Finance Final

One can arrange auto loans through?

a) credit unions

b)consumer finance companies

c) banks

d) auto dealers

e) all of the above

E) All of the above

You have no employer provided pension plan; your IRA contributions are treated as?

a) an additional personal examption

b)an adjustments to gross income.

c) an itemized deduction

d) a tax credit

e) part of the standard deduction

B) an adjustments to gross income

A used car from _______ will generally cost less.

a) superstores

b) independent used car lots

c) lenders

d) private individuals

e) franchise dealerships

d) private individuals

Which of the following are important safeguards when using on-line banking?

a) firewall to protect data

b) 128-bit encryption

c) FDIC insurance

d) guarantees to protect you against losses

e) all of the above

When purchasing a vehicle, _____ should be settled first.

a) cost of the vehicle

b) type of loan required

c) whether to take a rebate or low-interest loan offer

d) value of trade-in

e) c and d

a) cost of the vehicle

Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $111 on auto insurance, $314 on gas and maintenance, and $9087078 in interest. What was her depreciation cost on this vehicle?

a) $5,000

b) $10,800

c) $20,000

d) $25,000

e) $15,000

c) $20,000

In which of the following situations would you have to pay additional money when returning a vehicle using an open-end lease?

a) residual value is less than expected

b) residual value is more than expected

c) mileage limits were exceeded

d) a and c

e) b and c

d) a and c

When canceling a credit card, you should cut up the card and ____ that you are canceling your account.

a) call the credit bureau and tell them

b) call the issuer and tell them

c) inform the issuer in writing

d) inform the credit bureau in writing

e) all of the above

c) inform the issuer in writing

There are numerous advantages and disadvantages of on-line bill payment systems. Which of the following is a potential advantage?

a) round-the-clock help

b) FDIC insurance

c) efficient start-upd) privacy

e) use of float

a) round-the-clock help

The loss of value in a car over time is called?

Depreciation

Variable auto ownership costs are most dependent on?

a) mileage driven

b) driver behavior

c) hours driven

d) city lived in

e) down payment

a) mileage driven

A _____ would most likely to have to pay estimated taxes.

a) manager for a major industrial firm

b) self-employed plumber

c) school teacher

d) corporate attorney

e) union worker

b) self-employed plumber

Joe and Jane have a tendency to build up large balances on their credit cards. Which of the following would be least important for them?

a) no annual fee

b) low interest rates on balances

c) long grace period

d) method of calculating balances

e) a and b

c) long grace period

Tax credits reduce your?

a) adjusted gross income

b) taxable income

c) tax refund

d) tax liability

e) tax withholding

d) tax liability

Advantages of buying a used car rather than a new car include?

a) will depreciate more quickly

b) good mechanical condition

c) less expensive

d) more choices available

e) all of the above

c) less expensive

Which of the following state and local taxes are deductible on federal income taxes for those that itemize deductions?

a) licensing fees and income taxes

b) property taxes and excise taxes

c) excise taxes and sales taxes

d) sales taxes and income taxes

e) income taxes and property taxes

Russ buys his wife a valuable painting for $20,000. He purchases it using $15,000 from his savings and a $5,000 loan. How does this transaction affect Russ' balance sheet?

a) his assets increase

b) his liabilities increase

c) his net worth stays the same

d) a and b

e) a,b and c

c) his net worth stays the same

What asset class provides for the least amount of return and the least amount of risk?

a) large company stocks

b) U.S. Treasury Bills

c) corporate bonds

d) long-term government bonds

b) U.S. Treasury Bills

What is LIBOR?

a) An index of the 500 largest public American companies

b) the interest rate banks charge each other for loans

c) a deadly Na'vi killing machine in Avatar

d) the interest rate on all federal student loans

b) the interest rate banks charge each other for loans.

