Final Exam PF

You expect to receive $150,000 per year on a contract that will last 2 years. You are trying to compare this offer to a lump sum payment. If you can earn 7% on your investments, how much is the contract worth to you today?

$271,200 $150,000 * 1.808 (Exhibit D) = $271,200

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of

$40,000

If you desire to have $8,500 for a down payment for a house in four years, what amount would you need to deposit today? Assume that your money will earn 6 percent. Use Exhibit 1-C. (Round your PV factor to 3 decimal places and final answer to the nearest whole dollar.)

$6,732 $8,500 × 0.792 = $6,732

You expect to receive $350,000 per year on a contract that will last 2 years. You are trying to compare this offer to a lump sum payment. If you can earn 8% on your investments, how much is the contract worth to you today?

$624,050

The future value of $6,500 seven years from now at 6 percent is

$9,776

Given the information shown here for NMOP Inc., calculate the dividend yield. Annual dividend = $4.00 Number of shares outstanding = 40,000 Current market price per share = $40.00 Book value per share = $8.00

10% Dividend yield = Annual dividend/Current price per share = $4.00/40.00 = .10 = 10%.

At the end of the year, Yvonne received a form from her bank that reported income from her savings. That form is called a

1099

What would be the average tax rate for a person who paid taxes of $7,223.15 on a taxable income of $57,100? (Enter your answer as a percent rounded to 2 decimal places.)

12.65% Average tax rate=Total taxes / Taxable income =$7,223.15 / $57,100 =0.1265, or 12.65%

George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate?

13.7% Average taxes = Taxes paid/Taxable income = $4,375/$32,000 = 0.1367 = 13.67% or 13.7%.

Currently, Boeing pays an annual dividend of $2.50. If the stock is selling for $100, what is the dividend yield? (Enter your answer as a percent rounded to 1 decimal place.)

2.5% Dividend yield=Annual dividend amount / Current price per share =$2.50 / $100 =0.025, or 2.5%

Financial experts recommend a debt/payments ratio of less than ____ of take-home pay.

20%

In 2013, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $20,480. What was the rate of increase for these automobiles between the two time periods? (Round your answer to the nearest whole percent.)

28% ($20,480 − $16,000) / $16,000 = 0.28, or 28%

Cathy needs a full range of financial services, including checking, savings, and lending. To which of the following should she go?

A commercial bank

If you are selling your house by owner, you should still enlist the assistance of

A lawyer or title company to assist with the contract, closing, and other legal matters.

Amber wants to open an account, but she doesn't know which kind is appropriate. She is interested in earning a higher interest rate and plans to keep at least $1,000 in her account so she can avoid paying a fee. Amber wants to open her account at an investment company and understands that her account will not be covered by federal deposit insurance. What kind of account should she open?

A money market fund

Items that you own that have a monetary value are referred to as

Assets

The tax based on the total tax due divided by taxable income is called the

Average Tax Rate

The tax based on the total tax due divided by taxable income is called the

Average tax rate

If Diane was in a 25% tax bracket and received a $1,000 tax credit, by how much would her taxes be reduced?

$1,000

Wanda Sotheby purchased 210 shares of Home Depot stock at $73 a share. One year later, she sold the stock for $81 a share. She paid her broker a commission of $52 when she purchased the stock and a commission of $59 when she sold it. During the 12 months she owned the stock, she received $154 in dividends. Calculate Wanda's total return on this investment. (A loss should be indicated by a minus sign.)

$1,723 Total cost of purchase=(Price per share × Number of shares) + Commission =($73 × 210) + $52 =$15,382 Total sale proceeds=(Price per share × Number of shares) - Commission =($81 × 210) - $59 =$16,951 Total return=Dividends + Capital gain =$154 + ($16,951 - $15,382) =$1,723

Julia Sims has $32,000 of adjusted gross income and $5,120 of medical expenses. She will be itemizing her tax deductions this year. The most recent tax year has a medical expenses floor of 10 percent. How much of a tax deduction for medical expenses will Julia be able to take?

$1,920 Deductible medical expenses=Total medical expenses - (10% of adjusted gross income) =$5,120 - (0.1 × $32,000) =$1,920 If the deductible medical expenses are equal to or less than 10 percent of adjusted gross income, then there is no deduction for medical expenses.

Ben and Carla Covington plan to buy a condominium. They will obtain a $224,000, 30-year mortgage at 7.0 percent. Their annual property taxes are expected to be $2,000. Property insurance is $520 a year, and the condo association fee is $240 a month. Based on these items, determine the total monthly housing payment for the Covingtons. Use Exhibit 7-7. (Round your intermediate calculations and final answer to 2 decimal places.)

