Finance Flashcards

Finance 341

What is the fundamental goal of a business? Create value for the company’s shareholders or “maximize shareholder wealth”
What are the 5 principles that form the Foundation of Finance? 1) Cash flow is what really matters2) Money has a time value3) Risk requires a Reward4) Market prices are generally right5) Conflicts of interest cause agency problems
What are cash flows? Money that can be spent.Usually determines the value of a business.
What is incremental cash flow? The difference between the cash flows a company will produce both with and without the investment it is thinking about making.
What is opportunity cost? the cost of making a choice in terms of the next best alternative that must be foregone.
Which 2 requirements do investors feel need to be satisfied when investing in a company? 1) A return for delaying consumption2) An additional return for taking on risk
What is an efficient market? a market in which the prices of the assets traded in that market fully reflect all available information at any instant time.
What is an agency problem? Problems and conflicts resulting from the separation of the management and ownership of the firm.
What is securitization? Why is it useful? 1) The process of packaging mortgages2) for increasing the supply of new money that can be lent to new homeowners.
What are the 3 basic types of issues in finance and what do they mean? 1) Capital Budgeting: the decision making process with respect to investments in fixed assets.2) Capital Structure Decision: the decision making process with funding choices and the mix of long term sources of funds.3) Working Capital Management: management of the firm’s current assets and short term financing.
What are financial markets? institutions and procedures that facilitate financial transactions.
What is sole proprietorship? an business owned by a single individual
What is a partnership? What are the 2 kinds of partnerships? 1) an association of 2 or more individuals joining together as co-owners to operate a business for profit1) General and Limited Partnership
What is the difference between a general and limited partnership? 1) General: each partner is fully responsible for the liabilities incurred by the partnership2) Limited: one or more partners has limited liability, restricted to the amount of capital he or she invests in the partnership.
What are the conditions that qualify one to be a limited partner? 1) one general partner must have unlimited liability2) the names of limited partners may not appear in the name if the firm3) limited partners may not participate in the management of a business.
What is the definition of a corporation? an entity that legally functions separate and apart from its owners.
What is an S-corporation? a corporation that, because of specific qualifications, is taxed as though it was a partnership.
What is a Limited Liability Company? (LLC) A cross between a partnership and corporation under which the owners retain limited liability but the company is run and taxed like a partnership.
What does maximizing shareholder wealth mean? It means to maximize the market value of the firm’s common stock.
What are some advantages of having a corporation? 1) Transferability of ownership2) Ability of the corporation to raise capital
What are some disadvantages to a Partnership? 1) lack of permanence2) unlimited liability
Why is it hard to find extremely profitable projects? 1) To find high profit projects, the product or service must be differentiated and/or have a cost advantage over the competition.2) To find high profit projects, you must locate imperfections in the market that are not currently being taken advantage of.3) If an industry is generating large profits, then new entrants are attracted, driving down profits.
What are some benefits of organizes security exchanges? 1) They provide a continuous market.2) Establish and publicize fair security prices.3) They help businesses raise new financial capital
What is meant by the “NASDAQ system”? 1) National Association of Security Dealers Automates Quotation System2) it is a telecommunications system that provides a national information link among the brokers and dealers operating in the over the counter markets.3) The final trade is still consumated by direct negotiation between traders.
What are 3 major functions of that an investment banker performs? 1) Advising2) Distributing3) Underwriting
What is underwriting? the purchase and subsequent resale of a new security issue. the risk of selling the new issue at a satisfactory (profitable) price is assumed (underwritten) by the investment banker.Assuming a risk
What is the underwriter’s spread? The difference between the price the corporation raising money gets and the public offering price of a security.
What is an investment banker? A financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds.
What are the 2 major categories of flotation costs? 1) Underwriter’s spread (Larger of the two)2) Issuing Costs
What are flotations costs the highest on? Common Stock
What is the maturity-risk premium? the additional return required by investors in longer-term securities to compensate them for the greater risk of price fluctuations on those securities caused by interest rate changes
What is the liquidity risk premium? the additional return required by investors in securities that cannot be quickly converted into cash at a reasonably predictable price.
What are two major reasons why underdeveloped countries remain underdeveloped? 1) They lack effective financial market systems.2) They lack political stability.
What are Capital Markets? All financial institutions that help businesses raise long term capital
What are 3 ways to Transfer Capital into the Economy? 1) Direct Transfer of Funds2) Indirect Transfer using the investment banker3) Indirect Transfer using the financial intermediary
What happens in a direct transfer of funds? The firm seeking cash sells its securities directly to savers (investors) who are willing to purchase them in hopes of earning a large return.
What is an angel investor? a wealthy private investor who provides capital for a business start-up.
What is a venture capitalist? An investment firm (or individual investor) who provides money to business start-ups.
What happens in an Indirect Transfer using the investment banker? Investment bankers work with other investment bankers to increase capital, the syndicate will buy the entire issue of security from the firm in need of capital and then sell them to investors at a higher cost than they bought them.
What happens in an Indirect Transfer using the financial intermediary? 1) This is the type of system insurance companies, mutual finds, and pension funds operate within.2) The financial intermediary collects the savings of individuals and issues its own (indirect) securities in exchange for these savings. The intermediary then uses the funds collected from the individual savers to acquire the business firm’s (direct) securities, such as stocks and bonds.
What is the difference between public offering and private placement? 1) Public offering: a security offering where all investors have an opportunity to acquire a portion of the financial claims being sold. An impersonal market.2) Private Placement: a security offering limited to a small number of potential investors. More personal
What are two ways a corporation can obtain external capital? A public offering or private placement
What is a primary market? A market in which securities are offered for the first time for sale to potential investors.
Why are venture firms unappealing to the broader public markets? 1) small absolute size2) very limited or no historical track record of operating results3) Obscure growth prospects4) inability to sell stock easily or quickly
What is an initial public offering? (IPO) the first time a company issues stock the public
What is a seasoned equity offering? (SEO) the sale of additional stock by a company whose shares are already publicly traded.
What is a secondary market? a market in which currently outstanding securities are traded.
What is a money market? all institutions and procedures that facilitate transactions for short term issued by borrowers with very high credit ratings.Short term: 1 year or less maturity
Who regulates the primary and secondary markets? the Security and Exchange Commission (SEC)
What are spot markets? Cash Markets (where something sells today, right now, on the spot)
What are Futures Markets? Markets where you can buy or sell something at a future date.
What are organized security changes? Formal organizations that facilitate the trading of securites
What are over the counter markets? all security markets except organized exchanges.ex:) Money Market, Corporate Bonds
What is the oldest organized exchange? The New York Stock Exchange (NYSE) also called the “Big Board”
What is a syndicate? A group of investment bankers who contractually assist in the buying and selling of a new security issue.
What is a privileged subscription? Which 3 markets are involved? 1) The process of marketing a new security issue to a select group of investors.2) Current stockholder (most prevalent) , Employees, and customers of the firm
What is a Dutch Auction? A method of issuing securities (common stock) by which investors place bids indicating how many shares they are willing to buy and at what price. The price the stock is then sold for becomes the lowest price at which the issuing company can sell all the available shares.
What is a Direct Sale? the sale of securities by a corporation to the investing public without the services of an investment banking firm
What are the 3 most important investing groups? (Regarding private placements) 1) Life Insurance Companies2) State and Local Retirement Funds3) Private Pension Funds
What are 2 things firms can do while arranging private placements? 1) avoid the use of an investment banker and work directly with the investing institutions2) engage the services of an investment banker
What are the advantages to private placement? Disadvantage? 1) Speed, Reduced Cost, Financially Flexibility2) Interest Costs, Restrictive Covenants, the possibility of future SEC registration
What are flotation costs? the transaction cost incurred when a firm raises funds by issuing a particular type of security.
What is the difference between Underwriter spread and Issuing Cost? 1) US: the difference between the gross and net proceeds from a given security issue expressed as percent of the gross proceeds.2) IC: Printing and engraving of security certificates, legal fees, accounting fees, trustee fees, several other miscellaneous components
When was the Sarbanes Oxley Act passed? (SOX) 2002
What is the real risk free interest rate? the required rate of return on a fixed income security that has no risk in an economic environment of zero inflation.
What is the term structure of interest rates?What is yield to maturity? 1) the relationship between the interest rates and the term to maturity, where the risk of default is held constant.2) the rate of return a bondholder will receive if a bond is held to maturity.
What are the three basic financial statements? 1) the income statement2) the balance sheet3) the statement of cash flows
What are the purposes of financial analysis? 1) Restating accounting data in relative terms so that comparisons can be made with firms of different sizes and with the same firm over time.2) To identify some of the financial strength and weaknesses of a company
In which scenarios might financial ratios be used? 1) Major suppliers to decide whether or not to grant terms to a company2) Credit Rating agencies to determine the firm’s creditworthiness3) Firm managers to evaluate a firm’s performance4) Investors or decide whether or not to invest in a company5) Lenders to decide whether or not to make a loan to the company
Which differences in the accounting practices of firms limit the usefulness of financial ratios? 1) Different methods to depreciate their fixed assets.2) Different methods to allocate their inventory.
Why should you be careful when comparing a firm with industry norms? 1) sometimes it is difficult to identify the industry to which your firm belongs, so you must select you peers and construct your own norm.2) Accounting practices differ widely among firms. These differences can make the computes ratios of different firms difficult to compare3) an industry average is not necessarily a desirable target ratio or norm, you may want to be in the top 10%4) many firms experience seasonal changes in their operations5) Publishes peer or group industry averages are only approximations
How do you calculate the default risk premium in bonds? 1) Nominal Interest rate = real risk free interest rate +inflation premium +default risk premium + maturity risk premium + liquidity risk premium2) For treasury bonds, drp and lrp are 0.3) Corporate bond yieldings – treasury bond yield – liquidity risk premium
How do you calculate the (inferred) real rate of interest? nominal rate of interest – inflation rate
How do you calculate the nominal rate of interest? real rate of interest + inflation rate +product of the real rate of interest and inflation rate
How do you calculate maturity risk premium? How do you calculate the nominal risk free interest rate? 1) Treasury note yield – nominal risk free interest rate2) real risk free interest rate + inflation rate
How do you calculate tax liability? 1) Compute taxable income (operating income – depreciation expense – interest expense)2) Operating income= sales – cost of goods sold – operating expenses
how do you calculate savings? initial investment x (1 + amount security pays) ^ end of wanted year
How do you calculate the required interest rate? additional saving/savings in 1 year security (note that this is problem specific)
What are 2 ways financial ratios make meaningful comparisons of a firm’s financial data? 1) We can examine ratios across time to compare the firm’s past and present performance2) We can compare firm’s ratios with that of other firms
How do managers use financial ratios? 1) Identify deficiencies in the firm’s performance and take corrective actions2) Evaluate employee performance and determine incentive compensation.3) Compare financial performance in the firm’s different divisions.4) Prepare financial projections5) Understand competitor’s financial performance6) Evaluate financial condition of major supplier
How are financial ratios used outside of the company? 1) lenders decide whether or not to make a loan to the company2) credit ranging agencies determine firm’s credit worthiness3) Investors decide whether or not to invest in company4) Major suppliers decide whether or not to grant credit terms to company
What 2 things are analyzed when discussing the liquidity of a firm? 1) the amount of current assets relative to current liabilities (Current Ratio)2) the quality of the individual current assets that will be used in meeting current debt payments
What are limitations of financial ratio analysis? 1) It is sometimes difficult to determine which industry a firm belongs to when they engage in multiple line of business2) Published peer group or industry averages are only approximations3) An industry average is not necessarily a desirable target ratio or norm.4) Accounting practices differ widely among firms making it difficult to compare5) Financial Ratios can be too high or too low 6) Many firms experience seasonal changes in operations as a result balance sheets and ratios may vary with time of year
Finance Flashcards

