Test 2 Personal Finance Turner

How do you compare cash management alternatives to determine which is best for you?
A) Take into account their tax rate
B) Consider their safety or risk
C) Compare returns using comparable interest rates
D) All of the above are correct
Cash and investments that can be easily converted into cash are termed:
A) liquid assets
B) capital assets
C) illiquid assets
D) depositable assets
E) None of the above are correct
What is the name of an investment company that raises funds from investors, pools the money, and invests in stocks or bonds?
A) securities fund firm
B) bond brokerage firm
C) stockbrokerage firm
D) mutual fund firm
E) none of the above are correct
Which of the following financial institutions is a not-for-profit organization that is only open to members of that institution and tends to offer more favorable interest rates to borrowers and savers?
A) saving bank
B) saving and loan association
C) commercial bank
D) credit union
E) None of the above are correct
Which of the following financial institutions were originally established to provide mortgage loans to depositors?
A) commercial banks
B) credit unions
C) savings and loan associations
D) internet banks
E) None of the above are correct
Financial institutions that provide traditional checking and savings accounts are commonly referred to as
A) personal depository institutions
B) financial brokerage companies
C) deposit-type financial institutions
D) non-deposit type financial institutions
E) None of the above are correct
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What is the name for comprehensive financial service packages offered by brokerage firms?
A) asset management accounts
B) platinum management accounts
C) consolidated management accounts
D) comprehensive management accounts
E) None of the above are correct
Money market mutual funds provide an alternative to traditional liquid investments offered by financial institutions. Advantages of MMMFs include which of the following?
A) check-writing privileges
B) high interest rates
C) minimal risk
D) convenience–deposits made through payroll deductions
E) All of the above are correct
A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called a
A) certificate of deposit
B) demand deposit
C) negotiable order of withdrawal deposit
D) term deposit
E) None of the above are correct
Savings accounts are insured ate the _______ level.
A) state
B) local
C) federal
D) All of the above are correct
E) None of the above are correct
What is another name for an interest-bearing account?
a) CWI
b) demand deposit
c) IBC
e) none of the above
Of the following, which is not an advantage of a CD as a cash management alternative?
a) Wide selection of maturities
b) Convenient to purchase
c) Liquidity
d) Fixed insurance rate, beneficial if interest rates drop
e) Is insured
Pick the advantage of a certificates of deposit from this list of possibilities.
a) The interest paid is compounded daily
b) Early withdrawals after 30 days do not incur a penalty
c) They earn the APY and not the APR
d) Interest rates are generally higher than typical savings accounts
Money Market Deposit accounts enjoy one advantage over savings accounts found in commercial banks. This advantage is
a) Greater liquidity
b) Lower fees and smaller minimum balances
c) Unlimited check-writing privileges
d) A variable rate that is generally higher
Money market mutual funds provide attractive competition for bank deposits because
a) Their short term, higher returns are generally regarded as practically risk free
b) They are convenient to purchase and use
c) They are fully insured
d) Their low fees are affordable for almost anyone
e) None of the above are correct
What is the FDIC?
a) Federal Department of Insurance and Compensation
b) Federal Deposit Insurance Corporation
c) Federal Deposit Insurance Collective
d) Federal Depository Insurance Committee
e) None of the above are correct
Many banks offer free checking accounts. What may be the opportunity costs associated with free checking?
a) Low interest rates
b) Overdraft protection
c) High minimum balance requirements
d) Both A and C are correct answers
Suppose that you go to a bank at which you have no account, give the bank some cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a
a) Traveler’s check
b) Cashier’s check
c) Certified check
d) None of the above are correct
What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?
a) Draft-free checking
b) Automatic check coverage (ACC)
c) No fee checking coverage
d) Overdraft protection
e) None of the above are correct answers
Barbara Stallins had her bank certify one of her personal checks as being good. Which type of check has been issued?
a) Traveler’s check
b) Cashier’s check
c) Money order
d) Audited check
e) Certified check
The percentage of the credit card sale the retailer owes to the credit card company is the
a) Franchise fee
b) Card usage allowance
c) Retailer credit acceptance fee
d) Merchant’s discount fee
e) Interest rebate fee
Typically, the credit card issuer allows you a grace period, which means
a) You do not have to make a payment during the current month
b) You are not charged any interest during the current month
c) You must pay your balance off in full to benefit from the grace period
d) Interest charges are reduced during this time
e) Both A and C apply
Which of the following apply to getting a cash advance with a credit card?
