Personal Finance McClure

Liabilities are best described as Financial debts and obligations that you owe
you know you are insolvent when your expenses exceed your income
An income statement tracks the amount of money you have coming in and going out over some period of time, like a month or a year. True
Your net worth, or your general level of financial worth, is found by subtracting your liabilities from your assets
Suppose that Cheryl’s only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. Her only liabilities are a student loan balance of $2,000 and a balance of $8,000 on her car loan. What is her net worth? $5,000 (10,000+5,000) – (2,000+8,000)
One’s __________ is found by dividing total debt or liabilities by total assets. Debt ratio
Lending institutions such as banks look at the _________ ratio when trying to decide whether to lend you money or extend credit. debt-to-income
The _______ Principle states that a dollar today is worth more than a dollar in the future. Time value of Money
The discount rate is the interest rate used to bring _________ back to ________. future dollars; present dollars
Your money will grow or compound _________ as the time between compounding periods per year becomes ________. faster; smaller
Which one of the following is not one of the five basic steps in personal financial planning?evaluate your financial health, define your financial goals, develop a plan of action, let an accountant review your plan, implement your plan let an accountant review your plan
An annuity is a series of unequal dollar payments coming at the end of each time period for a specified number of time periods False
A traditional rule of thumb is to have enough liquid assets to cover ______ months of expenditures in case or some unexpected event. 3-6
Discretionary income refers to the amount of money an individual has left after paying taxes before living expenses. False
Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS? you may have a lower tax liability if you itemize instead of using the standard deduction
The percentage of the last dollar you earn that goes toward your taxes is your marginal tax rate
tax credits reduce your adjusted gross income dollar-for-dollar. To compute the tax savings multiply the tax credit by the marginal tax rate false
Liquid assets or funds are important to cover unplanned expensesprevent interrupting your long-term investmentsprevent overdrafts in checking accountscover some planned expenses all of the above
in 2015 if you purchase $1,500 of IBM stock and you sold it this year for $1,200. Since you lost money on this transaction, there is no reason to include this loss on your 2015 tax return. false
if you are in 25% tax bracket then every dollar of your adjusted gross income will be taxed at 25 percent. false
the current ratio is a measure of liquidity. What information does it tell you? it tells you how many times you can pay off your current liabilities by using liquid assets.
a tax system in which tax rates increase as income increases is called a ________ system progressive tax
tax credits reduce your adjusted gross income dollar-for-dollar. To compute the tax savings multiply the tax credit by the marginal tax rate. false
Two of the most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money. true
Which of the following is an advantage that a Roth IRA as compared to a Traditional IRA earnings grow tax-free
one disadvantage of a defined-contribution plan is that the employee does not know in advance exactly how much money they can plan on for retirement income True
the term that deals with having money readily available when you need it is equity false
by allowing the interest that you can earn on an investment to stay in the investment and to earn interest on the interest you have already earning is called what the power of compound interest
which of the following is the “enemy” of compound interest and makes it difficult to reach your financial goalscompound frequencysimple interestannuity factorinflation inflation
adjusted gross income is your total gross income adjusted for inflation false
one advantage of capital gains is that they are typically taxed at a lower rate than ordinary income true
for most people, there is really no reason to save for retirement since social security will provide retirement benefits until you die. false
brad sold his stock in Brenner corporation for a price more than what he paid for. a a result of his sale, brad will experience a: capital gain
one of the best things about retirement is that retirees dont have to pay income taxes once they retire false
you tell your friend that Adjusted Gross Income is one of the most important numbers on your tax return. if your friend asks you why is that, which of the follow would be an appropriate answer:it takes into account all the possible deductions you can make (ex: mortgage interest)it is the last number you recorded on the tax return formit determines what credits you might be eligible forit cannot exceed 10% of your net income it determines what credits you might eb eligible for
a financial plan is only concerned with your future earnings and expenses. an examination of your current financial situation is not so important. false
net income is used in calculating ones net worth false
returns from investing in stocks come in the form of capital appreciation and dividends
stocks represent a legal obligation for the issuing company to pay dividends, whether the company has made a profit or not false
mutual fund fees and expenses may negatively affect the return you receive on your investment true
the _______ date is the date at which the bond issuer must repay the lan or borrowed funds. maturity
the ______ is the stated amount on the face of a bond, which the firm is to repay at the maturity date. par value