$1,939.60 Monthly mortgage payment=Mortgage payment factor × (Mortgage amount / $1,000) =$6.65 × ($224,000 / $1,000) =$1,489.60 Total monthly housing payment=Monthly mortgage payment + [(Property taxes + Insurance) / 12] + Condo association fee =$1,489.60 + [($2,000 + $520) / 12] + $240 =$1,939.60

Jane and Bill Collins have total take-home pay of $4,250 a month. Their monthly expenses total $3,500. Calculate the minimum amount this couple needs to establish an emergency fund.

$10,500 Minimum emergency fund=Monthly expenses × 3 months =$3,500 × 3 =$10,500

A few years ago, Simon Powell purchased a home for $215,000. Today, the home is worth $380,000. His remaining mortgage balance is $165,000. Assuming that Simon can borrow up to 75 percent of the market value, what is the maximum amount he can currently borrow against his home?

$120,000 Amount available for borrowing=(Maximum loan percent × Current market value) − Current loan =(0.75 × $380,000) − $165,000 =$120,000

The future value of $3,000 deposited a year for 4 years earning 6 percent would be

$13,125 $3,000 * 4.375 (Exhibit 1B) = $13,125

You need $20,000 in cash to buy a car 5 years from today. You expect to earn 6 percent, compounded annually, on your savings. How much do you need to deposit today if this is the only money you save for this purpose?

$14,940 $20,000 * 0.747 (Exhibit 1C) = $14,940

The future value of $3,000 deposited a year for 5 years earning 6 percent would be

$16,911 $3,000 * 5.637 (Exhibit 1B) = $16,911

Ben Collins plans to buy a house for $156,000. If the real estate in his area is expected to increase in value by 1 percent each year, what will its approximate value be seven years from now? Use Exhibit 1-A. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.)

$167,232 $156,000 × 1.072 = $167,232

A class-action suit against a utility company resulted in a settlement of $2.05 million for 71,000 customers. If the legal fees, which must be paid from the settlement, are $400,000, what amount will each plaintiff receive? (Round your answer to 2 decimal places.)

$23.24 Amount per plaintiff=(Settlement amount − Legal fees) / Number of plaintiffs =($2,050,000 − $400,000) / 71,000 =$23.24

If Jack was in a 25% tax bracket and received a $1,000 tax deduction, by how much would his taxes be reduced?

$250 Taxes would be reduced by (Tax deduction) × (Tax rate) = $1,000 × 25% = $250.

Who is less likely to be harmed by inflation?

Borrowers

If you have an interest rate subsidy from a home builder or real estate developer, you have a

Buy-down

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

Capital

Consumer credit

Dates back to colonial times.

Which of the following ratios shows the relationship between debt and net worth?

Debt Ratio

Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?

Debt payments ratio

All of the following statements are correct except

Dividend payments must be approved by the stockholders.

Frank and Diane want to buy a house. Which of the following do they need before they purchase a house?

Down payment

Fees, tips, and bonuses are forms of

Earned income

When calculating federal income taxes, "gross income" includes all of the following except

Earned income credit

Paul Davis wants to deposit a lump sum of money today for a vacation that he plans to take to Asia after he graduates from Graduate School. Which formula should he use to determine the amount of money he will have available for his vacation?

Future value of a single amount

Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?

Future value of a single amount

If your main focus is to have your investments increase in value, you are most concerned with

Growth

Which of the following statements is true?

Investors enjoy the lower risk of a corporate bond but also take advantage of the speculative nature of common stock.

The dealer's cost is also known as the

Invoice price

Which of the following items should be shredded to protect yourself from identity theft?

Papers with personal information

A vehicle lease has several costs. Which of the following is the amount paid monthly and the number of payments?

Payment schedule

Properly maintaining and operating the product is part of the ____ phase of the research-based buying process.

Post purchase activities

If you want to compare two companies, you should use

Price-earnings ratio

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 expenses is NOT usually incurred by a tenant?

Property taxes

The type of bond that is tracked electronically, using computers to record the owners' information, by the issuing company is a

Registered bonds

When Jack picked up a personal computer from the _____, he was really leasing it.

Rent-to-own center

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Subtract his itemized deductions

Which of the following is not correct regarding preferred stock?

The yield on preferred stocks is often lower than the yield on corporate bonds.

