Personal Financial Planning 14th Edition by Randy Billingsley - Test Bank

Personal Financial Planning 14th Edition by Randy 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
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

2. The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

3. Gasoline is a variable cost of automobile ownership.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

4. Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

5. Fixed automobile costs increase as the number of miles driven increase.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
TOPICS: Bloom’s: Analysis

6. Most new car warranties cover a minimum of the first 36,000 miles or 3 years of ownership, whichever comes last.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
TOPICS: Bloom’s: Knowledge

7. Most experts consider extended warranties on new vehicles unnecessary given the relatively long initial warranty periods now offered by most manufacturers.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

8. A closed-end automobile lease is the most popular type of lease.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

9. Terminating a car lease before expiration is often difficult and costly.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

10. The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

11. Less rapid depreciation is one advantage of buying a used car rather than a new car.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

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.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Applying

15. Capitalized cost on an auto lease is similar to the interest rate on a loan.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Applying

16. Capitalized cost on an auto lease is the same as the price of the car.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

17. The money factor on an auto lease is similar to the interest rate on a loan.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

19. When buying a used car, it is very important to have it checked by a reputable mechanic.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

20. A signed sales contract binds you to purchase the car at the price stated in the contract.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

23. The largest single investment you will undertake in your lifetime will probably be the purchase of a house.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

24. The term condominium refers to a style of architecture.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

25. Condominium and co-op owners can deduct real estate taxes and mortgage interest on their federal income taxes.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

27. A condominium buyer will make monthly mortgage payments as well as pay a fee for services and maintenance of common areas.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

28. In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

29. A condominium buyer receives title to an individual unit and joint ownership of the common areas.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

30. A significant legal difference between a cooperative apartment and a condominium is that the condominium owner normally holds a title to the property.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

31. As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

32. Housing prices vary widely from on part of the country to another.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

33. Condominiums are generally less costly than single-family, detached homes.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

34. You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you itemize deductions.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

35. The difference between the market value of your home and the balance of the mortgage is your equity in the property.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

38. A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

40. The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

41. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

42. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

43. An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

44. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

45. A PITI payment is composed of principal, interest, property taxes, and homeowner’s insurance.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

46. Private mortgage insurance (PMI) protects the lender from loss on a loan.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

47. Points paid when a home is refinanced can all be deducted as interest in the year they are paid.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

48. The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

49. Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

50. The job of a mortgage banker is to locate conventional loans for clients.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

51. If a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his earnest money.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

52. To be legally binding, real estate buy-sell agreements must be in writing, but leases may be oral.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

53. The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

54. Negative amortization is possible with an adjustable-rate mortgage.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

55. An FHA loan is insured by the federal government.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

56. The Veterans Administration guarantees mortgage loans given to qualified veterans.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

57. The affordability ratios used to qualify applicants for FHA loans are more stringent than those used for conventional loans.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

58. To refinance a mortgage, the lender typically requires at least 20% equity in the home.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

59. Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

60. Graduated payment mortgages and growing equity mortgages are both examples of adjustable-rate mortgages.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

61. Commercial banks are an important source of both mortgage loans and interim construction loans.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

62. Balloon payment mortgages generally must be refinanced.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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%.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

67. The interest rate is likely to be lower on a 6-year auto loan than on a 3-year auto loan
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

68. The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

69. The “rent ratio” has fallen as home prices have fallen.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Remembering

70. An increase in the “rent ratio” indicates that renting is more affordable relative to housing prices.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Remembering

71. Renting affords more flexibility than home ownership.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

72. A short sale does not affect a distressed homeowner’s credit score as much as a foreclosure.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Understanding

73. Variable auto ownership costs are most dependent on
a. driver behavior.
b. miles driven.
c. city lived in.
d. down payment.
e. installment payments.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

74. ____ is a fixed auto ownership cost.
a. Gasoline
b. Installment loan payment
c. Auto insurance
d. Maintenance
e. Both b and c
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

75. The loss of value in a car over time is called
a. maintenance.
b. loan payments.
c. sales payments.
d. commissions.
e. depreciation.
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

76. The first step in the auto-buying process should be to
a. test drive several cars.
b. begin negotiations.
c. consider alternative buying strategies.
d. decide whether to trade in your used car or to sell it yourself.
e. research which car best meets your needs.
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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?
a. $12,765
b. $14,400
c. $14,079
d. $15,265
e. $16,879
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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?
a. $13,528
b. $14,400
c. $16,028
d. $17,028
e. $18,028
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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?
a. $12,528
b. $14,000
c. $16,028
d. $17,900
e. $18,028
ANSWER: b
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

80. Advantages of buying a used car rather than a new car include
a. certainty about mechanical condition.
b. will appreciate more quickly.
c. more choices available.
d. less expensive.
e. all of the above.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

81. Disadvantages of buying a used car rather than a new car include
a. uncertainty about mechanical condition.
b. will depreciate more quickly.
c. larger down payment required.
d. all of the above.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

82. One can arrange auto loans through
a. auto dealers.
b. banks.
c. credit unions.
d. consumer finance companies.
e. all of the above.
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

83. Leasing accounts for about ____ percent of all new vehicles delivered.
a. 10
b. 14
c. 19
d. 25
e. 37
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

84. Which of the following are reasons people lease vehicles?
a. Leasing is generally less expensive than buying.
b. Monthly payments for leases are generally less expensive than loan payments.
c. One can afford a more expensive car with the same monthly payment by leasing rather than buying.
d. b and c only
e. a, b, and c
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

85. The price of the car you are leasing is called the
a. money factor.
b. capitalized cost.
c. residual value.
d. purchase option.
e. capital cost reduction.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

86. The financing rate on the car you are leasing is called the
a. money factor.
b. capitalized cost.
c. residual value.
d. purchase option.
e. capitalcost reduction.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

87. The down payment on the car you are leasing is called the
a. money factor.
b. capitalized cost.
c. residual value.
d. purchase option.
e. capital cost reduction.
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

88. In which of the following situations would you have to pay additional money when returning a vehicle using a closed-end lease?
a. Residual value is less than expected.
b. Residual value is more than expected.
c. Mileage limits were exceeded.
d. Both a and c apply.
e. Both b and c apply.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

89. In which of the following situations would you have to pay additional money when returning a vehicle using an open-end lease?
a. Residual value is less than expected.
b. Residual value is more than expected.
c. Mileage limits were exceeded.
d. Both a and c apply.
e. Both b and c apply.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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?
a. $5,000
b. $10,800
c. $15,000
d. $20,000
e. $25,000
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

91. Reasons why auto leasing is so popular include all of the following except
a. lower monthly payments
b. lower down payment
c. lower total cost
d. getting more expensive car for the same monthly payment
e. rising new car prices
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

92. The capital cost reduction on a vehicle lease is
a. like the down payment on a loan.
b. the rate of interest on a lease.
c. the residual value at the end of the lease.
d. the depreciation on a lease.
e. the same as the purchase option on a lease.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

93. When shopping for a lease, you want
a. high capitalized cost.
b. low capitalized cost.
c. high money factor.
d. low residual value.
e. both a and d.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

94. A money factor of 0.0036 on a lease is equivalent to an annual percentage rate of
a. 1.80.
b. 3.60.
c. 4.32.
d. 8.64.
e. 10.80.
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

95. A money factor of 0.0028 on a lease is equivalent to an annual percentage rate of
a. 2.80.
b. 3.60.
c. 6.72.
d. 8.64.
e. 10.80.
ANSWER: c
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

96. At the end of the lease period, you may be required to
a. purchase the vehicle at its residual value.
b. pay for unreasonable wear and tear.
c. pay for additional mileage.
d. do both b and c.
e. do a, b, and c.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

