Personal Finance Exam 1
You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy. True False
TRUE
Which federal law, passed in 1969, requires creditors to state the cost of borrowing in common language? Fair Debt Collection Practices Act Equal Credit Opportunity Act Fair Credit Billing Act Fair Credit Reporting Act Truth in Lending Act
TRUTH IN LENDING ACT
Henry Garrison starts the month with a balance on his credit card of $1,000. The average daily balance for the month including purchase is $883. The average daily balance for the month excluding new purchase is $750. The bank charges 1.5 percent per month and uses the average daily balance including new purchases method. What would Henry's finance charges be for the month? $18.00 $13.25 $7.50 $15.00 $11.25
$13.25 Interest = $883 × .015 = $13.25
Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? Assume each month has 30 days. $2 $21 $0 $9 $12
$21 Finance charge = [.02 × $600] + [(.18/12) × $600] = $21
Federal laws limit the amount of fraudulent charges that a consumer is liable for in the case of a lost or stolen card to: $150. $250. $50. $100. $500.
$50.
Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $90 for this service. Over a period of 10 years, how much does Elaine gain from preparing her own tax return? Assume she can earn 3 percent on her savings.
1,031.76 ± 1% Enter N= 10 I/Y= 3% PMT= -$90
If a person has ATM fees each month of $16 for 9 years, what would be the total cost of those banking fees?
1,728 Total cost = Cost per month × 12 months per year × Number of years = $16 × 12 × 9 = $1,728
Calculate the future value of a retirement account in which you deposit $2,000 a year for 30 years with an annual interest rate of 6 percent.
158,116 ± .1% ENTER N= 30 I/Y= 6% PMT= -$2000
A payday loan company charges 6.75 percent interest for a two-week period. What would be the annual interest rate from that company?
176% Annual percentage rate = Rate per period × Number of periods per year = 6.75% × (52 weeks / 2 weeks) = 176%
Ken Braden estimates that taking some classes would result in earning $3,500 more a year for the next 30 years. Based on an annual interest rate of 4 percent, calculate the future value of these classes.
196,297.50 ± 0.1% ENTER N= 30 I/Y= 4% PMT= -$3500
If you borrow $9,000 with a 5 percent interest rate, to be repaid in five equal yearly payments, what would be the amount of each payment?
2,079.00 ± .1% Enter N= 5 I/Y= 5% PV= $9000
Helen Meyer receives a travel allowance of $180 each week from her company for time away from home. If this allowance is taxable and she has a 30 percent income tax rate, what amount will she have to pay in taxes for this employee benefit?
2,808 ± .1% Annual travel allowance = Weekly allowance × 52 weeks = $180 × 52 = $9,360 Annual tax = Annual benefit × Tax rate = $9,360 × 0.30 = $2,808
If you desire to have $30,000 for a down payment for a house in seven years, what amount would you need to deposit today? Assume that your money will earn 5 percent.
21,330 ± .1% Enter N= 7 I/Y= 5% FV= $30000
Carla Lopez deposits $2,000 a year into her retirement account. If these funds have an average earning of 5 percent over the 40 years until her retirement, what will be the value of her retirement account?
241,600 ± .01% Enter N= 40 I/Y= 5% PMT= -$2000
Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $11,000 available each year for various school and living expenses. If he earns 8 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $11,000 a year for three years?
28,347 ± .1% Enter N= 3 I/Y= 8% PMT=$11,000
Series EE bonds continue to earn interest for how many years? 35 25 10 30 20
30
During a job interview, Pam Thompson is offered a salary of $28,000. The company gives annual raises of 4 percent. What would be Pam's salary during her fifth year on the job?
32,756.04 ± .1% Year 1: $28,000 Year 2: $28,000 × 1.04 = $29,120 Year 3: $29,120 × 1.04 = $30,284.80 Year 4: $30,284.80 × 1.04 = $31,496.19 Year 5: $31,496.19 × 1.04 = $32,756.04 ENTER N= 4 I/Y= 4% PV= -$28000
Drew's monthly net income is $1,600. What is the maximum he should use on debt payments?