Business Finance – Ch. 2

1. A company can pay for its expansion in all the following ways except: A. by using the earnings generated from its sale of obsolete equipment.B. by persuading the director’s mother to make a personal loan to the company.C. by purchasing bonds in the secondary market.D. by selling stock certificates for a new subsidiary. C. by purchasing bonds in the secondary market.
2. “Reinvestment” means: A. new investment in new operations.B. additional investment in existing operations.C. new investment by new shareholders.D. additional investment by existing shareholders. D. additional investment by existing shareholders.
3. Excess cash held by a firm should be: A. reinvested by the firm in projects offering the highest rate of return.B. reinvested by the firm in projects offering rates of return higher than the cost of capital.C. reinvested by the firm in the financial markets.D. distributed to bondholders in the form of extra coupon payments. B. reinvested by the firm in projects offering rates of return higher than the cost of capital.
4. A financial intermediary provides financing for: A. individuals.B. companies.C. other organizations.D. all of these. D. all of these.
5. Which of the following statements is not characteristic of mutual funds? A. They are financial institutions.B. They raise money by selling shares to investors.C. They pool the savings of many investors.D. They offer professional management. A. They are financial institutions.
6. Compared to buying stocks and bonds directly, what are the advantages of investing in a mutual fund? A. Mutual funds are efficiently diversified and professionally managed.B. Investment returns are never taxed until withdrawn from the fund.C. You can buy additional shares in the fund or cash out at any time.D. All of these. A. Mutual funds are efficiently diversified and professionally managed.
7. Banks cover the costs of the service they provide primarily via: A. a management fee.B. a service charge.C. an interest rate differential.D. an operating fee. C. an interest rate differential.
8. Which of the following financial intermediaries has shown a preference for investing in long-term financial assets? A. Commercial banksB. Insurance companiesC. Finance companiesD. Savings banks B. Insurance companies
9. Which of the following financial intermediaries can loan money directly to businesses? A. Mutual fundsB. Pension fundsC. Insurance companiesD. All of these C. Insurance companies
10. Insurance companies can usually cover the claims of policyholders because: A. the incidence of claims normally averages out.B. they issue thousands of insurance policies.C. the cost of paying for claims has already been factored into the price of the policies.D. all of these. D. all of these.
11. Which of the following is not typically considered a function of financial intermediaries? A. Providing a payment mechanismB. Investing in real assetsC. Accumulating funds from smaller investorsD. Spreading, or pooling risk among individuals B. Investing in real assets
12. U.S. bonds and other debt securities are mostly held by: A. institutional investors.B. households.C. foreign investors.D. state and local governments. A. institutional investors.
13. Liquidity is important to a mutual fund because: A. a fund that is less liquid will attract more investors.B. the fund’s shareholders may want to redeem their shares at any time.C. the fund’s managers need liquidity to trade actively.D. the fund needs to distribute payouts to its shareholders and managers periodically. B. the fund’s shareholders may want to redeem their shares at any time.
14. Property insurance companies protect themselves against the extensive damage caused by hurricanes and earthquakes by: A. selling thousands of policies to different homeowners.B. factoring the cost into the price of the policies.C. buying reinsurance against such catastrophes.D. declaring bankruptcy when the need arises. C. buying reinsurance against such catastrophes.
15. Financing for public corporations flows through: A. the financial markets only.B. financial intermediaries only.C. derivatives markets.D. the financial markets, financial intermediaries, or both. D. the financial markets, financial intermediaries, or both.
16. When corporations need to raise funds through stock issues, they rely on the: A. primary market.B. secondary market.C. tertiary market.D. centralized NASDAQ exchange. A. primary market.
17. A primary market would be utilized when: A. investors buy or sell existing securities.B. shares of common stock are exchanged.C. securities are initially issued.D. a commission must be paid on the transaction. C. securities are initially issued.
18. The primary distinction between securities sold in the primary and secondary markets is the: A. riskiness of the securities.B. price of the securities.C. previous issuance of the securities.D. profitability of the issuing corporation. C. previous issuance of the securities.
19. Which of the following are both a financial intermediary and a financial institution? A. Mutual fundsB. Pension fundsC. Insurance companiesD. Hedge funds C. Insurance companies
_______________: Market where securities are issued and traded. Financial markets
________________________: Over-the-counter markets for foreign currency trades through a network of largest international banks. Foreign-exchange markets
______________________: Securities whose payoffs depend on the prices of other securities / commodities. Derivatives markets
________________________: An organization that raises money from investors, and provides financing for individuals, companies, and other organizations Financial Intermediaries
__________________________: Raise money by taking deposits or selling insurance policies and invest only in financial assets Non-financial (manufacturing) corporations
Classes of Financial Intermediaries: _________ funds ____ funds ______ funds Mutual, Hedge, Pension
_____________: A private investment pool open to wealthy or institutional investors. Are lightly regulated and can pursue high-risk investment strategies. Hedge Fund
Insurance Companies: debt financing from sale of __________________ insurance policies
Finance Flashcards