Jennifer has money invested in stocks. she recognizes a return on her investment in the form of a portion of the company’s profits, called ________ dividends
the real rate of return is the rate of return earned on an investment without any adjustment for inflation false
As interest rates ________, stock prices should _________. increase, decrease
income stocks pay relatively low dividends, and offer a high potential for capital appreciation. false
stock splits increase the number of the shares you own, but decrease the value of your total holding with the company false
that portion of a stocks risk or variability that cannot be eliminated through investor diversification is called _______ risk systematic
an IPO is the sale of previously issued shares to the general public false
ABC coporation is selling additional shares of common stock. These are new shares of stock, and have never been sold or traded previously. The selling of these shares would take place in the _______ market. primary
The SEC is responsible for regulating the securities market.s What does SEC stand for? securities and exchange commission
with short selling you are hoping for the stock price to fall true
the book value of a company is calculated by ______. subtracting the value of all the firms liabilities from the value of its assets
in the event of a coporate bankruptcy, bondholders claims are paid before shareholders claims are paid true
a stock market index is a measure of the performance of a group of stocks that represent the market or a sector of the market true
the dow jones industrial average is a ______ stock index whereas the S&P 500 is a _______ stock index price-weighted, market-weighted
a stock market characterized by increasing prices is termed a(n) _____ market bull
large-caps, mid-caps, and small-caps refer to the size of the firm issuing the stock. More specifically, they refer to the firm’s ________. market capitalization or market value
The P/E ratio is a measure of risk and the growth potential of the EPS of the firm. A low P/E ratio signifies that the company is fairly mature or weak and the market is not pricing in very much earnings growth potential into this stock. A relatively high P/E ratio signals that the market is optimistic about the firm’s earnings growth potential and that this stock could provide healthy capital gains. true
the following equation, (net income – preferred stock dividends)/ number of shares of common stock outstanding, allows us to calculate the ______ and this information is necessary to calculate the _______ ratio. earnings per share; P/E
the ratio of the annual dividend to the market price of the stock is called the ________ dividend yield
the experts say that a person under the age of 40 should have a majority of their retirement money invested in teh stock markets. What is the reason for this? on average, common stock provide a high return on investment than other investment options. Younger people also have enough time ahead of them to ride out any dramatic market movements.
When a high prices stock moves a small amount on the Dow Jones Industrial Average, a price-weighted stock index, it has almost no impact on the entire index movement. false
in the event of a corporate bankruptcy, shareholder’s claims are paid before bondholders claims are paid false
the issuer of the bond is effectively loaning money to the bondholder when the bond is purchased false
which of the following determines what the annual interest payment on a bond will be? the par value of the bond and the coupon rate of the bond
if you were considering the purchase of a bond issued by a state, county, or city you would be considering the purchase of a ______ bond. municipal (or muni)
bonds enjoy all BUT one of the following advantages. Which is it?when interest rates drop, bond prices risebonds may be called when interest rates dropthey reduce risk through diversificationbonds produce steady incomethey can be a safe investment if held to maturity bonds may be called when interest rates drop
it is a fact that there is a(n) ______ relationship between interest rates and bond values in the secondary market. when interest rates ______, bond prices ______, and when interest rates ______, bond prices ________. inverse; rise; fall; fall; rise
diversification reduces ______. risk
mutual funds often charge investors 12b-1 fees annually. these fees go to cover expenses related to ______. marketing
when you own shares in a mutual fund, you directly own shares of the companies that make up the fund false
the _______ is the value of the mutual funds holdings, minus the debt, divided by the number of shares outstanding. net asset value
when comparing which mutual fund to invest in, which of the following would be important to consider?load net asset value expense ratio all of the above
for an investor with little time to desire to follow the markets, a life cycle fund would be an appropriate choice for their retirement savings. true
the net asset value (NAV) of a mutual fund _______. is calculated once per day, after the stock market closes
one advantage of mutual fund investments is they are less risky than investing in a single company but a disadvantage of mutual fund investments is they can be more costly true
because of their higher fees, mutual funds always outperform (have a higher return) than index funds false
a mutual funds turnover rate refers to _______ how many times in a year the fund replaces its portfolio holdings
with a traditional IRA and a Roth IRA, you can make withdrawals at any time with no penalties false
Lori favors the traditional IRA over the Roth IRA. What advantage does the traditional IRA have over the Roth? contributions are likely to be fully or partially tax deductible.