320 ± .1% The recommended maximum debt payments-to-income ratio is 20 percent. Thus, the maximum monthly debt payment amount is: Maximum monthly debt payment = 0.20 × Monthly income = 0.20 × $1,600 = $320
Ben Collins plans to buy a house for $299,000. If that real estate is expected to increase in value 3 percent each year, what would its approximate value be seven years from now?
367,770 ± .1% Enter N= 7 I/Y= 3% PV= -$299000
A family spends $38,000 a year for living expenses. If prices increase by 1 percent a year for the next three years, what amount will the family need for their living expenses after three years?
39,140 ± .1% Enter N=3 I/Y= 1% PV= -$38000
If you receive a phone call from a debt collector, s/he must send you a written notice within ____________ days. 20 5 15 30 10
5
A financial company advertises on television that they will pay you $55,000 now in exchange for annual payments of $8,000 that you are expected to receive for a legal settlement over the next 16 years. You estimate the time value of money at 12 percent. Calculate the present value of the annual payment.
55,792.00 ± 0.5% Enter N= 16 I/Y= 12% PMT= -$8000
If a person spends $12 a week on coffee (assume $600 a year), what would be the future value of that amount over 10 years if the funds were deposited in an account earning 3 percent?
6,878.40 ± .1% Enter N= 10 I/Y= 3% PMT= -$600
What would be the value of a savings account started with $3,800, earning 7 percent (compounded annually) after 11 years?
7,999.00 ± 1% FV = $3,800 × 2.105 = $7,999.00 ENTER N= 11 I/Y= 7% PV= -$3800
A few years ago, Michael Tucker purchased a home for $100,000. Today the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming Michael can borrow up to 80 percent of the market value of his home, what is the maximum amount he can borrow?
70,000 ± 0.1% Maximum loan amount = 0.80 × Market value = 0.80 × $150,000 = $120,000 Maximum loan available = Maximum loan amount - Current loan balance = $120,000 - 50,000 = $70,000
The average U.S. household has ______ credit cards. 9 7 5 3 12
9
Which of the following statements regarding debit and credit card liability is correct? The Federal Government insures losses on credit but not debit cards. A credit card carries more risk of loss to the cardholder. There is no cardholder liability if either type of card is lost. The Federal Government insures losses on debit but not credit cards. A debit card carries more risk of loss to the cardholder.
A debit card carries more risk of loss to the cardholder.
Using the tax table in Exhibit 4-7, determine the amount of taxes for the following situations: a. A head of household with taxable income of $75,840. b. A single person with taxable income of $75,202. c. A married person filing a separate return with taxable income of $75,826.
A) 13,601 B) 14,836 C) 15,121
Jenny Franklin estimates that as a result of completing her master's degree, she will earn $7,000 a year more for the next 40 years. (a) What would be the total amount of these additional earnings? (b) What would be the future value of these additional earnings based on an annual interest rate of 6 percent?
A) 280,000 Additional earnings = $7,000 × 40 = $280,000 B) 1,083,334 ± .01% FV = $7,000 × 154.762 = $1,083,334 N= 40 I/Y= 6% PMT= -$7000
Marla Opper currently earns $50,000 a year and is offered a job in another city for $56,000. The city she would move to has 8 percent higher living expenses than her current city. (a) What amount must Marla earn in the new city to maintain her current buying power? (b) If Marla accepts the new job, will her buying power increase?
A) 54,000 $50,000 × 1.08 = $54,000 B) YES Since the salary offer of $56,000 is greater than the comparable amount needed of $54,000, the new salary would increase Marla's buying power.
