Family Finance Exam 2

You are concerned that you might lose your cell phone or that it might end up breaking or getting dropped in water. You estimate that you have a 25 percent chance of losing your cell phone (cost = $200) and a 50 percent chance of having it damaged during the year (cost = $60). What is the expected loss in this problem?

$80

Which of the following is the formula for calculating the APR on a credit card?

(Total annual finance charges + Annual fee)/Average loan balance

Which of the following statements regarding retailers and bank credit cards is true?

Retailers incur a cost for accepting credit cards.

Which of the following will result in an increased mortgage payment if all other factors about the transaction stay the same? Select all that apply.

-Amount of loan increases from $150,000 to $160,000. -Mortgage interest rate increases from 5 percent to 5.25 percent.

In which of the following ways does the availability of consumer credit benefit families?

-They can buy consumer goods and pay for them over time. -it is easier to budget for larger purchases

Which of the following is a component of auto dealer profit? Select all that apply.

-delivery and preparation fee -Profit on dealer-installed options -Loan application fees

Which of the following are reasons that it is better to have a subsidized student loan instead of an unsubsidized student loan? Select all that apply

-low interest rate -no interest until after graduation

Which of the following, if all other factors are equal, will increase the value of the home you can afford to buy? Select all that apply.

-more funds for down payment -More funds available in household budget for monthly housing expenses

What is your debt payment ratio if your after-tax monthly income of $2,000 and your monthly debt payments total $400?

20%

Tim's monthly gross income is $2,900. He is buying a house that requires a $660 monthly payment. Property taxes would be $120 per month and insurance premiums of $45 per month. What is Tim's mortgage debt service ratio?

28.45%

How long will it take to recoup the $1,800 price difference between a hybrid and a regular sedan assuming gas costs $3 per gallon, you drive 12,000 miles per year, and the hybrid gets 45 miles per gallon (MPG) on the highway and the regular sedan gets 30 MPG on the highway?

4.5 years. what what what? COME BACK!

The commission charged by real estate brokers commonly ranges from

6-7%; book says different. check that out

Negative credit information, with the exception of bankruptcies, must be removed from a credit report after __________ years.

7

Negative information on your credit report must be removed after ________ year(s), which the exception of bankruptcy information, which remains on the report for 10 years.

7

Which of the following violate your consumer credit rights?

A bill collector raises his voices and threatens to tell your employer that you are a deadbeat in a phone call related to a late payment.

What is the primary advantage of listing your house for sale with a real estate broker rather than trying to sell it on your own?

A broker may have better knowledge of the market and can help you price the home appropriately.

Why do department stores offer credit cards to their customers?

Because customers with a store credit card tend to spend more

When a lender looks at your FICO credit score to decide whether to lend to you, which of the "Five C's of Credit" is it considering?

Character

Which of the following is not one of the five C's of credit?

Credibility 5 C's: Character Capacity Capital Collateral Conditions (not mutually exclusive)

Which of the following is not one of the factors considered in the FICO credit scoring system?

Employment history They look at: -variety of debt sources (types of credit used) -level of debt (amounts owed) -length of credit history -payment history -new credit (??)

Extended warranties are also often called service contracts and should be purchased whenever offered.

FALSE

How can you determine whether it is worthwhile to pay a higher APR for a credit card that offers you frequent flier miles for using your credit card?

If you do not ever keep a balance on your credit card, the miles are essentially free.

In a home purchase, what are discount points?

Interest paid up front by the buyer to the lender in return for a reduced annual interest rate

Which of the following is not one of the reasons that is difficult for businesses to buy insurance to protect against the risk of lower profit in an economic recession

It is impossible to estimate the potential losses.

Which of the following is the most important factor that determines the value of real estate?

Location

Larry Walsh and his wife suffered a fire in their home and initialized the claims process a week ago. The adjuster assessed the loss and is prepared to write them a check for $100,000 today. Should Mr. Walsh accept the check? Why or why not?

No, it is best to wait before accepting settlements, as additional items and damage may be uncovered.

Jacob purchased a car in January for $14,000. At the end of the first year, he calculates his cost of ownership for the first year. Given the following information, what is his total cost of ownership for the first year (rounded to the nearest $100)? (Review Table 6.1) Monthly Loan payment: $293 Gasoline: $1,818 First-year depreciation: $3,000 Auto insurance annual cost: $1,200 Registration and license: $250 Sales tax: 5 percent of sales price 700 Regular oil changes: $120

$10,600

If the state of Louisiana has minimum auto liability limits of 25/100/20, what does the 100 represent?

$100,000 limit on payments to all persons in accidents.

Banking regulations require a borrower's total debt service ratio to be 36% or less as a proportion of gross income, and PITI payments computed as mortgage debt service ratio to be no more than 28% of gross income. If a borrower has PITI payments of $475 per month and $75 of additional debt, how much gross income does the person need to qualify for the mortgage?

$1696

Maryanne has chosen a homeowner's insurance policy with a low premium that meets her financial needs. Her home was broken into, and $5,000 worth of possessions were stolen. If her deductible is $3,000, how much will her insurance company pay for the loss?

$2,000

If the market value of your home is $250,000, but the replacement cost of the structure is $200,000, how much homeowner's insurance should you have?

$200,000

Becky is looking for some independent information on types of insurance, and she wants independent statistics before she starts negotiating or looking at prices for products. Where should she start her research?

The Insurance Information Institute

What is depreciation?

The decline in the value of an asset over time as a result of normal wear and tear and other factors

Why do insurers use credit history as a factor in rating auto and homeowner's insurance?

