Personal Finance Tests

Mary has calculated her adjusted balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is ________.

$480

What are the six steps in the financial planning process?

1. Define financial goals 2. Develop financial plans and strategies to achieve those goals. 3. Implement those plans and strategies. 4. Occasionally develop and implement budgets to monitor progress towards goals. 5. Use financial statements to evaluate the results of plans and budgets, taking corrective action if needed. 6. Redefine goals and revise plans and strategies as personal circumstances change.

List three types of financial goals and some examples of those goals.

1. Short-term goals ("I will save 10% of my take-home pay each month to start an investment program." 2. Intermediate-term goals ("I will have saved $25,000 in the next 3 years to put a down payment on a new car.") 3. Long-term goals ("I will have saved $60,000 within the next 6 years for my child's college fund.")

A lender will usually require a loan-to-value ratio of ______ or less for a borrower to avoid having to pay private mortgage insurance (PMI).

80%

What is a budget, and how does it differ from personal financial statements?

A budget is a financial report that looks forward to the future. It is based on expected income and expenses. It's different from personal financial statements because it looks into the future instead of looking at the present.

Discuss the difference between a commercial bank and a credit union.

A commercial bank is owned by one corporation and its shareholders. Credit unions are depositor-owned. Therefore, everyone who makes a deposit in the credit union is now a part-owner until they move their money.

________ would be considered a part of your taxable income.

A gain from the sale of your assets

Which of the following is an example of real property? A garage A computer An automobile Machinery Office furniture

A garage

_____ is something we owe, which is measured by the amount of debt we incur.

A liability

________ is a situation where homeowners owe more to the lenders than what their properties are worth.

A negative equity

______ cards offer the cardholder a way to contribute to a worthy cause and are sometimes described as "credit cards with a cause"

Affinity

Discuss the transactions which occur when you purchase a vehicle.

After doing all the research on vehicles, calculating the affordability of each car is key. Going to either a banker or broker to qualify for a loan is key to determining how much one can afford on a car. After determining what type of loan one can receive, going to the dealership and test driving the vehicle is an important step in the purchasing process. Finally, negotiating the best deal with the seller based on the dealer's cost and signing papers after the negotiations come to an agreement is the final step in purchasing a vehicle.

What will lead to a poor credit rating?

Applying for a long-term loan and occasionally being late with a payment.

The three parts of an individual's balance sheet are his or her:

Assets, liabilities, and net worth

What are five examples of consumer loans?

Auto loans Education loans Personal loans Consolidation loans Loans for other durable goods

What is the method of computing finance charges by applying interest charges to the ADB of the account over the billing period.

Average daily balance

What steps are needed to establish a good credit rating?

Avoid overspending Pay more than the minimum amount of debt Being truthful Notifying creditors if you are unable to pay by the due date.

What are the two most effective ways to manage credit wisely?

Avoid overspending and keep track of payments. Pay more than the minimum balance on the debt to reduce the interest accumulated in the debt.

__________ is a benefit of using credit cards.

Being able to meet a financial emergency

You should consider your _______ before you take on a large consumer loan.

Budgeted expense

The price of the car you are leasing is called the:

Capitalized cost

Funds invested in a _________ should not be withdrawn for a stated period in order to avoid an interest penalty.

Certificate of deposit

Which of the following would be an appropriate savings vehicle if you plan to use your savings within a year and expect interest rates to fall over the next few months?

Certificate of deposit (CD)

Straight bankruptcy is allowed under _____ of the bankruptcy code.

Chapter 7

What are the five C's of credit?

Character Capacity Collateral Capital Condition

A _____________ account is called a demand deposit account.

Checking

Your ______ is an example of a liquid asset.

Checking account

_______ are the expenses that borrowers pay when a mortgage loan is closed and they receive title to the purchased property.

Closing costs

A(n) _________ is an agency that provides credit information about individual borrowers to lenders.

Credit bureau

The FDIC insures each __________ up to a stated maximum dollar amount at any given financial institution.

