Finance Exam 2
Brendan has a history of mismanaging his checking account. If he tries to open an account at a new bank or credit union, how can the prospective bank or credit union evaluate his previous bank account history?
ChexSystems®.
What information is included in your credit report?
Credit inquiry history.
Tyson is concerned about paying "kiddie tax" on earnings from his infant son's investments. As custodian, what options does he have to avoid this penalty tax?
Invest in assets that do not produce income or capital gains.
LendingClub would be considered which type of personal loan?
Peer-to-peer lender.
What feature of a check identifies the bank that holds the account of the check?
Routing Number
The Jimenezes have difficulty saving. For them, an advantage of U.S. savings bonds is that
They can buy bonds with their tax refunds
Sam is looking for an investment with little risk if any at all. Which of the following is guaranteed to pay out?
U.S. savings bonds.
Morty has just purchased a home at a cost of $235,000. Morty pays $35,000 down on the home. Will he be required to purchase primary mortgage insurance (PMI)?
Yes, because he made a down payment of less than 20%.
Which of the following situation does NOT represent identity theft?
Your human resource department used your Social Security number to remit the taxes withheld from your paycheck.
Unlike most private loans, federal student loans do not require
a credit check.
Pradeep is trying to find the best interest rates. When he compares U.S. savings bonds to savings accounts, he'll find savings bonds offer
a higher interest rate.
Installment credit
a loan that offers a borrower a fixed or finite amount of money over a specified amount of time, this way the borrower knows upfront the number of monthly payments or installments they will need to make and how much each monthly payment will be
Antonio leased a car with a fair market value of $16,000. He has paid $4,000 in payments. How much equity has Antonio built since the car was first leased?
$0.
Yoshi has a financial emergency and needs to take money from his Roth IRA. Of his current balance of $23,000, $20,000 is from his contributions and $3,000 is from investment returns. If he makes a $10,000 unqualified withdrawal, he will owe an early withdrawal penalty of
$0. dollars for yoshi
Carlos is choosing between the following purchase options from different dealers. If Carlos wants to minimize the total amount of interest he will pay over the life of the loan, which option should he choose? Note you must use a financial calculator to answer this question.
$12,000 purchase price, 5.2% interest, 5 years.
Roberto's credit card has a beginning balance of $7,500 on May 1. He makes no transactions in May, and the minimum payment due is $300 on May 31. The APR is 23%. If she only pays the minimum payment, how much of the payment will go toward the principal?
$153.52.
Lev has purchased a car for $5,000 with the help of a $3,000 loan from the local bank. The annual percentage rate (APR) for the loan is 6.5%. How much interest will Lev pay the first month of the loan?
$16.25.
Elsa is shopping for a new car. Her dream car costs $23,000 to purchase. A local dealer is offering a weekend financing special. The deal consists of a $3,000 down payment, 1.99% interest rate for 5 years, and a $1,000 origination fee. Her monthly payments of $367.99 include the origination fee. What is the total finance charge for the loan?
$2,079.40
A money market savings account combines the benefits offered by savings and checking accounts, including FDIC and NCUSIF insurance protection up to
$250,000
Mary opened an individual checking account at an FDIC member bank and deposited a check for $600,000. How much of her deposit is protected against loss by the Federal Deposit Insurance Corporation (FDIC)?
$250,000
Trudy initiates a $5,000 2-year fixed-rate installment loan on November 1. Her initial monthly payment is $25 in interest and $196.60 in principal repayment. What will be the ending balance for the year end?
$4,605.82.
Manuel borrowed $4,000 to purchase a used car. The total amount that needs to be paid is $4,000 in principal, $400 in interest, and $250 in loan fees. What is the finance charge on Manuel's loan?
$650.
Lori is 48 years old and took a $4,000 distribution from her Roth IRA account. Of the distribution, $3,300 was principal and $700 was earnings. Lori is in the 22% marginal tax bracket. What was Lori's penalty on the distribution?
$70
Akeem just graduated from college and accepted a position with a firm at an annual salary of $35,000. Using HUD guidelines, the maximum Akeem should pay for rent on a monthly basis is approximately
$875.
Credit reporting agencies maintain bankruptcy information on your credit report for how many years?
