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Finance Flashcards

Finance & Accounting Final

A Subchapter S corporation C. has all the organizational benefits of a corporation and its income is only taxed once.
Money markets would include which of the following securities? B. Treasury bills and commercial paper.
5. A corporate restructuring can result in Changes in capital structure, selling of low profit margin divisions, reductions to the work force… D. all of these.
10. Increasing interest expense will have what effect on EBIT? No effect
11. The residual income of the firm belongs to common stockholders.
12. Candy Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of gross profit to sales)? Gross Profit = Sales- Cost of Goods Sold… then GP/Sales= GP Margin 65%
14. Ratio analysis can be useful for historical trend analysis, comparison to industry, or measuring effects of financing… D. All of these are true.
17. A quick ratio that is much smaller than the current ratio reflects B. a large portion of current assets is in inventory.
21. In using a systems approach to financial planning, it is necessary develop a proforma income statement, proforma balance sheet, and cash budget…D. all of these.
24. A firm utilizing LIFO inventory accounting would, in calculating gross profits, assume that C. sales were from current production until current production was depleted, and then use sales from beginning inventory.
30. A highly automated plant would generally have B. more fixed than variable costs.
31. Financial leverage deals with: B. the relationship of debt and equity in the capital structure.
35. A financial executive devotes the most time to D. Working capital management.
36. The term “permanent current assets” implies C. some minimum level of current assets that are not self-liquidating.
37. An inverted yield curve would suggest that B. interest rates are expected to fall.
40. In managing cash and marketable securities, what should be the manager’s primary concern? D. Liquidity and safety
41. “Float” takes place because C. a lag exists between writing a check and clearing it through the banking system.
42. Which of the following is NOT a valid quantitative measure for accounts receivable collection policies? D. Ratio of bad debts to credit sales
46. Trade credit may be used to finance a major part of the firm’s working capital when A. the firm extends less liberal credit terms than the supplier.
48. In determining the cost of bank financing, which is the important factor? C. Effective rate
49. Hedging refers to B. a transaction that reduces risk exposure.
51. You are to receive $12,000 at the end of 5 years. The available yield on investments is 6%. Which table would you use to determine the value of that sum today? C. Present value of $1
52. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the next 10 years. What table would you use to calculate the value of this contract in today’s dollars? A. Present value of an annuity
55. Which of the following financial assets is likely to have the highest required rate of return based on risk? D. Common stock.
56. The relationship between a bond’s price and the yield to maturity B. is an inverse relationship.
58. The cost of equity capital in the form of new common stock will be higher than the cost of retained earnings because of B. the existence of flotation costs.
60. the Internal Rate of Return and Net Present Value Methods: C. usually give the same investment decision answer.
61. As the cost of capital increases A. fewer projects are accepted.
62. Capital rationing assumes: . A limited amount of capital is available.
63. If a firm is experiencing no capital rationing, it should accept all investment proposals that… B. that return an amount equal to or greater than the cost of capital
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Finance Flashcards

Macro Chapter 14

Government budget​ deficit: An excess of government spending over government revenues during a given period of time.
It may be argued that the effects of a higher public debt are the same as the effects of a higher deficit because a higher deficit creates a higher public debt.
Public​ debt: The total value of all outstanding federal government securities.
Which of the following statements is true when considering budget deficits and the national​ debt? The national debt is a stock variable and a federal budget deficit is a flow variable.
The federal government has its best opportunity to lower its national debt when it has a budget surplus.
If the federal government has a budget deficit it can finance its spending by selling Treasury bonds.
Which of the following statements is true regarding the national debt and federal government​ deficits? There is a positive relationship between the national debt and a federal government budget deficit.
Since the​ 1940s, more often than​ not, the U.S. federal government has run a budget deficit.
Since​ 2001, more often than​ not, the U.S. federal government has run a budget deficit.
Which of the following is a reason for this resurgence in federal government budget​ deficits? Tax revenue not keeping pace with growth in spending
Since 1970 the U.S.​ government’s budget deficit as a percentage of real GDP has averaged approximately​ 3%.[On average the deficit has been approximately​ 3%. Remember that is the annual budget deficit NOT the national debt]
If a government spends more than it receives during a​ year, then during this year it experiences a​ ________, and if it spends less than it​ receives, it experiences a​ ________. budget​ deficit; budget surplus
The total value of all outstanding federal government securities is the public debt.
Since​ 2001, the average annual government budget deficit has exceeded 10 percent of GDP. False
The federal budget deficit is a​ flow, whereas accumulated budget deficits represent a stock, called the public debt.
If federal budget deficits ​increase, then a part of that deficit will be financed by foreign dollar​ holders, who will buy fewer U.S.​ exports, thus increasing the U.S. trade deficit.
A trade deficit implies that the dollar value of imports exceeds the dollar value of exports.
Generally a larger US trade deficit is accompanied by a a larger US federal government budget deficit
Suppose the dollar value of imports to the U.S. exceed the dollar value of exports from the US. This implies that foreigners are holding an excess supply of dollars.
If foreigners have an excess supply of dollars after trading goods and services they will likely buy more U.S. Treasury bonds.
If the U.S. federal government operates with a budget deficit it must borrow. In order to entice people to lend money to finance this​ deficit, the U.S. government must pay a higher rate of interest on the bonds it sells.
A natural consequence of the government continually spending more than what it takes in through tax​ receipts, ceteris​ paribus, is that the government takes up a larger percentage of the economic activity.
There is an ______ relationship between the interest rate and the price of a bond. inverse
As the interest rate or yield on U.S. bonds​ increases, foreigners buy more U.S. bonds and fewer U.S. goods and services.
From the end of WWII through 1983 the U.S. government had consistently experienced a trade surplus
Smaller trade deficits tend to accompany larger government budget deficits. false
Other things​ equal, interest rates will​ ________ whenever there is​ ________ in deficits financed by an increase in borrowing. rise; an increase
In the presence of a​ short-run recessionary​ gap, government deficit spending can influence both real GDP and employment. true
In the long​ run, higher government budget deficits resulting from increased government spending​ and/or tax cuts will do all of the following except increase equilibrium real GDP.
Higher government deficits arise from increased government spending or tax​ cuts, which raise aggregate demand
Entitlements in the U.S. are non-discretionary expenditures that have been legislated by Congress.
The U.S. federal government has contemplated ways to reduce its national debt. Which of the following suggestions would best enable the government to achieve this​ goal? Reduce government​ spending, raise​ taxes, or both.
From an arithmetic point of​ view, a federal budget deficit can be wiped out by simply increasing the amount of taxes collected. true
Data supports the idea that tax increases can completely eliminate actual deficits. false
Entitlements are the most important component of the federal budget. true
Entitlements are growing faster than any other part of the federal government budget. true
The United States is not the only country that has experienced a significant increase in its public debt in recent years.
To assess the changes in a​ nation’s degree of public​ indebtedness, most economists examine ratios of net public debt to GDP
Between the late 1990s and early years of this​ century, most nations observed declines in the ratio of the net public debt to GDP.
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Finance Flashcards

