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Finance Flashcards

Int. Finance Ch. 5 (Test 2) Bank – Concepts only

Kalons, Inc. is a U.S.-based MNC that frequently imports raw materials from Canada. Kalons is typically invoiced for these goods in Canadian dollars and is concerned that the Canadian dollar will appreciate in the near future. Which of the following is not an appropriate hedging technique under these circumstances?a. Purchase Canadian dollars forward.b. Purchase Canadian dollar futures contracts.c. Purchase Canadian dollar put options.d. Purchase Canadian dollar call options. c. Purchase Canadian dollar put options.
Thornton, Inc. needs to invest 5 million Nepalese rupees in its Nepalese subsidiary to support local operations. Thornton would like its subsidiary to repay the rupees in one year. Thornton would like to engage in a swap transaction. Thus, Thornton would: convert the dollars to rupees in the spot market today and convert rupees to dollars in one year at today’s forward rate.
In the United States, the typical currency futures contract is based on a currency value in terms of: U.S. dollars.
Currency futures contracts sold on an exchange contain: a commitment to the owner, and are standardized.
Currency options sold through an options exchange contain: a right but not a commitment to the owner, and are standardized.
Forward contracts contain: a commitment to the owner, and can be tailored to the owner’s desire.
Which of the following is the most likely strategy for a U.S. firm that will be receiving Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)? Sell a futures contract on francs.
Which of the following is the most unlikely strategy for a U.S. firm that will be purchasing Swiss francs in the future and desires to avoid exchange rate risk (assume the firm has no offsetting position in francs)? Sell a futures contract on francs.
If your firm expects the euro to substantially depreciate, it could speculate by ____ euro call options or ____ euros forward in the forward exchange market. selling; selling
When you own ____, there is no obligation on your part; however, when you own ____, there is an obligation on your part. call options; forward contracts
The greater the variability of a currency, the ____ will be the premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things being equal. greater; greater
Which of the following is true?A. The futures market is used for both hedging and speculating while the forward market is primarily used for hedging.B. The futures market is used for both hedging and speculating while the forward market is primarily used for speculating.C. Both the futures market and the forward market are primarily used for speculating.D. The futures market is primarily used for hedgingwhile the forward market is used for speculating. A. The futures market is used for both hedging and speculating while the forward market is primarily used for hedging.
Which of the following is true?A. Most forward contracts between firms and banks are for speculative purposes.B. A security deposit is not required for futures contracts. C. The forward contracts offered by banks have maturities for only four possible dates in the future.D. None of these are correct. D. None of these are correct.
If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes. sell a euro call and buy a euro put
If you expect the British pound to appreciate, you could speculate by ____ pound call options or ____ pound put options. purchasing; selling
Which of the following is correct?a. The longer the time to maturity, the lower the value of a currency call option, other things being equal.b. The longer the time to maturity, the lower the value of a currency put option, other things being equal.c. The higher the spot rate relative to the exercise price, the greater the value of a currency put option, other things being equal.d. The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other things being equal. d. The lower the exercise price relative to the spot rate, the greater the value of a currency call option, other things being equal.
Research has found that the options market is: efficient after controlling for transaction costs.
Assume no transactions costs exist for any futures or forward contracts. The price of British pound futures with a settlement date 180 days from now will: be about the same as the 180-day forward rate.
Assume that a currency’s spot and future prices are the same, and the currency’s interest rate is higher than the U.S. rate. The actions of U.S. investors to lock in this higher foreign return would ____ the currency’s spot rate and ____ the currency’s futures price. put upward pressure on; put downward pressure on
A firm sells a currency futures contract, and then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by: buying an identical futures contract.
If the spot rate of the euro increased substantially over a one-month period, the futures price on euros would likely ____ over that same period. increase substantially
A U.S. firm is bidding for a project needed by the Swiss government. The firm will not know if the bid is accepted until three months from now. The firm will need Swiss francs to cover expenses but will be paid by the Swiss government in dollars if it is hired for the project. The firm can best insulate itself against exchange rate exposure by: buying franc call options.
If you purchase a straddle on euros, this implies that you:A. finance the purchase of a call option by selling a put option in the euros.B. finance the purchase of a call option by selling a call option in the euros.C.finance the purchase of a put option by selling a put option in the euros.D. finance the purchase of a put option by selling a call option in the euros.E. None of these are correct. E. None of these are correct.
Macomb Corporation is a U.S. firm that invoices some of its exports in Japanese yen. If it expects the yen to weaken, it could ____ to hedge the exchange rate risk on those exports. sell futures contracts on yen
A put option on British pounds has a strike (exercise) price of $1.48. The present exchange rate is $1.55. This put option can be referred to as: out of the money.
Which of the following is NOT an instrument used by U.S.-based MNCs to cover their foreign currency positions?A. forward contractsB. futures contractsC. non-deliverable forward contractsD. optionsE. All of these are instruments used to cover foreign currency positions. E. All of these are instruments used to cover foreign currency positions.
When the futures price on euros is below the forward rate on euros for the same settlement date, astute investors may attempt to simultaneously ____ euros forward and ____ euro futures. Sell; Buy
When the futures price is equal to the spot rate of a given currency, and the foreign country exhibits a higher interest rate than the U.S. interest rate, astute investors may attempt to simultaneously ____ the foreign currency, invest it in the foreign country, and ____ futures in the foreign currency. buy; sell
Which of the following would result in a profit on a euro futures contract when the euro depreciates? Sell a euro futures contract; buy a futures contract after the euro has depreciated.
Which of the following is NOT true regarding options?A. Options are traded on exchanges, never over-the-counter.B. Similar to futures contracts, margin requirements are normally imposed on option traders.C. Although commissions for options are fixed per transaction, multiple contracts may be involved in a transaction, thus lowering the commission per contract.D. Currency options can be classified as either put or call options.E. All of these are true. A. Options are traded on exchanges, never over-the-counter.
If the observed put option premium is less than what is suggested by the put-call parity equation, astute speculators could make a profit by ____ the put option, ____ the call option, and ____ the underlying currency. buying; selling; buying
A put option premium has a lower bound that is equal to the greater of zero and the difference between the underlying ____ prices. The upper bound of a put option premium is the ____ price. exercise and spot; exercise
A call option premium has a lower bound that is equal to the greater of zero and the difference between the underlying ____ prices. The upper bound of a call option premium is the ____ price. spot and exercise; spot
Which of the following are most commonly traded on an exchange?a. forward contractsb. futures contractsc. currenciesd. None of these are correct. b. futures contracts
Conditional currency options are: options where the premiums are canceled if a trigger level is reached.
Which of the following is true regarding the currency options market? When transaction costs are controlled for, the currency options market is efficient.
The premium of a currency put option should increase if:a. the volatility of the underlying asset increases.b. the spot rate increases.c. the volatility of the underlying asset increases AND the spot rate increases.d. None of these are correct. a. the volatility of the underlying asset increases.
Which of the following is true of options?a. The writer decides whether the option will be exercised.b. The writer pays the buyer the option premium.c. The buyer decides if the option will be exercised.d. More than one of these. c. The buyer decides if the option will be exercised.
The purchase of a currency put option would be appropriate for which of the following?A. Investors who expect to buy a foreign bond in one month.B. Corporations that expect to buy foreign currency to finance foreign subsidiaries.C. Corporations that expect to collect on a foreign account receivable in one month.D. All of these are correct. B. Corporations that expect to buy foreign currency to finance foreign subsidiaries.
If you have bought the right to sell, you are a:a. call writer.b. put buyer.c. futures buyer.d. put writer. b. put buyer.
If you have an options position in which you might be obligated to buy euros, you are a:a. call writer.b. put writer.c. put buyer.d. futures seller. b. put writer.
Which of the following is true for futures, but not for forwards?a. actual deliveryb. no transactions costsc. self-regulating marketd. None of these are correct. d. None of these are correct.
Non-deliverable forward contracts (NDFs) are frequently used for currencies in emerging markets. (T/F) True
The price of a futures contract will generally vary significantly from that of a forward contract. (T/F) False
If the futures rate is lower than the forward rate, astute investors would attempt to simultaneously buy futures and sell forward. Such actions would place downward pressure on the futures price and upward pressure on the forward rate. (T/F) False
