Fin Exam 2

Experts suggest that the debt payments-to-income ratio should be a maximum of

20%

According to the video, the decision to rent or buy a home is an important decision that can affect not only your ________________, but also your _________________.

Financial decisions; quality of life

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time.

Full warranty

Which of the following is NOT a benefit of home ownership?

Maintenance and costs of repairs and home improvements

A variable operating cost for a vehicle is

Maintenance and repairs.

A process used to settle grievances in a nonbinding process is called a(n)

Mediation.

Which of the following is an advantage of renting?

Renters have fewer responsibilities for maintenance than home owners.

Which of the following is an advantage of buying a car compared to leasing that is mentioned in the video?

There are not any additional costs incurred for extra mileage.

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

Which of the following expenses is NOT usually incurred by a tenant?

Property taxes.

The use of property or savings to secure a loan relates to

Collateral

A service contract

Covers the repair costs of a product.

The dealer's cost is also known as the

Invoice price.

If you are denied credit,

You are entitled to a free copy of your credit report.

Brandon lost his debit card. When he realized it was gone, his account had $238 in unauthorized charges. Since he was embarrassed about his loss, he didn't contact his financial institution for 70 days. What is the most that he is liable for?

$238

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

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1.

FICO scores generally range from

350 to 850.

All of the following are non-deposit institutions

A life insurance company. A finance company. A credit card company. An investment company. (A credit union is Not)

Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?

A money market account

Which of the following will likely provide the most expensive loans?

A payday loan company

A drawback of a regular savings account is

A relatively low rate of return.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

Franklin is planning for a purchase of a vehicle in two years. Since he wants to be certain that his funds are safe (insured), which of the following should he use?

A savings account.

All of the following are deposit institutions

A savings and loan association. A mutual savings bank. A commercial bank. A credit union. (A finance company is Not)

Marsha invests $1,350 and earns a $105 return at the end of one year. What is her annual percentage yield (APY)?

APY = 100(Interest/Principal) = 100(105/1,350) = 7.78%

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM.

What should a home buyer consider when evaluating a house?

All of these should be evaluated.

An all-in-one account that provides a complete financial services program for a single fee is known as

An asset management account.

Preston never opened his bank statements, so he was surprised to see that he had incurred a service charge, because his balance went below a required minimum balance. In addition, he did not earn interest for this month. What kind of account does Preston have?

An interest-earning checking account.

Landon is looking to obtain a home equity loan. A lender will loan 65% of the home's current market value, which is $200,000. Landon currently owes $90,000 on his original home mortgage. What is his home equity credit limit available?

Approximate Loan Value = Market Value of Home x Lender's Percentage = $200,000 x 0.65 = $130,000 Approximate Credit Limit Available = App. Loan Value - Balance Due on Mortgages = $130,000 - $90,000 = (($40,000))

What step can you take if your credit application is denied?

Ask the reasons why you were denied credit.

Which of the following is a disadvantage of a car lease?

At the end of the lease, you have no ownership interest in the vehicle.

Which of the following is an example of closed-end credit mentioned in the video?

Automobile Loans

Chloe signed the back of her check with just her signature. She used a(n)

Blank endorsement

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

Certified check

Sally has a major problem with a product and thinks that many others have had the same problem. Which of the following is the best way to resolve the problem?

Class action lawsuit

____________________________ is more common and has a _______________ interest rate charged by most lenders.

Closed-end credit; lower

When compared to __________________, ___________________ is often more difficult to obtain because the lender must rely upon your word that you will pay back the loan.

Closed-end credit; open-end credit

Buying a vehicle can be a challenging process. When researching a vehicle, a consumer may want to consider all of the following vehicle options...

Convenience options such as air conditioning. Mechanical devices to improve performance. Aesthetic features like metallic paint.

According to the video, which of the following is not mentioned as a financing opportunity for the unbanked?

Corporate Bonds

All of the following are factors mentioned in the video that individuals should consider before obtaining a home equity loan

Costs and risks of loan. Deductible interest. Lender's fees. High annual fees. (Not Location of home)

Which of the following is the document that transfers ownership of property from one party to another?

Deed

The largest fixed expense associated with a new automobile is

Depreciation.

A credit report includes

Detailed credit information

According to the video, which of the following is mentioned as a tip or trick regarding high-cost financial services?

Determine the annual coupon rate for a prospective loan.... and Compare the interest rate to the average interest rate for loans from a bank or similar financial institution.... and Ask questions, read the fine print, and understand the risks involved with the high-cost loans.

According to the end of the video, the decision to buy or lease an automobile is a __________________ decision.

Difficult

Which of the following questions is needed before deciding how and when to make a major purchase?

Does the purchase fit my budget? Do I have the cash I need for the down payment? Could I use the credit I need for this purchase in some better way? Could I postpone the purchase?

Which of the following is an account used to pay property taxes and homeowner's insurance?

Escrow

Paul is looking for a low interest, low down payment loan for his first home, but he is not a veteran. He might be eligible for a(n)

FHA loan

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except

Home appraisal.

According to the video, which of the following is an advantage of renting a home?

Individuals can rent a home with a smaller financial commitment than if you were to buy a home, It is easy to move or change homes if you don't like the first home, and There is less maintenance associated with renting a home.

Which of the following is a disadvantage of leasing a car that is mentioned in the video?

Individuals don't have ownership in the vehicle and they must return it to the leasing company at the end of the lease.

Which of the following is correct about the lemon law?

It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles.

According to the video, all of the following is a disadvantage of buying a home, except:

It can be hard to maintain ownership of the home.