a) Cash advances are available at ATM machines
b) There may be a cash advance fee
c) The interest rate may be higher than on regular purchases
d) You being paying interest immediately
e) All of the above
Credit cards are a form of __________ credit
a) Open ended
b) Revolving
c) Installment
d) Both A and B above
e) Both A and C above
Kendra always thought the grace period feature of her credit card was such a wonderful idea. Why, in essence, she is getting her purchases interest free during this time. After taking Dr. Art Keown’s Personal Finance course she learned a startling truth about grace periods.
a) There are higher fees associated with grace periods
b) All credit cards carry a grace period
c) Grace periods are actually beneficial to the credit card company
d) Most bank eliminate their grace period on new purchases if you don’t pay your balance in full.
When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5 %. What is the fee called?
a) Merchant discount fee
b) Merchant rate
c) Discount rate
d) Merchant back-end charge
e) None of the above
Which of the following is not an advantage of credit cards?
a) Allows for online shopping
b) Convenience or ease of shopping
c) Allows for consumption before the purchase is fully paid for
d) Emergency use
e) The finance charge that accrues on the account if not paid off in full each month
Which of the following are important to convenience users of credit cards?
a) Low annual fee
b) Card benefits and perks
c) Interest-free grace period
d) Only A and B
e) All of the above
Which of the following is not a single-purpose credit card?
a) Sears
b) Bank of America Visa
c) Toys R US
d) Shell Oil
e) Macy’s
What is the main distinguishing feature(s) for T&E cards?
a) They do not offer revolving credit
b) The full balance must be paid each month
c) There is no annual fee
d) Both A and B above
e) Both A and C above
The major differences between a premium prestige card and a regular credit card include
a) Higher interest rates
b) Higher credit limits
c) Additional perks and benefits
d) Both A and B above
e) Both A and C above
Getting a credit card while a college student is an excellent idea because
a) It helps you learn about credit
b) When used correctly it allows you to build up a solid credit history
c) You can shop online and make reservations
d) It works well for emergencies
e) All of the above
One of the following lists constitutes the five Cs of credit. Select the correct one.
a) Character, capacity, capital, collateral, co-insurance
b) Character, capacity, capital, collateral, characteristics
c) Character, capacity, capital collateral, conditions
d) Character, capacity, capital collateral, careful
e) Character, capacity, capital, collateral, credence
A company that gathers and sells consumers’ financial history to creditors is a
a) Credit issuance firm
b) Credit card company
c) Credit investigation bureau
d) Credit bureau
e) Credit recovery firm
__________ is not information generally found in your credit report
a) Personal credit history
b) College attended, grades, etc.
c) Your public financial history
d) Past inquiries regarding your credit report
e) Employment information
By law you have certain rights in connection with the credit bureau. They are
a) The right to view your personal credit report
b) The right to point out errors found in your file
c) The right to file a statement presenting your view of a disputed issue
d) The right to request the credit bureau to correct mistakes in your file
e) All of the above
Your credit score affects
a) Your mortgage rate
b) The amount of junk mail offering additional credit cards that you receive
c) The size of your credit line
d) The rate you pay on your credit cards
e) All of the above are correct answers
The process of mathematically evaluating your creditworthiness to obtain credit is called
a) Credit evaluation
b) Credit statistics
c) Credit history
d) Credit scoring
e) Credit references
Which of the five Cs of credit would your actual home be in relation to your mortgage?
a) Capital
b) Collateral
c) Capacity
d) Character
e) Conditions
Wally currently has a balance of $14500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default Apr of 29.99%. He and his wife own a nice home with $40000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking f0r advice. What would you tell him to do?
a) Take out a second loan on the house
b) Seek out a non-profit credit counseling company
c) Cash out his CD and pay down his credit cards
d) Become a convenience user, and maintain just one card
e) All of the above
A short-term loan that provides funding until a longer-term loan can be secured is called a(n)
a) Gap loan
b) Straddle loan
c) Bridge loan
d) Amortized loan
e) None of the above
A(n) ___________ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amortization.