A U.S. government security issued in minimum units of $100 with a 30-year maturity is called a

Treasury bond

Allison has returned to school after five years out of the work force. She is taking one course at the local university for a cost of $1,460. To minimize her taxes, should she take a tuition and fees deduction or an education credit? (Assume a 15 percent tax rate.) (Assume the education credit will equal the entire cost of the course.)

Tuition and fees deduction=$1,460 × 0.15 =$219 Education credit=$1,460 Thus, the education credit is the best option.

As a result of being an armed services veteran, Dan should be eligible for a(n)

VA Loan

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired.

Warranty

The potential return on any investment should

be directly related to the risk the investor assumes

Inflation risk deals with

reduction in purchasing power

A vehicle lease has several costs. Which of the following is the interest rate used to calculate the monthly cost?

Money factor

Which of the following provides deposit insurance for credit unions?

NCUA

Which of the following is a type of electronic payment?

Smart card

Which of the following investments typically has the most risk?

Stocks

This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.

Income Tax

The future value of $1,500 four years from now at 6 percent is

$1,893

The future value of $4,000 five years from now at 6 percent is

$5,352

ATM stands for

Automated Teller Machine

Which of the following is NOT a tax that most people pay?

Federal taxes on possessions

A debt ratio of 0.5 indicates

For every dollar of net worth, debt equals $0.50.

NYSE stands for

New York Stock Exchange

If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of that amount over 4 years if the funds were deposited in an account earning 7 percent? Use Exhibit 1-B. (Round your FVA factor to 3 decimal places and final answer to the nearest whole dollar.)

$2,220 $500 × 4.440 = $2,220

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes.

Assume you are in the 33 percent tax bracket and purchase a municipal bond with a yield of 5.50 percent. Use the formula presented in chapter 11 of your textbook to calculate the taxable equivalent yield for this investment. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

8.21% Taxable equivalent yield=Tax-exempt yield / (1 − Your tax rate) =0.055 / (1 - 0.33) =0.0821, or 8.21%

Susan Smith has a goal of "saving $25 per month for a TV". Considering the SMART approach, Susan's goal lacks

A time frame

A budget deficit would result when a person's or family's

Actual spending exceeds planned spending.

Gross income less Adjustments to Income equals

Adjusted gross income

Which of the following can result from a failure to repay a loan? Bankruptcy. Loss of income or valuable property. Loss of a good reputation. Damage to family relationships. All of the above may result from the failure to repay a loan.

All of the above

Which of the following is some of the information found on a financial website such as Yahoo! Finance? Multiple Choice Company name, last price (previous day's close), target price, price change (day's range). 52-week price range, number of shares traded (volume). Market capitalization (Market Cap). Dividend paid and yield. All of this information is included.

All of this information is included

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

Annual percentage yield (APY)

Under Chapter 7 of the U.S. bankruptcy code,

Certain assets receive some protection.

Amanda wants to be part of the most basic form of ownership for a corporation. She should invest in

Common Stock

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

After you purchase an investment, you should

Continually evaluate your investment.

This type of promotion immediately reduces the amount a family spends on groceries each week

Coupons

If you miss payments on a home equity loan, you can lose your

House

The loss of a job or encountering an illness results in ____________ risk.

Income

The rising or falling of prices that causes changes in buying power is referred to as ____________ risk.

Inflation

Credit reports can be obtained for all of the following reasons except

Inquiry by a neighbor

What are the interest cost and the total amount due on a six-month loan of $1,200 at 13 percent simple annual interest?

Interest cost (I)=P × r × T =$1,200 × 0.130 × (6 / 12) =$78 Total amount due=Interest + Principal =$78 + $1,200 =$1,278

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

Lease

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

Liquidity

All of the following are fixed operating costs for a vehicle except

Maintenance and repairs

The rate used to calculate the tax due on the next dollar of income is referred to as the

Marginal Tax Rate

Attempts to increase income through employment are part of the _____________ component of financial planning.

Obtaining

If $4,327 was withheld during the year and taxes owed were $4,124, would the person owe an additional amount or receive a refund? What is the amount? (Enter the amount as a positive value.)

Tax due (refund)= Total tax − Tax withheld = $4,124 − $4,327 = −$203

With a 28 percent marginal tax rate, would a tax-free yield of 6.2 percent or a taxable yield of 10.5 percent give you a better return on your savings?

Tax-free yield: Aftertax yield = 10.5% Taxable yield: Aftertax yield=Taxable yield × (1 - Tax rate) =0.105 × (1 - 0.28) =0.0756, or 7.56% The better return is the option that has the higher aftertax yield.

All of the following are consumer credit protection laws except

The Credit Lawsuit Act