Ch. 8 - Exam

a document showing how each monthly installment payment is split between interest and principal is called

loan amortization schedule

a longterm installment loan for the purpose of buying a home is called

mortgage

a group of investments managed by a professional investor is called a

mutual fund

the actual amount of your paycheck after taxes have been withheld is called your

net pay

using a credit card is an example of an.... installment loan for which there is no schedule for paying a fixed amount each period

open end

a listing of all the investments that a person holds is called a financial

portfolio

the component that covers damage to others cars if you are at fault is called

property damage

the estimated resale value of a car at the end of its lease is called the cars

residual value

with a... IRA, you pay taxes on the m one you deposit, but you can withdraw your earnings tax-free beginning when you are _______ years old

roth, 59 1/2

shares of ownership in a company are called

stocks

How do you find Interest?

(pymt*n*t) - P

What types of incentives will a car dealership give?

- Financing Incentives - Leasing Incentives - Cash Back Rebates - Customer Loyalty Incentives - Cash Incentives for Certain Customers

Under what circumstances should taxpayers itemize deductions?

- Medical and dental expenses - Certain state and local taxes, including sales taxes and property taxes - Mortgage loan points and interest Investment interest - Charitable donations - Tax preparation fees - Unreimbursed employee expenses - Business expenses, including some for travel - Casualty, disaster and theft losses

How do you get a credit score to begin with?

1. Get a secured credit card. If you're building your credit score from scratch, you'll likely need to start with a secured credit card. 2. Get a credit-builder loan or a Secured loan. 3. Use a co-signer. 4. Become an authorized user. 5. Get credit for the bills you pay.

Describe two advantage of leasing a car over buying one.

1. Leases have small down payments or even no down payments. 2. Lease payments for a new car are lower than loan payments.

Describe two advantages of renting over home ownership.

1. No property taxes 2. No down payment or points are required to rent.

Describe two advantages of home ownership over renting.

1. Stability and peace of mind 2. Allows for freedom to remodel, landscape, and redecorate

What would be a benefit of selecting a 30-year fixed rate mortgage instead of a 15-year fixed-rate mortgage if interest rates are lower on a 15-year mortgage?

15-year loans have higher monthly payments Less affordability with 15-year mortgages Less money going to savings or retirement Financial hardship might result if the borrower can't pay the higher 15-year loan amount

credit scores range from.... with higher score indicating better credit

300 to 850

What is the difference between a closed-end car lease and an open-end car lease?

A closed-end car lease requires you to make a fixed payment based on estimated usage. At the end of lease, you return the car and pay for the excess mileage. But, an open-end lease requires the owner to make a fixed payment based on the car's residual value. When you return the car after the lease ends, you must make a payment based on its appraised value at the time compared to the residual value. You don't have to pay anything or you may receive a refund if the appraised value is greater than the residual value, but if the appraised value is less than you must pay the difference.

Describe two advantages and two disadvantages of using credit cards.

Advantages are that it is convenient and it provides emergency funds. Disadvantages are that it can lead to overspending and purchases cost more over time.

What is an annuity?

An annuity is a contract between you and an insurance company in which you make a lump sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future.

Should you provide a down payment for a car? For a house?

As a general rule, aim for no less than 20% down, particularly for new cars — and no less than 10% down for used cars — so that you don't end up paying too much in interest and financing costs.

taxes used for social security and medicare benefits are called

FICA taxes

List some of the fees that a credit card company can impose.

Finance Charges Annual Fees Foreign Transaction Fees Cash Advance Fees Late Payment Fees Returned Payment Fees Over-the-limit (or "Overlimit") Fee Balance Transfer Fees

When do you use P(1+r/n)^(nt)?

This is a way of calculating money that has accumulated interest a countable amount of times. Again, P is initial value, r is interest rate, and t is amount of time spent compounding.

Describe one advantage and one disadvantage of an adjustable-rate mortgage over a fixed-rate mortgage.

One advantage of an adjustable-rate mortgage over a fixed-rate mortgage is that they start out at lower interest rates. One disadvantage is that they are less predictable than fixed-rate mortgages.

Describe two aspects of responsible credit card use.

Pay the amount charged to a credit card in full every month Pay credit card payments on time

Are both Social Security and Medicare capped at $110,000?

Social Security yes, Medicare no.

What is the difference between a stock and a bond?

Stocks are shares in the ownership of a business, while bonds are a form of debt that the issuing entity promises to repay at some point in the future. This means that stocks are a riskier investment than bonds.

