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FIN 101.803 Exam #2

Terms in this set (200)

What is Financial Literacy?
How well you can undestand and use personal finance related information.
Feelings of control reflects:
The amount of control you feel you have when making financial decisions.
Gross Domestic Product (GDP) is measured by:
Adding up how much a country produces in goods and services in a year
Regardless of how much financial knowledge you acquire, knowledge is useless unless it's also accompanied by some key personal behavior such as self control, a desire to apply financial information to the management of your household and continuing to learn about personal finance topics.
True
Those with an advanced academic degree tend to do better when the economy turns downward.
True
In addition to formal education, other resources also increase your human capital, some are:
Continuing professional eduction and skill development, your health, and your willingness to relocate to higher-paying job markets
You can use investment payback period formula to estimate how long it will take you to earn back your investment. You may reach to payback period by using the following formula:
Total cost divided by increase in annual income
Procrastinating the start of a long-term assignment or project, whether at school or at work, is an example of how people often choose to spend their time doing those things that are most comfortable rather than most important.
True
Most people dislike losing, especially money. In other words, people tend to be:
Loss-averse
Human Capital is your ability and willingness to
Work, make wise decisions about how to save and invest money, and learn
Formal networks connect you with people in which of the following
Social communities, professional, and recreational and leisure
For those interested in accumulating wealth over their life, which of the following is essential in reaching their financial goals?
Willing to take calculated financial risks
In financial markets, the only way to accumulate a certain level of wealth is:
To take informed financial risks with your savings
SMART financial goals stands for
Specific, Measureable, Attainable, Relevant, and Timely
Self-Efficacy as defined by psychologists means:
How well you believe you can do something
Procrastination means:
placing more value on the present at the expense of the future.
When we make decisions more quickly and easily than if we were to labor over every choice, our mind is using:
heuristics
Most people dislike losing, especially money. In other words, people tend to be loss-averse.
True
Erroneously attributing outcomes to skill rather than chance while ignoring indications that would undermine perceptions of skill is defined as:
Confirmatory bias
An inconsistent preference across time leading to procrastination is defined as;
Hyperbolic discounting
One of the main purpose of preparing a balance sheet is helping you to organize your assets and liabilities
True
Which of the following is a long term liability?
Mortgage
Which of the following is an Investment Asset?
Stocks, Bonds, Mutual Fund
Current Ratio can be calculated as:
Current Assets divided by Current Liabilities.
Which of the following is fixed expense
Car loan payment, Taxes, Insurance
Which of the following is a variable expense
Gas for car
A financial ratio is a formula that allows you to compare your current situation to a per-established benchmark
True
Emergency Fund Ratio can be calculated as
Monetary Assets divided by Monthly living expensees
Guideline provided for total debt-to-income ration recommended to be :
...
The emergency fund ratio indicates whether you have sufficient resources available in case of an emergency. You should have resources to cover:
3-6 months
Exterior finance refers to the observable actions you take with money and the associated outcomes, such as:
Saving rates and cash flow management, loan payment amounts, and net worth
The Federal Deposit Insurance Corporation (FDIC) and the national Credit Union Administration (NCUA) protect your deposit up to:
250,000
Annual Percentage Rate (APR) calculated as:
...
What is Annuity?
Series of equal payments or deposits.
TVM table can make which of the following calculations easy?
Future value of $1, amortization or payment schedule, or present value of $1
Your Net Worth calculated as:
Liabilities - Assets
Liquidity means:
how quickly an asset can be converted to cash.
The framework of SMART goals means your goals should be:
Measurable and attainable, specific, and realistic timely
Without proper implementation, you'll find it very difficult to achieve your financial goals.
True
For an exciting vacation, there is no need to begin with a thorough planning.
False
Overspending leads to :
More borrowing, delete wealth over time, and paying more interest
according to your text book, if you were born in 1960 or later your normal retirement age is :
67
Earnings are compensation received for services performed for an employer.
True
Overtime is defined as working more than .....................hours in one week.
40
As an independent contractor, you are subject to:
Federal taxes and income taxes, you may also be required to pay local & state taxes and insurance payments.
