EXAM #1 Asnwers

Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly and on time. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500 and a $30 fee. That fee is most likely the result of a. an over-the-limit fee b. transaction fees on purchases c. a late payment d. interest charges e. his annual fee

a. an over-the-limit fee

Henry is married to Lillian, and they have dependent children. Henry can legally file using which of the following filing status? a. married filing jointly b. head of household c. single d. qualifying widow e. any of the above

a. married filing jointly

William uses his bank credit card frequently; however, he always pays off the total balance on the card each month. What should William look for in a credit card given the way he uses a credit card? a. no annual fee and long grace period b. no annual fee and short grace period c. high annual fee and low interest rate d. low annual fee and short grace period e. low annual fee an dlow interest rate

a. no annual fee and long grace period

a credit card can provide an interest-free loan if you a. pay the entire balance due on or before the due date b. pay the previous balance by the due date c. receive a cash advance d. pay the minimum payment e. pay for the purchases within six months

a. pay the entire balance due on or before the due date

your average tax rate is your a. tax liability divided by taxable income b. adjusted gross income divided by tax liability c. adjusted gross income divided by tax withheld d. taxable income divided by tax withheld e. gross income divided by tax refund

a. tax liability divided by taxable income

A PITI payment is composed of principal, interest, real estate taxes, and insurance (t/f)

true

ATM transactions require the use of a PIN

true

a 5% down payment will result in larger monthly mortgage payments than a 10% down payment on the same house for the same maturity mortgage (t/f)

true

a credit limit refers to the maximum amount the cardholder can owe the issuer at any point in time (t/f)

true

a lender will generally require mortgage insurance if the down payment is less than 20% (t/f)

true

as a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property (t/f)

true

being late on credit payments only 2-3 times per year pay label you a "late payer" in your credit file (t/f)

true

capitalized cost on an auto lease is the same amount of the price that is being financed (t/f)

true

a money factor of 0.00360 on a lease is equivalent to an annual percentage rate of a. 1.80 b. 8.64 c. 3.60 d. 10.80 e. 4.32

b. 8.64

at the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. you have a _____ lease a. a purchase option b. a closed-end c. a residual d. an open-end e. none of these

b. a closed-end

interest will almost always begin to accrue immediately when you use a bank credit card to a. make purchases b. get cash advances c. send payments d. compute finance charges e. all of these

b. get cash advances

______ and _______ are often paid as part of one's house payment and held in an escrow account a. insurance; utilities b. insurance; real estate taxes c. utilities; real estate taxes d. closing costs; interest e. principal; interest

b. insurance; real estate taxes

the quality of your credit rating is maintained by a. using multiple credit cards b. meeting credit obligations as contracts require c. making credit payments early d. only using cash to make purchases e. seldom questioning billing errors

b. meeting credit obligations as contracts require

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

b. money factor

Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and jack (age 68) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay? a. Jack will pay less Social Security taxes because he is single b. They will pay the same amount of Social Security taxes c. Jack will pay less Social Security taxes because he is over age 65 d. Ben will pay less Social Security taxes because he has children e. Ben will pay less Social Security taxes because he is married

b. they will pay the same amount of Social Security taxes

Russ and Lois have a home valued at $96,000 and an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of market value, how much could they borrow using a home equity loan? a. $27,000 b. $36,000 c. $12,000 d. $0 e. $28,000

c. $12,000

Theresa invested $5,000 in an account she expects will earn 8% annually. Approximately how many years will it take for the account to double in value a. 11 b. 8 c. 9 d. 10 e. 12

c. 9

Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying things. Which of the following cards would keep her out of debt? a. rebate b. credit c. prestige d. affinity e. debit

e. debit

______ income is subject to federal taxes a. adjusted gross b. take-home c. taxable d. gross e. net

c. taxable

if you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be a. $112.12 b. $108.00 c. $104.08 d. $108.16 e. none of these

d. $108.16

Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle? a. $5,000 b. $10,800 c. $25,000 d. $20,000 e. $15,000