Real Estate Finance Practice exam

A __________ is a permanent change in one or more of the terms of a borrower’s loan. Loan Qualification Loan Modification Loan Approval Loan Origination Loan Modification
What time period must borrowers have in job history with the same employer to qualify? 2 months 6 months 1 year 2 years 2 years
Unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to benefit the lender. Predatory lending Sub prime Mortgage Participation Agreement Fraud Predatory lending
Why do lender care about unpaid taxes? They want to ensure your mortgage payment is not late It makes the loan difficult to sell in the secondary market Unpaid property taxes are a superior lien to the right of the lender Lenders don’t care about unpaid taxes Unpaid property taxes are a superior lien to the right of the lender
A burden, obstruction, or impediment on the property that lessens its value or makes it less marketable. Lien Interest Encumbrance Mortgage Encumbrance
Which party is not included on the deed of trust? Mortgagor Mortgagee Trustor Trustee Trustor
The mortgage or deed of trust will contain ___________ that permits the lender to demand that the entire balance of the loan be repaid if the borrower defaults. Due on sale clause Acceleration clause Alienation clause Balloon clause Acceleration clause
One of the largest buyers of securities is _________. Credit Unions Pension Funds China American Public Pension Funds
A company or individual that originates mortgage loans and sells them to investors, while taking care of borrowers loan payments, records, taxes, and insurance. Mortgage Bankers Mortgage Brokers Loan Originators Secondary Market Mortgage Bankers
The largest buyer of residential mortgages in the United States today. FHLMC GNMA Banks FNMA FNMA
Provides cash advances to members, including community banks, thrifts, credit unions and community development financial institutions. FNMA FHLMC FHLB Banks FNMA
Loan amount is $337,500. Down payment is $37,500. What is the LTV? 10% 11% 90% 91% 90%
The market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transactions. Money market Primary market Secondary market Origination market Primary market
A collaboration among lenders to share in a loan too big to handle for any one of them. Participation loan Collaboration loan Shared loan Co-Operation loanNext question Participation loan
The lender or the mortgage broker must provide a GFE within ____________ of receiving the application or other required information. 24 hours 3 days One business day 3 business days 3 business days
A ___________ is a form that lists basic information about the terms of a mortgage loan for which the consumer applied. HUD-1 Deed of Trust Closing Statement GFE GFE
_____________ serves as a financial and administration resources that helps provide essential services and affordable housing opportunities to Texans who qualify for this assistance based on their income level. USDA FHA TDHCA CFPB TDHCA
The Safe and Fair Enforcement for Mortgage Licensing Act (SAFE Act) has been transferred to the ____________ for administration and enforcement. APA CFPB RESPA FHA CFPB
___________ is about closing costs and settlement procedures. TILA RESPA SAFE Regulation Z RESPA
Sales price is$475,000. LTV is 90%. Tax rate is $1.97/$100. closing is July 17th. Using a banker’s year, prorate the taxes. Assume no leap year. Credit the buyer $5120.03 Debit the seller $4608.57 Credit the buyer $4631.22 Debit the seller $5146.02 Credit the buyer $5120.03
The purpose of __________ is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA RESPA SAFE HUD-1 TILA
The ___________ is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate. Redline TILA CRA Fair Credit Act CRA
A current medium of exchange collectively in the form of coins and banknotes. Trusts Securities Money Bonds Money
In the United States, money is controlled by the ____________. Congress Wall Street Banks The Federal Reserve The Federal Reserve
_______________ are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. FDIC Reserve requirements Discount requirements None of the above Reserve requirements
Sale price is $323,500 and the LTV is 85%. Closing date is June 27th. Using an actual year, calculate the monthly PMI factor is .0033 $88.96 $75.62 $63.95 $92.30 $75.62
The evidence of indebtedness. Credit instrument Lien Debt Promise Credit instrument
All of the following are functions of the department of Treasury EXCEPT: Managing Federal finances Currency and coinage Determining national debt Enforcing Federal finance and tax laws Determining national debt
Major responsibilities of the Mint include all of the following EXCEPT: Manufacturing and selling platinum, gold and silver bullion coins Distributing U.S. coins to the Federal Reserve banks and branches Receiving, redeeming and processing mutilated coins Education for collectors on rare coins Education for collectors on rare coins
Federal Home Loan Banks are cooperatives. True False True
Insurance is $2800/year. Sales price $437,500. LTV is 95%. Insurance start date is December 5th. Close date is August 13th. Using a banker’s year, calculate the monthly insurance payment. Assume no leap year. $7.78 $233.33 $255.00 $1983.90 $233.33
The science that describes the management, creation and study of money, banking, credit, investments assets and liabilities. Economics Finance Credit Banking Finance
Most real estate cycles in Texas are determined by: Politics and demand Economics and politics Economics and supply Supply and demand – Correct answer
______________ measures the wealth and resources of a particular area or region as well as production and consumption. Supply and demand Interest rates Economy Finance Economy
Loan amount is $765,000. Down Payment is $85,000. LTV is 90%. Interest rate is 4.5%. Using an actual year, calculate the dollar amount of 2.5 points. $1912.50 $2125.00 $19125.00 $21250.00 $19125.00
The U.S. Mint is a part of the: Department of Treasury Federal Reserve A stand-alone agency FNMA Department of Treasury
The ____________ was created in 1933 to maintain public confidence and encourage stability in the financial system through the promotion of sound banking practices. FDIC Federal Reserve Department of Treasury U.S. Mint FDIC
The ______________ fulfills its role in housing finance by providing members with access to reliable, economical funding and technical assistance, and special affordable housing programs. FHA Federal Home Loan Bank System Secondary market Primary market Federal Home Loan Bank System
The NATIONAL HOUSING ACT of 1934 created what entity to relieve unemployment and stimulate the release of private credit? VA USDA FNMA FHA FHA
RESPA is a ___________ consumer protection statute. TILA HUD FNMA Federal Reserve HUD
Which act is designed to enhance consumer protection by requiring the FDIC, National Credit Union Administration, Board of Governors of the Federal Reserve System and others to jointly develop and maintain a Federal registration system for individual employees of Agency regulated institutions who engage in the business of residential mortgage loan origination? Dodd-Frank CRA Safe APA Safe
Which law requires federal agencies who make rule to have a 30 day delayed effective date? Dodd-Frank Safe Administration Procedures Act Consumer Financial Protection Act Administration Procedures Act
Which act was passed in 2010 in an attempt to create accountability by regulating mortgage lenders and mortgage brokers? Dodd-Frank SAFE Administration Procedures Act Consumer Financial Protection Act Dodd-Frank
Bryan and Carla have located a home they wish to purchase. They have been told that the monthly payment will be $1780. If their monthly long term debt is $630 and the qualifying ratios are 28%/36%, how much monthly income must they have to qualify $3194.44 $4944.44 $6357.14 $6694.44 $6694.44
Which of the following are NOT a part of the secondary money market? Fannie Mae Sallie Mae Banks Freddie Mac Sallie Mae
Name the entity that is a publicly trade, federally chartered corporation who purchases newly originated and seasoned agricultural loans from lenders. REIT Frannie Mae Ginnie Mae Farmer Mac Farmer Mac
A __________ gives a creditor the right to seize or take your property if you are unable to keep up with payments. Encumbrance Lien Deed of Trust Note Lien
What is the term for a written promise to pay a certain sum of money at a future time? Lien Deed of Trust Note Mortgage Note
Which of the following is NOT included in the note? Seller’s name Interest rate Term Late charge amount Seller’s name
When does title change with contract for deed? When the buyer has completed the terms of the contract At closing When the contract is executed Upon funding When the buyer has completed the terms of the contract
___________ financing implies that the debt ranks behind the first secured lender. Subordinate Junior Secondary Private Subordinate
A provision in a mortgage contract that allows the seller of a home to pass responsibility to the buyer of the home for the existing mortgage. Alienation Clause Due-on-sale Clause Subordination Clause Assumption Clause Assumption Clause
This clause insures that the borrower shall not “sell, transfer, encumber, assign, convey or in any manner dispose of the collateralized property or any part there of without the expressed written consent from the lender. Subordination clause Due-on-sale clause Alienation clause Assumption clause Due-on-sale clause
Sales price $175,000. LTV is 85%. Interest rate is 4.75%. Term is 30 years. Closing date is August 20th. Using a calender year, calculate the amount of interest paid the first full month $501.03 $232.29 $588.80 $692.71 $588.80
The borrower agrees with the lender for a certain amount of money to build the improvements. What kind of mortgage does he have? Blanket mortgage Package mortgage Construction mortgage New home mortgage Construction mortgage
The lender and borrower agree to adjust the interest rate periodically to a new interest rate based on a predetermined index in the economy. This is a ____________ mortgage. Variable mortgage Adjustable rate mortgage Floating mortgage Does not exist Adjustable rate mortgage
Mortgage insurance is typically required when the LTV is greater than ___________%. 75% 80% 85% 90% 80%
Lending institutions often change interest on ______________ at a rate that is higher than a conventional mortgage in order to compensate for carrying more risk. Predatory mortgages FICO mortgages Participation mortgages Subprime mortgagesNext question Subprime mortgages
Which of the following is not allowed under FHA loans? Vacation home Condominium Manufactured home Buy land and build a home Vacation home
If the borrower has a previous foreclosure, can he use FHA to purchase a new home? No Yes, anytime Yes, after a 3 year wait with clean credit Yes, after a 1 year wait with clean credit Yes, after a 3 year wait with clean credit
The purpose of __________ is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. TILA RESPA SAFE HUD-1
Finance Flashcards