A form of business organization that is easy to start up and requires no legal registration or paper work. You are in charge of the decisions. All income and expenses from the business activity flow through to your personal tax return. Losses from your business can lower your tax liability. This form of business is defined as:
Sole Proprietorship.
The rule of 72 tells you how long it takes to:
Double your money.
The Internal Revenue Service (IRS) says that almost everything you own or use for personal or investment purposes is called a capital asset. Common capital assets include:
Your home, rental or other real estate that you own, and your home and car
Supplemental Nutrition Assistance Program (SNAP) provides money to:
Low income household to purchase food.
Social Security funding come from FICA OASDI payroll taxes. The self-employed do not need to pay social security.
False
Continuously incurring a deficit is unsustainable and can lead to extreme financial stress. which of the following actions can lead to financial stress:
Overspending on credit cards, paying more interest, borrowing more loans
Saving ratio is calculated by the following formula:
Savings divided by Income
The strategy "Save More Tomorrow" suggests:
Commit to putting half of every future raise towards savings.
Income is a broad term used to describe all sources of money obtained by individuals and households and can include allowances, public assistance, interest, dividends and social security payments.
True
Payment based on the sale of a product or service is a:
Commission
Workers who fall under the "Fair Labor Standard Act" must be paid at least:
1.5 times their regular wage when they work overtime.
Being self-employed means that you:
Set your own hours, charge for your products, and pay your own taxes
One of the disadvantages about a sole proprietorship is
Unlimited liability.
Another way to avoid being personally responsible for the liabilities for your business is to form a:
Corporation
During your lifetime financial journey you can make money through employment, as a lender and as an investor.
True
Government use taxes to:
Provide social welfare, Pay for national defense, and build infrastructure
Withholdings are taken out of an employee's pay by:
The employer
Social Security (FICA) and Disability Insurance (OSADI) applies to earned income up to:
$128,000 in 2018
Ad valorem taxes means:
According to value
A progressive tax applies:
higher tax rates to higher-income households.
If you are self-employed, you have the responsibility to pay your taxes based on a:
Quarterly basis throught the year.
If you are unmarried and are not the primary provider for a dependent child, you should file as head of household.
False
If you are married, you can choose whether to file jointly or separately.
True
In general, in which of the following situation you are NOT required to file a federal income tax return:
...
Net Pay calculated as gross pay minus withholding.
True
Medicare applies to:
all earned income
A property tax is assessed based on the value of the property you own, such as your:
car or home.
Federal Deficit occurs when:
Annual expenditures exceed annual revenur
Gross income is the sum of all your income, including:
interest, dividends, capital gains and rents., wages and salary from work., and income from self employment
Form 1040 EZ is a simplified tax form for:
income reported from wages or salaries., single or married-filing-jointly., no dependent
A more complicated form that allows other types of income reported (such as tips, interest, dividends, and scholarship) is:
From 1040 A
Standard Deduction is an amount set by:
Congress.
The marginal tax rate is the rate of change in tax resulting from a change in income or deduction. Also defined as the:
tax rate applied on the last dollar earned.
The effective tax rate or average tax rate measures the average tax an individual pays on his or her entire income and can be calculated as;
Total Fedral Taxes divided by Taxpayer's Total Income.
Negative effective tax rates result when refundable tax credits exceed an individual's total tax.
True
Bouncing a check refers to :
writing a check for an amount greater than your account balance.
The process of comparing your check or debit card register with your monthly bank statement is defined as a/an:
A checking account reconcilliation.
An overdraft protection allows someone to spend more than their account balance.
True
A prepaid card is:
Payment made from money loaded onto the card in advance to make payments in the future.
Instead of paying outrageous fees for insufficient funds (overdraft), you'll be in much a better shape by:
Managing income and expenses carefully.
Elements of a loan is (are) :
Principal, Loan Fees, Interest
If you talk with multiple lenders and get several different offers for loans, you should be able to negotiate the fees and the interest rates of your loan.
True
An amortization table shows:
the amount of interest and principal associated with each fixed loan payment over the entire loan term.