What is the difference between tax credits and tax deductions?

Tax credits directly reduce the amount of tax you owe, giving you a dollar-for-dollar reduction of your tax liability. Deductions lower your taxable income by the percentage of your highest federal income tax bracket.

When do you use APY = ((1+(r/n)^(n)) - 1

The annual percentage yield.

What is the difference between a traditional IRA & a Roth IRA?

The tax advantage of a traditional IRA is that your contributions are tax-deductible in the year they are made. The tax advantage of a Roth IRA is that your withdrawals in retirement are not taxed.

Describe two ways that investors make money with stock.

They can sell the shares for more money that what you paid for them or the company can distribute parts of its profits to investors who own stock.

When do you use 72/r?

To find the number of years required to double your money at a given interest rate.

Credit reports contain bankruptcy information.

True

How can you estimate a car's annual fuel expense?

You can estimate a car's annual fuel expense by dividing the annual miles driven by the amount of miles you can drive per gallon, and multiplying that by the price you pay per gallon.

When do you use A = (pymt(1+(r/12)))^(12*t))/(r/12)?

You use this to find future value, ex: You want to save to your IRA account so you put $150 month in for 15 years at an average APR of 7% monthly. How much will you have after 15 years?

When do you use PV = (pymt((1-(1+r/n))^-(n*t)))/(r/n)

You use this to find present value, ex: You want to buy a car but you only have $250 month. How much car can you afford at 6.45% APR for 6 years?

your taxable income is your..... income minus the sum of your... and ....

adjusted gross, exemptions, deductions

there are 2 components of liability insurance. the component that covers costs if someone is injured or killed in an accident in which you are at fault is called

bodily injury

people who buy... are lending money to the company from which they buy them

bonds

the two types of contracts involved with leasing a car are called

close end and open end

the type of car insurance that pays for damage or loss of your car if you're in an accident is called

collision coverage

the type of insurance that pays for damage to your car due to fire, theft, or falling objects is called

comprehensive coverage

details about when all your credit accounts were opened, their last balance, and their payment history are included in a

credit report

sums of money that reduce federal income tax by the full dollar for dollar amount are called

credits

when you use a.... card the money you spend is deducted electronically from your bank account

debit

To minimize risk, it should be __________________, containing a mixture of low-risk and high-risk investments.

diversified portfolio

if you sell shares for more money than what you paid for them, you have a capital gain on the sale. some companies distribute all or part of their profits to shareholders as

dividends

the portion of the sale price of the home that the buyer initially pays to the seller is called the

down payment

a fixed amount deducted on your tax return for each person supported by your income, including yourself is called an

exemption

federal income tax is a percentage of your gross income

false

financial advisors suggest spending no more than 5% of your gross monthly income for your mortgage payment

false

interest on a credit card is calculated using I=Prt where r is rate t is one month and p is the balance due

false

one advantage to leasing a car is that you are not responsible for any damage to the car

false

over the life of an installment loan, the interest portion increases and the portion applied to paying off the principal decreases with each successive payment

false

people who buy bonds are purchasing shares of ownership in a company

false

renters can build up equity as the rent is paid each month

false

when and open end lease terminates and the cars appraised value is less than the residual value stated in the lease, you owe nothing

false

when using a credit card, the money spent is deducted electronically from the user's bank account

false

what income is your total income for the year

gross

your base pay or.... pay is your salary prior to any withheld taxes

gross

The average daily balance for a credit card's billing period is divided by

the number of days in the billing period.

FIFCA tax is a percentage of your gross income

true

a traditional IRA requires paying taxes when withdrawing money from the account at age 59 1/2 or older

true

collision coverage pays for damage to another car if you cause an accident

true

credit reports contain bankruptcy information

true

due to operating and ownership expenses, a car continues costing money after you buy it

true

higher credit scores indicate better credit

true

if tax credits are equal, federal tax tables shoe that the greater your taxable income, the more you pay

true

one disadvantage to leasing a car is that most lease agreements have mileage limits

true

people in some states are not required to pay state income taxes

true

renters are not required to pay property taxes

true

stocks are generally considered higher risk investments than bonds

true

the interest on a car loan can be determined by taking the difference between the total of all monthly payments and the amount of the loan

true

with the same interest rate, compounding period, and time period, a lump sum deposit will generate more interest than an annuity

true

you can use your credit card to make purchases that you can't afford

true

you should pay the total balance by the due date for each monthly billing

true