Forward contracts are usually liquidated by actual delivery of the currency, while futures contracts are usually liquidated by offsetting transactions. (T/F) True
If an investor who previously sold futures contracts wishes to liquidate his position, he could sell futures contracts with the same maturity date. False
The writer of a call option is obligated to sell the underlying currency to the buyer of the option if the option is exercised. True
The lower bound of the call option premium is the greater of zero and the difference between the spot rate and the exercise price; the upper bound of a currency call option is the spot rate. True
The lower bound of a put option premium is the greater of zero and the difference between the exercise price and the spot rate; the upper bound of a currency put option is the exercise price. True
Due to put-call parity, we can use the same formula to price calls and puts. False
If an actual put option premium is less than what is suggested by the put-call parity relationship, arbitrage can be conducted. True
If the futures rate is above the forward rate, actions by rational investors would put upward pressure on the forward rate and downward pressure on the futures rate. True
Futures contracts are standardized with respect to delivery date and the futures price specified for the settlement date. False
If an investor who has previously purchased a futures contract wishes to liquidate her position, she would sell an identical futures contract with the same settlement date. True
Margin requirements require investors in futures contracts to make deposits with their respective brokerage firms when they take their position. The deposits are intended to minimize the credit risk associated with futures contracts. True
A European option can only be exercised at the expiration date, while an American option can be exercised any time prior to the expiration date. True
The highest amount a buyer of a call or a put option can lose is the exercise price. True
A currency put option is a contract specifying a standard volume of a particular currency to be exchanged on a specific settlement date. False
An option writer is the seller of a call or a put option. True
The forward premium is the price specified in a call or put option. False
Hedgers should buy puts if they are hedging an expected inflow of foreign currency. True
Forward contracts are the best technique for managing exposure arising from project bidding. False
The currency futures markets are regulated by the International Monetary Fund. False
It is possible to have an opportunity loss when using futures to hedge. True
Margin is used in the forward market to mitigate default risk. False
There are no transactions costs associated with trading futures or options. False
Futures and options are available for cross rates. True
Options can be traded on an exchange or over the counter. True
The writer of a currency call option is obligated to buy the currency if the option is exercised. False
American-style options can be exercised any time up to maturity. True
If a currency put option is out of the money, then the present exchange rate is less than the strike price. False
Managers of MNCs are typically expected to use currency derivatives for speculation in order to improve profits. False
A call option on Japanese yen has a strike (exercise) price of $.012. The present exchange rate is $.011. This call option can be referred to as: Out of the Money
If you have a position where you might be obligated to sell pounds, you are:a. a call writer.b. a call buyer.c. a put writer.d. a put buyer. a. a call writer.
If you have bought a right to buy foreign currency, you are:a. a call writer.b. a call buyer.c. a put writer.d. a put buyer. b. a call buyer.
The premium on a pound put option is $.04. The spot rate and the exercise price are $1.52. The spot rate at the time of this option expiration is expected to be $1.51. Speculators could profit by:a. writing a put option.b. buying a put option.c. buying a call optiond. writing a call option and buying a call option simultaneously. d. writing a call option and buying a call option simultaneously.
A put option on Swiss franc has a strike (exercise) price of $.92. The present exchange rate is $.89. This put option can be referred to as: In the Money
The ____ the existing spot price relative to the strike price, the ____ valuable the put options will be. Lower; More
Which of the following does NOT represent the risk from using forward contracts? A forward contract is used to hedge receivables, and the spot exchange rate at the time of expiration of the contract is lower than the contract price.
The writer of a put option has a right, but not an obligation, to buy the underlying currency from the option buyer. False
An MNC frequently uses either forward or futures contracts to hedge its exposure to foreign payables. To do so, the MNC can either sell the foreign currency forward or sell futures. False
Hedgers should buy calls if they are hedging an expected outflow of foreign currency. True
If a currency’s forward rate exhibits a discount, the currency is forced to appreciate. False
If a currency’s forward rate exhibits a premium, that currency is forced to depreciate. False
If a currency call option is in the money, then the present exchange rate exceeds the strike price. True
If the forward rate for a currency is less than the spot rate for that currency, the forward rate is said to exhibit a premium. False
If an MNC desires to offset a forward contract that it previously created, it can simply ignore its obligation. False
Non-deliverable forward contracts (NDFs) can be used to hedge existing positions in foreign currencies that are not convertible into dollars. True
Forward contracts are usually negotiated with a commercial bank, while futures contracts are traded on an organized exchange. True
Since corporations have specialized needs, they usually prefer futures contracts to forward contracts for hedging purposes. False
A speculator in futures contracts who expects the value of a foreign currency to depreciate would likely sell futures contracts. True
The option exchanges in the United States are regulated by the Consumer Finance Protection Bureau and the Federal Trade Commission. False
A currency call option grants the right to sell a specific currency at a designated price within a specific time period. False
Currency call options allow the purchaser to lock in the price paid for a currency. Therefore, they are often used by MNCs to hedge foreign currency payables. True
When the current exchange rate is less than the strike price, a call option with that strike price will be in the money and a put option with that strike price will be out of the money. False
A high spot price relative to the strike price will result in a relatively high premium for a call option and a relatively high premium for a put option. False
Both call and put option premiums are affected by the level of the existing spot rate relative to the strike price, the length of time before the expiration date, and the potential variability of the currency. True
An advantage of a short straddle is that it provides the option writer with income from two separate sources. True
The choice of a basic versus a conditional option depends on expectations about the currency’s exchange rate over the period of concern. True
The disadvantage of a long strangle relative to a long straddle is that the underlying currency has to fluctuate more prior to expiration. True
With a bull spread, the spreader believes that the underlying currency will appreciate substantially, even more so than with a strangle. False
A forward rate for a currency is said to exhibit a discount if: the forward rate is less than the existing spot rate.
When the futures price is above the forward rate, astute investors may attempt to simultaneously buy a currency forward and sell futures in that currency. These actions would place ____ pressure on the forward rate and ____ pressure on the futures rate. Upward; downward
Which of the following is NOT true regarding futures contracts?a. Unlike forward contracts, they are generally traded on an exchange.b. Futures contracts are standardized with respect to delivery date and size of the contract.c. There is an active over-the-counter market for currency futures contracts.d. Currency futures can be used by speculators who attempt to profit from exchange rate movements. c. There is an active over-the-counter market for currency futures contracts.
Which of the following would result in a profit on a futures contract when the underlying currency depreciates?A. Buy a futures contract; sell a futures contract after the currency has depreciated.B. Sell a futures contract; buy a futures contract after the currency has depreciated.C. Buy a futures contract; buy an additional futures contract after the currency has depreciated.D. None of the above would result in a profit when the underlying currency of the futures contract depreciates. B. Sell a futures contract; buy a futures contract after the currency has depreciated.
Currency futures can be used by MNCs to hedge payables. That is, an MNC would ____ futures to hedge a foreign payable position. Also, currency futures can be used for speculation. For example, a speculator expecting a currency to appreciate would ____ futures. Buy; Buy
When the existing spot rate exceeds the exercise price, a call option is ____, and a put option is ____. in the money; out of the money
Which of the following is true regarding options?a. Options are only traded over-the-counter.b. Speculators sell at-the-money put options when they expect that the currency’s value will rise.c. Speculators purchase at-the-money call options when they expect that the currency’s value will fall.d. Speculators sell at-the-money currency call options when they expect that the currency’s value will rise. b. Speculators sell at-the-money put options when they expect that the currency’s value will rise.
When a currency call option is classified as “in the money,” this indicates that the spot rate of the currency is greater than the exercise price of the option.
Which of the following is NOT true regarding options?a. The buyer of a call option has the right to buy the currency at the strike price.b. The writer of a call option has the obligation to sell the currency to the buyer if the option if exercised.c. The buyer of a put option has the right to sell the currency at the strike price.d. The writer of a put option has the obligation to sell the currency to the buyer if the option is exercised. d. The writer of a put option has the obligation to sell the currency to the buyer if the option is exercised.
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Finance Flashcards

