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Terms in this set (135)
if your total take home pay is $30,000 and your total expenditures are $28,000, then your A.P.S. is?
93.3%
28,000/30,000
when estimating expenditures for the budget
use records of past expenditure patterns
for most families, which expenditure category will be the largest percentage of income?
housing
the major sources of revenue for state governments are?
sales tax and income tax
if you invest $10,000 at 7% compound interest for 10 years, what is the future value?
pv 10,000
1/y 7
n=10
FV=19,672
a tax audit is?
IRS attempt to verify accuracy of return
a potential benefit of budgeting is?
all of the above
to reduce wasteful impulse spending
to plan ahead for achieving your goals
to maintaining good records for tax purposes
to reduce family conflicts about finances
if Marilyns salary is $5000 per month, her assets total $178,000, and her liabilites are$130,000 her net worth is?
48,000
178,000-130,000
constructing your balance sheet will help show you?
where you stand fianncialy, at a certain point in time
you might use your budget records to help you?
all of these
in an IRS audit
to show you really had paid some particular bill
when trying to get an adjustemtn for faulty goods
balance sheet liabilities should be valued at?
current outstanding balance
the balance sheet equation is?
total assets-total liabilities = net worth
which of the following is refudnable tax credit?
earned income
which of the following is not true of the consumer price index?
its a year to year changes in the post WWII period has been mixed: down as often as up
suppose you have a marginal tax rate of 20% and your employer is providing tax free medical insurance with a market price of $541 per month. the additonal monthly income you would need to purchase this same insurance would be?
$676
(1-.2)=.8
541/.8= 676
on tax exempt benefits
all taxes are permentaly avoided
a liquid asset is most appropriatly described as one that?
is cash or any other asset that is easily converted into cash with no loss in the market value
a personal income statment shows?
a detailed breakdown of cash income and expenses over a past period of time
in relation to the balance sheet or income statment, the budget:
requires greater concern for financial goals
if you want to buy a house that costs $100,000 today, what will you need to save each year to buy it in 20 years if houses appreciate at 3% per year
$4403
If a single person has a gross income of $80,950, what is his tax liability using the tax table below?
$13975
80,950-12,000=68,950
68950-29050=39,900
39,900X.25=9975
9975+4000=13975
if you put 1000 in the bank at 6%compounded monthly for 5 years. how much will you have at the end of five years?
$1349
an example of a fixed expense in your budget might be?
none of these
food, gasoline, clothing, entertainment
what is the present value of $10,000 in year 1, 20,000 year 2 and 40,000 year 3? the required rate is 10%
$55,672
CF1 10,000
cf2 20,000
cf3 40,000
10 1/y
what is the future value of $2000 invested per year for 30 years at a 10% annual rate
$328,988
2000 pmt
30n
10 i/y
FV= 328,988
what is the present value of $100,000 to be recieved in 30 years at a 10% discount rate?
$5731
100,00 fv
30n
10i/y
pv= 5731
generally as income rises, the average propensity ot save
increases
what is the APR if you invest 12% compounded semi-anuarly?
12.36%
pv =-1
n=2
i/y = 6 - 12/2
FV=1.1236 -1 = .1236
what is the present value of of an anuity that pays you $100,000 per year for 20 years? (use a 6% disocunt rate)
$1,146,992
pmt = 100,000
n=20
i/y=6
PV=
as the rate of inflation increases
bond prices fall
on the balance sheet, a mortgage loan is recoreded as the
outstanding balance only
another term, sometimes used instead of net worth is?
equity
molly invested $5,000 in an account she expects will earn 8% annually. approxamilty how many years will it take for the account to grow to $10,795?
10 years
pv=5000
fv=10795
i/y=8
n=10.00005
a progressive tax system is one in which higher income people pay __ than lower income people
both a and b are correct
a higher dollar amount in taxes
a higher percentage in taxes
test 2
...
you deposit $1000 in an account offering 12% interest yeild, compounded quarterly. at the end of five years you rtotal balance is?
$1806
under the truth in lending act, your maximum financial loss due to a lost or stolen credit card is usually?
limited to $50
in recieveing a credit application, lenders often look for?
character, capital, capacity
a credit bureu provides?
a credit report showing your credit history
a grace period on revolving charge accounts
can elaminate all interst charges if the loan balances is fully paid each month
what is the effecitve rate for 10% compounded semi annually?
