Test 2 Personal Finance Turner

How do you compare cash management alternatives to determine which is best for you?A) Take into account their tax rateB) Consider their safety or riskC) Compare returns using comparable interest ratesD) All of the above are correct D
Cash and investments that can be easily converted into cash are termed:A) liquid assetsB) capital assetsC) illiquid assetsD) depositable assetsE) None of the above are correct A
What is the name of an investment company that raises funds from investors, pools the money, and invests in stocks or bonds?A) securities fund firmB) bond brokerage firmC) stockbrokerage firmD) mutual fund firmE) none of the above are correct D
Which of the following financial institutions is a not-for-profit organization that is only open to members of that institution and tends to offer more favorable interest rates to borrowers and savers?A) saving bankB) saving and loan associationC) commercial bankD) credit unionE) None of the above are correct D
Which of the following financial institutions were originally established to provide mortgage loans to depositors?A) commercial banksB) credit unionsC) savings and loan associationsD) internet banksE) None of the above are correct C
Financial institutions that provide traditional checking and savings accounts are commonly referred to asA) personal depository institutionsB) financial brokerage companiesC) deposit-type financial institutions D) non-deposit type financial institutionsE) None of the above are correct C
What is the name for comprehensive financial service packages offered by brokerage firms?A) asset management accountsB) platinum management accountsC) consolidated management accountsD) comprehensive management accountsE) None of the above are correct A
Money market mutual funds provide an alternative to traditional liquid investments offered by financial institutions. Advantages of MMMFs include which of the following?A) check-writing privilegesB) high interest ratesC) minimal riskD) convenience–deposits made through payroll deductionsE) All of the above are correct E
A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called aA) certificate of depositB) demand depositC) negotiable order of withdrawal depositD) term depositE) None of the above are correct A
Savings accounts are insured ate the _______ level.A) stateB) localC) federalD) All of the above are correctE) None of the above are correct C
What is another name for an interest-bearing account?a) CWIb) demand depositc) IBCd)NOWe) none of the above D
Of the following, which is not an advantage of a CD as a cash management alternative?a) Wide selection of maturitiesb) Convenient to purchasec) Liquidityd) Fixed insurance rate, beneficial if interest rates drope) Is insured C
Pick the advantage of a certificates of deposit from this list of possibilities.a) The interest paid is compounded dailyb) Early withdrawals after 30 days do not incur a penaltyc) They earn the APY and not the APRd) Interest rates are generally higher than typical savings accounts D
Money Market Deposit accounts enjoy one advantage over savings accounts found in commercial banks. This advantage isa) Greater liquidityb) Lower fees and smaller minimum balancesc) Unlimited check-writing privilegesd) A variable rate that is generally higher D
Money market mutual funds provide attractive competition for bank deposits because a) Their short term, higher returns are generally regarded as practically risk freeb) They are convenient to purchase and use c) They are fully insuredd) Their low fees are affordable for almost anyonee) None of the above are correct A
What is the FDIC?a) Federal Department of Insurance and Compensationb) Federal Deposit Insurance Corporationc) Federal Deposit Insurance Collectived) Federal Depository Insurance Committeee) None of the above are correct B
Many banks offer free checking accounts. What may be the opportunity costs associated with free checking?a) Low interest ratesb) Overdraft protectionc) High minimum balance requirementsd) Both A and C are correct answers D
Suppose that you go to a bank at which you have no account, give the bank some cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a a) Traveler’s check b) Cashier’s checkc) Certified checkd) None of the above are correct B
What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?a) Draft-free checkingb) Automatic check coverage (ACC)c) No fee checking coveraged) Overdraft protectione) None of the above are correct answers D
Barbara Stallins had her bank certify one of her personal checks as being good. Which type of check has been issued?a) Traveler’s checkb) Cashier’s checkc) Money orderd) Audited checke) Certified check E
The percentage of the credit card sale the retailer owes to the credit card company is thea) Franchise feeb) Card usage allowancec) Retailer credit acceptance feed) Merchant’s discount feee) Interest rebate fee D
