Finance 2

the loss of value in a car over time is called

depreciation

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%

if you invest $100 at 8% for one year, compounded semiannually, at the end of the year your balance will be: (use time value tables or financial calculator)

$108.16

the majority of each monthly payment at the beginning of the loan goes to pay

interest

sheldon has a home valued at $108,000 and an outstanding mortgage of $70,000 if his lender is willing to provide a home equity loan of up to 80% of market value, how much could sheldon borrow using a home equity loan?

$16,400

the best approach to solving the problem of an annual budget deficit is generally to

reduce flexible expenditures

if your \____, your net worth on the balance sheet would have increased from one period to the next

assets increase and liabilities remain constant

the \____ is really a second mortgage on your home

home equity line of credit

alice lost her ATM card at the lake and forgot it was missing until her monthly statement came 26 days later, she found that $800 had been withdrawn from her savings account, the most alice will be legally liable for assuming she notifies the bank at this point is

$500

what can you do if your budget shows an annual budget deficit

all of the above (borrow enough to meet the total budget shortfall for that year, liquidate enough savings and investments to meet the total budget shortfall for the year, increase income, cut low priority expenses from the budget)

the annual percentage rate (APR) on a single payment loan for $1,000 at a simple interest rate of 12% is

12%

home equity loans are similar to other installment loans except

the interest paid is generally tax deductible

besides the finance charge, you should also consider \____ when you shop for a consumer loan

all of the above (repayment penalties, collateral, loan maturity, total cost of the loan)

bob shockey borrowed $25,000 from his $250,000 cash value life insurance policy to send his daughter to private college, assuming he pays interest as in accrues, if bob dies before the debt is repaid his beneficiary will receive

$225,000

ann marie accumulated a large balance on her credit card while in college, she is trying to get it paid off as quickly as possible and wants to roll the balance onto a new credit card, she now uses a credit card only for emergencies, what should ann marie look for in a credit card given the large balance and the way she plans to use the card?

low APR

william uses his bank credit card frequently; however, he always pays off the total balance on the card each month, what should william look for in a credit card given the way he uses a credit card?

no annual fee and long grace period

michael and sandy purchased a home for $100,000 five years ago, if it appreciated 6% annually, what is it worth today?

$133,823

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

the annual percentage yield is the same as the

effective rate

the majority of loans made by savings and loan associations are \___ loans

mortgage

which of the following would be best suited to using an internet bank

fred longoria, a man who uses checking and savings but never goes to his bank

at the end of the lease period, you may be required to

b and c (pay for unreasonable wear and tear, pay for additional mileage)

which of the following are legal methods of reducing your current tax liability?

b and c (investing in a tax deferred annuity, shifting income to your children)

a money factor of 0.00280 on a lease is equivalent to an annual percentage rate of

6.72

the balance sheet describes a family wealth

at a certain point in time

you are solvent if your

total assets exceed total liabilities

the monthly interest on your mortgage was $690, you paid $650, the result is

negative amortization

john anderson deposited $10,000 in certificates of deposit (CD) for 3 years at 5% at maturity, it should be worth: (use time value tables or financial calculator)

$11,580

tax credits reduce your

tax liability

most lenders do not want mortgage payments plus other debt payments to exceed \___ percent of your gross monthly income

33-38

which of the following loan sources is the most expensive?

consumer finance companies

the monthly payment on an 8%, 36 month add on loan for $10,000 would be

$344

variable auto ownership costs are most dependent on

mileage driven

at the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car, you have \____ lease.

a closed end

commercial banks generally charge lower interest rates than other lending institutions because

they usually take only the best credit risks

mr and mr davenport have three children ages 3, 6 and 13, their financial matters for 2019 follows: adjusted gross income - $65,000, un-reimbursed medical expenses - $5,250. how much would the davenports' medical expenses contribute to their total itemized deductions?

$375

the interest rates and monthly mortgage payments will not change over the life of your mortgage, you have a(n)

fixed rate mortgage

your investment advisor wants you to purchase an annuity that will pay you $25,000 per year for 10 years, if you require a 7% return, what is the most you should pay for this investment?

$175,590

mandy and jeff have a net worth of $25,000 and total assets of $140,000, if their revolving credit and unpaid bills total $2,200, what are their total liabilities?