Installment loans using the simple interest method?

a) have the highest finance charges of any method.

b) have a higher APR than the stated interest rate.

c) have a lower APR than the stated interest rate.

d) have interest charged only on the monthly loan balance

e) do not have balloon payments

d) have interest charged only on the monthly loan balance

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?

a) past-due balance method

b) double declining balance method

c) simple interest method

d) discount method

e) add-on method

A characteristic of consumer loans is that they?

a) include a repayment schedule

b) include a negotiated contract

c) are used to purchase big-ticket durable goods and other items

d) are arrived at through a formal process

e) all of these

______ is a short-term investment activity

a) buying life insurance

b) speculating in common stock

c) investing in common stock

d) saving

e) buying bonds

b) speculating in common stock

If your employment is terminated, COBRA provides for?

a) temporary continuation of group insurance benefits; you pay premiums

Auto insurance premiums are generally reduced by?

a) moving to a larger city

b) choosing a higher deductible

c) avoiding carpooling to work

d) buying a sporty "high powered" car

e) all of the above

b) choosing a higher deductible

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

a) 344

b) 300

c) 380

d) 278

e) 314

10,000 x .8= 2,400

2,400/36= 344.44=

a) 344

The smallest round lot of stocks quoted at 23.25 would cost you?

a) 2,325.00

b) 23,250.00

c) 23.25

d) 232.50

e) none of these

23.25 x 100 = 2,325

a

During a bull market?

a) prices remain stable

b) cattle futures perform well

c) prices go down

d) prices go up

e) investments are pessimistic

d) prices go up

Professor Beedles talked about a simple way to see what percent of wealth you should have invested in stocks by your age. Say you are 45 years old how much wealth should you have invested in stocks.

a) 25% to 35%

b) none of these

c) 55% to 65%

d) Either

c) 55% to 65%

According to Beedle, prices in the stock market react how quickly:

a) 10 minutes

b) miliseconds

c) 1 second

d) 10 seconds

b) miliseconds

Which of these is not a correct way to diversify your portfolio?

a) invest in some foreign exposure

b) invest in approximately a dozen stocks in various industries

c) invest in a mutual fund

d) invest most or all of your 401(k) in employer stock

You could save money on your car insurance premiums by?

a) buying a 4-door sedan.

b) choosing a $1,000 deductible

c) moving to a small town.

d) all of these

e) none of these

d) all of these

Factors that affect home insurance costs include:

a) type of structure

b) location of home

c) both a and b

d) none of these

c) both a and b

What is the probability that a professional money manager will produce superior performance next year?

a) 50%

b) 66%

c) 33%

d) 100%

c) 33%

Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is their net worth?

$3,600

+$42,800

----------------

$46,400

- $26,000

-----------------

$20,400= Net worth

You have $926 balance on your credit card account. The minimum payment on your account is 2 percent of the latest balance or $20, whichever is greater. What will be the minimum payment this month?

926 x .02 = $18.52 or $20

Answer is $20

Gordon and Susan have a regular savings plan and have accumulated $8,000. How much will this approximately be worth in 10 years if they can earn 7% on the money. They are not planning to add to this savings account.

Future Value= (1 + .07)^10= 1.967

8,000 x 1.967= $15,737.21

Your mortgage payment in $1,500 per month. Of this amount, insurance is $50, property taxes are $200, and interest is about $1,100. Assuming you have other itemized deductions that already exceed your standard deduction at 31% tax bracket. What is reduction on tax liability for owning a home.

(1,100 + 200) x 12 x .31= $4.836

Determine Marcie's gross income for tax purposes:

salary-$40,000

interest (checking account)-$50

cash received as birthday gift-$900

dividends (mutual funds)- $500

inheritance received on father's death- $22,000

cash received from insurance for accident- $3,200

cash dividend from stock- $750

40,000

+50

+500

+750

---------

$41,300 = answer

On September 8 Maggie lost her wallet. The following four credit cards and one debit card were in it. She reported it missing after 2 weeks. How much is she legally responsible for?

Visa Card- $195--$50 is max

MasterCard-$25--$25 is max

American Express-$500--$50 is max

Bank Debit Card- $125--$125max

50+25+50+125= $250 Answer

Your checkbook balance shows $706.50. The bank statement shows $772.77. Bank paid $2.50 interest. Checks 1 ($85), 2 ($50.16), 3 ($20.50) are not shown in statement. A service charge of $5 was levied by bank. You made $85 deposit yesterday not in bank statement. What is the reconciled balance?

