Fin 200 Speedback Assignments
If you invest $1,000 in a savings account that pays 6 percent interest compounded annually and make no additional deposits or withdrawals, your account balance at the end of four years will be...
$1,262.48 Calculator: n = 4, i = 6%, PV = $1,000, FV = $1,262.48; table: n = 4, i = 6, factor = 1.262; 1.262 x $1,000 = $1,262.
What is the maximum amount that an individual can give as a gift without incurring gift tax liability or having to report the gift to the IRS?
$10,000 per year
ABC Corporation has assets that total $12 million and liabilities that total $4 million. It also has 500,000 shares of stock outstanding. What is their book value per share?
$16 The answer: $12 m - $4 m = $8 m; $8,000,000/500,000 = $16.
If you could buy an annuity of $5,000 to be received at the end of each of the next four years and you required an 8 percent interest rate on your investment, how much would you be willing to pay for it today?
$16,560 Calculator solution: n = 4, i = 8, pmt = $5,000, PV = $16,560; table: n = 4, i = 8, factor = 3.312. $5,000 x 3.312 = $16,560
Mary Cooper just purchased 100 shares in the All-American Fidelity Fund. The purchase cost for each share was $20. If this fund charges a 5 percent load, what is the total amount she will pay the investment company?
$2,100 100 x $20 = $2,000; $2,000 x 1.05 = $2,100.
A family with $45,000 in assets and $22,000 of liabilities would have a net worth of...
$23,000. Net worth is the excess of assets over liabilities ($45,000-$22,000 = ?).
Suppose that yours is a typical family. Your annual income is $50,000. Use the easy method to determine your need for life insurance. Your insurance should be in the amount of...
$245,000. The typical family will need about 70 percent of your salary for seven years before they adjust to the financial consequences of your death. The answer: ($50,000 x 7) x .70 = $245,000.
The Capitalist Mutual Fund's portfolio is valued at $45 million. The fund has liabilities of $3 million, and the investment company sponsoring the fund has issued 1,600,000 shares. What is the fund's net asset value?
$26.25. NAV = ($45 m - $3 m) / 1,600,000 = $26.25.
During the past month, Jennifer Ernet had income of $3,000 and a decrease in net worth of $200. This means Jennifer's payments for the month were...
$3,200 Reducing net worth suggests that Jennifer spent more than her income ($3,000 + $200 = ?)
George Washburn files jointly with his spouse. They had earnings from wages of $34,000, interest on savings of $800, a contribution to an individual retirement account of $1,500, and dividends from mutual funds of $600. Their adjusted gross income (AGI) would be...
$33,900. Taxable income is $34,000 plus $800 plus $600 for $35,400. From this amount deduct the contribution to the IRA of $1,500. This makes a net taxable income of $33,900.
Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $300 two years ago and has an expected life of six years. A comparable microwave costs $400 today. What amount will the insurance company pay?
$400 Replacement value coverage replaces new for old. The company would pay $400.
Nancy Groom owns one $1,000 corporate bond issued by Chevron. The bond pays 8.5 percent. If interest is paid semiannually, what is the amount of the check that Ms. Groom will receive at the end of each six month period?
$42.50 $1,000 x .085/2 = $42.50
The interest amount for a $1,000 bond is 6 percent. If comparable bonds are paying 8 percent, what is the approximate value for the 6 percent bond?
$750 AMV = interest amount/comparable interest = $60/.08 = $750.
Jo Bower owns 150 shares of Data General stock. She purchased the stock for $24 a share. She sold her stock for $30 a share. The commissions required to buy and sell her stock total $120. Assuming that she received no dividends during the time she owned the stock, what is her total return for this transaction?
$780 net gain The answer: $30-$24 = $6; $6 x $150 = $900 total gain, $900-$120 = $780 net gain.
Lonette and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction would reduce their taxable income by...
$8,000. Mortgage interest on an owned residence is fully tax deductible, thereby reducing the taxable income by the full mortgage interest.
Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points. How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payments?
25 The answer: .02 x $100,000 = $2,000. $2,000/$80 = 25 (months).
In the late 1980s, selected automobiles had an average cost of $12,000. The average cost of those same automobiles is now $15,000. What was the "rate of inflation" for those automobiles between the two time periods?
25 percent The answer: ($15,000-$12,000)/$12,000 = .25
The grace period in life insurance allows _______ days to elapse, during which time the premium may be paid.
28-31 (one month)
Last year, High-Tech Electronics earned one dollar and fifty cents per share. If the current market value for a share of stock is forty-five dollars, what is the firm's P/E ratio?
30 The answer: $45/$1.50 = $30.
Assume that the beta for the stock market in general is 1.0 and that the beta for Worldwide Television Productions is 2.4. If the stock market increases by 20 percent, how much will stock for Worldwide Productions increase?
