long position in 1000 shares of ABC b. Bert took a short position in 1000 shares of ABC c. Carrie kept her money in CDs at the bank d. Darren shorted 2000 shares of ABC using a margin loan e. Earl used a margin loan to finance a 2000 share long position in ABC

D

At the end of the lease period, you may be required to a. purchase the vehicle at its residual value b. pay for unreasonable wear and tear c. pay for additional mileage d. b and c e. a, b, and c

D

If life insurance is convertible, the policy can be a. transferred to the life of another person b. exchanged for cash c. changed to health or disability protection d. changed to another type of life insurance e. revised as needed

D

In which of the following types of investment is the most liquidity risk? a. Common stock b. Corporate bonds c. Treasury bonds d. Land e. Mutual fund shares

D

John Anderson deposited $10,000 in a CD for 3 years at 5%. It should now be worth (Use time value tables or financial calculator.) a. $10,500 b. $10,725 c. $11,400 d. $11,580 e. $12,400

D

The Annual Percentage Yield is the same as the a. compound rate b. real rate c. simple rate d. effective rate e. nominal rate

D

The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be a. $278 b. $300 c. $314 d. $344 e. $380

D

Underwriting is a. selling insurance at a premium less than that of the competition b. payment of a claim c. a method for developing policy wording d. the determination of which exposures to insure e. none of these

D

Which of the following would be best suited to using an Internet bank? a. Nancy Johnson, a young businesswoman who uses bank financing regularly for her business b. Milan Sosa, an older gentleman who enjoys visiting his local banker c. Molly Peterson, a woman who uses multiple bank services including a safe-deposit box d. Fred Longoria, a man who uses checking and savings but never goes to his bank e. All of the above would be good candidates because the cost of Internet banking is lower than other types of banks.

D

With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for at least ____% of the first year's premium and at least ____% of total premiums paid over the life of the policy. a. 20, 5 b. 50, 10 c. 75, 25 d. 100, 20 e. 200, 50

D

A Roth IRA a. is funded with after tax dollars b. allows interest or dividends to accrue tax free c. permits you to withdraw your contribution at any time d. provides for tax-free earnings if you hold the account 5 years and are 59 1/2 at withdrawal e. all of the above are true

E

A characteristic of consumer loans is that they a. include a negotiated contract b. are arrived at through a formal process c. include a repayment schedule d. are used to purchase big-ticket durable goods and other items. e. are all of these

E

A collection of investments is called a. letter of exposure b. diversification c. grouping d. envelope e. portfolio

E

Besides the finance charge, you should also consider ____ when you shop for a consumer loan. a. loan maturity b. total cost of the loan c. collateral d. repayment penalties e. all of the above

E

Long-term financial goals often depend on borrowing funds. The type of loan that does not fulfill the long-term goal achievement is _____ loans. a. consumer b. installment c. automobile d. mortgage e. single payment

E

Sheldon has a home valued at $108,000 and an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of market value, how much could Sheldon borrow using a home equity loan? a. $86,400 b. $80,000 c. $38,000 d. $30,400 e. $16,400

E

The cost of an annuity varies with the a. age of the annuitant at issue b. age of the annuitant when payment begins c. method of proceeds distribution d. sex of the annuitant e. all of the above

E

The loss of value in a car over time is called. a. maintenance b. loan payments c. sales payments d. commissions e. depreciation

E

The returns you would expect from your investments could be a. risk b. capital gains c. current income d. a and c above e. b and c above

E

All taxpayers have an equal probability of having their tax returns audited. T/F

F

Asset management accounts are protected by the Federal Deposit Insurance Corporation. T/F

F

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

F

In a Roth 401(k), contributions are tax deductible and withdrawals are taxable. T/F

F

Interest rates on credit cards tend to be lower than most other forms of consumer credit. T/F

F

MSRP stands for Manufacturer's Suggested Real Price. T/F

F

Parent Loans (PLUS) are the responsibility of the parents and the rate is determined by their child's credit score. T/F

F

Tax preparers must be licensed by either the state or federal government. T/F

F

The down payment is typically the only substantial housing cost that must be paid at the time of the purchase. T/F

F

The major reason most people invest is to shelter current income from taxes. T/F

F

The money you put into a Roth IRA is deductible from your taxable income in the year contributed. T/F

F

The term "investment" refers to money placed in some medium where value and level of return are totally unpredictable. T/F