a) Simple interest
b) Personal
c) Term
d) Installment
e) None of the above
A ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.
a) Variable-rate loan
b) Convertible-rate loan
c) Flexible-rate loan
d) Prime-rate loan
e) None of the above
Variable-rate loans
a) Always adjust every month
b) Are never a better option than fixed-rate loans
c) Usually have rate caps that prevent them from varying too much
d) All of the above
Alice has fallen behind on her signature loan. She recently received a notice from the lender that her wages were going to be garnished to pay off debt. What is the loan clause that allows the lender to take this action against Alice because she was in default?
a) Recovery clause
b) Recourse clause
c) Default clause
d) Deficiency payments clause
e) None of the above
What is the loan clause stating that if you default on a secured loan, the lender can repossess whatever is secured, as well as bill you for the difference if that repossession does not cover what you owe?
a) Deficiency payment clause
b) Insurance clause
c) Default clause
d) Recourse clause
e) None of the above
Joshua recently purchased a new home. His lender required him to purchase credit life insurance on the loan in the event that he died before the mortgage is paid off. What is the loan clause that allows his lender to require him to purchase this additional insurance?
a) Default contingency clause
b) Insurance agreement clause
c) Recourse clause
d) Early payment clause
e) None of the above
Suppose you borrowed the money you needed to purchase an automobile and then failed to make a scheduled payment by the due date. Technically, you
a) Are usually not given a chance to make good on the overdue payment
b) Are bankrupt
c) Are in default
d) None of the above
The “Repo man” recently repossessed your car for failure to make payments. You still owed $5000 on the loan, but since it was always broken you were glad to be rid of it anyway. The bank sold the car at wholesale auction for $3000. The bank also paid the “Repo man” $200 and paid attorney fees of $300. Based on the deficiency payments clause in your loan, what are you liable for?
a) $0; repossession means the bank must “eliminate” the debt
b) $500
c) $2000
d) $2500
e) None of the above
What is the name of the formal document that outlines the legal obligations of both the lender and the borrower?
a) Claim
b) Debenture
c) Tort
d) Note
e) Default
The loan contract is a formal document called a(n) ________ and may contain a(n) __________ specifying who retains control over the item being purchased in the case of default.
a) Note, security agreement
b) Agreement, indenture
c) Indenture, security agreement
d) Agreement, insurance clause
e) Note, legal transaction
Student loans are a smart source of financing for school because you pay part of the interest charges and the rest is subsidized by
a) The state government
b) The bank or lender
c) The federal government
d) The educational institution
If you own a home with a market value of $175000 and you have an outstanding balance on your mortgage of $60000, your home equity is
a) $97,750
b) $57500
c) $235000
d) $115000
Home equity/second mortgage loans have two important advantages over most other types of loans, they are
a) Tax deductibility of interest and lower interest rates
b) Tax deductibility of payments and longer terms
c) Increase in future financing flexibility and no recourse clause
d) No risk borrower and less amortization
e) None of the above
In driving around town one day, you noticed most of the payday loan companies were located close to the college and the local military base and there were none out in the newer neighborhoods. Why do you think this is so?
a) Payday lenders tend to focus on less experienced borrowers who typically don’t make a lot of money
b) The rent on these locations is less expensive
c) Because their terms are so affordable people with low incomes really take advantage of them
d) There are zoning laws that require these types of locations for these types of services
A Loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n)
a) Balloon loan
b) Secured loan
c) Installment loan
d) Fully amortized loan
e) None of the above
Which of the following statements regarding the risk-return relationship is most accurate?
a) Lower credit scores are associated with lower APRs.
b) Longer loan length is associated with lower APRs.
c) Higher credit scores are associated with lower APRs.
d) Shorter loan length is associated with higher APRs.
e) Both B and D are correct
What can a couple seeking to get out of debt do?
a) Seek help from a reputable credit counselor
b) Avoid future use of credit card debt, expect on emergency basis
c) Use savings to pay off current debt
d) See if their creditors will restructure their loans
e) All of the above are correct
Which of these are possible options for most people who cannot pay their bills?