48% The answer: 2.4 x .20 = .48 = 48 percent.
A 32-ounce package selling for $1.60 would have a unit price of...
5 cents an ounce Unit pricing is reduced to the basic unit of measurement. In this example, the basic unit is the ounce. $1.60/32 = 5 cents per ounce.
Reduced Social Security benefits are available to the retiree at age...
62
With an inflation rate of 9 percent, prices would double in __ years.
8 Use the rule of 72 to obtain the correct answer. The rule of 72 is a shortcut to estimate the number of years required to double your money at a given annual rate of return. The rule states that you divide the rate, expressed as a percentage, into 72: Years required to double investment = 72 ÷ compound annual interest rate
Becky Martinez owns stock in IMB Corporation. The IMB stock has a market value of $50 a share. If Becky receives $4.50 a year in dividends, what is the current yield?
9% The answer: $4.50/$50 = .09 = 9 percent.
June Tavia is trying to calculate the taxable equivalent yield for a municipal bond and she asks for your help. If the bond she owns pays 6.5 percent interest and she is in the 28 percent tax bracket, what is the taxable equivalent yield?
9.03% TEY = .065/(1.0 - .28) = .0903 = 9.03%.
Assume that you purchase a $1,000 corporate bond that pays 9 1/4 percent interest. What is the dollar amount of interest that you receive each year?
92.50 $1,000 x .0925 = $92.5
The management fee for most mutual funds ranges between...
0.25 to 2 percent
The typical marketing and distribution fees that a mutual fund passes on to a shareholder approximately average...
1 percent or less of the fund's assets on an annual basis.
Assume you are a tax payer in the 28 percent tax bracket. Also, assume that you purchase a tax-exempt bond that pays 8 percent. What is your taxable equivalent yield?
11.11% TEY = tax exempt yield/(1.0 - tax rate) = .08/(1.0 - .28) = 11.11%.
What is the current yield for a $1,000 corporate bond that pays 9 percent and has a current market value of $750?
12% Current yield = .09/$750 = .12 = 12%.
How many years can the average person expect to spend in retirement?
14 to 20 years
A valuable asset pledged to assure loan payments and subject to seizure upon default is called...
Collateral is a valuable asset that is pledged to ensure loan payments. Score: 1 of 1
Which federal credit law protects you against an unauthorized use of your credit card?
Fair Credit Billing Act The Fair Credit Billing Act defines a billing error as any charge for something you did not buy or for something bought by a person not authorized to use your account.
From the following choices, the most expensive loans would be available from...
Finance Companies Finance companies generally make loans to less creditworthy borrowers and thus charge a higher interest rate to compensate for the risk.
The stages that an individual goes through based on age, financial needs, and family situation is called the...
Adult life cycle A person's financial needs vary at different times or stages in a person's life. These stages seem to follow a pattern.
Which retirement plan is specifically designed for self-employed individuals and their employees?
Keogh plan
Which health care plan is administered by each state within certain broad federal requirements and guidelines?
Medicaid is a welfare program administered by the states.
Hospital insurance (Part A) and medical insurance (Part B) are characteristics of...
Medicare is divided into two parts. Part A is for hospital coverage, Part B covers the doctor's services.
In a newspaper quotation, which of the following letters would indicate if a mutual fund is a no load fund?
NL
Which federal consumer credit law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount?
Truth in Lending Act
Which organization has the purpose of testing products for electrical and fire safety?
Underwriters Laboratories
A float, as used in credit terminology, refers to...
a period when no interest is charged or no payment is made.
Georgette Valentine has expensive photography equipment for use in her hobby. Which of the following coverages would pay for damage or theft of this equipment?
a personal property floater Limited coverage for photography equipment is provided under the contents provision in the policy. Additional coverage would require a personal property floater endorsement or policy.
Which one of the following real-estate investments provides some diversification?
a real estate investment trust (REIT)
Pure risks are...
accidental and unintentional.
The _______ method to settle claims is based on the current replacement cost of a damaged or lost item less depreciation.
actual cash value By definition, actual cash value is replacement cost minus physical depreciation.
Don't insure...
against low value risk exposures. Low value risk exposures should be assumed because the cost to insure them is greater than the expected benefit.
A financial contract written by an insurance company to provide you with a regular monthly income for as long as you live is called...
an annuity.
A method of evaluating the cost of life insurance by taking into account the time value of money is called...
an interest adjusted index.
Your first step in retirement planning is to...
analyze your current assets and liabilities.
An investment vehicle that systematically pays out benefits over an extended period of time is...
annuities
If your credit application is denied, you...
are entitled to know the specific reasons.
Most insurance specialists say that supplemental hospital indemnity plans...
are rarely a good buy. Supplemental hospital indemnity plans are expensive and the average benefit does not justify the premium cost.