10 years
Li Jun has a traditional IRA balance of $20,000. If he makes an unqualified withdrawal of $2,000, he will owe an early withdrawal penalty of
200
What is the APR for a loan that charges 3.6% every 30-day payment period?
43.2%.
How to calculate apr given amount borrowed and interest charged for a 14 day loan charged $40 and borrowed $200
511%
Luke's parents want to save money to use only for his college education. Which of the following products would be best for his parents?
529 plan.
Lance is looking for immediate income. Which of the following is his best option?
A savings account with a 2% interest rate.
You've suffered a financial emergency and need to pull some money from your Roth IRA to cover everything. How long will you have to wait to get your money?
About 2 or 3 days.
Which of the following applies to a traditional IRA?
All of the choices are correct.
Introductory period with mortgage rates
An introductory period is a set length of time at the beginning of a financial product, typically on a loan such as a mortgage, where there is a special offer,
Which form of electronic payment methods has the broadest ability to send funds and retrieve funds?
Automated Clearing House (ACH).
Your answer is correct. Percy is concerned that he's the victim of identity theft. He orders a ( ) so that no new accounts can be opened
credit freeze
Introductory period with credit cards
length of time during which the introductory annual percentage is in effect
Hasan just hates the idea of paying taxes. He might be disappointed to learn that interest is taxable if earned from a
savings account, dedicated savings account, or certificate of deposit.
Fdic history
was created by the banking act of 1933 to restore trust in the American banking system during the Great Depression
Baron is single, aged 55, and has an adjusted gross income in 2018 of $220,000. How much can he directly contribute to a Roth IRA in 2018?
$0
Luke earned $100 in interest from his $10,000 savings account, which is itself in a Roth IRA. If he is in the 10% marginal tax bracket, how much will he owe in taxes on this interest?
$0
If Sebastian contributes $5,000 to a Roth IRA, his adjusted gross income will decrease by
$0.
Rebecca has a 5-year variable installment loan. Every year the rate can change based on the prime rate. She borrowed $10,000 for 5 years. The initial rate was 5% APR. Her initial monthly payment was $188.71. After the first year, the rate increased to 5.5% APR. The new monthly payment will be $190.57 with an $8,194.48 balance from the end of that year. What will be the first interest payment in the following month?
$37.56.
Maxwell lost his debit card. Maxwell reported it missing 45 days after the loss, when he realized a thief had spent $5,000 on the card. How much is Maxwell responsible for?
$500.
Janice owes $8,500 on her credit card with a minimum percentage of 2% and a minimum payment of $100. What's the lowest amount of money she can send to her credit card company without incurring any interest?
$8500
If you buy $1,000 in Series EE U.S. savings bonds with a 3% fixed interest rate, about how many years will it take for the value of these bonds to reach $2,000?
24 years
Raj obtained a $560 loan to be paid back in 21 days. Raj will pay a fee of $90. What is the APR of the loan?
278%
How long should your emergency fund last you? How do you calculate how much you should have in your emergency fund?
3 months, monthly living expenses times three
A U.S. savings bond continues to earn interest from the issue date for how many years?
30
When reviewing her Experian credit report, Dela found it to contain inaccurate information. She has informed Experian in writing. Within how much time after receiving the notice is Experian required to investigate?
30 days
James, 14 years old, is really looking forward to having his UTMA custodial account converted to an individual account (he's got a lot of spending he wants to catch up on). Fortunately for him, and unfortunately for his savings, he's only got to wait
4 to 7 years, depending on which state he lives in.
Lynn anticipates total college costs of $125,000 and an increase in annual income of $18,500 once her degree is completed. What is Lynn's payback period on her educational investment?
6.76 years
How long can negative events stay on your credit report?
Approximately seven years
The ___________is a savings plan that can be used to pay for college, but there are income limitations for the depositor, and penalties if the money is left in the account when the beneficiary turns 30 years old.
CESA
Bella is anxious because she never seems to know how much money she can spend. Plus, she hates the idea of ever going into debt. What form of payment might help her manage her situation better?
Debit Card
Kyle received a short-term loan that he will automatically repay with his next qualifying electronic deposit. This is an example of what type of loan?
Deposit advance.
Diamond and Kennedy are both infants who own investment portfolios. But only Diamond's parents pay taxes on that portfolio's income every year. This is because
Diamond has an UTMA account, while Kennedy has a custodial IRA.