Typically, the credit card issuer allows you a grace period, which meansa) You do not have to make a payment during the current monthb) You are not charged any interest during the current monthc) You must pay your balance off in full to benefit from the grace periodd) Interest charges are reduced during this timee) Both A and C apply E
Which of the following apply to getting a cash advance with a credit card?a) Cash advances are available at ATM machines b) There may be a cash advance feec) The interest rate may be higher than on regular purchasesd) You being paying interest immediatelye) All of the above E
Credit cards are a form of __________ credita) Open endedb) Revolving c) Installmentd) Both A and B abovee) Both A and C above D
Kendra always thought the grace period feature of her credit card was such a wonderful idea. Why, in essence, she is getting her purchases interest free during this time. After taking Dr. Art Keown’s Personal Finance course she learned a startling truth about grace periods.a) There are higher fees associated with grace periodsb) All credit cards carry a grace periodc) Grace periods are actually beneficial to the credit card companyd) Most bank eliminate their grace period on new purchases if you don’t pay your balance in full. D
When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5 %. What is the fee called?a) Merchant discount feeb) Merchant ratec) Discount rated) Merchant back-end chargee) None of the above A
Which of the following is not an advantage of credit cards?a) Allows for online shoppingb) Convenience or ease of shoppingc) Allows for consumption before the purchase is fully paid ford) Emergency usee) The finance charge that accrues on the account if not paid off in full each month E
Which of the following are important to convenience users of credit cards?a) Low annual feeb) Card benefits and perksc) Interest-free grace periodd) Only A and Be) All of the above E
Which of the following is not a single-purpose credit card?a) Searsb) Bank of America Visac) Toys R USd) Shell Oile) Macy’s B
What is the main distinguishing feature(s) for T&E cards?a) They do not offer revolving creditb) The full balance must be paid each monthc) There is no annual feed) Both A and B above e) Both A and C above D
The major differences between a premium prestige card and a regular credit card includea) Higher interest ratesb) Higher credit limitsc) Additional perks and benefitsd) Both A and B abovee) Both A and C above E
Getting a credit card while a college student is an excellent idea becausea) It helps you learn about creditb) When used correctly it allows you to build up a solid credit historyc) You can shop online and make reservationsd) It works well for emergenciese) All of the above E
One of the following lists constitutes the five Cs of credit. Select the correct one.a) Character, capacity, capital, collateral, co-insuranceb) Character, capacity, capital, collateral, characteristicsc) Character, capacity, capital collateral, conditionsd) Character, capacity, capital collateral, carefule) Character, capacity, capital, collateral, credence C
A company that gathers and sells consumers’ financial history to creditors is a a) Credit issuance firmb) Credit card companyc) Credit investigation bureaud) Credit bureaue) Credit recovery firm D
__________ is not information generally found in your credit reporta) Personal credit historyb) College attended, grades, etc.c) Your public financial historyd) Past inquiries regarding your credit reporte) Employment information B
By law you have certain rights in connection with the credit bureau. They area) The right to view your personal credit reportb) The right to point out errors found in your filec) The right to file a statement presenting your view of a disputed issued) The right to request the credit bureau to correct mistakes in your filee) All of the above E
Your credit score affectsa) Your mortgage rateb) The amount of junk mail offering additional credit cards that you receivec) The size of your credit lined) The rate you pay on your credit cardse) All of the above are correct answers E
The process of mathematically evaluating your creditworthiness to obtain credit is calleda) Credit evaluationb) Credit statisticsc) Credit historyd) Credit scoringe) Credit references D
Which of the five Cs of credit would your actual home be in relation to your mortgage?a) Capitalb) Collateralc) Capacityd) Charactere) Conditions B
Wally currently has a balance of $14500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default Apr of 29.99%. He and his wife own a nice home with $40000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking f0r advice. What would you tell him to do?a) Take out a second loan on the houseb) Seek out a non-profit credit counseling companyc) Cash out his CD and pay down his credit cardsd) Become a convenience user, and maintain just one carde) All of the above E
A short-term loan that provides funding until a longer-term loan can be secured is called a(n)a) Gap loanb) Straddle loanc) Bridge loand) Amortized loane) None of the above C