Which of the following situations portrays a person who could be insolvent?
assets $40,000; liabilities $45,000 Assets minus liabilities equals net worth ($40,000-$45,000 = negative $5,000). A person with a negative net worth is considered insolvent.
Not purchasing collision insurance on an older car is an example of _______ risk.
assuming The blue book value of an old car is so low the owner should assume the risk exposure rather than paying an insurance premium.
Not smoking or not walking through a high-crime neighborhood are examples of _______ risk.
avoiding
A mutual fund that invests in common stocks, preferred stocks, and bonds is called a(n) _______ fund.
balanced
When investors are pessimistic about the overall economy and sell stocks, it is known as a(n) _______ market.
bear
A very safe investment that generally attracts conservative investors is called a(n) _______ stock.
blue-chip Blue-chip stocks are issued by strong and established companies and are generally attractive to conservative investors.
The legal conditions for a corporate bond are described in the...
bond indenture
During 1995, Lincoln Masters received income dividends of $850 and capital gain distributions of $540. Based on this information...
both amounts must be included as taxable income.
The highest consistency of quality is associated with _______ items.
brand
Bad products or poor financial management may result in investors experiencing _______ risk.
business failure
A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer?
buy down To stimulate sales, the builder or developer will help the buyers with an interest rate subsidy in the early years of the mortgage. This is known as a "buy down."
Most people think of risk management as...
buying insurance.
The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance for...
commercial banks and savings and loan associations.
Which of the following investments offers the greatest growth potential?
common stocks Bank accounts and bonds pay interest and are considered fixed income investments. Common stock changes in value and reflects growth in price of the stock.
Which of these is a type of major medical insurance that has a very low deductible amount and is offered without any separate basic plan?
comprehensive major medical insurance
General economic conditions that can affect a borrower's ability to repay a loan:
conditions
Which type of credit insurance repays your debt in the event of a loss of income due to illness or injury?
credit accident and health insurance
Which of the following financing methods provides a float period?
credit card A credit card is the only choice providing a float period. The bank pays the retailer a discount and generally does not charge the consumer interest if payment is made at the initial billing.
The type of stock in which stockholders are assured that omitted dividends will be paid to them before other dividends are paid is _______ stock.
cumulative preferred
Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future?
current liabilities The correct answer names those amounts that must be paid within a year.
For most mutual funds, the net asset value is calculated...
daily
In automobile insurance, comprehensive coverage would cover financial losses due to...
damage to your car caused by wind or hail. Comprehensive coverage, also known as "other than collision" includes loss caused by wind or hail.
If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally...
decrease in value Bonds currently in circulation have an inverse relationship between market price and changes in market interest rates.
What type of life insurance will be an appropriate choice for a homeowner with a mortgage loan balance on a house?
decreasing term insurance Decreasing term insurance follows the decreasing principal balance of the mortgage loan and is therefore used to pay off the mortgage should the insured die prematurely.
Which one of the following provisions requires that the policyholder pay a basic amount before the policy benefits begin?
deductible
Stock bonus plans, profit sharing plans, and 401(k) pension plans are examples of a(n)...
defined contribution plan.
A bond that is backed only by the reputation of the issuing corporation is called a(n) _______ bond.
denture
Your first step in determining a life insurance program should be to...
determine your life insurance objectives.
Health insurance includes _______ insurance.
disability
Which type of insurance is probably the most neglected form of available insurance protection ?
disability
When a bond is selling for less than its face value, it is said to be selling at a...
discount
Dividends are paid out of profits, and...
dividend payments must be approved by the firm's board of directors.
Estimated quarterly tax payments must be made by people who...
do not have adequate amounts withheld from income. Taxpayers who do not have adequate amounts withheld from income must pay estimated quarterly tax payment to the government.
Which type of health insurance is generally considered a bad buy?
dread disease and cancer insurance When health insurance is needed, buy it. Do not guess or speculate on the nature of a disease that might visit you. Avoid dread disease coverage.
Which of the following is not an advantage of the Social Security retirement income?
earned income partially offsets benefits The reduction of benefits because of wages earned is a disadvantage rather than an advantage.
Which type of REIT invests directly in properties?
equity
Pam McNally is planning to use the services of the Better Business Bureau. A major purpose of the BBB is to...
esolve consumer complaints.
What type of tax is imposed on the value of an individual's property at the time of his or her death?
estate tax By definition, an estate tax is paid on the estate of the deceased person upon death before the balance of the estate can be distributed to the heirs.
Normally, corporate bondholders receive interest...
every six months
A person who will follow your instructions specified in your will is called a(n)...
executor or executrix.
Which one of the following expenditures for retirees is likely to decrease?
federal income taxes Your taxable income will probably be lower, so your taxes would also be lower. Also, Social Security receipts are only partially taxable.