Which of the following employee benefits has the greater value? (Assume a 28 percent tax rate.) (a) A nontaxable pension contribution of $4,300 or the use of a company car with a taxable value of $6,325. (b) A life insurance policy with a taxable value of $450 or a nontaxable increase in health insurance coverage valued at $340.
A) Company car Tax-equivalent value = Nontaxable amount / ( 1 - Tax rate) = $4,300 / (1 - 0.28) = $5,972.22 Since the taxable value of the company car of $6,325 exceeds the $5,972.22 tax-equivalent value of the pension, the company car provides more value to the employee. B) Health insurance After-tax value = Pretax value × (1 - Tax rate) = $450 × (1 - 0.28) = $324 Since the $340 value of the nontaxable health insurance exceeds the $324 after-tax value of the life insurance, the health insurance provides more value to the employee.
Louise McIntyre's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month to her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. (a) What is Louise's debt payments-to-income ratio? (b) Is Louise living within her means?
A) DEBT PAYMENTS TO INCOME RATIO: 27.2 ± 1% Net income = Gross income - Taxes - IRA contribution = $2,000 - 400 - 160 - 80 = $1,360 Debt payments = Credit card payments + Auto loan payment = $35 + 30 + 20 + 285 = $370 Debt payments-to-income ratio = Debt payments / Net income = $370 / $1,360 = 0.272, or 27.2% B) NO Louise is not living within her means because her debt payments-to-income ratio exceeds 20 percent of her net income.
Robert Thumme owns a $140,000 townhouse and still has an unpaid mortgage of $110,000. In addition to his mortgage, he has the following liabilities: Visa $ 565 MasterCard 480 Discover card 395 Education loan 920 Personal bank loan 800 Auto loan 4,250 Total $ 7,410 Robert's net worth (not including his home) is about $21,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. (a) What is Robert's debt-to-equity ratio? (b) Has he reached the upper limit of debt obligations?
A) DEBT TO EQUITY RATIO: 0.35 ± .01 The debt-to-equity ratio excludes both the value of a home and the mortgage on that home. Thus, these items are omitted from the following calculations. Total debt = $565 + 480 + 395 + 920 + 800 + 4,250 = $7,410 Debt-to-equity ratio = Total debt / Total equity = $7,410 / $21,000 = 0.35 B) NO Robert's debt-to-equity ratio is less than the upper limit of debt obligations which is defined as a debt-to-equity ratio of 1.
Bill Mason is considering two job offers. Job 1 pays a salary of $36,500 with $4,500 of nontaxable employee benefits. Job 2 pays a salary of $34,700 and $6,120 of nontaxable benefits. Use a 28 percent tax rate. (a) Calculate the monetary value for both the jobs. (b) Which position would have the higher monetary value?
A) JOB 1: 42,750 ± .1% JOB 2: 43,200 ± .1% Job 1: $36,500 + [$4,500 / (1 − 0.28)] = $42,750 Job 2: $34,700 + [$6,120 / (1 − 0.28)] = $43,200 B) JOB 2
What would be the net annual cost of the following checking accounts? (a) Monthly fee, $3.60; processing fee, $0.50 cents per check; checks written, an average of 21 a month. (b) Interest earnings of 4 percent with a $500 minimum balance; average monthly balance, $700; monthly service charge of $20 for falling below the minimum balance, which occurs three times a year (no interest earned in these months).
A) NET ANNUAL COST: 169.20 ± 1% Net annual cost = (Monthly fee × 12) + (Fee per check × Number of checks per month × 12) = ($3.60 × 12) + ($0.50 × 21 × 12) = $169.20 B) NET ANNUAL COST: 39.00 ± 1% Net annual cost= Service charges - Interest earnings = ($20 × 3) - (0.04 × $700 × 9 / 12) = $39.00
Annual depreciation $ 2,500 Annual mileage 13,200 Current year's loan interest $ 650 Miles per gallon 24 Insurance $ 680 Average gasoline price $ 3.68 per gallon License and registration fees $ 65 Oil changes/repairs $ 370 Parking/tolls $ 420 (a) Compute the total annual operating cost of the motor vehicle. (b) Compute the operating cost per mile
A) TOTAL VARIABLE COST: 2,814 ± 1% TOTAL FIXED COSTS: 3,895 ± 1% Fixed Ownership Costs Variable Operating Costs $ 2,500 Depreciation $ 2,024 Gasoline 650 Interest on loan 370 Oil/repairs 680 Insurance 420 Parking/tolls 65 License/registration $ 3,895 Total fixed costs $ 2,814 Total variable costs Gasoline cost = (Annual mileage / Miles per gallon) × Average gasoline price per gallon = (13,200 / 24) × $3.68 = $2,024 B) OPERATING COSTS: 50.8 ± 1% CENTS PER MILE Operating cost per mile = (Total variable costs + Total fixed costs) / Annual mileage = ($3,895 + 2,814) / 13,200 = $0.508, or 50.8 cents per mile
Imari Brown is attending community college. She has $2,200 of education expenses. She claims herself on her tax return. She is trying to decide between the tuition and fees deduction or an education credit. Imari is in the 15 percent tax bracket.
A) TUITION AND FEES DEDUCTION: 330 EDUCATION CREDIT: 2,200 B) Which option would Imari choose? Education credit The tuition and fees deduction will reduce her taxable income by $2,200. A reduction of taxable income will equal a tax deduction of $330 ($2,200 × 15%). The education credit will reduce her total tax by $2,200 because a credit is a direct offset to the amount of taxes owed. Thus, the tax credit is the best option.
On December 30, you decide to make a $1,800 charitable donation. a) If you are in the 28 percent tax bracket, how much will you save in taxes for the current year? b) If you deposit that tax savings in a savings account for the next five years at 2 percent, what will be the future value of that account?
A) Tax savings for the current year: 504 Tax savings = Tax rate × Tax deduction = 0.28 × $1,800 = $504 B) Future value of tax savings: 556.42 ± 1% Future value = $504 × 1.104 = $556.42 ENTER N= 5 I/Y= 2% PV= -$504
Carl Lester has liquid assets of $2,680 and current liabilities of $2,436. (a) What is his current ratio? (b) What comments do you have about this financial position?
A)1.1 ± .1% Current ratio = Liquid assets / Current liabilities = $2,680 / $2,436 = 1.1 B) Lower than the desirable ratio 2.0
Using the rule of 72, approximate the following: A) If the value of land in an area is increasing 6 percent a year, how long will it take for property values to double? B) If you earn 15 percent on your investments, how long would it take for your money to double? C) At an annual interest rate of 4 percent, how long would it take for your savings to double?
A)12 ± 1% Approximate time = 72 / 6 = 12 years B) 4.8 ± 1% Approximate time = 72 / 15 = 4.8 years C) 18 ± 1% Approximate time = 72 / 4 = 18 years
You just received your credit card statement. Which of the following are included on that statement? Annual fee All of these Annual percentage rate for purchases Penalty fees Method used to calculate balance
ALL OF THESE
Dave borrowed $1,150 on January 1, 2006, and paid it all back at once on December 31, 2006. The bank charged him a $4.00 service charge and interest was $58.10. What was the APR?
APR: 5.40 ± 1% Annual finance charge = Interest + Other costs = $58.10 + 4.00 = $62.10 APR = Annual finance charge / Principal borrowed = $62.10 / $1,150 = 0.054, or 5.40%
What is(are) the signal(s) of potential debt problems? Depending on overtime to meet normal expenses Using savings to pay normal bills Paying only the minimum balance each month Missing payments or paying late All of these are danger signals
All of these are danger signals
Which one of these methods is the fairest of calculating interest? Average daily balance excluding purchases Adjusted balance Previous balance method Average daily including purchases method Declining balance
Average daily including purchases method
With a 28 percent marginal tax rate, would a tax-free yield of 8 percent or a taxable yield of 10.50 percent give you a better return on your savings?
BETTER RETURN ON SAVINGS: TAX FREE YIELD After-tax yield = Pretax yield × (1 - Tax rate) = 10.50% × (1 - 0.28) = 7.56% The tax-free investment yields 8 percent which is preferable to the 7.56 percent after-tax yield on the taxable investment.
____________ are non-profit stores created by people in a neighborhood to serve their customers, who are also called members. Prices at this type of store are usually lower than at other retailers. Cooperatives Factory outlets Hypermarkets Warehouse stores Catalog showrooms
Cooperatives
The Fram family has liabilities of $128,000 and a net worth of $340,000. What is their debt ratio?
DEBT RATIO: 0.376 ± .001 Debt ratio = Liabilities / Net worth = $128,000 / $340,000 = 0.376
Kaye Blanchard is 75 years old. She has $50,000 of adjusted gross income and $10,000 of qualified medical expenses. She will be itemizing her tax deductions this year. How much of a tax deduction will Kaye be able to deduct?
DEDUCTIBLE AMOUNT: 6,250 ± .1% For persons over 65 years old, the medical expense threshold is 7.5 percent of AGI until 2017. Threshold amount = $50,000 × 0.075 = $3,750 Deductible amount = $10,000 - $3,750 = $6,250
Kim Lee is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $820 per month. Her employer deducts a total of $145 for taxes from her monthly pay. Kim also pays $95 on several credit card debts each month. The loan she needs for chiropractic school will cost an additional $120 per month. Help Kim make her decision by calculating her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.)
Debt payments-to-income ratio with college loan: 31.85 ± 1% Debt payments-to-income ratio without college loan: 14.07 ± 1% Net income = Gross income - Taxes = $820 - 145 = $675 Current debt without college loan: Debt payments-to-income ratio = Debt payments / Net income = $95 / $675 = 0.1407, or 14.07% Current debt plus college loan: Debt payments-to-income ratio = Debt payments / Net income = ($95 + 120) / $675 = 0.3185, or 31.85% If Kim adds the college debt to her current credit card debt, her debt-payments-to-income ratio will exceed the recommended 20 percent limit. However, if Kim can pay off her credit card debt, then the college loan is affordable as seen here: College loan only: Debt payments-to-income ratio = Debt payments / Net income = $120 / $675 = 0.1778, or 17.78%
Which type of debt would not be forgiven in a straight bankruptcy? Utility bills Credit card debt Personal loans Educational loans Medical bills
EDUCATIONAL LOANS
If you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child support, or educational loans. True False
FALSE
The rule of 78s formula dictates that you pay less interest at the beginning of a loan. True False
FALSE
Emily is trying to decide whether to lease or buy a car. Which one of the following is not a factor necessary in making the comparison? Gasoline costs Monthly lease payments Estimated value of vehicle at end of lease period Down payment Mileage overage charges
Gasoline costs
Which of the following is a drawback of a money market fund from an investment company? Taxed at a higher rate than other investments Penalty if money is withdrawn early Minimum required holding period Lower rate of interest if redeemed within the first five years Lack of FDIC insurance
Lack of FDIC insurance
Which of the following would be an advantage of leasing a vehicle? Unlimited mileage on the car Lease payments are likely to be lower than loan payments Automatic ownership interest in the car All of these are advantages. No need to meet credit requirements
Lease payments are likely to be lower than loan payments
Tiffany Parrish has purchased a new car. Since then she has had to make six trips to the dealer in four weeks to fix several major problems without much luck. She knows that she is entitled to a refund. What type of law gives her the right to ask for a refund? Fair reporting Consumer Credit Act Truth in Lending Lemon Law Truth in Saving
Lemon Law
Which one of the following savings plans is not covered by federal deposit insurance? Regular checking account at a commercial bank Money market fund with an investment company Money market account at a commercial bank Passbook account at a savings and loan Certificate of deposit at a commercial bank
Money market fund with an investment company
Which of the following information is required on food labels? Brand name Generic name Common product name Open dating Unit pricing
Open dating
A certificate of deposit will often result in a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a $81,000, 5 percent CD?
PENALTY AMOUNT: 675 ± 1% Annual interest = Annual interest rate × Investment = 0.05 × $81,000 = $4,050 Penalty = 2 months of interest = (2 / 12) × Annual interest = (2 / 12) × $4,050 = $675
Would you prefer a fully taxable investment earning 12.5 percent or a tax-exempt investment earning 9.5 percent? (Assume a 28 percent tax rate.)
Preferred investment: Tax-exempt investment @ 9.5% After-tax yield = Pretax yield × (1 - Tax rate) = 12.5% × (1 - 0.28) = 9% The tax-exempt investment yields 9.5 percent which is preferable to the 9 percent after-tax yield on the taxable investment.
Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes? Adjusted gross income $ 47,210 Itemized deductions $ 12,360 Child care tax credit $ 80 Federal income tax withheld $ 4,841 Amount for personal exemptions $ 7,300 Tax rate on taxable income 15 percent
REFUND: 788 ± 1% Taxable income = Adjusted gross income - Itemized deductions - Personal exemptions = $47,210 - $12,360 - $7,300 = $27,550 Income tax = Tax rate × Taxable income = 0.15 × $27,550 = $4,133 Total tax liability = Income tax - Tax credits = $4,133 - 80 = $4,053 Tax due(refund) = Tax liability - Taxes paid = $4,053 - 4,841 = -$788
The disposable income from your part-time job in 2012 and 2013 is $12,000. In 2012, you borrowed $500 at 18 percent interest. You repay your loan with interest in 2013. How much would you have available for spending in 2013?
SPENDING AMOUNT AVAILABLE IN 2013: 11,410 ± 1% Loan repayment = Principal + Interest = $500 + (0.18 × $500) = $590 2013 Spending amount available = Disposable income - Loan repayment = $12,000 - 590 = $11,410
You have been pricing a compact disk player in several stores. Three stores have the identical price of $600. Each store charges 18 percent APR, has a 30-day grace period, and sends out bills on the first of the month. On further investigation, you find that store A calculates the finance charge by using the average daily balance method, store B uses the adjusted balance method, and store C uses the previous balance method. Assume you purchased the disk player on May 5 and made a $100 payment on June 15. What will the finance charge be (for June) if you made your purchase from store A? From store B? From store C?
STORE A: $8.25 ± 1% STORE B: $7.50 ± 1% STORE C: $9.00 ± 1% The entire benefit of a grace period disappears when the balance is not paid in full within that grace period. Store A: Average daily balance method Finance charge for June = [Beginning balance + Ending balance) / 2] × (Annual interest rate / 12) = [($600 + 500) / 2] × (0.18 / 12) = $8.25 Store B: Adjusted balance method Finance charge for June = (Beginning balance - Payments) × (Annual interest rate / 12) = ($600 - 100) × (0.18 / 12) = $7.50 Store C: Previous balance method Finance charge for June = Beginning balance × (Annual interest rate / 12) = $600 × (0.18 / 12) = $9.00
Ross Martin arrived at the following tax information: Gross salary $ 49,100 Interest earnings $ 870 Dividend income $ 110 One personal exemption $ 3,950 Itemized deductions $ 7,880 Adjustments to income $ 1,860 What amount would Ross report as taxable income?
