Exam1 FIN474 Spring 2010
Version A
Student: __________________________________________ID#________________________________
1. Earnings from a limited partnership would be an example of ____________ income.
A. Excluded
B. Earned
C. Investment
D. Portfolio
E. Passive
2. An all-purpose account that provides several services is a(n)
A. Asset management account
B. EFT account
C. Money market account
D. Mutual fund
E. NOW account
3. A family spends $40,000 on living expenses. With an annual inflation rate of 3 percent, they can
expect to pay approximately _______ in three years.
A. $43,700
B. $42,000
C. $41,200
D. $46,000
E. $40,300
4. Ben Collins plans to buy a house for $ 120,000. If that real estate is expected to increase in value by 5
percent each year, what will its approximate value be seven years from now?
A. $168,852
B. $162,000
C. $126,000
D. $120,000
E. $ 85,282
5. Carl Lester has liquid assets of $ 2,680 and current liabilities of $ 2,436. What is his current ratio?
What comments do you have about this financial position?
A. 0.91
B. 1.10
C. 0.48
D. 0.52
E. 0.10
6. Elaine Romberg prepares her own income tax return each year. A tax preparer would charge her $ 60
for this service. Over a period of 10 years, how much does Elaine gain from preparing her own tax
return? Assume she can earn 3 percent on her savings.
A. $ 60.00
B. $511.81
C. $687.83
D. $600.00
E. $618.00
7. Janie has $ 70,000 in a single ownership money market account, $ 30,000 in a single ownership
savings certificate, and has a joint account with her mother with a balance of $ 214,000. Based on $
100,000 of Federal Deposit Insurance Corporation coverage, what amount of Janie’s savings would
not be covered by deposit insurance?
A. $ 70,000
B. $ 84,000
C. $107,000
D. $ 7,000
E. $ 14,000
8. A few years ago, Michael Tucker purchased a home for $ 100,000. Today the home is worth $
150,000. His remaining mortgage balance is $ 50,000. Assuming Michael can borrow up to 80 percent
of the market value of his home, what is the maximum amount he can borrow?
A. $ 50,000
B. $ 80,000
C. $ 45,000
D. $120,000
E. $ 70,000
9. John Walters is comparing the cost of credit to the cash price of an item. If John makes a $ 60 down
payment and pays $ 32 a month for 24 months, how much more will that amount be than the cash
price of $ 685?
A. $143
B. $ 83
C. $768
D. $828
E. $708
10. If an adjustable rate 30-year mortgage for $ 120,000 starts at 5.5 percent and increases to 6.5 percent,
what is the amount of increase of the monthly payment?
A. $220.00
B. $260.00
C. $ 77.13
D. $120.00
E. $ 4.00
11. Restrictions on how property in an area can be used are
A. Refinancing clauses
B. Common areas
C. Title insurance provisions
D. Cooperative agreements
E. Zoning laws
12. A person who pays $4,500 in real estate property taxes and is in the 28 percent tax bracket, would
reduce the amount paid for federal income taxes by
A. $1,260
B. $2,500
C. $4,500
D. $3,240
E. $500
13. A risk premium associated with interest rates refers to
A. Lower consumer prices
B. Higher potential earnings due to uncertainty
C. Expanded exports
D. A loan with a short maturity
E. Expected lower inflation
14. Shaunik's monthly net income is $3,000. What is the maximum amount he should spend on credit card
payments?