Which of the following is an example of a conventional mortgage?
fixed rate mortgage with no mortgage insurance or guarantee Conventional mortgages normally require a larger down payment to compensate for no insurance or guarantee to protect the interest of the mortgagee.
One of the possible advantages of investing in a real estate partnership is that you...
gain entry to a shopping center or large building by investing as little as $5,000.
A prime reason for buying an annuity is to...
give you retirement income for the rest of your life. No one knows for sure how long he or she will live. An annuity is attractive since it pays regardless of how long the person lives.
An investor concerned with a predictable source of income provided by an investment would choose...
government bonds Because of the inherent safety in government securities, their market price fluctuates less than more risky securities.
A mutual fund that invests in common stocks of well-managed, rapidly growing corporations is called a(n) _______ fund.
growth
Matt Jackson is single and twenty-four. He has just graduated from college and obtained a job making $26,400 a year. He would like to establish a long-term investment program. Which of the following investments would you recommend for his program?
growth stocks Historically, common stock has been the best choice for the long run. Values fluctuate in the short run, but in the long run, the return has been excellent. Government bonds would be too conservative. Commodities are short run and highly speculative. A money market fund invests in short-term securities and the return is relatively low.
One purpose of title insurance is to...
guarantee the boundaries of the property.
A person who assumes the responsibilities of providing the children with personal care and managing the estate for them is called a(n)...
guardian
Renting would be most appropriate for people who...
have limited funds currently available.
Generally, disability income policies with longer waiting periods...
have lower premiums. The longer the waiting period, the lower the payout by the insurance company; thus, the policy will have lower premiums.
Defective house wiring is an example of a...
hazard
Which one of the following expenditures for retirees is likely to increase?
health insurance
Higher consumer prices are likely to be accompanied by...
higher interest rates Interest rates are the cost of money. An increase in the demand for money results in a change in interest rates.
Which of the following legal techniques best serves low-income consumers?
legal aid societies The Legal Aid Society is a publicly supported community law office specifically designed to give legal assistance to people who cannot afford their own attorneys.
A will is a...
legal statement of a person's decisions about the disposition of his or her property after death.
If a bond is purchased at a price above the face value, the yield to maturity is...
less than the stated interest rate. Yield to maturity includes both interest and amortization of a discount or a premium. Therefore, yield to maturity will be less than the stated interest rate.
Possible losses due to negligence resulting in bodily harm or property damage to others are called _______ risks.
liability
In automobile insurance, the 100 in 100/300/50 refers to the...
limit for bodily injury claims that can be paid to one person.
One of the advantages of being a limited partner in a real estate investment venture is that you have _______ liability.
limited financial
The ease with which an investment can be converted to cash without a substantial loss in dollar value is called the...
liquidity factor.
The ability to convert financial resources into usable cash with ease is referred to as...
liquidity. Each household needs to keep some financial resources in cash or nearcash accounts that can be converted to cash easily to meet emergency needs. These funds are considered liquid.
A mutual fund in which investors pay a commission every time they purchase shares is called a(n) _______ fund.
load
The main disadvantage of FHA and VA mortgages can be...
long processing time. Since FHA and VA mortgages must be approved by both the lending institution and the federal agency, processing time can be longer, especially during periods of high demand for housing.
An advantage credit unions may have over other financial institutions is...
lower-cost personal loans. Currently, credit unions are nonprofit organizations and, therefore, are often able to provide low costs and many services to members.
Perhaps the most widely used option in a life insurance program is...
lump-sum payment.
Which type of insurance protects against the large expenses of serious injury or a long illness?
major medical expense
A decrease in the value of stocks, bonds, or other investments may cause investors to experience _______ risk.
market By definition, market risk is tied to the behavior of investors in the market place.
A mutual fund that invests in short-term corporate obligations and government securities that offer high interest is called a(n) _______ fund.
money market Money market means securities with maturity dates of one year or less.
Which of the following savings plans is not covered by Federal Deposit Insurance?
money market fund All accounts other than a money market fund are issued by institutions that are covered by federal deposit insurance. There is no guarantee on a money market fund.
A corporate bond that is secured by various assets of the issuing firm is called a(n) _______ bond.
mortgage
Which type of REIT pools money to finance construction loans?
mortgage
A type of investment that combines and invests the funds of many investors and manages it with a professional manager is called a(n)...
mutual fund
The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is called the...
net asset value.
If your insurance agent does not give you an interest-adjusted index, your best bet is to...
not buy the policy and look for another agent. An agent from a reputable insurance company would not keep cost comparison information from you. You should change agents.
Equity capital is money...
obtained from the owners of a business.
Generic products are those that...
offer a low-price buying alternative.
A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n) _______ fund.
open-end
Dental expense insurance provides reimbursement for...
oral examinations. inlays. extractions. fillings.
If you want risk-proof real estate investments, invest in...
participation certificates (PCs).