10.25%
interest on a six year installment loan is to be calculated using the add on method. if the purchsed to be financed is 10,000 and the add on rate is 6% then you rmontlhly payment is?
$188.89
6X12=72
.06x6=.36x
= 3600+10,000=
13600/72=188.80
if you pay off a five year loan in 3 months what percent of the interest will you pay? (rule of 78)
9.67%
60*61/2 =1830 denominator
60+59+58/1830= .967
which of the following is not a characteritist of home equity loans?
they carry higher interest rates than most consumer loans
if you co sign a loan
you are financilaly responsible for the outstanding loan balance should the borrower stop paying
if you buy a $20,000 car and pay $2000 down with monthly payment of $317.8 a month for 6 years what is your apr?
18000 pv
317.8 pmt
72 n
8.25%
when you purchase a product that is sold "as is" the product is
not covered by either an implied nor express warranty
in most situations it is inadvisable to prucahse a service contract because
the cost exceeds the expected benefits
what is the APR of a 10% deposit if the interest is compounded daily?
10.52%
Math:
(1 + i/m)^nm
(i / m = 10 / 365 = 0.02740)
1 year * 365 days = 365 days
-1 PV
365 n
0.02740 i/y
FV = 1.1052
1.1052 - 1 = 0.1052
= 10.52%
car rental leases either "open end" or "close end" . the basic differnce between the two is
with an open end lease you may be liable for additional payments if the resale price of the auto is less than estimated in the lease agreement
which of the following statments concerning the housing market is false?
interest rates have gernerally risen since early 1980s
your monthly house payments should not exceed?
both a and d are correct
25% of your gross monthly income
33% of your monthly take home pay
your annual mortgage payments are 20,000 of which 10,000 represents interst payments , $5000 represents taxes, your marginal tax rate is about 30%, and you already itemize deductions. as a single person home ownership will reduce your tax payments by about how much each year?
10,000+5000-15000X.3=
$4500
a single taxpayer may?
exclude up to $250,000 of capital gain every time they have lived inthe home for a perdiod of two years
renting is gernally the least costly alternative
for those who move often
your takehome pay is $3000 per month. Assuming a 5% MORTGAGE rate and 30 year loan, what is the maximum PITI loan you could afford? assume the insurance is $100 per month and the taxes are $200 per month?
$130,397
3000/3=1000-300 = 700 pmt
5 i/y
360 n
which of the following assets is least liquid?
a certificate of deposit (CD)
many fianncial planners reccomend that you hold emerergency reserve assets equal to __% of after tax income?
25-50
which of the follwoing is not a characteristic of most passbook savings accounts?
interest rates are higher than money market rates
which of the follwing is not a characterisitc of certificicate of depisit (CD)?
they have a minimum maturity for three years
Monica bates recieved a check and endorsed it by simply signing her name on the reverse side of the check. this is called?
a blank endorsement
Agnes has a checking account and she has just recieved her March bank statment that shows an ending balance of $250. Agnes records indicate an ending balance of $220. In looking over the data you notice that two checks agnes wrote totalling $75 had not yet cleared the bank, while a deposit for $40 that she mailed had not yet been recieved. there also was a $5 bank service charge. To adjust her records she should?
all of the above
reducer her checkbook balance to $215
increase the bank balance by $40
subtract 75 from the bank balance for outstanding checks
the typical rel estate commission as a percent of th emarket price of the home is?
6-7%
you buy a $28,000 car and must choose between a .9% APR for 6 years or $4000 rebate. you are making a $3000 down payment and could get a new car loan at your credit union at 5% for 6 years.
the payment would be less with the rebate
25000 pv
.9 i/y
72 n = 357
21000 pv
5 i/y
72 n = 338.2 rebate
you borrow 100,000 to buy a home. the contract calls you to pay 4.5% interest. what is your monthly payment on a 25 year loan?