money and finance

Financial Markets and Institutions Involve the movement of huge quantities of money, affect the profits of businesses, and affect the types of goods and services produced in an economy.
The price of one country’s currency in terms of another’s is called The foreign exchange rate
Compared to interest rates in long-term U.S govt bonds, interest rates on three-month t bills fluctuate …. and are …. on average. more; lower
From 1980 to early 1985 the dollar … in value, thereby benefiting American …. appreciated, consumers
A Bond a debt security that promises to make payments periodically for a specified period of time
A stock is a security that is a claim on the earnings and assets of a corporation.
A weaker dollar benefits… and hurts… American Businesses; American Consumers
Banks, savings and loan associations, mutual savings banks, and credit unions have been adept at innovating in response to changes in the regulatory environment.
The bond markets are important because they are the markets where interest rates are determined
The price paid for the rental of borrowed funds (usually expresses as a percentage of the rental of $100 per year) is commonly referred to as the interest rate
A security is a claim on the issuer’s future income.
Interest rates are important to financial institutions since an interest rate increase …. the cost of acquiring fund and …. the income from assets. increases; increases;
Financial market activities affect – personal wealth.- spending decisions by individuals and business firms.- the economy’s location in the business cycle.
Monetary policy affects interest rates, inflation, and business cycles
A rising stock market index due to higher share prices Both increases people’s wealth and as a result may increase their willingness to spend and increases the amount of funds that business firms can raise by selling newly issued stock of these.
Banks, Insurance Companies, and Finance Companies are all examples of financial insts.
The largest financial intermediaries are Banks
Typically, increasing interest rates discourages corporate investments.
Monetary policy is chiefly concerned with the level of interest rates and the nation’s money supply
Economists group commercial​ banks, savings and loan​ associations, credit​ unions, mutual​ funds, mutual savings​ banks, insurance​ companies, pension​ funds, and finance companies together under the heading financial intermediaries. What function do financial intermediaries​ perform? do only act as middlemen, borrowing fund from those who have saved and lending these funds to others and help promote a more efficient and dynamic economy of these.
In recent years stock markets have crashed.
Money is defined as anything that is generally accepted in payment for goods and services or in the repayment of debt
Banks are important to the study of money and the economy because they do only provide a channel for linking this who want to save with those who want to invest and have been a source of financial innovation that is expanding the alternatives available to this donating to invest their money of these.
From the peak of the high-tech bubble in 2000, the stock market ________ by over ________ by late 2002. collapsed; 30%
A stronger dollar benefits ______ and hurts ______ American consumers; American businesses
The organization responsible for the conduct of monetary policy in the US is the Federal Reserve System
Black Monday was the stock market’s worst one-day drop
Markets in which funds are transferred from those who have excess funds available to those who have a shortage of available funds are called Financial Markets
A declining stock market index due to lower share prices Both reduces people’s wealth and as a result may reduce their willingness to spend and decrease the amount of funds that business firms can raise by selling newly issued stock of these.
Banks are financial intermediaries that accept deposits and make loans
The largest one-day drop in the history of the American stock markets occurred inA) 1929.B) 1987.C) 2000.D) 2001. 1987
Stock prices since the 1980s have been extremely volatile
The central bank of the US is The FED
The stock market is important because it is the most widely followed financial market in the United States.
Changes in stock prices -Affect people’s wealth and their willingness to spend-Affect firms’ decisions to sell stock to finance investment spending -Are characterized by considerable fluctuations
Bonds that are sold in a foreign country and are denominated in that country’s currency are known as Foreign bonds
Adverse selection is a problem associated with equity and debt contracts arising from The lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities.
Which of the following can be described as involving direct finance? A pension fund manager buys commercial paper in the secondary market.
The country whose banks are the most restricted in the range of assets they may hold is A) Japan. B) Canada.C) Germany.D) the United States. The US
An investor who puts all her funds into one asset… her portfolio’s … decreases; diversificiation
A corporation acquires new funds only when its securities are sold in the primary market by an investment banks.
Financial Intermediaries exist because there are substantial information and transaction costs in the economy, improve the lot of the small saver, are involved in the process of indirect finance.
Intermediaries who link buyers and sellers by buying and selling securities at states prices are called dealers
Which of the following can be described as involving indirect finance? Only a corporation takes out loans from a bank and people who buy shares in a mutual fund of these.
Which of the following are not investment intermediaries? life insurance company, and a pension fund.
Which of following are securities. certificate of deposit, share of texaco common stock.
Which of the following statements about the characteristics of debt and equity are true. they both can be long-term financial instruments, they both involve a claim on the issuer’s income, they both enable a corp. to raise funds.
The purpose of diversification reduce the volatility of a portfolio’s return.
Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of economies of scale.
Which of the following are investment intermediaries? Finance companies, and mutual funds.
Long-term debt and equity instruments are traded in the capital market
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the adverse selection problem
Are important financial institution that assists in the initial sale of securities in the primary market is the investment bank
Which of the following is a contractual savings institution? A life insurance company
The main sources of financing for businesses, in order of importance, are financial intermediaries, issuing bonds, issuing stocks.
Financial markets improve economic welfare because they do they allow funds to move from those without productive investment opportunities to those who have such opportunities and they allow consumers to time their purchases better of these.
The money markets is the market in which … are traded short-term debt instruments
Which of the following statements about financial markets and securities are true? Most common stocks are traded over-the-counter, although the largest corporations have their shares traded at organized stock exchanges such as the New York Stock Exchange.A corporation acquires new funds only when its securities are sold in the primary market.Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid.
A … is when one party in a financial contract has incentives to act in its own interest rather than in the interests of the other party. Conflict of interest.
The government regulates financial markets for two main reasons. to ensure that financial intermediaries do not earn more than the normal rate of return and to improve control of monetary policy
When the potential borrowers who are the most likely to default are the ones most actively seeking a loan… is said to exist. adverse selection
A country whose financial markets function poorly is likely to experience economic hardship and financial crisis.
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called asymmetric information
The largest depository institution (value of assets) at the end of 2009 was commercial banks.
When the borrower engages in activities that make it less likely that the loan will be repaid, ________ is said to exist. moral hazard
Foreign currencies that are deposited in banks outside the home country are known as eurocurrencies
The presence of ________ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. asymmetric information
Which of the following are secondary markets. The New York stock exchangethe us govt bond marketthe over the counter stock market
which of the following statements about financial markets and securities are true. The maturity of a debt instrument is the time (term) that has elapsed since it was issued.
Which of the following markets is sometimes organized as an over-the-counter market? The stock marketThe bond marketThe forex marketthe federal funds market
The riskiness of an asset’s return that results from interest rate changes is called interest-rate risk
Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? 15 percent
The YTM of a one-year, simple loan of $400 that requires an interest payment of $50 is 12.5 percent
With an interest rate of 10 percent, the present value of a security that pays $1100 next year and 1460 four year from now is approximately 2000
The fisher equation states both the nominal interest rate equals the real interest rate plus the expected rate of inflation and the real interest rate equals the nominal interest rate less the expected rate of inflation of these are true.
Which of the following are true for a coupon bond? When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
A bond’s future payments are called its cash flows
A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of 8 percent
The nominal interest rate minus the expected rate of inflation defines the real interest rate.is a better measure of the incentives to borrow and lend than the nominal interest rate.is a more accurate indicator of the tightness of credit market conditions than the nominal interest rate.
(I) Prices of longer-maturity bonds respond more dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for short-term bonds. (I) is true, (II) false. Answer
A discount bond is also called a zero-coupon bond
If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its yield to maturity is approximately 11 percent
A coupon bond pays the owner of the bond a fixed interest payment every period, plus the face value of the bond at the maturity date.
If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its yield to maturity is 100 percent
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is -8 percent
With an interest rate of 5 percent, the present value of $100 received one year from now is approximately $95
I) Prices of longer-maturity bonds respond less dramatically to changes in interest rates. (II) Prices and returns for long-term bonds are less volatile than those for shorter-term bonds. Both are false
Which of the following $1,000 face value securities has the highest yield to maturity?A 5 percent coupon bond selling for $1,000A 10 percent coupon bond selling for $1,000A 15 percent coupon bond selling for $1,000 A 15 percent coupon bond selling for $900 15 900
The interest rate that is adjusted for actual changes in the price level is called the
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Finance Flashcards

