FIN 101 Test 1

Using the maximum ratios for a convectional mortgage, how big a monthly payment could Taylors family afford if their gross (before tax) monthly income amounted to $4500?

0.30*$4500 = $1350

An estate plan would be least likely to need revision when a. people moved from one state to another. b. a son graduated from college. c. a spouse became disabled. d. the tax laws changed. e. a child was born.

B

Annual percentage rate is equivalent to a. add-on method. b. simple interest method. c. dollar cost of credit method. d. discount method. e. average loan balance method.

B

Ben's health coverage charges a low ($15) deductible each time he visits the doctor or hospital. Other than the low per-service deductible, there is very little cost sharing. However, Ben must go to the health care providers listed by the provider of the health coverage. If he goes to a provider that is not on the list, there is very little coverage. Which of the following types of entity most likely provides Abe's health coverage? a. commercial insurer (major medical) b. HMO c. PPO d. fee-for-service indemnity plan e. Blue Cross/Blue Shield association

B

Generally speaking, variable rate loans are desirable if interest rates are expected to increase over the course of the loan.

false

Hospital expense coverage is adequate for long-term or catastrophic medical needs of most people.

false

Marginal tax and average tax rate refer to the same thing.

false

Money I loaned to a friend is a liability on my balance sheet.

false

Money loaned to a friend is a liability?

false

The balance sheet equation is assets plus liabilities equals net worth.

false

The equity in your home is the difference between the loan balance and the purchase price.

false

The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.

false

The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.

false

The personal exemption for a student can be taken both by the parent and by the child.

false

The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance.

false

When you are hospitalized for surgical care, surgical expense coverage will pay the hospital bill.

false

You can stop payment when you purchase an item with your debit card.

false

household expenses usually increase after retirement

false

the money you put into a Roth IRA is deductible from your taxable income in the year contributed

false

Balance sheet equation is assets plus liability = net worth

false,

Interest Earned depends on?

frequency, balance, interest

the biggest unknown factor that retirees have when estimating their retirement needs and income is

inflation

a testator can revoke a will in the following ways

making a later will that will revoke prior wills, making a codicil that revokes prior wills, burning the will

income and expense statement

measure of your financial performance

writing s valid will does not require

mentally competent heirs

Open ended lease

payment based on cars residual value, upon return pay difference if cars worth is less

Trust Services

provide investment and real estate planning advice

Electronic funds transfer act of 1978

regulates EFTS services, errors must be reported within 60 days

the major mistakes people make in retirement planning are

saving too little

major sources of retirement income include

social security, annuities, individual savings plans, employee retirement and pension plans

requirements for a valid will do not include

the will must be drawn up by an attorney

A 5 percent down payment will result in larger monthly mortgage payments than a 10 percent down payment on the same house for the same maturity mortgage.

true

A certified check is a personal check that the bank guarantees the funds are available.

true

A charge made on your credit card becomes a liability as soon as the charge is incurred.

true

A closed-end automobile lease is the most popular type of lease.

true

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

true

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

true

A vested employee has a right to receive benefits from an employer's retirement funds even if he no longer works there.

true

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

true

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

true

Credit union members are expected to have some common bond.

true

Debit and ATM card transactions are linked to your checking account.

true

Debit cards look like credit cards, but they work like checks.

true

Group health insurance premiums are usually lower than individual health insurance premiums.

true

Having an accurate current income and expenditures statement would be very useful when calculating retirement needs.

true

If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.

true

In insurance terminology, "participation" and "coinsurance" mean the same thing.

true

It is extremely wise to contribute at least as much to a 401(k) plan as one's employer will match.

true

Joint checking accounts typically imply the right of survivorship if one party should die.