Business Finance Chapters 15-16

Which of the following would not normally be discussed when describing a firm’s operating cycle? acquiring financing
Marketable securities are held primarily to meet: precautionary motives
The willingness of a credit applicant to pay her or his bills is measured by? Character
The principle of hedging calls for the matching of a firm’s average: maturities of its assets with its liabilities and equity
Working capital does not include: property, plant, and equipment
Examples of regular cash outflows would not include: All the above are regular cash outflows- materials purchases, rent, utility bills
The level of investment in accounts receivable depends on: all of the above- credit analysis, credit terms, collection efforts
The time between when a payee sends payment and the funds are credited to the payee’s bank account is called the: collection float
Methods used to speed up collections include all of the following EXCEPT: remote disbursement locations
Which one of the following asset accounts is not a part of a firm’s working capital? fixed assets
If a firm purchases materials on credit and thus has accounts payable, its cash conversion cycle will be: shorter than its operating cycle
Which of the following marketable securities is sold at a discount throughout competitive bidding in a weekly auction? U.S. Treasury bills
Deposits placed in foreign banks that remain denominated in U.S. dollars are called: Eurodollars
Which of the following is not considered to be one of the five C’s of credit analysis? caution
Which one of the following is a private firm that operates as a credit-reporting agency? Dun and BradStreet
In general, the more net working capital a company has the lower the risk
In general, the less net working capital a company has the greater the risk
Holding all other factors constant, if a firm increases its current assets relative to total assets, has no effect on return and reduces risk
A negative cash conversion cycle indicates that the average payment period exceeds the operating cycle
These are short-term money market investments that are extremely safe and liquid; they can be quickly converted into cash at values very close to their intrinsic values. marketable securities
The factoring of receivables: typically has the factor becoming the firm’s credit department
The small business administrative lends to businesses with reasonable prospects of repayment but which cannot obtain credit through private channels
commercial finance companies: are primarily interested in loans secured by a business customer’s accounts receivable and inventories
The bank line of credit is: the loan limit that a bank has established for a business customer
Compensating balances at a commercial bank are: account balances required in connection with unsecured business loans under bank lines of credit
A revolving credit agreement is a: banker’s standby agreement to provide a guaranteed line of credit for a specified period of time.
Which of the following short-term sources of funds is available only to the financially strongest concerns? Commercial paper
The largest providers of short-term financing are: Commercial banks
A commercial finance company: may make loans secured by chattel mortgages
The small business administration cannot assist in the financing of small enterprises by: engaging in accounts receivable factoring
Which of the following organizations are involved in accounts receivable financing for businesses? commercial finance companies and factors
If a firm has positive net working capital, the current ratio is: greater than one
Spontaneous financing refers to: financing provided by accounts payable and accrued capabilities
Net working capital is defined as: current assets less current liabilities
Permanent current assets are: the level of current assets needed to support sales
Which of the following are typical financing strategies used by businesses? maturity matching, aggressive financing, and conservative financing
Which of the following operating characteristics affect a firm’s short-term financing strategy? all of the above- industry and company factors, seasonal variation, sales trend, and cyclical variations
A short-term bank loan that is unsecured is referred to as: a line of credit
An organization that engages in accounts-receivable financing by purchasing the accounts outright is referred to as a: factor
Large U.S. corporations of high credit quality can issue or sell short-term promissory notes called: commercial paper
The small business administration cannot assist in the financing of small enterprises by: engaging in accounts receivable factors
commercial finance companies: may makes loaned secured by chattel mortgages
Finance Flashcards