Earnings from a limited partnership would be an example of _______ income.
passive The correct choice is that income which results from business activities in which a person does not actively participate.
To avoid high fees for loans, a person should not borrow from a...
pawnshop
The purpose of a security deposit is to...
pay for potential damages.
The additional living expenses component of a home insurance policy is designed to...
pay for temporary housing while your home is repaired.
A legal document authorizing someone to act on your behalf is called a...
power of attorney.
Medigap health insurance is sold or serviced by...
private insurance companies. Medigap policies cover the insured for the deductibles and gaps in Medicare insurance. These policies are available through private insurance companies.
A cost associated with home buying would be...
property taxes. Property tax is the only listed cost associated with home ownership.
An investment company sponsoring a mutual fund must give potential investors a...
prospectus
Apple Computer Company holds its annual meeting in April. Maxine Star, who owns stock in the company, cannot attend the meeting. She can vote by...
proxy
An expense that would be included in the itemized deductions of a taxpayer is...
real estate property taxes. Real estate taxes are eligible for itemized deductions.
Using a home security system is an example of _______ risks.
reducing
The purpose of small claims court is to...
resolve minor consumer complaints.
The purpose of zoning laws is to...
restrict property use
The purpose of a rate cap with an adjustable rate mortgage is to...
restrict the amount by which the interest rate can increase. A rate cap, or ceiling, is included on an adjustable-rate mortgage. This is done to prevent the increase of the payment and interest cost from going above the ability of the borrower to continue payments.
Earnings that are reinvested in the corporation are called...
retained earnings
A bond that is repaid from the income generated by the project it is designed to finance is called a(n)...
revenue bond
If you establish a(n) __________ trust, you retain the right to end the trust or change its terms.
revocable
An emergency fund should probably be deposited in a...
savings account at the highest available interest rate.
A home equity loan is also referred to as a ____________ mortgage.
second
When bonds are traded between investors, they are traded in the _______ market.
secondary
Bonds of a single issue that mature on different dates are called _______ bonds.
serial
Earnest money has the purpose of...
serving as good faith by a home buyer.
The 1980 CSO Table separates the mortality rates by...
sex
Which of the following wills leaves everything to your spouse?
simple will
Which of the following wills is called an "I love you" will?
simple will A simple will is sometimes called an 'I love you' will since everything is left to the spouse.
A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) _______ fund.
sinking
Generally, interest on corporate bonds is paid every...
six months
Which of the following is the most widely used source of retirement income?
social security
A participating life insurance policy has...
somewhat higher premiums than nonparticipating policies.
Which form of homeowners' policy provides coverage for the most risk exposures?
special The homeowners special form provides the most broad coverage under the homeowners policy options.
Which of the following financial documents would most likely be stored in a safe-deposit box?
stock certificates Records and ownership claims that would be difficult and expensive to replace should be kept in a safe deposit box.
An annuity in which you receive an income for the rest of your life, but no payments are made to anyone after your death is called...
straight life annuity
Which type of annuity gives more income per dollar of outlay than any other type?
straight life annuity The straight life annuity pays nothing after the death of the annuitant and gives more monthly income per dollar of outlay than other types of annuities.
You can determine your net worth by...
subtracting your liabilities from your assets.
The main economic influence that determines prices is...
supply and demand. The price of an item, including the price of money, which is the interest rate, depends upon the demand for the product in relation to its availability.
In what type of joint ownership may neither spouse sell the property without the consent of the other?
tenancy by the entirety
In what type of ownership is each individual considered to own a proportionate share for tax purposes with only their own share being included in their estate?
tenancy in common
Which type of insurance is sometimes called temporary insurance?
term insurance
A trust established by your will that becomes effective upon your death is called a(n)________ trust.
testamentary
Which federal law sets minimum standards for pension plans in private industry and protects more than 50 million workers?
the Employee Retirement Income Security Act (ERISA)
Perhaps the largest drawback of direct real estate investments is...
the absence of large and liquid markets for them. Direct real estate investments are generally nonliquid due to limited numbers of buyers at a given time.
Peril is defined as...
the cause of a possible loss.
A legal arrangement through which your assets are held by a trustee for you or for your beneficiaries is called a...
trust
A person or institution that holds or generally manages property for the benefit of someone else under a trust agreement is called a(n)...
trustee
The financially independent firm or individual that acts as the bondholder's representative is the...
trustee
Subject to certain minimums, which life insurance is designed to let you pay premiums at any time in virtually any amount?
universal life insurance
Impulse buying refers to...
unplanned purchasing
The cash value of a _______ policy fluctuates according to the yields earned by a separate fund, which can be a stock fund, a money market fund, or a long-term fund.
variable life insurance The objective of a variable life insurance policy is to have the insurance coverage fluctuate with the underlying investments and thereby adjust for inflation.
