Calhoun Personal Finance Exam 3,
Credit cards have all of the following advantages except A) they allow you to borrow cash interest free for 60 days. B) make purchases without carrying cash. C) obtain free financing until the bill is due. D) itemized monthly statement.
a
Income earned from the sale of an asset for more than you paid for it is classified as
a capital gain
Which of the following personal information should not be asked on a credit card application? A) Stocks and bonds owned B) Income of parents C) Employment history D) Expenses and commitments
b
Which of the following personal information would not be asked on a credit card application? A) Cash inflows B) Country of birth C) Capital and collateral D) Cash outflows
b
Credit cards are generally used for such purchases as A) cars. B) homes. C) meals, clothing, and groceries. D) stocks.
c
The use of credit may result in ________ spending and ________ debt.
excessive; increased
A disadvantage to credit cards is that there is no way to keep track of individual expenditures.
false
Because of the short-term nature of credit card lending, the condition of the economy is not considered.
false
Credit cards are commonly used for purchases such as clothing, car repairs, or the purchase of a new car.
false
Creditors are willing to extend credit when the economy is weak to stimulate purchases.
false
MasterCard and Visa are not accepted by gas stations such as Shell, which issue their own credit cards.
false
MasterCard, Visa, and American Express credit cards all allow you to pay only a portion of your amount due and finance the remainder from month to month.
false
There is no cost to the merchant when you use a MasterCard or Visa.
false
When applying for a credit card, the amount of savings that you have will not be a factor in the credit card company's decision.
false
You have set a $100,000 goal for a college fund for your newborn child. You plan on having a fixed amount taken from your salary each month to meet this goal. The calculation to determine the monthly amount is called
future value of an annuity.
As the time period decreases, the present value of the amount at a fixed interest rate
increases.
In general, the more liquid an investment is, the ________ the return you will receive.
lower
Money received today is worth more than the same amount of money received in the future. This is true because
money received today can grow at a compounded rate.
If your life follows the pattern of college-marriage-kids-retirement, your need for life insurance will
peak and then decline.
Since all student loans are not issued at the same interest rate over the course of a student's education year, once the student graduates and starts to pay back the loans the student should
prioritize the loans from highest interest rate to lowest interest rate and use excess cash flow to make additional payments on the high rate loans.
When the Federal Reserve wishes to ________ interest rates, it ________ the amount of funds at commercial banks.
reduce; increases
Interest income would come from earnings on
savings accounts
The larger the number of payments in an annuity used in determining a future value,
the greater the future value at the end of the period.
You should claim the standard deduction if
the standard deduction exceeds itemized deductions
Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks.
true
An alternative to MasterCard, Visa, and American Express credit cards is a retail or proprietary card that is issued for use at a specific retail establishment.
true
Credit cards can eliminate the need for carrying large amounts of cash.
true
Credit limits may be as high as $10,000 for those credit card holders who have an exceptional credit history.
true
Financial institutions issuing MasterCards and Visas typically earn a high rate of interest on the credit extended.
true
It is not difficult to find a credit card company that is eager to extend credit to you.
true
One disadvantage of a proprietary credit card is that it limits your purchases to a single merchant.
true
One of the disadvantages of credit cards is that they allow you to spend beyond your means.
true
There are many incentives, such as discounts and bonuses, offered by credit card companies to get you to use their cards.
true
To properly manage your money you should use a credit card only if you will have the cash to cover the payment when you receive your credit card statement.
true
even if you cannot pay your credit card bill in full, you should still attempt to pay as much as possible so that you can minimize finance charges.
true
In general, insurance companies generate their revenues from
Both A and B are correct. investing the proceeds of premiums until the funds are needed to cover losses. receiving payments for policies.
Which of the following is not a tax filing status option?
Divorced
A branch of the U.S. Treasury Department, called the Department of Tax, administers the federal tax system.
False
A wise strategy is to accept an introductory reduced payment plan right after graduation to extend the time it takes to pay off the loan.
False
Although indemnity plans are less flexible than managed care plans, they charge lower rates.
False
Because of potential security concerns, it is unlikely that you will find a financial institution that offers mobile applications.
False
Changing the discount rate is the primary tool the Fed uses to implement monetary policy.
False
Credit issued by department stores for relatively long periods of time is called non-installment credit
False
Divorced filing jointly is a tax filing status option
False
Income earned from the sale of an asset for more than you paid for it is classified as an income gain.
False
Insurance should be considered even when there is a high likelihood than an event will cause a small financial loss
False
Investing in your human capital is the second-best investment you can make. Investing in your house is the best investment.
False
Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use.
False
Obtaining a graduate degree will always improve your personal financial position.