National Finance

An “Acceleration” clause most nearly means to speed up payment of an overdue debt.
The term, PITI refers to the parts of a mortgage loan payment, which of the following correctly describes PITI, Principal, Interest, Taxes, and Insurance.
When a mortgage is paid off, what clause allows the lender to release the mortgage rights and issue a satisfaction piece? Defeasance
If prioritizing loans as when recording, a second mortgage or deed of trust is referred to as a junior mortgage.
Typically, a mortgage loan monthly payment consists of PITI, (P) the amount borrowed from the lender is called the principal.
Of the following parties to a mortgage, whose interest is benefitted by an acceleration clause? The mortgagee
An agreement to waive prior rights in favor of another is called subordination.
Which is true about a promissory note? It is the primary evidence of a loan
A buyer assumes the mortgage. How is the seller relieved of the liability? Novation
A mortgage clause used in refinancing the first mortgage which allows the second mortgage to take the first place is called subordination.
Foreclosure would terminate which of the following? Equitable redemption rights
Ronald defaulted on his home mortgage loan payments; therefore, the lender obtained a court order to foreclose on the property. At the foreclosure sale, Ronald’s house sold for only $29,000 and the unpaid balance of his loan is $40,000. What must the lender do to recover the $11,000 Ronald still owes? Seek a deficiency judgment
If the amount realized at a Sheriff’s sale upon a delinquent mortgage is more than the indebtedness, the excess belongs to the mortgagor.
Which would be first in priority? Special Assessments
The buyer was required to pay $4,000 in discount points. The loan balance was $80,000. How many points did the lender require? 5
A lender charges discount points on a loan to improve the lender’s yield.
If a borrower purchases a property for $200,000, and borrows $160,000 he/she is said to have a LTV ratio of? 80%
The interest on a real estate mortgage loan is what type of interest? Simple
The loan amount is $70,000, and the monthly principal and interest payment will be $479.00 a month for 30 years. How much interest will be paid over the term of the loan? $102,440.00
A buyer got a 30 year loan with a loan balance of $65,000 with an interest rate of 10% and a factor of 8.78. What will be the borrowers monthly P & I payment? $570.70
Remember for purposes of determining the new loan balance, you will not have to know how to determine the payment amount.
In Step 3 what do you subtract from the monthly payment amount to solve for the monthly principal? Current monthly interest
Determine the monthly interest on a loan with a balance of $168,300, a monthly payment of $1,356.80, and an interest rate of 7.75%? $1,086.94.
A homeowner has a mortgage balance of $149,570.75. If the interest rate on the loan is 9.5% and the monthly payment is $1,303.55 what will be the mortgage balance after the next two payments? $149,330.91
A mortgage has a balance of $70,000 at 11.5% interest for a period of 25 years. The monthly P & I payment is $711.53, what is the interest charge for the second monthly payment? $670.44
What is the balance on an amortized loan of $340,000 after the first payment if the interest rate is 6% with a monthly P&I payment of $2,028? $339,672.00
A type of long term permanent financing for residential construction or large construction projects, that replaces the construction loan is called a (an) takeout loan.
A type of loan where interest and principal are paid on an equal basis until the final payment, which is larger, is called a Balloon Loan or partially amortized loan.
A type of mortgage which allows the lender to increase the outstanding balance of a loan up to the original amount of the loan in order to advance additional funds is called an open-end mortgage.
An Adjustable Rate Mortgage (ARM) contains an escalator clause that allows the interest to adjust over the loan term. How often the loan rate may be changed is determined by the adjustment period.
The purchaser of real estate by deed or the buyer under a contract for deed is called the vendee.
With an Adjustable-rate Loan the interest rate fluctuates and is usually tied to an index. The interest rate for any given period is the indexed rate plus the margin amount.
A loan on real estate, that includes fixtures, and appliances used extensively in the sale of condominiums is a (an) package mortgage.
A real estate loan where a homeowner receives monthly payments based on accumulated equity rather than a lump sum and is repaid upon the death of the owner or sale of the property is a (an) reverse annuity mortgage.
A final payment of a mortgage loan that is considerably larger than the other monthly payments because the loan was not fully amortized is called a balloon payment.
A type of payment plan where a buyer pays interest only and the final payment is principal at the end of the loan period. Straight
A mortgage requires monthly payments of $852.10 for 15 years and a final payment of $29,800. This type of loan is called a (an) balloon or a partially amortized loan.
When a real estate loan uses both real and personal property as collateral for the loan it is called a (an) package mortgage.
A Budget Mortgage is a loan, which has a payment composed of the following? Principal, interest, taxes and insurance
A developer would most likely obtain which of the following types of mortgage on a new subdivision? Blanket mortgage
What can the VA require a veteran do when obtaining a loan? Make the veteran automatically assume liability for the loan
If a Veteran wanted to buy a $60,000 house in a city with a population of 100,000 people, which of the following loans could he NOT apply for? RECD loan
The basic difference between an FHA and a VA loan is The FHA insures loans, the VA guarantees them.
A veteran desired a loan to buy a 200 acre residence. There are no VA lenders in the area. Which could happen? The VA could loan the money themselves.
Conventional mortgage loans are not guaranteed or insured by any government agency.
For a veteran to obtain a VA loan, the VA must issue a certificate of eligibility
When you obtain an FHA loan, what generally happens? An FHA appraiser must appraise the property
Private mortgage insurance is associated with conventional loans.
Rural Economic and Community Development (RECD) loans are either made directly by RECD or made by a private lender with RECD guaranteeing a certain percentage.
A veteran had a VA loan using his full entitlement. He allows another veteran to assume the loan without VA approval. Could he immediately get another VA loan? No, because he is still liable for the loan.
On a government backed loan, which of the following would be permitted concerning pre-payment penalties? Prepayment penalties are not allowed, under any circumstances, on VA or FHA loans.
What is the purpose of FHA? To act as an insurance company of first mortgages
A Buyer has demonstrated the financial capacity and creditworthiness required to afford the asking price by providing the lender with all of the following, except an appraisal equal to or higher than the contract price.
Transfer taxes are generally paid by the seller.
Protection to an owner of property against losses sustained as a result of a defective title to real estate can be accomplished by title Insurance.
Many states charge what is called a transfer tax when the property is conveyed by one of the following means deed.
When underwriting a mortgage loan a lender considers all of the following, except credit worthiness of the seller.
The recorded history of matters that affect the title to a specific parcel of real estate, such as ownership, encumbrances and liens, usually beginning with the original recorded source of the title is called the chain of title.
Under which of the following would one MOST likely see an estoppel certificate? A lender sells a loan and the new mortgagee wants to know the existing balance
Prior to closing, a final walkthrough of the property should be performed to ensure that everything has remained as stated in the sales contract. The walkthrough is generally completed by the buyer.
Assets include all of the following, except revolving and installment loan accounts.
A settlement agent could be all of the above.
A qualified buyer is one who has demonstrated the financial capacity and credit worthiness required to afford the asking price. In qualifying a buyer the lender looks at these factors? Income, net worth and credit history
Settlement is another name for closing and brings the real estate transaction to completion.
A written pledge by a lender to lend a certain amount of money to a qualified borrower on a particular piece of real estate for a specified time under specific terms is a conditional approval.
The legal doctrine by which a person is prevented from asserting rights or facts that are inconsistent with a previous position or representation made by act, conduct or silence is known as estoppel.
Which of the following is considered a part of the secondary mortgage market? Federal Home Loan Mortgage Corporation (FHLMC)
All of the following were originally established to buy and sell mortgages in order to stimulate mortgage lending, except Maggie Mae (MGIC).
An increase in the availability of money would lead to which effects? Interest rates would go down
A mortgage in which the lender participates in the income of the mortgaged property beyond a fixed return is called participation financing.
A commercial bank would usually make all of the following loans EXCEPT, a pension fund loan.
All of the following are sources for obtaining a residential mortgage for the purchase of a single-family residence, except FNMA.
S&Ls are now regulated by the Federal Housing Finance Board (FHFB) and deposits are insured by the Deposit Insurance Fund for at least $250,000.
As a group, the three secondary mortgage market participants; Fannie Mae, Ginnie Mae and Freddie Mac provide an outlet for primary lenders to sell their mortgage loans.
The two biggest money lenders of residential real estate mortgages are savings and loans and banks.
The Federal Reserve controls lenders by telling lenders what percentage of their assets they can loan.
The primary distinction/s between the primary and secondary mortgage market is?
All of the following purchase mortgages from savings and loans in the secondary market EXCEPT the Federal Housing Administration.
The Federal Reserve controls the money supply by requiring how much of a bank’s assets have to be on reserve.
Which of the following secondary market organizations is a quasi-government corporation? Fannie Mae (FNMA)
The Federal National Mortgage Association (FNMA) sells seasoned mortgages and deeds of trust to individual investors and financial institutions. A seasoned mortgage is one that has been in existence for some time and has a good record of repayment by the mortgagor.
The Truth in Lending laws apply to the financing of single family residences.
Real estate can be a poor investment if the investor needs ready cash.
Which agency administers RESPA? Consumer Financial Protection Bureau (CFPB)
In terms of stating mortgage rate interest, the standardized rate required by the Truth in Lending Act to facilitate comparison loan shopping is called the annual percentage rate.
Purchasing an investment property , like an apartment complex may be more rewarding if the investor has the required management skills.
The Equal Credit Opportunity Act prohibits lenders from discriminating against consumers in the granting of credit based on the following protected classes; race, color, religion, national origin, sex, marital status, age or dependency on public assistance.
A settlement agent must provide the seller with the Closing Disclosure at consummation of the mortgage.
A standardized yardstick expressing the true annual cost of borrowing is expressed as the “APR” and includes the contract interest rate and points.
Regulation Z is not concerned with the loan to value ratio
An advantage of real estate investment is tax savings, the capital gain exclusion on a principal residence excludes the gain up to $250,000 per individual (up to $500,000 for a couple).
Which of the following mortgage closing transactions require compliance under TRID rules? Unimproved property
Truth In Lending applies to all of the following, except commercial property.
As with most investments, there is a high degree of risk in buying and selling investment real estate because market conditions are changing all the time.
Under the ECOA, a lender can base lending decisions on all of an individual’s information, except marital status.
Real estate is generally a good investment because it keeps up with inflation trends.
The two major sections of the Truth In Lending law, includes advertising and Annual Percentage Rate (A.P.R.).
RESPA requires lenders to provide a HUD “Guide to Settlement” booklet and a Good Faith Estimate (GFE) of all costs related to settlement to borrowers within 3 days of loan application.
A primary purpose of the Truth in Lending Act is to make loan cost information readily available to consumer borrowers.
The Truth-in-Lending Act applies to which of the following? An advertisement for a house for sale by a broker which discloses financing terms.
The Real Estate Settlement Procedures Act and Regulation Z are separate acts dealing with separate financing issues.
The following real estate financing statements all contain trigger terms under Regulation Z of the Truth in Lending Act, except “Great assumable low interest rate loan”.
Which of the following laws require(s) that finance charges be stated as an annual percentage rate (APR)? Truth in Lending Act, Regulation Z
Under the ECOA, a lender can base lending decisions on all of an individual’s information, except sex.
Unsophisticated investors should seek legal council
A mortgage broker _____________???? is a lender.
A buyer wanted to use a promissory note for consideration on the purchase of a property. Can he do this Yes, this is acceptable as long as the seller agrees.
A borrower bought a $74,000 house with no down payment. The loan was probably ______________ a VA loan.
In most states, by paying the debt after a foreclosure sale, the mortgagor has the right to regain the property. What is this right called Statutory right of redemption
Effective October 1, 2015, the real estate industry has new requirements as specified in the TILA/RESPA Integrated Disclosure (TRID) Rule.
Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan Monthly payments
RESPA would prohibit which of the following acts???? Kickbacks
On an 8% straight term loan of $6,071 the borrower paid total interest of $1,700. How long did he have the loan 42
A standardized yardstick expressing the true annual cost of borrowing is expressed as a/an APR
All of the following are true of conventional loans except what? disclose the true costs of obtaining credit.
The primary purpose of Truth in Lending is to _____________ control interest rates on behalf of the consumer.
In which of the following markets may a lender sell a loan that a mortgage banker has previously originated? Secondary market
An owner was selling his own home. Can he advertise the down payment Yes, because it was his own home
Which of the following is considered a conventional loan? Commercial bank ARM loan
An increase in the availability of money would lead to which effect? Interest rates would go down.
If advertised alone, which would be in violation of TRUTH IN LENDING?????? “No down payment required”
A VA loan may be granted for the purchase of a one-family to four-family if the veteran agrees to live there
If a single parent is applying for a real estate loan, when would the fact have to be revealed that part of the parent’s income is from child support? If the parent was relying on the income for repayment of the loan
The finance charges recorded on the Truth in Lending statements would include all of the following EXCEPT: Loan fees charged by the lender
Which of the following would usually occur in a sale-and-leaseback transaction? The property is sold on the condition that the new owner lease it back to the seller at the time title passes.
Who is NOT an originator of primary loans? FHA
A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called: warehousing
An impound or reserve account MOST benefits whom? the lender
The Loan Estimate must be delivered to an applicant within three business days of loan application.
An owner advertised “beautiful acreage only $5,000 down, owner will personally finance down payment.” Would this be in violation of the Truth in Lending Act? No, owners are not covered by Reg. Z.
Which of the following describes a mortgage that requires principal and interest payments at regular intervals and calls for the liquidation of the debt by periodic installments until the debt is satisfied? Amortized loan
is the cost per thousand that is required to create the principal and interest payment necessary to pay off a loan. a point
The lender is not insured or guaranteed against a loss, by reason of the borrower’s default in repayment, under which type of loan? conventional
Who is the largest purchaser in the secondary market? Fannie Mae
A home improvement company was negotiating with a home owner to add two rooms onto a home. The company agreed to take a second mortgage as long as the homeowner also included the rest of the property in the loan. The company and the homeowner agreed to a price and the company provided the necessary disclosure form on Monday and the homeowner signed the agreement at noon the following day. Assuming that the week had five business days, until what time could the homeowner rescind the loan? friday, midnight
Why would a mortgagee (beneficiary) have an appraisal on the property? To assure the property value is sufficient to cover the loan
Under Regulation Z, consummation is defined as the time when a consumer becomes contractually obligated on a credit transaction.
A buyer wants to take out an FHA loan. The broker should refer the buyer directly to any approved lending institution such as a bank or savings and loan association.
When the lender under a deed of trust required title insurance, who would be the most likely person to pay for it? The trustor
A buyer assumes the mortgage. How is the owner relieved of the liability? novation
The Smiths’ purchased a residence for $75,000. They made a down payment of $15,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $23,000. The Smiths’ financed the remaining $37,000 of the purchase price by executing a second mortgage whereby the seller became a mortgagee. This type of loan is called a purchase mortgage
In a repayment of a mortgage loan, which type of interest is used? simple
The seller under a land contract is called vendee
When the amortized payment of a mortgage remains constant over the period of the loan but leaves an outstanding balance to be paid at the end, this payment is called: balloon payment
The clause in a trust deed or mortgage which permits the mortgagee to declare the entire unpaid sum due upon a default by a mortgagor is called a(n) acceleration clause.
In an installment land contract, what type of title did the seller retain? legal
Which transaction requires a securities’ license? selling shares in fannie mae
Usury MOST nearly means illegal interest
The maximum permissible “loan to value ratios” are based on sale price or appraised value, whichever is lower.
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Finance Flashcards

