FINC 300 Final Exam
The FDIC and the National Credit Union Association insures accounts up to
$250,000
Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. After balancing his checking account, what will his current balance be today?
$7,150
Money Market Deposit Accounts enjoy one advantage over savings accounts found in commercial banks. This advantage is
A variable rate that is generally higher
The ____________ converts interest rates compounded for different periods into comparable annual rates, allowing you to compare interest rates easily
APY
When you are considering different investment options and want to maximize your returns, be sure to compare the investments'
APYs
Online and mobile banking allows you to do the following
Access your accounts at any time of day; pay bills and receive payments online; transfer funds between accounts
Which of the following is an advantage of online and mobile banking?
Accessibility to and management of your accounts
A disadvantage of an MMMF is
Administrative fees
Comprehensive financial services packages that offer checking accounts, debit and credit cards, loans and brokerage services are known as?
Asset management accounts
What is the name for comprehensive financial services packages offered by brokerage firms?
Asset management accounts
Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. What recommendations would you give Christopher concerning his cash management?
Automate a savings plan using EFT; Create a budget and set some savings goals; Set up an account at a mutual fund company
Your bank, First Bank, charges you $1.50 every time you use an ATM that is not owned by them. Unfortunately, there is no First Bank ATM near your school. There is a Second Bank ATM in the Student Center, which you use several times a week to withdraw $10 at a time for lunch, video games, etc. What is the best piece of advice regarding these transactions?
Avoid them since you are effectively paying 15% interest to access your cash
When college students start saving early
By automating their savings, they are less likely to spend money; In an account earning interest, they immediately put their money to work; They can take advantage of the time value of money and achieve their financial goals
Which of the following is not an advantage of a CD as a cash management alternative?
CDs offer liquidity
A check drafted on the financial institution's account is a(n)
Cashier's check
Suppose that you go to a bank at which you have no account, give the bank cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a
Cashier's check
With online banking and EFT, many people don't really need checks anymore. If you seldom need a paper check for transactions, what option is available to you that may be cheaper than maintaining a checking account?
Cashiers checks; money orders
A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called a
Certificate of deposit
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to higher interest rate than a checking or savings account pays, and at the same time stay with their bank. What would be your suggestion for the next account John and Maile should open?
Certificates of Deposit; Money Market Deposit Account
Brenda White had her bank certify one of her personal checks as being good. Which type of check has been issued?
Certified check
Which of the following is not a liquid asset?
Credit cards
Which of the following financial institutions is a not-for-profit organization that is open only to members of that institution and tends to offer more favorable interest rates to borrowers and savers?
Credit union
Electronic funds transfer applies to which of the following?
Debit cards; direct deposit; smart cards; ATM
Financial institutions that provide traditional checking and savings accounts are commonly referred to as
Deposit-type financial institutions
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to higher interest rate than a checking or savings account pays, and at the same time stay with their bank. The Johnsons have been thinking about the financial principle - Pay Yourself First. Being very conservative, they might consider having their bank
Do a direct deposit of some of John's paycheck into a savings fund
A debit card is the same thing as a smart card
False
A debit card, also known as as memory card, can hold ID information, insurance information, and medical history
False
A money order is typically less liquid than a personal check
False
A store-valued card, only used at one store for one purpose, is known as an "open-loop" card
False
A tax free investment will always have a higher after-tax return than a taxable investment
False
A traveler's check is a personal check that has been certified as being good by the financial institution on which it is drawn
False
Brick-and-mortar banks typically offer superior interest rates for borrowers and savers
False
Cash advances generally require an upfront fee of 4 to 6 percent of the amount advanced
False
It is best for college students to wait and begin saving once they are "making more money"
False
It is wise to wait until you are earning a substantial amount of money before you establish a disciplined financial plan for your future
False
Keeping your funds in liquid assets is riskier than keeping them in illiquid assets and therefore investors require a higher expected rate of return on liquid assets
False
Most credit cards offer a 31 to 35 day grace period from the date of the bill to make payments
False
One of the advantages of T-bills is that they are exempt from federal taxes but subject to state income taxes
False
The APY can never be the same as the APR
False
The APY is the APR after taxes
False
Two advantages of carrying cash are that it's easy to spend and many times you can even recall where you spent it
False
What is the FDIC?
Federal Deposit Insurance Corporation
Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. How is Christopher doing with his cash management?
He is not maximizing his return on his liquid assets
Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. Christopher has not received an Income Tax refund in 4 years. Is there anything you could recommend to him?
He should increase his 401(k) contributions to 6% of his salary
Christopher Garcia Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day−to−day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. What would you recommend to Christopher concerning his cash management?
He should switch his current account to a Money Market Deposit Account; He should set up EFT payments for his auto loan; He should give up some liquidity
The Truth in Savings Act of 1993
Helps investors compare interest rates on investment options
Pick the advantage of a certificates of deposit from this list of possibilities
Interest rates are generally higher than typical savings accounts
Cash and investments that can be easily converted into cash are termed
Liquid assets
Which of the following is not a consideration in determining cost of a financial institution?
Location
Many banks offer free checking accounts. What may be the opportunity costs associated with free checking?
Low interest rates; High minimum balance requirements
Money-market mutual funds (MMMFs) provide an alternative to traditional liquid investments offered by financial institutions. What are/is the advantage(s) of an MMMF?
