personal finance final math

How much term life insurance should you have to provide your family with $75,000 per year pretax for general expenses for 40 years, plus immediately pre-fund two $100,000 college accounts for your two children in the event of your death. Assume your death benefit could be invested at 6% per year for the entire period. A) $1,200,000 B) $1,357,000 C) $1,328,472 D) Not enough information to determine the answer

$1,328,472

What would be the market price of a stock that paid a constant $2.00 per year in dividends in perpetuity, if the expected market return for a risk of this type was 7.5%? A) $25 B) $100 C) $26.67 D) $27.50

$26.67

Sally's adjusted gross income is $38,000. She does not own a home, but has charitable contributions of $1,500 and interest on her car loan of $2,100. This year she also had medical expenses of $2,000. She is allowed a standard deduction of $6300 and one personal exemption of $4,000. What is Sally's taxable income? A) $38,000 B) $31,300 C) $27,700 D) $29,200

$27,700

You obtain a loan of $3,000 to be repaid over one year. Assume you are charged 12% interest based on the add-on method. You monthly payments would be A) $280. B) $300. C) $360. D) $270.

$280 $3,000 × .12 = $360; $3,000 + $360 = $3,360; $3,360/12 = $280

Carol would like to have $500,000 saved in her retirement account in 30 years. Assuming an interest rate of 10%, how much should she contribute each year? A) $2,182.00 B) $2,000.00 C) $1,956.20 D) $3,039.70

$3,039.70 $500,000 / FVIF 164.49 = $3,039.70

Louie just got a big raise and wants to begin investing his excess cash flow. If he invests $7,500 per year for the next 30 years, and earns 5% on his investments, how much money will he have when he is nearing retirement? A) $385,567 B) $500,000 C) $498,291 D) $$265,987

$498,291

18) If Lucky Louie won a lottery and chose to take $1,000,000 in cash (disregarding taxes), how much money would he have in 30 years if he invested at 6% per annum? A) $5,743,491 B) $5,804,268 C) $6,050,972 D) Not enough information is provided to solve the problem

$5,743,491

Unfortunately, you have had several medical procedures in the current year with the following bills, $2,000, $9,200, $18,000, $5,000, and $3,500. Your deductible is $2,400, after which your co-pay is 10%. Your policy also includes a $6,000 out-of-pocket maximum clause. How much of the total bills are you responsible to pay? A) $2,400 B) $6,000 C) $5,400 D) $5,930

$5,930

Tom purchased disability insurance that will provide $1,400 per month in benefits. His employer carries a disability policy on Tom that will provide an additional $600 per month in benefits. If Tom's monthly budget is $2,500 and Tom is anticipating no additional disability benefits from any other source, what is Tom estimating as his work-related monthly expenditures. A) $500 B) $600 C) $2,000 D) $2,500

$500

Using the income method, if Jenny has an annual income of $50,000, debt of $20,000, and a factor of 10, then she should purchase ________ of life insurance. A) $100,000 B) $200,000 C) $300,000 D) $500,000

$500,000

Jim is self employed and had a "banner" year in 2015, earning $350,000 net income. He wanted to make a significant contribution to his retirement planning and set up a SEP plan. Since the plan allows for contributions up to 25% of net income, his maximum contribution was A) $53,000. B) $87,500. C) $75,000. D) $63,000.

$53,000

How much of a $2,000 medical bill would you pay if your policy contains a $400 deductible and a 10% coinsurance clause? A) $200 B) $400 C) $160 D) $560

$560

How much insurance would be needed in order to provide for a family for 20 years if the pretax income necessary to cover living expenses is $50,000 and the money can be invested at 6%? A) $573,500 B) $1,000,000 C) $833,333 D) $2,100,000

$573,500

One point on an $80,000 loan for the purchase of a $110,000 home would equal A) $100. B) $800. C) $1,000. D) $1,100.

$800

What is the interest cost and the total amount due on a six-month loan of $1,500 at 13.2% simple annual interest?A) $99; $1,500 B) $99; $1,599 C) $198; $1,698 D) $198; $1,500

$99; $1,599 1,500 × .132 × 6/12 = $99; $1,500 + $99 = $1,599

Assuming you were in the 25% federal and 5% state income tax brackets last year, and you allocated $200 per month to your flexible spending account, how much did you save if there was $1,000 remaining in the account at the end of the year? A) You lost $1,000 B) You saved $720 C) You lost $280 D) Not enough information to accurately determine the answe

you lost $280

Sam figures it will take $250,000 invested at 6% to provide suitable income to his family for 12 years. He would also like to have $40,000 set aside to educate his two children. Sam's current savings is $20,000. How much life insurance does he need using the budget method? A) $190,000 B) $250,000 C) $270,000 D) $310,000

$270,000

Mary Kay has a child who will start college in 10 years. She plans to set aside $2,400 per year for her child's education during this period and estimates she will earn an annual rate of 8%. How much will Mary Kay have available for her child's education in 10 years? A) $24,000 B) $27,446 C) $34,769 D) $29,971

$34,769

Assuming you were charged simple interest of 5% on a loan of $1,000 that requires you to repay in two payments, one at the end of the first six months and one at the end of the second six months, total payments on the loan would be A) $1,037.50. B) $525.00. C) $512.50. D) $1,000.00.