Operations Management Chapter 1

1. Operations managers are responsible for assessing consumer wants and needs and selling and promoting the organization’s goods or services. FALSE Operation managers are not responsible for promoting goods/services.
2. Often, the collective success or failure of companies’ operations functions will impact the ability of a nation to compete with other nations. TRUE A nation is often only as competitive as its companies.
3. Companies are either producing goods or delivering services. This means that only one of the two types of operations management strategies are used. FALSE Most systems involve a blend of goods and services.
4. Operations, marketing, and finance function independently of each other in most organizations. FALSE Operations, marketing and finance are naturally dependent upon one another
5. The greater the degree of customer involvement, the more challenging the design and management of operations. TRUE Greater customer involvement leads to more complexity in the design and management of operations.
6. Goods producing organizations are not involved in service activities. FALSE Most systems involve a blend of goods and services.
7. Service operations require additional inventory because of the unpredictability of consumer demand. FALSE Service operations cannot use inventory as a hedge against unpredictable demand.
8. The value of outputs is measured by the prices customers are willing to pay for goods or services. TRUE Customers’ willingness to pay for goods or services sets the value of these outputs.
9. The use of models will guarantee the best possible decisions. FALSE Models are useful, but their use does not guarantee the best decisions.
10. People who work in the field of operations should have skills that include both knowledge and people skills. TRUE Operations management requires a blend of knowledge and people skills.
11. Assembly lines achieved productivity but at the expense of standard of living. FALSE Productivity and standard of living go hand in hand.
12. The operations manager has primary responsibility for making operations system design decisions, such as system capacity and location of facilities. FALSE The operations manager plays a role in these decisions but is not primarily responsible for them.
13. The word “technology” is used only to refer to “information technology”. FALSE Technology also refers to the technology involved in resource transformations.
14. ‘Value added’ by definition is always a positive number since ‘added’ implies increases. FALSE Some transformations result in the output being worth less than the inputs.
15. Service often requires greater labor content, whereas manufacturing is more capital intensive. TRUE Service operations tend to be more labor-intensive than manufacturing.
16. Measurement of productivity in service is more straightforward than in manufacturing since it is not necessary to take into account the cost of materials. FALSE Materials cost must be considered in services as well.
17. Special-purpose technology is a common way of offering increased customization in manufacturing or services without taking on additional labor costs. FALSE Special-purpose technology typically reduces costs through standardization.
18. One concern in the design of production systems is the degree of standardization. TRUE How standardized outputs will be is a critical consideration in the system design question.
19. Most people encounter operations only in profit-making organizations. FALSE Operations are also relevant to not-for-profit organizations such as the Red Cross.
0. Service involves a much higher degree of customer contact than manufacturing. TRUE Customer contact tends to be much higher in services.
21. A systems approach emphasizes interrelationships among subsystems, but its main theme is that the whole is greater than the sum of its individual parts. TRUE Optimizing the performance of individual subsystems does not guarantee optimal performance from the overall system.
22. The Pareto phenomenon is one of the most important and pervasive concepts that can be applied at all levels of management. TRUE Pareto phenomena can be observed in a wide variety of organization situations.
23. Operations managers, who usually use quantitative approaches, are not really concerned with ethical decision-making. FALSEEthics issues are touching on all areas of management, including operations.
24. The optimal solutions produced by quantitative techniques should always be evaluated in terms of the larger framework. TRUEQuantitative techniques have limitations that must be considered.
25. Managers should most often rely on quantitative techniques for important decisions since quantitative approaches result in more accurate decisions. FALSEJust as other techniques do, quantitative techniques have limitations.
26. Many operations management decisions can be described as tradeoffs. TRUEManaging tradeoffs is the essence of operations management.
27. A systems approach means that we concentrate on efficiency within a subsystem and thereby assure overall efficiency. FALSESubsystem efficiency doesn’t necessarily translate into overall efficiency.
28. Prior to the Industrial Revolution, goods were produced primarily by craftsmen or their apprentices using custom made parts. TRUEAfter the Industrial Revolution, more standardized approaches became common.
29. Elton Mayo’s “Hawthorne Experiment” was the focal point of the Human Relations Movement, which emphasized the importance of the human element in job design. TRUEThe Hawthorne Experiments were the beginning of the Human Relations Movement.
30. Among Ford’s many contributions was the introduction of mass production, using the concept of interchangeable parts and division of labor. TRUEFord made mass production a practical success.
31. Operations management and marketing are the two functional areas that exist to support activities in other functions such as accounting, finance, IT and human resources. FALSEOperations management and marketing are supported by these functions.
32. Lean production systems incorporate the advantages of both mass production and craft production. TRUELean production blends the best of both worlds.
33. As an abstraction of reality, a model is a simplified version of a real phenomenon. TRUEModels are valuable abstractions and simplifications of real, complex phenomena.
34. Lean production systems use a highly skilled work force and flexible equipment. TRUELean depends on a skilled workforce.
35. The lean production philosophy has been slow to be adopted in service industries. FALSELean concepts apply very well in service industries.
36. Operations Management activities will be less important in the future because many firms are becoming service-oriented operations rather than goods producing operations. FALSEOperations management is just as important for service firms.
37. A modern firm has two supply chain considerations – external links with suppliers and customers, and an internal network of flows to and between the operations function itself. TRUESupply chain considerations are at play both in and beyond the modern firm.
38. Operations management involves continuous decision-making; hopefully most decisions made will be: C. informed Informed decisions incorporate all relevant issues.
39. A ‘product package’ consists of: C. a combination of goods and services Most firms are not pure service or manufacturing firms; they produce combinations of goods and services.
40. Business organizations consist of three major functions which, ideally: A. support one another Finance, Marketing and Operations are these major functions.
41. Which of the following is not a type of operations? E. all the above involve operationsAll of these involve taking inputs and transforming them.
42. Technology choices seldom affect: C. union activity. Union activity can affect a firm’s technology choices, but not the other way around.
43. Measurements taken at various points in the transformation process for control purposes are called: D. feedback Feedback is used to monitor and improve processes.
44. Budgeting, analysis of investment proposals, and provision of funds are activities associated with the _______ function. D. finance These are the primary tasks for the finance function.
45. Which one of the following would not generally be classified under the heading of transformation? C. staffing Staffing doesn’t involve transforming resources so much as it involves acquiring them.
46. Manufacturing work sent to other countries is called: B. outsourced Outsourcing is increasingly a part of operations management.
47. Product design and process selection are examples of _______ decisions. C. system design These major decisions affect decisions made at lower levels.
48. The responsibilities of the operations manager are: B. planning, organizing, staffing, directing, and controlling The scope of operations management ranges across the organization.
49. Knowledge skills usually don’t include: C. communication skills Communication skills generally are considered to be people skills.
50. Which of the following is not true about systems approach? C. A systems approach concentrates on efficiency within subsystems. Subsystem efficiency doesn’t necessarily translate into overall system efficiency.
51. What is credited with gains in industrial productivity, increased standards of living and affordable products? D. assembly lines Mass production has played a prominent role in increasing standards of living.
52. Production systems with customized outputs typically have relatively: E. skilled workersSkilled workers are necessary to accommodate the variation inherent in customized outputs.
53. Which is not a significant difference between manufacturing and service operations? A. cost per unit Manufacturing operations aren’t necessarily more or less efficient than service operations.
54. Which of the following is not a characteristic of service operations? D. easy measurement of productivity The productivity of service operations is often hard to measure.
55. Which of the following is a recent trend in business? C. supply chain management Supply chain management involves a broader systemic view of operations.
56. Farming is an example of: C. non-manufactured goods Farm operations are not manufacturing operations.
57. Dealing with the fact that certain aspects of any management situation are more important than others is called: C. recognition of priorities Solutions tend to be targeted toward higher priority aspects of a situation.
58. The fact that a few improvements in a few key areas of operations will have more impact than many improvements in many other areas is consistent with the: B. Pareto phenomenon Pareto phenomena direct our attention to the difference between the “important few” and the “trivial many.”
59. The process of comparing outputs to previously established standards to determine if corrective action is needed is called: C. controlling Controls are used to maintain performance.
60. Which of the following does not relate to system design? C. inventory management Inventory management is a system operation decision area.
61. Taking a systems viewpoint with regard to operations in today’s environment increasingly leads decision-makers to consider ______________ in response to the ___________. C. sustainability; threat of global warming Sustainability is a relatively recent operations management consideration.
62. Some companies attempt to maximize the revenue they receive from fixed operating capacity by influencing demands through price manipulation. This is an example of __________________: D. Revenue management Revenue management is used to ensure that as much perishable capacity as possible is sold.
63. Which of the following is not an ongoing trend in manufacturing? D. mass production for greater economies of scale Manufacturers are moving away from mass production for economies of scale.
64. Which of the following is not a benefit of using models in decision making? D. All of the above are benefits. Models are useful tools for making decisions without confronting the actual situation with all of its complexity.
65. Modern firms increasingly rely on other firms to supply goods and services instead of doing these tasks themselves. This increased level of _____________ is leading to increased emphasis on ____________ management. A. outsourcing; supply chain Supply chain management takes a more systemic view of the firm, its operations, and its suppliers.
66. Operations and sales are the two ________ functions in businesses. E. line Others are support functions.
67. Marketing depends on operations for information regarding ___________. B. lead time Marketing uses lead time information to make promises to customers.
68. Two widely used metrics of variation are the __________ and the _________. The mean and standard deviation summarize important facets regarding the variation in a process.. mean; standard deviation
69. Which of the following statements about variation is FALSE? D. Any variation makes a production process less productive. The choice to offer customers greater variety might increase variation but increase productivity even more.
70. Which of the following is essential to consider with respect to managing a process to meet demand? A. strategy B. demand forecasts C. capacity D. random variability E. all of the above All of these play a role in determining whether a process can meet demand.
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Finance Flashcards

BUDGETS AND FINANCE

The relationship between the federal budget and the national economy is reciprocal, because the budget affects the economy and the economy shapes the budget.
Articulated by his book published in 1936, the theory that government can use the budget to steer the economy can be attributed to John Maynard Keynes.
The Congressional Budget Office estimates that between 2009 and 2020 the federal debt owned by the public as a share of the total economy will increase
The ______ proposes the budget and the ______ authorizes expenditures and determines how revenues are obtained. agencies; Congress
By often drafting appropriations acts as narrowly as possible, Congress attempts to reduce the possibility that the president will exercise the authority to impound?
______ revolutionized the federal budget process and increased presidential power. The Budget and Accounting Act
Top-down budgeting differs from bottom-up budgeting in that the former examines the big picture.
Management by objectives and zero-base budgeting are techniques to reform incrementalism.
Prior to 1921, ______ provided the primary leadership during the federal budget process. Congress
Creating a biennial budget and enacting a balanced-budget constitutional amendment were processes implemented to reform the budget process.
Government taxation and spending is called fiscal policy.
The Federal Reserve manages the money supply, a responsibility also known as monetary policy.
The share of the federal budget that Congress and the president can readily change (control) in any given year went from 66 percent in 1965 to ______ percent in 2009. 35%
A congressional ______ commits money for spending, and congressional ___ create programs and place limits on the amount of money that can be spent. appropriation; authorizations
Congress mainly uses legislative controls and ______ to restrain executive discretion. limits on executive impoundment
The classic question of basic budgeting: “On what basis shall it be decided to allocate x dollars to activity A instead of activity B?” can be attributed to whom? V.O. Key
T/F: The Performance Assessment Rating Tool (PART) was developed by George W. Bush. True
T/F: The larger the federal deficit, the more of the federal budget must be devoted simply to paying interest. True
T/F: The Congressional Budget Office is the congressional equivalent to the president’s Office of Management and Budget. True
T/F: The Impoundment Control Act was created to prevent the gross abuse of impoundment authority by President George W. Bush. False
T/F: The flow of money throughout the bureaucracy provides a tool for controlling the implementation of government programs. True
T/F: The federal budget is just like state and local budgets having the same amount of resources to sustain deficits and the same amount of fiscal authority that state and local governments do. False?
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Finance Flashcards

inquizitive chapter 10

Winners of – elections go on to face each other in the – election. primary general
One advantage digital media has over traditional media concerning campaigns is its low cost. true it does
In 2016, – won the electoral college. In that same election, – won the popular vote. Donald Trump Hillary Clinton
Match the frequency of the election cycle to the corresponding election type.presidential congressional presidential – 4 years congressional – 2 years
Relative to campaigns in the nineteenth century, today’s campaigns require – effort by campaign workers and – campaign money. less more
Which of the following statements are correct regarding the stability of party identification? Looking at the electorate as a whole, party identification is stable.Individuals rarely change their party identification.
One of the unexpected twists of the 2016 election was how strong of a challenge Hillary Clinton faced for the Democratic nomination. Her strongest challenge came from which liberal Senator from Vermont? bernie sanders
Ballot initiatives influence political behavior. Which of the following characteristics are correct regarding citizens in states with ballot initiatives? higher levels of turnoutmore knowledge about politics
Since America’s Founding, candidates for president have been nominated using a variety of methods. Put the following nomination methods in order from earliest in American history to the most recent. congressional “King Caucus”delegates chosen by state party leadersdelegates chosen by primaries and caucuses
Match the type of campaign on the left with each campaign characteristic that describes it on the right.grassroots campaign mass media campaign local campaign-grassroots campaignorganizationally driven-grassroots campaignstatewide campaign-mass media campaignmoney-intensive-mass media campaign
In the United States, which levels of government are most responsible for administering elections? city governmentscounty governmentsstate governments
Maria is deciding whether to vote to re-elect a sitting president or to vote for the other party’s challenger. She decides to engage in retrospective voting. As a retrospective voter, she might consider which of the following? how the economy did during the president’s previous term in office
Which of the following set groups such as 527s and 501(c)(4)s apart from more traditional campaign finance groups such as political action committees? These groups are not subject to the spending limits of the Bipartisan Campaign Finance Reform Act.These groups cannot coordinate directly with campaigns.
McCutcheon et al. v. FEC (2014) removed limits on individuals’ campaign contributions
Citizens United v. FEC (2010) government could not restrict independent expenditures by corporations
Buckley v. Valeo (1974) introduced idea that campaign contributions count as speech
When is party identification most likely to influence a person’s vote choice? when that person is voting on state legislative candidateswhen that person is unfamiliar with the issueswhen that person knows little about the candidates
Direct democracy allows voters the opportunity to directly translate their preferences into government policy. Match the following characteristics of direct democracy to their respective form—ballot initiatives or referenda. Ballot Initiatives: Allow citizens to place proposed laws directly on ballotReferenda: State legislatures refers laws to voters for popular vote; present in 50 states
Order the political candidates on their likelihood of attracting campaign donations from interest groups from most likely to least likely. 1. Incumbent members of majority party2. Incumbent member of minority party3. Challenger candidate from majority party4. Challenger candidate from minority party
Which form of electoral system is most common in the United States? plurality system
Which statement best characterizes the relationship between consumer confidence and presidential elections? the incumbent party tends to win when the confidence exceeds 100
Negative campaign ads are more likely to address -, while positive campaign ads tend to focus on -. policy positions personal characteristics
The trend in campaign finance law over time has been toward which the following? fewer restrictions on campaign donations
By participating in as many newsworthy events as possible, such as visiting orphanages or disaster sites, candidates are often attempting to save money by generating so-called __________ media. free media
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Finance Flashcards