A(n) ___________ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amortization.a) Simple interestb) Personalc) Termd) Installmente) None of the above D
A ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.a) Variable-rate loanb) Convertible-rate loanc) Flexible-rate loand) Prime-rate loane) None of the above A
Variable-rate loansa) Always adjust every monthb) Are never a better option than fixed-rate loansc) Usually have rate caps that prevent them from varying too muchd) All of the above C
Alice has fallen behind on her signature loan. She recently received a notice from the lender that her wages were going to be garnished to pay off debt. What is the loan clause that allows the lender to take this action against Alice because she was in default?a) Recovery clauseb) Recourse clausec) Default claused) Deficiency payments clausee) None of the above B
What is the loan clause stating that if you default on a secured loan, the lender can repossess whatever is secured, as well as bill you for the difference if that repossession does not cover what you owe?a) Deficiency payment clauseb) Insurance clausec) Default claused) Recourse clausee) None of the above A
Joshua recently purchased a new home. His lender required him to purchase credit life insurance on the loan in the event that he died before the mortgage is paid off. What is the loan clause that allows his lender to require him to purchase this additional insurance?a) Default contingency clauseb) Insurance agreement clausec) Recourse claused) Early payment clausee) None of the above B
Suppose you borrowed the money you needed to purchase an automobile and then failed to make a scheduled payment by the due date. Technically, youa) Are usually not given a chance to make good on the overdue paymentb) Are bankruptc) Are in defaultd) None of the above C
The “Repo man” recently repossessed your car for failure to make payments. You still owed $5000 on the loan, but since it was always broken you were glad to be rid of it anyway. The bank sold the car at wholesale auction for $3000. The bank also paid the “Repo man” $200 and paid attorney fees of $300. Based on the deficiency payments clause in your loan, what are you liable for?a) $0; repossession means the bank must “eliminate” the debtb) $500c) $2000d) $2500e) None of the above D
What is the name of the formal document that outlines the legal obligations of both the lender and the borrower?a) Claimb) Debenturec) Tortd) Notee) Default D
The loan contract is a formal document called a(n) ________ and may contain a(n) __________ specifying who retains control over the item being purchased in the case of default.a) Note, security agreementb) Agreement, indenturec) Indenture, security agreementd) Agreement, insurance clausee) Note, legal transaction A
Student loans are a smart source of financing for school because you pay part of the interest charges and the rest is subsidized bya) The state governmentb) The bank or lenderc) The federal governmentd) The educational institution C
If you own a home with a market value of $175000 and you have an outstanding balance on your mortgage of $60000, your home equity isa) $97,750b) $57500c) $235000d) $115000 D
Home equity/second mortgage loans have two important advantages over most other types of loans, they area) Tax deductibility of interest and lower interest ratesb) Tax deductibility of payments and longer termsc) Increase in future financing flexibility and no recourse claused) No risk borrower and less amortizatione) None of the above A
In driving around town one day, you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods. Why do you think this is so?a) Payday lenders tend to focus on less experienced borrowers who typically don’t make a lot of moneyb) The rent on these locations is less expensivec) Because their terms are so affordable people with low incomes really take advantage of themd) There are zoning laws that require these types of locations for these types of services A
A Loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n)a) Balloon loanb) Secured loanc) Installment loand) Fully amortized loane) None of the above A
Which of the following statements regarding the risk-return relationship is most accurate?a) Lower credit scores are associated with lower APRs.b) Longer loan length is associated with lower APRs.c) Higher credit scores are associated with lower APRs.d) Shorter loan length is associated with higher APRs.e) Both B and D are correct C
What can a couple seeking to get out of debt do?a) Seek help from a reputable credit counselorb) Avoid future use of credit card debt, expect on emergency basisc) Use savings to pay off current debtd) See if their creditors will restructure their loanse) All of the above are correct E