National Finance

The first item to be paid out of foreclosure funds is the Costs of Sale – advertising, attorney fees, trustee fees, etc.
If the amount realized at a Sheriff’s sale upon a delinquent mortgage is more than the indebtedness, the excess belongs to the mortgagor.
Before foreclosure who has the right to reclaim the property forfeited due to a mortgage default the borrower, under the right of Equitable Redemption.
In a Deed of Trust, the party who holds, “Naked Legal Title” (one without possessory rights), and can claim the property without going through the courts is the trustee.
A mortgage clause used in refinancing the first mortgage which allows the second mortgage to take the first place is called subordination.
A buyer assumes the mortgage. How is the seller relieved of the liability? Novation
Which mortgage clause allows a lender to regain their investment if the borrower does not pay his payment? Acceleration
In which way are a mortgage document and promissory note similar? Both are contracts
A mortgage or deed of trust may be recorded.
On a $150,000 loan, the lender charges a 1 point service charge. How much does the borrower have to pay? $1,500
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 loan amount is $80,000, and the monthly principal and interest payment will be $499.00 a month for 30 years. How much interest will be paid over the term of the loan? $499 x 12 = $5,998, $5,998 x 30 = $179,640, $179,640 -$80,000 = $99,640
The cost of points is not deducted from the loan. Points are treated as a separate debit or charge on a settlement statement, charged to the party who has agreed to pay them.
Based on the theory, (a rule of thumb) how many discount points are required to increase the percentage yield on a mortgage from 11% to 12%? 8 points
A lender charges discount points on a loan to improve the lender’s yield.
To determine the monthly principal portion of a monthly loan payment you must deduct the monthly interest from the monthly payment.
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%? $168,300 x 7,75% = $13,043.25, $13,043.25 ÷ 12 = $1,086.94
Remember for purposes of determining the new loan balance, you will not have to know how to determine the payment amount.
When determining a mortgage loan balance, the monthly loan payment interest is deducted from the payment.
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? $70,000 x 11.5% = $8,050, $8,050 ÷ 12 = $670.83, $711.53 – $670.83 = $40.70, $70,000 – $40.70 = $69,959.30, $69,959.30 x 11.5% = $8,045.32, $8,045.32 ÷ 12 = $670.44
In Step 3 what do you subtract from the monthly payment amount to solve for the monthly principal? Current monthly interest
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? $340,000 x 6% = $20,400, $20,400 ÷ 12 = $1,700, $2,028 – $1,700 = $328, $340,000 – $328 = $339,672
When a real estate loan uses both real and personal property as collateral for the loan it is called a (an) package mortgage.
A loan on real estate, that includes fixtures, and appliances used extensively in the sale of condominiums is a (an) package mortgage.
A mortgage where the interest rate fluctuates and is usually tied to an index; payment amount increases are capped for each period and for the term of the loan is called an Adjustable-rate Loan (sometimes called an ARM).
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.
A situation where an owner sells his or her improved property and at the same time, signs a long-term lease with the buyer is called a (an) sale-leaseback.
A Budget Mortgage is a loan, which has a payment composed of the following? Principal, interest, taxes and insurance
A borrower applied for a VA guaranteed first time mortgage for $50,000; however, the property appraised for $46,000. If the buyer still wanted to buy the property which could happen? The VA could allow the borrower to make up the difference in cash
An FHA mortgage loan is obtained through which of the following? Qualified lending institutions
In 1975 a veteran paid off his VA loan and sold his house. Would he be entitled to another VA loan? Yes, because he paid off the first loan and sold the mortgaged property.
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 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.
The primary purpose of private mortgage insurance (PMI) is to protect the lender.
What can the VA require a veteran do when obtaining a loan? Make the veteran automatically assume liability for the loan
The basic difference between an FHA and a VA loan is The FHA insures loans, the VA guarantees them.
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.
When you obtain an FHA loan, what generally happens? An FHA appraiser must appraise the property
Private mortgage insurance is associated with conventional loans.
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
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.
In 1975 a veteran paid off his VA loan and sold his house. Would he be entitled to another VA loan? Yes, because he paid off the first loan and sold the mortgaged property.
Conventional mortgage loans are not guaranteed or insured by any government agency.
Conventional mortgages usually require A larger down payment.
An FHA mortgage loan is obtained through which of the following? Qualified lending institutions
For a veteran to obtain a VA loan, the VA must issue a certificate of eligibility.
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.
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
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
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
Assets include all of the following, except revolving and installment loan accounts.
When underwriting a mortgage loan a lender considers all of the following, except credit worthiness of the seller.
Settlement is another name for closing and brings the real estate transaction to completion.
A lender will look at which items when deciding to qualify a property? All of these items.
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
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.