TAXABLE INCOME: 36,390 Taxable income = $49,100 + $110 + $870 − $1,860 - $7,880 - $3,950 = $36,390
Based on the following data, compute the total assets, total liabilities, and net worth. Liquid assets $ 4,670 Household assets $ 93,780 Investment assets $ 26,910 Long-term liabilities $ 76,230 Current liabilities $ 2,670
TOTAL ASSETS: 125,360 ± .1% TOTAL LIABILITIES: 78,900 ± .1% NET WORTH: 46,460 ± .1% Total assets = Liquid assets + Investment assets + Household assets = $4,670 + 26,910 + 93,780 = $125,360 Total liabilities = Current liabilites + Long-term liabilities = $2,670 + $76,230 = $78,900 Net worth = Total assets - Total liabilities = $125,360 - $78,900 = $46,460
Use the following items to determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows. Rent for the month $ 650 Monthly take-home salary $ 1,950 Cash in checking account $ 450 Savings account balance $ 1,890 Spending for food $ 345 Balance of educational loan $ 2,160 Current value of automobile $ 7,800 Telephone bill paid for month $ 65 Credit card balance $ 235 Loan payment $ 80 Auto insurance $ 230 Household possessions $ 3,400 Stereo equipment $ 2,350 Payment for electricity $ 90 Lunches/parking at work $ 180 Donations $ 70 Home computer $ 1,500 Value of stock investment $ 860 Clothing purchase $ 110 Restaurant spending $ 130
TOTAL ASSETS: 18,250 ± .1% TOTAL LIABILITIES: 2,395 ± .1% NET WORTH: 15,855 ± .1% TOTAL CASH INFLOWS: 1,950 TOTAL CASH OUTFLOWS: 1,950 ± .1% Total assets = $450 + 1,890 + 7,800 + 2,350 + 1,500 + 3,400 + 860= $18,250 Total liabilities = $235 + $2,160= $2,395 Net worth = $18,250 - $2,395 = $15,855 Total cash inflows = $1,950 Total cash outflows = $650 + 345 + 230 + 180 + 110 + 65 + 80 + 90 + 70 + 130= $1,950
Credit life insurance provides for the repayment of the insured loan if the borrower dies. True False
TRUE
In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property. True False
TRUE
Based on the following information, determine the true balance in your checking account. Balance in your checkbook $ 382 Interest earned on the account $ 8 Balance on bank statement $ 510 Total of outstanding checks $ 209 Service charge and other fees $ 21 Deposits in transit $ 68
TRUE BALANCE: 369 Current checkbook balance $ 382 Service charge - 21 Interest earned + 8 = Adjusted checkbook balance $ 369 Current bank statement balance $ 510 Deposits in transit + 68 Outstanding checks - 209 = Adjusted bank balance $ 369
Which one of these statements best describes the major criticism of service contracts? Service contracts are included in the initial price of the product and thus are not optional. The government regulation of service contract companies is weak. Repair companies provide poor service. The contracts are expensive and contain a lot of exclusions. There are a limited number of authorized repair facilities.
The contracts are expensive and contain a lot of exclusions.
CCCS counseling is: available only if you declare bankruptcy. quite costly. often useless. usually free. fraught with red tape.
USUALLY FREE
Which organization specializes in the testing of products for electrical and fire safety? Consumer Product Safety Commission Consumers Union Better Business Bureau Federal Trade Commission Underwriters Laboratories
Underwriters Laboratories
Checking accounts are frequently referred to as ____________ deposits. time current demand common loan
demand
The profits from a mutual savings bank go to the: community in which it operates. creditors. stockholders. depositors. loan applicants.
depositors.
An example of an economic buying influence would be: inflation. advertising. family size. place of residence. hobbies.
inflation.
Arbitration differs from mediation in that arbitration: is only available in certain states. allows compromise through negotiation. requires the use of a lawyer. is legally binding. involves government officials.
is legally binding.
A disadvantage of leasing an automobile would be the: responsibility for fuel expenses. limited mileage in the lease agreement. the higher monthly payment as compared to a purchase. poor expense records for tax purposes. relatively high cost of the security deposit.
limited mileage in the lease agreement.
