Personal Financial Planning 14th Edition by Billingsley - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below 1. The greatest fixed cost involved with owning an automobile is usually the monthly loan payments. a. True b. False ANSWER: True POINTS: 1 DIFFICULTY: Easy …
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Personal Financial Planning 14th Edition by Billingsley – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
1. The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
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2. The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.
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3. Gasoline is a variable cost of automobile ownership.
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4. Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
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5. Fixed automobile costs increase as the number of miles driven increase.
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6. Most new car warranties cover a minimum of the first 36,000 miles or 3 years of ownership, whichever comes last.
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7. Most experts consider extended warranties on new vehicles unnecessary given the relatively long initial warranty periods now offered by most manufacturers.
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8. A closed-end automobile lease is the most popular type of lease.
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9. Terminating a car lease before expiration is often difficult and costly.
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10. The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
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11. Less rapid depreciation is one advantage of buying a used car rather than a new car.
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12. Lowballing is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a different, more expensive vehicle.
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13. Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement.
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14. You should secure the trade-in value of your current automobile before you start negotiating the final price on the car you are purchasing.
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15. Capitalized cost on an auto lease is similar to the interest rate on a loan.
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16. Capitalized cost on an auto lease is the same as the price of the car.
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17. The money factor on an auto lease is similar to the interest rate on a loan.
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18. Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as when you just want to return the vehicle before the end of the lease.
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19. When buying a used car, it is very important to have it checked by a reputable mechanic.
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20. A signed sales contract binds you to purchase the car at the price stated in the contract.
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21. To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the conditions of your offer.
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22. One who leases an automobile is typically responsible for early termination costs, even when early termination is due to theft or an auto accident.
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23. The largest single investment you will undertake in your lifetime will probably be the purchase of a house.
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24. The term condominium refers to a style of architecture.
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25. Condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes.
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26. Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal income taxes but co-op owners cannot take these deductions.
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27. A condominium buyer will make monthly mortgage payments as well as pay a fee for services and maintenance of common areas.
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28. In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
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29. A condominium buyer receives title to an individual unit and joint ownership of the common areas.
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30. A significant legal difference between a cooperative apartment and a condominium is that the condominium owner normally holds a title to the property.
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31. As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
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32. Housing prices vary widely from on part of the country to another.
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33. Condominiums are generally less costly than single-family, detached homes.
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34. You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
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35. The difference between the market value of your home and the balance of the mortgage is your equity in the property.
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36. If lenders specify a loan-to-value ratio of 80 percent, then a buyer must make a 20% down payment on the purchase of a home.
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37. If lenders specify a loan-to-value ratio of 70 percent, then a buyer must make a 70% down payment on the purchase of a home.
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38. A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
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39. Points paid to secure a mortgage to purchase a primary residence will generally be tax deductible as interest in the year they are paid.
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40. The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.
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41. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000.
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42. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.
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43. An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.
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44. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.
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45. A PITI payment is composed of principal, interest, property taxes, and homeowner’s insurance.
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46. Private mortgage insurance (PMI) protects the lender from loss on a loan.
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47. Points paid when a home is refinanced can all be deducted as interest in the year they are paid.
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48. The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.
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49. Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
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50. The job of a mortgage banker is to locate conventional loans for clients.
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51. If a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money.
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52. To be legally binding, real estate buy-sell agreements must be in writing, but leases may be oral.
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53. The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.
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54. Negative amortization is possible with an adjustable-rate mortgage.
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55. An FHA loan is insured by the federal government.
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56. The Veterans Administration guarantees mortgage loans given to qualified veterans.
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57. The affordability ratios used to qualify applicants for FHA loans are more stringent than those used for conventional loans.
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58. To refinance a mortgage, the lender typically requires at least 20% equity in the home.
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59. Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.
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60. Graduated payment mortgages and growing equity mortgages are both examples of adjustable-rate mortgages.
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61. Commercial banks are an important source of both mortgage loans and interim construction loans.
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62. Balloon payment mortgages generally must be refinanced.
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63. According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid down to 78% of the original value of the house.
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64. According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid down to 80% of the home’s current market value.
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65. An adjustable rate mortgage with a baseline rate of 4%, a margin of 1%, and an annual cap of 1% would have a mortgage rate no higher than 6% in the second year.
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66. An adjustable rate mortgage with a baseline rate of 5%, a margin of 2%, and an annual cap of 1% would have an initial mortgage rate of 7%.
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67. The interest rate is likely to be lower on a 6-year auto loan than on a 3-year auto loan
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68. The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.
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69. The “rent ratio” has fallen as home prices have fallen.
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70. An increase in the “rent ratio” indicates that renting is more affordable relative to housing prices.
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71. Renting affords more flexibility than home ownership.
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72. A short sale does not affect a distressed homeowner’s credit score as much as a foreclosure.
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73. Variable auto ownership costs are most dependent on
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74. ____ is a fixed auto ownership cost.
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75. The loss of value in a car over time is called
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76. The first step in the auto-buying process should be to
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77. Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan, what is the maximum amount Henry can spend on the car?
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78. Kurt has $4,500 for a down payment and thinks she can afford monthly payments of $300. If he can finance a vehicle with a 7%, 4-year loan, what is the maximum amount Kurt can afford to spend on the car?
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79. Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan, what is the maximum loan amount Jana can afford?
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80. Advantages of buying a used car rather than a new car include
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81. Disadvantages of buying a used car rather than a new car include
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82. One can arrange auto loans through
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83. Leasing accounts for about ____ percent of all new vehicles delivered.
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84. Which of the following are reasons people lease vehicles?
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85. The price of the car you are leasing is called the
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86. The financing rate on the car you are leasing is called the
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87. The down payment on the car you are leasing is called the
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88. In which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease?
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89. In which of the following situations would you have to pay additional money when returning a vehicle using an open-end lease?
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90. Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of $5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this vehicle?
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91. Reasons why auto leasing is so popular include all of the following except
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92. The capital cost reduction on a vehicle lease is
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93. When shopping for a lease, you want
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94. A money factor of 0.0036 on a lease is equivalent to an annual percentage rate of
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95. A money factor of 0.0028 on a lease is equivalent to an annual percentage rate of
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96. At the end of the lease period, you may be required to
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97. At the end of the lease period, you are never required to
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98. The first choice in housing in the United States is a
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99. When you receive title to an individual unit and joint ownership of any common areas and facilities, you have purchased
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100. When you lease your apartment from the corporation that owns the building and your lease is an ownership share, your apartment is
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101. ____ is a reason for owning your own home.
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102. For most homeowners, the most important financial reason for owning a home is
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103. ____ is(are) an ongoing cost of home ownership.
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104. ____ is(are) an up-front, one-time cost of home ownership.
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105. Which of the following is true regarding cooperative apartments?
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106. Phil and Christina are recently married and unsure of where they will be relocated after Christina finishes her residency in 9 months. Based on this information, which of the following housing recommendations would be most appropriate for them?
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107. ____ can be deducted on your federal tax return.
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108. ____ can be deducted on your federal tax return.
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109. Brenda is in the 28% marginal tax bracket and has no other itemized deductions except those related to her home. If her standard deduction is $6,300 and she incurs the following costs related to housing, how much tax savings will she receive as a result of her home purchase?
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110. If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 90 percent, then the borrower must make
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111. If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 80 percent, then the borrower must make a down payment of at least
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112. If you made a down payment of $11,000 on a $110,000 house, the lender no doubt will require ____ as a result of the size of the down payment.
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113. A lender will usually require a down payment of ____ or more for you to avoid having to pay private mortgage insurance (PMI).
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114. What is the maximum amount a first-time home buyer who is not 59½ years old can withdraw from an IRA without penalty?
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115. Which of the following is not associated with buying a home with a lower-than-typical down payment?
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116. Which of the following is a major source of home mortgages?