Checkbook

$706.50

+ 2.50

- 5.00

--------------

reconciled=$704 Answer

Bank

$772.77

- 85.00

- 50.16

- 20.50

+ 85.00

-------------

$702.11

Name three benefits, from the list of nine given in class, of having a credit card?

1) rewards

2) purchase protection

3) rental car coverage

4) arbiration

5) extended warrenties

6) interest free loans

Jamie is going to buy some furniture with a single payment loan that is discounted. The loan will be for $5,000 for 2 years at 10% interest. Calculate the APR on this loan.

5,000 x .1 x 2= 1,000

5,000 - 1,000= 4,000

1000/2=500-----> 500/4000=.125= 12.5% Answer

George and Nancy had a $30,000 repair bill on their home after the tornado went through town. Their policy contained the usual 80% co-insurance clause. Their home's replacement value was $150,000; their policy coverage was $110,000 with a $250 deductible.

a) how much insurance should they have carried to meet the coinsurance obligation?

150,000 x .8= $12,000= answer

b) What percentage of this loss will the insurance company pay?

110,000/120,000= 91.6%= answer

Jamil is purchasing a new truck for $30,000. Jamil is making a $2,000 down payment, and he will make 60 monthly payments of $541 each. What are the total finance costs on this loan?

30,000-2,000=28,000 60 months-541/month

541 x 60= 32,460

32,460-28,000= $4,460= answer

The primary purpose of life insurance is to protect family members financially after one's death.

True

Common stock generally allows the stockholder to vote on issues of corporate governance.

True

Liability insurance generally provides some coverage for legal fees.

True

Property inventories are important to identify insurance needs and to substantiate claims.

True

Guaranteed renewable term insurance allows you to renew the policy for another term at without qualifying medically.

True

Increasing the deductible is likely to lower the premium on a comprehensive major medical policy.

True

A round lot consists of 100 shares of stock.

True

Common Stock pays interest payments on a quarterly basis.

False

Antiques, collections, and boats are adequately protected under a standard homeowner's policy.

False

Generally, collateral for an installment loan may be seized and liquidated by the lender if the borrower has paid the loan in full.

False

When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.

False

Actual cash value is defined as replacement cost minus depreciation.

True

Variable rate loans are disirable if interest rates are expected to fall in the future.

True

Investing and speculating are two entirely different activities.

True

In insurance terminology, "participation" and "coinsurance" mean the same thing

True

Losses as the result of war are covered under most standard homeowner's policies.

False

The basic purpose of insurance is to protect you from the results of accidental losses.

True

Spreading risk among a large number of people is a major principle of insurance.

True

Health insurance is considered to be one of the most complex insurance programs.

True

Your health insurance has an 80% co-insurance clause. Once the deductible is satisfied, your insurance company will pay 80% of your covered losses up to the stated limits

True

A limit order may be used either to buy or to sell

True

A group HMO employs a group of doctors to provide healthcare services to members in a central facility.

True

When a brokerage house holds your securities for you, they hold them in a street name.

True

Your bill for consultation with a specialist would ordinarily be paid by physician's expense insurance.

True

Generally, insurance is more reasonably priced through group plans than as individual policies.

True

When simple interest is used, the stated rate of interest on single payment loans is equal to the annual percentage rate (APR)

True

Living a healthy lifestyle is an example of loss prevention and control.

True

Taking pictures is a good way to supplement a personal property inventory.

True

Floods are specifically defined in homeowner's policies.

True

he principle of indemnity generally limits the amount that the insured may collect to the actual cash value of the property.

True

If a 12-month installment loan is prepaid at the end of 6 months, less than one half of the interest would be saved.

True

Underwriters can predict whether or not you will suffer a loss this year.

False

Liability claims may result from alleged negligent acts.

True

A peril is a cause of loss.

