FIN 3325 Final Exam

To develop financial goals, one should

Identify specific, realistic goals that are measurable along with a time frame and an action plan

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

Income Tax

The inability to pay debts when they are due because liabilities far exceed the value of assets is called

Insolvency

A joint account with Sara and John allows

John and Sara to both write checks on the account.

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

Liquidity

Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?

Liquidity ratio

Which of the following is NOT a benefit of home ownership?

Maintenance and costs of repairs and home improvements

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal tax rate

Discretionary income equals

Money left over after paying for housing, food, and other necessities

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments.

A worker's primary goal should be to

Pay his or her fair share of taxes while taking advantage of appropriate tax benefits

Which of the following are two personal financial statements that you create yourself?

Personal balance sheet and cash flow statement

Sue paid extra money to reduce her mortgage interest rate. That extra money is called

Points

Which of the following would increase the interest rate for a loan?

Poor credit rating

The text identifies several phases in the research-based buying process. The correct order of the phases is

Pre-shopping activities, evaluating alternatives, selection and purchase,post-purchase activities.

Lia wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?

Present value of an annuity

Which of the following expenses is NOT usually incurred by a tenant?

Property taxes

Which of the following intermediate goals is stated most clearly using the SMART approach?

Purchase a home within the next 5 years with a mortgage no greater than $150,000

The expected value of a vehicle at the end of a lease is called the

Residual value.

Zoe signed the back of her check with the words "for deposit only." She used a(n)

Restrictive endorsement.

Which of the following goals would be the easiest to implement and measure?

Save $100 a month to create a $2,400 emergency fund in 2 years

Major factors that affect the affordability of your mortgage include all of the following except

Size of the home.

Taxes on earnings that fund old age, survivor, and disability insurance benefits are called

Social Security Taxes

Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio?

.67

Tim has net monthly income of $4,800. He has a monthly auto loan payment of $350, a student loan payment of $150, a mortgage payment of $1,000, and a credit card minimum payment of $145. What is his debt-payments-to-income ratio?

13.4%

Ted paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate?

13.7%

You have a $ 12,000 48-month 8% car loan. Your total payments over the life of the loan add to

14,062

Tim needed a $12,000 loan for his new car. He took a loan which is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal is being paid every month. Tim borrowed $12,000 for a period of five years at an add-on interest rate of 10 percent. The APR for this loan is

19.67%

Given the following information, calculate the current ratio: Liquid assets = $5,500 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,100 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

2.62

Gal wants to buy a new car. She needs to borrow $ 16,000. The bank offers a rate of 5% for five year loans. How much does she have to pay annually to cancel the loan?

3,696

What is the APY for a one-year $7,500 certificate of deposit with $270 interest?

3.6%

The document that would report your current financial position is the

Balance sheet

The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning.

Borrowing

Suppose you borrow $600 for one year and pay a finance charge of $40. If you repay this loan (principal plus interest) all at once after one year, what is your average balance?

$600

If you begin saving $2,000 a year at 5% (from age 25 to age 44 or 20 years), what will these funds grow to in this time period?

$66,132

Using the following table, calculate the taxes for an individual with taxable income of$45,000. 10% Up to $8,500 15% $8,500-$34,500 25% $34,500-$83,600 28% $83,600-$174,400 33% $174,400-$379,150 35% Over $379,150

$7,375

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit now?

$889

If Sue was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?

$1,000

Jordan earns an annual salary of $45,000. If a lender uses 33% of monthly gross income as a guideline for the maximum PITI (principal, interest, taxes, and insurance), what is the maximum mortgage that Jordan can apply for?

$1,237.50

You have a $300,000 30-year 5% mortgage. Your monthly payment is

$1,610

Sue wants to buy a new car. She can afford to pay $2,400 a year. The bank offers a rate of 5% for five year loans. How much would she be able to borrow from the bank?

$10,391

Eda is completing her federal income taxes for the year and has identified the amounts listed here. How much can she rightfully deduct? The threshold for medical and dental expenses is 10% of AGI AGI: $42,000 Total medical and dental expenses: $1,100 State income taxes: $1,000 Mortgage interest: $7,000 Charitable contributions: $1,250

$9,250

Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of$50,000, how much can she borrow in a home equity loan from Acme?

$110,000

If Ava estimates that her $100 weekly grocery bill will increase at an annual inflation rate of 4%, what should her weekly grocery bill be in 3 years?

$112.50

Lia is looking for a new apartment. What are her total annual costs associated with renting? Monthly Rent Payments $ 1,000 Annual renter's insurance $ 250 Annual Interest lost in security deposit $ 20 Annual Property Taxes $ 2,400

$12,270

Sam and Diane are completing their federal income taxes for the year and have identified the amounts listed here. How much can they rightfully deduct? AGI: $80,000 Total Medical and dental expenses: $9,000 State income taxes: $3,500 Mortgage interest: $9,500 Charitable contributions: $1,000

$15,000

If a $10,000 investment earns a 7% annual return, what should its value be after 6 years?

$15,010

Ron wants to retire in 20 years with $1,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? Round your answer to the nearest dollar.