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117. A fee charged by lenders as a condition of a mortgage loan that effectively raises the interest rate is called
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118. If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?
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119. The seller of the house typically pays the
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120. For the first 15 years of a 30-year mortgage, the majority of each monthly payment goes to
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121. Most lenders do not want mortgage payments to exceed ____ percent of your monthly gross income.
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122. Most lenders do not want mortgage payments plus other installment loan payments to exceed ____ percent of your monthly gross income.
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123. An escrow account is used to collect ____ from one’s monthly mortgage payment.
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124. Homeowner’s annual insurance costs usually amount to approximately ____ percent of the home’s market value.
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125. A financial advantage of renting compared to purchasing housing is
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126. The ____ would be included in a rental contract or lease agreement.
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127. ____ is a reason for preferring to rent rather than to buy.
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128. A real estate sales contract will include
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129. The most popular mortgage loan for financing a home purchase is a
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130. The interest rates and monthly mortgage payments will not change over the life of your mortgage if you have a(n)
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131. The FHA ____ high loan-to-value ratio mortgages.
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132. The act requiring mortgage lenders to give borrowers HUD booklets and good faith estimates of the closing costs is called the
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133. When refinancing your mortgage, you should consider
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134. Sean and Lisa (age 25 and 28, respectively) are purchasing their first home for $200,000 with a 5% down payment. They will withdraw the down payment from Lisa’s IRA. They will have to pay ____ on the IRA withdrawal.
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135. Mike (age 40) is purchasing his second home for $200,000 with a 25% down payment. He will withdraw some of the down payment from his IRA. He will have to pay ____ on the IRA withdrawal.
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136. Which of the following is tax deductible if one itemizes deductions?
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137. ____ and ____ are often paid as part of one’s house payment and held in an escrow account.
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138. Barb and Bob want to purchase a new home but don’t know how much mortgage they can qualify for. The lender requires that total installment loan payments not exceed 35% of gross monthly income. Based on Barb and Bob’s financial data below, what is the maximum monthly mortgage payment for which they can qualify?
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139. Pete and Pam want to purchase a new home but don’t know how much mortgage they can qualify for. The lender requires total installment loan payments not exceed 32% of gross monthly income. Based on Pete and Pam’s financial data below, what is the maximum monthly mortgage payment for which they can qualify?
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140. The type of mortgage that will most likely need to be refinanced is the ____ mortgage.
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141. Which of the following is true regarding auto loans?
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142. As home prices have fallen in recent years, the rent ratio
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143. A declining rent ratio indicates
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| INSTRUCTIONS: Choose the word or phrase in [ ] which will correctly complete the statement. Select A for the first item, B for the second item, and C if neither item will correctly complete the statement. |
144. The first major expenditure most people make is to buy a [house | car].
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145. The biggest fixed cost of owning a car is [the loan payment | insurance].
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146. A major variable cost of owning a car is [the loan payment | gasoline].
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147. With a [closed-end | open-end] lease, you turn in the car at the end of the term and have no additional financial obligation as a result of the residual value.
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148. The most popular type of lease is the [closed-end | open-end] lease.
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149. Terminating a lease early is typically [difficult | easy].
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150. With a(n) [closed-end | open-end] lease, one owes more at the end of the lease if the car is worth less than its projected value at the end of the lease.
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151. The condominium buyer shares joint ownership of [common areas | living space].
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152. In the same geographic area, the cost of a [ stand-alone home | condo] will usually be lower.
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153. There is direct ownership of your living space in a [condo | co-op apartment].
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154. As a homeowner, you can deduct the mortgage interest and [property taxes | property insurance] if you itemize on your federal taxes.
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155. A lender gives you a choice of an 80% loan-to-value ratio or a 90% loan-to-value ratio. The interest rate for the 80% loan-to-value ratio loan will typically be [higher | lower] than the 90%.
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156. The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down payment of [$34,000 | $28,000].
