Personal Finance Midterm
Tom sold mutual fund shares he had owned 3 years so that he could use the proceeds to return to college. Tom is in the 15% marginal tax bracket and his capital gains from this sale were $11,000. How much tax would Tom owe on those gains?
$0
Michael and Sandy purchased a home for $100,000 five years ago. If it appreciated 6% annually, what is it worth today? Future value for a 5-year investment earning 6% is 1.33823.
$133,823
Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan, what is the maximum amount Henry can spend on the car?
$15,265
Murray (age 68, single) just sold his home of 35 years so that he could relocate nearer to his grandchildren. He realized a $400,000 capital gain on the home. On how much of this gain will Murray have to pay taxes?
$150,000
Sam and his wife Ann purchased a home in Lubbock, Texas, in 1980 for $100,000. Their original home mortgage was for $90,000. The house has a current market value of $175,000 and a replacement value of $200,000. They still owe $55,000 on their home mortgage. Sam and Sally are now constructing their balance sheet. How should their home be reflected on their current personal balance sheet?
$175,000 asset and $55,000 liability
Brenda is in the 28% marginal tax bracket and has no other itemized deductions except those related to her home. If her standard deduction is $6,300 and she incurs the following costs related to housing, how much tax savings will she receive as a result of her home purchase?
$2,996
If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 80 percent, then the borrower must make a down payment of at least
$20,000
Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diana owe on those gains?
$4,500
Pete and Pam want to purchase a new home but don't know how much mortgage they can qualify for. The lender requires total installment loan payments not exceed 32% of gross monthly income. Based on Pete and Pam's financial data below, what is the maximum monthly mortgage payment for which they can qualify?
$900
Jamil invested $9,500 in an account he expects will earn 5% annually. Approximately how many years will it take for the account to double in value?
14.4
Your total cash income is $80,000. You pay $8,000 in social security and income taxes and $60,000 in other expenses. Your savings ratio is
16.7%
To qualify for the capital gain exclusion on a home sale, the seller must have resided in the residence for ___ of the previous 5 years.
2
A lender will usually require a down payment of ____ or more for you to avoid having to pay private mortgage insurance (PMI).
20%
Janice Sanders plans on saving $12,000 for 3 years until she returns to college for her master's degree in personal financial planning. She would like to receive a fixed rate of return over that period. Which of the following would you recommend?
3-year certificate of deposit
If your total liquid assets equal $50,000 and your total current debts equal $15,000, your liquidity ratio is
333%
Phil has $2,000 and he needs it to grow to $4,000 in 8 years. Assuming he adds no more money to this fund, what rate of return would he need to earn?
9%
Joe Gustafson is a very busy person who likes to handle all his financial service needs with one account if possible. Which of the following types of accounts would best serve this need?
Asset management account
A budget is a detailed statement of what income and expenses occurred over a past period.
False
A long-term capital gain is taxed at the same rate as ordinary income.
False
A savings account may be a useful tool in managing everyday household transactions.
False
An investment must be owned over two years in order to qualify for long-term capital gains treatment.
False
Asset management accounts are protected by the Federal Deposit Insurance Corporation.
False
Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.
False
Dwayne and Gayle were divorced September 29, have not remarried, and have no dependents. Their filing status for the year will each be "married" since they were married for more than half of the year.
False
In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
False
Mary and Tom purchased their home for $150,000, and it is now worth $175,000. Its asset value is $150,000.
False
Money I loaned to a friend is a liability on my balance sheet.
False
Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank.
False
Money market mutual funds invest in long-term treasury securities and other types of bonds.
False
Only the current month's payment on your mortgage loans would be listed on the personal balance sheet as a liability.
False
The balance sheet equation is assets plus liabilities equals net worth.
False
The interest rate is likely to be lower on a 6-year auto loan than on a 3-year auto loan
False
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
False
The term condominium refers to a style of architecture.
False
Treasury bills are sold at their face value.
False
Commercial banks are insured by the
Federal Deposit Insurance Corporation.
Which of the following can be adjustment(s) to gross income on the 1040 form?
Health insurance premiums paid by self-employed individuals, Alimony paid, Moving expenses
____ is a fixed auto ownership cost.
Installment loan payment, Auto insurance
Which of the following is true regarding auto loans?
Longer term, higher rate, lower paymen
Eric has $1,000 and would like to use it to start a savings program. He will add to the program regularly by investing $50 per month in a liquid account. Which of the following types of accounts would be most appropriate in this situation?
Money market deposit account
Which of the following are reasons people lease vehicles?
Monthly payments for leases are generally less expensive than loan payments, One can afford a more expensive car with the same monthly payment by leasing rather than buying.
