Personal Finance Flash Cards

What are types of accounts guarantee a certain rate of return for a specified time period and are insured?

Certificates of deposit (CDs)

The CPI measures the changes in prices for a "market basket" of commonly purchased goods and services. What does CPI stand for?

Consumer Price Index

Most lenders' policies for extending credit are based on the "five Cs of credit." What are the five Cs of credit?

Credit history, character, capacity, capital and collateral

Jakita's income for last month was $2,350. Her monthly fixed expenses were $1,550, and her variable expenses totaled $900. Did she have a surplus or deficit for that month?

Deficit

What is the interest rate that banks charge one another for loans known as?

Federal funds rate

What is an example of a variable expense?

Gasoline expenses

Jamiel's grandmother knew he was taking a personal finance class so she asked him for examples of safe places to invest her savings. Which of the following are considered to be relatively safe investments?

Government bonds and certificates of deposit (CDs)

Rolando had a choice between paying points and getting a lower interest rate on his mortgage, or not paying points and getting a higher interest rate on his mortgage. What factor should he think about when making the decision of whether or not to pay the points?

How long he will live in the house

What are some to think about considerations when making a decision about a savings account?

Inflation, Tax considerations ,Liquidity ,Restrictions and fees

Advantages of renting a home vs. buying a home are

Low maintenance responsibility & Low financial commitment

The Federal Reserve is responsible for:

Managing the U.S. money supply in order to maintain stable prices.

Maria was trying to decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). She chose a fixed-rate mortgage. Which reason below would be consistent with her choice?

Maria wanted to know the exact amount of her mortgage payment for the next 30 years.

When you receive your checking account bank statement each month, what items might be on it that you do not show in your account register?

Monthly service charges for the checking account.

What of the following statements is FALSE? — A corporation does not have to pay dividends. — Preferred stockholders receive dividends before common stockholders are entitled to dividends. — Common stockholders have voting privileges. — Preferred stockholders are guaranteed to receive what they paid for a stock when they sell it.

Preferred stockholders are guaranteed to receive what they paid for a stock when they sell it.

If your down payment on a house is less than 20 percent, some lenders will require you to obtain PMI. What is PMI?

Private Mortgage Insurance

Capital gains refers to:

Profit from the sale of assets such as stocks, bonds or real estate.

What are the four sources of earned income

Rent, Interest, wages, profit

Profits that a company reinvests, usually for expansion or to conduct research and development, are called:

Retained earnings

If you are expecting relatively high inflation, which savings method would you choose from among these options?

Saving your money by purchasing I-Bonds

Banks and other financial institutions offer services in payment, savings and loans. Which of the following is an example of a savings service?

Savings account Money market account Certificate of deposit

The 401(k) and 403(b) retirement plans offered by your employer or privately held by the employee are:

Tax-deferred

What is the difference in tax-exempt income and tax-deferred income?

Tax-exempt income is not taxed, whereas tax-deferred income is taxed at a later date.

Investment income generally falls into three categories:

Tax-exempt, tax-deferred and taxable

The Check Clearing for the 21st Century Act, or "Check 21", took effect October 28, 2004. What does this act allow?

The act allows banks to transmit electronic images of checks rather than paper checks through the check-clearing process.

What is an advantage of enrolling in your employer's 401(k) or 403(b) plan?

The amount you choose to contribute is automatically deducted from your paycheck and is not subject to tax until it is withdrawn--usually at retirement age.

Compounding is the process in which interest is earned on:

The principal and on any previously earned interest

Four customers receive dealer financing to buy the same type of car at the same price. Each of the customers were granted the loan, but each at a different interest rate. Which customer likely received the highest interest rate?

The recent high school grad who just landed her first job

What is false about rent-to-own contracts?

The renter can miss up to four payments before they are obligated to return the item to the store.

When you apply for a mortgage, lenders will want to know how much money you owe. What other information do they look for?

Your income, assets, credit history, and savings history.

A commercial bank must have...

a charter, or license, from either the federal government or a state government

A mortgage is ___________________.

a long-term loan extended to someone who buys a house.

In order to get a lower interest rate on a mortgage, you may have to pay points--extra charges that must be paid by the buyer to the lender. Each point equals one percent of the loan amount. If Sally chooses to pay two points on a $150,000 mortgage in order to get a lower mortgage rate, how much are these points costing her?

$3,000

What is Lakeisha's net worth? She has a $4,500 car loan on her car which has a value of $6,500, no credit card debt, $500 in her checking account, and $750 in her savings account.

$3,250

Denny bought 100 shares of High Tech, Inc., for $50 a share, held the stock for a year, and sold it for a capital gain of $5 per share. During that year, he received a dividend of $1.25 per share. What was his total return per share?