$17,460

Given the information here, what is the annual cost of owning? Home value $300,000• Annual mortgage payments $19,200• Annual property taxes $4,800• Annual homeowner's insurance $1,200• Annual maintenance expense 1 % of home value• Growth in equity $3,000• Tax savings (mortgage interest and property tax) $2,800• Estimate annual appreciation 1.5% of home value

$17,900

Using the following information, what is the cost to lease a car? Security deposit $300 Monthly lease payment $300 per month for a five-year lease Opportunity cost of security deposit 300 × loan period (in years) × 2% interest End-of-lease charges500

$18,530

Using the following information, what is the cost to buy a car? Down payment $3,000 Monthly loan payment $350 per month for a five-year loan Opportunity cost of down payment $3,000 × loan period (in years) × 2%interest Estimated value of vehicle at end of ownership period $4,000

$20,300

Fred received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest formula for this two-year, 8% loan. What is his total interest?

$224

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced

$250

If you have a $240,000 30-year 5% mortgage, how much of your first monthly payment of $1,288 would go toward principal?

$288

Zsa budgeted $1,500 for housing and utilities in July. She actually spent $1,460. What is her budget variance?

$40 surplus

Evan had three accounts as listed below. How much was his total insurance coverage by the FDIC? • Bank A: $150,000 • Bank B: $50,000 • Bank C: $400,000

$450,000

Given the following information, calculate the debt payments ratio: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

34.78%

Beth wants to buy a new car. She needs to borrow $ 20,600. The local credit union offers 5 year 3.6% fixed rate loans. Her monthly payment would be

376

Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin's actual rate of return on the loan?

4%

A payday loan company charges 1.6 percent interest for a two-week period. What would be the annual interest rate from that company? Assume an even 52 weeks per year.

41.6

Sue has the following tax records for tax year 2018: Standard Deduction: $12,000 Interest: $1,200 Dividends: $2,300 Mortgage Interest: $7,000 (itemized) IRA contributions: $6,000 Charitable Contribution: $4,500 (itemized) Property Taxes: $3,500 (itemized) Wages: $ 63,500 Sue's Taxable Income is

46,000

Max has the following tax records for tax year 2018: Standard Deduction: $12,000 Interest: $1,200 Dividends: $2,300 Mortgage Interest: $3,000 (itemized) IRA contributions: $6,000 Total Medical Expenses: $1,800 (itemized) Property Taxes: $3,500 (itemized) Wages: $ 62,500 The treshold for medical and dental expenses is 10% of AGI. Max's Taxable Income is

48,000

Nick earned 8% in his savings account. If he is in the 28% tax bracket, what is his after-tax savings rate of return?

5.76

Jim is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?

A Roth IRA

Which of the following is an example of open-end credit?

A department store credit card

All of the following are deposit institutions except

A finance company.

A drawback of a regular savings account is

A low rate of return

A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as

A trust.

Mary wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM

Gross income less Adjustments to Income equals

Adjusted gross income

When misused, credit can result in

All of the above

The major sections of Form 1040 include all of the following except

All of these are major sections of Form 1040.

The main purposes of personal financial statements are to

All of these choices are correct

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

All of these questions should be considered

What should a home buyer consider when evaluating a house?

All of these should be evaluated.

Zoe wants to accumulate $12,000 in her savings account for her dream vacation. What type of computation would she use to calculate her monthly deposits to her account?

Annuity given a future value

Which of the following situations describes a person who could be insolvent?

Assets $40,200; liabilities $51,900

The tax rate based on the total tax due divided by taxable income is called the

Average tax rate

The question "What are your assets and net worth?" relates to

Capital

Future value computations are often referred to as

Compounding

Money management refers to

Day-to-day financial activities

Individuals can file their federal taxes using all of the following except

Deliver in person

All of the following are variable operating costs for a vehicle except

Depreciation.

A credit report includes

Detailed credit information

The money left over after paying for housing, food, and other necessities is called

Discretionary income

Which of the following is an account used to pay property taxes and homeowner's insurance?

Escrow

A tax due on the purchase of gasoline is called a(n)

Excise tax

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)

Financial Plan

Which of the following is an example of a financial opportunity cost?

Forgoing wages to attend school

Sam bought a laptop that was defective. This laptop will be fixed or replaced by the manufacturer as long as he returns it in a reasonable amount of time. What type of warranty does he have on his laptop?

Full warranty

Paul wants to deposit a lump sum of money today for a vacation that he plans to take to Asia after he graduates from Graduate School. Which formula should he use to determine the amount of money he will have available for his vacation?

Future value of a single amount

Tim received a $15,000 gift from his grandparents. he wants to invest his money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?

Future value of a single amount

Sam plans to deposit $150 per month into an account earning 4 percent . What type of computation would he use to determine the amount he will have accumulated after three years?

Future value of an annuity

An investor should expect to receive a risk premium for

Higher uncertainty about getting his/her money back

Income that is taxed at a later date is

Tax-deferred income

According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?

Taxpayer

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired.

Warranty

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened.