personal financial planning final

If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?

$1,760

What are three retirement plans a company can provide to you?

401K, IRA, and ROTH IRA

What is the difference between perils and hazards. Please give three examples of each.

A peril is something that can cause a loss and a hazard is something that will more than likely cause a loss. Peril: car crash, hurricane, fire Hazard: ice on the roads, living in Florida, bad electrical wiring in building

What are three factors that may affect your house insurance cost?

Age of house, pool, home security

You are an insured driver with USAA and you borrow your friends cars insured by Allstate. When you are driving back to your friends house to drop off the car you have a car accident Which insurance company pays the liability in this accident?

Allstate

When should you start contributing to your retirement plan and why?

As soon as you can. The sooner you start the more you will be able to save for retirement.

What was the most aggressive fund presented last week and why?

CIBR because it went up and down by a lot and if someone is old and needs steady income then that could be risky for them if the economy falls because they might not be able to get their money back and might lose a lot instead

Explain the difference between deductions and credits on your taxes

Deductions take away from your income that you will pay taxes on and credits reduce the amount of taxes you owe.

What is HO-1, HO-2 and HO-4. Please give a description of each.

HO-1 is home owners insurance and HO-2 and HO-4 are just more specific and cover more perils and hazards. HO-4 is for renters

What are the three big questions to ask before leasing a car?

How many miles does the lease include? What fees does the lease have? What's the car's residual value

In your own words, how would you describe revolving credit?

It is credit offered by banks or other financial places that offer higher credit lines with lower interest rates than credit cards typically do

What is the rule of 72 and if you are making 2% per year, approximately how many years does it take to double your money?

It is to figure out how long it will take to double your money. It would take approximately 36 years

From our class lecture, what three formats of a consumer loan:

Lien, chattel mortgage, collateral note

From Class, which goal has "Last resort assets"

Retirement, long-term

Explain the difference between compound and simple interest.

Simple interest is paid on the principal that is there and compound interest is paid on the principal and the interest earned.

What are the three most important points or "big takeaways" from last weeks presentation on investing?

Start invested. Don't get emotional Stay diversified The biggest take aways were to diversify your investments and know what you are investing (how aggressive it is).

Please describe the difference between a ROTH IRA and a traditional IRA.

The difference between a ROTH IRA and a traditional IRA is that a traditional IRA's contributions are tax deductible in the year they are made.

Why should you diversify your investment portfolio?

You should diversify your investments because it is less risk. If you put all of your eggs in one basket then the only outcomes are success or failure. If you put your eggs in multiple baskets then there is the possibility of still having success with some investments even if one fails.

From the lecture last week, what are three reasons why we use credit?

convenience, to pay for a financial emergency, and to avoid paying cash for large payments

A will is a legal document outlining the plan for

disposition of your assets

529 Plans are the newest type of student loans.

false

A budget is a detailed statement of what income and expenses occurred over a past period.

false

A long-term capital gain is taxed at the same rate as ordinary income.

false

A savings account may be a useful tool in managing everyday household transactions.

false

All living trusts are revocable.

false

Always paying cash is helpful in establishing a high level of creditworthiness.

false

Approximately 50 percent of Americans prepare a detailed household budget.

false

Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle.

false

Average propensity to consume refers to how much of your money you plan to save in your financial plan.

false

Because no written contract is usually required, borrowing from friends and relatives is advisable.

false

Closed-ended mutual funds are guaranteed, they cannot lose value.

false

Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.

false

Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.

false

ETFs often distribute large capital gains to their shareholders.

false

Estate planning usually occurs during the last ten years of a person's life.

false

Exchange-traded mutual funds are actually closed-end mutual funds.

false

FDIC covers stocks, bonds, and mutual funds purchased at banks.

false

Fixed automobile costs increase as the number of miles driven increase.

false

Generally speaking, the interest rates on credit cards are lower than any other form of credit.

false

If Wristwatch Arm Corporation (WAC) has assets of $10 million, liabilities of $5 million, and preferred stock of $1 million, its book value is $6 million.

false

If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed.

false

If lenders specify a loan-to-value ratio of 80 percent, then a buyer must make a 20% down payment on the purchase of a home.

false

If you are married, you can legally file a single tax return.

false

Interest rate risk is greater for short-term bonds than for long-term bonds.

false

Interest you earned on your savings account would be an entry on your personal balance sheet.

false

Internet-only banks typically pay lower interest rates on savings than traditional banks.

false

Investing is considered a short-term activity that involves the buying and selling of securities.

false

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

false

Loans are available from term life insurance policies.

false

Low-load funds do not charge a commission upon initial purchase.

false

Market risk considers the possibility that the firm may fail.

false

Minors can handle large sums of money and property.

false

Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank.

false

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

false

Owning common stock represents a debt investment.

false

Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.

false

Prices are rising in bear markets, indicating economic optimism.

false

Probate property includes only real property.

false

Publicly traded issues are only available to qualified investors.

false

Spreading risk among a large number of people is a major principle of insurance.

false

Stock dividends are taxed at long-term capital gains rates.

false

The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.

false

The Standard and Poor's Index is based on 30 industrial stocks.

false

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

false

The federal personal income tax is a progressive tax.

false

The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.

false

The income and expense statement looks forward in time, while a budget is backward looking.

false

The key to creditworthiness is to keep your debt safety ratio as high as possible.

false

The minimum denomination for Treasury bills is now $1,000.

