KU Personal Finance: Exam 1 (in class quizzes)

Kathy purchased new furniture for $10,000. She put $1,000 down and financed $9,000. She will pay $350 per month until the loan is paid off. Which of the following are true?

All correct except (the furniture should be recorded as a $1,000 expenditure on Kathy's balance sheet)

All of the following are useful ways to build a strong credit rating except

Apply for a long-term loan and occasionally be late with a payment.

A bank could advertise as "free" a checking account that requires a minimum balance of $3,000 to avoid monthly service charges.

False

As a single taxpayer with no dependents, one is generally eligible to file as "head of household."

False

Asset management accounts are offered by most banks and are typically FDIC insured.

False

It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.

False

Money I loaded to a friend is a liability on my balance sheet.

False

One's marginal tax rate is typically lower than one's average tax rate.

False

The balance sheet equation is assets plus liabilities equals net worth.

False

The equity in your home is the difference between the loan balance and the purchase price.

False

When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.

False

You can stop payment when you purchase an item with your debit card.

False

a home and land should be recorded on the personal balance sheet at their original cost

False

all assets, regardless of category, should be recorded on your personal balance sheet at their current fair market value

False

money I loaned to a friend is a liability on my balance sheet.

False

If Lois has $2,000 in checking, $50,000 in a money market account, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be insured through FDIC for $100,000.

Fasle

Depository Insitutions

These financial institutions accept checking and savings deposits from individuals and business, and include commercial banks, savings banks, and credit unions.

cashiers check

This form of check also often called a banker's check payable to a third party is drawn by the bank's own funds in exchange for the amount specified in the check, plus, in most cases, a service fee.

time deposit

This is a deposit held in a financial institution for a fixed period of time. Usually depositors can withdraw the money from the account after the committed time period.

simple interest

This is the phrase used to describe a savings account that pays interest only on the investor's deposited funds and not on previously earned interest.

account reconciliation

This is the process of ensuring that the money that left the bank account matches the amount the account holder spent.

deposit insurance

This refers to an insurance program that protects depositor funds against the failure of the insured depository institution

the balance sheet equation is

Total Assets - Total Liabilities = Net Worth

A balance sheet shows your financial condition as of the time the statement is prepared

True

A certified check is a personal check that the bank guarantees the funds are available.

True

A change made on your credit card becomes a liability as soon as the charge is incurred.

True

A closed end automobile lease is the most popular type of lease.

True

A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.

True

A short sale does not affect a distressed homeowner's credit score as much as a foreclosure.

True

A short sale does not affect a distressed homeowners credit score as much as a foreclosure.

True

Collateral is an item of value used to secure the principal portion of a loan.

True

Compound interest means that a savings account earns interest on the interest previously earned.

True

Convenience and improved record keeping are two advantages sited for online bill payment.

True

Credit union members are expected to have some common bond

True

Debit and ATM card transactions are linked to your checking account.

True

Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.

True

Having a checking account tells a creditor that you have some experience in managing your own funds.

True

Joint checking accounts typically imply the right of survivorship if one party should die.

True

Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.

True

Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.

True

Renting affords more flexibility than home ownership.

True

Social security taxes are paid on earned income but not on investment income

True

The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.

True

The value of assets purchased on credit should be included on the asset side of your personal balance sheet.

True

To refinance a mortgage, the lender typically requires at least 20% equity in the home.

True

Variable rate loans are desirable if interest rates are expected to fall in the future.

True

When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give away.

True

When the market interest rate goes up, the rate on variable rate loans goes up.

True

other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages

True

tax avoidance is legal, tax evasion is illegal

True

the medicare portion of the social security tax is paid 100% of earnings

True

the monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan

True

to refinance a mortgage, the lender typically requires at least 20% equity in the home

True

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have ____ lease.

a close end

for tax purposed, head of household refers to

a single individual with dependents

the income and expense statement is specific to

a specific period of time

SAIF

insures deposits in savings associations

In which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease?

mileage limits were exceeded

The financing rate on the car you are leasing is called the

money factor

Whenever you write a check or make a deposit, an entry should be made on your

checkbook ledger

you ___ is an example of a liquid asset

checking account

no depository institution include

mutual funds, insurance companies, brokerage firms, and financial services companies (NCUA)

compound interest

name applied to interest earned on the initial deposit amount plus the previously earned interest

If you borrow money on a single payment loan and discover you cannot pay it back when it is due you should

negotiate a rollover

BIF

covers for commercial banks

the federal income tax is

progressive

At the end of a lease period you are never required to.

purchase the vehicle at its residual value

Lower interest rates on certificates of deposit are associated with

shorter maturities

A progressive tax system is one in which higher income people pay ___ than lower income people.

tax at a higher rate

With open account credit, one can often avoid interest charges if

the account balance is paid in full every month

cash management

this is the term applied to the practice of time to time review of how liquid assets are collected, handled and used

you are solvent if your

total assets exceed total liabilities

Credit report is routinely used to predict credit worthiness.

true

You may be under-budgeting for food if you continually have monthly deficits in the food category.

true

the main objective of tax planning is to maximize the amount of money you keep by minimizing the amount of taxes you pay

true

If your installment loan has a variable interest rate,

you cannot accurately predict the total interest you will pay on the loan.

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7 percent, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round off the answer to nearest units place.)

$17,028

Sam and his wife Ann purchased a home in Lubbock, Texas in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet?

$175,000 asset and $55,000 liability

Tom sold mutual fund shares he had owned 3 years so that he could use the proceeds to return to college. Tom is in the 15% marginal tax bracket and his capital gains from this sale were $11,000. How much tax would Tom owe on those gains?

$0

Mandy and Jeff have a net worth of $25,000 and total assets of $140,000. If their revolving credit and unpaid bills total $2,200, what are their total liabilities?

$115,000

According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid down to 80% of the home's current market value.

false

Using credit is the ideal way to provide for financial emergencies.

false

demand deposit

funds held in this type of account (also called a checking account) must be honored, or paid, by the depository institution immediately upon demand by the account holder

A single-payment loan is advantageous only if

funds will be available to repay the lump sum

Interest will almost always begin to accrue immediately when you use a bank credit card to

get cash advances

Installment loans using the simple interest method

have interest charged only on the monthly loan balance

The ___ is really a second mortgage on your home

home equity line of credit

overdraft

in the case of this condition, banks return the check to the party to whom the check was written due to insufficient balance in the account.

If your total assets equal $87,000 and your total liabilities equal $10,000; your solvency ratio is?

88.5%

In 2014, the total social security tax was

6.2%

A money factor of 0.00360 on a lease is equivalent to an annual percentage rate of.

8.64

Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle?

$20,000

Bob Shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college. Assuming he pays interest as in accrues, if Bob dies before the debt is repaid his beneficiary will receive

$225,000

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed

$300

Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diana owe on those gains?

$4,500

Clare's gross salary is $36,000 annually and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment?

$480

your total cash income is $40,000. You pay $5,000 in taxes and $30,000 in other expenses. Your savings ratio is?

14.3%

When the simple interest method is used to determine finance charges, the interest is calculated based on the

actual balance of the loan

When comparing credit cards, a person who pays his total outstanding balance off monthly would want a card with

an adequate grace period no annual fee

Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely the result of

an over the limit fee

If your write a check for an amount greater than your account balance, the result will be

an overdraft

The first step in the auto buying process should be.

analyze how much car you can afford

If your ____ , your net worth on the balance sheet would have increased from one period to the next.

assets increased and liabilities remain constant

The loss of value in a car over time is called

depreciation

The loss of value in a car over time is called.

depreciation