True

The add-on method is less expensive than the simple interest method when stated rates of interest are identical.

False

Group health insurance premiums are usually lower than individual health insurance premiums.

True

If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be repaid is $2,400.

True

The needs approach to evaluate the right amount of life insurance is the most accurate method to determine the proper amount of death benefits.

True

A short sale transaction will be profitable when prices are falling.

True

Alimony received is included in gross income for the receiver and a tax deduction for the payer.

True

Saving is the preferred way to provide for financial emergencies.

True

The purpose of a credit report is to evaluate the kind of risk you pose to the lender.

True

The income and expenditures statement provides a measure of financial performance over a period of time.

True

Paying only the minimum payment each time on a credit card usually enables one to pay off the balance fairly quickly.

True

The Federal personal income tax is a progressive tax.

True

Credit report is routinely used to predict credit worthiness.

True

The greatest fixed cost involved with owning an automobile is usually the auto insurance payment.

False

It is safe, and often required, to give your Social Security number as a form of identification when using a credit card

False

Gasoline is a variable cost of automobile ownership.

True

You should not talk with the car dealer about a trade in until after you have negotiated the final price on the car are purchasing.

True

If you are eligible to receive a tax refund, you will have to file a tax return to get the refund

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

Less rapid depreciation is one is one advantage of buying a new car rather than a used car.

False

A charge made on your credit card becomes a liability as soon as the charge is incurred.

True

A liquid financial asset can be quikly converted into cash, but there is often a large loss of value as a result of the quick conversion to cash.

False

Credit should not consistently be used for non-durable goods.

True

Money held in checking accounts is liquid.

True

A budget is a detailed financial forecast.

True

Tax avoidance is legal, tax evasion is illegal.

True

Paying a loan off much quicker than scheduled is one way to build a good credit rating.

True

Problems with credit cards often begin in college.

True

A balance sheet shows your financial condition as of the time the statement is prepared.

True

Sales finance companies?

a. sell installment loans to banks.

b. sell installment loans to retailers.

c. lend money to consumers.

d .buy installment loans from retailers.

e. lend money to retailers.

d) buy installment loans from retailers.

A loan from the cash value of your life insurance policy would be characterized by?

a. no specific repayment date.

b. annual percentage rates higher than other sources.

c. increased premiums.

d. increased death benefits to beneficiaries.

e. unchanged death benefits available to beneficiaries.

a. no specific repayment date.

Ted 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 Ted dies before the debt is repaid his beneficiary will receive?

$225,00

Besides the finance charge, you should also consider ________ when you shop for a consumer loan.

a. collateral

b. loan maturity

c. repayment penalties

d. total cost of the loan

e. All of these choices are correct.

Underwriting helps protect life insurance companies from which of the following:

a. having too many healthy people buy life insurance

b. adverse selection

c. short-term shocks in the investment markets

d. shifts in the macro-social structure of the population

e. major downturns in the economy

b. adverse selection

Joe died at age 45 leaving a wife (age 36) and two sons (ages 10 and 12). His wife, Maria, is not gainfully employed. Which of the following is true regarding their Social Security benefits assuming Joe was covered by Social Security?

c. [The sons will receive Social Security benefits until they are age 18],

[Maria can receive benefits for 6 more years], and [Maria can receive benefits when she is 60].

Whole life insurance is designed to provide?

a. savings only.

b. protection only.

c. savings and loan value.

d. protection and savings.

e. loan value only.

d. protection and savings.

The usual, customary, and reasonable (UCR) charges are important to insureds that are covered by?

a. individual practice associations.

b. preferred provider organizations.

c. health maintenance organizations.

d. traditional indemnity plans.

e. All of these choices are correct.

d. traditional indemnity plans.

Major medical plans are characterized by deductibles, internal limits, and?

a. participation or coinsurance.

b. maximum surgical medical benefits.

c. benefit levels.

d. illness or injury frequency limits.

e. sliding or decreasing premiums.

a. participation or coinsurance.