$1,037.50

Your automobile insurance policy contains policy limits of 200/300/100. If you have an accident in which you are deemed at fault and two people sustain bodily injuries that result in combined claims of $450,000, how much of the claim will not be covered under your insurance policy? A) $250,000 B) $150,000 C) $350,000 D) $450,000

$150,000

Bill is self-employed and has established a SEP retirement plan. Bill's net income for 2015 is $74,500. How much can Bill contribute to the SEP? A) $40,000 B) $17,000 C) $18,625 D) $11,500

$18,625

How much could a self employed individual earning $187,000 per year accumulate in a SEP plan if the individual invests the maximum allowed for 20 years at a return of 9%? Round to the nearest dollar if needed. A) $2,148,678 B) $2,391,736 C) $840,000 D) $935,000

$2,391,736

If a bank provides overdraft protection at a rate of 12% for each $100 (or portion of $100) borrowed when an overdraft occurs, what amount of interest would a customer pay for a $188 overdraft? A) $24.00 B) $22.56 C) $10.56 D) $12.00

$22.56

Jill just borrowed $6,000 and will be charged a simple interest rate of 12 percent. Jill will pay ________ interest for borrowing the money on September 1 and repaying the money on December 31. A) $240 B) $420 C) $720 D) $1,200

$240

Compute the new balance on a credit card assuming that: · Beginning balance = $450 · Purchases during the month = $300 · Payments made within the grace period = $250 · Interest rate = 18% A) $550 B) $503 C) $516 D) $1,000

$503

Mr. Berkey deposits $10,000 in a money market account at his local bank. He receives annual interest of 8% for 7 years. How much interest will he earn on his investment during this time period? A) $17,140 B) $7,140 C) $17,180 D) $7,180

$7,140

At what annual rate would $200.00 grow to $497.60 in five years? A) 19% B) 18% C) 20% D) 22%

20% $497.60/$200 = 2.488; FVIF 2.488, n = 5, i = 20%

If you purchase 100 shares of XYZ Corporation for $50 per share, receive a dividend check for $200, and then sell the stock for $62 per share, what will your return on the stock be? A) 4% B) 424% C) 24% D) 28%

28%

If you purchase 100 shares of Ajax Corporation for $15 a share and one year later sell it for $20 a share, what was your return if the stock paid $2 per share dividends? (Ignore commissions and trading fees. Round to the nearest whole percent.) A) 10% B) 33% C) 47% D) 40%

47% ($20 - $15) + $2)/$15 = 47%

How many years will it take for $35 to grow to $53.87 if it is invested at 9% compounded annually? A) 6.0 B) 5.5 C) 5.0 D) 4.0

5.0 $53.87/$35 =1.539; FVIF 1.539, i = 9%, n = 5

Jerry has assets of $200,000, a net worth of $150,000, and an annual income of $100,000. What are Jerry's liabilities? A) $100,000 B) $250,000 C) $50,000 D) $450,000

50,000

Your home insurance policy has a $250 deductible. If a small fire causes $600 damage to your home, what amount of the claim would the insurance company pay? A) $250 B) $350 C) $450 D) $600

$350

Kayla deposits $1,500 into a NOW account that requires a minimum balance of $500 and offers an interest rate of 2.4%. How much interest will she earn in one year in the NOW account? A) $360 B) $24 C) $12 D) $36

$36

If you bought stock for $3,000 a year ago, received no dividends, and sold it for $1,000, what is the return on your investment? A) -67% B) 0% C) 67% D) -33%

-67% ($1,000 - $3,000)/$3,000 = -67%

David's liquidity ratio is 3.0. He has $1,000 in current liabilities. Therefore, he has ________ worth of liquid assets A) $3,000 B) $333 C) $4,000 D) $700

$3,000

If you invest $12,000 today at an interest rate of 10%, how much will you have in 10 years? A) $31,128 B) $25,940 C) $13,860 D) $40,712

$31,128 FVIF = 2.594 × $12,000 = $31,128

Assume that you set aside $500 per year, and invest that money over the next five years in an account earning 6%. What is the amount of interest you will earn on this investment? A) $300 B) $319 C) $263 D) $250

$319

Dave and Tammy are both employed but are eligible to contribute to a traditional IRA. If they each contribute $5,500 to their respective accounts, how much federal income tax will they save if they are in the 30% marginal tax bracket? A) $3,300 B) $3,000 C) $1,650 D) $ 0, since contributions to a traditional IRA are not deductible from income for federal income tax.