Depositor

Christina's bank allows her employer to directly deposit her paycheck into her personal bank account. This service provided by Christina's bank is called a(n):

Electronic funds transfer system (EFTS) service.

______ are the deductions from adjusted gross income (AGI) that are based on the number of persons supported by the taxpayer's income.

Exemptions

List two options/sites to review your credit report for scores and information.

Experian TransUnion.

T/F: Cash is the only kind of liquid asset:

False

T/F: Consumer loans, like open account credits, result form a rather informal process.

False

T/F: Extremely low interest rates favor investors and boost the incentive to save.

False

T/F: Gross income minus tax-exempt income equals adjusted gross income.

False

T/F: Home equity loans are similar to home equity credit lines as they are also not secured with any collateral.

False

T/F: Non-depository institutions are referred to as banks:

False

T/F: The Federal Deposit Insurance Corporation (FDIC) covers stocks, bonds, and mutual funds purchased at banks.

False

T/F: The repayment of the principal of installment loans is made in a lump sum, and the repayment period of installment loans is six to twelve months.

False

Funds in commercial banks are protected by the:

Federal Deposit Insurance Corporation (FDIC)

Lis some factors you should consider when shopping for a loan.

Finance charges Loan maturity Total cost of the transaction Collateral for the loan

____ is an important part of the conflict resolution process when there are disputes relating to money matters in families.

Financial planning

Knowing what you need to accomplish _______, and how you intend to do it, gives you an edge over someone who merely reacts to monetary events as they unfold.

Financially

Explain how government, business, and consumers affect the financial planning process?

Governments, businesses, and consumers must interact with one another so the economy is able to grow. Governments play a major role in regulating economic activity as well as provide customers for businesses and jobs for consumers. Businesses are important for the circular flow of income relied upon by consumers and the government for the economy to be sustained. Consumers are the ones whose choices determine the kinds of goods businesses will provide. Their spending affects how prices are set and many other factors of the economy the government must be aware of and regulate.

List three examples of line items you would place in your budget?

Grocery expenses Income: Living expenses (rent/utilities):

Distinguish between gross earnings and take-home pay. What does the employer do with the difference?

Gross earnings are the amount of money someone has earned before taxes are taken out. The take-home pay is the amount of money someone receives after taxes are taken out, and bonuses, commissions, and the like are added. The employer gives the difference to the government to pay taxes.

What are the two most important questions you should ask yourself before taking out a loan?

How does the loan fit my financial plan? How do the required payments fit into my budget?

Which of the following savings vehicles is free of state and local income taxes?

I savings bonds.

List some examples of improper uses of credit.

Impulse purchases Purchase items that will not last longer than the debt it incurs Paying only the minimum balance on debts Paying for many small purchases to meet basic living expenses

An income statement includes:

Income, expenses, and cash surplus or deficit.

A(n) ____________ loan is a loan that is repaid in a series of fixed, scheduled payments rather than in a lump sum.

Installment

What is true of installment loans?

Installment loans, like home equity loans, offer the benefit of tax deductibility on the interest paid on them.

What are some examples of intangible and tangible assets?

Intangible: stocks, bonds, mutual funds. Tangible: automobiles, houses, land.

What practice helps an individual survive a financial crisis?

Investing regularly to make money work toward achieving financial goals.

How do values and relationships affect financial plans?

It is imperative that our values line up with how we use our money. It is an important factor in financial planning. Spending money based on values will positively affect one's standard of living as well as happiness and quality of life. Relationships affect financial plans in that individual financial plans must now be altered to create a family financial plan. Communicating with family is an important factor when it comes to financial planning. Finances and financial planning are important in maintaining relationships.

What is true of the tax levied under the Federal Insurance Contributions Act (FICA)?

It is paid equally by employer and employee.

A legal claim that allows creditors to liquidate loan collateral is a:

Lien

What ratio indicates your ability to meet current debt payments with existing assets that can be converted to cash readily?