a) Declare Chapter 7 personal bankruptcy
b) Obtain a debt consolidation loan
c) Get help from a credit counselor
d) Declare Chapter 13 personal bankruptcy
e) All of the above are possible options
What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the entire principal?
a) Simple interest method
b) Add-on method
c) Partial amortization method
d) Discount method
e) None of the above
Of the following possible sources of credit, which typically has the lowest borrowing rates?
a) Savings and loans
b) Personal finance company
c) Commercial banks
d) Credit union
With a(n) _______ installment loan, interest charges are calculated using the original balance, and these charges are the added to the loan.
a) Discount method
b) Add-on method
c) Partial amortization method
d) Simple interest method
e) None of the above
Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases
a) The payment amount would increase (other things held constant)
b) The loan maturity would decrease (other things held constant)
c) The payment amount would decrease (other things held constant)
d) The amortization would increase (other things held constant)
e) None of the above
Which of the following does not require you to have a good credit rating to issue you a loan?
a) Savings and loan
b) Commercial bank
c) Your family
d) All of the above require a good credit rating to issue a loan
What is the name of the interest rates banks charge to their most credit worthy customers?
a) Main rate
b) Prime rate
c) Premier rate
d) Blue chip rate
e) None of the above
How can you benefit from the following smart buying steps?
a) Smart buying helps you maintain your budget
b) Smart buying allows you to buy what you want when you want it
c) Smart buying allows a higher standard of living because you make smarter purchases
d) Both A and C are correct
Suppose that you are the end of your automobile lease. The leasing company has just informed you that the car’s market value is greater than its residual value and they will be sending you a refund. What type of lease did you have?
a) Residual lease
b) Walk-away lease
c) Close-end lease
d) Open-end lease
e) None of the above
You have been having significant problems with your new car. Every time you turn around something is breaking or not working properly. Fortunately, the “lemon laws” are there to help. Which of the following is not one of the criteria for application of lemon laws?
a) You must return the vehicle to the original dealership
b) Your car has been out of service for at least 30 days during the first year after purchase
c) You have made at least four attempts to solve the problem
d) You have under 12,000 miles on your car
Which of the following factors plays a role in determining the monthly lease payment of a car?
a) The agreed-upon price of a vehicle
b) The value of the vehicle at the end of the lease
c) The length of the lease
d) The capitalized cost based on your trade-in
e) All of the above
Another name for a closed-end lease is a(n)
a) End-purchase lease
b) Terminal lease
c) Take-out lease
d) Walk-away lease
e) None of the above
In auto sales a ______ is an amount of money, generally in the 2% to 3% range, that the manufacturer gives the dealer for selling an automobile.
a) Holdback
b) Kickback
c) Markup
d) Rebate
e) None of the above
Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?
a) I like to get a new car every few years
b) I drive less than 15,000 miles annually
c) I dislike the hassle of trading-in or selling cars
d) It’s the only way I can afford the vehicle that I want
e) I dislike the hassle of maintenance
You disagree with Ed “Shifty” Smith, a car salesperson, on the price of an open-end lease. He says the depreciation charge is only $6000. What is the actual depreciation charge for a car now worth $23,000 that is expected to drop in value to $15,000 in two years?
a) $7000
b) $7500
c) $8000
d) $11500
e) $15500
Over the past decade the number of new car sales are down and the number of new car leases are up. What is probably the main reason why this is true?
a) The manufacturers prefer it when people lease instead of purchase
b) The salesman makes a higher commission when cars are leased
c) New cars are getting so expensive that the average person can’t afford to buy them
d) Both A and B are correct
What kind of valuable information can you find online at websites such as Edmunds.com or Autosite.com concerning smart buying for automobiles?
a) The trade-in value on your current automobile
b) The dealer cost and dealer holdback for the automobile you are interested in
c) The final price you will pay for the automobile at the dealership
d) Only A and B are correct
e) All of the above
If you are considering purchasing a used car you should
a) Ask questions about the mechanical history of the car, including whether it has been in any accidents
b) Do some research so you’ll know a fair price for the vehicle you’re looking for
c) Have the car inspected by a mechanic before you purchase it
d) All of the above
Which should you consider when house hunting?
a) The school district
b) The selling price
c) The neighborhood
d) All of the above
What drawbacks might a co-op have over a house for a family of eight who are relocating to a new area and need to purchase a home?