100,000 pv
4.5 i/y
300 n
= 555.8 =556
when a potential buyer makes an offer to purchase, he or she places a deposit on the home. this is known as?
earnest money
in the terminology used by lenders, on point is equal to?
one percent of the amount borrowed
adjustable mortgages?
impose higher risk on the borrwoer, but lower intial interest payments
a periodic rate cap?
limits interst rate charges on home mortgage during any one adjustment period
test 3
...
preferred stock is called a hybrid security becuase?
it has characterisitcs of both common stock and bonds
a mutual fund is an entity that ?
invests its funds in securities issued by other coproations and governments
what is the expeted returen on a 150 par of 7% preferred if it is selling for 125$
8.40%
dp/kp
150*.07=10.5
10.5/125= 8.40%
a preferred stock has a $100 par and a 7% divident the current market price is 82$. would you buy this stock if your required rate is 9%?
no the stock is overvalued by 4.22
Math:
Pp = Dp / Kp
= 7 / .09
= 77.78
(overvalued by $4.22)
a common stock is expected to pay a $1.80 divident and is currently selling for $60 a share. if you want a 13% return on this stock, how much average annual growth is necessary?
10%
kcs=d1/ps+g
.13=1.8/60+g
.13=.3+g
G=.1 =10%
what would you pay for a common stock that jst paid a $1 divedend, has a growth rate of 6% and a required rate of 14%
13.25
d1=1(1+.06)
1.06/.14-.06=13.25
historical arate of return place ___ at the high end and ___ at the lower end
common stocks, t-bills
corporate bond interest rates tend to ___ the inflation rate
move with
a purchase order for less than 100 shares of stock is called?
an odd lot
which of the items below should you expect to recive from a full service broker?
both b and d
assistance in tailoring a portfoloio to meet your needs
advice on what stocks to buy or sell
a short position refers to?
securities you have sold but do not own
examining almost 70 years of evidence of returns on common stocks, coporate and tresury bonds, treasury bills, and inflation indicates that over the entire period ?
common stocks showed the highest average rate of return but also showed the most risk
the market risk premium is the difference between the market return and
the return on treasury bills
investment risk can be broken down into company specific risk and market risk. when diversifying, an investor can eliminate?
only company specific risk
assume that GM common stock has a beto of 1.5 . if you expect the market to increase next year, you should also expect GM's price to go up:
(Beta X Market Risk Premium)
1.5X1.0=.15
15%
Assume that you are considering investing in Xerox common stock. you know its beta is +1.2 and you think the market risk premium should be 8%. if the expected rate of return is 12%, you should expect a return on Xeerox of ___%
4+1.2(8%) = 13.6
dollar cost averaging...
invests an equal amount of funds at periodic intervals
if you believe a compnay will grow rapidly in the future, you should buy its?
common stock
ABC stock expected to earn $3.00 a share next year and pay a cash dividient of $2.00. a share. if the stock is selling for $40 a share, its dividend yeild is?
5%
dp/pp = 2/40= .05
zero ince has an EPS of $5.00, a dividend of $2 and a p/e ratio of 1.0. this means the current market price of a share of zero stock is?
$50.00
p/e=p/EPs
10=x/5
technical analysis is a valuation method that
relies heavility on graphical analysis
a zero coupon bond is a bond that:
pays no periodic interest
a 10 year bond with a $1000 face value and a 6% coupon rate is currently selling in a bond market for $899. its current yeild is?
6.67%
cy=i/p
60/899=.067
a 30 year bond with a $1000 face value and a 6% coupon rate is currently selling in the bond market for $899. its yiled to maturity is?
60pmt
-899 pv
1000 fv
30n
i/y=6.79%
a municipal bond has a quoted yiled of 5%. if an investor has a 35% marginal tax rate, the bonds taxable equialent yeild is?
7.69%
tf/1-tx
5/(1-.35)
with a 10% market rate, the present value of a a $1000 (par), 20 year corporate bond with a 12 % coupon rate is
Math:
1000 FV
120 PMT
20 n
10 i/y
PV = 1,170.2713
= $1,170 (correct answer)
none of the above are within $10
two primary risks associated with coproate and municipal bonds are?
default and interest rate risks
a fund that attempts to match the overalll markets performance is?
an index fund
which service below is usually not provided by a mutual fund?
insurance to protect against market losses
you purchased an investment for $1000 on which you earned $120 last year. the inflation during that time was 2.4%, and your marginal tax rate is 30%. what was your real after tax rate of return?