Liquidity

Individuals prefer to invest their savings in stocks rather than traditional instruments like Treasury bonds because of _______.

Low interest rates

Besides a regular savings account, give two examples of other ways to invest your money.

Money market deposit accounts and asset management accounts.

Lis some examples of sources of mortgage loans. What role does a mortgage broker play in obtaining mortgage financing?

Mortgage bankers and mortgage brokers as well as Internet sites are examples of sources of mortgage loans. Mortgage brokers get all the information from buyers and lenders then matches the buyers with the lenders that will give them the best terms and take a commission from it.

Sonsumer finance companies:

Offer the highest interest rate on installment loans.

What is true of buying a used car as compared with a new car?

Purchasing a used car will be less expensive as compared with purchasing a new car.

The last step in the financial planning process is to:

Redefine goals and revise plans and strategies as personal circumstances change.

A(n) ______ is a noninterest-paying demand deposit account.

Regular checking account

Interest rates are the lowest on ________________.

Regular checking accounts

Personal financial planning is important because it:

Results in an improved standard of living.

What are some advantages of prequalification for a mortgage loan?

Speeds up the process of home buying. Allows people to shop within their budget since they know what type of mortgage they can receive. Gives more confidence to the buyer since they already know you will be able to receive a mortgage and the price of the mortgage..

Taxable income is calculated by:

Subtracting adjustments, the larger of itemized or standard deductions, and exemptions from gross income.

It costs financial institutions more if their customers perform ____________.

Teller transactions.

What is true about loan maturity?

The longer the loan maturity, the higher the amount of interest paid.

What would be an indication of a wise use of credit?

There are no pending charges on your credit cards.

T/F: An income and expense statement provides a measure of financial performance over a period of time.

True

T/F: An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time.

True

T/F: Arranging for and fully repaying a small loan helps improve creditworthiness.

True

T/F: Financial planning can improve your standard of living.

True

T/F: Financial planning takes place in a dynamic economic environment created by the actions of the government, business, and consumers.

True

T/F: Geographic factors affect your earning power.

True

T/F: Knowing how to prepare and interpret financial statements is a cornerstone of personal financial planning.

True

T/F: Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students.

True

T/F: Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or a family member.

True

T/F: The cash value of a whole life insurance policy can be used as a source of loan collateral.

True

T/F: Visa and MasterCard issue debit cards linked to your checking account.

True

T/F: When loaning money to a friend or family member, it is advisable to lend only an amount that you can afford to give away.

True

___ is equal to the net total value of all the items that an individual owns.

Wealth

What can you do if your budget shows an annual budget deficit?

You can liquidate investments to meet the total budget shortfall for the year.

Money market deposit accounts:

are federally insured.

Factors that typically influence the choice of where to maintain a checking account are:

convenience, services, and cost

Financial plans include setting goal dates, which are:

dates in the future when the goals are expected to be achieved.

In account reconciliation, one of the steps in calculating adjusted bank balance is ______________.

deducting total withdrawals still outstanding from bank balance.

The loss in the value of an automobile over time is called:

depreciation

If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:

if the lender wants to recover part of the full interest that would have been earned.

Credit unions lend money to qualified people who are their:

members

Personal income taxes are:

progressive

An escrow account is used to collect _______ from one's monthly mortgage payment.

real estate taxes

A check you issued last week has been stolen. You can prevent the amount on the check from being withdrawn from your account by an unauthorized person by:

requesting a stop payment

The percentage of _______________ out of disposable income has decreased due to low interest rates and has impacted the investment choices of individuals.

savings

The _____ income is gross income less the tax deductions and payments for insurance and retirement savings.

take-home

Tax credits reduce your:

tax liability

A foreclosure happens when:

the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral.

The first step in the auto-buying process should be:

to analyze how much you can afford to spend on the car.

The _______ department of a bank provides investment and estate planning advice.

trust services

A single-payment loan:

usually matures in one year or less

Most creditors ___________ if you are having difficulty meeting your parents.

will work out a solution