To begin your savings plan it is a good idea to set aside your savings first and only spend what is left over. true
Due to compounding frequency, the actual interest rate or APY you pay is likely higher than the advertised interest rate or APR. true
the APY is the APR after false
five C’s of credit character, cpacity, capital, collateral, conditions
Which of the following is not a credit bureau TransCredit
Defaulting on a secured loan may lead to the collateral being repossessed true
people with high credit card balances still need to invest money on a regular basis false
your credit score will not affect how much you pay for Auto Insurance false
which of the following is an example of a single-purpose credit card JCPenny mastercard
typically, credit card issuers allow you a grace period, which means you are not charged any interest during this period and you must pay your balance off in full to benefit from the grace period
sometimes retailers will give you up to a 5% discount if you pay cash for their products instead of using your credit card. Why? they are saving on the Merchants Discount Fee so they pass the savings on to you
A short-term loan that provides funding until a longer-term loan can be secured is called a(n) bridge loan
which of the following is not one of the factors used to determine a person’s credit score. length of credit history, income (salary), payment history, and types of credit used
amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover principal, and the later payments have a larger proportion going towards the payment of interest. false
private mortgage insurance (PMI) typically is not needed with a down payment of 20% or larger, why? buyers who come to the table with large downpayments are often perceived as more motivated to pay off the loan since they now have some equity in the asset
the maximum front end limit used by most mortgage lenders is 28%
if a borrower is unable to have a large enough down payment, they may be required to pay ______ as part of their monthly mortgage payments PMI
from a borrower’s perspective, youre better off with an ARM if interest rates rise false
you are in the process of purchasing a new home. Expenses that the buy and seller incur when finalizing the transfer of the ownership of the house are called _______ closing costs
what items are typically deposited in an escrow account property taxes, property nsurance
someone selling a home should find a potential buyer that is pre-approval more attractive than one who is pre-qualified. false
closed-end leases are leases in which you return the vehicle at the end of the lease and you have no further responsibilities. true
in auto sales, a(n) _______ is an amount of money, generally in the 2-3% range, that the manufacturer gives the dealer for selling an automobile. holdback
debt-to-income ratio is another name for front end ratio false
A(n) ________ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amoritization installment
what might help you obtain the most favorable rates on loans, which in essence will allow you to lower the lender’s risk? develop a strong credit rating and put a large down payment toward the purchase
which of the following factors does not play a role in determining the montly lease payment of a car cost to insure the car
an adjustable rate mortgage (ARM) is always a wise financial decision for young consumers because their incomes will be adjusting as well false
the advantages of a fixed-rate mortgage over an ARM include fixed payments that are easier to budget for and less worry about the loan reaching the rate and payments caps
what characteristics will affect the cost of your car insurance the type of automobile you drive, where you reside, how many miles you drive
term life insurance has both a death benefit component and a savings plan false
one convenient feature of cash value life insurance polocies is the insured person can borrow against the policy’s face value true
a deductible is the amount that you and/or your employer pay for your health insurance. This payment is generally made once a month false
you are considering the need for insurance. You want a policy that provides permanent protection, has a fixed premium and provides a fixed death benefit. What type of policy would you likely purchase? whole life insurance
A __________ is a savings plan offered by some employers that allows each employee to have pretax earnings deposited into a specially designated account for paying qualified medical and dependent care bills. flexible spending account
The main disadvantage of a flexible spending plan is that you may lose any money remaining in the account at the end of the fiscal year. true
The beneficiary is the individual designated by the owner of the life insurance policy to receive the insurance policy’s proceeds upon the death of the insured. true
With COBRA coverage, the employer pays the premiums false
The ________ is the amount that you agree to pay before insurance coverage kicks in. deductible
if you are enrolled in an HMO health plan, you are not required to visit a primary care physician before seeing a specialist. This is one of the main factors that differentiate an HMO from a PPO false
Which of the following is a way someone can reduce their monthly or annual auto insurance premiumadd comprehensive coverage to protect your assetsreduce your deductive from $1,000 to $500increase your deductible from $500 to $1,000increase your total insurance coverage increase your deductible from $500 to $1,000
As long as someone has uninsured coverage on their auto policy, there is no reason to get underinsured coverage. false
in order for someone to be considered “fully covered” as it concerns their auto insurance policy, which of the following should be included in their policy state required liability and comprehensive/collision coverage
many auto insurance policies are considered “split-limit” which of the following is the correct order of those limits? bodily injury per person, bodily injury per accident; property damage

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