John Peterson purchased a bond at a price far below its face value that will be redeemed at its face value at maturity. In all likelihood, he purchased a _______ bond.
zero-coupon
If you borrow $100 at 10 percent simple annual interest and repay it in one lump sum at the end of one year, you will have to pay...
$110. Ten percent simple interest on $100 for one year is $10. $100 + $10 = $110
If you can invest to earn 10 percent compounded annually, approximately how much will you have to invest today to have $300,000 five years from now?
$186,300 Calculator: n = 5, i = 10, FV = $300,000, PV = $186,276; table: n = 5, i = 10%, factor = .621; .621 x $300,000 = $186,300.
Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay?
$350 A claim of $600, with a $250 deductible would generate a payout of the net difference or $350.00.
A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by...
$50 Tax credits are subtracted directly from the amount of taxes owed.
If you borrow $2500 at 10 percent, compounded semi-annually, how much will you have at the end of 10 years?
$6,633 Use future value calculations for this problem. Ten years of 10% compounded semi-annually, with an initial deposit of $2,500. FV = X * (1 + i)^n where: FV = future value X or PV = original investment i = interest rate n = number of years
Which statement is correct regarding mutual insurance companies?
A mutual company refunds part of the premium to the policy-holders. Mutual insurance companies with no stockholders, only policyholders, specialize in participating policies through refunding part of the insurance premiums if they were not needed to cover extraordinary losses.
You should review your will if...
Any major changes in your personal circumstances warrant a review of your will.
Which plan provides hospital care benefits on essentially a "service type" basis?
Blue Cross
Health insurance is available from...
Blue Cross and Blue Shield. PPOs. private insurance companies. HMOs.
Which plan provides benefits for surgical and medical services performed by physicians?
Blue Shield Blue Shield covers surgical and medical benefits performed by physicians. Blue Cross covers the hospital expenses.
Which of the following statements is correct?
Bonds are a form of debt capital.
Which document explains, adds, or deletes provisions in your existing will?
codicil
An organization that provides financial counseling is...
Consumer Credit Counseling Service.
A tax _______ is an amount subtracted directly from the amount of taxes owed.
Credit A tax credit differs from a deduction in that a tax credit has a full dollar effect in lowering taxes, whereas a deduction reduces the taxable income on which the tax liability is computed.
Which of the following agencies can produce for a subscribing creditor, almost instantaneously, a report about your past and present credit activity?
Credit Bureau
Which health care institution directly employs or contracts with selected medical care specialists to give you health care services in exchange for a fixed, prepaid monthly premium?
HMO A special characteristic of an HMO is that it contracts with selected medical care specialists.
________ are expenses that a taxpayer is allowed to deduct from adjusted gross income.
Itemized deductions Itemized deductions are the expenses that taxpayers are allowed to deduct from adjusted gross income.
Which of the following statements does not accurately describe a line of credit?
It is a long-term loan. A line of credit fits all the given definitions except that it is short-term rather than long-term.
A market in which an investor purchases financial securities through an investment banker from the issuer of those securities is called the _______ market.
Primary
For a dependent to qualify as an exemption, he or she must...
Receive more than one half of his or her support from the taxpayer. To qualify as a dependent, the child must reside in your home and you must pay for more than half of the dependent's support.
Risk refers to...
Risk actually has many meanings; however, it is generally associated with uncertainty and possible loss.
After the death of her husband, Gina Baker, age thirty-five, received a check for $350,000 from a life insurance company. Gina has two small children and wants to make sure that both she and the children are taken care of in the future. Based on this information, which of the investment factors listed below would be the most important to Gina in her investment program?
Safety Factor Gina cannot afford to speculate or lose her principal. Safety is the most important factor at this point.
Hospital insurance (Part A) is financed from part of the...
Social Security payroll taxes. Medicare A is paid for as part of the Social Security (FICA) taxes through payroll deduction.
What can you do to reduce your health care costs?
Stay Well
The use of legitimate methods to reduce one's tax is...
Tax avoidance is the use of legitimate methods to reduce one's taxes.
Which of the following statements is correct for term insurance?
Term insurance is protection for a specified period of time.
The DINK method assumes that...
The DINK method assumes that . . . DINK is a term not commonly used in the life insurance industry. It illustrates that insurance needs differ over the human life cycle. The DINK method assumes that the spouse of a person who dies will continue to work.
Which statement is correct regarding retirement living expenses?
The exact amount of money you will need is impossible to predict.
Why have a growing number of students been without health insurance?
The older student population is not covered by family policies. Child coverage on a parent's policy typically expires at age twenty-three. Today 40 percent of college students are older than twenty-five.
Higher interest rates can be caused by...
a decrease in the money supply The price of money is the interest rate. A lower money supply for a given demand for funds will result in a higher cost for money.
