Fin 101 Exam 1 Lecture quiz 1-4, HW quiz 1-6

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

False

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

False

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

False

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

True

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

True

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

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

True

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

True

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

True

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

True

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- money factor

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

a- tax liability

A chattel mortgage is an instrument that gives lenders title to movable personal property in the event of default. a. True b. False

a- true

A credit card application requests information that is routinely used to predict creditworthiness. a. True b. False

a- true

Arranging for and fully repaying a small loan helps improve creditworthiness. a. True b. False

a- true

Compound interest means that a savings account earns interest on the interest previously earned. a. True b. False

a- true

Paying a loan on schedule is one way to build a good credit history. a. True b. False

a- true

Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans. a. True b. False

a- true

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases. a. True b. False

a- true

The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender. a. True b. False

a- true

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding for a given nominal interest rate. a. True b. False

a- true

Which of the following statements regarding a consumer loan is true? a. A consumer loan is used to finance the purchase of very expensive items. b. A consumer loan provides credit cards and checks to the consumers. c. A consumer loan is used chiefly to make repeated purchases of relatively low-cost goods and services. d. A consumer loan results from a rather informal process and involves no negotiated contracts. e. A consumer loan provides revolving credit to the consumers.

a. A consumer loan is used to finance the purchase of very expensive items.

Tax avoidance is legal, whereas tax evasion is illegal. a. True b. False

a. True

When an individual gives his or her child an income-producing asset, he or she is: a. shifting his or her income. b. deferring his or her tax. c. executing his or her will. d. reducing his or her taxes by using technology. e. maximizing his or her deductions.

a. shifting his or her income.

With a bank credit card, you can often avoid interest charges if: a. the account balance is paid in full every month. b. at least half the account balance is paid every month. c. the account is a revolving credit account. d. the account balance is below the credit limit. e. the minimum payment is made every month.

a. the account balance is paid in full every month.

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

true

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

A = P(1+r/2)^(2) A = 100(1+0.04)^2 = 100*(1.04)^2 = 108.16$ c- $108.16

Keeping valuables in a safe-deposit box may reduce your homeowner's insurance premium by eliminating the "riders" that are often needed to cover such items. a. True b. False

A- True

Knowing how to prepare and interpret personal financial statements is a cornerstone of personal financial planning. a. True b. False

A- True

Lowballing 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. a. True b. False

A- True

An individual is said to have a balanced budget when his or her total income for the year equals or exceeds his or her total expenditures for the year. a. True b. False

A-True

Budgeting and record keeping are the same. a. True b. False

B- False

If your debt safety ratio works out to 10%, you are relying too heavily on credit. a. True b. False

B- False

In a co-op, the buyer receives title to a unit and joint ownership of the common areas. a. True b. False

B- False

The add-on method is less expensive than the simple interest method when the stated rates of interest are identical. a. True b. False

B- False

The best way to balance your annual budget is to increase borrowing to cover shortages. a. True b. False

B- False

The preparation of an income and expense statement is the first step in the personal financial planning process. a. True b. False

B- False

Extremely low interest rates favor investors and boost the incentive to save. a. True b. False

B- false

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

False

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

False

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

False

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

False

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

True

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

True

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

True

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

True

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

True

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

True

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

True

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

True

Jamie Long has a 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- $250,000

Always paying cash helps in establishing a high level of creditworthiness. a. True b. False

b- false

Cash is the only kind of liquid asset. a. True b. False

b- false

Home equity loans are similar to home equity credit lines because they are also not secured with any collateral. a. True b. False

b- false

Nondepository institutions are referred to as banks. a. True b. False

b- false

The Federal Deposit Insurance Corporation (FDIC) covers consumer accounts at credit unions. a. True b. False

b- false

Which of the following statements regarding an individual's income and expense statement is true? a. An income and expense statement describes your financial position at a given point in time. b. An income and expense statement measures your financial performance over a period of time. c. An income and expense statement can be used to predict inflation and interest rates. d. An income and expense statement looks forward in time to control spending. e. An income and expense statement identifies your financial goals.

b. An income and expense statement measures your financial performance over a period of time.

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early: a. if the loan is prepaid 3 months before the loan maturity. b. if the loan is not repaid before the loan maturity date. c. if the lender wants to recover part of the full interest that would have been earned. d. if the loan is repaid before the first payment is due. e. if the borrower has defaulted on any monthly payment.

c. if the lender wants to recover part of the full interest that would have been earned.

Which of the following statements regarding tax credits is true? a. They are deductions that depend on the taxpayer's filing status, age, and vision and that can be claimed by a taxpayer whose total itemized deductions are small. b. They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due. c. They are personal expenditures that can be deducted from adjusted gross income when determining taxable income. d. They represent the income remaining after subtracting all allowable adjustments to income from the gross income. e. They are deductions from the adjusted gross income based on the number of persons supported by the taxpayer's incom

b. They are deductions from a taxpayer's tax liability that directly reduce the person's taxes due.