$115,000

you want to borrow $1,000 at an interest rate of 10% the most expensive method of calculating the dollar cost of the interest on this installment loan will be the

add on method

the financing rate on the car you are leasing is called the

money factor

an escrow account is used to collect \____ from one's monthly mortgage payment

c and d only (real estate taxes, homeowners insurance)

a \______ would be most likely to have to pay estimated taxes

self employed plumber

janie long has checking and savings accounts in a federally insured financial institution, the maximum amount of her insurance coverage is

$250,000

your total cash income is $40,000, you pay $5,000 in taxes and $30,000 in other expenses, your savings ratio is

12.5%

in which of the following situations would you have to pay additional money when returning a vehicle using a close ended lease?

mileage limits were exceeded

the income statement is specific to

a specific period of time

balance sheet liabilities should be recorded at their

current outstanding balance

a characteristic of consumer loans is that they

are all of these (are arrived at through a formal process, include a repayment schedule, include a negotiated contract, are used to purchase big-ticket durable goods and other items)

tax preparers must be licensed by either the state or federal government

false

the down payment is typically the only substantial housing cost that must be paid at the time of the purchase

false

the greatest fixed cost involved with owning an automobile is usually the monthly loan payments

true

tax credits are dollar for dollar reductions in taxable income

true

a lender will generally require mortgage insurance if the down payment is less than 20 percent

true

in a co-op the buyer receives title to a unit and joint ownership of the common areas

false

convenience and improved record keeping are two advantages cited for online bill payment

true

russ and lois got married december 30, since they were single for most of the year, however, they can legally file as married taxpayers in the year of the wedding.

true

low balling is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a different, more expensive vehicle

false

the annual percentage yield (APY) formula otherwise called effective annual rate (EAR) considers compounding when determining an interest rate

true

the money factor on an auto lease is similar to the interest rate on a loan

true

you can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions

true

anyone can legally prepare tax returns and charge a fee for that service

true

one could expect to earn a higher rate of interest on a certificate of deposit than on a checking account

true

banks and other financial institutions insure the contents of safe deposit boxes

false

a balance sheet shows your financial condition as of a certain point in time

true

early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease

true

budgeting and record keeping are the same activity

false

interest rates on credit cards tend to be lower than most other forms of consumer credit

false

a significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property

true

the best way to balance your budget is to increase borrowing.

false

asset management accounts, offered primarily by brokerage firms, are protected by the federal deposit insurance corporation

false

credit unions typically pay higher rates of return on savings than banks and savings and loan associations

true

if a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money

true

the cost of a title search and title insurance are typically part of the closing cost on a housing transaction

true

one's average tax rate is typically lower than one's marginal tax rate

true

the market price of a house is $125,000 and the homebuyer will borrow $100,000, two points will equal $2,000

true

all taxpayers have an equal probability of having their tax returns audited

false

some common liability risks include

all of the above (entertaining guests at home, being careless in performing professional duties, driving a car)

in order to qualify for disability insurance under social security, a person must be

unable to carry out the duties of any job

your right to continue a health insurance policy if you choose is known as

renewability

which of the following is NOT a component of the four square model for car buying

APR

the basic purpose of insurance is to

protect you from losses

decreasing term insurance usually has a decreasing face value and

a level premium

\____ is a common provision in many term policies

a renewable clause

the \____ of a stock reflects stockholder confidence

price/earnings ratio

in which of the following type of investments is the most liquidity risk

land

insurance is a tool that can lessen \___ risk

economic

underwriting is best described as:

activities related to selecting acceptable risks so that general insurer objectives are met

with traditional whole life policies sold by an agent, sales commissions and marketing expenses account for at least \___% of the first years premiums and at least \____% of total premiums paid over the life of the policy

100, 20

a diversified securities portfolio is characterized by

dissimilar risk and return characteristics of the securities

which of the following programs is a public assistance program that provides health insurance benefits only to those who are unable to pay for healthcare

medicaid

if the objective of your life insurance program is to get the greatest death protection now for your insurance dollars, you should choose \____ insurance

term

you have been offered an opportunity to buy shares of a diversified collection of securities, you will be investing in

mutual funds

which of the following events would probably increase your auto premiums?

none of the above would increase your premium (your 25th birthday, getting married, increasing your collision deductible, trading in your 1999 Mercedes for a 2000 ford escort)

\____ is a short term investment activity

speculating in common stock

donna, who is single and 30-years-old, has received several speeding tickets recently and was shocked by the effect they had on her auto insurance, donna drives a 2002 pontiac firebird, she is currently not covered by health insurance, has an emergency fund of $25,000, an income of $100,000 per year, and an investment portfolio of $230,000, she is trying to reduce the price of her auto insurance, which of the following actions is most likely to help donna reduce the price of her auto insurance?

raise her deductible from $250 to $1,000

risk and return are \____ related

directly

which of the following is an order to sell a stock when the market price drops to or below a specified level?

stop loss order

the returns you would expect from your investments could be

b and c (capital gains, current income)

selling equities you don't own and buying them back to cover the sale is

short selling in anticipation of a bear market in that security