Which employer retirement plan specifies the benefit promised to the employee at the normal retirement age?
a defined benefit plan
Which employer pension plan has an individual account for each employee?
a defined contribution plan
A good example of a closed-end credit is...
a first mortgage loan A first mortgage loan is a closed-end loan with specific limits and payments. Some second mortgage, or home equity loans, permit reborrowing up to a stated limit and are thereby open-end.
The most reliable source of product information is likely to come from...
a food product ingredient label.
The definition of disability for health insurance coverage...
can vary among different insurance coverages. The definition of disability must deal with total verses partial disability, and with disability from a specific job verses any job. Insurance coverages vary and give options.
The borrower's financial ability to meet credit obligations is called...
capacity
A term that refers to the borrower's assets or net worth is called...
capital
An example of an itemized deduction is...
certain job-related travel expenses. Some job-related expenses are tax deductible; however, only that portion that exceeds 2 percent of adjusted gross income is taxed.
The borrower's attitude toward his or her credit obligations is called...
character
Which one of the following expenditures for retirees is likely to decrease?
clothing expenses
The first step of the consumer buying process is...
identifying the problem.
What type of annuity is purchased by people of retirement age?
immediate
Some retirement planning experts suggest that you start planning while you are...
in high school
You should select an insurance agent...
in whom you have full confidence.
A common financial benefit of home ownership is...
increased property value. Historically, property values have increased due to inflation, increased population growth, and home ownership demand. The value of the increase in property value on the market goes to the owner of the property.
Higher prices are likely to result from...
increased spending by consumers. Prices are a result of supply and demand. As demand goes up for a given supply, higher prices are likely to result.
REITs, Ginnie Maes, and Freddie Macs are examples of _______ real estate investments.
indirect In each example, your investment is in an organization that pools your funds and invests in real estate for you. Your investment is indirect.
A state tax levied on the right of an heir to receive all or part of the estate and life insurance proceeds of a deceased person is called a(n) __________ tax
inheritance
A common opportunity cost associated with renting is...
interest lost on the security deposit.
When a bondholder loses money because interest rates in the economy increase, it is an example of _______ risk.
interest rate By definition, interest rate risk occurs when existing bond prices vary inversely with the direction of market interest rates.
If you die without a valid will, you die...
intestate.
If you establish a(n) __________ trust, you cannot change its terms or end it.
irrevocable
A beneficiary is a person who...
is designated to receive life insurance proceeds.
Under what type of ownership is the property considered equally owned for estate tax purposes and passed automatically to your spouse at your death?
joint tenants with the right of survivorship
To select the right insurance, you must...
know your risk exposures.
Which one of the following investments in real estate does not provide diversification?
land
If you receive a phone call from a debt collector...
the debt collector must follow the call with a written notice. Under the Fair Debt Collection Practice Act, the debt collector must follow the phone call with a written notice within five days.
Howard Ramsell recently became aware of implied warranties that exist for consumer purchases. An implied warranty exists as a result of...
the intended use of the product.
Which of the following items is a set amount on which no taxes are paid?
the standard deduction Every taxpayer receives at least the standard deduction, a set amount on which no taxes are paid.
If you die without a valid will...
the state's law of descent and distribution becomes your effective will.
Financial leverage refers to...
the use of borrowed funds for investment purposes.
The purpose of a "debit" card is to...
transfer money electronically. A debit card is similar to writing a check except that the amount of the purchase is deducted from the bank account immediately through an electronic funds transfer.
A government security issued in minimum units of $1,000 with maturities that range from three months to one year is called a...
treasury bill
A government security issued in minimum units of $1,000 with a thirty year maturity is called a...
treasury bond
Recently, Jim Dahl was on a bus tour in a mountain area. The bus broke down forcing the group to stay overnight. Group members had to pay for their own hotel bills. Jim believes that hotel cost for the group should be paid by the tour company. Which legal action would be most appropriate?
class action suit A class action suit fits here because legal action could be taken on behalf of all people who suffered from the same alleged injustice
If you were offered $1,000 to be received at the end of ten years and required 14 percent annual interest on your investment, how much would you be willing to pay today for this $1,000? Round out if the answer is within 50 cents.
$270 By calculator: FV = $1,000, i = 14%, n = 10, PV = $269.74; by table in your textbook: the factor for period 10 and rate 14% is .270; .270 x $1,000 = $270.00.
Michelle Barber is considering an additional contribution of $2,000 to a tax-deductible charity, bringing her total itemized deductions to $16,000. If Michelle is in a 28 percent tax bracket, how much will this contribution reduce her taxes?
$560 A $2,000 reduction in taxable income would reduce taxes by $560 for a person in the 28 percent bracket. ($2,000 x .28 = $560)
Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $60 for this service. Over a period of ten years, how much does Elaine gain from preparing her own tax return? Assume she can earn 6 percent with a savings certificate.