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.
All of the following were originally established to buy and sell mortgages in order to stimulate mortgage lending, except Maggie Mae (MGIC).
The two biggest money lenders of residential real estate mortgages are savings and loans and banks.
An increase in the availability of money would lead to which effects? Interest rates would go down
Which of the following is considered a part of the secondary mortgage market? Federal Home Loan Mortgage Corporation (FHLMC)
The primary distinction/s between the primary and secondary mortgage market is? The secondary market is fundamentally a holding or warehousing process.
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.
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.
Which of the following advertised financing terms would NOT trigger a full disclosure under Regulation Z $265,000 sale price
A primary purpose of the Truth in Lending Act is to make loan cost information readily available to consumer borrowers.
Truth In Lending applies to all of the following, except commercial property.
Purchasing an investment property , like an apartment complex may be more rewarding if the investor has the required management skills.
The two major sections of the Truth In Lending law, includes advertising and Annual Percentage Rate (A.P.R.).
The Truth in Lending laws apply to the financing of single family residences.
Which agency administers RESPA? Consumer Financial Protection Bureau (CFPB)
Under the Real Estate Settlement Procedures Act (RESPA), lenders are prohibited from taking kickbacks or unearned fees.
A house sold for $42,000. The buyer made a 20% down payment. Monthly interest on the loan was $252. What was the interest rate on the loan? 9%
Who is NOT an originator of primary loans? FHA
Usury MOST nearly means ______________ illegal interest.
Who is the largest purchaser in the secondary market? Fannie Mae
A mortgage broker _____________ arranges loans between borrowers and investors.
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.
A VA loan may be granted for the purchase of a one-family to four-family if _________________ the veteran agrees to live there.
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.
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
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
Which of the following is considered a conventional loan? Commercial bank ARM loan
An impound or reserve account MOST benefits whom? The lender
If advertised alone, which would be in violation of TRUTH IN LENDING? “No down payment required”
On a $50,000 loan the borrower is required to pay 2 points. How much does the borrower have to pay the lender? $51,000.00
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
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
All of the following are true of conventional loans except what? The requirements to qualify are uniformly fixed by state law.
The Pickets are purchasing a home for $78,000 and the lender is giving them a 90% loan at 10% interest, plus a 2% loan origination fee. How much is the loan origination fee? $1,404
In a repayment of a mortgage loan, which type of interest is used? Simple
RESPA would prohibit which of the following acts? Paying of kickbacks
In an installment land contract, what type of title did the seller retain? Legal
The finance charges recorded on the Truth in Lending statements would include all of the following EXCEPT: Recording fees and title insurance premiums
An increase in the availability of money would lead to which effect? Interest rates would go down.
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.
Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan? Monthly payments
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 borrower bought a $74,000 house with no down payment. The loan was probably ______________ a VA loan.
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
An owner was selling his own home. Can he advertise the down payment? Yes, because it was his own home
A buyer assumes the mortgage. How is the owner relieved of the liability? Novation
A standardized yardstick expressing the true annual cost of borrowing is expressed as a/an APR
Discrimination is prohibited in lending practices under _____________ ECOA.
The maximum permissible “loan to value ratios” are _____________ based on sale price or appraised value, whichever is lower.
Why would a mortgagee (beneficiary) have an appraisal on the property? To assure the property value is sufficient to cover the loan
Which of the following is true of a second mortgage? It is usually issued at a higher rate of interest.
The seller under a land contract is called _____________ the vendor.
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.
In which of the following markets may a lender sell a loan that a mortgage banker has previously originated? Secondary market
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
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.
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 money mortgage
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: A balloon payment
Under Regulation Z, consummation is defined as the time when a consumer becomes contractually obligated on a credit transaction.
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 months
The Loan Estimate must be delivered to an applicant within three business days of loan application.
The discount points charged by a lender on a federal VA or FHA loan are a percentage of the ________________ loan amount.
Which transaction requires a securities’ license? Selling shares in Fannie Mae
The primary purpose of Truth in Lending is to _____________ disclose the true costs of obtaining credit.
______ is the cost per thousand that is required to create the principal and interest payment necessary to pay off a loan. A factor
Effective October 1, 2015, the real estate industry has new requirements as specified in the TILA/RESPA Integrated Disclosure (TRID) Rule.
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Finance Flashcards

