GEB 3006 exam 3 financial literacy

What two factors count for 65% of your FICO score?

Payment history and outstanding debts

Which company has developed the MOST commonly used credit score to evaluate an individual's credit?

Fair Isaac Corporation

You should try to achieve a FICO score of at least ________ in order to receive a top credit rating.

760

What is the debt to credit limit ratio for the following individual?Visa Card Master Card Credit Limit $10,000 $20,000 Balance Due $2,000 $19,000 Available Credit$8,000$1,000

70%, and decreasing this ratio will help the credit score

It is possible that canceling an old credit card with no balance due could hurt your credit score.

TRUE

If an individual gets several quotes on a new mortgage within a two week period, it should not immediately impact their credit score. The credit score may later be impacted by the size of the mortgage and related monthly payments.

TRUE

A married couple is applying for a mortgage. One spouse has a low FICO score and one has a high FICO score. What is their best strategy for getting the lowest interest rate possible?

Apply in the name of the spouse with the highest score

Which of the following statements is true?

The treasury yield curve is normally upward sloping, with long term rates being higher than short term rates.

Having mortgage debt is generally considered better than having credit card debt.

True

It is illegal for an employer to review your credit report as part of the application process.

False

Assume you have three credit cards, each having a balance due of $500 for a total of $1,500. Each card has a different interest rate ranging from 12% to 20%. The minimum payment on each card is $10. If the minimum payment is not made, there is a $50 penalty.If you only have $500 to pay on your credit cards this month, the best way to minimize your interest cost is to pay an equal amount of money on each card.

False

Insurance companies are allowed to review and consider your credit score before quoting a premium.

True

In general, applying for and receiving new credit cards will tend to decrease your FICO score.

True

Assume that your parents have more liabilities than assets as a result of a $100,000 of credit card debt. In the event of their death, the children will inherit the credit card debt.

False

Interest rates on 30 year fixed rate mortgages tend to follow or correlate with:

The 10 year treasury note rate

Interest rates paid by corporations and individual are normally derived from the current:

The treasury yield curve

At a given interest rate, extending the term of your auto loan from 36 months to 60 months will:

Decrease your payment and increase the amount of interest paid over the loan

Interest rates for corporations and individuals are set based on the Treasury Yield Curve on any given day. The curve represents the cost of borrowing for the federal government, and

Is generally upward sloping, with short term interest rates being lower than long term interest rates

If we experience a rapid increase in inflation, the Federal Reserve would likely ________ interest rates.

Increase

In the event that you had $10,000 to invest in a bank Certificate of Deposit (CD), what would be your best course of action in the event that you believed interest rates were likely to increase in the coming years?

Invest in a short term CD and roll it over as it expires to another short term CD

Borrowing on your 401-K plan is generally considered a good financial move.

False

You should always shop for a car loan before seeing the dealer, since the loan rates offered by dealers can be manipulated against the profit on the car and the value of the trade-in.

True

Assume you are using student loans to pay for college. What is the maximum recommended level of debt you should incur in order to be conservative and ensure that you can afford the debt payments after graduation?

No more than half of your anticipated starting salary.

Debit cards have fewer protections if lost compared to credit cards, but credit cards can result in significant financial difficulties for individuals who misuse the card and incur credit card debt.

True

Assume you are borrowing $10,000 per year to cover all costs of attending UCF. If it takes you 5 years to graduate instead of 4, then the cost of attending UCF is:

50,000

Which of the following is NOT a major credit monitoring company?

Transpacific

Who sets monetary policy in the United States?

The Federal Reserve

A flat or inverted yield curve often signals a recession.

True

It is generally a good idea to co-sign a loan for another individual in the event they do not qualify for a loan.

False

Consumers are allowed by law to receive a free copy of their credit report twice a year from each of the three credit reporting agencies.

False

Most experts recommend that consumers "freeze" their credit files as a result of recent data leaks at Equifax.

True

You should never shop for a car based on a budgeted payment, but instead look at the overall cost of the vehicle.

True

One of the best investments you can make is paying down high interest rate credit card debt. Essentially you are receiving a high after tax return risk free.

True

Incurring significant amounts of student debt will impact your future borrowing power for a home or car loan.

True

What are the dual mandates established by Congress for the Federal Reserve?

Control inflation and maximize employment

When banks advertise the interest rate on their savings accounts, they must show:

APY

If the annual interest rate is 12%, the monthly periodic rate would be:

1%

Assume you paid $300,000 for a house that is now worth $400,000. A bank will make you a loan of 90% based on current value. You owe $200,000 on your first mortgage.How much can you borrow on a second mortgage or home equity loan?

$160000

If you buy a larger size of a product, the price per unit (such as price per ounce) will always be lower.

False

The price per unit of items bought in a warehouse club such as Sams or Costco will always be lower than a regular retail store.

False

Retailers commonly offer new items at significantly higher prices, then plan to market the goods down later to ultimately achieve the desired gross margin goal.

True

Which of the following would provide the most objective information about a product?

A food product ingredient label.

In most cases, service warranty contracts provide excellent protection and are generally good deals.

False

Assume you spent $250 for a pressure washer that will save you $50 a year in rental costs. Using simple payback, how long will it take to get your money back?

5yrs

It is never a good idea to prepay something for a discount due to the risk involved.

False

When shopping for a car, you should immediately offer your current car as a trade-in to strengthen your bargaining power.

False

Zero percent financing is always a great deal since a zero percent interest rate is lower than any bank would ever offer.