$790.86 Calculator: n = 10, i = 6%, pmt = $60, FV = $790.85. table: n = 10, i = 6%, factor = 13.181; $60 x 13.181 = $790.86.
Ben plans to buy a house for $65,000. If that real estate is expected to increase in value by 5 percent each year, what will its approximate value be seven years from now?
$91,455 Calculator: n = 7, i = 5%, PV = $65,000, FV = $91,562; table: n = 7, i = 5%, PV = $65,000, factor 1.407. $65,000 x 1.407 = $91,455.
Who is most likely to benefit by inflation?
Borrowers Those who benefit most by inflation do so because the cost of their debt remains fixed as incomes rise, making it easier to pay off the debt.
The difference between the amount budgeted and the actual amount received or spent is called a...
Budget variance By definition, a budget variance is the difference between the amount budgeted and the actual amount received or spent.
The main responsibility of "The Fed" is to...
Regulate the money supply. (This is not intended to be a trick question. The major responsibility of the Federal Reserve Bank is to control the economy to avoid the negative effects of inflation or depression. The main tool available to the Fed is the regulation of the money supply that influences prices and interest rates.)
For which of the following types of credit plans is the interest tax deductible?
a home equity loan Current tax law only permits a tax deduction on interest on your home loans.
To determine a person's solvency, which financial document should be consulted?
balance sheet Insolvency occurs when liabilities exceed assets and net worth is negative. The balance sheet is the statement that measures net worth.
Money management refers to...
day-to-day financial activities. By definition, money management refers to the day-to-day financial activities to manage personal economic resources.
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n)...
financial plan
Ed Bostrom wants to reduce his fixed expenses. What action would be appropriate?
finding a place to live with a lower rent Rent is usually the largest and most regularly fixed expense. Obviously, a lower rental unit would reduce fixed expenses.
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n)...
five-year certificate of deposit (savings certificate)
Open dating provides information on...
freshness
The main purpose of taxes is to...
generate revenue for funding government programs. Taxes are essential to cover the expenses of services provided by government agencies.
The major criticism of service contracts is...
high costs and a low chance of need.
A risk premium associated with interest rates refers to...
higher earnings due to uncertainty. (The interest rate required by a lender must include a premium to compensate for the uncertainty associated with the return of the money and the purchasing power of the funds. This additional premium is what is asked for in this question.)
An example of a tax-exempt investment is...
interest on municipal bonds. Interest on municipal bonds is not subject to federal income taxes.
Refinancing of a mortgage is recommended when...
interest rates fall If interest rates fall, a homeowner would consider refinancing to obtain the lower interest cost.
The Form 1040 is most helpful to a person who...
itemizes deductions Form 1040 allows a person to itemize deductions rather than just take the standard deduction.
A personal balance sheet presents...
items owned and amounts owed. The balance sheet is your financial status at a given time. It should represent the assets you hold and any debt you have. The difference between these two is your net worth.
A trust has the purpose of...
managing the assets of a person. A trust is a legal agreement that provides for the control of assets by a trustee for the benefit of another party.
A financial institution organized for the main purpose of providing loans to purchase homes is a...
mortgage company. A mortgage company--as the name implies--has the main purpose of helping home buyers finance the home purchase.
If you are a woman, a creditor legally...
must consider income from your part-time employment when assessing your capacity for loan repayment. The Equal Credit Opportunity Act protects the credit rights of women, including the requirement that all income be considered for loan repayment.
The "head of household" filing status is for people who are...
not living with a spouse and have dependent children. The title 'head of household' relates specifically to an unmarried individual or a surviving spouse who maintains a household for a child or dependent relative.
Revolving check credit is a...
prearranged loan for a specified amount that you can use by writing a special check
The Consumer Credit Counseling Service (CCCS) is basically concerned with...
preventing and solving the problems related to credit overextension. The CCCS aids families with serious debt problems by helping them set up budgets and plan for expenditures. The organization also helps prevent debt problems by teaching families the pitfalls of unwise credit buying, and educating them on budgets and planning.
Capital gains refer to...
profits from the sale of an investment asset.
The purpose of a service contract is to...
protect a product owner from expensive repairs.
Which of the following is an example of opportunity cost?
saving money instead of taking a vacation (Opportunity cost is defined as the cost of what a person gives up when another choice is made. The correct answer suggests that the individual can save a certain sum of money or take a vacation, but not both.)
When preparing a bank reconciliation, outstanding checks should be...
subtracted from the bank statement balance. Outstanding checks have already been subtracted from your checkbook and must therefore be deducted from the bank statement balance to reconcile the statement
Tax-deferred retirement plans are a type of...
tax shelter. The correct answer names investments that provide immediate tax benefits and a reasonable expectation of future financial return. Tax deferred retirement plans are of this type.
If you cosign a loan...
you'll have to pay up to the full amount of the debt if the borrower does not pay.