Personal Finance Chapter 3 SG

Tax Freedom Day represents the day that the average person works until to pay their taxes each year. (T/F) True
An example of an excise tax is Social Security. (T/F) False
Individuals are allowed to give money or items of any value to a person without being subject to taxes. (T/F) False
Amounts given for tuition payments or medical expenses are not subject to gift taxes. (T/F) True
Determining Adjusted Gross Income is the final step in calculating federal income tax. (T/F) False
Cash and prizes won on television game shows are usually subject to both federal and state taxes. (T/F) True
The Adjusted Gross Income is increased by the itemized or standard deduction. (T/F) False
When Tom calculates his taxable income, he should subtract his tax credits from adjusted gross income. (T/F) False
The itemized deduction allowed for an individual 65 and older is higher than the itemized deduction for a younger taxpayer. (T/F) False
When Marissa completes her taxes, she can include her children, her husband, and herself as exemptions. (T/F) True
Tax tables list average tax rates. (T/F) False
The average tax rate is the taxes paid on the next dollar of income. (T/F) False
All individuals with taxable income need to complete the AMT calculation. (T/F) False
A tax credit has a full dollar effect in lowering taxes. (T/F) True
A tax credit reduces the taxable income on which the tax liability is computed. (T/F) False
If your taxes due are greater than the amount you had withheld for the year, then you should expect a refund after you complete your federal income taxes. (T/F) False
Individuals who have high income reported on Form 1099 may be required to pay estimated tax payments. (T/F) True
Federal income tax returns must be filed by April 1 of each year. (T/F) False
Form 4868 allows a taxpayer to obtain a six-month extension on filing and paying federal taxes without penalty. (T/F) False
All citizens of the United States are required to file a federal income tax return if their income falls below a certain level. (T/F) False
Most states do not require state income taxes (T/F) False
Tax software can save taxpayers 25 hours or more when preparing Form 1040. (T/F) False
The IRS has made online filing free for millions of taxpayers through the Free File Alliance. (T/F) True
Tom needs to complete his taxes. He should be able to find a tax preparation service to complete his tax forms for as little as $15. (T/F) False
A common filing error is signing the return. (T/F) False
Some tax disputes have been escalated to the U.S. Supreme Court. (T/F) True
One of the best tax shelters is owning a car (T/F) False
Interest paid on a home equity loan is not deductible. (T/F) False
Contributions to a Keogh or 401(k) are tax-exempt. (T/F) False
A worker’s primary goal should be to:A. Pay his or her taxes using estimates for income and deductionsB. Pay no income taxesC. Pay the average tax rate for people working in his or her industryD. Pay his or her fair share of taxes while taking advantage of appropriate tax benefitsE. Pay no taxes of any type D. Pay his or her fair share of taxes while taking advantage of appropriate tax benefits
Which of the following is NOT a tax that most people pay? A. Federal taxes on earningsB. Federal taxes on possessionsC. Federal taxes on wealthD. Local taxes on propertyE. State taxes on purchases B. Federal taxes on possessions
A tax due on the purchase of gasoline is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Inheritance tax B. Excise tax
A tax imposed on the value of a person’s property at the time of death is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax A. Estate tax
This tax is a major financial planning factor for most people because it is sometimes imposed at the federal, state, and local levels. A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax C. Income tax
The tax that is a major source of revenue for local governments is called a(n) A. Estate taxB. Excise taxC. Income taxD. Real estate taxE. Sales tax D. Real estate tax
Payroll deductions for federal government retirement benefits (such as old-age, survivor, and disability) are called A. Estate taxesB. Excise taxesC. Social Security taxesD. Real estate taxesE. Sales taxes C. Social Security taxes
The amount owed on property received from a deceased person is A. Estate taxB. Excise taxC. Social Security taxD. Real estate taxE. Sales tax A. Estate tax
The maximum amount (in 2009) that an individual can give another in a year without being subject to federal taxes is: A. All gifts are taxableB. $10,000C. $13,000D. $15,000E. No gifts are taxable C. $13,000
You may be required to make estimated tax payments if: A. You receive a paycheck with taxes withheldB. You do not have interest incomeC. You are marriedD. You own your own businessE. None of the above are correct D. You own your own business
When calculating federal income taxes, what increases “income”? A. ExclusionsB. Tax-exempt incomeC. Tax-deferred incomeD. AlimonyE. Tax deductions D. Alimony
Income that is never subject to tax is called A. Adjusted gross incomeB. Earned incomeC. Foreign incomeD. Tax-deferred incomeE. Tax-exempt income E. Tax-exempt income
Income that is taxed at a later date is A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income D. Tax-deferred income
Gross income after certain reductions have been made is A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income A. Adjusted gross income
Fees, tips, and bonuses are forms of A. Adjusted gross incomeB. Earned incomeC. Exclusions from incomeD. Tax-deferred incomeE. Tax-exempt income B. Earned income
Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next? A. Add his tax-exempt incomeB. Subtract his itemized deductionsC. Add his tax creditsD. Subtract his tax-exempt incomeE. Add his tax exemptions B. Subtract his itemized deductions
Adjustments to income include all except A. Alimony paymentsB. Contributions to a Keogh retirement planC. Traditional IRA contributionsD. Roth IRA contributionsE. Penalties for early withdrawal of savings D. Roth IRA contributions
Individuals can deduct expenses only in excess of 7.5 percent of adjusted gross income for A. Contributions to charitable organizationsB. Mortgage interestC. Medical and dental expensesD. Miscellaneous expensesE. Taxes C. Medical and dental expenses
How long should you generally keep tax records? A. Until you file your returnsB. 3 yearsC. 5 yearsD. 10 yearsE. 15 years B. 3 years
Fred has been completing his own tax returns for years. The IRS has recently contacted him with questions about some of his prior returns. How many years back is he responsible for providing documentation? A. Until he files his returnsB. 3 yearsC. 6 yearsD. 10 yearsE. 15 years C. 6 years
When Paul completes his taxes, he can include all of the following as exemptions except A. His 12 year old sonB. HimselfC. His 22 year old daughter who is a full-time studentD. His wifeE. His 20 year old son who is working full-time and living in an apartment E. His 20 year old son who is working full-time and living in an apartment
In 2008, taxable income was reduced by ______ for each exemption claimed. A. $1,000B. $2,500C. $3,500D. $5,000E. $10,000 C. $3,500
The taxes based on the total tax due divided by taxable income is called A. AMTB. Average tax rateC. Income tax rateD. Marginal tax rateE. Total tax rate B. Average tax rate
At the end of the year, employees receive a ____ form that reports annual earnings and the amounts deducted for taxes from their employer. A. 1040B. 1099C. W-2D. W-4E. Schedule A C. W-2
At the end of the year, Xavier received a form from his employer that reports annual earnings and the amounts deducted for taxes. That form is called a _____ A. 1040B. 1099C. W-2D. W-4E. Schedule A C. W-2
At the end of the year, Yvonne received a form from her bank that reports income from her savings. That form is called _____ A. 1040B. 1099C. W-2D. W-4E. Schedule A B. 1099
Nancy is married to Jerry and needs to complete her tax form. They both earn about the same amount of money each year. What filing status would be best for Nancy? A. SingleB. Married, filing joint returnC. Head of householdD. Qualifying widow or widowerE. Married, but filing individually B. Married, filing joint return
Bob was married to Sandy and they have a 12 year old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use because of his marital status? A. SingleB. Married, filing joint returnC. Head of householdD. Qualifying widow or widowerE. Married, but filing individually D. Qualifying widow or widower
Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition they bought a house this past year and are thinking of itemizing their deductions. Which form should he use? A. 1040 EZB. 1040AC. 1040 D. 1040XE. 1040Z C. 1040 (Because of interests and dividends)
Individuals can file their federal taxes using A. Tax softwareB. E-fileC. Electronic filingD. TelephoneE. All of the above E. All of the above
Tax resources include all except A. IRS publicationsB. Enrolled agentsC. AccountantsD. AttorneysE. All of the above are tax resources. E. All of the above are tax resources.
Who is ultimately responsible for supplying accurate and complete information for the completing of a tax return? A. Professional tax preparerB. IRS enrolled agentC. TaxpayerD. Taxpayer’s dependentsE. Taxpayer’s attorney C. Taxpayer
An IRS agent visited Henry’s home to verify some information on his tax return. This visit was called a(n) A. Correspondence auditB. Office auditC. Home auditD. Field auditE. Detailed audit D. Field audit
Annie was required to clarify or document minor questions of her tax form by mail. She participated in a(n) A. Correspondence auditB. Office auditC. Home auditD. Field auditE. Detailed audit A. Correspondence audit
If Brenda wants to pay her fair share of taxes, no more and no less, she should practice A. Tax evasionB. Tax avoidanceC. Tax eliminationD. Tax maximizationE. Tax acceleration B. Tax avoidance
Which of the following is NOT an action that can reduce your taxes? A. Owning a home.B. Taking out a consumer loan.C. Paying certain work expenses.D. Depositing money into a Flexible Spending Account (FSA).E. Investing in municipal bonds. B. Taking out a consumer loan.
An advantage of investing in a 401(k) plan is the A. Ability to invest up to 25% of your annual incomeB. Opportunity to save $5,000 per yearC. Possibility of receiving an employer match on your contributionsD. Ability to pay taxes on distributionsE. Ability to roll IRA contributions into a 401(k) C. Possibility of receiving an employer match on your contributions
Identify and provide examples for four types of taxes that most people pay. Purchases-Sales taxes, excise taxes Income Tax-Social Security, Medicare, Federal, State Property Taxes -Real estate, Personal property tax. Wealth-Estate taxes, inheritance taxes
Describe the calculation for Adjusted Gross Income 1st: Add all income together2nd: Subtract appropriate adjustments
What is the difference between tax-exempt income and tax-deferred income? Tax-exempt: Not subject to taxes EVERTax deferred: Income that will be taxed at a later date
What are the five filing status categories for federal income taxes? Married filing jointlyMarried filing separateSingleWidow/WidowerHead of the household
Identify at least five sections of Form 1040. Personal InformationIncomeAdjustments to incomeTax computation Tax creditsTax paymentsRefund Signature
Stephen is planning to file taxes this year. He is married with two dependents. His household salary is relatively low. How should he file his tax forms? Why is that method appropriate for him? He could go online and use a tax software. Do it on paper. He might qualify for filing free online. (Free File Alliance)
Stephanie is planning to file taxes this year. She is married with two dependents and is considering using a tax preparation service. What are three factors she should consider before hiring a particular service? She should consider: How much it will costThe experience within that personThe availability Credible, good reputation Represent you if audited?Is it their main business?
When you receive an audit notice, you have certain rights. What are some (3) suggestions to follow with an audit? -Contact the person who prepared your taxes-Don’t be defensive-Be to the meeting on time-Keep your answers brief and only answer questions asked-Bring all your documents
Finance Flashcards

