FIN 200 exam 1
Alex just purchased a new car. He traded in his old car to the dealership for $2,000 and used that as a down payment on the new car. If the new car costs $15,500 and he can get a 7-yr loan with a 4% annual interest rate, what will Alex's monthly payment be?
$184.53
If Jack has cash outflows of $1,000 and cash inflows of $1,200 each month, he can increase his net worth by how much each month?
$200
Jill recieves $1,000 in salary and a $100 dividend from investments each month. Jill also pays $300 in rent and utilities, $200 on groceries, and $300 on a car payment and insurance each month. What is Jill's net cash flow each month assuming all inflows and outflows remain constant?
$300
What is the future value of a $5,000 annuity that will be invested for 10 years at an interest rate of 2% when the FVIFA is 8.983?
$44,915
Jose just got his first full-time job and is trying to figure out his gross income in order to file his taxes. If Jose had $50,000 in salary, $8,000 in tips, and $200 in dividend income for the year, how much is his gross income?
$58,200
Components of a Financial Plan:
1. Budgeting and tax planning 2. Managing your liquidity 3. Financing your large purchases 4. Protecting your assets and income (insurance) 5. Investing your money 6. Planning your retirement and estate
What is the future value interest factor for an investment of $1,000 dollars today if the interest rate on the investment is 5% and you plan to compound the investment for 5 years?
1.276
For a conventional mortgage, what does the book suggest as the right amount for a down payment on a house?
10% - 20% of the home's selling price
Which of the following is the best definition of a budget?
A cash flow statement that is based on forecasted cash flows for a future time period
Which of the following options is a sign of fraud when dealing with creditors?
A credit union that guarantees you a loan even before you submit an application
What is the difference between an adjustable rate mortgage and a fixed rate mortgage?
A fixed interest rate specifies a rate that will be constant throughout the life of the mortgage while an adjustable interest rate specifies a rate that changes in response to movements in a specific market-determined interest rate
What is medicare?
A government health program that covers people aged 65 or older by making payments to their healthcare provider
The book mentions all of the following features of a debt consolidation loan except?
A guaranteed improved credit score because now you only have one loan as opposed to many
Which of the following is considered an annuity due?
A student loan that you will begin making payments on today
What is/are necessary in order to calculate the future value of a lump sum that you deposit today? Check all that apply A. The amount of the deposit B. The interest rate to be earned on your deposit C. The name of the bank in which you desposit the lump sum D. The number of years the money will be invested
A, B, D
A personal cash flow statement measures all of the following except: A. Net worth B. Cash inflows C. Cash outflows D. A personal cash flow statement measures all of the above
A. Net Worth
What is the difference between a secured and an unsecured loan?
An unsecured loan is not backed by collateral whereas a secured loan is backed by collateral
By what date each year do you have to file your taxes?
April 15th
What are "liquid assets"?
Assets that can easily be bought or sold without losing value
On the purchase of a home, one "point" is equal to
C) 1% of the amount being financed.
Which of the following is an itemized deduction?
Charitable donations tax credit
In comparing credit cards to other forms of credit, which of the following is true?
Credit cards are frequently an individual's most expensive form of credit.
Which of the following is not correct about cash advances? A) There is no grace period for cash advances. B) The interest rate for cash advances is higher than for purchases. C) A cash advance is like a loan. D) A minimum transaction fee of 5% is charged.
D
What does the book discuss as causes behind the housing crisis and resulting financial crisis in the US in 07' - 08'? A. Relatively good economic condidtions beforehand that led to a boom in homebuilding B. Lenders' aggresive attempts to find buyers for these new homes C. The issuance of subprime mortgages D. All of the above are causes of the housing crisis that the book discusses
D. All of the above are causes of the housing crisis that the book discusses
Which of the following is a tip that the book reccomends for using credit cards? A. Impose a tighter credit card limit B. Pay credit card bills before investing money C. Reduce the credit limit when the economy weakens D. All of the above are suggestions the book recommends for using credit cards
D. All of the above are suggestions the book recommends for using credit cards
As the time period until receipt of an amount of money increases, the present value of the amount at a fixed interest rate
Decreases
Taxpayers owe taxes on all earned and uneaned income. Which of the following is an example of unearned income
Dividends from investments
Which of the following will affect cash outflows? A. Personal consumption behavior B. Size of family C. Education Level D. Age E. All of the above will affect cash outflows
E. All of the above will affect cash outflows
Which of the following is not a method by which financial institutions calculate finance charges on credit cards?
