Exam 2- FCHD
Explain the different components of a certificate of deposit.
CD: interest earning savings instrument purchased for a fixed period of time. Fixed time deposit, Amounts range from $100-$100,000 Time ranges from 7 days - 8 years The interest rate typically remains fixed for the entire term some offer Variable-rate/adjustable rates. Can lock in rate before account matures. Brokered CDs: often pay the highest yields and available through stock-brokerage firms. They are bought by firm in bulk and sold to brokerage customers. No sale commission. They are federally insured if purchased through an insured depository institution. The interest rate typically remains fixed for the entire term. Money withdrawn before the end of the time period is subject to interest penalties. less than a year 3 interests, more than a year 6 interests.
Capitol Gain/ Capital Loss
Capitol Gain: net income received from the sale of an asset above the costs of purchase/selling it. Capital Loss: profit or loss on the sale of an asset that has been held for more than a year.
Which of the following about an exemption is false?
A person can serve as an exemption on more than one tax return.
Which of the following is true?
A secured credit card is backed by a savings account.
Progressive Tax
A tax that progressively increases as a taxpayers taxable income increases. Example: Federal Personal Income Tax More income= more taxes. Higher the income implies a greater ability to pay.
Of the following ways to protect yourself from overdraft fees, which one takes the amount necessary to cover an overdraft from your savings account?
automatic funds transfer agreement
Which of the following is the proportion of your total income that you pay in income taxes?
average tax rate
explain the new rules for debit and ATM cards.
bank must inform you on your rights and responsibilities in a written disclosure statement. Must be given a receipt from a POS terminal or ATM.
Which of the following is the least safe way of endorsing a check?
blank endorsement
Monetary asset (cash)
cash and low-risk near-cash items that can quickly be converted to cash.
Installment credit is also called
closed-end credit
Promissory Note
contract that stipulate repayment terms for loans.
Commercial Banks
corporations chartered under federal and state regulations that offer numerous
Which of the following occurs when the sum of money raised by the sale of the repossessed collateral fails to cover the amount owed?
deficiency balance
Which of the following is an example of a progressive tax?
federal personal income tax
Savings Bank
focus primarily on accepting savings and providing mortgage and consumer loans. They offer checking through interesting earning now accounts
interest earning checking account (negotiable order of withdrawal NOW account )
interest paying account with no or little fees are available
Which of the following is a temporarily low initial interest rate to entice borrowers to apply for a credit card?
introductory rate
According to The Financial Checkup booklet, which of the following is the most important part of auto insurance?
liability
Stock brokerage firms
licensed financial institutions that specialize in selling and buying stocks, bonds, and other investments and provide advice and assistance to investors and earn commissions based on the buy and sell orders that they process for their clients. They offer money market mutual fund accounts
Which of the following is a tax that demands a decreasing proportion of a person's income as income rises?
regressive tax
Which of the following is a sign of over-indebtedness?
requesting new credit cards and increases in credit limits
The Fair Credit Reporting Act
requires that credit reports contain accurate, relevant, and recent information.
explain the purpose of the Fair Credit Reporting Act.
requires that credit reports contain accurate, relevant, and recent information.
Which of the following accounts was one of the three tools of monetary asset management that is used for depositing funds for upcoming expenditures or to accumulate funds for future investments?
savings accounts mutual funds
Which of the following is illegal?
tax evasion
Which of the following is not one of the primary variables for calculating interest on deposits?
the amount of federal insurance
What is the role of a credit bureau?
to collect and keep records of borrowers' credit histories
A tax-payer would want to itemize their deductions if their tax-deductible expenses
were greater than the standard deduction.
According to The Financial Checkup booklet, which of the following is the third leg of the retirement stool that people usually need?
your own saving and investing
Which of the following is not true for open-ended credit?
It is installment credit.
Which of the following is true regarding a Chapter 7 bankruptcy?
It provides for an immediate liquidation of assets.
Exemptions
Legally permitted amount deducted from Average Gross Income based on the number of people that the taxpayers income supports. legally deducted from adjusted gross income. Value of the exemption is phased out for those with higher incomes. It is based on the number of people supported by the tax payers income.
Which of the following is a good way to repair your credit report?
Make on time payments.
Who should set a debt limit?
The Borrower
Which of the following is backed by collateral?
a secured loan
Which of the following is false?
The best APY return is on accounts that compound interest annually.