Chapter 6- Personal Finance Questions

a lender can legally discriminate in granting credit based on credit history
creditors can legally require information about ___ on a credit application age
which of the following is generally not part of the process of opening a credit account? appraisal of assets
Credit bureaus compile information from ___ banks, creditors, court records
a factor in the development of credit scores is amounts owed, types of credit you isem payment history
the most well-known of the many different types of credit scores used by lenders today is the fico score
the percentage of your total credit limits that is actually owed is called your credit utilization ratio
what do credit bureaus do? they collect and provide credit information
to protect your credit card privacy, which of the following is recommended? review your credit bureau report at least once a year
A ____ on your credit report tells the credit bureau not to release your financial records to anyone without your consent security freeze
the contract for a credit card account is called the credit agreement
the contract for a loan is called the promissory note
a borrower with an excellent credit history would be most likely to receive credit with both higher credit limits and lower interest rates
under the concept of ____, lenders may offer lower interest rates to applicants with the highest credit cores while charging steeper rates to more risky applicants tiered pricing
the only real source for a free credit report is through annual credit
credit bureau files are used to help evaluate applicants for credit, employment, insurance
If you find an error or omission on your credit report, you should notify the credit bureau that you wish to exercise your right to reinvestigation under the 8 FCRA
IF the credit bureau cannot reinvestigate an item on your credit report in ____ days, the item must be removed from your file 15
Perry had four credit cards in his bildfold when his wallet was stolen. He reported the cards missing four days after he discovered the loss, but the following the charges were incurred before he reported the stolen cards $185
a method not recommended for getting out of excessive credit card debt is to the minimum amount due on your high interest-rate cards, and pay as much as possible on the lowest interest-rate cards
If finance charges are not assessed on new credit transactions during the period between the posting date and the due date, this peripd is called the ____ period grace
The time period between billing dates on your credit cards in the billing cycle
The last day of the month on which transactions are reported on the credit statement is called the billing date
Most credit cards have a grace period only if you paid the balance in full the previous month
failure to pay the balance in full in a given month on a grace period means that you must pay interest on all new borrowings with the card since the last billing statement
if you are likely to pay your balance in full each and every month, select a credit card with a grace period and no annual fee
federal law states that bills must be mailed to cardholders at least ____ days before payments are due. 21
If no payment is received by the due date on a credit account all of these
IF you purchase an item using a credit card and late take it back for a refund you will receive a credit receipt and the amount will be charged back to the merchant by oyour card issuer
The sum of outstanding balances owed each day during the billing period by the number of days in the period is the average daily balance
if you are a person who alwasy pays off the total outstanding balance on your credit card each month, which of the following aspects of the credit card agreement will you be least interested in? APR
Justin had a beginning balance of $100 on his credit card as of MAy 1 lat month. on may 11th he charged a meal for $44. on may 21 he madde a payment of $48. What was his average daily balance for the month $113
Under the fair credit billing act, you must make billing error complaints _____ to protect your legal rights within 60 days after the first bill containing the error was mailed to you
letters from a creditor demanding immediate payment for a past due account are referred to as dunning letters
Which of the following should not be done when you find an error on your credit card statement send all original documnetation to the credit card issuer
hillary borrowed 2000 from her credit union to purchase a new computer. THis is an example of a cash loan
The contract supporting an installment loan is called an promissory notee
The legal right to seize and dispose of property to obtain payment of an unpaid claim is called an lien
A secured loan requires either collateral or cosigner
which of the following is an example of an unsecured debt? signature loan
an unsecured loan required none of these
Which of the following terms is not necessarily associated with a secured loan the rule of 78s
You might find yourself obligate to pay an entire debt in full if you miss several payments because of the ____ clause found in most installment loan contracts acceleration
Installment purchase agreements are also called collateral installment loans or chattle mortgage loans
an installment purchase agreement provides a measure of protection for the borrower
auto leasing is becoming an attractive option and about ___ precent of new cars “sold” each year are actually leased 15
In _______ lease, you must pay any difference between the projected residual value of the vehicle and its actual market value at the end of the lease period an open end
A vehicle lease is essentially a rental of a vehicle
The consumer Leasing Act limits end of lease payments to a maximum dollar amount equivalent to _____ times the monthly payment q three
With a closed end lease, there is all of these
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period. The price of the car is 14,000 and its projected residual value at the end of four years in 3,000 2,200
Compare the cost of the following leasing agreement with the finance charge on a loan for the same time period: The value of the car is 15000 at the beginning of the lease period, and its projected residual value at the end of three years is 4000. The lease requires a 500 down payment. if the finance cost were….. 1,290
Tom has a four year clsoed end lease on his land cruiser.His contract stipulates a $.42 per mile excess mileage charge in excess of 48000 miles. If he actully drove the vehicle 60000 miles during the four years, he would be chargedan extra 5,040
Matt has a three year closed end lease on his prius V. His contract stipulates a $.31 per mile excess mileage charge in excess of 39000 miles. If he actully drove the vehicle 45000 miles during the three years, he would be charged an extra $1860
marina is coming up on the end of a closed-end lease on her 2007 Ford Edge, Her contract stipulates a .35
Finance Flashcards