When you can no longer afford to make payments on your debt you may declare:
Bankruptcy
Within the United States, the primary national credit bureaus are:
Equifax, Experian, TransUnion
FDIC insurance protects of all deposits up to ........................ in case the bank or credit union fails :
250,000
Something of value that can be sold in the event when the loan payments are not made by the borrower:
collateral
The annual percentage rate (APR) is a way to simplify comparison shopping for consumers.
True
When a lender requests your credit report to determine creditworthiness, it is referred to as a (an):
inquiery
The information comes from public records may include:
court order liens, court judgements, bankruptcy filings
The information that goes into your credit report comes primarily from:
current creditors.
The Fair Credit Reporting Act (FCRA) requires Equifax, Experian, and Trans Union to provide you with a free copy of your report once every:
12 months
Identity theft occurs when someone else uses your personal information, such as your name and Social Security number to obtain credit.
True
A bad credit risk is someone who has a history of:
not paying bills on time or not repaying their loans.
Fair Isaac Corporation, referred to as a "FICO". FICO scores can range from:
300-850
According to FDIC data, approximately 34 million U.S. households are unbanked or underbanked which means:
they have no or only a limited relationship with a bank or credit unions.
A short-term loan designated to be repaid within a few weeks when the borrower receives a paycheck is:
payday loan.
Taking an alternative loan is like taking:
Hint: If you pay a high interest for loans, you won't be able to save money. Then each month skipping certain payments to be able to pay other payments of that month. Then one will end up to lower credit score and so on. Taking an alternative loan is like taking a financial detour that leads to a dead end. Household that go through an alternative loan, hardly can make it to the path of their financial journey.You can also have a look @ 6-8 in the text book.
a financial detour that leads to a dead end.
Unsecured loans are sometimes called signature loans because:
there is no collateral involved in the lending process.
One of the best places to learn about federal financial aid and the FAFSA application is:
the Federal Student Aid Website.
The three simple steps to process receiving financial aids are:
1. Application
2. Awards
3. Repayment (if a student loan is used)
True
One of the Federal Student Loans that are made to undergraduates students who demonstrate a financial need is:
Direct Subsidized Loan.
Direct Plus Loans are available to:
pay for education expenses more than the capped amounts available through the other federal student loan program., Graduate and Professional Students., Parents of undergraduate students.
Automobiles tend to decrease in value over time. This is called:
Depreciation.
A lease is a financial agreement between you and the dealership where you agree to pay a certain price for the right to drive the car for more than 10 years or till the car is totally depreciated.
False
The annual percentage rate (APR) on a payday or alternative loan is based on:
fees rather than a stated interest rate.
Pawn shops and title loan companies base their loan on the value of:
collateral
A personal loan is typically:
a small-dollar debt that can be used to pay bills or make purchases.
With an installment loan, the borrower receives the full amount of the loan:
upfront in a single lump sum.
A personal line of credit looks similar to credit cards ; allowing the borrower to maintain a revolving balance month to month.
True
Peer-to-Peer (P2P) lending allows a borrower and lender to come together via the internet, such as:
Lending Club, Prosper, Peerform
Students are allowed to consolidate all of their federal student loans into one easy-to-manage loan through:
Direct Consolidation Loans.
Repayment of federal student loans typically must begin:
6 months of completeing schools or when students are at half-time status or less.
The key variable to negotiate in an auto loan is the lowest interest rate possible.
True
Renter's Insurance pays for any:
lost, stolen, or damaged property
When interest rates increase, the value of most investments will:
decrease
The general increase in prices is called:
inflation
Inflation always happen uniformly.
Hint: "Illustration 7.1.1"
False
Subjective risk is based on your personally developed probabilities of potential losses based on:
expectations, fears, worries, and other factors.
Which of the following is on top of the investment pyramid ( Level 3 - High Risk and Return) ?
Speculative or highly volatile stocks., Collectibles, Commodities
Which of the following is in the middle of Investment Pyramid (Level 2: Medium Risk and Return) ?
Well diversified mutual funds.
Emergency Fund ratio can be calculated:
Monetary Assets divided by Monthly Living Expensses.
An opportunity cost is the loss of a benefit that you would have received by choosing another option.
