Personal Finance 101

Final Exam

1. Jonelle selects a student loan repayment plan with a 20-year term. One downside is... 

   1. She won't receive any grace period with this plan.

   2. Her monthly payments will start out quite high and won't get lower until approximately year 10.

   3. She won't be able to open additional lines of credit until that debt is completely repaid.

   4. She will pay more in interest than if she had used the Standard repayment plan.

2. Which statement best describes the difference between a debit and credit card? 

   1. Debit cards have low interest rates while credit cards have high interest rates

   2. Debit cards spend money from your own checking account while credit cards take out a loan from the credit company

   3. Debit cards are better to use in stores while credit cards are better for shopping online

   4. Debit cards allow you to view all your transactions online while credit cards only show your available credit limit

3. Which of the following accounts would be best for setting aside $1000 if you did not need access to the money for a number of years AND wanted to earn the highest interest rate?

   1. Online savings account

   2. Certificate of deposit

   3. Traditional savings account

   4. Checking account

4. Which of the following people is required to file taxes? 

   1. Greg, who earned $320 through his online business

   2. Samira, who earned $1,000 babysitting and $2,500 at the ice cream store

   3. Neil, who earned $13,200 from his paid internship

   4. Pat, who earned $250 by mowing her neighbors' lawns

5. Jennifer is trying to save up for an emergency fund of $3000. Which saving strategy would likely be MOST effective in helping her meet her goal?

   1. At the end of the month put any leftover money in her checking account into her savings instead

   2. Set up a direct deposit of $75 from each paycheck to automatically get put into her savings account instead of her checking account

   3. Wait until she's paid off all of her credit card and student loan debt, and then start saving for an emergency fund

   4. Every month, after she's paid for rent, student loan and credit card debt, utilities, and groceries, put $50 or $100 into savings

6. Zoe buys three new lipsticks from a store at the mall. Which payment method would reduce the amount of money in her checking account? 

   1. Pays with a prepaid card she loaded earlier in the month

   2. Uses her credit card and says, "Credit" when the cashier asks, "Credit or debit?"

   3. Uses her debit card and says, "Credit" when the cashier asks, "Credit or debit?"

   4. Pays with cash she had in her purse

7. Which person from this list is saving rather than investing? 

   1. Yvonne, who puts $750 per month into her savings account earning 1% interest

   2. Danielle, who contributes 2% of her pay to her company's 401(k) plan

   3. Daryl, who uses his $5000 end-of-year bonus to buy Treasury bonds

   4. Alexis, who buys $100 worth of shares in an S&P 500 index fund every month

8. These high school seniors each bought $1500 of stuff to bring to college with them in the fall. Each one used a credit card with similar terms to make their purchases. Who will pay the LEAST interest for their purchases?

   1. Stephan, who pays the first $1000 using graduation money and then pays $250 per month until the debt is $0

   2. Jasmine, who had the $1500 saved previously and pays off the whole balance once her bill comes

   3. Nelson, who makes the minimum monthly payment each month until the debt is $0

   4. Robert, who makes $300 payments per month until the debt is $0

9. You are budgeting your net pay of $3000 per month. You estimate your monthly costs to be rent of $1200, car expenses of $700, utilities of $200, insurance of $300, food of $400, student loans of $800, and going out with friends of $200. What is the end result?

   1. A budget deficit of $800

   2. A budget surplus of $800

   3. A total budget of $6800

   4. Breakeven at $0

10. After you complete your W-4 form, you should submit it to...

    1. The IRS

    2. Your employer

    3. Your spouse

    4. Your state’s Department of Revenue

11. Jay asks his friends for advice: "Should I start doing mobile banking now that I've got my new smartphone?" Which friend is correct in their statement on the benefits of mobile banking? 

    1. It's so convenient, because you can deposit your check using your phone's camera and the bank's app. 

    2. One major pro of mobile banking is that they typically waive all of the normal fees like overdraft fees, ATM fees, insufficient funds fees…

    3. One inconvenience is that once you set up mobile banking on your phone, you can't use online banking on your computer any more. 