A. $300
B. $600
C. $400
D. $700
E. $500
15. Renting is more advantageous than buying a home for
A. Lower short-term living costs
B. Financial benefits
C. Receiving tax benefits
D. Permanence of residence
E. Long-term investment purposes
16. George Washburn had earnings from his salary of $34,000, interest on savings of $800, a contribution
to an individual retirement account of $1,500, and dividends from mutual funds of $600. George's
adjusted income (AGI) would be
A. $35,400
B. $34,000
C. $33,900
D. $34,600
E. $34,800
17. The purpose of a service contract is to
A. Obtain regular maintenance on a product
B. Protect a product owner from expensive repairs
C. Prevent legal action due to a defective product
D. Reduce the chance of repairs of an appliance
E. Have legal assistance for consumer complaints
18. Tax-deferred retirement plans are a type of
A. Tax shelter
B. Passive income
C. Exemption
D. Itemized deduction
E. Tax credit
19. Which is often the source of the least expensive loan?
A. Savings and loan associations
B. Parents or family members
C. Loan sharks
D. Banks
E. Finance companies
20. Current liabilities differ from long-term liabilities based on
A. The financial situation of the creditor
B. The amount owed
C. The interest rate charged
D. When the debt is due
E. Current economic conditions
21. The future value of $1,000 deposited a year for 5 years earning 4 percent would be approximately
A. $5,400
B. $5,000
C. $8,200
D. $6,500
E. $5,250
22. A person with an income of $50,000 and no other debts would qualify for a mortgage of about
A. C.$150,000
B. B.$90,000
C. D.$200,000
D. $50,000
E. $260,000
23. The borrower's financial ability to meet credit obligations is called
A. Character
B. Capacity
C. Collateral
D. Conditions
E. Capital
24. The amount of mortgage a person is eligible for would be increased by
A. Lower interest rates
B. Higher interest rates
C. A low family income
D. A lower down payment
E. High debt obligations
25. The purpose of a counteroffer is to
A. Reduce mortgage payments
B. Lower real estate property taxes
C. Avoid paying the real estate agent's commission
D. Avoid paying points at closing
E. Negotiate the purchase price
26. A person's net worth is computed by
A. Adding assets and liabilities
B. Deducting current living expenses from total assets
C. Adding liabilities and budgeted expenses
D. Subtracting total liabilities from total assets
E. Subtracting assets from current liabilities
27. A home file should be used for
A. Documents that require maximum security
B. Records that are difficult to replace
C. Storing all financial documents and records
D. Obsolete financial documents
E. Financial records for current needs
28. Open dating provides information on
A. Pricing
B. Freshness
C. Common product use
D. Government inspection
E. Nutrition
29. A taxpayer whose spouse recently died is most likely to use the ____________ filing status.
A. Head of household
B. Single
C. Married filing joint return
D. Qualifying widow or widower
E. Married filing separate return
30. Debt payments-to-income ratio is
A. Determined by dividing your assets into liabilities
B. Calculated by dividing total liabilities by net worth
C. A useless ratio for determining your credit capacity
D. Rarely used by creditors in determining credit worthiness
E. Calculated by dividing monthly debt payments (not including house payments) by net monthly
income
31. A person borrows $200 from a payday loan company, paying $10 interest for two weeks. This would
result in an annual interest rate of approximately ___ percent.
A. 20
B. 5
C. 130
D. 40
E. 260
32. Impulse buying refers to
A. Gathering information
B. Unplanned purchasing
C. Evaluating alternatives
D. Selecting the least desirable alternative
E. Comparison shopping
33. If you save $200 a year by using coupons, what would be the approximate future value of these
savings over ten years based on an interest rate of 5 percent?
A. $1,200
B. $2,000
C. $2,200
D. $800
E. $2,500
34. The Hernandez family budgets $420 a month for food. Last month they spent $413, which creates
A. A budget surplus of $420
B. A balanced budget
C. A budget deficit of $7
D. A budget surplus of $7
E. A budget deficit of $413
35. Ruby's liabilities, not including her home mortgage, total $25,000. Her net worth is$30,000. What is
her debt-to-equity ratio?
A. 4.000
B. 3.500
C. 2.850
D. 1.833
E. 0.833
36. Some real estate experts estimate that remodeling a kitchen can add 130 percent of the cost of
remodeling to the value of the house. A remodeled kitchen costing $8,000 could add _____ to the
value of the house.