d. $20,000

a lump sum deposit of $8,000 left in the bank for 12 years at 9% compounded annually will result in an ending balance of a. $96,000 b. $11,600 c. $16,640 d. $22,480 e. $52,938

d. $22,480

your income tax withholding is dependent on a. deductions and age b. income level and deductions c. number of withholding allowances and deductions d. income level and number of withholding allowances e. number of withholding allowances and dependents

d. income level and number of withholding allowances

Ann Marie accumulated a large balance on her credit card while in college. She is trying to get it paid off as quickly as possible and wants to roll the balance onto a new credit card. She now uses a credit card only for emergencies. What should Ann Marie look for in a credit card given the large balance and the way she plans to use the card? a. average daily balance method excluding purchases b. two-cycle average daily balance method c. long grace period d. low APR e. low annual fee

d. low APR

the federal income tax is a. flat rate b. integrative c. regressive d. progressive e. none of the above

d. progressive

a problem with home equity loans is the a. high rate of interest on these loans b. difficulty in qualifying for these loans c. short-term nature of these loans d. temptation to spread payments over a long term e. tax disadvantages of these loans

d. temptation to spread payments over a long term

a real estate sales contract will include a. the terms of the mortgage loan b. deed restrictions c. market value of the property d. the amount you are willing to pay for the property e. none of the above

d. the amount you are willing to pay for the property

Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth today? a. $106,000 b. $100,000 c. $135,603 d. $130,000 e. $133,823

e. $133,823

Sandy wants to go on a trip in 10 years. If she invests $1,000 per year at the end of each year for 10 years at a 12% interest rate, she will accumulate ____ to spend on her trip a $12,130 b. $15,105 c. $16,710 d. $10,610 e. $17,549

e. $17,549

borderline credit risks would most likely receive a. credit only as applied for b. credit only in emergency situations c. a negative credit rating d. delayed reconsideration for the credit application e. a limited line of credit

e. a limited line of credit

______ would be an indication of overspending a. all of your credit cards are charged up to their limits b. collection agencies are calling you frequently c. your checks are bouncing d. you have no cash reserves and most borrow for incidentals e. all of the above

e. all of the above

appropriate reasons to use a credit include for a investments b. durable expenses c. convenience d. emergencies e. all of the above

e. all of the above

______ is a benefit of borrowing a. the ability to buy expensive goods while spreading the payments over time b. being able to purchase goods and services when checks are not acceptable c. providing payments that fit into a budget d. having a permanent record of transactions e. all of these are benefits

e. all of these are benefits

______ is a reason for owning a home a. pride of ownership b. a feeling of permanence c. a sense of stability d. a tax shelter e. all of these are reasons

e. all of these are reasons

all assets are recorded on the balance sheet at their original cost (t/f)

false

always paying cash is helpful in establishing a high level of creditworthiness (t/f)

false

it is safe, and often required, to give your social security number as a form of identification when using a credit card (t/f)

false

most states generate the majority of their revenues from property taxes (t/f)

false

paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly (t/f)

false

security deposits are controlled by the tenant (t/f)

false

the federal personal income tax is a flat tax (t/f)

false

you can stop payment when you purchase an item with your debit card (t/f)

false

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)

true

gasoline is a variable cost of automobile ownership (t/f)

true

having a checking account tells a creditor that you have some experience managing your own funds (t/f)

true

having arranged and fully repaid a small loan should help improve creditworthiness (t/f)

true

low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement (t/f)

true

money market deposit accounts are insured by the FDIC if purchased at an insured bank (t/f)

true

mortgage interest and paid home property taxes are both itemized deduction items (t/f)

true

one can be overusing credit even though he can afford to make minimum monthly payments on time (t/f)

true

one could expect to earn a higher rate of interest on a certificate of deposit than a checking account (t/f)

true

one who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents (t/f)

true

the difference between the market value of your home and the balance of the mortgage is your equity in the property (t/f)

true

the market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000 (t/f)

true

the money factor on an auto lease is similar to the interest rate on a loan (t/f)

true

the purpose of a credit report is to evaluate the kind of risk you pose to the lender (t/f)

true

townhome, condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes (t/f)

true