Which of the following is the correct address to receive a free credit report?
annualcreditreport.com
state how to access a free credit report for yourself.
annualcreditreport.com
list four variables for the calculation of interest on deposits and provide a definition for the annual percentage yield (APY).
1 Amount of money on deposit 2 Method of determining this balance 3 Interest rate applied to the balance 4 Frequency of compounding (annually, semiannually, quarterly, or daily) Average Percentage Yield: Return on total interest received on a $100 deposit for 365 day period, given the institutions simple annual interest rate and compounding frequency The APY is a standardized rate of interest that is helpful for comparing accounts. The APY is the return on total interest received on a deposit. The Truth in Savings Act requires depository institutions to disclose the APY in advertising.
list the steps to budgeting.
1 GOAL write down goals before working on budget. 2 INCOME: how much you have via income/expense statement. 3 EXPENSES: Write down everything must pay to others (rent, loan, utilities) then what you need to live (food) Next what you need to do to accomplish your goals. Budget for entertainment/ recreation and plan for irregular expenses with revolving savings. 4 CONTROL figure out how to track budget via worksheet, computer, checkbook, or cash. 5 EVALUATE try it, evaluate , adjust and try again!
list the steps to correct an error on a credit report.
1 notify both the credit bureau and the original lender for confirmation of the debt. 2 Bureau and lender must re investigate the info within 45 days. If the bureau cannot complete its investigation within 45 days, it must drop the information from file 3if info is erroneous, it must be corrected. If a report was sent to a creditor investigating an application, a new report must be sent. 4 If the error was technically correct, can provide your version of the disputed info by adding a consumer statement to your file. 5 also obtain a report from the other 2 bureaus to ensure the error does not also appear in theirs. 6 trouble? contact the CFPB
list the three tools of monetary asset management and how you would use them.
1. Low-cost, interest-earning checking accounts from which to pay ongoing, current living expenses. 2. Interest- earning savings accounts in local financial institutions in which you deposit funds for upcoming expenditures or to accumulate funds for future investments. 3. Money market accounts in local financial institutions or other financial services providers. These accounts pay higher interest rates than checking and savings accounts. They have limited check-writing privileges and, thus, are a cross between checking and a savings account.
describe the important points for writing good goals.
1. make a very specific goal. Set dollar amount and specific date. 2. Make the goal realistic! 3. Have a plan. Think about how much you will need to save each month, who to talk to to what account you need to set up.
explain the purpose of the FDIC and NCUSIF and state which institutions use them.
Accounts in federally chartered banks are insured against loss by the Bank Insurance Fund and Federal Deposit Insurance Corporation (FDIC) NCUSIF: National Credit Union Share Insurance Fund insures Federally chartered credit unions and administered by NCUA> State chartered credit unions are often insured by NCUSIF CREDIT UNIONS PAY HIGHER INTEREST RATES and charge lower fees than commercial banks, savings banks and MSB.
Adjustments
Adjustments: Allowable subtractions from gross income. -- subtractions from income such as school costs, job relocation expenses, contributes to IRA, health savings, alimony, Exemptions: Legally permitted amount deducted from Average Gross Income based on the number of people that the taxpayers income supports. Above-the-line deductinos
Tax Credits
American opportunity tax credit 2500$ per year to help defray college expenses for first four years Lifetime learning credit: nonrefundable credit that may be claimed every year for tuition and related expenses paid for all years of post secondary education undertaken to acquire or improve job skills. Earned income credit: refundable tax credit hat may be be claimed by workers with a qualifying child and in certain cases by childless workers. Child and dependent care credit: nonrefundable tax credit that may be claimed by workers who pay employment related expenses for care of child or others to work, seek work or attend school full time.
Which of the following is FALSE about adjustments?
An adjustment is a deduction from the adjusted gross income based on the number of persons supported by the taxpayer's income
Identify ways to cover overdrafts on checking accounts.
Automatic Funds Transfer Agreement Automatic overdraft loan agreement Opt-in overdraft/bounce protection Cover overdrafts: Practice good account management 0$ Automatic funds transfer agreement 0-5 Overdraft line of credit 15+ 18%APR Automatic overdraft cash advance from a credit card 3-10$ + 18% APR Opt-in overdraft/bounce protection 20-30
Which one of the following is not a positive aspect of credit?
Being able to spend more
state the importance of and describe various credit components such as credit history, credit report, credit bureaus, and credit scores.
Credit Report: Compile info from merchants, utility companies, banks, court records, and creditors about your payment history. Credit Bureau: Firm that collects and keeps records of many borrowers credit history. Credit Score: statistical measure used to rate applicants based on various factors deemed relevant to creditworthiness.