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157. The purchase price of the house you are buying is $180,000. A loan-to-value ratio of 90% will produce a mortgage amount of [$162,000 | $180,000].
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158. If your lender charges 1 1/2 mortgage points on a house selling for $100,000 on which there is to be a $90,000 loan, the points will cost you [$1,350 | $1,500].
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159. You have a choice of a 25-year or 30-year mortgage. Your monthly payments will be [more | less] with the 30-year loan.
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160. The total amount of interest you would have to pay would be less with a [25 | 20] year mortgage.
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161. Most lenders do not want your monthly installment loan payments to exceed [36 | 50] percent of your monthly income.
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162. You are paying on a car loan, a furniture loan, and a student loan. This will have [an | no] effect on the lender’s decision to grant you a mortgage loan.
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163. [Lessor | Lessee] is another term for landlord.
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164. The choice of the index used with an ARM will make [much | little] difference in the volatility of your payment changes.
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165. A real estate agent will typically be paid by the [buyer | seller] of the house.
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166. Seeking mortgage prequalification [is | is not] recommended when you begin your house search.
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167. With most ARMs, the interest rate over the lifetime of the loan can [increase to any level | increase only up to the pre-stated maximum].
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168. The interest rate on an ARM can be increased [automatically every year | only when a designated index increases].
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169. Using an FHA mortgage to finance your home would require a [lower | higher] down payment than a conventional loan.
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170. The Real Estate Settlement Procedures Act [limits the amount of closing costs a lender can charge | requires advance disclosure of closing costs].
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171. If you qualify, you might be able to buy a home with no down payment with [an FHA | a VA] loan.
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172. The [longer | shorter] the period of time you expect to live in a house, the more likely refinancing is a sound financial decision.
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173. Paying mortgage points to get a lower rate of interest makes more sense if you expect to live in a home for a [longer | shorter] period of time.
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174. A convertible ARM will have a [higher | lower] interest rate than a traditional ARM.
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175. Longer term auto loans have a [lower rate but higher payment | higher rate but lower payment].
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176. As home prices have fallen the rent ratio has [increased | decreased].
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177. A decrease in the rent ratio indicates that housing has become [more | less] affordable compared to renting.
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178. Homeowners may be able to deduct from their taxable income [mortgage principal | mortgage interest].
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179. For most homeowners, the most important financial reason for owning a home is for the [inflation hedge | tax shelter].
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180. Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and she can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.)
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181. Patrick would like to know the monthly payments and the total finance charges on the following two loan options: (Show all work.)
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182. Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%, three-year financing. Greg is also able to get 7%, three-year financing at his credit union. If Greg plans to finance $18,000 over three years, should he take the rebate or the 3.9% financing? (Show all work.)
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183. Judy has $2,000 for a down payment on a vehicle and she can afford monthly payments of $400. She wants to finance a vehicle over no more than 4 years. If lenders are currently offering 6 percent interest on 5-year loans, what is the maximum price Judy can pay for a vehicle?
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184. Your mortgage payment is $1,400 per month. Of this amount, insurance is $50, property taxes are $200, and interest is about $1,000. Assuming you have other itemized deductions that already exceed your standard deduction and that you are in the 28% marginal tax bracket, what is the reduction in your tax liability as a result of owning a home with this mortgage? (Show all work.)
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185. Dick and Jane have just purchased a home and are calculating how much money they will need when the closing day rolls around. The purchase price is $200,000. They will make a 20% down payment, and they must pay 2 points on the loan. Closing costs should be 3% of the purchase price. What is the total dollar amount they will need at closing? (Show all work.)
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186. Felipe and Suzie want to calculate the difference in monthly payments on a $110,000 home as a result of a $5,000 down payment or a $10,000 down payment. Use your financial calculator to figure the monthly payments, assuming they get a 6.5%, 30-year mortgage.
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187. If a lender requires that mortgage payments cannot exceed 30% of gross income and total installment loan payments cannot exceed 38% of gross income, calculate the monthly payment for which a person with the following financial data could qualify.
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Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