Which of these are possible options for most people who cannot pay their bills?a) Declare Chapter 7 personal bankruptcyb) Obtain a debt consolidation loanc) Get help from a credit counselord) Declare Chapter 13 personal bankruptcye) All of the above are possible options E
What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the entire principal?a) Simple interest methodb) Add-on methodc) Partial amortization methodd) Discount methode) None of the above D
Of the following possible sources of credit, which typically has the lowest borrowing rates?a) Savings and loansb) Personal finance companyc) Commercial banksd) Credit union D
With a(n) _______ installment loan, interest charges are calculated using the original balance, and these charges are the added to the loan.a) Discount methodb) Add-on methodc) Partial amortization methodd) Simple interest methode) None of the above B
Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increasesa) The payment amount would increase (other things held constant)b) The loan maturity would decrease (other things held constant)c) The payment amount would decrease (other things held constant)d) The amortization would increase (other things held constant)e) None of the above A
Which of the following does not require you to have a good credit rating to issue you a loan?a) Savings and loanb) Commercial bankc) Your familyd) All of the above require a good credit rating to issue a loan C
What is the name of the interest rates banks charge to their most credit worthy customers?a) Main rateb) Prime ratec) Premier rated) Blue chip ratee) None of the above B
How can you benefit from the following smart buying steps?a) Smart buying helps you maintain your budgetb) Smart buying allows you to buy what you want when you want itc) Smart buying allows a higher standard of living because you make smarter purchasesd) Both A and C are correct D
Suppose that you are the end of your automobile lease. The leasing company has just informed you that the car’s market value is greater than its residual value and they will be sending you a refund. What type of lease did you have?a) Residual leaseb) Walk-away leasec) Close-end leased) Open-end leasee) None of the above D
You have been having significant problems with your new car. Every time you turn around something is breaking or not working properly. Fortunately, the “lemon laws” are there to help. Which of the following is not one of the criteria for application of lemon laws?a) You must return the vehicle to the original dealershipb) Your car has been out of service for at least 30 days during the first year after purchasec) You have made at least four attempts to solve the problemd) You have under 12,000 miles on your car A
Which of the following factors plays a role in determining the monthly lease payment of a car?a) The agreed-upon price of a vehicleb) The value of the vehicle at the end of the leasec) The length of the leased) The capitalized cost based on your trade-ine) All of the above E
Another name for a closed-end lease is a(n)a) End-purchase leaseb) Terminal leasec) Take-out leased) Walk-away leasee) None of the above D
In auto sales a ______ is an amount of money, generally in the 2% to 3% range, that the manufacturer gives the dealer for selling an automobile.a) Holdbackb) Kickbackc) Markupd) Rebatee) None of the above A
Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?a) I like to get a new car every few yearsb) I drive less than 15,000 miles annuallyc) I dislike the hassle of trading-in or selling carsd) It’s the only way I can afford the vehicle that I wante) I dislike the hassle of maintenance D
You disagree with Ed “Shifty” Smith, a car salesperson, on the price of an open-end lease. He says the depreciation charge is only $6000. What is the actual depreciation charge for a car now worth $23,000 that is expected to drop in value to $15,000 in two years?a) $7000b) $7500c) $8000d) $11500e) $15500 C
Over the past decade the number of new car sales are down and the number of new car leases are up. What is probably the main reason why this is true?a) The manufacturers prefer it when people lease instead of purchaseb) The salesman makes a higher commission when cars are leasedc) New cars are getting so expensive that the average person can’t afford to buy themd) Both A and B are correct C
What kind of valuable information can you find online at websites such as Edmunds.com or Autosite.com concerning smart buying for automobiles?a) The trade-in value on your current automobileb) The dealer cost and dealer holdback for the automobile you are interested inc) The final price you will pay for the automobile at the dealershipd) Only A and B are correcte) All of the above D
If you are considering purchasing a used car you shoulda) Ask questions about the mechanical history of the car, including whether it has been in any accidentsb) Do some research so you’ll know a fair price for the vehicle you’re looking forc) Have the car inspected by a mechanic before you purchase itd) All of the above D