Personal Finance- Chapter 12- Life Insurance Planning

Life insurance An insurance contract that promises to pay a dollar benefit to beneficiary upon the death of the insured person
Final expenses One-time expenses occurring just prior to or after death
Social security survivor’s benefits Government program benefits paid to a surviving spouse and children
Beneficiary Person who receives life insurance proceeds, as per the policy
Needs-based approach A superior method of calculating the amount of insurance needed that considers all of the factors that might potentially affect the level of need
Term life insurance “Pure protection” against early death; pays benefits only if the insured dies within the time period (term) that the policy covers
Cash-value life insurance Pays benefits at death and includes a savings/investment element that can provide a level of benefits to the policyholder prior to the death of the insured person
Face amount Dollar value of protection as listed in the policy and used to calculate the premium
Guaranteed renewable term insurance Protects you against the possibility of becoming uninsurable
Level-premium term insurance Term policy with a long term under which premiums remain constant. Also called guaranteed level-premium term insurance
Convertible term insurance Offers-policyholders the option of exchanging a term policy for a cash-value policy without evidence of insurability
Whole life insurance Form of cash-value life insurance that provides lifetime life insurance protection and expects the insured to pay premiums for life. Also called straight life insurance
Limited-pay whole life insurance Whole life insurance that allows premium payments to cease before the insured reaches the age of 100
Paid up Point at which the owner of a whole life policy can stop paying premiums
Universal life insurance Provides the pure protection of term insurance and the cash-value buildup of whole life insurance, along with face amount variability, rate of cash-value accumulation, premiums, and rate of return
Variable-universal life insurance Form of universal life insurance that gives the policy holder some choice in the investments made with the cash value accumulated by the policy. Also called flexible-premium variable life insurance
Life insurance policy A contract between an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the “benefits”) upon the death of the insured person
Owner/policyholder Retains all rights and privileges granted by the policy, including the right to amend the policy and the right to designate who receives the proceeds
Insured Individual whose life is insured
Incontestability clause Places a time limit on the right of the insurance company to deny a claim
Insurance dividends Surplus earnings of the insurance company when the difference between the total premium charged exceeds the cost to the company of providing insurance
Participating policies Life insurance policies that pay dividends
Death benefit Amount that will be paid to the beneficiary when the insured dies
Grace period Period of time during which an overdue premium may be paid without a lapse of the policy
Guaranteed minimum rate of return Minimum rate that, by contract, the insurance company is legally obligated to pay
Current rate Rate of return the insurance company has recently paid to policyholders
Nonforfeiture values Amounts stipulated in a life insurance policy that protect the cash value, if any, in the even that the policyholder chooses not to pay or fails to pay required premiums
Cash surrender value Represents the cash value of a policy minus any surrender charges
Automatic premium loan Provision that allows any premium not paid by the end of the grace period to be paid automatically with a policy loan if sufficient cash value or dividends have accumulated
Waiver or premium A clause in an insurance policy that waives the policyholder’s obligation to pay any further premiums should he or she become seriously ill or disabled
Guaranteed insurability (guaranteed purchase option) Permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without evidence of insurability
Settlement options Choices from which the policyholder can choose in how the death benefit payment will be structured
Premium quote service Offers computer-generated comparisons from among 20 to 80 different companies
Insurance Agent Representative of an insurance company who is authorized to sell, modify, service, and terminate insurance contracts
Layering term insurance policies Purchasing level-premium term policies so that coverage grows when you need it most and then can be decreased as your needs change
Interest-adjusted net payment index (IANPI) If a policy will remain in force until death, this method allows you to effectively measure the cost of cash-value insurance. The lower the IANPI, the lower the cost of the policy
If Bethany works at a job where her income fluctuates from month to month and is concerned about not being able to pay her cash-value life insurance premium some months, she should consider a policy with automatic premium loan provision
Antonio and Trina are a young couple with two small children, Jason (age four) and Claudia (age two). Trina is an account executive for a brokerage firm while Antonio has taken a couple years off from his profession as a civil engineer to work on an MBA degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to living on two incomes, but Trina’s employer has just circulated employer benefit information, so Antonio and Trina believe this is a good time to evaluate their life insurance needs. They have listed the financial information they believe is relevant.​Current life insurance (Antonio)$ 75,000Current life insurance (Trina)$ 50,000Assets available for living expenses0Present value of Social Security benefits if Antonio dies$132,397Present value of Social Security benefits if Trina dies$151,905Antonio’s income before he went back for the MBA$ 45,000Trina’s income$ 50,000Percent of income that needs to be replaced75 percentProjected final expenses$7,000Projected readjustment-period needs$5,000Projected debt-repayment needs$ 15,000Projected college-expenses$ 80,000Number of years income replacement is needed20Assumed rate of return on invested funds5 percentAppropriate interest rate factor12.5​NARREND​Refer to Figure 12-1. Trina enjoys managing investments and believes that she could get a higher yield on the proceeds from Antonio’s life insurance than the insurance company would pay. Which settlement option should be selected for Antonio’s policy in the event of his death? lump sum
Life insurance is generally least needed on the lives of children
Which of the following rates of return in a cash-value life insurance policy does the agent tend to focus on and which should the purchaser focus on? current; guaranteed minimum
With a decreasing term policy, the face value amount__ annually and the premiums__ annually decreases; remain constant
Which the following is NOT characteristic of a cash-value life insurance policy? The beneficiary receives the sum of the face amount and the cash value
You are 33-years old and have children ages 3,6, and 8. You have determined that you need an additional $700,000 in additional life insurance. You should buy 3-5, 5-year, guaranteed renewable term life policies in various amounts adding up to $700,000.
A 10-year term life policy will cost__ a 5-year renewable term policy during the early years of the 10-year period, other factors being equal. more than
Life insurance should be bought primarily to provide protection from financial losses
Variations on term life insurance include credit life
The promise not to smoke in exchange for lower life insurance premiums would be included in the__ section of an insurance policy declarations
A term life insurance policy will pay out the__ value if the insured dies during the term of the contract face
__should be considered when evaluation income-replacement needs all of these (lost income of the deceased, the value of employment fringe benefits, contributions of a spouse’s income)
Jonna purchased a $25,000 cash value policy with a guaranteed insurability option that can be exercised a maximum of four times at $25,000, each over the next 12 years. Which the following statements is false? Jonna will have to prove she is still insurable each time she exercises a purchase option
Typically, when one borrows from his or her cash value in a life insurance policy. only the guaranteed minimum rate is paid on the remaining nonborrowed cash value
The person who controls all rights granted by a life insurance policy is called the policyholder
To understand the different versions of cash-value life insurance policies that pay a variable return, you must evaluate all of these (the cost of the insurance protection portion, the rate of return on the invested funds, and the company’s expense charges)
The__ are the broadly defined coverages provided under the policy insuring agreements
Amounts stipulated in a life insurance policy that protect the cash value in the even that the policyholder chooses not to pay the required premiums are nonforfeiture values
The___ is the recommended way to judge the cost of a term life insurance policy cost per $1,000 of coverage per year
The__ method of comparing the costs of life insurance policies assumes the policy will be cashed in at the end of a certain period of time rather than remaining in force until death. interest-adjusted net payment index
Life insurance needs typically __over your lifetime fluctuate
Endorsements may be added at any time during the life of an insurance policy to All of these (raise policy limits, make other changes, and expand coverage)
The option that one might purchase if he or she wanted to increase the amount of cash value insurance held in the future is called guaranteed insurability
The advantage of term insurance is more coverage per premium dollar
If one commits suicide less than one year after becoming insured, the life insurance will pay the beneficiary the amount of premiums that had been paid
The major financial loss resulting from premature death is the lost income of the deceased
The primary person who is intended to be provided for by a life insurance policy is the beneficiary
A substantial benefit for working families with young children should a parent die are Social Security survivor’s benefits
Settlement options for life insurance proceeds include all of the following except additional paid-up insurance
The MOST important feature of a life insurance company is its ability to pay its obligations
When an insured dies, any outstanding loan balance is__ to determine the death benefit subtracted from the face value
Tara had a life insurance policy with a face value of $150,000. At the time of her death, the policy had a cash value of $33,000, an outstanding loan of $4,000, and earned but unpaid dividends of $2,000. Assuming this is a typical policy, what death benefit would be paid to Tara’s beneficiary? $148,000
All of the following are true except buy term and spend the rest
Debt payments can be handled through either debt-repayment needs or__ needs income-replacement
PolicyYearCash ValuePaid¾UpFace ValueExtended Term($100,000 face value)1$0$0¾5$6,500$7,9506 years; 142 days10$14,250$17,22513 years; 75 daysAt the end of year 5, Allison could pay nothing more in premiums and have $7,950 paid-up insurance the rest of her life
Typically, when one borrows from his or her cash value in a life insurance policy, only the guaranteed minimum rate is paid on the remaining nonborrowed cash value
A settlement option for a life insurance policy can be any of these (interest income for a period of time with the remainder paid at the end of the period of time, income for life, and a lump sum)
Sales commissions charged on term insurance policies purchased directly rather than through an agent average approximately__ percent 10
If one converts his or her convertible term life insurance policy and wants the cash-value to build up in the policy beginning with the date of the conversion which of the following is (are) true? The premium will be based on his or her age at the time of the conversion
__life insurance policies possess the greatest investment risk to the policyholder variable-universal
One’s need for life insurance is generally the greatest during which phase of the life-cycle? Young married with children
__should be considered when evaluating income-replacement needs All of these (lost income of the deceased, contributions of a spouse’s income, the value of employment fringe benefits)
With a__ policy, if premiums drop below the amount necessary to cover the insurance protection and expenses, funds are removed from the cash-value account to cover the shortfall. universal life insurance
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Finance Flashcards