Chapter 14 Quiz 1

Jackie Flynn bought a new boat for $16,000. She put a $3,000 down payment on it. The bank’s loan was for 60 months. Finance charges totaled $4,800. Her monthly payment is:
The APR represents the: True effective annual rate of interest charged by seller
The finance charge is equal to the total of all monthly payments: Less amount financed
The amount financed equals the cash price plus down payment. False
The average daily balance is equal to the sum of daily balances: Divided by number of days in billing cycle
Today most companies calculate finance charge on their credit card accounts as a percentage of the yearly balance. False
Ruth Sloan bought a new car for $20,000. She put down $6,000 and paid $280 for 60 months. The total finance charge to Ruth is: $2,800
Revolving charge accounts must be completely paid off by end of the month. False
The U.S. Rule can be applied to open credit payments. True
The Fair Credit and Charge Card Disclosure Act of 1988 is optional advice to credit card companies. False
Which one of the following statements is incorrect? The Truth in Lending Act regulates interest charges
APR cannot by calculated by use of tables. False
The APR represents the stated interest rate. False
The Truth in Lending Act regulates interest charges. False
The Truth in Lending Act requires the APR be accurately stated to nearest 1/4 of 1 percent. True
Amortization is not a payment process. False
Most companies calculate the finance charge on credit card accounts as a percentage of the: Average daily balance
Finance charge equals total of all monthly payments less amount financed. True
Amount financed is equal to: Cash price less down payment
The cost of credit reports is normally included in the amount financed. True
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Finance Flashcards