Which of the following is false?
Credit scoring is what lenders do after watching if you have been paying your loan payments on the loan you have with them.
discuss the concerns about closing a credit card account.
Credit utilization ratio should be below 30%
Tax Evasion
Deliberately and willfully hiding income from the IRS, falsely claiming deductions, or otherwise cheating the government out of taxes owed.
describe how to legally repair a credit report.
Determine account balances and payments required focus budget on debt reduction contact your creditors Take on no new credit Refinance Avoid credit repair and debt settlement companies Find good help: credit counseling agencies CCA , debt management plans DMP
Tax Credit
Dollar-for-dollar decrease in tax liability; also known as credit. Tax credit reduce your tax liability dollar for dollar whereas tax deduction reduces the amount of your taxable income which is used to calculate tax liability. 1000$ tax credit would save 1000$ in taxes. 1000$ tax deductions when in 25% tax bracket saves 250$ in taxes.
Describe different types of endorsements on checks.
Endorsement: process of writing on the back of a chck to legally transfer it ownership, usually in return for cash amount indicated on the face of the check. BLANK ENDORSEMENT: Contains only payees signature on the back and immediately becomes a bearer instrument meaning that anyone who attempts to cash it will very likely be allowed to do so. SPECIAL ENDORSEMENT: Limits who can cash it and indicates Pay to the order of ____ RESTRICTIVE: For deposit only writen on the back along with the signature and can only be deposited.
Flexible Spending Accounts IRAs reduce Tax liability
FSA reductions are not included in the individuals taxable earnings reported on W-2 and the reimbursements from it are tax free. Use it lost it rule. IRA is considered an adjustment to income, which reduces your current year income tax liability. They grow tax free Considered an adjustment to income.
describe various terms of credit such as garnishment, repossession, foreclosure, and deficiency balance.
Garnishment: Court-sanctioned procedure by which a portion of debtors wages are set aside by their employers to pay debts. Repossession/Foreclosure: Legal proceeding by which the lender seizes an asset. Deficiency balance: occurs when money raised by the sale of repossessed collateral doesn't cover the amount owed on the debt plus any repossession expenses
compare the good uses of credit and the downside of credit.
Good Uses For Convenience, Emergency, Make reservations, Own expensive products sooner, Advantage of free credit, Protection from fraud/ rip off, Obtain Education Downside of Credit. Credit reduces your financial stability and buying power. Interest itself is costly It is tempting to spend more money Over-indebtedness is a real possibility
discuss various topics in connection with checking accounts.
Grace period: time in days during which deposits or withdrawals can be made and still earn interest from a given day of the interest period. Demand deposit accounts: pay no interest Tiered Interest: The combination of a base rate and a higher rate
Which of the following is true?
If you close credit card accounts, it is best to close newer accounts.
describe a stop-payment order
Informs bank to not honor check when its presented for payment. A stop-payment order works only if the check has not yet cleared. If a verbal stop-payment order is not followed up with written instructions, the check can be cashed after 14 days.
Which of the following is the correct statement for the Fair Credit Billing Act?
It helps people that wish to dispute billing errors on revolving credit accounts.
Difference between Marginal tax rate Average tax rate.
Marginal tax rate: one of seven income-range segments at which income is taxed at increasing rates. Applies to last dollar of earnings. Average tax rate: The proportion of your total income that you pay in income taxes Therefore, your average percentage of your income will always be less than the marginal tax rate. 10000 pay 1000 in taxes, average tax rate is 10%. Marginal is always higher but every segment taxes it at different amounts.
differentiate between money market deposit accounts and money market mutual funds.
Money Market Deposit: Gov. insured money market account with minimum balance requirements and tiered interest rate. Money Market Mutual Fund:
Credit Unions can have their accounts federally insured through which of the following organizations?
NCUSIF
Non Refundable tax credit
Non-Refundable: Tax credit that can reduce one's tax liability only to zero; however, if the credit is more than the tax liability, the excess is not refunded.
list the signs of overindebtedness.
Not knowing how much you owe running out of money paying only the minimum amount due exceeding debt limits and credit limits requesting new credit cards and increases in credit limits Using cash advances to pay other credit cards Pyaing late or skipping credit payments Taking add-on loans Using debt-consolidation loans Experiencing Garnishment Experiencing repossession or foreclosure
Which of the following statements is false concerning online banking?