personal finance chapter 12

Health insurance protects net worth by minimizing the chance that you will have to reduce savings or incur debt when you require medical attention. TRUE
Hospitals, doctors, and patients have enough incentive to make the most economical use of health care services. FALSE
Technological advances are one of the things helping to keep the cost of health care from escalating further. FALSE
The cost of health care has risen dramatically in recent years due to all exceptA) people living longer and requiring attention for longer periods of time.B) the high cost of technology in health care.C) reduced litigation costs.D) the bureaucratic processes of reimbursement and claim handling. C
Which of the following is not true as it relates to the cost of health care?A) Fraudulent claims by patients and health care providers add to the cost.B) People are living longer and their health care costs are higher.C) Better claim handling and processing has helped reduce the cost of health care.D) Technology used in medicine is very expensive and has added to the cost. C
Which of the following statements regarding health insurance is not true?A) It limits your potential liabilities and ensures you will receive the necessary medical care.B) Health insurance is offered by private insurance companies and the government.C) There are many more options available for homeowner’s insurance than for health insurance.D) Blue Cross and Blue Shield is the nation’s largest health care insurer. C
the nation’s largest health care insurer Blue cross
covers health care expenses incurred by policyholders to limit their potential liabilities and ensure that they will receive the necessary medical care health insurance
Most people obtain health insurance through group plans offered by employers. TRUE
Buying health insurance through employer-sponsored plans is somewhat more expensive than buying your own policy individually. FALSE
Although indemnity plans are less flexible than managed care plans, they charge lower rates. FALSE
Compared to indemnity plans, managed health care plans impose more restrictions on the specific health care providers. TRUE
In most HMOs, if a person sees a specialist without being referred by the primary care physician, the HMO will not pay for the treatment. TRUE
Health care providers who are part of an HMO are paid a predetermined amount of compensation per month for each patient who participates in the plan. TRUE
A PPO health insurance plan allows individuals a better selection of health care providers, but is more expensive than an HMO. TRUE
Private health insurance plans contain all of the following coverage exceptA) hospital insurance.B) nursing home insurance.C) physician insurance.D) surgical insurance. B
Comparing auto insurance and health insurance,A) you have fewer options with health insurance than with auto insurance.B) both types of policies have deductibles.C) the government has very little involvement in either of these areas.D) All of the above B
Which one of the following benefits is most often available through an employer?A) Disability insuranceB) Health insuranceC) Dental insuranceD) Vision insurance B
Which of the following is usually not offered as part of a benefits package to employees?A) Auto insuranceB) Health insuranceC) Retirement benefitsD) Disability insurance A
Since health insurance is expensiveA) most employers pay for the entire cost as an employee benefit.B) employees are usually required to pay the entire cost of the insurance.C) the employer and employee typically share the cost of the health insurance.D) the government along with the employer helps to subsidize employee health insurance costs. C
Indemnity health plansA) greatly restrict the choice of health care providers.B) require you to pay the doctor and then get reimbursed.C) require you to get approval to see a specialist.D) are the least expensive of all health care plans. B
Indemnity health care plans haveA) more flexibility and choices than managed care plans.B) lower costs than managed care plans.C) fewer health care professionals to choose from compared to HMOs.D) less bill-related paperwork than other plans. A
Compared to indemnity plans, what is an advantage of managed health care plans?A) You will have lower insurance premiums.B) There are no out-of-pocket expenses required.C) You have greater choices of health care providers.D) They are very efficient in their handling of paperwork. A
Which of the following statements about an HMO is not true?A) You will pay the same monthly premium whether you use the plan or not.B) You need to be referred to see a specialist or the HMO will not pay.C) Individuals usually pay a small fee for a visit to a physician or for a prescription.D) The health care providers are compensated on the basis of each visit by a patient. D
Which of the following is an advantage of a PPO compared to an HMO?A) The premiums are lower.B) There are more choices of specialized health care providers.C) There are no out-of-pocket expenses.D) No approval is needed to see a specialist. B
________ insurance serves as a backup for expenses not covered by basic health insurance.A) Excess hospitalization insuranceB) Surgical expense insuranceC) Major medical insuranceD) Physician expense insurance C
When considering an HMO or PPO, which of the following would you not consider regarding the cost of the plan?A) Monthly premiumsB) CoinsuranceC) Number of doctors accepting new patientsD) Maximum out-of-pocket expenses per year C
An arrangement in whish the preferred provider organization (PPO) pays the provider a specific sum for each day a patient is hospitalized is called a A) discount on charge arrangement.B) per diem rate arrangement.C) co-payment.D) flat-fee arrangement. B
Under a discount on charge arrangement, the provider receives A) a flat fee.B) more than what it would normally charge for a particular service.C) less than what it would normally charge for a particular service.D) an amount equal to the charge for the service. C
Patients receive a(n) ________ from the PPO that lists the total charges, the total amount owed to the provider, and the total amount billed to the patient.A) remittance adviceB) statement of chargesC) invoiceD) explanation of benefits D
A(n) ________ plan requires that individuals pay health care providers and then put in a claim for reimbursement. indemnity
The managed health care plan with the lowest premiums and also the least choice of health care providers is the ________. HMO
The managed health care plan with higher costs, but a greater choice of health care providers is the ________. PPO
One of the problems with changing jobs is that you will immediately lose your health insurance and may not be able to get new insurance right away. FALSE
Having money taken out of your paycheck and put in a flexible spending account is one of the ways you can avoid paying taxes on the amount you spend for health care expenses. TRUE
Usually plans such as dental insurance and vision insurance are good deals if they are offered through employers. TRUE
Additional types of insurance commonly offered through employers includeA) dental insurance.B) fitness insurance.C) vision insurance.D) Both A and C D
Which of the following is not true regarding government regulations to allow individuals who change jobs to maintain health insurance coverage?A) You may continue your health insurance provided through an employer’s plan for 18 months after you stop working for that employer.B) Even if you retire, you may continue coverage for 18 months unless you qualify for Medicare.C) If you change jobs, a new insurance company cannot deny you coverage based on your health, medical condition, previous claims, or disability.D) When changing jobs, you are allowed to stop and start health care plans whenever you need to and still be guaranteed insurance coverage by a new provider. D
Health insurance policies may provide coverage for all of the following exceptA) cosmetic surgery.B) rehabilitation.C) mental health.D) pregnancy. A
An account that allows employees to use pre-tax income to pay for medical expenses is aA) HMO.B) PPO.C) flexible spending account.D) medical savings account. C
Regarding a flexible spending account, which of the following is not true?A) You may put a predetermined amount of your pre-tax salary in the account monthly.B) The money may be used throughout the year to pay medical or dental expenses tax-free.C) If you don’t use the funds during the year, you lose them.D) Your employer will match your funds dollar-for-dollar. D
If a person is diabetic and is applying for a new health care insurance policy, s/he might be most concerned with which of the following?A) Cancellation optionsB) Stop loss provisionC) Preexisting conditionsD) Deductible C
One disadvantage of a flexible spending account isA) the amount is not subject to federal, state, or local taxes.B) funds allocated to the account cannot be rolled over into the next year.C) funds are available to pay for out-of-pocket expenses.D) it allows you to budget for uncovered medical expenses. B
Medicare is a government health insurance program for those over 65 years of age who can show need for financial assistance. FALSE
Medigap insurance, intended to supplement Medicare, is sold and serviced by the federal government. FALSE
Medicaid is health insurance for the poor and is administered by each state within certain broad federal requirements and guidelines. TRUE
Part D of Medicare represents a combination of Part A and Part B provided through private insurance companies. FALSE
You must have Parts A and B of Medicare in order to qualify for Part D. TRUE
________ is the government program that provides health insurance to individuals who are 65 years of age or older.A) MedicaidB) MedicareC) HMOD) Blue Cross and Blue Shield B
Medicare basic coverage (Part A) coversA) hospital expenses, including surgeries.B) outpatient hospital care.C) physical therapy.D) All of the above. A
Which of the following is true regarding Medicare?A) Eligibility for the plan is based on both need and age.B) The entire plan is free to qualified participants.C) Part of the program is optional and has a charge.D) Virtually all medical expenses are paid for those covered. C
Regarding Medicaid, which of the following is true?A) It is a program totally funded and run by each state.B) It provides free unlimited health care for low income individuals and families.C) It is a federal program administered by each state.D) It is a program funded and run by the federal government. C
The part of Medicare that provides coverage for prescription drugs isA) Part A.B) Part B.C) Part C.D) Part D. D
Which of the following statements about the Medicare Prescription Drug Improvement and Modernization Act of 2003 is not true?A) Seniors may purchase various forms of coverage for prescription drugs.B) The act allows coverage for seniors and people with disabilities.C) Low-income seniors are subject to a $250 deductible.D) Individuals can establish a health-savings account. C
________ insurance is provided by private insurance companies to cover medical expenses that are not covered by Medicare. Medigap
federal program that provides health care to those over 65 who qualify for Social Security benefits Medicare
a government program providing health care for those with low incomes or in need of public assistance Medicaid
Certain federal regulations ensure that individuals can maintain continuous health care coverage. TRUE
Because of COBRA, you can continue to remain covered by your employer’s health insurance plan for one year after you stop working for your employer. FALSE
In order remain eligible for protection under HIPAA, a person must maintain continuous enrollment in a health care plan. TRUE
The Affordable Care Act allows young adults to continue on a parent’s health insurance plan until age 19. FALSE
Beginning in 2014, health insurers will not be able to deny applicants based on pre-existing conditions. TRUE
Which statement regarding COBRA is true?A) The act applies to private firms and agencies of state government but not to federal government agencies.B) COBRA allows you to continue your health coverage for two years after you stop working.C) The act was passed in 2010.D) If you retire and are not yet eligible to receive Medicare, you are not covered by COBRA. A
Which act established provisions that require U.S. citizens to obtain health insurance?A) MedicaidB) Consolidated Omnibus Budget Reconciliation ActC) Health Insurance Portability and Accounting ActD) Affordable Care Act D
Basic health insurance policies and Medicare will not cover stays in nursing homes or assisted living centers for very long. TRUE
Policy premiums for long-term care insurance are relatively low, even for those over 60 years old. FALSE
Which of the following is not a true statement?A) More than half of all individuals in the United States will need long-term care in some period during their life.B) Medicare covers most of the expenses associated with long-term care.C) The cost of an aide providing basic care at home can exceed $1,000 per week.D) For individuals who enter a nursing home, the cost is about $46,000 per year on average. B
Long-term care policiesA) commonly have an elimination period (waiting period) of between 60 and 90 days before the policies will begin to pay.B) are relatively inexpensive and are a good value for those over 60.C) are not adjusted for inflation, so care must be taken to estimate future costs.D) All of the above A
All of the following will lower the premium of long-term care insurance exceptA) having a longer waiting period before the policy goes into effect.B) having a higher stop-loss provision.C) waiting until you are retired to obtain the insurance.D) choosing to receive benefits for a limited period. C
One of the newest types of health care insurance is ________ insurance, which provides coverage to those in a nursing home, assisted living facility, or at home. Long term care
Generally, disability income policies with shorter waiting periods have lower premiums. FALSE
The best disability plans pay you if you are not able to work at any job, not just your regular job. FALSE
Since most workers have employer-sponsored disability coverage and are also eligible for Social Security and worker’s compensation, there is very little demand or need for individual disability insurance. FALSE
Social Security is the easiest disability coverage to qualify for benefits. FALSE
Which of the following statements is not true of disability insurance?A) You should have it even if you are retired and living on a pension.B) The amount of coverage should equal your disposable income.C) If you are self-employed you should have disability insurance.D) All of the above are true of disability insurance. A
The definition of disability can be defined as all of the following exceptA) you are unable to perform the duties required of your occupation.B) you cannot perform the duties of any job that fits your education and experience.C) you are unable to perform the duties of your job due to a work-related injury.D) you are unable to do your job for an initial period. C
Regarding the definition of disability,A) it is the same for all disability policies.B) it varies from one disability policy to another.C) the same definition is used by the insurance industry and Social Security.D) the meaning can change over the life of your disability policy. B
Sources of disability income do not includeA) federal disability insurance.B) individual disability insurance.C) employer disability insurance.D) insurance from Social Security. A
Before you decide to take out an individual disability policy, you should consider all of the following exceptA) amount of home mortgage.B) cost of gasoline commuting to and from work.C) employer disability insurance policy.D) dividends received from stock portfolio. B
Which of the following is not true regarding employer disability insurance?A) Disability benefits are provided for very long periods, usually up to 30 years.B) About half of all large and medium-sized firms offer an optional disability plan through an insurance company.C) The premiums charged through group plans are normally low.D) A typical disability policy covers about 60% of the employee’s salary. A
Disability insurance would probably cost the most for which of the following people?A) A certified public accountant (CPA)B) An office workerC) A construction workerD) A telemarketer C
In purchasing disability insurance, you should consider all of the following except theA) waiting period.B) probationary period.C) length of the benefits.D) cost of the policy. B
Disability insurance policies usually coverA) actual expenses incurred.B) a minimum dollar amount.C) a percentage of your income before you were disabled.D) Any of the above. C
Disability income isA) taxed at the long-term capital gains rate.B) taxed as ordinary income.C) tax-free.D) taxed at the short-term capital gains rate. C
the time from when you are disabled until you begin to receive disability income benefits waiting period
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Finance Flashcards