Given a $500 annual deductible, a $4,000 lid on the coinsurance, 80/20 coinsurance, and a $250,000 policy limit, how much of a $15,000 medical bill will be paid by the insured?

a. $3,400

b. $4,500

c. $4,000

d. $500

e. $2,900

a. $3,400

A characteristic of dental insurance is?

a. low maximum limits.

b. high deductible limits.

c. high cost.

d. lack of orthodontic coverage.

e. dentist financing.

a. low maximum limits.

A "coordination of benefits" provision in a health insurance policy provides which of the following benefits?

b. Often results in lower cost insurance premiums.

Generally, actual cash value is defined as?

a. purchase cost minus depreciation.

b. market value.

c. replacement cost minus depreciation.

d. replacement cost.

e. original purchase price.

c. replacement cost minus depreciation.

The principle of indemnity would prevent:

c. an insured from collecting more than he lost.

If you have two insurance policies on the same property, the ________ clause explains how the two insurance companies will share the loss.

a. principle of indemnity

b. other insurance clause

c. companies' insurable interest

d. coinsurance clause

e. principle of subrogation

b. other insurance clause

Coinsurance is a policy provision to discourage the policyholder from being?

a. insured only if specified by lending agency.

b. overinsured.

c. insured with more than one company.

d. insured by government agencies.

e. underinsured.

Minimum liability policy limits are determined by?

a. court proceedings.

b. state law.

c. the insured's choice.

d. insurance companies.

e. auto type.

b. state law.

The SEC requires corporations to issue ________ describing the firm and the security issue it wishes to sell.

a. a dealer newsletter

b. an advertisement

c. an underwriting journal

d. a prospectus

e. none of these

d. a prospectus

How much would it cost to purchase a round lot (the smallest number you can get and still be a round lot) of Stock A at the closing price for the day?

a. $1,950

b. $2,960

c. $790

d. $19,500

e. $29,600

b. $2,960

Which of the following terms best describes a day trader?

a. Illegal gambler

b. Speculator

c. Long-term investor

d. Money market maker

e. Buy and hold mentality

b. Speculator

A stock portfolio containing 80% common stocks is most likely to be appropriate for?

a. a blue-collar, two-income family with five kids.

b. a divorced middle-aged mother who needs a high return.

c. a young single worker putting money aside for retirement.

Investors tend to use mutual funds for which of the following reasons?

a. Diversification

b. Professional Management

c. Financial Returns

d. convenience

e. All of these choices are correct.

Closed-end investment companies are characterized by?

a. availability for sale or purchase on security markets.

b. number of shares determined by demand.

c. variable transaction costs.

d. price based on net asset value per share.

e. value dependent on quantity of shares held.

a. availability for sale or purchase on security markets.

A(n) ________ fund is quite speculative.

a. aggressive growth

b. money market

c. growth

d. equity income

e. balanced

a. aggressive growth

Dr. Johnson is surgeon at University Hospital. She will pay ________ taxes on all of her $170,000 salary.

a. Social Security

b. Medicaid

c. Medicare

d. [Social Security], [Medicare], and [Medicai]

e. [Social Security] and [Medicare]

c. Medicare

Mary Ann contributed $5,000 to her 401(k) plan. If Mary Ann is in the 15% marginal tax bracket, this retirement contribution saved her approximately ________ in federal income taxes.

a. $5,000

b. $4,250

c. $0

d. $2,500

e. $750

A codicil is a?

a. means to revoke a will.

b. survivors' response to a will.

c. revision to a will.

d. court-named guardian.

e. executor's revision of a will.

c. revision to a will

A form of joint ownership that may exist only between husband and wife is?

a. joint tenancy without right of survivorship.

b. tenancy in the entirety.

c. joint tenancy with right of survivorship.

d. tenancy in common.

e. joint tenancy.

b. tenancy in the entirety.

The living will states:

a. duration of medical treatments.

b. agent may make health care decisions if you are unable to do so.

c. distribution of assets while alive.

d. while alive you and only you may make changes to your will.

e. All of these choices are correct.

a. duration of medical treatments.

Finance Final

Finance 101 with Lewis at University of Kansas

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