A legal document that includes information about the due date of monthly rent is called a

Lease

The owner/landlord is known as the

Lessor

When Angela wanted to provide financial security for her dependents, she considered purchasing a product that would provide income replacement in the event of her untimely death and also provide a savings/investment component while she is alive. Which company would she most likely do business with?

Life insurance company.

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts.

Limited warranty

Which of the following refers to the opportunity to withdraw your money on short notice without incurring a loss in value?

Liquidity

When misused, credit can result in

Loss of creditworthiness, Default, A less satisfying life, and Bankruptcy.

While evaluating alternatives, comparison shopping will be beneficial for buying all of the following except

Milk and bread that you buy often. Musical instrument accessories that you purchase online. A camera. An expensive television. (Not a hot dog at the baseball park.

Kylie went to a post office to obtain a

Money order

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments.

Private mortgage insurance

Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.

Which of the following is NOT a valid reason for borrowing?

Paying for everyday living expenses

Yvette has a flexible-rate mortgage that limits the amount to which her monthly payments can rise. This feature is called a(n)

Payment cap.

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to

Per the Homeowners Protection Act, PMI must be terminated automatically when a home owner's equity reaches 22% of the property value at the time the mortgage was executed. The mortgage would then be $150,000 × (1 − 0.22) = $117,000.

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called:

Points

The text identifies several phases in the research-based buying process. The correct order of the phases is

Pre shopping activities, evaluating alternatives, selection and purchase, post purchase activities.

If you want to pay a set fee to receive unlimited or reduced-fee legal assistance, you should use (a)

Prepaid legal services.

These products are sold by one chain of stores and are low-cost alternatives to famous-name products.

Private-label or store brands.

Which of the following is correct?

Renting offers mobility. Renting is usually less costly in the short run. Lifestyle and financial factors should be analyzed to determine if you should rent or buy. Home ownership usually has long-term financial advantages. (Not Traditional financial guidelines suggest that your home should cost about five times your annual income.)

A cash advance

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

The expected value of a vehicle at the end of a lease is called the

Residual value.

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

Restrictive endorsement.

Heather is currently in a 15% tax bracket and has a 3.4% savings rate of return. What is her after-tax savings rate of return?

Step 1: Determine your top (marginal) tax rate = 15% Step 2: Subtract your tax rate from 1.0 = 1.0 - 0.15 = 0.85 Step 3: Multiply the yield on your savings account with step 2 answer. = 0.034 x 0.85 = 2.89%

Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return?

Step 1: Determine your top (marginal) tax rate = 22% Step 2: Subtract your tax rate from 1.0 = 1.0 - 0.22 = 0.78 Step 3: Multiply the yield on your savings account with step 2 answer. = 0.072 x 0.78 = 5.62%

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash, and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps.

Stop payment on the missing checks. Cancel her debit card. Get a new debit card with a new personal identification number (PIN). Close her bank account and open a new one.

If a check is lost or stolen, you should use a

Stop-payment order.

The opportunity to have another person take over rent payments and live in the rental unit is called (a)

Subletting

Which of the following is a disadvantage of renting?

Tenants cannot take tax deductions for mortgage interest and property taxes.

Who is responsible for a loan repayment?

The cosigner and/or the borrower

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes.

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

Kelly selected a home and submitted an offer to the seller.

The seller may reject the offer and choose to provide a counteroffer.

The minimum monthly payment on a credit card is

The smallest amount you can pay and remain a borrower in good standing.

Perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Why are some financial service operations referred to as financial supermarkets?

They offer a combination of services from one source.

All of the following are reasons mentioned in the video of why homeowners obtain home equity loans.

To pay for medical expenses for a family member. To pay for a remodeling project. To reduce or eliminate debts. To pay for the cost of education for someone in the family. (Not to.. To pay for family vacations.)

Given the information here, what is the annual cost of owning?

Total annual cost of buying = (annual Mortgage payments + annual Property taxes + annual homeowner's insurance + Maintenance and repairs) − (Growth in equity + Tax savings + Annual appreciation) = {$19,200 + $4,800 + $1,200 + (1% × $300,000)} - {$3,000 + $2,800 + (1.5% × $300,000)} = $28,200 - $10,300 = $17,900.

Using the following information, what is the cost to lease a car?

Total cost of lease = + Total monthly lease payment + Opportunity cost of security deposit + end-of-lease charges = ($300 × 5 years × 12 months) + ($300 × 5 years × 2%) + ($500) = $18,530.

Using the following information, what is the cost to lease a car?

Total lease cost = + Total monthly lease payment (monthly lease payment × 12 months × #years in lease) + Opportunity cost (security deposit × #years in lease × interest rate) + end-of-lease charges

Using the following information, what is the cost to buy a car?

Total vehicle cost = Down payment + Total monthly loan payment (monthly loan payment × 12 months × #years in loan) + Opportunity cost (down payment × #years in loan × interest rate) − Estimated value at end of ownership

Using the following information, what is the cost to buy a car?

Total vehicle cost = Down payment + Total monthly loan payment + Opportunity cost of down payment − Estimated value at end of ownership = ($3,000) + ($350 × 12 months × 6 years ) + ($3,000 × 6 years × 2%) − ($4,000) = $3,000 + $25,200 + $360 − $4,000 = $24,560.

___________________ individuals are those who have bank accounts, but still use high-cost financial service companies.

Underbanked

A standard measurement used to compare the prices of packages of different sizes is

Unit pricing

All of the following are warning signs of debt problems except

You pay your credit card bills in full each period.

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened.

The Truth in Savings Act requires financial institutions to disclose the _____ on savings accounts.

annual percentage yield (APY)