$3,300

Don wants to have $50,000 available in 10 years for retirement living expenses and health care. If he earns an average of 8% on his investments, what amount must he invest each year? A) $3,453 B) $5,000 C) $4,372 D) $4,003

$3,453

Jack is 35 years old and is planning to retire at age 65. Based on a variety of factors, he is planning a retirement of 20 years. Jack determines that he will need $20,000 per year during his 20 years of retirement. If he can invest at 9%, how much will he need to save each year beginning today to reach his goal? A) $11,428.57 B) $6,086.00 C) $1,339.47 D) $20,000.00

$1,339.47 $20,000 × 9.129 (PV annuity 9 percent, 20 years) = $182,580.00 Annual needed savings × 136.308 (FV annuity 9 percent, 30 years) = $182,580.00 Annual needed savings = $1,339.47

If an employer matches contributions to a 401(k) up to a maximum of $1,800 (employer and employee each contribute $1,800) and an additional $2,200 is contributed by the employee, how much will the employee have in 35 years if the investments in the 401(k) earn an average of 9%? A) $152,600 B) $203,000 C) $1,251,122 D) $776,538

$1,251,122

How many years will it take for $500 to grow to $1,039.50 if it is invested at 5% compounded annually? A) 15 B) 14 C) 13 D) 12

15 $1,039.50/$500 = 2.079; FVIF 2.079, i = 5%, n = 15

Your car collides with a vehicle that has just run a red light, and your policy limits are 200/300/100. What is the maximum coverage under your policy for damages to the vehicle that you struck? A) $200,000 B) $300,000 C) $100,000 D) zero

zero

Based on the following information, how much disability insurance coverage per month would be required: · Mortgage payment -$1,600/month · Household insurance -$100/month · Car insurance -$200/month · Gas and oil -$90/month ($30 commuting to and from work) · Food -$200/month ($70 represents lunch at work which would be reduced by half if the meals were prepared at home) Employer disability insurance would provide $500/month and it is doubtful that anything would be received from either Social Security or worker's compensation. A) $1,525 B) $2,190 C) $1,495 D) $1,625

$1,625

Your checkbook balance at the end of May is $1,041.52. When you receive May's bank statement, you discover the following additional items: Bank fees, $27.00; Interest earned, $16.35. Your adjusted checkbook balance after considering these items is A) $1030.87. B) $1052.17. C) $950.04. D) $997.65.

$1030.87

If Art wants $35,000 in 10 years and can earn a 12% interest rate, how much does he need to invest today? A) $10,538 B) $10,310 C) $11,270 D) $14,375

$11,270 PVIF .322 × $35,000 = $11,270

How much would need to be contributed each year for 30 years to accumulate $1,300,000 assuming a return on the investments of 8%? Round to the nearest dollar if needed. A) $43,333 B) $46,800 C) $11,476 D) $15,000

$11,476

John decides to take his annual Christmas bonus of $2,000 and invest it each year for the next five years, in stock he believes can earn an 8% annual return. How much will John's investment be worth at the end of the five years? A) $11,972 B) $19,098 C) $11,734 D) $15,600

$11,734

Bob and Bonnie, husband and wife ages 56 and 58, have combined income of $80,000. What is the maximum combined IRA contribution that they can make in 2015? A) $10,000 B) $11,000 C) $13,000 D) $40,000

$13,000

Jane has $3,200 she wants to invest in stocks. She has found an investment that she believes will earn a 9% annual return. What will be the value of Jane's investment in 20 years if she is correct? A) $17,933 B) $16,512 C) $14,915 D) $21,526

$17,933

Assuming a tax rate on ordinary income of 25% and a long-term capital gain rate of 10%, how much would you pay in taxes if you sold stock "A" for a $200 capital gain after holding it for 5 months, stock "B" for a $300 capital gain after holding it for 8 months, and stock "C" for a $500 capital gain after holding it for 14 months? A) $250 B) $100 C) $130 D) $175

$175

Chuck obtained a mortgage of $90,000 to finance a $120,000 home. The title search will be $400, appraisal fee $500, application fee $900, and he will pay 1% origination fee. How much are his closing costs? A) $900 B) $1,800 C) $2,700 D) $3,000

$2,700

As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the average daily balance method and a monthly interest rate of 2.5%, Ben's finance charge would be A) $15.00. B) $12.50. C) $27.50. D) $20.00.

$20.00 ($1100 + $500)/2 = $1600/2 = $800 × .025 = $20

What would you pay for a stock whose price you estimate will be $50 in 10 years and you wish to earn a return on the investment of 9% per year? Ignore brokerage commissions and tax implications and assume the stock pays no dividends during the holding period. A) $45 B) $41 C) $21.10 D) $15

$21.10

Judy would like to have $200,000 saved in her retirement account in 20 years. Assuming an interest rate of 10%, how much should she contribute each year? A) $3,491.92 B) $2,000.00 C) $2,576.11 D) $4,376.77

$3,491.92 $200,000/57.275 = $3,491.92

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%. At the end of the first month, the interest owed on $3,000 is A) $30. B) $36. C) $300. D) $360.

$30 ($3,000 × 0.12)/12 = $30

An employer provides all employees with term life insurance equal to their annual income. Using the income method with a factor of 5, how much additional life insurance will an employee earning $75,000 per year need? A) $375,000 B) $300,000 C) $75,000 D) $50,000

$300,000

You have a home with a market value of $200,000. Your total equity in the home is $40,000. The maximum home equity loan available if the bank will loan 80% based on equity invested is A) $28,000. B) $32,000. C) $112,000. D) $128,000.