Finance 101 Final

Convertible bond:Can be converted into common stock under certain conditions- usually at the owner’s option, for a specified number of shares of the corporation’s common stock.Generally, the coupon rate on a convertible bond is 100 percent lower than the rate paid on traditional bonds.The bond is trading at a high price, and the company wants to bring the price in line with a theoretical ideal range over 1000.All of the above Can be converted into common stock under certain conditions- usually at the owner’s option, for a specified number of shares of the corporation’s common stock.
Which of the following is not correct about investing in bonds?Secured bonds are issued by corporations and tied to physical asset such as real estate or equipment.Zero coupon bonds are issued at deep discount and redeemed at full face value.The junk bond market is very speculative and not for beginners.Bonds represent common stocks/equity and are extremely risky investments. Bonds represent common stocks/equity and are extremely risky investments.
An unsecured bond that is offered on the credit of the corporation and is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.Debenture.Mortgage.Indenture.Preemptive. Debenture.
Which type of bonds have the following properties? These bonds are used to fund large projects such as new plants and equipment that has a long, useful life. Secured bonds and Debentures are two types of these bonds. Canada Treasury Bonds.Europe Agency Bonds.Municipal Township Bonds.Corporate Bonds. Corporate Bonds.
A bond backed by the taxing authority of the government and is considered less risky because taxes can be raised to cover bond repayment if necessary is called a ____________ bond. Debenture.Mortgage.Secured.General obligation bond. General obligation bond.
Bonds represent A debt owed by a governmental unit or a corporation.A defined contribution plan.An equity/common stock with tax-free features.All of the above. A debt owed by a governmental unit or a corporation.
Which of the following bonds are the most secure bonds and the most secured investment, and they are backed by the “full faith and credit” of the U.S. Government?Convertible Bonds and Callable Bonds.US Treasury Bonds.Junk Bonds.Zero Coupon Bonds. US Treasury Bonds.
Which of the following offers a flexible way to save for retirement and uses a wide variety of investment products to fund your account?IRAThe NASDAQ401 B Plan403 K Plan IRA
As investors approach retirement age, they are often more interested in ______ portfolios. Aggressive.International.Risky or equity mix.Conservative or fixed-income. Conservative or fixed-income.
Which of the following is the top professional designation for financial planners?Certified Financial Planner (CFP)Chartered Financial Consultant (ChFC)Certified Public Accountant and Personal Financial Specialist (CPA and PFS)Charter Life Underwriter (CLU) Certified Financial Planner (CFP)
What does an IRA stand for?Investment Retirement Account.Investment Reduction Account.Income Reduction Account.Individual Retirement Account. Individual Retirement Account.
With the Roth IRA, you can withdraw your contributions at any time with no penalty or taxes to pay. After age of ______, you can make withdrawals of contributions and earnings tax-free.49 1/259 1/26770 1/2 59 1/2
The disadvantages of individual IRAs includeThe limits on the amount you can contribute each year.Income restrictions that reduce or eliminate the benefits for people in higher income brackets.Limit on IRA deduction if you are covered by a retirement plan at work.All of the above. All of the above.
Which of the following is correct about retirement accounts?The 401(k) plan is a salary-reduction plan with early withdrawals being always penalty free.The 401(k) and 403 (b) retirement plans are employer-sponsored programs that offer significant benefis.With the Roth IRA, you can withdraw your contributions at any time, but you always pay taxes and penalty.None of the above. The 401(k) and 403 (b) retirement plans are employer-sponsored programs that offer significant benefis.
Which of the following retirement account may be the best option for some people, where you get no current deduction from your income taxes, but your contributions and earnings grow tax-free and the withdrawals at retirements are tax free.Traditional Deductible IRA.408 (K) plan.Roth IRA.Self-Employed IRA. Roth IRA.
The IRS’s definition of financial hardship of withdrawing money early from your IRA without a penalty is (are)Extraordinary medical expenses.The purchase of a home (first-time home buyer).Emergency payments to stop foreclosure or eviction.All of the above All of the above
Which of the following is correct about retirement accounts?The IRS requires you to withdraw a specific minimum amount out of your 401 (k) beginning no later than April 1 the year you turn age 70 1/2.The IRS requires you to withdraw a specific minimum amount out of your 401 (k) beginning no later than April 1 the year you turn age 59 1/2.Roth IRA and traditional IRA are the same retirement accounts, where you can withdraw your contributions at any time without penalty or paying taxes.All of the above. The IRS requires you to withdraw a specific minimum amount out of your 401 (k) beginning no later than April 1 the year you turn age 70 1/2.
You want to convert equity in your home to cash with a reverse mortgage. What should your minimum age be to qualify?59626988 62
Which of the following provides a retirement benefit based on the number of years you have worked and contributed through payroll taxes to the system?Withholding taxSocial SecurityInflationAnnuity Social Security
Medicare is the federal health care program that provides basic services for people age ____ and older5059 1/26265 65
The main advantage of a 401(k) plan is that it:Provides a high rate of return with little risk.Allows you to shelter retirement savings from taxation.Provides a well diversified mix of investment assets.Has no early withdrawal fees. Allows you to shelter retirement savings from taxation.
Withholding tax isCash balance pensions plan that consists of longevity bonus for the number of years worked.An example of qualified retirement account.The Social Security, Medicare, and income tax withheld each payday by employer.401 (k) tax. The Social Security, Medicare, and income tax withheld each payday by employer.
Which of the following is not correctA retirement plan is a detailed plan for the administration and disposition of your property during your lifetime and at your death.Setting a time frame for retirement: both personal and financial decisions.Compounding is the mathematical means by which interest earned during one period adds to the principal, the next period interest is earned on the resulting principal plus interest.Diversified retirement portfolio reduces the risk by spreading investments dollars over numerous stocks and bonds to minimize the impact should one of the investments turn bad. A retirement plan is a detailed plan for the administration and disposition of your property during your lifetime and at your death.
Which retirement plan may use tax-deferred annuities or mutual funds, and it is the retirement plan for religious, educational, and other non-profit groups.401(k) 403(b)401(t)403 (IRA) 403(b)
John and Jane are in their late 20s with two young children. Their near-term financial planning concerns would include all of the following, except:Asset acquisition and debt planning.Employee benefit and Insurance planning.Investment and tax planning.Estate planning. Estate planning.
A _____________ is a qualified defined contribution plan offered by employers. 301(a) account509(re) account401(k) accountNone of the above 401(k) account
Which of the following is not correct?Purchasing power is what your dollars will buy relative to another point in time.Social Security and Medicare were designed to provide a safety net so elderly citizens could count on some income and health care.Medicare insurance plan is only suitable for low-income and disabled people.All of the above. Medicare insurance plan is only suitable for low-income and disabled people.
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Finance Flashcards