false

The returns on term life insurance policies receive favorable tax treatment.

false

The two main areas of estate planning are asset planning and probate planning.

false

The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.

false

The yields on municipal bonds are usually higher than the returns available from fully taxable issues.

false

There is a penalty for early withdrawal of funds from CDs purchased from brokerage firms.

false

There is no limit on the amount of social security tax withheld annually.

false

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

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

When you stop making premium payments on a whole life policy, the policy's cash value is forfeited.

false

While ETFs offer many of the benefits of mutual funds, they have the tax-timing disadvantages not present with otherwise comparable mutual funds.

false

Whole life policies typically provide a high investment rate of return.

false

In which of the following types of investment is the most liquidity risk?

land

What is the most expensive consumer loan?

lien

From the lecture last week, what are three things we should avoid purchasing with credit.

paying for basic living expenses, impulse purchases, and non-durable goods

Cash and cash like investments are best used for what kind of goals?

short-term goals

A balance sheet is like a photograph of your financial condition, while an income and expense statement is like a motion picture.

true

A budget is a detailed financial forecast.

true

A diversified portfolio is less risky than putting your money into a single security.

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 house and land are examples of real property.

true

A life insurance policy's cash value may be collected by terminating the policy.

true

A mutual fund prospectus is required to fully disclose all fund fees and expenses.

true

A person with a significant amount of investment income would have a high probability of needing to make estimated tax payments.

true

A potential estate planning problem is improper distribution of assets.

true

A short sale transaction will be profitable when prices are falling.

true

A short-term capital gain would be taxed at the same rate as your salary.

true

A systematic investment routine involves investing similar sums in regular intervals.

true

A technology fund is an example of a sector fund.

true

A will is revoked if a second legitimate will is created.

true

A will may be invalid if the testator was under undue influence of another person.

true

ATM transactions require the use of a PIN.

true

All mutual funds have management fees.

true

An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.

true

An investment is acceptable if the expected rate of return is greater than the desired rate of return.

true

An investment must be owned over one year in order to qualify for long-term capital gains treatment.

true

Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.

true

As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.

true

Borrowing to pay for a college education is a legitimate use of credit.

true

Changes in the value of securities due to social, political, or economic factors are referred to as market risk.

true

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

true

Commercial banks are generally more selective in granting loans than finance companies.

true

Common stock generally allows the stockholder an equal vote in electing the management of the corporation.

true

Condominiums are generally less costly than single-family, detached homes.

true

Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date

true

Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.

true

Current consumption affects future consumption.

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

Event risk occurs when something substantial happens to a company that has an immediate impact on its financial condition.

true

First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2

true

From a financial planning perspective when considering a consumer loan, you should ask yourself how the purchase fits into long-term financial plans.

true

Gasoline is a variable cost of automobile ownership

true

Gift giving can reduce estate tax liability.

true

Group life insurance is often provided as a fringe benefit by employers.

true

Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.

true

Housing prices vary widely from on part of the country to another.

true

If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.

true

Intestacy results from dying without a valid will.

true

Investing and speculating are two entirely different activities

true

Jewelry, furniture, and computers are examples of personal property.

true

Life insurance needs change dramatically over one's lifetime.

true

Liquidity is important in an estate to pay for death costs and possible taxes.

true

More damage is done to estates by doing nothing than by doing the wrong thing.

true

Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.

true

One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account

true

One should typically name both primary and contingent beneficiaries for life insurance policies.

true

Open account credit is a form of credit extended to a consumer in advance of any transaction.

true

Personal financial planning involves translating financial goals into action plans.

true

Question 61 / 1 pts Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family

true

Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances.

true

Saving is the preferred way to provide for financial emergencies.

true

Social security benefits are often available resources to the family after the death of a family member.

true

Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.

true

Tax credits are dollar-for-dollar reductions in taxes due.

true

Term insurance is generally the most economical form of life insurance for young families.

true

The Medicare portion of the FICA tax is paid on 100% of earnings.

true

The Six-Step Financial Planning Process is: 1. Define financial goals. 2. Develop financial plans and strategies to achieve goals. 3. Implement financial plans and strategies. 4. Periodically develop and implement budgets to monitor and control progress toward goals. 5. Use financial statements to evaluate results of plans and budgets, taking corrective action as required. 6. Redefine goals and revise plans and strategies as personal circumstances change.

true

The Veterans Administration guarantees mortgage loans given to qualified veterans.

true

The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.

true

The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.

true

The difference between the market value of your home and the balance of the mortgage is your equity in the property.

true

The federal government regulates securities markets through the Securities and Exchange Commission.

true

The federal personal income tax is a progressive tax.

true

The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.

true

The heart of sound financial planning is improved standard of living.

true

The most important advantage of a mutual fund is pooled diversification.

true

The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.

true

The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.

true

The net asset value (NAV) per share is found by dividing the market value of the fund's securities less the fund's liabilities by the number of shares outstanding.

true

The risk-free rate of return is often measured by the return on U.S. Treasury bills.

true

The student loans with the best loan terms are the Stafford and Perkins loans.

true

To the issuing company, bonds are liabilities.

true

Trading on margin can magnify both losses and profits.

true

Utility refers to the amount of satisfaction a person gets from buying certain items.

true

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

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 income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities.

true

With open-end mutual funds, investors cannot lose more than they invested.

true

You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.

true

Your personal value system will shape your attitude toward money and wealth accumulation.

true