$32,000

The state lottery has just informed you that you have won $1 million to be paid out in the amount of $50,000 per year for the next 20 years. With a discount rate of 12%, what is the present value of your winnings? A) $221,950 B) $398,150 C) $373,450 D) $392,150

$373,450 PVIFA 7.469 × $50,000 = $373,450

Christopher is a single college student and earns $13,000 from a part-time job. He has taxable interest income of $1,400 and itemized deductions of $690. Calculate Christopher's taxable income for 2015 assuming his parents do not claim him as a dependent on their tax return. A) $4,100 B) $4,000 C) $10,510 D) $12,310

$4,100 $14,400 ($13,000 + $1,400)- $5,950- $3,800= $4,650

If a stock is purchased for $30 a share and pays $5 per share in dividends a year, what selling price at the end of the year would result in a return of 50%? A) $60 B) $40 C) $35 D) $15

$40

What would be the out-of-pocket cost to an individual whose health care policy includes a 20% co-pay for all long-term illnesses. The policy has a stop loss provision of $40,000. A current long-term illness has resulted in total expenses of $250,000. A) $8,000 B) $40,000 C) $50,000 D) $210,000

$40,000 $250,000 × 0.2 = $50,000 which exceeds the stop loss of $40,000, therefore $40,000 would be paid.

How much would be owed by the patient on a $3,000 bill if a PPO uses a discount on charge arrangement wherein the percentage paid to the provider is 70% and the patient's co-pay, as specified by the PPO, is 20 percent? A) $600 B) $700 C) $420 D) $200

$420

If an employee earning $75,000 per year annually for 20 years contributes 6% to their 401(k) plan and the employer matches 3%, plus contributes $5000 to a Roth IRA annually for 20 years, how much money will the employee have at the end of 20 years assuming all funds are invested at 6% per annum? A) $432,231 B) $524,234 C) $450,456 D) $365,056

$432,231

You are trying to help your aunt figure out how much she owes on a recent flurry of medical bills that resulted from her recent bypass surgery. Her company provided PPO plan includes the following provisions, $2,400 deductible, 10% co-pay and a $6,000 maximum out-of-pocket limit. You have summarized her bills as follow: doctor visits $1,500, surgeon and other docs $16,000, operating room $15,000, hospital stay $21,000, rehabilitative service $10,000. How much does she owe in total on these enormous bills? A) $2,400 B) $61,100 C) $6,000 D) $8,510

$6,000

You have cash value coverage for your personal property on your homeowner's policy. A camera that cost you $300 eight years ago had a life expectancy of 10 years. The camera was stolen, and a new one will cost only $200. How much will the insurance company pay? A) $60 B) $100 C) $200 D) $300

$60

Using the income method and employing a factor of 10, determine the amount of insurance a couple would need if their net income is $65,000, their assets total $280,000, their liabilities total $130,000, their two children's anticipated college education needs total $730,000, and their invalid mother's future nursing home expenses total $290,000. A) $2,850,000 B) $1,500,000 C) $650,000 D) $730,000

$650,000

Matt is 25 and wants to save $2,000 per year in an IRA until he retires at age 65. If Matt's investment earns 9%, how much will his IRA be worth when he retires? A) $64,030 B) $579,471 C) $272,620 D) $675,780

$675,780

If you invest $1,000 in stock that pays no dividends and sell the stock one year later for $1,100, what will be your return? (Ignore commissions and trading fees.) A) 1% B) 5% C) 10% D) 100%

10%

What would be the annual compound return on a stock purchased at $20 per share, held for 5 years, and sold for $32.22? Ignore brokerage commissions and tax implications and assume the stock paid no dividends during the holding period. Round to the nearest whole percent if necessary. A) 3% B) 10% C) 15% D) 16%

10%

What return on investment would you earn if you bought a stock on 1/1/16 for $100, received a 1% per quarter dividend and sold the stock on 1/2/2017 for $107? A) 9% B) 11.2% C) 12.07% D) 11%

11%

At what annual rate would $500 grow to $1,948 in 12 years? (Note—Solve as a present value problem.) A) 12.0 % B) 13.0 % C) 12.5 % D) 11.0 %

12.0% $500/$1,948 = 0.257 (Exhibit 3.2)—look up on 12 year line (12.0 percent)

Jack has $1,000 that he wishes to invest for the next two years. One-year CDs are currently paying 8% while two-year CDs are paying 12% per annum. Economists are predicting that interest rates will rise by the end of the year. What is the minimum amount interest rates would have to increase to in order for the one-year CD to be better than the two-year CD?A) Two one-year CDs returning $120 interest B) Two one-year CDs returning $160 interest C) One two-year CD returning $180 interest if a D) One two-year CD returning $1,900 interest

16% Total dollar return over the two years at 12% is $240; one year return at 8% is $80, therefore interest rates would have to increase to 16% or better to make up the difference.

If you buy a $10,000 par value, three-month T-bill priced at $9,800, what will your return (not annualized) on investment be? A) 8.2% B) 6.5% C) 2.04% D) 4.08%

2.04% ($10,000 - $9,800)/$9,800 = 2.04%

Lucky Louie applied for a $5,000 loan payable in one year and was provided the following data; interest due at payoff of $750, application fee $100, credit check $75, processing fee $75. What is the APR of Louie's loan? A) 20% B) 17.5% C) 22.5% D) There is not enough information to determine the answer.