You've been receiving a lot of offers over email lately and are worried that some of them may be fraudulent. Which of these offers is likely the most legitimate?
Earn $500 cashback.
Kathleen and Peter are worried about their credit scores in anticipation of buying a home. Which of the following won't negatively impact their credit score?
Freezing their credit accounts.
Which line in the table correctly compares the tax treatment of contributions to a general investment account, a Roth IRA, and a Traditional IRA?
General Investment account-not deductible roth ira -not deductible traditional ira- deductible
Drew is 22 years old and is starting graduate school next semester. When he was a child, he received $10,000 in Series EE U.S. savings bonds from his grandparents. He is thinking of using those bonds, now worth $12,000, to pay for educational expenses. What will the tax treatment be if he does?
He will owe taxes only on interest income.
Chinyere is planning to take a study abroad course for 6 weeks in Paris in 12 months. She currently has 75% of the cost saved up and needs to earn money on the amount she has saved to reach her goal. She is concerned that if the money is easily accessible, she will be tempted to use it for other purchases. Which of the following options would be best for Chinyere?
Invest in a 12-month CD paying 2.0% APR.
Sally is applying for a coveted bank management training position. She is a top college graduate in finance and has several recommendations from the leadership at the bank. She remembers that she neglected several payments on her Nordstrom's credit card three years ago and the store accepted the loss and terminated the account. What can she do to repair her credit report?
Only open accounts that she can responsibly maintain and keep a meticulously current payment history with all service providers, utilities, and landlords for the next four years.
Li Jung has had a busy month. He's moving to a new city, finding a new job, and looking for a new apartment. Who among the following is unable to check his credit score?
Potential employers
Which type of payment method may result in a fee to add funds to the account?
Prepaid Card.
What type of card allows you to make a payment using money that was loaded onto the card in advance?
Prepaid card.
Shirley and Steve are trying to decide the best place to keep their emergency fund. Which of these options is most appropriate for Shirley and Steve's emergency fund?
Putting the money in an account with a 2.5% APR and no withdrawal penalty.
Which of the following statements correctly compares pyramid and Ponzi schemes?
Pyramid schemes require newly recruited salespeople, while Ponzi schemes require new investors' cash.
Who might benefit the most from owning U.S. savings bonds?
Retirees looking for predictable returns and no risk.
Rudy is 18 years old and wants to save to buy a house in 4 years. She wants to start by placing $500 she has in a savings bond. Why would a savings bond not be the best choice for Rudy?
Rudy will be penalized if she takes her money out it 4 years.
Liam is trying to select an asset or account with high liquidity and predictable returns. Which of the following is the best fit?
Savings accounts.
Which card requires the borrower to deposit the full amount of the line of credit at the bank as collateral before the credit card is issued?
Secured MasterCard® card.
Susana opened an UTMA account for the benefit of her daughter Michelle. Three years later, Michelle was injured in a fire and Susana pulled $10,000 from the UTMA account for medical expenses. The consequence of this withdrawal is
Susana is not required to pay any tax or penalty.
Which event can have a positive effect on your credit report?
Taking out a student loan.
Clara wants to invest for her future and is considering the purchase of savings bonds. Which of the following represents a benefit of purchasing savings bonds?
The interest earned on savings bonds compounds and earns interest on the interest and the principal.
If Emma buys a $100 I bond on January 1st of this year with fixed interest rate base of 1%, how much interest income will she be credited by December 31st?
There is not enough information to answer this question
Why is it important to reconcile your personal check register against the bank's official paper statement or online statement?
Your available balance depends on the timing of debits and credits.
Michael is weary of having his emergency savings account within his traditional IRA because
any withdrawals will be subject to a penalty.
How is credit score determined ?
based on the entire amount you owe, the number and types of accounts you have, and the amount of money owed compared to how much credit you have available
With a $5,000 increase in earnings, it will take ______ years, not including loan interest, to recoup the investment in a college degree from a typical 4-year private college.
between 20 and 35
Ira needs to completely cash-out his Roth IRA. The only way this distribution will be penalty free is if
both (a) and (b) must be true.
Ursula has just signed up for health insurance. The best account from which to pay her monthly premiums is her
checking account.