Chapter 9, Corporate Finance

Equity securities are certificates of ownership of a corporation. True
A large number of investors in equities actually own through pension or retirement funds. True
Companies raise capital in secondary markets by issuing new securities. False
The common stockholders of a company have unlimited liability. False
Preferred stockholders are not guaranteed any dividend payments and have the lowest-priority claim on the firm’s assets in the event of bankruptcy. False
In the general dividend-valuation model, the price of a share of stock is the present value of all expected future dividends. True
For a company that has no growth, dividends stay constant over time. True
The constant-growth stock has dividends growing at a constant rate over time. True
Whenever the constant-growth rate for dividends exceeds the required rate of return on the common stock, the constant-growth model provides invalid solutions. True
The bond valuation model can be used to value perpetual preferred stocks. False
Which of the following statements is true about secondary markets? In secondary markets, outstanding shares of stock are bought and sold among investors.
Which of the following statements is NOT true about common stock? Owners of common stock are guaranteed dividend payments by the firm.
Which of the following statements is true about common stock? Owners of common stock have the lowest-priority claim on the firm’s assets in the event of bankruptcy.
Which of the following statements is true? In order for the constant growth dividend model to properly value a firm’s common stock, R must be greater than g.
Which of the following statements about preferred stock is FALSE? Failure to pay dividends on preferred stocks will result in a default.
The dealer’s selling price of a given stock is also known as the ask price. True
Which of the following is a characteristic of common stock? Limited liability for owners
The value of a firm’s equity is calculated as the sum of the present value of all expected future cash flows. True
The bid price is the price that a dealer pays for a security. True
Preferred stock is legally a form of debt of a corporation. False
For the constant growth rate dividend model to work, which of the following assumptions must hold? The growth rate must be less than the required rate of return.
Growth stocks typically pay little or no dividends. True
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Finance Flashcards

Chapter 16 personal finance

Grace period The free period, also called ____, allows you to avoid a finance charge if you pay in full before the due date.
creditor One who lends money or the use of goods and services for the payment at a later date is called….
Credit Paying at a future date for the present use of goodds and services or money is called _.
Line of credit A(n) _ is a pre-established amount that can be borrowed on demand.
Collateral A loan on which the goods purchased with the loan serve as _ is a type of secured loan.
Open ended _ is credit where by you can ad purchases up to a set credit limit.
Close ended A loan for a specific amount that must be repaid in full, including finance charges, by a stated due date, is called _.
Cash advance A(n) _ is money borrowed against the credit card limit.
Sales finance A manufacturer-related company, called a(n) _, makes loans through authorized representatives.
loan sharks _ are unlicensed lenders who charge illegal rates.
Differed billing A service to customers called _ allows you to charge now and not be billed for several months.
Finance charge The interest you pay for the use of credit is called a _.
Service charge Almost everyone uses _ credit, whic is having work performed and paying for it later.
Retail stores Businesses called _ stores offer goods and services directly to consumers and include department stores, drugstores, and clothing stores.
Finance companies Small loan companies, also called _, charge higher interest rates and take more risk.
Usury In some states, maximum interest rates are set by _ laws.
Pawn broker A(n) _ is a legal business where loans are made based on the value of merchandise used as collateral.
Collateral Something of value that can be sold to pay a debt is often referred to as _.
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Finance Flashcards