20%

What would be the return on 200 shares of stock purchased on January 1, 2016 for $60 per share and sold on December 31, 2016 at $80 per share? Also assume that the company paid dividends of $2 per share over the year. The prices include all brokerage fees. Round to the nearest whole percent. A) 37% B) 25% C) 33% D) 40%

37%

Rick needs an advance on his $600 bi-weekly paycheck. He goes to Cash King where he writes them a check for $690 and dates the check two weeks from today. The cost of financing Rick's payday loan is A) 391%. B) 521%. C) 261%. D) 547%.

391%

You buy a T-bill, which has a par value of $10,000 for $9,600 and the T-bill has a one-year maturity. What will be your return? A) 2.5% B) 4.2% C) 4.8% D) 6.0%

4.2% ($10,000 - $9,600)/$9,600 = 4.1%

You are the beneficiary of a $200,000 life insurance policy that has both a lump-sum option and an annuity option. The annuity option pays $20,000 per year for a 15 year period beginning at the end of the year. Using your financial calculator or the tables in the book, determine the minimum rate of return you must be assured of earning over the 15 year period if you were to choose the $200,000 lump-sum settlement. A) 5.6% B) 6% C) 3.25% D) 7.2%

5.6%

A call option on 100 shares of stock is purchased for a premium of $400. The current price of the stock is $42 per share, and the exercise price is $44 per share. The option is exercised when the stock is selling for $50 per share. What would be your return on the option if after exercising it, you immediately sold the stock at the market price of $50 per share? Ignore taxes and brokerage commissions. A) 8% B) 12% C) 50% D) 200%

50%

Ruth paid $300 for a call option on 100 shares of stock. The option gives her the right to buy the stock for $37 per share until April 1. On March 15, the stock rises to $42 per share, and Ruth exercises her option, purchases the stock and then sells it in the market. What is Ruth's return on the option? A) 167% B) 67% C) 100% D) 150%

67%

An investor purchases 100 shares of stock for $20 per share. The stock has now risen in price to $44 per share. To cover potential losses, the investor purchases a put option for a premium of $300 with an exercise price of $42 per share. The stock falls to $28 per share, and the investor exercises the option and sells the shares at $42 per share. Ignoring brokerage commissions and taxes, what would be the investor's return from the stock? A) 120% B) 110% C) 95% D) 70%

95%

Lorenzo is considering two banks for his checking account. Suny Bank requires a minimum deposit of $100 and charges a monthly fee of $8, plus 5 cents a check. Merchants Bank also requires a minimum deposit of $100, it charges a per check fee of 15 cents but no monthly fee. How many checks would Lorenzo need to write each month to make Suny Bank cheaper to use than Merchants? A) over 50 B) over 60 C) over 70 D) over 80

over 80 8 monthly charge / 10 cent per check differential = 80 checks break even

If you borrow an $8,000, 6.75% home equity loan, what is your tax savings for one year assuming your marginal income tax rate is 15%? A) $540 B) $81 C) $270 D) $162

$81

If a current mortgage payment of $792 per month can be reduced to $578 per month by refinancing, how many months would you need to remain in the house to recoup refinancing charges of $3,784? (Round up to the nearest month.) A) Five months B) Seven months C) Eighteen months D) The maturity of the loan

eighteen months $3,784/($792 - $578) = 17.68 months or 18 months (rounded)

During an unusually heavy rain, the basement of your house flooded and an antique dresser from the 1860s was destroyed. The dresser was originally purchased for $1,300 10 years ago and was recently appraised for $2,600; you recently received an offer from an antique collector for $3,100. Under a standard homeowner's policy, how much would you receive from your insurance company to cover this loss? A) zero B) $1,300 C) $2,600 D) $3,100

zero

You have a credit card on which your beginning balance for the month was $400. On the 10th of the month you took out a cash advance of $500. During the month you made purchases of $250. Assuming that the interest rate on purchases is 15% (1.25% per month), the rate on cash advances is 18% (1.5% per month), and there is a 1% fee on all cash advances, what would you have to pay to pay off your account if your due date is the 30th of the month. A) $1,165.00 B) $1,222.50 C) $1,305.00 D) $1,342.50

$1,165.00

As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the adjusted balance method and a monthly interest rate of 2.5%, Ben's finance charge would be A) $15.00. B) $12.50. C) $27.50. D) $20.00

$12.50 $500 × .025 = $12.50

A worker making $20 per hour decides to take a day of unpaid leave from work to attend a graduation ceremony. The worker ordinarily works and 8-hour day and is subjected to a total tax rate of 20%. What is the worker's total opportunity cost from the day of unpaid leave? A) $8.00 B) $128.00 C) $112.00 D) $160.00

$128.00 $160 × 5% = $8; $160 × 70% = $112; $112 + $8 = $120

John would like to save $1,500,000 by the time he retires in 30 years and believes he can earn an annual return of 8%. How much does he need to invest each year to achieve his goal? A) $13,242 B) $18,900 C) $20,518 D) none of the above

$13,242

On April 1, Alex deposited $2,000 in an MMDA that pays 3% interest. On July 1, Alex invested $3,000 in a six-month CD that pays 6% interest. How much total interest will Alex have earned by December 31? A) $90.00 B) $45.00 C) $135.00 D) $240.00

$135.00 $2,000 × .03 × 9/12 = $45 $3,000 × .06 × 6/12 = $90 45+90=$135

Maurice purchased a $10,000, 90-day CD that pays 8 percent. How much will Maurice receive when the CD matures? (Round answer to the nearest dollar.) A) $10,800 B) $10,197 C) $10,200 D) $10,267

$10,197 $10,000 + ($10,000 × 0.08 × 90/365) = $10,197

A 180-day CD offers an annualized interest rate of 1.10% and requires a minimum deposit of $25,000. The amount of interest that will be earned on this investment is A) $135.62. B) $275.00. C) $137.50. D) $2,750.00.