ECON EOC REVIEW #5: PERSONAL FINANCE

Mr. Simpson deposits his money in a savings account at the Springfield Bank. Would he earn more money with simple interest or with compound interest? Compound interest earns more because the amount on which interest is paid increases over time.
Which effect of high inflation might make it difficult for students to get funding for college? High interest rates
Tina’s mother and father pay her car insurance as long as she makes good grades. This is an example of which economic concept? positive incentive
What is the MOST LIKELY reason for an increase in the price of a specific stock? increased demand for the products produced by that company
Based on the graph, which of these statements is TRUE? Money in stocks have both high risk and high potential return.
According to the graph, workers with some college have a higher annual income than workers with a high school diploma.
Investment in education, training, and skill development has been linked to increasing earnings for workers.
When should you look for a bank or credit union that offers the LOWEST interest rates? When borrowing capital to start a business
Coupons, “buy-one, get-one free” deals, sales, and discounts are positive incentives encouraging people to spend money.
Homer wants to borrow money from the Springfield Bank to buy a new trampoline. The bank requires collateral for a loan. What is collateral? something of value which the bank will receive if the loan is not repaid
Most credit card offers use compounding interest. This is usually called the annual percentage rate, or APR. When the interest is compounded frequently, the balance grows faster.
speeding ticketlittering finelibrary finedetention All of these are examples of negative incentives.
Banks and other financial institutions use savings deposits to help borrowers by using deposits to make loans.
Why is there a difference between interest charged and interest earned? Banks are profit-making institutions.
Tax rates in which the percentage of tax is the same regardless of the level of income is MOST LIKELY a proportional tax.
What is a major advantage of using credit unions? They offer lower interest rates for borrowers.
private purchasethrough employerCOBRAvarious exchanges What best describes the items in this list? methods for obtaining health insurance
Jose is applying for an automobile loan. The lender considers Jose creditworthy MOST LIKELY because Jose has made on-time payments to other loans.
How might fiscally responsible individuals use investments to meet financial goals? Individuals delay the satisfaction from purchases now for possible greater returns later.
Which statement is FALSE? Insurance only increases your risk exposure.
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Finance Flashcards

Finance Ch. 6, 7

Treasury bonds and treasury notes The US government borrows money by issuing:
It is the actual percentage change in the dollar value of an investment unadjusted for inflation. What is the nominal rate of return on an investment?
Changes in interest rates cause changes in bond prices. As an investor in the bond market, why should you be concerned about changes in interest rates?
They are issued by both corporations and governments. They are interest-only loans Which of the following are true of bonds?
The Fisher Effect The relationship between nominal rates, real rates, and inflation is called _____.
The pure time value of money and the relationship between nominal rates and time to maturity. The term structure of interest rates describes _____.
Changes over time and is usually not the same as a bond’s coupon rate A corporate bond’s yield to maturity:
$1,220900+320 If the present value of the interest payments on a bond is $320 and the present value of the par value to be paid at maturity is $900, the total value of the bond must be _____.
Equity is publicly traded while debt is not. Which of the following is not a difference between debt and equity?
Upward sloping, humped, and downward sloping. Which three of the following are common shapes for the term structure of interest rates?
The relationship between short-term and long-term interest rates The term structure of interest rates examines the _____.
They are issued by state and local governments; the interest on municipal bonds is exempt from federal taxes; the interest on municipal bonds is, in some cases, exempt from state taxes in the state of issue. Which of the following are features of municipal bonds?
0% If you are holding a municipal bond that is trading at par to yield 6%, by how much will your after-tax yield change if your federal income tax bracket increases from 15% to 20%. Assume there are no state or local taxes
Debentures (in the U.S.) and notes Bonds are classified based on the collateral provided to protect bondholders in case of default. Which of the following are unsecured forms of debt?
True True or false: The price you actually pay to purchase a bond will generally exceed the clean price.
The interest rate risk premium, the real rate of return, and expected inflation What are the three components that influence the Treasury yield curve?
The sensitivity of the bond’s price to interest rate changes The degree of interest rate risk depends on_____.
YTM is the expected return for an investor who buys the bond today and holds it to maturity.YTM is the prevailing market interest rate for bonds with similar features. What is a corporate bond’s yield to maturity (YTM)?
It is the number of years until the face value is paid off What is the definition of a bond’s time to maturity?
R = r + h What is the equation for approximating the nominal rate of return?R = the nominal rate of interestr = the real rate of interesth = the inflation rate
Yield to maturity, time remaining to maturity, par value, and coupon rate What four variables are required to calculate the value of a bond?
Current yield = annual coupon payment/current price What is a bond’s current yield?
Coupon rateTime to maturity The sensitivity of a bond’s rice to interest rate changes is dependent on which of the following two variables?
The firm is in a strong position to meet its debt obligations What does the AAA rating assigned by S&P mean?
It is the price at which a dealer is willing to sell a particular security.It is the price at which an investor can buy a particular security from a dealer. What is the asked price?
at 99.5 percent of face value plus any accrued interest If a $1,000 face value U.S. Treasury bond is quoted at 99.5, then the bond can be purchased _____.
The bond’s issuer may not be able to make all the required payments Bond ratings are based on the probability of default risk, which is the risk that _____.
$5,000 per bond A firm decides to raise money by issuing 5 million bonds with a par value of $5,000 each for 10 years at a coupon rate of 7 percent. At the time of issue, the bonds were sold for $5,500 each. What will the par value of the bonds be in year 5?
makes no interest paymnets A zero-coupon bond is a bond that _____.
decrease When interest rates in the market rise, we can expect the price of bonds to _____.
The maximum reward for owning debt is fixed.Equity represents an ownership interest. As a general rule, which of the following are true of debt and equity?
a fixed amount of interest that is paid annually or semiannually by the issuer to its bondholders A bond’s coupon payment is:
True True or false: In general, the price that is paid for a bond will exceed its quoted price.
$60 in interest at the end of each year for 10 years and a $1,000 repayment of principal at the end of 10 years. ABC Co. issued 1 million 6 percent annual coupon bonds that mature in 10 years. The face value is $1,000 per bond. What are the expected cash flows from one of these bonds?
It will decline What will happen to a bond’s time to maturity as the years go by?
Liquidity premiumDefault risk premium Which of the following may increase the yield on corporate bonds as compensation to investors but will not impact Treasury bond yields?
5.25% What will your aftertax yield be on a corporate bond that is currently priced to yield 7 percent if you are in the 25 percent tax bracket?
a put bonda CoCo bonda convertible bond Which of the following are bonds that have actually been issued?
Many bond transactions are negotiated privately. Why is the bond market less transparent than the stock market?
Treasury bonds offer certain tax benefits to investors that corporate bonds cannot offer;Treasury bonds are free of default risk while corporate bonds are exposed to default risk.Treasury bonds are issued by the US government while corporate bonds are issued by corporations. Which of these correctly identify differences between Treasury bonds and corporate bonds?
Public issue and privately placed What are the two major forms of long-term debt?
U.S. Treasury issues are considered to be default-free.U.S. Treasury issues are exempt from state income taxes. What are the two unique features of a U.S. federal government bond?
They are rated below investment grade bondsThey have a high probability of defaultThey pay a high rate of interest Junk bonds have the following features:
Trading for more than $1,000 in the market. If a $1,000 par value bond is trading at a premium, the bond is:
lower than When using trial and error to compute the yield to maturity (YTM) for a 6 percent coupon bond that trades at a premium, the process can be shortened if the initial guess is _____ 6 percent.
Interest rate risk premiumReal interest rateInflation premium Which three components determine the shape of the term structure of interest rates?
focus exclusively on default risk A limitation of bond ratings is that they _____.
with a lag to some base rate Most of the time, a floating-rate bond’s coupon adjusts _____.
$1,0801,050 + 30 Suppose a bond’s clean price is $1,050, and the bond currently has accrued interest of $30. What is the dirty price?
Bonds that have both an investment grade and a junk bond rating What are crossover bonds?
Bonds that have dropped from investment grade to junk bond status What are “fallen angel” bonds?
The bond with a 5% coupon rate If you are holding two bonds – one with a 5% coupon rate and other with a 8% coupon rate – which one is more sensitive to interest rate risk, all other things being equal?
increases at a decreasing rate As the maturity of a bond increases, interest rate risk _____.
greater than If a bond is selling at a discount from its par value, the YTM must be _____ the coupon rate.
$75 * CH. 7What is the value of a stock if next year’s dividend is $6, the discount rate is 11 percent, and the constant rate of growth is 3 percent?
Dividend YieldGrowth rate In the dividend discount model, the expected return for investors comes from which two sources?
P1 = Price in one yearD1 – Next expected DividendR – Discount rateP0 – Price todayD0 = Dividend just paid Match the following terms relating to stock valuation.
a company’s own historical PEsthe PEs of similar companies A benchmark PE ratio can be determined using:
the current price The dividend yild is determined by dividing the expected dividend (D) by:
Non-constant This type of growth describes a company that grows quickly at first, then slower in future years.
The New York Stock ExchangeNASDAQThe Chicago Stock Exchange Examples of secondary markets in the U.S. include which of the following?
22.73(5+20)/(1+0.10) What is the price of a stock at the end of one year (P1) if the dividend for year 2 (D2) is $5, the price for year 2 (P2) is $20, and the discount rate is 10%?
distribution of corporate assetspayment of dividends Preferred stock has preference over common stock in the:
Pecialists New York Stock Exchange Designated Market Makers (DMMs) were formerly called _____.
Discount rateDividend What information do we need to determine the value of a stock using the zero growth model?
forward A PE ratio that is based on estimated future earnings is known as a _____ PE ratio.
DividendsCapital Gains Which of the following are cash flows to investors in stocks?
NASDAQ The two most important stock markets in the U.S. are the New York Stock Exchange and _____.
constant growthnon-constant growthzero growth Three special case patterns of dividend growth discussed in the text include:
11.78% What is the total return for a stock that currently sells for $50, just paid a $1.75 dividend, and has a constant growth rate of 8%?
The primary market is where stocks are issued for the first time. Which of the following defines the primary market?
The right to vote on matters of importance.The right to share proportionally in any residual value in the event of liquidation.The right to share proportionally in any common dividends paid. Which of the following are rights of common stock holders?
growth rate The _____ can be interpreted as the capital gains yield.
broker A person who brings buyers and sellers together is call a(n) _____.
dealer Someone who maintains an inventory of stocks and buys and sells those stocks is known as a _____.
The required rate of return is unobservableDividends are unknown and uncertainStock has no set maturity. Which of the following are reasons that make valuing a share of stock more difficult than valuing a bond?
internet Stock price reporting has increasingly moved from traditional print media to the _____ in recent years.
2/0.1 = 20.00 A zero-growth stock pays a dividend of $2 per share and has a discount rate of 10%. What will the stock’s price be?
Multiple market maker systemComputer network of securities dealers NASDAQ has which of these features?
400 If Joan owns 100 shares of ABC company and the company is electing 4 directors, under cumulative voting, Joan would usually have _____ votes.
Categories
Finance Flashcards

