FIN 1010 Unit 2 Exam

Continued: Calculate operating cost per mile (cents per mile). Operating cost includes the variable cost and the fixed cost.

56.5 $8,405/14,880

30% of your credit score is based on

Account balance to credit limit ratio

Based on the previous calculations, would you recommend buying or leasing?

Leasing

What would be the net annual cost of the following checking accounts? a. Monthly fee, $3.75; processing fee, $0.25 cents per check; checks written, an average of 22 a month.

$111 (22 checks * 12 months * $0.25) + ($3.75 * 12 months) = $111

What amount would you have if you deposited $2,500 a year for 30 years at 7 percent (compounded annually)?

$236,152

A $200 savings account that earns $13 interest in a year has a yield of ________ percent (APY)

6.50% $13/$200

Correct! Canned fruit—13 ounces for 87 cents (cents per ounce)

6.69

Most of the information in your credit file may be reported for only

7 years

What federal credit law sets the procedures for promptly for promptly correcting billing mistakes?

Fair Credit Billing Act

True or false: A loan from a pawnshop will be more expensive than one from a bank

True

Cereal—15 ounces for $3.60 (cents per ounce)

24

Your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payments - to - income ratio?

15%

True or false: The money market fund offered by investment companies is a relatively liquid financial services

True

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $200,000 in an individual account and $424,000 in a joint account with her husband Ted in the same institution. How much of Suzanne's money is not covered by FDIC insurance?

$162,000 Suzanne is eligible for coverage for her individual account ($200,000) plus half of the join account ($212,000). Since her total deposit is $412,000 and FDIC covers $250,000, she at risk (uncovered) for $162,000

What would be the net present value of a microwave oven that costs $170 and will save you $79 a year in time and food away from home? Assume an average return on your savings of 5 percent for 5 years. (Hint: Calculate the present value of the annual savings, then subtract the cost of the microwave.)

$172

An online buying club offers a membership for $235, for which you will receive a discount of 10 percent on all brand-name items you purchase. How much would you have to buy to cover the cost of the membership?

$2350 $235/0.10

Annual depreciation $3,000 Annual mileage 14,880 Current year's loan interest $720 Miles per gallon 24 Insurance $890 License and registration fees $135 Average gasoline price $3.50 per gallon Oil changes/repairs $790 Parking/tolls $700 Total Annual Variable Cost

$3,660

Continue: What is the total cash outflow for leasing?

$32,910 $2,100 + ($620 x 48) + $1,050 = $32,910

Down payment (to finance vehicle) $5,800 Down payment for lease $2,100 Monthly loan payment $810 Monthly lease payment $620 Length of loan 48 months Length of lease 48 months Value of vehicle at end of loan $10,800 End-of-lease charges $1,050 What is the total cash outflow for buying? Ignore time value of money.

$33,880 $5,800 + ($810 x 48) - $10,800 = $33,880

Annual depreciation $3,000 Annual mileage 14,880 Current year's loan interest $720 Miles per gallon 24 Insurance $890 License and registration fees $135 Average gasoline price $3.50 per gallon Oil changes/repairs $790 Parking/tolls $700 Total Annual Fixed Cost

$4,745

You plan to buy a car which will cost you $25,000. You can make a $2000 down payment. What is your monthly loan payment if the interest rate is 3.5% and the term is 60 month?

$418 PV = -2300; I/Y = 3.5/12; N = 60; FV = 0, CPT PMT

Brenda lost her debit card. When she realized it was gone, her account had $173 in unauthorized charges. She notified her financial institution within two days. How much is she potentially liable for?

$50

A few years ago, Michael Tucker purchased a home for $100,000. Today, the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming that Michael can borrow up to 80 percent of the market value, what is the maximum amount he can borrow for a home equity loan?

$70,000 Present market value of Michaels home = $150,000. Michael can borrow up to 80 percent of the market value, or $120,000. Michael still owes $50,000 mortgage on his home. Therefore, he can borrow a maximum of $70,000 ($120,000 - $50,000).

Bankruptcy records stay up to

10 years

Louise McIntyre's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise's debt payments-to-income ratio?

27.2% Louise's Gross Income = $2,000 Less: Income taxes = -400 Less: Social Security Tax = -160 Less: IRA contribution = -80 Net take-home pay = $1,360 Her monthly payments on VISA, MasterCard, Discover Card, and a car loan add up to $370 per month. Louise's debt payments to income ratio is 370 to 1,360, or 27.2 percent.