True
You can apply the visualization technique, to building an emergency fund by trying which of the following:
Consider how these emergencies might affect you financially., Think about how these emergencies could financially affect those you love., Identify some emergencies that may occur.
This saving account is Liquid, has monthly withdrawal limits and may have the minimum balance requirement. It also has higher returns than saving s accounts but lower returns than CDs. It has limited flexibility and FDIC or NCUSIF insured. Choose the right answer that matches with this definition:
Money Market saving Account.
The perception of the riskiness associated with a behavior or decision is defined as :
subjective risk.
Liquidity means:
how quickly an asset can be converted to cash.
A risk that results in an economic loss, such as needing to repair a car or replace a major appliance is a (an):
pure risk
You can estimate your monthly living expenses by calculating:
The minimum monthly dollar amount you need each month., Essentials like mortgage, rent, insurance and car payments., All your expenses minus taxes, savings, and nonessential.
Which of the following is an asset that is an interest- bearing asset, insured up to $250,000 for individuals, and generally purchased with one lump-sum dollar amount.
CD
A Roth IRA is an individual retirement account that has two significant advantages :
1. Investments accumulate earnings tax-deferred.
2. Money taken out is tax-free for certain conditions.
True
A U.S. ..................... is a way for Americans to lend money to the U.S. government. In exchange, the federal government agrees to pay you interest.
saving bond
The interest rate paid on U.S. saving bonds are fixed. The rates are generally lower than the saving rates paid by banks and credit unions.
False
529 Plans or Qualified Tuition Programs are popular college saving plans for parents and grandparents since they allow them to:
remain in control of the money so that it can only be used for college expenses., save for their children's or grandchildren's education tax-deferred., have tax-free distribution.`
The U.S. Justice Department defines identity theft as a crime in which someone wrongfully obtains and uses your personal data in some way that involves fraud or deception for his or her economic gain.
True
Net profit can be calculated by:
Gross sales - expenses
The stocks that focus on stock price appreciation are called:
Growth Stocks
Which of the following is/are Full-Service Brokers?
UBS, Edward Jones, Merrill Lynch
Investors with a higher risk tolerance are usually willing to pay:
a higher price for a stock than those with a lower risk tolerance.
Companies in different types of industries will have different average P/E ratios, so it is best to avoid comparing companies across industries.
True
Diversification means:
to spread your investments across different types of assets as a way to manage financial risk.
The coupon payment of a bond can be calculated by:
Coupon Rate X Face Value
T-bills or Treasury bills are:
Securities with a maturity date of 1 year or less.
Because some economies are growing while others might be shrinking, you should be diversified across your international investments.
True
In regard to risk tolerance and your port folio, the key to earning higher returns is:
being willing to take greater reasonable financial risks with your money.
Privately held stocks are available to a relatively small number of people or family members own the stock available.
True
When buying stocks, a bid price refers to:
the highest price a buyer will pay to purchase a specified number of shares of a stock at a specific time.
Owners are entitled .................... to share in profits of the firm.
by law
Stocks that provide shareholders a combination of stock price appreciation and dividends are called:
Growth and income stock.
Full-service brokers such as Merrill Lynch and Edward Jones provide advice:
before you buy and sell stocks.
Price-to-Earning ratio (P/E) can be calculated by:
stock price per share / earnings per share
Investors classify a medium company stock (mid cap) as follow:
$2 - $10 billion
Bonds issued by states and local governments are called:
municipal bonds
An advantage of mutual funds is they offer individual investors the opportunity to diversify even with limited funds.
True
Deflation occurs when general prices:
decline.
To identify your knowledge about risk, you may fill out the questionnaire on 9-2 in your text book.
According to this questionnaire, you maybe significantly underestimating the risks and costs of life in the United States today if you scored between:
0 and 5
To identify your knowledge about risk, you may fill out the questionnaire on 9-2 in your text book.
You have a good sense of some of the key risks facing consumers in today's world if you scored;
Between 6 and 11
To identify your knowledge about risk, you may fill out the questionnaire on 9-2 in your text book.
You are among the most knowledgeable when it comes to evaluating risks if you scored;
Higher than 11
You can use risk matrix to help manage your health situation, as well as any other decision that entails personal or household risk. For instance, you may think about someone who routinely texts while driving.