$6.25

Barry bought a $1,000 corporate bond that paid a 6% fixed interest rate. If corporate bond rates increased to 7% and Barry sold the bond before maturity, what price would he get for the bond?

$857

Some criteria to use when evaluating credit card options are:

-Annual percentage rate (APR) -Annual fees -Late payment fees

Lynn developed a budget that includes saving a total of $5,000 by the time she graduates from college. How can she best reach that goal and grow her savings?

-Put the money in an interest-bearing savings account. -Put the money in a bond.

Inflation can be especially hard on certain groups. Which of the following would be harmed from unexpected inflation?

-Retired people whose income may not increase -Creditors

Financial goals can be defined in terms of the time it takes to achieve them. Which of these is an example of a short-term goal?

-Saving for a computer -Saving for a new pair of jeans

What are examples of financial assets?

-Savings account -Real estate property -Stocks and bonds -Education fund

When people buy stocks through various stock exchanges such as NYSE, they are participating in the ___________.

-Secondary market -Tertiary market

Compounding is the process in which interest is earned on both the principal--the original amount deposited--and on any accrued interest. What is true?

-The more frequently your balance is compounded, the greater your yield, or rate of return. -Annual percentage yield (APY) is useful in comparing savings plans that have different rates and compounding frequency.

How can you obtain overdraft protection on your checking account?

-Your financial institution may offer overdraft protection which is an automatic loan made to an account if the balance will not cover checks written. -Your financial institution may offer an overdraft protection service that transfers money from your savings to your checking account.

Joshua had $20,000 in liabilities and a net worth of $40,000. Calculate his debt ratio.

0.5

Sean was saving money to buy a car. He had $4,000 in a savings account which earned 4% interest last year. The annual inflation rate was 3%. What was Sean's real (inflation-adjusted) rate of return on the savings?

1%

Gene's monthly credit payments are $350, his mortgage is $1,250 and his take-home pay is $3,500. Calculate his debt-payments ratio.

10%

Transmissions Plus stock is selling for $64 a share. Their earnings per share are $4. What is Transmissions Plus price-earnings (PE) ratio?

16

Suppose that your monthly net income is $2,500 and your monthly debt payments for student loans and credit cards is $500. What is your debt payments-to-income ratio (DPR)?

20%

Tyrone purchased a stock for $44 per share. He received a dividend of $1.32 per share. What is his yield on this investment.

3%

Joel buys a bottle of water from the vending machine for $1.25 every day when he arrives at his after-school job. Joel makes $6.25 per hour and works for four hours each day, five days a week. What percentage of his after-school gross pay is he spending for bottled water?

5%

Marcela owns a $1,000 corporate bond that pays 5.5% interest annually. If the current market value of her bond is $1,100, then what is the current yield of her bond investment?

5%

Suppose that you earned $2,200 gross monthly income and you were paid twice a month. What would be your savings ratio if you saved approximately $60 from each paycheck?

5.40%

Carla's monthly gross pay is $5,000 and her monthly net pay is $3,800. She saves $400 per month. Calculate her savings ratio.

8%

What is the difference in a credit card and a debit card?

A debit card requires a PIN but a credit card does not

The Rule of 72 refers to

A formula to estimate how long it takes money to double at a given interest rate

What is the difference between a home inspection and a home appraisal?

A home inspection is a detailed inspection of the condition of the home, whereas an appraisal is an estimation of the value of the property.

What is a cash flow statement?

A summary of income and expenses during a particular period

The amount of interest that a deposit would earn, after compounding, for one year is called:

APY-Annual Percentage Yield

Checking account services can include which of the following?

ATM service, banking by telephone and/or online overdraft protection

What is not an example of human capital investment?

An up-graded computer at work

APR stands for:

Annual Percentage Rate

Renters may be required to pay a security deposit when renting an apartment. When the renter moves out, the landlord must return the security deposit minus _______________________.

any charges for damage caused by the renter and any unpaid rent.

When you buy a _________, you are lending money to a corporation or government entity for a period of time.

bond

Liquidity is the ability to easily convert financial assets into _______.

cash

A nonprofit financial institution that is owned by its members and organized for their benefit that offers a range of services which may include checking accounts, loans, and credit cards is a:

credit union

A _______ is a financial situation that occurs when more money is spent than is earned or received.

deficit

An automatic deposit of net pay from an employer to an employee's designated bank account instead of issuing a paper check is referred to as a _____.

direct deposit

Many businesses offer their employees _____ ____, an automatic deposit of net pay to the employee's bank account.

direct deposit

Level of education and income earned are generally _____.

directly related

________ income is the money that remains after paying taxes and other required payments such as rent, food, transportation, etc.