False
One of the problems with changing jobs is that you will immediately lose your health insurance and may not be able to get new insurance right away.
False
One of the six components of your financial plan should be maximizing your tax liability.
False
Tax credits amount to the same savings as tax deductions
False
Tax credits amount to the same savings as tax deductions.
False
The federal income tax is part of Article I in the U.S. Constitution
False
The federal income tax is part of Article I in the U.S. Constitution.
False
The first step in the risk management process is to insure against risk.
False
The highest tax rate a taxpayer is charged on his or her federal tax return is called the effective tax rate.
False
The problem with the cash value build up of a whole life insurance policy is that the money can only be used to pay off the policy or buy additional insurance.
False
The services that insurance companies provide should not be a factor in selecting a life insurance company
False
Time value of money is only applied to single dollar amounts.
False
With managed care plans, the insured people will not pay any expenses if they select an "out of network" provider.
False
You should claim itemized deductions if the standard deduction exceeds itemized deductions
False
Your budget is simply a spreadsheet used to track expenses.
False
You want to know how much you need to save every year to accumulate $15,000 in five years at a 10% interest rate. Which of the following calculations should you complete?
Future value of an ordinary annuity.
Which of the following statements is not true regarding education and financial position?
Higher education always guarantees a higher income.
Which of the following is the best rule to follow in shredding information?
If you have any question, shred it.
You are investigating a financial asset that is expected to increase from $1,000 today to $5,000 in five years. What is the missing variable you need to solve this problem?
Interest rate.
Which of the following items will usually give you the highest return?
One year CD
You are opening a new savings account today that pay 3% annual interest and want it to grow to $500 in 2 years. What is the missing variable you need to solve this problem?
Payment.
What is the core purpose of buying insurance?
Protect your wealth and assets
Which of the following statements about an HMO is not true?
The health care providers are compensated on the basis of each visit by a patient.
A dollar's worth of tax credits is more valuable than a dollar's worth of deductions.
True
A person's need for life insurance varies quite a bit over his or her lifetime.
True
Because they have lower expenses, Web-based financial institutions tend to pay higher interest rates on deposits than institutions with physical branches.
True
Different tax rates are associated with each filing status such as single, married filing jointly, and head of household.
True
If your calculated tax is less than your withholding tax, you will receive a tax refund.
True
In most HMOs, if a person sees a specialist without being referred by the primary care physician, the HMO will not pay for the treatment.
True
Indemnity plans are also called fee for service plans.
True
Insurance protects you against potential financial losses or liability that result from unexpected events.
True
Interest paid on student loans is adjusted from gross income to calculate a taxpayer's adjusted gross income.
True
Life insurance may not be that important for a couple who both work full-time and who could each be self-sufficient without the other person's income
True
Maintaining liquid assets that you can easily access when you need funds allows you to avoid using credit and paying finance charges.
True
Money management is a series of decisions made over a short-term period regarding cash inflows and outflows.
True
Most people obtain health insurance through group plans offered by employers.
True
One method of managing risk is to limit your exposure to a financial loss
True
Only the income that remains after deductions and exemptions are subtracted from adjusted gross income is taxable.
True
The larger the number of payments in an annuity used in determining a future value, the greater the future value at the end of the period.
True
The present value of an annuity can be obtained by discounting the individual cash flows of the annuity and then summing the resulting present values.
True
There are limits on how much a student can borrow through federal student loans, so many students also have to obtain private loans from financial institutions.
True
There is no Social Security tax on income beyond a certain level.
True
Your credit report can be requested online and should be checked periodically for errors
True
Your gross wages are subject to FICA (Federal Insurance Contributions Act) taxes that fund the Social Security system and Medicare
True
A personal credit card statement does not contain which of the following?
Who purchased the item
Which of the following decisions would require calculating the future value of an ordinary annuity?
You want to have $1,000,000 in order to retire at age 70, but need to know how much you will need to deposit each year from now until your 70th birthday.
Compared to indemnity plans, what is an advantage of managed health care plans?
You will have lower insurance premiums
Deposits at commercial banks are insured up to ________ per depositor by the Federal Deposit Insurance Corporation (FDIC).
$250,000
Why is the rating of the insurance company from whom you plan to purchase a life insurance policy important?
All of the above are important considerations
The easiest way to establish credit is to A) purchase a new car with a car loan. B) purchase a house with a mortgage. C) apply for a credit card. D) pay cash for all your purchases.
c
In applying for a credit card, the potential creditor will look at your ________ to determine if you have funds to cover future debt payments if necessary.
capital
In applying for a credit card, the potential creditor will look at which of the following as a source of future debt payments if necessary? A) Cash outflows B) Credit history C) Potential inheritances D) Balances in savings accounts
d