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

Capital

A bank that is looking at your past payment records on your loans is most likely examining which aspect if the 5 C's of lending?

Character

True or false: A certificate of deposit is usually considered to by very liquid

False

True or false: A commercial bank is the same thing as a credit union

False

True or false: If you cosign and the debt is not paid off, that fact does not become a part of your credit record.

False

True or false: If you want to increase your credit score, you want to have a higher balance to credit ratio

False

True or false: Making transactions using a credit card will immediately reduce your bank balance

False

True or false: With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.

False

10% of your credit score is based on

Healthy mix of types of credit and new account

Continued: Is Louise living within her means?

No This ratio exceeds the recommended 20 percent figure. Therefore, Louise is overextended. Her maximum monthly loan and credit card payments should not be over $272 (20 percent of $1,360).

A cash advantage

Requires you to pay interest every day until you repay the cash advantage

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

Restrictive endorsement

True or false: A restrictive endorsement will usually include the words "for deposit only"

True

True or false: Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.

True

True or false: If a check is lost or stolen, you should use a stop-payment order.

True

True or false: Money market funds are not covered by federal deposit insurance

True

True or false: When you cosign a loan, you are being asked to guarantee this debt.

True

What factors need to be considered with choosing a credit card? a. Annual fee b. Grace period c. APR d. Credit limit e. Reward program f. Issuing bank credibility g. Gold vs. silver member

a, b, c, d, e

If you only pay required minimum payment of you credit card every month, this will (might) result a. A longer time to payoff your balance b. That you end up paying more interest c. An increase of your credit score d. A financial problem if minimal payment percentage is increased.

a, b, d

What are high cost financial services? a. Pawn shops b. Junk bonds c. Underground bankers d. Payday loans e. Rent to own centers f. Short term borrowing on your cars g. Cash check outlets

a, d, e, f, g

Many people make mistakes when managing current cash needs. Which of these are made mistakes? a. Budgeting spending b. Failing to put unneeded funds in an investment plan c. Overspending due to impulse buying and over using credit d. Having insufficient liquid assets to pay current bills e. Using savings or borrowing to pay for current expenses

b, c, d, e

To avoid high fees for loans, a person should avoid borrowing form a: a. Credit union b. Mutual savings bank c. Pawnshop d. Savings and loan association e. Commercial bank

c

When calculating the debt-to-equity ratio, the following is NOT included: a. Credit card balance b. Auto loan balances c. Mortgage balance d. Installment debt

c

Which of the following is NOT true: a. Money market deposit accounts are offered by banks and are insured by FDIC. b. Money market funds do not guarantee investors of not losing their investments c. The two types of account invest totally different things d. Money market mutual funds are offered by investment companies and are not insured by FDIC

c

A save will usually earn the highest rate with one of the following types of savings plan? a. Share account b. Passbook account c. NOW account d. Certificate of deposit

d

When interest rates are rising, a person would be best served by: a. Short-term loans b. Certificates of deposits c. Long-term instruments d. Short-term saving instruments e. Variable-rate loans

d

Which of the following is NOT true: a. Banks can charge a one time overdraft protection fee and a daily fee to your account if your overdraft protection is triggered b. Overdraft protection can be very expensive c. Overdraft protection is an opt in choice d. Overdraft protection will automatically pay your bills such as an electronic check for your mobile phone even you do not have enough money in your account and your bank will not charge an insufficient fund fee

d

Which one of the following savings plans is NOT covered by federal deposit insurance? a. Regular checking account at a commercial bank b. Passbook account at a savings and loan c. Certificate of deposit at a commercial bank d. Money market fund with an investment company e. Money market account at a commercial bank

d

John Walters is comparing the cost of credit to the cash price of an item. If John makes a down payment of $70 and pays $35 a month for 24 months, how much more will that amount be than the cash price of $689? a. $158 b. $181 c. $201 d. $221

d. $221 $70 + ($35 x 24) - $689 = $221

Facial tissue—300 tissues for $2.75 (cents per 100 tissues)

91.67

Motor oil—2.0 quarts for $1.96 (cents per quart)

98

What is an example of open-end credit?

A department store credit card

A good example of closed-end credit is

A mortgage loan

15% of your credit score is based on

Age of your credit

Nora bought a used car and was told that she needed a personal check with guaranteed payment. She obtained a

Certified check

35% of your credit score is based on

Debt payment history