A budget helps in: a. determining the value of assets. b. monitoring and controlling spending. c. setting financial goals. d. giving feedback on how close you are to reaching your long-term financial goals. e. calculating discounted cash flows.

b. monitoring and controlling spending.

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when: a. fuel costs have been higher than expected. b. the mileage limits are exceeded. c. the company upgrades the automobile. d. the residual value is more than expected. e. the driver does not have automobile insurance.

b. the mileage limits are exceeded.

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

c- 6.72

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- home equity line of credit

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- self employed plumber

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 amounts spent

c- shifting income to your children

Which of the following will lead to a poor credit rating? a. Opening and using a charge account b. Discussing with the lender if you foresee difficulty in making a payment c. Applying for a long-term loan and occasionally being late with a payment d. Making payments ahead of schedule e. Opening checking and savings accounts

c. Applying for a long-term loan and occasionally being late with a payment

Funds in commercial banks are protected by the: a. National Credit Union Administration (NCUA). b. Savings Association Insurance Fund (SAIF). c. Federal Deposit Insurance Corporation (FDIC). d. Federal Depositors Assurance Corporation (FDAC). e. National Credit Union Share Insurance Fund (NCUSIF).

c. Federal Deposit Insurance Corporation (FDIC).

Which of the following statements regarding a budget is true? a. It identifies your assets and liabilities. b. It shows the computation of the interest on a loan. c. It is a detailed financial report that looks forward. d. It is a list of prepaid expenses. e. It is a schedule of personal investments.

c. It is a detailed financial report that looks forward.

Which of the following is an interest-bearing checking account? a. Treasury bill b. Series EE U.S. savings bond c. Negotiable order of withdrawal (NOW) account d. Certificate of deposit e. Regular checking account

c. Negotiable order of withdrawal (NOW) account

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called: a. a contingency auction. b. diversification. c. prequalification. d. a real estate short sale. e. foreclosure.

c. prequalification.

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- $11,580

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- $500

Which of the following would be best suited 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 canidates because the cost of Internet banking is lower than other types of banks

d- Fred Longoria, a man who uses checking and savings but never goes to his bank

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

d- b and c

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- effective rate

Which of the following statements regarding loan collateral is true? a. Loans secured by collateral always have higher finance charges than unsecured loans. b. Loans are secured by collateral that is readily marketable at a price high enough to cover the interest portion of the loan. c. Collateral is an item of value used to secure the interest portion of a loan. d. Collateral is an item of value used to secure the principal portion of a loan. e. Collateral is always required by banks to lend to customers with good credit ratings.

d. Collateral is an item of value used to secure the principal portion of a loan.

Payments under the provisions of the Federal Insurance Contributions Act (FICA) are also known as: a. marginal tax. b. income tax. c. property tax. d. Social Security tax. e. capital gains tax.

d. Social Security tax.

When the simple interest method is used to determine finance charges, the interest is calculated based on the: a. future value of the installments. b. average outstanding balance. c. future value of all finance charges. d. actual balance of the loan. e. present value of all finance charges.

d. actual balance of the loan.

A payment made using a(n) _____ is equivalent to paying by cash. a. reward card b. student credit card c. affinity card d. debit card e. retail credit card

d. debit card

A balance sheet describes your: a. financial performance at a given point in time. b. financial goals over a specific period of time. c. financial performance over a period of time. d. financial position at a given point in time. e. financial plans over a period of time.

d. financial position at a given point in time.

If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n): a. rollover mortgage. b. graduated-payment mortgage. c. adjustable-rate mortgage. d. fixed-rate mortgage. e. reverse-annuity mortgage.

d. fixed-rate mortgage.

Variable auto ownership costs are dependent on the: a. installment payments on a car loan. b. periodic renewals of vehicle registration. c. down payment. d. driver's behavior. e. miles covered by the automobile.

e. miles covered by the automobile.

The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n): a. growing equity. b. fixed interest expense. c. shrinking principal. d. negative amortization. e. indexed equity.

d. negative amortization.

Commercial banks are able to charge lower interest rates than other lending institutions because: a. they make only secured loans. b. they make shorter-term loans. c. they get their funds from the money market. d. they usually take only the best credit risks. e. their depositors require higher rates.

d. they usually take only the best credit risks.

Sheldon has a home valued at $1108,000 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- $16,400

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

e- depreciation

Which of the following statements regarding budgets is true? a. Budgets are meant for poor people only. b. Budgets need software to be effective. c. Budgets do not need to be revised. d. Budgets provide long-term financial forecasts. e. Budgets are forward looking.

e. Budgets are forward looking.

Which of the following is the correct formula for calculating the debt safety ratio? a. Monthly Take-Home Pay ÷ Total Monthly Consumer Credit Payments b. Gross Monthly Pay ÷ Total Monthly Consumer Credit Payments c. Gross Monthly Pay ÷ Monthly Take-Home Pay d. Total Monthly Consumer Credit Payments ÷ Gross Monthly Pay e. Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay

e. Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay

Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n): a. indexed equity. b. real estate declining equity. c. shrinking principal sale. d. fixed mortgage sale. e. real estate short sale.

e. real estate short sale.