Minimal risk; Check-writing privileges; High interest rates; Convenience - deposits made through payroll deductions
All of the following are advantages of CDs except
Minimum deposit required
Credit unions and internet - only banks typically offer
More attractive interest rates to both borrowers and savers
What is the name of an investment company that raises funds from investors, pools the money, and invests in stocks or bonds?
Mutual fund firm
What is another name for an interest-bearing checking account?
NOW
Another name for an interest bearing checking account is a(n)
NOW account
What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?
Overdraft protection
John and Maile Johnson The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. Which of the following is not an advantage of a CD as a cash management alternative for John and Maile?
Pays money market interest rates
Liquid assets or funds are important to
Prevent overdrafts in checking accounts; Cover unplanned expenses; Prevent interrupting your long-term investments; Cover some planned expenses
Pay yourself first refers to
Put money in a savings account
According to the Keown book, one way to think of liquid assets is as a(n)
Reservoir, with money moving in as wages are received and moving out as living expenses are paid
Four banking conveniences are listed below. Which one is not typical?
Safety deposit boxes; online banking services; direct deposit; overdraft protection
Which of the following financial institutions were originally established to provide mortgage loans to depositors?
Savings and loan associations
What are short-term notes of debt issued by the federal government commonly called?
T-Bills
How do you compare cash management alternatives to determine which is best for you?
Take into account their tax status; Compare returns using comparable interest rates; Consider their safety or risk
Please choose the method to use when calculating the after-tax return
Taxable return x (1 - marginal tax rate) + nontaxable return
NOW accounts offer an option to traditional demand deposits. All of the following are characteristics of NOW accounts except one. Which is it?
The interest rate is generally higher than other savings accounts
Why is it important to convert interest rates into the APY on different accounts and with different banks?
The same advertised rate will vary with different compounding periods
John and Maile Johnson The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. What financial principle do they need to understand better?
The time value of money; Taxes affect personal finance decisions; Risk and return go hand in hand
Money market mutual funds provide attractive competition for bank deposits becuase
Their short term, higher returns are generally regarded as practically risk-free
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to higher interest rate than a checking or savings account pays, and at the same time stay with their bank. For John Maile, money market deposit accounts may offer some advantages. Select the one or ones below that would be the most valuable to John and Maile.
They are insured; They may have limited checking privileges; They have relatively attractive rates of return; They have variable market interest rates
Which of the following characteristics apply to liquid assets?
They involve low risk; The temptation to spend is greater; They are characterized by low returns
After reading the new account insert in his monthly statement, Tony Mercadante determined that the FDIC considers a joint account as a separate depositor. He and his wife, Cynthia, have three accounts at ABC Bank & Trust, one joint account with a balance of $60,000 and two individual account - his has a $150,000 balance, and hers has a $254,000 balance. What amount of FDIC coverage do Tony and Cynthia have on their accounts?
Tony's account balance of $150,000 is completely covered as is their joint account of $60,000; both accounts are under the $250,000 FDIC limit. Cynthia's account is over the insurance limit by $4,000, but their money would be covered if she moved some into their joint account or into another institution.
A debit card is something of a cross between a credit card and a checking account
True
Because liquid assets can be turned into cash quickly and with little loss, they have little risk associated with them and therefore provide a low rate of return for the consumer
True
Card-blocking occurs when you use a debit card (or credit card) to check into a hotel or rent a car and the anticipated expenses are blocked - in effect, placing a hold on the money
True
Credit unions and internet - only banks typically offer more attractive interest rates to both borrowers and savers
True
For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services
True
If you only use your debit card and ATM card and rarely write paper checks, overdraft protection is still a good thing to have
True
Late library fines and unpaid parking tickets can hurt your credit score
True
Liquid assets allow you to cover unplanned expenses without having to interrupt your long-term investments or liquidate any tangible assests
True
Nondeposit-type financial institutions are commonly referred to as mutual funds and brokerage firms
True
One way to think of liquid assets is as a reservoir, with money moving in as wages are received and moving out as living expenses are paid
True
Online banking simplifies cash management and budgeting for consumers
True
Overdraft protection is an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it
True
T-bills are extremely sage investments, having been issued by the federal government
True
Taking a cash advance on your credit card for daily living expenses may not be a wise financial decision because interest begins on the cash advance balance amount immediately.
True
The National Credit Union Association is a federal agency that insures deposits at credit unions
True
The deregulation of the 1980s has allowed brokerage firms to offer traditional banking services, and has also let banks offer services formerly found only at investment companies
True
The interest rate earned on a money market deposit account is generally higher than the interest earned on a Bank savings account
True
Virginia Tech's Hokie Passport is an example of a smart card
True
When comparing returns on cash management investment alternatives, it is important to make sure that the rates you compare are all on the same tax basis
True
When you automate your savings you are less likely to spend those dollars because they never become part of the funds in your checking account
True
When you use your debit card or ATM card, you should enter the transaction into your check register
True
With online banking, you are able to access your accounts and conduct business transactions through the Internet, your mobile phone, and devices
True
Your bank may offer a line of credit, a credit card, or a link to your savings account to cover transactions when you overdraw your account
True
Which of the following is not a common fee arrangement for checking accounts?
Variable interest rates to reflect fee activity
Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. What recommendations would you give Christopher about his goal of buying a house in five years?
You need to develop a savings plan; You need to estimate what down payment would be
When using an ATM, keep in mind that
You should report electronic transaction mistakes to the bank immediately; It is never safe to deposit cash in an ATM; Human problems in handling the transactions can occur; Computer errors can occur
All of the following are advantages of MMDA's except
rates below alternatives