Which should you consider when house hunting?a) The school districtb) The selling pricec) The neighborhoodd) All of the above D
What drawbacks might a co-op have over a house for a family of eight who are relocating to a new area and need to purchase a home?a) More expensive to operate and maintainb) More expensive to purchasec) No ownership of shares in the corporationd) Less freedom to make changes and less privacy D
Which of the following is not an advantage of living in a condo?a) Building equity for resale and investmentb) Limited maintenancec) Direct ownership of a specific unitd) Freedom from neighbors D
Which one of the following is not a key to finding housing that fits your needs?a) Future needsb) Locationc) Insurance costsd) Deciding what features you are looking fore) Present needs C
Which of the following housing alternatives puts the responsibility for maintenance and repairs on the occupant?a) A rental unitb) Homeownershipc) Condod) A co-op B
All of the following are advantages of renting versus buying a home excepta) Control over remodeling and decorating decisionsb) Not responsible for home repairs or maintenancec) Mobilityd) No risk of falling housing pricese) No property tax A
What is not a benefit normally associated with home ownership?a) A potential source of collateral for future loansb) Ability to build equity and net worthc) Tax advantages for those who qualifyd) Flexibility to respond to employment opportunities D
Private mortgage insurance typically is not needed with a down payment of 20% or larger. Why? a) Buyers who invest large down payments are more motivated to make their mortgage paymentsb) Buyers who have large down payments don’t choose the extra insurancec) Not true, all mortgage loans require PMId) All of the abovee) None of the above A
You are a newlywed, and you and your spouse have just found your dream home. Problem is, you do not have 20% for a down payment on the house. You will probably need to obtaina) APRb) EARc) PMId) PTI e) None of the above C
You are considering the purchase of an acre of land out in the country to build your future house on. You pay for an investigation of the public record to determine the current legal owner of the property. This is called a(n)a) Title searchb) Appraisal searchc) Escrow searchd) Legal entity searche) None of the above A
You have just obtained a mortgage to purchase your home. The ______ that you paid to obtain the loan are charges that must be paid at the time of the sale and serve to raise the effective cost of the loana) Escrow feesb) Pointsc) Security feesd) Closing feese) None of the above B
You are in the process if purchasing a new home. Expenses that the buyer and seller incur when finalizing the transfer of the ownership of the house are calleda) End costsb) Transfer feesc) Closing costsd) Finalization costse) None of the above C
You have an annual gross income of $36,000. Using the28/36 rule for maximum mortgage payment (PITI) estimation, what is your maximum PITI payment using your monthly gross income as a guide (28%)?a) $840b) $880c) $1080d) $680e) $640 A
With private mortgage insurance, many lenders will allow you to borrow more than 80% of the appraised value of the home. What is the purpose of this action?a) It protects the lender in the event the borrower is unable to make mortgage paymentsb) It protects the borrower from foreclosurec) It is required by federal and state lawd) The insurance will pay to damages to the home during the course of the mortgage A
Select the one cost that is not involved in home ownershipa) Points/discount pointsb) Closing/settlement costsc) Down paymentd) Loan origination feee) Rental deposit E
Bob and Marilyn Hartin know the bank will carefully evaluate their situation before lending them the money for the mortgage for their new home. Which is not a consideration?a) The number of children they haveb) Their ability to payc) Their level of debtd) Their financial historye) Appraised home value A
Name the items that are deposited in an escrow accounta) Property taxes, property insuranceb) PMI premiums, homeowner’s association duesc) Utility payments, homeowner’s association duesd) Liens, closing costs, pointse) Principal, interest, title fee, insurance A
Which of the following is not a recurring housing cost?a) Maintenance and operating costsb) Mortgage paymentsc) Pointsd) Homeowner’s insurancee) PITI C
A deposit included with an offer to buy that assures the seller that the buyer is serious about buying the house is calleda) Earnest moneyb) Home depositc) Buyer’s assuranced) Assurance deposite) None of the above A
The two primary advantages of a 15 year mortgage over a 30 year mortgage area) Lower interest rate and lesser interest charges over the life of the loanb) Easier qualification criteria and more affordable initiallyc) Greater financial flexibility and no prepayment penaltiesd) Lower payments and prepayment privilegese) None of the above A

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