$135.62

You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%, or 1% a month. If the first payment is $300, how much is the principal portion of the payment? A) $27 B) $270 C) $280 D) $295

$270 $300 - ($3,000 × 0.01) = $270

What is the total cost of leasing a vehicle for three years that requires a security deposit of $300 (would earn 3% interest in a money market account otherwise), has monthly lease payments of $385, and has a mileage restriction of 10,000 with excess mileage resulting in a 10 cents per mile charge. Assume that over the life of the lease you exceed this limitation by 8,000 miles. A) $14,160 B) $13,860 C) $14,687 D) $14,660

$14,687

If Jim wants $25,000 in five years and can earn an 8% interest rate, how much does he need to invest today? (Note—Solve as a present value problem.) A) $16,108 B) $17,025 C) $15,158 D) $17,829

$17,025 $25,000 × 0.681 = $17,025.00

If Joe has $5,600 today and invests it at a 10% interest rate, how much will he have in 12 years? (Note—Solve as a future value problem.) A) $17,393.60 B) $17,572.80 C) $15,770.49 D) $12,320.00

$17,572.80

Lucky Louie's bank requires a minimum balance at all times of $1500 in order to provide free checking services. The bank pays .5% per annum interest on the minimum balance. If you do not maintain the balance, account service fees are $4 per month. Assuming Lucky can earn 2.5% on his money not sitting at the bank, what is his net benefit to maintaining the minimum balance A) Not a benefit; he should invest his money elsewhere at 2.5% B) $18 per year benefit C) $48 per year benefit D) Breakeven

$18 per year benefit

If an insurance policy carries a $250 deductible and an accident results in the following losses, what will be the reimbursement from the insurance company under your collision and comprehensive coverage? · Replacement of trailer hitch $200 · Replacement of rear bumper $150 · Replacement of computer being carried on the back seat $300 · Replacement of rear windshield A) $200 B) $250 C) $450 D) $750

$200

Nathaniel and Kimberly want to make an offer on a 2,200 square foot home that is priced at $212,000. They research other home prices and find the following information: a 2,400 square foot home sold for $220,000; a 1,800 square foot home sold for $168,000; a 2,000 square foot home sold for $185,000. Based on your analysis, what reasonable offer should Nathaniel and Kimberly make on the house? (Round all computations to the nearest dollar.) A) $212,000 B) $200,400 C) $204,600 D) $194,000

$204,600 $220,000/2,400 sq. ft. = $92 $168,000/1,800 sq. ft. = $93 $185,000/2,000 sq. ft. = $93 $278/3 = $93 sq. ft. × 2,200 sq. ft. = $204,600

You are considering the purchase of a 2,300 square foot house that is being offered for $238,500. After researching recent home sales in the area, you find three that are comparable. The first was a 2,500 square foot home that sold for $225,000, the second was a 2,200 square foot home that sold for $200,000 and the third was a 2,000 square foot home that sold for $178,000. Based on your analysis, what would be a reasonable offer on the house? (Round all computations to the nearest dollar.) A) $210,000 B) $207,000 C) $205,000 D) $201,000

$207,000 $225,000/2,500 sq. ft. = $90 $200,000/2,200 sq. ft. = $91 $178,000/2,000 sq. ft. = $89 $270/3 = $90 sq. ft. × 2,300 sq. ft. = $207,000

Lucky Louie is putting together an offer on a previously owned home he wants to buy. The home has 2,200 square feet of living space and is priced at $225,000. Upon his inspection, the condition of the roof is not good, and the central air system is on its last leg. Louie estimates replacement costs for these two systems to be a minimum of $17,000. Recent comps in the neighborhood show a 2,400 square foot house in good condition having sold for $245,000 just one month ago. What should Louie offer? A) $225,000 B) $206,000 C) $208,000 D) Stay away from a house needing major system repairs.

$208,000

Mr. Wolf is borrowing $500,000 to expand his business. The loan will be for ten years at 12% interest and will be repaid in equal quarterly installments. What will the quarterly installments be? A) $88,496 B) $21,631 C) $25,510 D) $60,650

$21,631

Lucky Louie is considering a NOW account that requires a $1500 minimum balance and pays .5% interest. What would be the opportunity cost if Louie needs to withdraw the required minimum balance from a savings account paying 2% interest? Compute the opportunity cost for one year. A) $10 B) $22.50 C) $25 D) $35

$22.50 5% (savings account rate) - 2% (NOW account rate) = 3% × $500 (NOW account minimum) = $15

John is considering pursuing one of two credit cards. Credit card "A" has no annual fee and charges an interest rate of 12.5%. Credit card "B" has an annual fee of $45 but charges an interest rate of 9%. If John is likely to have an average credit card balance of $2,000, the lowest annual expenses John could have with one of these two cards would be A) $225. B) $180. C) $250. D) $240.