Chapt 13 Finance

. _______________________costs are those costs that do not vary with the company’s level of production. Fixed
Costs that change as the company’s production levels change are called __________________ costs. Variable
A sales _____________________ chart shows graphically how fixed costs, variable costs, and sales revenue interact. Sales breakeven
A measure of the magnitude of the effect of fixed costs on operating income is ___________________. Degree of operating leverage
Whenever fixed costs are greater than __________, the degree of operating leverage is greater than 1. Zero
Firms that have low fixed costs and high variable costs are generally ____________risk than firms that have high fixed costs and low variable costs, but they will also have ________________ profit potential. Higher; higher
_____________________________ is the additional volatility of net income caused by the presence of fixed costs associated with having debt in the capital structure. Financial leverage
Firms that have higher proportions of debt in their capital structure will have ____________________ financial leverage. Greater
The total effect of operating and financial leverage is called ___________________ leverage. Combined
A _____________________________ is when one firm buys out another using a large amount of borrowed money. Leveraged buyout
Higher leverage is helpful when sales _____________________ . . Increase
. ________________________________ is the mixture of sources of funds that a firm uses (debt, preferred, and common). Capital structure
One of the primary advantages of using debt financing is ____________________ ___________________. The tax deductibility of interest
The weighted average cost of capital generally ___________________ as more capital is added. Rises
Modigliani and Miller suggested that if debt costs did not increase with additional borrowing, the tax deductibility benefit would imply that firms should finance with __________ percent debt. 100
Financial managers use capital structure theory to help determine the mix of debt and equity that ____________________________ the weighted average cost of capital. Minimizes
Bonds pay a lower rate of return to investors because investors have lower __________________________. Risk
What are the risks and benefits of having fixed costs in your operations? Fixed costs in your operations will cause EBIT to rise by a larger percentage than sales when unit sales are increasing. However, if unit sales decline, the firm’s EBIT will decrease by a greater percentage than does sales
Under what circumstances will high combined leverage be most beneficial to a company? High combined leverage will be most beneficial when a firm is experiencing increasing sales and has a low cost of debt.
As a firm moves to a capital structure with higher debt: financial risk of the firm increases
Firms with relatively low fixed operating costs and high variable operating costs can best be described as: having a low degree of operating leverage
Given fixed costs of $100,000, variable costs of $7.00 per unit, and a sales price per unit of $10.00, calculate the break-even point in units. 33,333
Operating leverage has the effect of triggering: a larger percentage change in EBIT when a given percentage change in sales occurs
All else equal, new equity financing will: decrease financial risk
Fixed operating costs affect: operating leverage
Whenever fixed costs are greater than zero, DOL is: greater than 1
Factors affecting capital structure include: the cost of debt, preferred stock, and common equity, market conditions ,investor perceptions
Which of the following statements is true? The interest payment tax shield lowers the cost of debt.
If Firm X has a greater variability in operating earnings than Firm Y, which firm has the lower business risk? it would depend on the volatility of sales for the two firms
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Finance Flashcards

personal finance chapter 4

estate tax a tax imposed on the value of a person’s property at the time of his or her death
excise tax a tax imposed on specific goods and services such as gasoline cigarettes alcohol tires and air travel
inheritance tax a tax levied on the value of property bequeathed by a deceased person
taxable income the net amount of income, after allowable deductions, on which income tax is computed
earned income money received for personal effort, such as wages, salary, commission, fees, tips or bonuses
investment income money received in the form of dividends, interest, or rent from investments. Aka portfolio income
passive income income resulting from business activities in which you do not actively participate
exclusion an amount not included in gross income
tax-exempt income income that is not subject to tax
tax-deferred income income that will be taxed at a later date
adjusted gross income (AGI) gross income reduced by certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments
tax shelter an investment that provides immediate tax benefits and a reasonable expectation of a future financial return
tax deduction an amount subtracted from adjusted gross income to arrive at taxable income
standard deduction a set amount on which no taxes are paid
itemized deductions expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work-related expenses
exemption a deduction from adjusted gross income for yourself, your spouse, and qualified dependents
marginal tax rate the rate used to calculate tax on the last (and next) dollar of taxable income
average tax rate total tax due divided by taxable income
tax credit an amount subtracted directly from the amount of taxes owed
tax audit a detailed examination of your tax return by the Internal Revenue Service
tax avoidance the use of legitimate methods to reduce one’s taxes
tax evasion the use of illegal actions to reduce one’s taxes
capital gains profits from the sale of a capital asset such as stocks, bonds or real estate