a) More expensive to operate and maintain
b) More expensive to purchase
c) No ownership of shares in the corporation
d) Less freedom to make changes and less privacy
Which of the following is not an advantage of living in a condo?
a) Building equity for resale and investment
b) Limited maintenance
c) Direct ownership of a specific unit
d) Freedom from neighbors
Which one of the following is not a key to finding housing that fits your needs?
a) Future needs
b) Location
c) Insurance costs
d) Deciding what features you are looking for
e) Present needs
Which of the following housing alternatives puts the responsibility for maintenance and repairs on the occupant?
a) A rental unit
b) Homeownership
c) Condo
d) A co-op
All of the following are advantages of renting versus buying a home except
a) Control over remodeling and decorating decisions
b) Not responsible for home repairs or maintenance
c) Mobility
d) No risk of falling housing prices
e) No property tax
What is not a benefit normally associated with home ownership?
a) A potential source of collateral for future loans
b) Ability to build equity and net worth
c) Tax advantages for those who qualify
d) Flexibility to respond to employment opportunities
Private mortgage insurance typically is not needed with a down payment of 20% or larger. Why?
a) Buyers who invest large down payments are more motivated to make their mortgage payments
b) Buyers who have large down payments don’t choose the extra insurance
c) Not true, all mortgage loans require PMI
d) All of the above
e) None of the above
You are a newlywed, and you and your spouse have just found your dream home. Problem is, you do not have 20% for a down payment on the house. You will probably need to obtain
a) APR
b) EAR
c) PMI
d) PTI
e) None of the above
You are considering the purchase of an acre of land out in the country to build your future house on. You pay for an investigation of the public record to determine the current legal owner of the property. This is called a(n)
a) Title search
b) Appraisal search
c) Escrow search
d) Legal entity search
e) None of the above
You have just obtained a mortgage to purchase your home. The ______ that you paid to obtain the loan are charges that must be paid at the time of the sale and serve to raise the effective cost of the loan
a) Escrow fees
b) Points
c) Security fees
d) Closing fees
e) None of the above
You are in the process if purchasing a new home. Expenses that the buyer and seller incur when finalizing the transfer of the ownership of the house are called
a) End costs
b) Transfer fees
c) Closing costs
d) Finalization costs
e) None of the above
You have an annual gross income of $36,000. Using the28/36 rule for maximum mortgage payment (PITI) estimation, what is your maximum PITI payment using your monthly gross income as a guide (28%)?
a) $840
b) $880
c) $1080
d) $680
e) $640
With private mortgage insurance, many lenders will allow you to borrow more than 80% of the appraised value of the home. What is the purpose of this action?
a) It protects the lender in the event the borrower is unable to make mortgage payments
b) It protects the borrower from foreclosure
c) It is required by federal and state law
d) The insurance will pay to damages to the home during the course of the mortgage
Select the one cost that is not involved in home ownership
a) Points/discount points
b) Closing/settlement costs
c) Down payment
d) Loan origination fee
e) Rental deposit
Bob and Marilyn Hartin know the bank will carefully evaluate their situation before lending them the money for the mortgage for their new home. Which is not a consideration?
a) The number of children they have
b) Their ability to pay
c) Their level of debt
d) Their financial history
e) Appraised home value
Name the items that are deposited in an escrow account
a) Property taxes, property insurance
b) PMI premiums, homeowner’s association dues
c) Utility payments, homeowner’s association dues
d) Liens, closing costs, points
e) Principal, interest, title fee, insurance
Which of the following is not a recurring housing cost?
a) Maintenance and operating costs
b) Mortgage payments
c) Points
d) Homeowner’s insurance
A deposit included with an offer to buy that assures the seller that the buyer is serious about buying the house is called
a) Earnest money
b) Home deposit
c) Buyer’s assurance
d) Assurance deposit
e) None of the above
The two primary advantages of a 15 year mortgage over a 30 year mortgage are
a) Lower interest rate and lesser interest charges over the life of the loan
b) Easier qualification criteria and more affordable initially
c) Greater financial flexibility and no prepayment penalties
d) Lower payments and prepayment privileges
e) None of the above