$225

Ralph and Josee have adjusted gross income of $53,000. They have itemized deductions of $18,000 and incurred $2,000 in college expenses for their daughter who is a freshman at a local community college. They file jointly and have three exemptions at $4,000 each. Compute their tax liability for the current year. A) $227 B) $1,170 C) $255 D) $2,780

$227

A family with $45,000 in assets and $22,000 in liabilities would have a net worth of A) $45,000. B) $23,000. C) $22,000. D) $67,000

$23,000

Under a cash value policy, the loss of a $600 item with an estimated life of five years that was purchased three years ago and has a replacement cost of $900 would result in a payment from the insurance company of A) $600. B) $900. C) $240. D) $360.

$240

What would be the total cost of leasing a vehicle for four years that requires a security deposit of $1,000 (which would be withdrawn from your portfolio, which earns 9% per year), has monthly lease payments of $500, and has a mileage restriction of 20,000 with excess mileage resulting in a 10 cents per mile charge. Assume that over the life of the lease you exceed the mileage limitations by a total of 8,000 miles. A) $24,000 B) $24,360 C) $24,800 D) $25,160

$25,160

As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the previous balance method and a monthly interest rate of 2.5%, Ben's finance charge would be A) $15.00. B) $12.50. C) $27.50. D) $20.00

$27.50 $1100 × .025 = $27.50

Suppose you have a credit card balance of $500 that you were unable to pay off. During the current month you purchase another $250 worth of products. You made a payment during the grace period of $300. Assuming your retail credit card company charges an annual interest rate of 22%, compute your new balance. A) $510 B) $250 C) $494 D) $454

$454

Bill borrowed $3,600 and will be charged a simple interest rate of 18%. Bill will pay ________ interest for borrowing the money on April 1 and repaying the money on December 31. A) $468 B) $648 C) $486 D) $162

$486

If you borrowed $8,700 at 6% for one year, what would your total interest be if you are charged simple interest?A) $600 B) $9,222 C) $522 D) $600

$522

Melanie, a homeowner, has mortgage interest of $3,000, real estate taxes of $1,500, and charitable contributions of $500. According to her filing status, a standard deduction of $6,300 is allowed. How much should Melanie deduct on her tax return? A) $5,000 B) $6,300 C) $6,700 D) $7,700

$6,300 Itemized deductions = $3,000 + $1,500 + $500 = $5,000 which is less than the standard deduction of $5,950, so she should deduct $5,950.

Jakob received a $1,000 a year raise in January, sold stocks in March for $6,000 that were originally purchased for $4,000, and in July had a $100 monthly increase in mortgage payments on his adjustable rate mortgage. The increased mortgage payment started in July and was in effect for the remainder of the year. What was the total impact on Jakob's cash flow for the year? A) $1,000 B) $5,400 C) $6,400 D) $7,600

$6,400

How much must you invest today at 8% interest in order to see your investment grow to $15,000 in 10 years? A) $6,330 B) $6,945 C) $7,620 D) $7,500

$6,945 PVIF = .463 × $15,000 = $6,945

If the rent on an apartment is $600 per month, which is equal to a mortgage payment on a house, how much additional tax savings will you realize if $200 of the monthly mortgage payment is interest and your tax bracket is 25%? A) $50 B) $600 C) $2,500 D) $7,200

$600

If you are in the 20% federal and 5% state income tax brackets, how much do you save each year by allocating $200 per month to your flexible spending account assuming you have zero funds left over at the end of the year? A) $600 B) $400 C) $20 per month D) $2,400

$600

To save for her newborn son's college education, Kelli Peterson will invest $1,500 at the end of each year for the next 18 years. The interest rate she expects to earn on her investment is 9%. How much money will she have saved by the time her son turns 18? A) $55,461 B) $69,027 C) $61,952 D) $68,399

$61,952 FVIFA = 41.301 × $1,500 = $61,952

Josh has decided to take a course at the local community college that could help him get a promotion at work. The course begins at 5 p.m. and goes until 9 p.m. on Monday nights. Josh normally works until 5 p.m. each day, but because of the drive time to the community college, he will need to leave work at 3 p.m. on class days. Josh currently earns $18.50 per hour. His employer contributes 10% of Josh's gross earnings to a 401(k) retirement plan. If the class meets 16 times, what is Josh's total opportunity cost for the class? A) $592.00 B) $800.00 C) $651.20 D) None

$651.20 2 hours × $18.50 = $37.00 × 10%+ $3.70; $37.00 + $3.70 = $40.70/class × 16 classes = $651.20

Assuming interest rates were 6% per annum, what would be the present value of the $50,000 per year for 30 years payment stream? Use the tables or a financial calculator. A) $688,242 B) $1,500,000 C) $700,002 D) $693,974

$688,242

Lucky Louie qualified for a $250,000 mortgage for his new home. The loan application was $400, closing attorney fee $500, appraisal fee $400, title insurance $1200, document fee $75, credit check $50. The loan requires a 1% origination fee plus 1 point ( 1 %) interest to buy down the rate. How much are Louie's total closing costs? A) $5,500 B) $7,625 C) WOW! D) $5,125

$7,625

You are considering applying for one of two credit cards. Credit card "A" has an annual fee of $30 and charges interest of 10%. Credit card "B" has no annual fee, but charges an interest rate of 15%. If you carry an average balance of $500 on your credit card, the lowest total annual expenses you could have with one of these two credit cards would be A) $50. B) $80. C) $75. D) $90.