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.

true

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

true

Mortgage interest and paid home property taxes are both itemized deduction items.

true

One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents.

true

Social security is meant to be a retirement income supplement.

true

State income taxes and real estate taxes are both itemized deduction items.

true

The Federal personal income tax is a progressive tax

true

The amount accumulated in a defined contribution plan will be determined, at least in part, by the investment performance of the retirement funds.

true

The difference between the market value of your home and the balance of the mortgage is your equity in the property.

true

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

true

You should itemize deductions when total itemized deductions exceed the standard deduction.

true

Your savings will grow faster with monthly interest compounding than with quarterly interest compounding.

true

charge on your credit card becomes a liability when the charge is incurred?

true

employees who have 401K plans also have to decide how to invest the funds in their plan

true

in short-term retirement planning you estimate the required level of retirement income as a percentage of current income, fund that amount, and then adjust that number every 3 to 5 years

true

self-employed workers pay twice as much for social security coverage compared to employed workers

true

starting later in life and being too conservative when investing are both common retirement planning mistakes

true

supplemental retirement plans are usually voluntary

true

the two most common sources of retirement income for most people are social security and pensions

true

Revolving credit lines are often accessed by writing checks.

true? quiz was F

Equity

value of house, value of loan, difference of the two is the house equity house-loan

Closed end lease

walk away from car when lease is over knowing how much it will cost in the end

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities? a. $142,200 b. $167,200 c. $165,000 d. $115,000 e. $140,000

D

The probate estate consists of a. real property b. personal property c. regulated by interstate laws if you have no valid will d. all of the above e. none of the above

D

Which of the following are requirements of a valid will a. freedom of choice b. proper execution c. mental capacity d. all of the above e. none of the above

D

The market price of a house is $125000 and the homebuyer will borrow $100000. Two points will equal $2500.

False

A balance sheet shows your financial condition as of the time the statement is prepared.

True

Using the maximum ratios for a convectional mortgage, how big a monthly payment could Taylors family afford if their gross (before tax) monthly income amounted to $4500. They are also making a monthly instalment loan payment totaling $550 on two car loans. The max mortgage payment they could make would be?

0.38*(4500-550) = $1160

a 3000 annual contribution to a retirement account earning 6% will be worth --- in 20 years

110340

in the year 2027 a person will have to be --- to be able to retire with full social benefits

67

One can maximize the monthly social security benefit amount by delaying taking retirement benefits until age

70

gordon and lisa estimate that they will need 1875000 in 40 years for their retirement years. If they can earn 8% annually on their funds, how much do they need to save annually?

7238

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. They will pay the same amount of Social Security taxes. b. Ben will pay less Social Security taxes because he is married. c. Jack will pay less Social Security taxes because he is single. d. Jack will pay less Social Security taxes because he is over age 65. e. Ben will pay less Social Security taxes because he has children.

A

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

A

In the absence of a valid will, the heir most generally favored would be the a. spouse. b. grandchildren. c. parents. d. children. e. All of these are treated as equals.

A

Interest rates on ____ are typically lower than on any other form of consumer credit. a. home equity loans b. credit cards c. debit cards d. unsecured personal credit e. travel and entertainment cards

A

Jana has $1500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 6%, y year loan, what is the maximum loan amount Jana can afford? Payments made monthly. a. $6768 b. $3765 c. $7630 d. $6802

A

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

A

You are solvent if your a. total assets exceed total liabilities. b. total liabilities exceed net worth. c. total liabilities exceed total assets. d. total assets exceed net worth. e. none of these.

A

Balance sheet assets and liabilities examples

Assets- fair market, value of assets liabilities- loans, net worth, equity portion

All of the following are useful ways to build a strong credit rating except a. Make payments on time. b. Apply for a long-term loan and occasionally be late with a payment. c. Talk with the lender if you foresee difficulty in making a payment. d. Open checking and savings accounts. e. Open and use a charge account.

B

Suppose a person has a health insurance policy with a $500 calendar year deductible, a $2,000 out-of-pocket cap, and an 80% coinsurance provision. If this person suffers a $600 covered loss, how much will the insurance company pay? (Assume no previous losses have occurred.) a. $100 b. $ 80 c. $600 d. $480 e. some other amount

B

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

B

The income statement is specific to a. last year. b. a specific period of time. c. one point in time. d. next year. e. none of these.

B

You would typically not include ____ in your gross income. a. interest and dividends b. life insurance death benefit payments c. gambling winnings d. pension income e. wages and salaries

B

Your investment advisor wants you to purchase an annuity that will pay you $25000 per year for 10 years. If you require a 7% return, what is the most you should pay for this investment? a. $201000 b. $175590 c. $225682 d. $250000

B

A characteristic of dental insurance is a. lack of orthodontic coverage. b. high deductible limits. c. low maximum limits. d. high cost. e. dentist financing.