A trust has the purpose of: handling daily money management activities. improving a person's budgeting skills. solving a person's financial problems. obtaining low-interest loans. managing the assets of a person.
managing the assets of a person.
The Rule of 78s demonstrates that a borrower pays: more interest at the end of the loan period. more interest in the middle of the loan period. equal amounts of interest throughout the loan. more interest at the beginning of the loan period. less interest than indicated by the APR.
more interest at the beginning of the loan period.
Sloane owes $2,600 on her car loan. According to Edmonds Used Car Prices, her car is valued at $1,950. The term used to refer to this situation is: pre-approval. residual value. negative equity. capitalized cost. money factor.
negative equity.
The face value of a Series EE U.S. Savings Bond refers to the: original purchase price. effective yield of the bond. monthly interest accrual amount. taxable portion of the accrued interest. redemption value at maturity.
redemption value at maturity.
The expected value of a vehicle at the end of a lease is called the: residual value. money factor. capitalized cost. unit price. sticker price.
residual value.
Pam McNally is planning to use the services of the Better Business Bureau. A major purpose of the BBB is to: lobby for improved consumer protection laws. represent business in government hearings. recommend reputable companies in an area. evaluate products and services for quality. resolve consumer complaints.
resolve consumer complaints.
The purpose of small claims court is to: provide hearings on proposed consumer protection laws. assist low-income consumers who need legal help. resolve minor consumer complaints. allow consumers with similar complaints to take action as a group. regulate fair business activities.
resolve minor consumer complaints.
When preparing a bank reconciliation, outstanding checks should be: added to the checkbook balance. subtracted from the bank statement balance. added to the bank statement balance. subtracted from the checkbook balance. ignored until they have cleared.
subtracted from the bank statement balance.
Dave borrowed $600 for one year and paid $44.20 in interest. The bank charged him a $5.00 service charge. What is the finance charge on this loan?
FINANCE CHARGE: $49.20 Finance charge = Interest + Other costs = $44.20 + 5.00 = $49.20
Which one of the following financing methods provides a float period? Home equity line of credit Lump-sum loan Auto loan Installment loan Credit card
CREDIT CARD
Recently, Jim Dahl was on a bus tour in a mountainous area. The bus broke down forcing the group to stay overnight. Group members had to pay for their own hotel bills. Jim believes that the hotel cost for the group should be paid by the tour company. Which legal action would be most appropriate? Legal aid society Arbitration Class action suit Mediation Small claims court
Class action suit
Which of the following is an effective strategy in times of falling interest rates? Use short-term loans to take advantage of lower rates when you refinance the loans. Select long-term savings instruments to lock-in earnings at current low rates. Use long-term loans to take advantage of current low rates. Select short-term savings instruments to lock-in earnings at current high rates. Select short-term savings instruments to take advantage of higher rates when they mature.
Use short-term loans to take advantage of lower rates when you refinance the loans.
Mike Jacobs is planning to lease an automobile. In an effort to minimize the price of the vehicle being leased, Mike should compare the ____________ at different leasing companies. number of payments down payment capitalized cost residual value money factor
capitalized cost
A personal check with guaranteed payment is called a: bank draft. cashier's check. certified check. money order. traveler's check.
certified check.
The purpose of the invoice price is to inform customers of the: charge for optional extras. sales tax on the vehicle. dealer's cost. sticker price. suggested retail price.
dealer's cost.
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n): six-month certificate of deposit. interest-bearing checking account. regular savings account. five-year certificate of deposit. money market fund.
five-year certificate of deposit.
Federal Trade Commission regulations require that: all used cars be sold with a warranty. major repairs must be made on all used cars prior to being offered for sale. used cars with over 100,000 miles be sold only by the individual owner, not by a dealer. the seller of a defective used car pay half the cost of the required repairs. used car buyers be informed of whether or not the vehicle comes with a warranty.
used car buyers be informed of whether or not the vehicle comes with a warranty.