A. $10,400
B. $4,000
C. $13,000
D. $9,600
E. $8,000
37. The stages that an individual goes through based on age, financial needs, and family situation is called
the
A. Tax planning process
B. Budgeting procedure
C. Personal economic cycle
D. Financial planning process
E. Adult life cycle
38. When preparing her monthly budget, Marge Kent has total spending of $4,600. Each month she pays
$1,200 in rent, $60 for cable television and Internet service, and $240 for her auto loan. What
percentage of her budget goes for these fixed expenses?
A. 27 percent
B. 40 percent
C. 12 percent
D. 6 percent
E. 33 percent
39. Money received by an individual for personal effort is ____________ income.
A. Earned
B. Capital gains
C. Portfolio
D. Excluded
E. Passive
40. The ______________ property tax is based on the value of land and buildings.
A. Personal
B. Direct
C. Regressive
D. Real estate
E. Proportional
41. The profits from a mutual savings bank go to the
A. Creditors
B. Depositors
C. Stockholders
D. Community in which it operates
E. Loan applicants
42. An itemized deduction of $500 with a 36 percent tax rate would reduce a person's taxes by
A. $500
B. $280
C. $464
D. $180
E. $36
43. Which of the following would cause prices to drop?
A. A demand for higher wages
B. Increased taxes on business
C. Higher levels of demand by consumers
D. A reduction in the money supply
E. Increased production by business
44. The main economic influence that determines prices is
A. The stock market
B. Government spending
C. Supply and demand
D. Interest rates
E. Employment
45. Installment cash credit is a
A. Synonym for a single lump-sum credit
B. Loan that allows the consumer to receive merchandise, such as a refrigerator
C. Down payment made on a purchase
D. Direct loan of money for personal purposes
E. Loan that must be repaid in total on a specified day
46. The items produced for retail stores are commonly sold under a ____________ brand.
A. Government
B. Regional
C. Store
D. Generic
E. National
47. A saver has $1,000 on deposit in an account earning 3 percent interest. During this year, the inflation
rate was 5 percent. After a year, what is the buying power of the amount in savings for that person?
A. $950
B. $1,050
C. $1,030
D. $980
E. $1,000
48. Comparison of earnings for different savings plans can best be accomplished using the
A. Annual percentage yield
B. Net present value
C. Compounded rate of return
D. Discounted present value
E. After-tax rate of return
49. The Fed refers to
A. The Federal Reserve System
B. The Federal Deposit Insurance Corporation
C. Government regulation of business
D. Congress
E. Spending by the federal government
50. A trust has the purpose of
A. Solving a person's financial problems
B. Obtaining low-interest loans
C. Managing the assets of a person
D. Handling daily money management activities
E. Improving a person's budgeting skills
51. Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal payments
over the next year to pay for it. She is using.
A. A line of credit
B. Revolving check credit
C. Open-end credit
D. None of the above
E. Closed-end credit
52. A credit purchase with 24 monthly payments of $78 and a down payment of $120 would have a total
cost of
A. $1,200
B. $1,872
C. $120
D. $1,992
E. $2,120
53. The current financial position of an individual or family is best presented with the use of a(n)
A. Balance sheet
B. Bank statement
C. Budget
D. Time value of money report
E. Cash flow statement
54. Warranties are commonly associated with ____________ purchases.
A. Insurance
B. Consumer
C. Financial service
D. Credit
E. Investment
55. The sticker price of a car refers to
A. The cost of repairing a used car which is for sale
B. The amount of government taxes on a new car
C. The suggested retail price of a new car
D. A comparison of costs and performance of comparable cars
E. The list of optional equipment that may be added to a car
56. Kelly Vernon wants her tax return prepared by a government approved tax expert. Which of the
following tax preparers should Kelly use?
A. A tax attorney
B. A local tax preparer
C. An enrolled agent
D. A nationally-certified tax preparer
E. A CPA
57. Ownership of an individual housing unit in a building is commonly called
A. A cooperative
B. Modular housing
C. Zoned housing
D. Manufactured housing
E. A condominium