Ending balance method
FVIF
FV/PV
T/F: Compounding is the act of finding the present value of a lump sum to be received at some point in the future.
False
T/F: Credit card companies typically offer a grace period in which they chard double interest to customers.
False
T/F: High income always leads to a positive net cash flow
False
T/F: When completing your tax return, you learn that your tax liability for the year is lower than the taxes that were withheld from your paycheck. In this case, you owe money to the federal government come tax season.
False
What is the average daily balance method, used by many to calculate finance charges on outstanding credit card balances?
For each day in the billing period, the credit card company takes the beginning balance at the start of the day and then subtracts any payments made by you on that day to determine the balance at the end of the day
In addition to a credit check, creditors consider all of the following except
Level of education
What kinds of fees does the book mention that are included in closing costs when purchasing a home?
Loan application fee, discount points, loan origination fee, appraisal fee, attorney fees, inspection fees
Student loans, automobile loans, and housing loans are good examples of
Long term liabilities
What price do financial planners recommend as the ideal home price to homebuyers?
No more than 2.5 times the total gross annual household income
Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder?
Previous balance method
Which of the following is a type of card that is issued under the name of a specific retail restablishment?
Retail or proprietary card
Which of the following will increase the monthly payment you will make each month on a loan?
Shorter maturity
FICA
Social Security and Medicare
Which taxes are taken out of your paycheck each week as part of FICA taxes?
Social security & medicare
T/F: A marginal tax bracket is a tax bracket specifying the income range that includes a taxpayer's annual taxable income.
True
T/F: Broadly speaking, a high interest rate generally corresponds with a greater future value.
True
T/F: The college expense credit is a tax credit that can help parents and students pay for college by lowering their taxes.
True
T/F: The interest rate applied to cash advances and convenience checks is usually higher than the interest rate charged on credit extended for specific credit card purchases.
True
T/F: When preparing to pay off a student loan, it is best to make payments as soon as possible and as quickly as possible.
True
T/F: Your net worth can change even if your net cash flows are zero
True
What is a charge card?
Type of card that does not extend credit and requires that the balance be paid in full each month
Which of the following describes a rate that adjusts in response to a specific market interest rate such as a one-year treasury bill rate?
Variable rate
Why would a taxpayer choose to apply the standard deduction rather than itemize their deductions?
Why would a taxpayer choose to apply the standard deduction rather than itemize their deductions?
Personal Cash Flow Statement
a financial statement that measures a person's cash inflows and outflows
liquidity
access to funds to cover any short-term cash deficiencies
adjusted gross income
adjusting your gross income for contributions to individual retirement accounts, interest paid on student loans, and other special circumstances
gross income
all reportable income from any source
annuity due
cash flows are at the BEGINNING of the period
net cash flows
cash inflows - cash outflows
The cash flow statement reports a person's or family's
current income and payments.
current liabilities
debt you will pay off in the near future (within the year)
Budget planning
forecasting future expenses and savings
A personal loan is different from a credit card in all of the following, except it
has a longer grace period.
Over the life of a loan, the payment to principal ________ and the portion to interest expense ________.
increases; decreases
You could reduce the size of your monthly loan payments by
lengthening the maturity of the loan.
Liquidity ratio
liquid assets/current liabilities
Many individuals tend to ________ their cash inflows and ________ their outflows.
overestimate; underestimate
Savings rate
savings during the period/disposable income during the period
bond
securities issued by borrowers to raise funds
stocks
securities representing partial ownership in a firm
mutual funds
sell shares to individuals and invest the proceeds in an overall portfolio of investment instruments such as bonds or stocks
itemized deductions
specific types of expenses that can be deducted to reduce your taxable personal income
Discounting
the process of obtaining present values
Debt-to-asset ratio
total liabilities/total assets
Net worth
value of what you own - value of what you owe