A balance sheet shows your financial condition as of the time the statement is prepared True
Money I loaned to a friend is a liability on my balance sheet. False
A charge made on your credit card becomes a liability as soon as the charge is incurred. True
The balance sheet equation is assets plus liabilities equals net worth. False
The equity in your home is the difference between the loan balance and the purchase price. False
A budget is a detailed financial forecast
Budgets are forward-looking
you are solvent if your total assets exceed total liabilities
the income statement is specific to a specific period of time
You should itemize deductions when total itemized deductions exceed the standard deduction. True
Mortgage interest and paid home property taxes are both itemized deduction items. True
State income taxes and real estate taxes are both itemized deduction items. True
The personal exemption for a student can be taken both by the parent and by the child. False
Marginal tax and average tax rate refer to the same thing. False
The federal government gets the majority of its revenue from the ____ tax. income
The federal income tax is progressive
For tax purposes, head-of-household refers to a single individual with dependents
You would typically not include ____ in your gross income. life insurance death benefit payments
Credit union members are expected to have some common bond. True
Convenience and improved record keeping are two advantages sited for on-line bill payment. True
Asset management accounts are offered by most banks and are typically FDIC insured. False
Debit and ATM card transactions are linked to your checking account. true
If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate. True
Compound interest means that a savings account earns interest on the interest previously earned. true
A certified check is a personal check that the bank guarantees the funds are available true
Joint checking accounts typically imply the right of survivorship if one party should die true
You can stop payment when you purchase an item with your debit card. false
Your savings will grow faster with monthly interest compounding than with quarterly interest compounding. true
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile. false
A closed-end automobile lease is the most popular type of lease. true
Low-balling is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement. true
One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or auto accidents. true
A significant legal difference between a cooperative and a condominium is that the condominium owner normally holds a title to the property. true
You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions. true
The difference between the market value of your home and the balance of the mortgage is your equity in the property. true
A lender will generally require mortgage insurance if the down payment is less than 20 percent. true
A 5 percent down payment will result in larger monthly mortgage payments than a 10 percent down payment on the same house for the same maturity mortgage. true
The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500. false
The required monthly payment on an open account will be the smaller of a minimum dollar amount or a specified percentage of the balance. false
Generally speaking, the interest rates on credit cards are lower than any other form of credit. false
Debit cards look like credit cards, but they work like check true
Revolving credit lines are often accessed by writing checks. true
All of the following are useful ways to build a strong credit rating except Apply for a long-term loan and occasionally be late with a payment.
As a percent of take-home pay, monthly consumer credit payments should not exceed 20%
Interest will almost always begin to accrue immediately when you use a bank credit card to get cash advances
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
Rebate card work best for those who use the rebates and charge large amounts on the card. pay the total card balance off monthly. A and B
Interest rates on ____ are typically lower than on any other form of consumer credit home equity loans
Generally speaking, variable rate loans are desirable if interest rates are expected to increase over the course of the loan. false
A characteristic of consumer loans is that they are all of these are arrived at through a formal process. b. include a repayment schedule. c. are used to purchase big-ticket durable goods and other items. d. include a negotiated contract
Commercial banks generally charge lower interest rates than other lending institutions becaus they usually take only the best credit risks
A loan from the cash value of your life insurance policy would be characterized by no specific repayment date
Besides the finance charge, you should also consider ____ when you shop for a consumer loan. all of the above collateral b. loan maturity c. repayment penalties d. total cost of the loan
Annual percentage rate is equivalent to simple interest method
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
A legal claim that allows creditors to liquidate loan collateral is a lien
Before taking out students loans, all the following should be considered except all of the above personal resources b. grants c. federal student aid d. scholarships
collateral is an item of value used to secure the principle portion of a loan true
The cash value of a whole life insurance policy can be used as a source of loan collateral. true
The student loans with the best loan terms are the Stafford and the Perkins loans. true
Installment loans are typically repaid in one payment False
when would you have to pay additional money when returning a vehicle using a closed end lease mileage limits were exceeded
the capitol cost reduction on a vehicle lease is like the down payment on a loan
the quality of your credit rating is maintained by meeting credit obligations as contracts require
which of the following loan sources is the most expensive consumer finance companies
which source of customer loans specializes in home mortgage lending savings and loan associations
ones adverage tax rate is usually lower than ones marginal tax rate true
what income is subject to federal taxes taxable
annual percentage yield is same as the effective rate
the federal personal income tax is a progressive tax true
Tax credits reduce your tax liability
Whenever you write a check or make a deposit, an entry should be made on your checkbook ledger
If you write a check for an amount greater than your account balance, the result will be an overdraft
When doing a DDA reconciliation, interest earned on your account should be added to your checkbook ledger
Finance Flashcards

Personal Finance Final

________ are the principals, standards, or qualities considered worthwhile Values
To assign monetary values to employee benefits, you can place a market value on the benefit or calculate the ________ value of the benefit. Future
After hiring an employee, the law requires employers to do all the following except pay all the employee’s health care expenses.
When changing employers wisest options for the money you have in your current empolyer-sponsered retirement plan typically involve all but which of the following withdrawing and spending the money
which of the following resources would be least helpful in your job search? classified advertisements
It is especially important to use “key phrases” when preparing your resume because computer software is typically used to scan resumes and select better qualified candidates
All of the following would be considered wise moves in your career planning except assuming that your need for higher education is finished once you obtain a job in your chosen field.
A________ is an experienced person, such as a senior coworker, who offers friendly career-related advise, guidance, and coaching to a less experienced worker. mentor
In preparation for a job interview you should compile some personal stories and anticipate interview questions and prepare responses.
Which of the following is likely to be a differentiator on a resume or during a job interview based on what Audrey Waldron told us? Explaining to potential employer why we are passionate about the job or why we are pursuing the career we are.
Which of the following would be considered smart financial planning? Contribute to your employer-sponsored 401k retirement plan at least up to the amount of the employer’s matching contribution.
Taxable income is determined by subtracting all but which one of the following from gross income. Credits
A tax that requires a higher-income person to pay a higher percentage of his or her income in taxes is called a ______ tax progressive
This year, Jeff is in the 28 percent marginal tax bracket, but next year Jeff expects to be in the 25 percent marginal tax bracket. Therefore, the estimated income tax liability on this $2,500 income would be_________ this year, and ________ next year. $700, $375
Judy wants to give $3,200 to the building fund at her local church. Assuming Judy can itemize her deductions, how much will this contribution save her on her federal income taxes if she is in the 28 percent marginal tax bracket.? $896
Your average tax rate is less than your marginal tax rate
Which of the following types of subtractions cannot be taken by a taxpayer if he or she itemizes deductions standard deduction
Total Itemized deduction must be______ to reduce your tax liability greater than your standard deduction
Iris is an unmarried college student age 21, and is claims as a dependent on her married parents’ tax return. What is the max number of personal exemptions Iris can claim on her own tax return? 0
Which of the following persons is practicing legal tax avoidance? Employee who deducts qualifying job-related expenses.
The best use of credit is probably to: Consolidate debts
The best measure of the true cost of credit is the annual percentage rate of interest
Which of the following is generally not part of the process of opening a credit account? Appraisal of assets
A factor in the development of credit scores is amounts owed, types of credit you use, payment history
A borrower with excellent credit history would be most likely to receive cre4dit with both higher credit limits and lower interest rates
Credit bureau files are used to help evaluate applications for: credit, employment, insurance
The _______ the APR, the________ the true cost of the credit. Lower, lower
Which of the following is a court-sanctioned procedure bu which a portion of your wages are set aside by your employer to pay a debt? garnishment
Negative credit information (excluding bankruptcy) can generally be included on a credit file for______ years. seven
Your credit card liability for fraudulent usage of your lost or stolen credit cards is limited to _____ if you report the loss. $50
The types of insurance you carry but which covers losses suffered by others is called_______ insurance Liability
The decision not to buy collision insurance on an old car is called risk retention
Bob has a renter’s policy with a max limit for personal property of $30,000. When i=his apartment suffered fire damage, $15,000 of his personal property was destroyed. The insurance would pay no more than ____ in this case. $15,000
______ insurance is required in most states automobile
Bruce’s car is pretty old now, and its resale value is low. Since he is always interested in saving insurance premium dollars when appropriate, which of the following types of insurance should he consider dropping? Collision
The person on whose life a life insurance policy is written is called the: Insured
Life insurance needs are____ until your first child is born, then the need is____ until the youngest child is ten, and then the need________ until retirement. low, high, decreases
Which of the following is a characteristic of term life insurance? Provides no investment features
Risk retention would be most appropriate in which of the following cases? Coverage for loss of contact lens
Which of the following types of insurance can be purchased only through a federal government program? flood insurance
To make it possible for consumers to comply with th e individual mandate to buy health insurance the Affordable Care Act established ________ run by their states federal government. health insurance exchanges
Asa result of the health care reform patient protection and affordable health care act, a child may stay on a parent’s health care plan until age: 26
Under the affordable care act, all health care plans must include: ten specific essential health benefits
Which of the following government programs is jointly funded by federal an state governments medicaid
The period of time each year when you can make changes in your selection of health care plans available from your employer is called ope-enrollment period
One cannot rely on worker’s compensation to cover your health care needs because it: Covers only job-related injuries and illnesses
Eligibility for which of the following is based on household income and net worth? Medicaid
Which type of insurance provide reimbursement for costs associated with custodial care in a nursing facility or at home? Long-term care insurance
Persons who have a high=deductble health plan can make tax-sheltered deposits into an investment account called a _____ from which they can pay medical expenses. Health savings account
Your health insurance requires that you pay $50 each time you visit the doctor’s office and $15 for each prescription drug. This is an example of: a copayment
Net Assest Value increases when the value of the underlying securities increases
which of the following types of investment companies operates much like an index fund: Exchange traded fund (ETF)
Mutual fund investors must pay federal income taxes on: ordinary income dividend distributions, capital gains distributions, capital gains from selling their shares
Open-end mutual fund shares have good liquidity because the fund company will buy back the shares and send you cash whenever requested
advantages of mutual funds include diversification, professional management, liquidity
Compounding is attained in mutual fund investing through automatic reinvestment of dividends
A mutual fund’s _______ can allow investors to have amounts as low as $25 per month transferred from their bank account to purchase shares automatic investment program
Periodic, systematic investment in mutual funds is very much like_______ when buying stocks dollar-cost averaging
A REIT is a type of closed-end mutual fund that focuses on real estate
Growth funds specialize in securities of companies that are growing rapidly
Finance Flashcards