C

A legal claim that allows creditors to liquidate loan collateral is a a. loan. b. note. c. lien. d. security claim. e. none of these.

C

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

C

Michael and sandy purchase a home for $100000 five years ago. If it appreciated 6% annually that is it worth today? a. $106000 b. $130000 c. 133823 d. 135.603

C

Nick has a comprehensive health care policy with a $250 per calendar year deductible and 80%-20% with a maximum $1,000 copayment cap per calendar year. In January, Nick had a $600 claim which the insurance company paid $280. Nick experiences another unrelated claim in October resulting in total bills of $5,000. How much will Nick have to pay for the second claim? a. $3,930. b. $1,800. c. $5,000. d. $ 930. e. none of the above.

C

The federal government gets the majority of its revenue from the ____ tax. a. property b. sales c. income d. excise e. estate

C

The person who writes a will is called the a. grantor. b. probater. c. testator. d. estate planner. e. attorney.

C

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

C

For tax purposes, head-of-household refers to a. the person with the larger income when a couple is filing a joint return. b. the spouse who has the only income for a couple filing a joint return. c. a single individual who owns a home. d. a single individual with dependents. e. a widow(er) with no dependents but with debts from death of spouse three years earlier.

D

Jamie invested $9500 in an account he expects will earn 5% annually. Approximatly how many years will it take for the account to double in value? a. 8.8 b. 9.7 c. 11.4 d. 14.4

D

Depository vs Non-Depository

Depos- bank, loans, credit union Non- mutual funds, stock broker firm, life insurance

-Car MRSP of $32000 Negotiate to $30000 dealers fees and extended warranties $750 +$2000 trade in $3200 -Lease amount or Capitalized cost (sum) $26550 residual $16000 3 year lease lease factor 0.00292

Depreciation = $26550-$16000 = $10550 rent/finance charge = (26550+16000)*.00292*36 month = $4472.86 (10550+4472.86)/36 mon = $417/monthT

A budget is a a. line of credit. b. financial statement. c. set of personal financial objectives. d. purchase plan. e. detailed financial forecast

E

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

E

A loan from the cash value of your life insurance policy would be characterized by a. increased premiums. b. unchanged death benefits available to beneficiaries. c. increased death benefits to beneficiaries. d. annual percentage rates higher than other sources. e. no specific repayment date.

E

As a percent of take-home pay, monthly consumer credit payments should not exceed a. 5%. b. 25%. c. 15%. d. 10%. e. 20%.

E

Before taking out students loans, all the following should be considered except a. personal resources b. grants c. federal student aid d. scholarships e. all of the above

E

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

E

Budgets are a. unnecessary. b. restrictive. c. permanent. d. complicated. e. are forward looking

E

Rebate card work best for those who use the rebates and a. charge large amounts on the card. b. pay the total card balance off monthly. c. carry high monthly balances. d. travel internationally. e. a and b.

E

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 short grace period b. Low annual fee and short grace period c. High annual fee and low interest rate d. Low annual fee and low interest rate e. No annual fee and long grace period

E

Workers' compensation is a state program that provides benefits for a. unemployed workers. b. workers suffering injury or illness on the job. c. any injury suffered by a worker at any time. d. injuries resulting from employer's negligence. e. only b and d.

E

Semi Annual Compound Equation

FV = P(1+i)^n normal FV = P(1+ (i/2))^2n semi more frequent you compound, more money P = present value

You are able to invest $100 for 3 years at 4% and continue to invest at 5% thereafter. How much are you gonna have at the end of 5 years?

FV(1) = 1.12486 FV(2) = 1.1025 (100*FV(1))*FV(2)

Annuity

a series of equal payments made at fixed time intervals for a specified number of periods

Comprehensive major medical simply increases the policy limits of major medical insurance without changing the coverage.

false

Generally speaking, the interest rates on credit cards are lower than any other form of credit.

false

Liquid assets

cash, checking account, savings account, money market deposit

Reconcilation

checkbook balance doesn't always balance out

funds to finance social security come from

compulsory contributions from the employee, the employer, and the self-employed.

Asset management accounts are offered by most banks and are typically FDIC insured.

false

By itself, Social Security is sufficient to allow a worker and spouse to maintain their preretirement standard of living.

false