FINANCE FINAL EXAM
The inability to pay debts when they are due because liabilities far exceed the value of assets is called
Insolvency.
All of the following are fixed expenses except
Utilities
A joint account with Sara and John allows
John and Sara to both write checks on the account.
The owner/landlord is known as the
Lessor
The difficulty of converting savings and investments to cash is referred to as ________ risk
Liquidity
Which of the following ratios indicates the number of months in which living expenses can be paid if an emergency arises?
Liquidity ratio
Which of the following is often the first sign of a stolen identity?
You receive bills for a credit card account you never opened
The largest fixed expense associated with a new automobile is
Depreciation
The insurance coverage provided by the FDIC for a savings account is ________ per depositor per insured financial institution.
$250,000
Evan is not concerned about immediate tax benefits but instead wants his investment to grow in value on a tax-free basis. Which of these would be the best for him to invest in today?
A Roth IRA
Which of the following is an example of open-end credit?
A department store credit card
All of the following are deposit institutions except
A finance company.
Which of the following will likely provide the most expensive loans?
A payday loan company
Which of the following goals would be the easiest to implement and measure?
A) Save funds for an annual vacation. B) Save $100 a month to create a $2,400 emergency fund in 2 years. C) Spend less each month. D) Put money into an investment fund. E) Reduce credit card debt. Answer B
Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by
Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.
Gross income less Adjustments to Income equals
Adjusted gross income.
Rhonda Miller wants to accumulate $12,000 in her savings account for her dream vacation. What type of computation would she use to calculate her monthly deposits to her account?
Annuity given a future value
The tax rate based on the total tax due divided by taxable income is called the
Average Tax Rate
The document that would report your current financial position is the
Balance Sheet
The problem of bankruptcy is associated with overuse and misuse of credit in the ________ component of financial planning.
Borrowing
The question "What are your assets and net worth?" relates to
Capital
The document that would tell you what you received and spent over the past month is the
Cash Flow Statement
Money management refers to
Day-to-day financial activities
Which of the following ratios indicates the amount of a person's earnings that goes for payments for credit cards, auto loans, and other debt (except mortgage)?
Debt payments ratio
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n)
Financial plan.
Which of the following is an example of a financial opportunity cost?
Forgoing wages to attend school
Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time.
Full warranty
Tim Taylor received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house that he plans to purchase in 3 years. What type of computation should he use?
Future value of a single amount
An investor should expect to receive a risk premium for
Higher uncertainty about getting his/her money back
Which of the following is an advantage of a car lease?
Monthly lease payments are usually lower than monthly financing payments.
Private mortgage insurance
Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.
A worker's primary goal should be to
Pay his or her fair share of taxes while taking advantage of appropriate tax benefits.
A vehicle lease has several costs. Which of the following is the amount paid monthly and the number of payments?
Payment schedule
Which of the following would increase the interest rate for a loan?
Poor credit rating
The text identifies several phases in the research-based buying process. The correct order of the phases is
Pre-shopping activities, evaluating alternatives, selection and purchase, post-purchase activities.
Rhonda Miller wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments?
Present value of an annuity
Which of the following intermediate goals is stated most clearly using the SMART approach?
Purchase a house within the next 5 years with a mortgage no greater than $150,000
If you have a problem whose remedy will be between $1,500 and $3,000, the appropriate tool to use would be (a)
Small claims court.
Taxes on earnings that fund old age, survivor, and disability insurance benefits are called
Social Security taxes.
The opportunity to have another person take over rent payments and live in the rental unit is called (a)
Subletting
Income that is taxed at a later date is
Tax-deferred income
Zach wants to open an account, but he doesn't know which kind is appropriate. He is interested in earning a higher interest rate and knows that he might not be able to write many checks from his account. In addition, he plans to keep at least $1,000 in his account so he can avoid paying a fee. He definitely wants to have federal deposit insurance. What kind of account should he open?
A money market account
Amber wants to open an account, but she doesn't know which kind is appropriate. She is interested in earning a higher interest rate and plans to keep at least $1,000 in her account so she can avoid paying a fee. Amber wants to open her account at an investment company and understands that her account will not be covered by federal deposit insurance. What kind of account should she open?
A money market fund
A drawback of a regular savings account is
A relatively low rate of return.
A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as
A trust
Which of the following situations describes a person who could be insolvent?
A) Annual cash inflows $45,600; liabilities $51,700 B) Liabilities $45,600; net worth $7700 C) Assets $78,600; net worth $23,700 D) Assets $40,600; liabilities $46,700 E) Assets $56,600; annual expenses $61,700 Answer D
The major sections of Form 1040 include all of the following except
All of these are major sections of Form 1040 A) Adjustments to income (AGI). B) Signature. C) Filing status and exemptions. D) Tax credits
Which of the following is a valid reason for using credit?
All of these are valid reasons for borrowing: A) Borrowing for a college education B) Purchasing an item that costs less now than it will later C) Purchasing a car so a homemaker can return to work D) Paying for a medical emergency
What should a home buyer consider when evaluating a house?
All of these should be evaluated: A) Property values of the community. B) Zoning laws. C) Location of businesses and future construction projects. D) School system.
When misused, credit can result in
All the choices are correct: A) Bankruptcy. B) A less satisfying life. C) Default. D) Loss of creditworthiness.
Which of the following is NOT a strategy for wise buying?
Buying items on impulse
A tax due on the purchase of gasoline is called a(n)
Excise tax
The money left over after paying for housing, food, and other necessities is called
Discretionary income.
Pauline just submitted an offer on her dream home. As evidence of good faith, she also included
Earnest money.
Which of the following is an account used to pay property taxes and homeowner's insurance?
Escrow
Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years, so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have accumulated for his purchase?
Future value of an annuity
To develop financial goals, one should
Identify specific, realistic goals that are measurable along with a time frame and an action plan
Which of the following is correct about inflation?
In order to increase buying power, you need to earn a rate higher than the rate of inflation.
This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels.
Income tax
All of the following are ways that households can increase their net worth except
Increase their debt ratio
An advantage of effective personal financial planning is:
Increased control of financial affairs
Which of the following long-term goals is stated most clearly using the SMART approach?
Invest $50 per month for the next 12 years for my newphew's college fund
The rate used to calculate the tax due on the next dollar of income is referred to as the
Marginal Tax Rate
Credit bureaus get their information from all of the following sources except
References
Zoe signed the back of her check with the words "for deposit only." She used a(n)
Restrictive endorsement.
A standard measurement used to compare the prices of packages of different sizes is
Unit Pricing
According to Tax Service Warnings, who is responsible for supplying accurate and complete information for completing a tax return?
Taxpayer
Which of the following is a disadvantage of renting?
Tenants cannot take tax deductions for mortgage interest and property taxes.
Most tenants sign a lease. Which of the following is part of a lease agreement?
The conditions under which the landlord may enter the apartment.
Who is responsible for a loan repayment?
The cosigner and/or the borrower
The primary benefit of a home equity loan is
The deductibility of the loan interest on federal taxes.