Personal Finance exam 2 quiz questions

Multiple soft inquiries add up to one hard inquiry on your credit report. false
How do identity thieves keep delinquent credit notices off your radar? change the billing address used
Consumers know the exact formula used to calculate credit scores. false
Credit history public records include bankruptcies, judgements, arrests, tax liens, and criminal history. false
Your credit score is not adversely affected if you check it yourself. true
Individuals with extremely good credit history benefit from lending relationships. false
What is a reporting agency that assembles information on borrowers to help lenders evaluate credit worthiness? (You are entitled to see your credit report and dispute or add to the information you feel is erroneous). Credit bureau
Credit cards have different liabilities than debit cards. You need to know this in case your cards are ever lost or stolen. true
A credit rule of thumb is that products should outlive their credit card payments. true
When you co-sign on a loan, you are also liable for the account and it will show up on your credit report too. true
According to lecture what are the typical characteristics of deadbeat borrowers Well educated
Every credit card borrower is charged identical interest rates false
A consumer can have a very high credit score and still be denied of a credit/loan true
What is the major component that is considered in credit score computation Bill payment history
According to the lecture , nearly how much percent of consumers in America have a credit score below 660 40%
According to lecture what are the typical characteristics of revolver borrowers Relatively young
According to lecture slides why do credit card companies hate deadbeats ? Because banks earn a very little money from deadbeats
Which of the following is not a credit bureau Morning Star
Term insurance policy is the cheapest policy when you are young. True
Smoking and intravenous drug use have a similar effect on your health insurance rates. false
The primary reason given for lack of health insurance is most commonly: cost
In insurance, underwriting refers to which of the following? The process of deciding whom to insure and at what rate
How is the death benefit of a life insurance policy affected if you borrow from the policy and die before you pay the loan back? The outstanding loan is subtracted from the benefit
The origins of term life insurance can be traced back to the Roman legionnaires. True
Which of the following policies does not contain a cash value component? Term life
Policy loan provisions are loans secured by which of the following? The cash value of the policy
Which of the following describes the principle that you are entitled to payment from the insurance company if a loss has been sufferred and that payment should not be greater than the economic value of the loss? indemnity
Which of the following statements is true of term insurance? Premiums increase with age
Which of the following factors influence an auto insurance premium? 1. Where the car will be driven2. Personal characteristics of the driver3. Type of automobile4. Amount the vehicle will be driven
Typically, homeowners’ policies cover damage from which of the following events? Wind
In property insurance, the two main types of exposure we face are liability and property loss. true
Which of the following is true regarding mortgage insurance? It protects the lender in case of default
Uninsured motorist coverage only pays for damages incurred when another driver is at fault and does not have insurance and you know who they are. true
Which part of an auto insurance policy would pay for damage incurred if a tree fell on a parked car? Comprehensive
How much will an insurance company pay for bodily injury per accident in a 20/50/15 auto policy? $50,000
Accident insurance policies are highly recommended due to their superior coverage as compared to disability and comprehensive health policies. False
Which portion of an auto policy covers damage to another person’s vehicle when you are at fault? Liability
Which factors should you consider when deciding to contribute to your retirement accounts? How many people will you be supportingWhat can you expect prices to be like in your retirement, due to inflationWhat is your expected life expectancy -All of the above, but the best we can do is guess
What are the benefits of a defined contribution plan? -The money contributed by the employer is like extra income to the employee, that is given in a way that encourages the employee to save with tax-deferred benefits-Participating results in employees investing funds directly into their retirement accounts, into a portfolio of their choosing
What is the main concept of a ‘pay as you go’ plan? The current generation of workers supports the retirees that are still living, along with their dependents
When was the Social Security Act officiated? August 14th 1935 by President Franklin D. Roosevelt as part of the Second New Deal Plan
Which of the following is included in the “three legged stool”? Social SecurityPensionSavings
Social Security is the government’s way of providing all of your necessary retirement income. False
What is the definition of a defined contribution plan? An arrangement in which an employee and/or the employer can contribute to a retirement account and invest the funds as they wish
What of the following best represents the idea of the risk cycle hypothesis? It is better to take more risk at a young age and then scale back toward retirement
What has been the historic interest rate earned on deposits over the last 60 – 70 years? 8%
What is the impact on the social security fund of the average American having an increased lifespan? The social security fund is strained as it has to pay out more money due to an extended longevity of the average lifespan
What should you do when deciding how to invest in a retirement account? Diversify investments, estimate retirement needs, and gauge your level of risk tolerance
Why was the transition made from defined benefit to defined contribution plans? Companies were greatly burdened by caring for their employees and were unable to maintain the payments on the defined benefit arrangements
Which of the following programs falls under the umbrella Social Security program? Medicare
Why doesn’t Social Security cover all of a person’s living expenses? The system is designed to partially replace the earnings a person had during their working years
What is the definition of a defined benefit plan? An arrangement in which an employer guarantees a specific amount of income during retirement, based on the employee’s salary and years of employment
Starting to save money earlier will allow you to have more in retirement accounts, ceteris paribus, because of compound interest working in your favor. True
The risk of the performance of a defined contribution plan is entirely on the employer. False
Where does the majority of funding for the social security fund come from? Portions of your income that are withheld or collected during tax season along with contributions from your employer
What are some of the possible remedies to correct the depletion of the Social Security Reserves? -Increase the social security tax, even though this would be difficult in current political climates-Delay eligibility benefits by increasing the official retirement age beyond 67
How do you qualify for Social Security? You have to earn a certain number of credits that are accumulated according to your taxable adjusted gross income that you paid, during a period which you contributed to the social security fund
Controlling what is put into your food is one benefit of eating at restaurants. False
Leasing a car is similar to renting. True
The housing market is highly liquid. False
What is the main advantage of renting a house? lower maintenance
One benefit of owning a house that you get a tax benefit. True
Under which of the following conditions would you NOT want to purchase a grocery club membership? if you have a small family
From an economics standpoint, buying a car is a more valuable option than leasing. True
There are both pros and cons to reading the news online. True
Which of the following is an advantage of shopping at a brick and mortar store rather than online? You are able to touch and feel the product before buying
What typically matters the most to “revolvers” when choosing a credit card? interest rates
Finance Flashcards

Dave Ramsey Foundations in Personal Finance – Chapter 6 Money in Review

Opportunity Cost Refers to the financial opportunity that is given up because you choose to do something else with your money
Significant Purchase An amount of money you spend, usually $300, that causes some pain to part with
Branding The promotion of a product or service by identifying it with distinct characteristics (usually associated with public perception, quality or effectiveness)
Buyer’s Remorse Feeling regret or concern after making a large purchase
Financing To buy an item with credit; paying over time
Caveat Emptor Latin term for “buyer beware”
Marketing The process of communicating the value of a product or service to customers
Brand Recognition Refers to the public’s ability to recall and recognize a brand by its logo, jingles, packaging, etc.
True As a consumer, you should consider inflation in your investment and retirement planning.
False If you don’t have cash on hand, financing a significant purchase is a good option.
Eating out Which of the following is not a need?
All of the above The purpose of advertising is to:
Making the customer do product research Which of the following is not a common marketing strategy?