Finance 1000 Exam 1

At an annual interest rate of 6.75 percent, how long will it take for your savings to double?

10.7 years

A tax imposed on the value of a person's property at the time of death is called a(n

Estate Tax

Individuals are allowed to give money or items of any value to a person without being subject to estate taxes. T/F

False

Net worth is the amount owed to others. T/F

False

Take-home pay is also called:

Net Pay

Monthly fee, $2.50; processing fee, 45 cents per check; checks written, an average of 25 a month

Net annual cost = 12 × [(Average number of checks per month × Cost per check) + Monthly fee]= 12 × [(25 × $0.45) + $2.50]= $165.00

Carla Lopez deposits $1,800 a year into her retirement account. If these funds have average earnings of 7 percent over the 40 years until her retirement, what will be the value of her retirement account?

$1,800 × 199.640 = $359,352

A head of household with taxable income of $62,000.

$14,100 × 0.10 = $1,410.00($53,700 − $14,100) × 0.12 = $4,751.88($62,000 − $53,700) × 0.22 = $1,825.78$1,410.00 + $4,751.88 + $1,825.78 = $7,987.66

Ben Collins plans to buy a house for $166,000. If the real estate in his area is expected to increase in value 2 percent each year, what will its approximate value be five years from now?

$166,000 × 1.104 = $183,264

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

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

$40,000

sing the following table, calculate the taxes for an individual with taxable income of $45,000. 10%Up to $9,875 12%$9,876-$40,125 22%$40,126-$85,525 24%$85,526-$163,300 32%$163,301-$207,350 35%$207,351-$518,400 Multiple Choice

$5,690.00

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 single person with taxable income of $37,800.

$9,875 × 0.10 = $987.50($37,800 − $9,875) × 0.12 = $3,350.88$987.50 + $3,350.88 = $4,338.38

All of the following are fixed expenses except: (A) Utilities. (B) A monthly train ticket for commuting to work. (C) A mortgage or rent payment. (D) A monthly allocation for life insurance. (E) An installment loan payment.

(A) Utilities

The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $2,600 five years from now.

1,942.87

Tran Lee plans to set aside $2,300 a year for the next six years, earning 5 percent. What would be the future value of this savings amount?

15,644.40

The amount a person would have to deposit today to be able to take out $600 a year for 5 years from an account earning 8 percent

2,395.63

The amount a person would have to deposit today to be able to take out $600 a year for 5 years from an account earning 5 percent

2,597.40

The future value of $725 saved each year for 7 years at 5 percent

5,902.96

If you earn 13.5 percent on your investments, how long will it take for your money to double?

5.3 years

If you desire to have $9,500 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 4 percent

7,808

If the value of land in an area is increasing 7.6 percent a year, how long will it take for property values to double?

9.5

The future value of $580 eight years from now at 6 percent.

924.43

With a 30 percent marginal tax rate, would a tax-free yield of 6.6 percent or a taxable yield of 9.2 percent give you a better return on your savings? Taxable yield of 6.6 % Tax-free yield of 6.6 %

After-tax yield = 6.6% Taxable yield: After-tax yield = Taxable yield × (1 − Tax rate)= 0.092 × (1 − 0.30)= 0.0644, or 6.44% After-tax yield

With a 30 percent marginal tax rate, would a tax-free yield of 7.1 percent or a taxable yield of 7.2 percent give you a better return on your savings? Taxable yield of 7.1 % Tax-free yield of 7.1 %

After-tax yield = 7.1% Taxable yield: After-tax yield = Taxable yield × (1 − Tax rate)= 0.072 × (1 − 0.30)= 0.0504, or 5.04% After-tax yield

An ATM with a service fee of $4 is used by a person 200 times in a year. What would be the future value in 7 years (use a 5 percent rate) of the annual amount paid in ATM fees

Annual fee = Service fee per transaction × Number of transactions per year= $4 × 200= $800 Future value = Annual fee × FV annuity factor= $800 × 8.142= $6,513.60

calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000

Assets − Liabilities = Net worth; $8,000 − $5,000 = $3,000

The Fram family has liabilities of $127,000 and a net worth of $340,000. What is their debt ratio?

Debt ratio = Liabilities/Net worth= $127,000/$340,000 = 0.374

The Fram family has liabilities of $136,000 and a net worth of $348,000. What is their debt ratio?

Debt ratio = Liabilities/Net worth= $136,000/$348,000= 0.391

Janie has a joint account with her mother with a balance of $745,000. Based on $250,000 of Federal Deposit Insurance Corporation coverage, what amount of Janie's savings would not be covered by deposit insurance?

Janie's portion of joint account = 0.50 × $745,000= $372,500 Uninsured portion of Janie's account = Janie's portion of joint account − FDIC coverage amount= $372,500 − $250,000= $122,500

Interest earnings of 3 percent with a $450 minimum balance; average monthly balance, $550; monthly service charge of $19 for falling below the minimum balance, which occurs four times a year (no interest earned in these months)

Net annual cost = Service charges − Interest earnings= (4 × $19) − (8/12)(0.03 × $550)= $65.00

What is the annual opportunity cost of a checking account that requires a $270 minimum balance to avoid service charges? Assume an interest rate of 2.5 percent

Opportunity cost = Required minimum balance × Interest rate= $270 × 0.025= $6.75

An advantage of investing in a 401(k) plan is the:

Possibility of receiving an employer match on your contributions.

A drawback of a regular savings account is the:

Relatively low rate of return.

Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?

Roth IRA

Based on the following data, determine the amount of total assets, total liabilities, and net worth. Liquid assets$ 4,620 Investment assets$ 9,090 Current liabilities$ 2,420 Household assets$ 95,390 Long-term liabilities$ 83,730

Total assets = Liquid assets + Investment assets + Household assets= $4,620 + $9,090 + $95,390= $109,100 Total liabilities = Current liabilities + Long-term liabilities= $2,420 + $83,730= $86,150 Net worth = Total assets − Total liabilities= $109,100 − $86,150= $22,950

Using the following balance sheet items and amounts, calculate the total liquid assets and total current liabilities. Money market account $ 2,850 Medical bills $ 302 Mortgage $ 163,000 Checking account $ 830 Retirement account $ 89,400 Credit card balance $ 539

Total liquid assets = Money market account + Checking account= $2,850 + $830= $3,680 Total current liabilities = Medical bills + Credit card balance= $302 + $539= $841

Money management refers to day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security. T/F

True

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

The Brandon household has a monthly income of $5,870 on which to base their budget. They plan to save 10 percent and spend 32 percent on fixed expenses and 56 percent on variable expenses. a. What amount do they plan to set aside for each major budget section? Savings/Fixed Expense/ Variable Expenses b. After setting aside these amounts, what amount would remain for additional savings or for paying off debts?

a. Savings$587.00 Fixed expenses$1,878.40 Variable expenses$3,287.20 b. $117.40

demand deposit is also known as:

checking account

A credit card is a type of:

loan, borrowing