F

The testator of a will always receives property from the will. T/F

F

The trade-in value of a car given to you by the dealer is always the most fair value. T/F

F

Two prerequisites to investing are above average risk and clear understanding of market direction. T/F

F

A husband and wife together could give $20,000 to their niece with no gift tax liability even if the entire $20,000 came from the wife's checking account. T/F

T

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

T

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

T

A will may be invalid if the testator was under undue influence of another person. T/F

T

Age 65 is typically the "normal retirement" age on retirement plans. T/F

T

Anyone can legally prepare tax returns and charge a fee for that service. T/F

T

Anyone with earned income can contribute to some type of IRA. T/F

T

Capitalized cost on an auto lease is the same as the amount of the price that is being financed. T/F

T

Cash value is an important component of whole life, universal life, and variable life but is never a component of term insurance. T/F

T

Convenience and improved record keeping are two advantages sited for on-line bill payment. T/F

T

Credit unions typically pay higher rates of return on savings than banks and savings and loan associations. T/F

T

Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease. T/F

T

Gift giving can reduce estate tax liability. T/F

T

IRA withdrawals can be made without tax penalty any time after you reach the age of 59 1/2. T/F

T

If a buyer withdraws from a transaction without a valid reason after singing a sales contract, he typically loses his earnest money. T/F

T

Intestacy results from dying without a valid will. T/F

T

Investing and speculating are two entirely different activities. T/F

T

It is extremely wise to contribute at least as much to a 401(k) plan as one's employer will match. T/F

T

Life insurance death benefits are not subject to income taxes. T/F

T

Miles has no retirement plan at work. Therefore, $2,000 contributed to his regular IRA will be tax deductible. T/F

T

Most people are too conservative when investing their retirement funds. T/F

T

One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account. T/F

T

Roth IRAs are the only IRAs that have the potential to produce tax-free earnings. T/F

T

Russ and Lois got married December 30. Since they were single for most of the year, however, they can legally file as married taxpayers in the year of the wedding. T/F

T

Steve was told that the government would be paying the interest on his Stafford loan while he was in school, which is a subsidized loan. T/F

T

Tax credits are dollar-for-dollar reductions in taxable income. T/F

T

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

T

The basic purpose of insurance is to protect you from the results of accidental losses. T/F

T

The cost of a title search and title insurance are typically part of the closing costs on a housing transaction. T/F

T

The cost of an annuity is greater for females than it is for males. T/F

T

The fees on annuities tend to be high compared to mutual funds. T/F

T

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments. T/F

T

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

T

The median household approaching retirement has less than 25 percent of the money needed to maintain their standard of living in retirement. T/F

T

The money factor on an auto lease is similar to the interest rate on a loan. T/F

T

The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs. T/F

T

With traditional whole life policies sold by an agent, sales commissions and marketing expenses account for between 20% to 25% of total premiums paid over the life of the policy. T/F

T

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

T

Your eligibility and rate on a private loan is determined by your credit score. T/F

T

Your gross estate is all property subject to federal tax at your death. T/F

T

Mr. and Mrs. Davenport have three children ages 3, 6, and 13. Their financial matters for 2019 are as follows: Adjusted Gross Income: $65,000 Un-reimbursed Medical Expenses: $5,250 How much would the Davenport's medical expenses contribute to their total itemized deductions? a. $0 b. $375 c. $3,500 d. $2,750 e. $4,500

A

Sarah has the following consolidated federal student loans: Loan 1 $5,000 @ 5.2% Loan 2 $15,000 @ 6.8% Calculate her weighted-average interest rate. a. 6.4% b. 5.2% c. 6.8% d. 6% e. 5.6%

A

Tax credits reduce your a. tax liability. b. adjusted gross income. c. tax refund. d. tax withholding. e. taxable income.

A

Tax-free earnings can be gotten from investments in a. Roth IRAs b. Traditional IRAs c. SEP plans d. 401(k) plans e. all of the above

A

The financing rate on the car you are leasing is called the a. money factor b. capitalized cost c. residual value d. purchase option e. capitalized cost reduction

A

The settlement option chosen by most beneficiaries is a. lump sum b. interest only c. fixed amount d. fixed time e. life income

A

Underwriting is best described as a. Activities related to selecting acceptable risks so that general insurer objectives are met. b. Actuarial science c. Production-related activities performed primarily by agents in the field d. Process of developing pricing structures for insurance, often performed by an actuary e. A function most often performed by adjusters