Online banks do not need to be federally insured because everything is encrypted. TRUE You should check yourself to see if the online banking institution is federally insured and not rely on what the website says. Passwords should be changed frequently. An important part of safe online banking is keeping your own computer's virus protection up to date.
Which of the following statements is false?
Payday loans are a good way to get out of debt.
Which of the following is false?
Payday loans are a low-cost, alternative form of credit.
describe concerns of using alternative lenders for credit such as payday lenders, rent-to-own programs, and pawn shops.
Payday loans are illegal in some states. In a rent-to-own program, the renter does not own the item until the final payment is made. Pawnshops usually loan one-third or less of the value of the item pawned.
state how payday loans work and questions to ask if considering a payday loan
Payday loans are illegal in some states. In a rent-to-own program, the renter does not own the item until the final payment is made. Pawnshops usually loan one-third or less of the value of the item pawned.
Which one of the following was not one of the three important points for goals mentioned in The Financial Checkup booklet?
Report the goal to someone.
Mutual Savings Bank
Similar to savings bank in that it accepts deposits and makes housing and consumer loans. These banks are legally permitted in 17 states. They are mutual because depositors own the institution and share the earnings. It is backed by the FDIC and BIF
Which of the following was not one of the steps to budgeting listed in The Financial Checkup booklet?
Slash all unnecessary expenses.
Retirement Stool 3 Legs
Social Security Benefits Employer-Sponsored Plans Your Own Saving and Investing
Deductions
Standard Deduction: fixed amount that all taxpayers subtract from their adjusted gross income if they don't itemize deductions. The standard depends upon filing status or marital status. Itemized deductions: Tax-deductible expenses. 1000$ tax deductions when in 25% tax bracket saves 250$ in taxes. 1000$ tax credit would save 1000$ in taxes.
list tips for safe internet banking.
Study statements , avoid banking via computer/ mobile on unsecured networks be cautious about social networking and job search sites. Never provide account info if you get an email from your bank. Its likely a scam Always log off when done banking. avoid others computers for managing account. change passwords regularly and keep financial paper aways from guests/friends buy a shredder and save copies of electronic transactions.
Refundable Tax Credit
Tax credit that can reduce one's income tax liability to below zero with the excess being refunded to the taxpayer. Refundable are often subject to income limits. Earned Income Tax Credit is a refundable tax credit. Refundable tax credits can reduce your taxes to below zero.
Regressive Tax
Tax imposed in such a manner that the tax rate stays the same for all income with the result that lower-income people pay proportionately more in taxes. Example: Buying Food when earning 30,000 for 6,000 on food taxed 7% is 1.4% on food. 80,000 for 10,000 on food is .87% on food. (7%* 6000= 420/30000= 1.4) (7%* 10000 -700/80000= .87%)
describe a debt limit.
The overall maximum you believe you should owe based on your ability to meet repayment obligations. It should be lower then what lenders offer. 4 method to determine debt limit: Debt to income method Debt payment to disposable income Compare Debt-to-equity Continuous Debt
Your marginal tax rate is
The tax rate applied to your last dollar of earnings.
Variety of Checks
Travelers Checks : purchasers pay fee 1% or 1 of every 100$. Money order: US Postal Service and many retailers and financial institutions sell money orders. Usually for smaller amount fees range from .50 to 8$ Certified checks: bank/institution prints Certified on check ensuring that the check has sufficient funds. Cashiers checks: back by institutions finances and when used it draws from the institutions finances.
Which of the following is not true about Certificate of Deposits?
Usually interest rates on shorter-term CDs are higher than rates on longer-term instruments.
Which of the following is not true?
When a written request is given for a stop-payment, the check can never be cashed.
Which of the following statements about traditional IRAs is false?
Withdrawals are tax-free.
Indexing
Yearly adjustments to tax brackets that reduce inflation's effects on tax brackets.
Which of the following statements about refundable tax credits is false?
You cannot get a refund if you have more tax credit than your tax liability.
Which of the following is not a correct credit card rule as of February 2010?
Your credit card company must send you a notice 90 days before they can increase your interest rate.
Which of the following must be made to cover interest and a portion of the amount owed to avoid default?
minimum payment
Which of the following are not federally insured but are still considered extremely safe?
money market mutual funds
To have your bank's standard overdraft practices apply to your debit transactions, you must first
opt in
depository institutions
organizations licensed to take deposits and make loans.
Which of the following has the greatest impact on your credit score?
payment history
Tax Avoidance
reducing tax liability through legal techniques.