True
Why would hurricane insurance is more expensive if you live in Miami, Florida compare with Cleveland, Ohio?
Because hurricane are common near the oceans and often cause severe damages in Florida..
What is Consolidated Omnibus Reconciliation Act "COBRA"?
Based on federal law it gives most workers and their families who lose healthcare benefits the option to continue coverage for a limited period of time.
HMO is a popular form of health insurance that:
coordinates healthcare services, services are charged using relatively small copayments per visit., provides medical care through a network of physicians and hospitals located in a specified geographic area.
An own occupation definition means that you will NOT be considered disabled if you are unable to perform the material and substantial duties of your own occupation.
False
Term-Life Insurance ( also known as Pure Term Insurance) provides only a death benefit if :
the insured individual dies before reaching a predetermined age.
If you happen to damage your own car, which of the following insurances will pay for your car's repairs?
...
Human capital encompasses your ability and willingness to :
earn and make wise decisions., work, learn
The premiums charged by insurance companies will increase if :
the severity and frequency of the risks increases.
The amount the insured person must pay, before the health insurance company will pay any funds for medical bills is called :
deductible.
A preferred provider organization (PPO) is a popular:
fee-for-service plan.
A health maintenance organization (HMO) is a popular form of managed care that provides medical care through a network of physicians and hospitals located in a specified geographic area.
True
A popular hybrid plan, combining elements of fee-for-service and managed care is called a (an):
point of service plan (POS).
Catastrophic plan is available with very high deductibles, but low monthly premiums for people younger than
30
Disability is characterized by:
Your disability has or is expected to last for at least one year or until death., You cannot do the work you did before an accident or illness., You cannot readjust your skills because of your medical condition.
You can earn a fixed guaranteed rate of return through a (an) :
whole Life Insurance.
You need just enough insurance to meet your needs. A few ways to calculate an insurance need are: Complex needs analysis, Income multiplier estimation, and Human life value approach.
True
Normal retirement age for Social Security benefits for those born in 1960 or later is 67.
True
According to the Social Security Administration, retirees may only receive $0.25 for every dollar of benefits promised.
False
A 4% withdrawal rate from your portfolio is a common guideline that financial planners use when advising retirees.
True
If you are self employed, you can also set up a 401 (K) plan for yourself and business.
True
Penalties and tax apply to non-qualified distributions of account earnings but do not apply to amounts contributed and later distributed.
True
A special rule allows individuals to do a 60-day rollover from an IRA to another IRA only once every 12 months.
True
The difference between a TOD and a POD is that a TOD is used to title investment accounts, whereas a POD is used to title bank accounts and assets.
True
According to the National Institute of Retirement Security, the average household in the United States has little saved for retirement. The median retirement account balance is: less than $10,000.
less than $10,000.
Employees can also choose to have contributions taxed now and then enjoy partially tax-free distributions from the plan in retirement. These type of plans are commonly referred to as:
...
You own the property equally with another person, and each of you has rights of survivorship. When one of you die, the other owner receives that person's interest in the property. The transfer is automatic. This is defined as:
Joint tenancy with right of survivorship (JTWROS).
Many people in the past retired with a pension plan. Today, it is likelier you will have a (an) ...........................plan:
defined contribution plan
Some employers require you to work a certain amount of time before you have rights to the employer contributions. This is referred to as:
vesting
Individual retirement accounts (IRAs) are retirement savings accounts that provide individuals with:
access to retirement savings in the event of certain emergencies., valuable tax benefits., asset protection from creditors.
The IRS defines earned income as:
money received from working or operating your own business.
Probate is a court supervised process of distributing assets and paying debts after someone's death.
True
A living trust is created while the .............................is still alive.
grantor
A testamentary trust is established before the death of the grantor through a will and is irrevocable.
False
A legal document to direct medical treatment someone needs in case the person becomes incapacitated is called:
living will.
The fiduciary standard of advice requires a financial professional to act:
in the best interest of the client at all times and fully disclose any and all conflicts of interest.
The two most common ways to avoid probate include titling property appropriately and using trusts.
True
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