FDIC coverage deposit types
covers all deposits held at an ensured bank, ex checking account, savings account, cashiers check, money order
Revolving credit
credit that remains available even as you pay the balance, borrowers can access credit up to a certain amount and then have ongoing access to that amount of credit, you can pay the balance in full or make regular payments
What allows borrowers to merge all their federal student loans into one loan.
direct consolidation loan
Trent and Joe, both in their 20s, have finished building an emergency fund and are ready to invest for the first time. Focusing their investment contributions on which of the following assets is most likely to result in them having a high net worth when they retire in 50 years?
diversified stock funds
Jay buys an EE bond at a 2.5% interest rate. How long is the interest rate fixed at 2.5%?
for 30 years
What happens in an introductory period?
for instance a lower interest rate fixed for that time period (fixed rate period).
Which line in the table correctly compares the tax treatment of dividends received in a general investment account, a Roth IRA, and a Traditional IRA?
general investment- taxed when received roth ira- tax free traditional ira - tax deferred
Beatrice is simply terrified of crime. She watches the nightly news and sees all sorts of horrible acts. According to statistics from the Department of Justice, she should be most concerned about
having her identity stolen
Tristen is weary of having his emergency savings account within his Roth IRA because
if he withdraws any earned interest, he must pay a penalty.
Liability for theft loss of debit card if reported early
if you report it before any transactions are made you aren't held responsible for any of the transactions made
Finance charge what happens
interest accrued on and fees charged for some forms of credit
Compounding interest refers to
interest earned begins to earn additional interest.
Money order what it is
is a paper document similar to check, used as a form of payment
Bennett tells you he isn't concerned about identity theft. "If someone steals my identity, I'll just go to the police", he says. This might not be a good idea if Bennett's identity is stolen because
it is almost impossible for the police to find the identity thief since they do not have the necessary equipment and training.
Astrid is just getting started on her financial journey and is at the bottom of the investment pyramid. She should focus on obtaining assets, such as savings accounts, that provide her with
low risk and low return.
Gretchen thinks a money market account may be right for her but is concerned about her
monthly withdrawal limits.
Your friend Eric tells you he started working for an amazing company. He buys shares in overseas real estate investments from his recruiter, which he can then sell directly. Or, he can recruit junior salespeople to buy shares from him, and if they sell those shares, he gets a cut. You're not sure this company is so amazing. Rather, you think it may be a
pyramid scheme.
Amir is researching loans offers. When he compared a loan from a bank or credit union to a payday loan, he found the payday loan
requires the borrower to write a check to the lender.
Dexter is 17 years old and wants to purchase a car with the money he earned from his part-time job. He went to the bank to try and obtain a loan, but the bank would not loan him the money without an adult signing on the loan, as well. One valid reason an adult had to sign on the loan is
since Dexter is a minor, he can change his mind after taking out the loan and would not be bound to the loan.
FDIC insurance coverage amount
standard deposit insurance amount is 250000 per depositor
All of the following are pitfalls associated with borrowing money to pay for college, except:
student loans carry extremely high-interest rates, similar to credit cards.
FDIC insurance name
the federal department insurance corporation
Grace period credit card
the period between the end of the billing cycle and the date your payment is due
A potential pitfall associated with having funds saved for college in a 529 plan includes
the possible reduction in financial aid due to these savings plans.
Responsibility of a co-signer on a loan
they are obligated to pay any missed payments or even the full amount of the loan if the borrower doesn't pay, the co-signers credit can also be harmed if the borrower is late making payments
Kim borrowed $10,000 to purchase a used car. The total amount to be paid over one year includes the $10,000 borrowed, $3,600 interest, and $250 loan fees. What is the annual percentage rate (APR) on Kim's loan?
38.5%.
Farah is thinking about attending either a 2-year public community college or a 4-year private college to work on a degree in nursing. If she completes her degree in two years, she anticipates total costs of $15,750. The cost of the 4-year private college would be $85,000 and take her twice as much time. She anticipates that after completing the 2-year degree, her income will increase by $2,525 annually. If she chooses the 4-year college, she would see an annual wage increase of $7,500. What is Farah's payback period if she does enroll at the community college? What is her payback period if she attends the 4-year college? Which choice makes the most sense from a financial standpoint?
6.24 years; 11.33 years; The 2-year college makes the most sense.
