FINN 3003 Final Study Guide

If you wish to keep your monthly payments as low and predictable as you can, you should use a

30- year fixed rate

Financial institutions typically provide home equity loans up to ________ of the value of the equity in a home.

80%

Which of the following is not usually used as collateral for a loan?

Clothing

Which of the following is the most common source of financing for personal loans?

Financial institutions

Which of the following is the only required coverage if you do not have a lien on your car?

Liability coverage

Auto insurance can be very expensive if you

are a male under 25

The best time to buy a whole life insurance policy in terms of expense is

as a child

Sources of disability income do not include

federal disability insurance

All of the following are true of the income method of determining life insurance needs except it

factors in the number of children in your family

Which of the following is not a method for computing interest on credit cards?

Present value of future payment method

Investing in one of which of the following funds will typically give you the least diversification

Sector funds

Index funds incur ________ expenses and are ________ managed compared to other funds

fewer; not actively

An account that allows employees to use pre- tax income to pay for medical expenses is a

flexible spending account

A replacement cost rider is important to add to your homeowner's policy because

in the event of a loss, your property is valued at the cost of replacement regardless of age or depreciation.

One advantage of investing in commercial real estate compared to stock, bonds, and mutual funds is that real estate

may yield income and tax advantages not available with the other investments

In addition to social security tax withholding, wage earners also pay a 1.45% withholding tax on all gross salary and wages for

medicare tax

A disadvantage of whole life policies is that

they are much more expensive than term policies

The best time to sell stock is when you

think the stock price has peaked

The ________ is the market value of the securities that a mutual fund has purchased minus any liabilities.

net asset value

Stock brokers typically do not recommend no- load funds because

no-load funds do not pay a fee to the broker for selling them

You can estimate the amount by which your wealth will increase from an investment using

time value of money

In negotiating a price for the purchase of a home, you should do all of the following, except

offer the highest price you can afford first to get the purchase settled quickly

Term life insurance is

often available in group policies through employers pure insurance with no savings feature

Mutual funds that sell shares directly to investors and repurchase shares investors want to sell are called ________ funds.

open- end

If a firm performs strongly over a period of time the impact on its stock price is

positive

The market for newly issued securities and initial public offerings (IPOs) is the ________ market

primary

You are considering investing in a no- load mutual fund that focuses on growth stocks or in an index fund. The growth stock fund had an annual return of 15% and expenses of 2%. The index fund had an annual return of 12% and expenses of 1%. Assuming equal risk, you should buy

the growth fund

The risk- return relationship means

the higher the risk, the higher the return

Nathaniel and Kimberly want to make an offer on a 2,200-square-foot home that is priced at $212,000. They research other home prices and find the following information: a 2,400 square foot home sold for $220,000; a 1,800 square foot home sold for $168,000; a 2,000 square foot home sold for $185,000. Based on your analysis, what reasonable offer should Nathaniel and Kimberly make on the house? (Round all computations to the nearest dollar.)

$204,600

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%. At the end of the first month, the interest owed on $3,000 is

$30

How much of a $2,000 medical bill would you pay if your policy contains a $400 deductible and a 10% coinsurance clause?

$560

Your home insurance provides for replacement value for personal property losses. Your china hutch was vandalized and completely destroyed. Your hutch cost $400 four years ago, but a new one will cost you $600. How much will the insurance company pay?

$600

During the financial crisis of 2008- 2009, approximately ________% of subprime mortgages had late payments of at least 30 days

25

What return on investment would you earn if you bought a stock on 1/1/16 for $100, received a 1% per quarter dividend and sold the stock on 1/2/2017 for $107

11%

Which of the following is not correct about cash advances?

A transaction fee of 5% may be charged

What should you not consider when selecting a vehicle?

All parts are American- made

The yield represents which of the following?

Annual return from dividends

The interest rate on an ARM may be adjusted

Any of the above depending on the terms of the loan

Which of the following is usually not offered as part of a benefits package to employees?

Auto insurance

Of the following, which is not used in measuring a stock's return?

Average price of the stock during the period owned

The federal law that allows you to continue health insurance coverage through your former employer's plan for 18 months after you stop work is

COBRA

In comparing credit cards to other forms of credit, which of the following is true?

Credit cards are generally the most expensive form of credit.

Which of the following is not included in the loan contract?

Credit score

Which of the following statements is false concerning term life insurance?

It has a cash value or savings feature as long as you keep the policy active

Which of the following bond mutual funds has both the highest default risk and the highest interest rate risk?