$75 Card "A" $500 × 0.10 = $50 + $30 = $80 Card "B" $500 × 0.15 = $75

Tiffany and Jason want to obtain a $72,000 mortgage. Their payments would be $730 for a 15-year mortgage and $579 for a 30-year mortgage. What would be their total savings in interest by using a 15-year mortgage? A) $27,180 B) $54,360 C) $77,040 D) $131,400

$77,040

Enrico and his wife have combined salaries of $85,000. They have interest and dividends on their investments of $1,000 and annually contribute a combined $3,000 to a traditional IRA. The interest on their home mortgage is $2,500, they contributed $1,000 to their church, and incurred medical expenses not covered by insurance of $1,800. Assuming they can claim two personal exemptions of $4,000 each and file joint tax returns, compute their tax liability for 2015. A) $11,606 B) $10,056 C) $9,981 D) $8,287

$8,287

If Sandy has $7,000 today and invests it for five years at a 5% interest rate, how much will she have in five years? A) $8,750 B) $7,850 C) $8,932 D) $8,857

$8,932 FVIF 1.276 × $7,000 = $8,932

A few years ago Mary purchased a home for $100,000. Today the home is worth $150,000. The remaining balance on the mortgage is $50,000. If Mary can borrow up to 80% of the market value of the equity, the maximum amount she can borrow is A) $80,000. B) $70,000. C) $100,000. D) $50,000.

$80,000

Greg and Kathy are considering purchasing a home requiring an $85,000 mortgage. The payment on a 30-year mortgage for this amount is $605. The payment for a 15-year mortgage is $752. What is the additional amount of interest paid on the 30-year mortgage? A) $82,440 B) $52,920 C) $135,360 D) $26,460

$82,440

The opening balance in your checking account was $1000. During the month you had the following activity: wrote two checks for $45.00 and $75.00 but only the first one cleared; had two debit card transactions for $50 and $35.20; received a bank charge for the account of $6, deposited a check you received from a friend for $100 but it did not clear by month end. What is your month end account balance?A) $1052.13 B) $875.45 C) $863.80 D) $888.80

$863.80

Frank purchased his home in 1997 for $130,000. He added an addition costing $35,000. The current tax assessed value is $80,000 while the current market value is $185,000. If Frank's current mortgage balance is $95,000, his equity in his home is A) $130,000. B) $165,000. C) $90,000. D) $70,000.

$90,000

If you buy a $10,000 par value T-bill with a 180-day maturity date for $9,750, what will be your annualized return? A) 2.5% B) 3.06% C) 4.5% D) 5.2%

5.2% ($10,000 - $9,750)/$9,750 × 365/180 = 5.2%

If a $10,000 T-bill is purchased for $9,600 and matures in 270 days, what will be the annualized return? (Round to the nearest hundredth of a percent.) A) 4.01% B) 4.17% C) 5.63% D) 2.85

5.63%

What would be the annualized return to an investor who purchases a one-year $10,000 T-bill for $9,600 and sells it on the secondary market 90 days after the purchase for $9,750? A) 3.5% B) 6.34% C) 10.14% D) 16.22%

6.34%

18) Jessie has $4,000 in a bank account, $2,800 in a 401(k) plan at work, a car with a current value of $28,000, and a house that she purchased for $92,000 that has a current value of $118,000. The current balance of her home mortgage is $81,000, she has one credit card with a $3,000 balance, and a school loan with a balance of $6,000. What is Jessie's current net worth? A) $62,800 B) $46,800 C) ($242,800) D) ($62,800)

62,800

Assuming you were charged simple interest on a loan of $4,900 which requires you to repay in one year $5,292, what rate of interest would you be charged? (Round interest rate to the nearest hundredth percent if necessary.) A) 9.26% B) 8% C) 7.41% D) 11%

8% ($5,292 - $4,900)/$4,900 = 8%

Juan has $1,000 that he would like to invest in a CD. His bank offers two alternatives, a one- year CD paying 6% or a two-year CD paying 9%per annum. Juan has been reading that interest rates are rising, and, based on his research, he estimates that by year-end the rate on one-year CDs will increase to 10%. What alternative would give Juan the most interest and what would the total interest be? A) Two one-year CDs returning $120 interest B) Two one-year CDs returning $160 interest C) One two-year CD returning $180 interest D) One two-year CD returning $1,900 interest

One two-year CD returning $180 interest Two one-year CDs at 6 and 10% would return $160, while the two-year CD would return $180, therefore, this is the best choice.

You have a choice between investing $10,000 in a CD that in six months will pay you $10,190 or investing $9,800 in a T-bill that in 182 days will return $10,000. Ignoring any opportunity cost between the two investments, which will give you the higher annualized return and what will the annualized return be? A) T-bill; 2.2% B) T-bill; 4.09% C) CD; 3.8% D) CD; 1.9%

T-bill; 4.09%