discretionary

When entering into a contract to buy a house, the buyer must deposit ________ money which will be held in an escrow account until the sale is completed. At that time, the money applies toward the down payment.

earnest

What is an example of investment of human capital for a writer?

enrollment in grammar class

What is an example of a market interest rate targeted by Federal Reserve policy?

federal funds rate

The possibility that you may lose your job due to unexpected health problems, family problems, an accident or changes in your field of work is referred to as _______ risk.

income

The risk that interest rates may go up or down which may affect the cost of borrowing or the profits you earn when you save or invest is referred to as _____ _____ risk.

interest rate

When you rent an apartment, you will probably have to sign a lease. A lease is a . . .

legal document that defines the conditions of the rental agreement between the tenant and the landlord.

Assets minus liabilities equal ______ ______.

net worth

The economic term used to describe what is given up when choosing one alternative instead of another is ______ ______ .

opportunity cost

The Federal Reserve is:

our nations central bank

A portion of your earnings that is automatically taken out of your paycheck and put into your savings or retirement is known as _____ _____.

payroll savings

The price of one share of stock divided by the corporation's earnings per share of stock over the last 12 months is known as:

price-earnings (PE) ratio

Homeowners have expenses associated with owning a home such as homeowners insurance, maintenance costs and _________.

property taxes

Expenses associated with owning a home, in addition to your mortgage payment, may include:

property taxes and homeowner's insurance

When a corporation issues securities, it must provide investors with a _________ which is a document that contains information about a company's earning, assets, liabilities, products, management and the stock issuance.

prospectus

In regard to rental property, the person who rents the property is known as the _______.

tenet

Equity in your home refers to:

the price you could sell your home for minus the amount you owe on the amount you borrowed to purchase it.

At a real estate closing, buyers and sellers must pay closing costs which are fees and charges associated with the transaction. Closing costs may include:

title search fee, title insurance, appraisal and recording fees, credit report, and lender's origination fee

Carmen and Ray's combined income is $75,000. Their banker advised them that the most they should spend for a house is 2.5 times their income. Based on that advice, what's the maximum amount they should spend on a house?

$187,500

Kimberly wants to buy a house for $100,000. Her lender said that it would be easier to get a loan if she would put 20 percent down. What amount does Kimberly need for a down payment?

$20,000

What are examples of a secured loan?

-A home mortgage loan -An automobile loan

What is the difference in closed-end credit and open-end credit?

-Closed-end credit is a one-time type of loan that the borrower pays back over a specified period of time in payments of equal amounts. -Open-end credit is a line of credit that can be borrowed for a variety of goods and services.

Credit refers to borrowing money in order to purchase goods and services now and pay for them in the future. What are some disadvantages of using credit?

-Credit makes the cost of items more than the purchase price since it includes paying interest on the loan. -Using credit tempts people to buy items for which they haven't saved enough to purchase. -You risk getting a bad credit rating, or credit reputation if you don't repay credit loans on time.

What are examples of liability.

-Home mortgage -Credit card balance -Car loan -Student loan

Shannon got a 10 percent fixed-rate, thirty-year mortgage five years ago. Since then mortgage rates have fallen. What should Shannon ask before she makes the decision to refinance?

-How many more years do I plan to keep this house? -How much in extra fees will I pay in order to refinance? -What is the difference between my current mortgage rate and a new rate?

What are examples that represent financial goals that are specific and realistic and that establish timeframes?

-I want to save $2,500 for a down payment for a car by the time I'm 18. -I want to have $150 to pay for prom expenses by my senior year.

What are some examples of sources of personal income?

-Paycheck from a job -Interest earned on a savings account

What are examples of a fixed expense?

-Student loan payments -Automobile payments

Robbie buys a bottle of water from the vending machine for $1.25 and a candy bar for $1.35 every day when he arrives at his after-school job. Robbie makes $6.50 per hour and works for four hours each day. What percentage of his after-school gross pay is he spending for bottled water and candy?

10%

How many districts make up the Federal Reserve System?

12

What is the difference between a job and a career?

A job is work you do mainly to earn money; a career is a commitment to work in a field or industry.

To determine your net cash flow, subtract your _____ from your _____.

Expenses from your income

Benefits of using a credit card to make a purchase include:

Having a record of purchases & Purchasing now rather than waiting

What does "pay yourself first" mean?

Setting aside a fixed amount as savings before spending income on other items.

What should you not do when endorsing/writing a check?

Sign your name in pencil so that if you change your mind about cashing or depositing the check, you can erase your signature.

What is a function of the Federal Reserve System?

Supervise and regulate financial institutions

What would be classified as durable goods?

Washer and dryer