____ can be deducted on your federal tax return.
Mortgage interest, Property Taxes
Phil and Christina are recently married and unsure of where they will be relocated after Christina finishes her residency in 9 months. Based on this information, which of the following housing recommendations would be most appropriate for them?
Rent an apartment.
Which of the following accounts has special tax advantages under certain conditions when used to fund qualified college education expenses?
Series EE savings bonds
Ben and Jack both earned $60,000 this year. Ben (age 30) is married with two children, and Jack (age 61) is single with no dependents. Which of the following is true regarding the amount of Social Security taxes they will pay?
They will pay the same amount of Social Security taxes.
A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
True
A personal balance sheet shows your financial condition as of the time the statement is prepared.
True
A short-term capital gain would be taxed at the same rate as your salary.
True
An increase in the "rent ratio" indicates that renting is more affordable relative to housing prices.
True
Capitalized cost on an auto lease is the same as the price of the car.
True
Compound interest means that a savings account earns interest on the interest previously earned.
True
Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.
True
Gasoline is a variable cost of automobile ownership.
True
If Lois has $2,000 in checking, $50,000 in a money market mutual fund, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be insured through FDIC for $77,000.
True
If Suzie has $2,000 in checking, $50,000 in a money market deposit account, and $75,000 in certificates of deposit (all individual accounts) at her local bank, her accounts would be completely insured through FDIC.
True
If you are eligible to receive a tax refund, you will have to file a tax return to get the refund.
True
Itemized deductions could include certain taxes, medical expenditures, and home mortgage interest.
True
Mortgage interest and paid home property taxes are both itemized deduction items.
True
Most types of personal property depreciate shortly after being put into use.
True
Negative amortization is possible with an adjustable-rate mortgage.
True
Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable- rate mortgages.
True
Russ and Lois got married December 30. Although they were single for most of the year, they can legally file as married taxpayers in the year of the wedding.
True
Tax avoidance is legal, tax evasion is illegal.
True
Tax credits are dollar-for-dollar reductions in taxes due.
True
The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
True
The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.
True
The liquidity ratio is an indicator of a family's ability to pay current debts if there is an interruption in income.
True
The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.
True
The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.
True
The rate of return on a Series EE savings bond changes semiannually.
True
Using time value of money is important when planning for long-term goals.
True
With low interest rates, savers have begun investing in stock where higher yields can be found.
True
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
True
When you lease your apartment from the corporation that owns the building and your lease is an ownership share, your apartment is
a cooperative.
For most homeowners, the most important financial reason for owning a home is
a tax shelter
When a cash surplus exists on your income and expense statement, you can use it to
acquire assets
Money market mutual funds
allow check writing, are not federally insured, pool the funds of many small investors, pay interest rates of 1 to 3 percent higher than those paid on regular savings accounts.
You should not record ____ on an income and expense statement covering January 1 to June 30.
an $800 refrigerator bought on credit June 2 for which payment is not due until July
You have no employer provided pension plan; your IRA contributions are treated as
an adjustment to gross income
The three key groups in the economic environment are
government, consumers, and business
As home prices have fallen in recent years, the rent ratio
has decreased and rent affordability has decreased
The federal government gets the majority of its revenue from the ____ tax.
income
Your income tax withholding is dependent on
income level and number of withholding allowances
Using personal balance sheet information, the ____ ratio indicates your ability to meet current debt payments.
liquidity
Pete and Pam are married with four dependent children. Pete and Pam can legally file using which of the following filing statuses?
married filing separately, married filing jointly
Tax planning is most commonly done to
minimize taxes
You have owned and lived in your home for 8 years. Now you have received an excellent promotion, but you will have to sell your home and move to another community. You expect to realize a capital gain of $100,000 on the home's sale. The capital gain will
not be taxable because the home was your principal residence
At the end of the lease period, you may be required to
pay for unreasonable wear and tear, pay for additional mileage.
On the personal balance sheet, a mortgage loan is recorded as the
principal portion only
The seller of the house typically pays the
real estate agent's commission
The financial crisis of 2008 and 2009 is best characterized as a
recession
Low interest rates are helpful in
reducing the service cost on our national debt.
Inflation refers to
rising prices
A capital gain is the result of
selling an asset for more than purchase price
Financial goals should be
specific, attainable, and prioritized
A progressive tax system is one in which higher-income people pay ____ than lower-income people.
tax at a higher rate
When refinancing your mortgage, you should consider
the interest rates of the old and new mortgages, the years you expect to remain in the home, any prepayment penalties on the old mortgage, closing costs of the new mortgage.
The individual consumer is
the party around which the personal financial environment is centered
You would not include ____ on an income and expense statement.
the value of your stock portfolio
Your income is directly related to
your geographic location, your age, your education