A

Which of the following terms best describes a day trader? a. Speculator b. Long-term investor c. Money market maker d. Buy and hold mentality e. Illegal gambler

A

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 a. add-on method b. double declining method c. discount method d. simple interest method e. past-due balance method

A

An unmarried investor with few responsibilities should be able to accept ____ better than two people who are married with young children. a. return b. risk c. maturity d. diversification e. balance

B

Commercial banks generally charge lower interest rates than other lending institutions because a. they make shorter term loans b. they usually take only the best credit risks c. depositors require lower rates d. they get their funds in the open credit market e. they make secured loans only

B

Home equity loans are similar to other installment loans except a. interest rates are generally higher b. the interest paid is generally tax deductible c. no home equity is required d. they are typically unsecured debts e. a and c

B

If you withdraw funds from a pension plan before age 59 1/2, you will have to pay a ____ federal income tax a. 5% b. 10% c. 15% d. 20% e. 25%

B

In order to qualify for disability insurance under social security, a person must be a. unable to carry out the duties of the current job b. unable to carry out the duties of any job c. ill for at least two years d. willing to undergo rehabilitation e. none of these

B

Janie Long has checking and savings accounts in a federally insured financial institution. The maximum amount of her insurance coverage is a. $50,000 per account b. $250,000 c. $100,000 per account d. $200,000 e. $200,000 per account

B

Most people do not need protection against a. the loss of income because of time spent away from work b. a specific dread disease c. medical and rehabilitation expenses d. nursing home costs e. in hospital services

B

Risk and return are _______________ related a. inversely b. directly c. slightly d. oppositely e. none of the above

B

Term life insurance is characterized by a. level annual premiums throughout life b. premium amounts related to age c. inappropriateness for most person's life insurance needs d. con-convertibility e. cash value

B

The annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12% is a. 10% b. 12% c. 15% d. 18% e. 24%

B

The basic purpose of insurance is to a. protect your health b. protect you from losses c. supplement your income d. shield you from bad decisions e. none of these

B

Which of the following is NOT a component of the Four Square Model for car buying? a. Price b. APR c. Monthly payment d. Trade-in e. Down payment

B

Which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare? a. Medicare b. Medicaid c. Blue Cross/Blue Shield d. Social Security disability benefits e. worker's compensation

B

____ is a common provision in many term policies a. a reward clause b. a renewable clause c. cash value d. a limited clause e. an arbitration clause

B

A ______ would be most likely to have to pay estimated taxes. a. school teacher b. manager for a major industrial firm c. self-employed plumber d. union worker e. corporate attorney

C

A money factor of 0.00280 on a lease is equivalent to an annual percentage rate of a. 2.80 b. 3.60 c. 6.72 d. 8.64 e. 10.80

C

Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as in accrues, if Bob dies before the debt is repaid his beneficiary will receive a. $275,000 b. $250,000 c. $225,000 d. $25,000 e. Taxable income

C

If you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be (Use time value tables or financial calculator) a. $104.08 b. $108.00 c. $108.16 d. $112.12 e. none of these

C

Insurance is a tool that can lessen ____ risk. a. social b. mental c. economic d. accident e. exposure

C

Minimum distributions are NOT required from a. 401(k) plans b. Traditional IRAs c. Roth IRAs d. SEP plans e. Keogh plans

C

The ____ is really a second mortgage on your home. a. affinity card b. unsecured personal credit line c. home equity line of credit d. preferred Visa card e. platinum American Express card

C

The majority of loans made by savings and loan associations are ____ loans. a. home improvement b. auto c. mortgage d. education e. consolidation

C

The medicare coinsurance payment is usually a. 0% b. 10% c. 20% d. 50% e. none of the above

C

The two ways to buy annuities are single premium and a. multi-premium b. future premium c. installment premium d. guaranteed premium e. lateral premium

C

What is the name of the speaker from our class on Wednesday, October 23rd and what was his field of study? a. Douglas Girod b. Chris Anderson c. Kissan Joseph d. Sanjay Mishra

C

Which of the following are legal methods of reducing your current tax liability? a. not reporting taxable income you receive b. claiming more dependents than you have c. shifting income to your children d. writing off deductions above the actual amount(s) spent

C

Which of the following terms describes when a 12 oz can of tuna fish is 3 times the price of a 6 oz can of tuna fish? a. Quantity discount b. Discount surplus c. Quantity surcharge d. Excess surplus

C