False

Is is always advisable to have your auto financing arranged in advanced before you start negotiating on a car.

True

Assume that a dealer has offered you $10,000 for your car as a trade-in which will save you 7% sales tax on your new car's tax value. If you decide to sell the car to a third party, you need to get more than ______.

10,700

Assume you drive 10,000 miles per year and get 20 miles to the gallon. If your car requires premium gas, how much more will this cost you over a 5 year period assuming that premium gas costs $0.60/gallon more than regular?

$1,500

Depreciation on autos tends to be highest in years _______.

1 to 3

Leasing cars is generally much cheaper than buying cars since the payment is so much lower.

False

Generally, you need to plan to stay in a house for about ______ years to reduce the risk of losing money on the house when you resell it.

5yrs

What are some of the disadvantages of owning a house?

All of the above

Which of the following statements is TRUE?

Real estate commissions are usually 6% and paid by the seller.

Monthly escrow for property taxes and insurance can add up to ____ more to the mortgage payment.

40%

PITI stands for principal, interest, taxes and insurance.

True

The housing expense ratio of PITI divided by gross monthly income should not exceed a maximum of ____.

28% for conventional loans and 29% for FHA loans

The total debt ratio of (PITI + long term debt obligations) divided by gross monthly income should not exceed _____.

36% for conventional loans and 43% for FHA loans.

Before shopping for a house, buyers should get _______ for their mortgage.

Preapproved

Assume a homeowner is paying Private Mortgage Insurance (PMI). At what point should the homeowner contact the mortgage company and request that PMI be stopped?

When the homeowner's equity in the house reaches 20%.

In order to get the lowest interest available, your FICO score should be: 7

60 and above

Assume that a house is sold for $300,000. The square footage is as follows: Area under air conditioning and heating

2,800 Garage 400 Patio 200 Total 3,400 The cost per square foot as traditionally calculated in the real estate industry is: $107.14

In comparison to a 15 year fixed rate mortgage, a 30 year fixed rate mortgage will:

Pay more in total interest over the life of the loan

A homeowner decides to get a second mortgage at 7% to pay down credit card debt with an interest rate of 20%. While this appears to be a good move, the primary risk is that the homeowner could lose his/her home if they fail to make payments on the new second mortgage.

True

Which of the following would tend to have the highest interest rate at any given time.

HELOC

Fixed rate home mortgages should be refinanced when interest rates

Decrease

Assume you pay $3,000 in closing costs to refinance your mortgage at a new rate of 4%. You will save $100 per month for the next 30 years. How long must the homeowner stay in the house using TVM breakeven?

31.66 months

Which of the following statements is TRUE?

Early in the life of a mortgage, most of the payment goes toward interest with very little being applied to principal.

The primary risk of having an adjustable rate (ARM) mortgage is:

Interest rates could increase.

Which of the following are features of a conventional or conforming mortgage?

All of the above.

When purchasing homeowners insurance you should always:

All of the above.

If you need life insurance because of a large mortgage or dependent children, you should normally buy:

Term life because it's cheaper.

Assume you are seeking a mortgage, and a bank uses a back-end total debt ratio of 35%. Your monthly car and student loan payments total $500/month. Your income is $5,000/month. How large of a house payment can you afford (PITI)?

$1,250

When purchasing a home, homeowners should always get a building inspection in advance and purchase title insurance.

True

Individuals should normally have at least _______ months of pay or living expenses in emergency savings.

3

Emergency savings money is best invested in:

Bank savings accounts

The recession in 2008 was the worst recession since:

The early 1930s

A recent study shows that increases in federal regulation have a negative impact on economic growth.

True

Florida's population is expected to continue to grow and drive economic growth due to:

All of the above

Which Florida sector is expected to have the highest average annual growth rate from 2018-2021?

Construction

Many Florida construction jobs were lost after the recession of 2008, but those jobs are now back, and we are seeing a shortage of skilled construction workers.

True

Which of the following is NOT an attribute of the recent changes in tax laws?

Incentives for corporations to leave cash in foreign subsidiaries

Average Florida home prices in 2018 compared to the peak in 2007 are:

higher

US Gross Domestic Product (GDP) for 2018 was approximately:

3%

Which of the following Florida cities is forecasted to have the highest growth rate in population and employment?

Orlando

Which of the following describes the current Florida housing market?

Sellers market, with tighter credit standards compared to 2007.

The key to successful investing is asset class allocation, diversification, and appropriate use of taxable, tax deferred and tax free accounts.

True

Assume a student has 4 individual stocks worth $2,500 each. In this case:

The student is not adequately diversified.

Which type of investment provides an ownership in the company?

Equity investment

The total return on a stock is the total of the:

Dividend yield and capital gain yield.

A stock pays a quarterly dividend of $1.00/share. The stock trades at $100 per share, and has a book value of $50 per share. What is the annual dividend yield?

4%

What type of stock has greater risk and often does not pay dividends?

Small cap stocks

If a company's earnings do not vary much with the economy, it would be called a ____ stock.

Defensive

The risks of the overall market that can't be diversified by adding more stocks to a portfolio is called _____ risk.

Systematic or market

Average returns should always be used when evaluating stock performance since they are more accurate than geometric returns.

False

Over the long term, which asset class provided the highest rate of return?

Stocks

The historical equity risk premium or excess market return for stocks over risk free investments is _____.

4-6%

The returns on Real Estate Investment Trusts (REITs) is in the same range of returns as ______.

Stocks