Exam for Local Gov

Which of the following is not a political problem that stage governments must address foreign policy
In the United States the largest subgroup of Hispanics are Mexican Americans
What is the most significant change in the nations ethnic composition over the last decade sharp increase of Hispanics
which of the following is not required for nationalization a high school degree
which of the following handles the greatest volume of public business and directs the bulk of public programs state and local government
which of the following is responsible for the largest portion of state and local government budgets combined education
what is an example of a commonwealth Puerto Rico
how did the 23 amendment affect Washington allowed them to vote for president
when seeking admission to the union new states must approve a constitution and obtain congressional approval
All fifty states have written constitutions? True
State Constitutions are the supreme law of the state (second only to the US constitution) and take precedence over any state law that conflicts with them True
The colonists claimed that their charters granted them protection From British interference in colonial affairs
Unlike the US Constitution, state constitutions often contain many policy mandates on diverse topics
What involves a specific number of voters petitioning to get a constitutional amendment on the ballot for approval by voters? Popular initiative
State governments mirror the basic structure of the US federal government with separate legislative, executive, and judicial branches, a principle referred to as Separation of Powers
State Constitutions frequently place severe restrictions on the taxation power of State and Local Government
The most common and successful method of amending state constitutions is through Legislative Proposals
The jobs of constitutional revision commissions is to Study and recommend specific constitutional changes
Which of the following states has defied the Supremacy Clause of the U.S. Constitution and legalized the recreational use of marijuana? Colorado
The legal source of authority for the division of powers between the states and the federal government (as it is interpreted by the Supreme Court) The Constitution
In a ______ form of government, most or all of the power and authority is given to the local units of government. Confederation
The regulation of marriage and divorce and the provision of roads and public works are examples of power reserved to the _____. States
Which of the following is a power that is DENIED only to states in the U.S. Constitution? Power to coin money
In order to amend the U.S. Constitution, proposals must be approved by ________. 1/4 of the States
The landmark case of Marbury v. Madison profoundly influenced the development of American federalism by giving the U.S. Supreme Court _______. The power to interpret whether the acts of Congress, the President and states are in accordance with the constitution
For many years, the Supreme Court narrowly construed interstate commerce to mean _________. Only the movement of goods and services across state lines
Which of the following has been the principal instrument in the expansion of national power? Federal In Aid Grants
Which of the following would a categorical grant fund? Food Stamps
Which one of the following statements regarding political participation is accurate? Older citizens are more likely than young people to be regular voters
According to recent data from the Federal Election Commission, which of the following generates the greatest voter turnout? Presidential Elections
A voter who seeks to maximize personal benefits and minimize costs is viewd as a ________ Rational Voter
High voter turnout levels in some states are mostly attributed to _______. High Income and Education Levels
Which of the following was passed in response to voting controversies that occurred in the 2000 presidential election? Help America Vote Act
Which of the following has become the most noted focus of controversy for partisan elections? Voter ID
Which state’s voter eligibility law were so stringent that they were ruled unconstitutional by the U.S. Supreme Court in 2013? Arizona
Which of the following groups has the lowest voter turnout levels? Asian Americans
In the early years of American history, voting was limited to males who met all of the following qualifications EXCEPT _____. They were lawyers
Which of the following is a general phenomenon in weak party states? Strong Interest Group System
Which of the following do state campaign finance laws generally do? They regulate corporate contributions to candidates
Open primaries are _____. Primary elections in which a voter may cast a ballot in either party’s primary election
A majority winner in a runoff primary is the candidate receiving ______ 50 percent plus one of the votes
The increased influence of the media and single-issue interest groups in the electoral process has contributed to ______ Rise in candidate centered elections
The important functions political parties provide in American politics include all of the following EXCEPT Passing State Campaign Finance Laws
Which of the following did California voters approve out of frustration over partisan gridlock in the state capital? Top Two Primary
Republican party activists tend to be more ____ than the general public whereas Democratic party activists tend to be more ____ than the general public Conservative, Liberal
States where one political party controls one or both houses of the legislature and the other political party controls the governorship have a _________. Divided Party Government
The level of party competition in a state may be measured by all of the following variables EXCEPT ________. Media Favoritism
State party affairs are governed largely by the ________. Laws of the States
If committees simply ignore a bill or fail to schedule hearings on it, they are said to be _______. Pigeonholing it
The Supreme Court decision Baker v. Carr established the concept of__________ One person one vote
Which of the following is NOT a reason that incumbents win so many elections? Incumbents face quality challengers
Which of the following is the first significant challenge that legislative candidates face in order to be competitive in an election? Raising money to finance their campaign
Which of the following is NOT a function of state legislatures? Electing Governors
Which of the following scenarios does NOT normally accompany legislative institutionalization? One party has control of the legislative branch, the executive branch and the judicial branch
_________ refers to drawing of district lines for political advantage Gerrymandering
Which of the following is the primary function of committees in the legislative process? Reduce legislative work to manageable proportions by providing for a division of labor among legislators
Those legislators who simply reflect the wishes of their constitutents are known as _______ Delegates
Those legislators who make decisions based solely on their personal convictions are classified as _________. Trustees
State governments in which one political party controls one or both houses of the legislature and the other political party controls the governorship are referred to as _______ party governments Divided
Which of the following is a legislative power that usually requires a two-thirds vote of both houses Veto Override
Which of the following powers gives the Governor the most influence over state policy priorites? Control over the state budget
Which of the following is NOT included in the formal managerial powers of a governor? Commanding media attention
Which of the following is generally recommended by supporters of reorganizaiton of the state executive branch? A more centralized state executive branch
Which one of the following is the power of legislatures to remove executive and judicial officers from office for offenses such as terason or bribery? Impeachment
Which of the following is the role of the attorney general? Chief legal counsel for the state
A state auditor is responsible for ________; state comptrollers are responsible for Post audits pre audits
The lieutenant governor’s formal duties are most directly comparable to those of ________. Vice President of the United States
A veto override by the legislature is rare True
State right-to-work laws allow unions, but do not allow dues to be mandatory for employees of unionized workplaces. True
In theory, bureaucracies are created to _______ policies. Implement
Regulation is The development of formal rules for implementing legislation
Most state constitutions require the operating budgets of the state and local governments to be _______. Balanced
An act of the legislature that allocates a certain amount of money to executive agenceis is called an _________. Appropriation
Most state and local governments’ fiscal year begins on July 1 and ends on _______. June 30
The tendency of buraeaucrats and elected officials to approve new programs and spending while seldom reviewing existing programs for their continued justification is known as _________. Incrementalism
________ is the process of bureaucratic decision making about individual cases. Devolution
Selecting government employees based solely on their political support is characteristic of _______. Patronage System
Political support for privatization has come primarily from ________. Conservatives
Which of the following processes marks a distinction between the judicial decision making process and that in other branches of government? Judges must NOT appear to allow political considerations to impact their decisions
The fundation of our legal system is a body of judge made law called _______ English Common Law
The government attorney in a criminal case is the _______. Prosecutor
Trial judges have considerable discretion in ________. Sentencing
Except in Florida, to obtain a conviction in criminal cases involving the death penalty, petit juries must _______. Be unanimous
Major trial courts of general jurisdiction are used ________. For felonies and important civil suits
Courts that first hear the facts of a case and deliver a verdict are called ________. Trial Courts
Which of the sollowing is a major trial court? Criminal Courts
The authority of a state court to interpret its state constitution and expand guarantees of civil liberties beyond the federal protections in the US Constitution is known as _______ federalism. Judicial
Laws passed by the legislature are called _________. Statutory Law
The form of city government that gives both legislative and executive powers to the governing body is the ______. Traditional Commission
Which of the following most closely embodies the principles of direct democracy? New England Town Meetings
Traditional administrative subdivisions of counties that are mainly in the Northeast and Midwest are called ______. Townships
The elected governing body with general responsibility for all county functions is the _____. County Commission
Which of the following is a unit of local government created for the provision of specific services not supplied by general-purpose governments? Special District
Keeping records of deeds, mortgages, births and marriages is the function of ______. County Governments
Constitutionally, local governments are part of ________. State governments
Which unit of government provides a wide range of services such as a county, city or township? General-Purpose Government
A document that grants a community the power of local self-government (and effectively acts as a “constitution” of sorts) is called a ________. City Charter
Affluent residents who are dissatisfied with a community tend to want to _______ community services. Privatize
Relatively new forms of citizen interation with government include all of the following EXCEPT _______. Door to door campaigning
Political machines acquired power by _______. Soliciting votes and controlling elections in exchange for social services
Voter turnout in local elections is substantially higher than in state or national elections False
A communitarian view of goernment sees value in citizen participation, not just in votingto solve community problems true
Council members have more formal power in __________ Weak mayor forms of government
In most council-manager cities, the most important policy initiator is the _________. Manager
Local newspapers influence community politics in all of the following ways EXCEPT ______. By dramatizing a crime story to boost circulation
Which of the following is NOT a factor distinguishing “strong” mayors from “weak” mayors? Power to relinquish political office
Holding local elections at the same time as the presidential election __________. Increases voter turnout
Which of the following were not supporters of the municipal reform movement from the beginning? organized labour
Because a metropolitan area consists of a large number of diverse people living in close proximity, challenges about in________. conflict management
“Gentrification” is the term used to describe the movement of wealthy residents and trendy high-end businesses to the suburbs. true
The Tiebout Model argues that the existence of many local governments in the same areacreates inefficiency and dampens competition. false
A major criticism of the Tiebout Model of efficient local government is that it assumes residentshave a high degree of mobility to be able to select their city of residence. true
Modern modes of transportation eliminated the necessity of ________. workers living close to their jobs
Which of the following accurately describes familism? A child-centered lifestyle frequently observed in suburbs
Which of the following is NOT a reason given in support of metropolitan consolidation? Developing a sense of community identity
Which of the following refers to voluntary pacts among local governments in a metropolitan area withthe aim of performing services jointly or on behalf of each other? Interjurisdictional agreements
A federated system of government for metropolitan areas in which powers are dividedbetween a comprehensive government encompassing the entire area and multiplelocal governments operating within the area is known as _______. metro government
Which of the following is NOT an advantage of a metropolitan federation? Enhancement of socio-political values
The passage of the Sixteenth Amendment to the U.S. Constitution in 1913 established the ________. Principle of a graduated income tax based on ability to pay
Income tax rates that rise with increases in income are known as ________. Progressive taxes
Taxes that disproportionately affect low-income groups are said to be _____. Regressive
The sum of all goods and services produced in the United States in a year is itsgross domestic product (GDP) True
All of the following categories of properties are exempted from taxation EXCEPT _______. Properties for private business purposes
Homeowners are more likely to object to _____ taxes than renters, while renters are more likely to object to ______ taxes than homeowners. Corporate; sales
Constitutional tax limitations have applied to all of the following EXCEPT _______. Cell phone usage
Most state constitutions prohibit deficits in ______. operating budgets
State constitutions may place restrictions on state debts, limiting the total amount of money that a government can borrow, in the form of ______. debt ceilings
Those bonds issued by state and local governments that are backed by the full faithand credit of the government that issued them are known as _______. general obligation