Long- term high- yield

Most newly public companies list their IPO shares on the

NASDAQ

You currently have a 5 year adjustable variable rate mortgage which is 4 years into the adjustment period. The current interest rate is 3.5% per annum, and the rate is indexed to the 10 year Treasury note which is currently yielding 2.15%. Most financial forecasters are anticipating rate increases over the 2016- 2017 period, but there is no consensus on the total amount of the increases. Given the interest rate environment, what would be the best course of action for your mortgage?

Refinance at the conventional 30 year fixed rate currently offered at 3.75%.

________ insurance is life insurance that is provided over a specified time period and does not build cash value.

Term

Which of the following is not true about annual fees on credit cards?

The fees are the same on all credit cards.

Which of the following best explains why approximately one- third of households in the United States do not have life insurance

There is no immediate financial benefit

Which of the following statements is true about bank credit cards like VISA and MasterCard?

They are an excellent source of emergency funds for unexpected expenses.

Which of the following characteristics is not true of closed- end funds?

They can be load or no-load funds

Which of the following types of insurance is intended to provide a limited choice of investments and an insurance component in the event of death?

Universal life

Which of the following is not true regarding government regulations to allow individuals who change jobs to maintain health insurance coverage?

When changing jobs, you are allowed to stop and start health care plans whenever you need to and still be guaranteed insurance coverage by a new provider.

Credit has its advantages and disadvantages. Which of the following is false?

You should spend up to the limit on all your credit cards

Which of the following is true of renter's insurance?

Your renter's insurance covers only your own property, not the property of your landlord

Stocks would be most favorably affected by

a decline in interest rates and a decline in inflation

When the global financial forecast calls for recession in China and Europe, you should consider investing in

a domestic large cap fund.

Which of the following is the most risky?

buying on margin

If you believe that a firm will grow rapidly in the future, you should buy its

common stock

One of the most commonly used measures of inflation is the

consumer price index

In making the purchase versus leasing decision, it is important to remember that

dealers may impose an additional mileage cost

If economic conditions deteriorate, stock prices are likely to

decrease

When corporate taxes rates are ________, the after- tax earnings of corporations are ________, which means ________ money for shareholders

decreased; increased; more

The best investment strategy is to

diversify across stock and bond mutual funds with different objectives

Computer systems that match up purchases and sales of stocks even at night when the other exchanges are closed are

electronic communication networks

Collateral

gives the lender additional recourse if the payments are not made

All of the following are true of prestige credit cards except they

have a longer grace period than other cards.

Before buying a house you should do the following

have your real estate agent complete a market price analysis for comparable properties. have a certified home inspector complete an inspection of the home inside and out and check your budget to make sure the home including all associated costs is affordable are all important

An amortization schedule shows all but the

increase in market value

In general, insurance companies generate their revenues from

investing the proceeds of premiums until the funds are needed to cover losses. receiving payments for policies.

A universal life policy gives policyholders the right to select their ________ which is a right that whole life policyholders do not have

investments

The annual percentage rate (APR) is all of the following except

it requires a complex formula to compute.

All of the following are disadvantages of proprietary credit cards except

it takes considerable time to process your application to allow you to begin obtaining credit.

Regarding the definition of disability

it varies from one disability policy to another.

Auto insurance discounts might be given for all of the following, except

leather seats

You could reduce the size of your monthly payments by

lengthening the maturity of the loan.

Under a discount on charge arrangement, the provider receives

less than what it would normally charge for a particular service

The primary function of insurance is to

maintain your existing level of wealth.

The cost of health care has risen dramatically in recent years due to all of the following, except

reduced litigation costs.

The largest market where existing securities are sold is called the ________ market

secondary

As a result of the financial crisis of 2008- 2009, some financial institutions accepted a(n) ________ arrangements in which the lender accepted the proceeds of the sale of a home as full payment on the debt owed even though the proceeds were less than the debt owed

short- sale

The income method, used to calculate your life insurance coverage, multiplies your current annual income by

some arbitrary number, such as 10

Regarding dividends paid on common stock

some firms don't pay any dividends at all.

If you find yourself with an excessive credit card balance, the first thing you should do is

spend as little as possible.

When buying a home, all of the following are economic factors one should consider, except

the existing interior paint colors

The cost of leasing a car versus purchasing one

varies depending on a multitude of factors

Fees charged by brokerage firms

vary according to the services offered

The comprehensive and collision premium of a Rolls- Royce in relationship to a Chevy

will be higher because a Rolls- Royce costs more than a Chevy

A personal scheduled property floater should be added to your homeowner's insurance policy if

you or your spouse has expensive jewelry or watches you have valuable original art in your home