    4. A con of mobile banking is that typically banks charge you a $10-15 set-up fee in addition to a small monthly fee (~$3) for mobile banking privileges. 

12.  Each of the following will impact your credit score EXCEPT... 

    1. The number of times you apply for new credit.

    2. Your debt-to-credit ratio.

    3. Your history of on-time payments.

    4. The types of items you're buying using credit.

13. Which of the following statements best describes the difference between gross pay and net pay?

    1. Gross pay is the amount you make for the entire year, and net pay is the amount you make on each paycheck

    2. Gross pay is the amount your employer pays you, and net pay is the amount of taxes you pay the government

    3. Gross pay includes salary, tips, commission, and bonus, while net pay is just your salary

    4. Gross pay is the entire amount you earn that pay period, and net pay is the amount you take home after taxes and other deductions are paid

20. Hudson always makes the minimum monthly payments on all of his debts, on time. He receives a raise at work which gives him an extra $250 per month in take-home pay. If his primary goal is to minimize the amount of interest he'll pay over the lifetime of his debts, which debt should he pay down most quickly using his increased pay? 

1. His car loan with a 6.9% interest rate

2. His credit card with a 19.7% interest rate

3. His private student loans with an 11.8% interest rate

4. His Federal student loans with a 3.76% interest rate

21.  A major difference between a 401(k) and a Roth IRA is that...

    1. a 401(k) is guaranteed to give you a better return than a Roth IRA.

    2. a 401(k) is something you sign up for on your own; a Roth IRA is always offered by your employer.

    3. a 401(k) uses pre-tax money; a Roth IRA uses post-tax money.

    4. a 401(k) gives you more flexibility in how you can use your money than a Roth IRA.

22. When applying for a loan, which piece of advice is best?

    1. Pay only your minimum monthly balance -- otherwise you will end up overpaying in interest over the course of the loan

    2. Look for a high interest rate, so that you are more motivated to pay it off quickly

    3. Choose a longer repayment term if you can only afford small monthly payments in your budget, but know that you will pay more interest with this strategy

    4. Take 10-20% more in principal than you actually need, because it is basically like "free" spending money

23. Mia is opening her first checking account, and she's trying to decide whether she should sign up for overdraft protection. Which friend's advice is most accurate?

    1. Jordan says, "With overdraft protection, you never have to worry about how much money is in your account."

    2. Donnie says, "Yes, you'll have to pay a fee for each overdraft, but you DON'T have to pay the bank back the money you overdrew the account by."

    3. Frank says, "Overdraft protection is handy if you have an emergency (like needing gas to get to work) and don't have the funds right now."

    4. Alex says, "If you don't get overdraft protection, and you TRY to withdraw more than what's in your account, you pay a fee anyway."

24. Why is it important to start investing for retirement at an early age? 

    1. The younger you are when you start, the lower your fees

    2. Many investment firms will increase the rate of return you get by 1%

    3. As you get older, firms offer you fewer funds to invest in

    4. Your money has more time to grow

Short Answer 

Answer each question below in the provided boxes. 

26. Gordon worked part-time last year from June through December. It’s now January and he’s preparing to file his taxes. Briefly explain what he needs to do -- and when -- in order to file his taxes.

27. Pretend you make $750 worth of purchases on your credit card, your bill arrives saying your minimum payment due is $25 and you pay $150 before the due date. Describe how credit card interest works and what you can expect to happen next. 

28. Provide three tips to a teenager opening his first checking account on how to best avoid paying bank fees.

Essay

Selena has been working at her first post-college job for almost a year when her company gives her a raise, resulting in a paycheck increase of $150, for a total of $300 extra in take-home pay every month. She makes a quick list of possible ways to use that money, along with relevant notes for each. 

Provide a detailed plan, including actual dollar amounts, for Selena to wisely use the extra $300 per month from her raise. For each part of the plan, briefly describe why you’re making this choice.