Malaysia had $750 in a checking account when the debit card was stolen. A thief made $725 in purchases with the card. How much could have been saved by reporting the stolen card immediately rather than waiting more than 60 days before reporting the theft?
725 If the theft had been reported immediately, the liability would have been limited to $0. Waiting more than 60 days results in unlimited liability.
Melvin thinks his credit card's APR is too high. Which of the following could reduce the amount of interest he owes on his credit card?
A Balance transfer
Which organization maintains housing and credit files on consumers?
A credit bureau.
Gordon has a large holding in AT&T stock that his grandmother has been gifting him over the past three decades. The stock has grown well over the years and pays an annual dividend rate of 6.68%. Gordon looks forward to the quarterly dividends that is deposited in his checking account. Which form of electronic payment method is used by corporations that pay dividends simultaneously to millions of shareholders like Gordon?
Automated Clearing House (ACH).
Reggie got a summer job as a life guard and is looking forward to going to college full-time this fall. She wants to save her earnings as she will not be able to work at school and wants to open a checking account before she starts college. She is very adept in technology and covets her smartphone. Which bank account would be appropriate for her?
Bank W has no minimum balance requirement for unlimited electronic banking, bank checks, debit card, and ATM access. No personal checks or paper statements are provided.
What happens during the grace period ?
During this time, you may not be charged interest as long as you pay your balance in full by the due date. Credit card companies are not required to give a grace period.
Becky was offered a 10-year installment loan by ABC Bank, where she has a savings account. If she takes that loan, which of the following options could help her pay off the loan in the future?
Enrolling in a 2-year graduate program.
How often do lenders update information that is used to calculate your credit score?
Every time a credit application is processed.
Mia is an undergraduate student with a documented financial need. Which loan option would be best for her specific situation?
Federal subsidized.
TJ Vargas signed the back of his checks for deposit and then lost them on the way to the bank. When he contacted the issuers of the checks to try to have them reissued, he discovered that the checks had already cleared. How could he have made a restricted endorsement to ensure that they would get deposited only into his account?
For Deposit Only (3846933720). Midwest Bank. TJ Vargas.
If you think you've become the victim of identity theft, how can you best protect yourself?
Freeze access to your credit report.
Xavier failed to make loan payments, and the court ordered his employer to pay a portion of his wages directly to the creditor. What does this example represent?
Garnished Wages.
What does a co-signer allow for?
Gives lender additional insurance that the loan will be repaid
Abel has had a rough year. Which of the following events from the past year will show up as negative events on his credit report?
His late payment on a Mattress World-extended payment bill.
Ricky is completing the FAFSA to try to qualify for student financial aid. Which of the following must he have handy in order to complete a FAFSA form?
His parents' net worth.
Carla is perplexed by how her credit card balance never seems to go down. What information, required by federal law to be on her monthly credit card statement, could help her make a plan to pay down her credit card balance in a timely manner?
How much she could pay each month to be debt-free in full within three years.
In what timeframe are the funds transferred from your account to the merchant account when using your debit card?
Immediately.
How are finance charges generally stated?
In absolute dollars.
Jorge and Alana want to keep their savings of $320,000 FDIC insured. Which strategy would fail to accomplish this?
Keep $250,000 in a joint deposit account and invest $70,000 in a money market mutual fund at the same federally insured bank.
Nicole is working to rebuild her credit. Besides continually making prompt payments, what can she do to make the most positive impact to her credit score?
Keep the available amount of existing credit as high as possible.
What negative affects your credit score?
Late or missed payments, your credit history is too short, you have too many accounts with balances, your account balances are too high, the balance you have on revolving accounts such as credit cards are too close to the limit , applying do a lot of credit in a short time, bankruptcy, foreclosure, repossession,
What does collateral allow for in loans?
Loans that are secured with collateral come with a lower interest rate than an unsecured loan
Spiderman received a reward check for stopping a robbery. He wants to cash the check but does not have a valid ID and needs to remain anonymous. How can the check be written to best accommodate Spiderman?
Payable to "Cash".
Lauren and her high school friends meet for dinner every year on the Saturday after Thanksgiving Day. She had always gone to the ATM to withdraw enough cash to pay for her portion of the night's bill. She always felt uneasy about carrying so much cash but it was essentially the only way to settle the bill among about a dozen friends. What form of electronic payment could Lauren and her friends use to avoid cash?