There is a statistical correlation between high credit scores and a person being financially responsible and having fewer claims

Bankruptcy appears on your credit report for 10 years and may affect your ability to obtain a home mortgage or other credit.

True

If all other factors are equal, a ten-year loan will have a higher APR than a five-year loan.

True

Keeping the monthly payment the same, the bigger the down payment you make on a car purchase the shorter the finance term you can choose, which will save you money in interest charges over the course of the loan.

True

Unsubsidized Stafford loans accrue interest from the time they are awarded.

True

Credit cards, car loans and student loans are all types of consumer credit.

True true

Why is it a good idea to get loan preapproval from a lender before negotiating with an auto dealer?

You can focus on negotiating with the dealer based on price.

Why is it important to get multiple price quotes before buying auto insurance?

You can identify the insurer with the lowest rates

Which of the following explain why interest rates on credit cards are higher than rates on auto loans?

auto loans are secured by collateral

With an amortized loan, your monthly payment includes

both interest ad principal repayment

In auto lease contracts, your down payment is called the

capitalized cost reduction

A _____ is an example of a closed-end credit

car loan or student loan

Mike is applying for a home loan and wants to buy a house worth $150,000 in a neighborhood close to his work. However, he only has $15,000 toward the down payment. Mike may be required by the lender to

carry mortgage insurance and pay the premium.

Which type of bankruptcy requires that you develop and implement plan to repay your debts under court supervision and allows you to keep all of your assets?

chapter 13

If you back into a garage door and have $5,000 damage to your own vehicle, the type of auto insurance that will cover this is

collision

The percentage of the house price that is paid to a broker is known as

commission

When you know that you cannot meet your debt obligations, you should

contact your creditors directly to explain the situation.

open end credit

credit card

If all other factors are equal, adding an exclusion for hail damage will ________ your auto insurance premium.

decrease

If all other factors are equal, higher property taxes will ______ the value of the home you can afford to buy.

decrease

The most common source of consumer credit is:

depository institutions such as banks and credit unions.

The first step in making consumer purchase decisions is to:

determine what you need

If you buy a house and prepay a few months of taxes and insurance, then you are using the service known as

escrow

An agent that only sells the products offered by one insurance company is an

exclusive agent

All drivers should pay the same auto liability insurance premium.

false

Which of the following is generally NOT included in the sale of property unless specifically stated?

furniture

_______ are exposed to the risk of exterior damage to their home.

homeowners

If all other factors are equal, which of the following will decrease your homeowner's or renter's insurance premium?

improving your credit

If all other factors are equal, selecting a lower deductible will _____ your auto insurance premium.

increase

With a simple interest loan, your payment will include

interest and repayment of principal.

Which of the following is an advantage of renting instead of buying a home?

less responsibility

Under closed-end leases, the ______ assumes the risk that a car will depreciate faster than expected.

lessor

All else being equal, an interest-only loan will result in _________ monthly payment than an amortized loan.

lower

Which of the following is an advantage of borrowing with a consumer loan instead of a credit card?

lower interest rate

Your current mortgage payment is $900. Interest rates have fallen and you estimate that, if you refinance your mortgage, your new payment will be $800. You expect closing costs to be $4,000. If you plan on selling the home in two years, you should

not refinance

People who rent homes or apartments can purchase renter's insurance. It covers

personal property and liability losses but not damage to the building itself.

The purpose of lemon laws is to

protect car buyers from sellers of chronically defective automobiles.

A risk that produces only bad outcomes, such as an accident or a fire, is called

pure risk

Closing costs on the purchase of a house

reduce the amount of cash available for the down payment.

Self-insurance is another name for:

risk-retention

The purpose of an amortization table is to

show the breakdown of monthly payments into interest paid on the outstanding balance and principal repayment over the life of a loan

What is the first thing you should do if you are involved in a traffic accident?

stop your vehicle

Whenever children are injured by an "attractive nuisance" on a homeowner's property,

strict liability applies

The tax advantages of home ownership include all of the following except

tax-deductible maintenance costs. -advantages are: tax-deductible mortgage interest. tax-deductible property taxes tax-free gain on sale

The sticker price for a new car is

the manufacturer's suggested retail price.

______insurance protects the buyer from the risk that the seller is not transferring ownership of the home as promised.

title

When you purchase homeowner's insurance, you are:

transferring the risk

Home ownership can expose an individual to property and liability risks.

true

If you do not make your mortgage loan payments as promised, the lender has the right to take ownership of your home.

true

Insurance is the risk management method that usually is most appropriate for low frequency, high severity risks.

true

With regards to length of commute, individual drivers who travel 70 miles per day should expect to pay more for their car insurance than drivers who travel 10 miles per day, all other things equal.

true

Which type of insurance may be advisable to buy as compared to typical households, for a person who has significant wealth or a swimming pool, or is a writer for a tabloid magazine?

umbrella

In trying to protect his increasing net worth, Arbuckle Farnsworth is worried about lawsuits stemming from accidents and situations not covered by his low liability limit homeowner's policy. Which type of insurance should he consider purchasing in addition to his current policy?

umbrella insurance

Fuel is a _____ cost of car ownership

variable

A credit card company _____ lose money if it offers an introductory teaser rate at zero percent.

will not

Refinancing makes sense only if:

you will stay in the house long enough to recoup the refinancing costs.

The primary reason that young men pay higher rates for insurance than young women is that

young women drive fewer miles per year than do young men.