6.%
Math:
12 * .7 (1 - Tx)
= 8.4 (after tax) - 2.4
= 6.0 (real after tax)
that protion of a stocks risk or variability that cannot be eliminated through investor diversification is called ___ risk?
systematic
an umbrella policy
will extend the liability limits on our homeowners policy and your auto policy
you should carry uninsured motorist coverage:
no matter waht the state required coverage
if you are driving an older car, it may be worthwhile for you to:
drop both collison and other than collison
an inflation guard endorsement
peridoically increase your dwelling protection to reflect increases in replacement cost
if you are sued for monetary losses resulting from bodily infury incurred in an auto accident you are protected under the
liability section of your auto policy
john biners roof was totally ruined by a fire. the insurance company estimates the cost of a new roof is $15,000. it also estimates that roofs like this are expected to last 20 years. the existing roof had been in place for five years. given this information, the actual cash value of the damage is/
none of the above are within $100
100-.25=.75
15,000*.75=11250
indeminfication means?
that the insurance proceeeds will return you to your pre loss financial status
theauthors of the test suggest you should
self insure against minor monetary losses and only purchase insurance to cover major monetary losses
the term community property as applied in estate planning is property that?
was acquired by th ejoint efforts of husband and wife and in which each equally shares in the ownership
of those assets distributed at death, whihc of the follolwing must pass through the probate?
assets distrubuted through the will
to die intestate means to die
without a valid will
if a life insurance policy is renwable:
the policy coverge can be reviewed without a medical exam
the incontestability clause typically indicates that the insurance compan will not challange the validity of statments made in the insurance contract:
after a specified period of time, if the incorrect statmeents were either honest mistakes or unintentional ommissions
with decreasing term insurance:
the face amount of the insurance protection decreases the insured ages
variable life differs from universal life in that:
variable lifes cash value depends on an underliying portfolio of financial investments
a rating of A+ in best insurance reports indidcates the life insurance company:
is financially stable
of the folllwoing coverages, the most importanti is?
major medical insurance
the term co payment means that:
both you and your insurer will share the cost of the medical service
disability insurance provides the insureed with?
protection against loss of income (typically about 60-65% of current income)
an HMO typically covers?
all medical epenses with the exception of certain deductibles
you are eligible for social security disabillity income payments if you can demonsrate that:
your disability is total and iwll last for at least a year or result in death
specififc disease and accident insurance policies ar eusually:
poor buys, duplicating coverage provide by more necessary comprehensive insurances
a good method for holding down premiums on disability income protection is to:
lengthen the elimination preiod
workers compensation programs are meant to help pay for medical expenses and lost income resulting from:
work related injuries and illnesses
which of the following definitions of disability provides the best protection against a reduction in your income?
you are disabled if you can not perform the main duties of your regular occupation
with property insurance, usual covered perils do not include:
all of the above
war, nuclear accidents, flood, earthquake
joan insures her house (with a market value of $100,000 including $20,000 for the foundation and lot) with a $50,000 insurance policy calling for 80 percent of coininsurance. a fire causes $10,000 worth of stuctural damag. what amount will she collect from the compnay (assume a 1% deductible).
$7313
(100000-20,000)=80000
80,000X.8=64000 replacement cost
.01X 50,000=500 deductible
50,000/64000=7.8
7.8X10,000 = 7800-500
if you purchased auto insurance coverage policy with policy limits of 100,000/300,000/20,000 that menas?
$100,000 is the limit on personal injury per individual with a $300,000 overall limit per accident
all risks homeowners insurance insures you against?
all risks not specifically excluded in the policy
liabilitity coverage protects you
against legaaly obligated expenses for the bodily injury or property damage you rnegligence has caused others
a few expensive items of personal property may be insured for all risks at replacement cost with the additon of?
a floater
you have an auto policy with 25/50/15 liability limtis. you hit a car and inure 3 people, the car worth 21000 is a total loss and the combined medical bills for the three people is $90,000. if the jury finds you are at fault, how much of the loss is not covered by the insurance?
$46,000
90,000+21,000=111,000
50+15=65
111,000-65,000
you have a major medical policy with a 1000 deductible and an 80/20 co insurance feature with a cap of 20,000/ if you incure 50,000 medical bill, how much of this bill will not be paid by the insurance?
$5000
.2X20,000=4000+1000=5000
you just bough a new home for $120,000 the lot foundation cost $20,000 hyou should take out apolicy between what maxium and minimum amounts?
100,000 to 80,000
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