Peer to peer. Peer-to-peer applications use a form of electronic funds payments between banks. The other choices require each person to pay directly to the point-of-service (POS).
Gail defaulted on a department store credit card eight years ago. Her credit score is now 720 and she would like to get a card with a competitive credit line, interest rate, and some perks. What type of card should she apply for?
Rewards credit card.
Loretta is looking at ways to simplify her life and wants to automate her utility bill payments. Her utility offers a free bill payment service. How does the electric utility's online bill payment work?
She provided her checking account information to her utility , which then uses that data to remove the funds from her checking account.
Kingston obtained a loan for $1,000 to be paid back in 30 days. The lender quoted Kingston a $200 fee. Which of the following statements is correct regarding this loan?
The APR is over 240%.
How does the tenure of a particular account affect your credit score?
The longer you have an account, the better your credit score.
The amounts would be insured separately up to 250,000 dollars- For example, if a person has a certificate of deposit at Bank A and has a certificate of deposit at Bank B, how much are they insured for with the fdic?
They are not desperately insured because it's one bank so only up to 250,000
Funds deposited in separate branches of the same insured bank are insured for how much by the fdic?
They are not separately insured, so 250,000
Valley Community Bank is offering a 5-year installment loan at 5% APR and no fees. Which person is likely worse off if he or she takes this loan?
Trudy is concerned that she does not have an emergency fund and intends to use the loan proceeds to fund a savings account for contingencies.
FDIC what it is
a United States government incorporation that supplies deposit insurance to depositors in American commercial banks and saving banks
When evaluating the payback period associated with a college education, it is important to factor in all the following except
a college or university's accreditation status.
Line of credit
a flexible loan from a bank or financial institution you can draw on it up to a maximum amount for a set period of time when the customer needs funds
The income-contingent repayment plan allows
all students to borrow.
An income-based repayment plan allows
all students whose monthly payment using the IBR plan would be less than the 10-year standard to borrow.
What is collateral
an item of value, an asset, a lender can seize from a borrower if he or she fails to repay the loan according to the agreed terms
Ronaldo blew a tire and urgently needed to replace it. A local payday lender loaned him $900 against the $1,000 he receives in salary next month: a 10% loan. His brother later advised him that the payday lender charged him the equivalent of 120% on an annualized basis! Ronaldo could have determined this himself when he signed the loan because the lender is legally required to report the
annual percentage rate (APR).
Cashiers check what it is
check guaranteed by the bank, drawn on the banks own funds and signed by a cashier,
Certified check what it is
form of check that the bank verified that sufficient funds exist within the account to cover the check and so certified at the time the check is written
Finance charge
in the United States it is any fee representing the cost of credit or the cost of borrowing
Pat receives a letter stating that he has been pre-approved for a credit card. The letter states he would pay zero interest for six months on retail purchases, then it will revert to the standard base rate plus 8%. The 0% interest rate is a(n)
introductory rate.
What is wage garnishment
legal procedure in which a persons earnings are required by court order to be withheld by employer for the repayment of a debt such a child support
Finance charge what it includes
not only interest but other charges such as transaction fees, maintenance fees, late fees, or any other cost beyond the repaying the amount borrowed
FDIC does not cover what
not responsible for money in stocks, bonds, mutual funds, life insurance policies, annuities or municipal services, crypto assets, safe deposit boxes
Travelers check
paper document used as a form of prepaid payment when traveling, pre filled checks, outdated now
Cashiers check what's it for
they are commonly required for real estate and brokerage transactions
Money order what it does
this type of payment is typically purchased by prepaying the amount on the face of it with cash or another form of guaranteed funds
Cashiers check what it does
treated as guaranteed funds because the bank rather than the purchaser is responsible for paying the amount
Certified check what it does-
with this type of check the funds are then set aside in the banks internal account until the check is cashed or returned by the payee
if you currently owe $500 on your credit card throughout the month and your current APR is 17.99%, you can calculate your monthly interest
you can calculate it by diving 17.99% by 12 and you get 1.49% then you multiply 500 x .0149 for a monthly amount of 7.45
Liability for theft loss of debit card if reported within two days
your maximum liability for unauthorized transactions is 50