97. At the end of the lease period, you are never required to
a. purchase the vehicle at its residual value.
b. pay for unreasonable wear and tear.
c. pay for additional mileage.
d. b and c.
e. a, b, and c.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

98. The first choice in housing in the United States is a
a. single-family home.
b. condominium.
c. cooperative apartment.
d. manufactured home.
e. rental apartment.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

99. When you receive title to an individual unit and joint ownership of any common areas and facilities, you have purchased
a. a single-family home.
b. a cooperative.
c. a condominium.
d. a manufactured home.
e. any one of these.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

100. When you lease your apartment from the corporation that owns the building and your lease is an ownership share, your apartment is
a. expensive.
b. a cooperative.
c. a condominium.
d. a duplex.
e. permanent.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

101. ____ is a reason for owning your own home.
a. Pride of ownership
b. A feeling of permanence
c. A sense of stability
d. A tax shelter
e. Any of these
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

102. For most homeowners, the most important financial reason for owning a home is
a. security for loans.
b. an inflation hedge.
c. a tax shelter.
d. a cash flow item.
e. psychic income.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

103. ____ is(are) an ongoing cost of home ownership.
a. The down payment
b. Closing costs
c. Property taxes
d. Sales taxes
e. Points
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

104. ____ is(are) an up-front, one-time cost of home ownership.
a. The down payment
b. Closing costs
c. Property taxes
d. Insurance
e. Both a and b
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

105. Which of the following is true regarding cooperative apartments?
a. They are essentially the same as condominiums.
b. It may be more difficult to obtain a home mortgage for them.
c. They tend to be more expensive than single-family dwellings.
d. They produce more tax advantages than other types of homes.
e. All of the above are true.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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?
a. Rent an apartment.
b. Buy a condominium.
c. Buy a single-family dwelling.
d. Buy a cooperative apartment.
e. Buy a manufactured home.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

107. ____ can be deducted on your federal tax return.
a. Rent payments
b. Mortgage interest
c. Homeowner’s insurance
d. Utility bills
e. None of these
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

108. ____ can be deducted on your federal tax return.
a. Rent payments
b. Homeowner’s insurance
c. Property taxes
d. Utility bills
e. None of these
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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?

Mortgage interest $13,000
Principal repayment 800
Homeowner’s insurance 1,000
Real estate taxes 4,000
Homeowner’s association fees 1,200
a. $17,000
b. $10,700
c. $4,760
d. $2,996
e. none
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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
a. a minimum down payment excluding closing costs of $10,000.
b. a minimum down payment including closing costs of $10,000.
c. closing costs plus points of $10,000.
d. a maximum down payment of $10,000.
e. none of these.
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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
a. $100,000.
b. $80,000.
c. $50,000.
d. $20,000.
e. none of these.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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.
a. closing points
b. a bond
c. private mortgage insurance (PMI)
d. application fees
e. homeowner’s insurance
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Applying

113. A lender will usually require a down payment of ____ or more for you to avoid having to pay private mortgage insurance (PMI).
a. 10%
b. 15%
c. 20%
d. 25%
e. 30%
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

114. What is the maximum amount a first-time home buyer who is not 59½ years old can withdraw from an IRA without penalty?
a. $25,000
b. $15,000
c. $10,000
d. $5,000
e. $2,000
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

115. Which of the following is not associated with buying a home with a lower-than-typical down payment?
a. Adjustable-rate mortgage
b. Fannie 3/2
c. Fannie 97
d. FHA mortgage
e. VA mortgage
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

116. Which of the following is a major source of home mortgages?
a. Commercial banks
b. Thrift institutions
c. Mortgage bankers and brokers
d. Credit unions
e. All of these
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

117. A fee charged by lenders as a condition of a mortgage loan that effectively raises the interest rate is called
a. mortgage points.
b. a down payment.
c. a commission.
d. an add-on charge.
e. loan fee.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

118. If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?
a. $440
b. $1,000
c. $1,760
d. $2,000
e. $2,200
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

119. The seller of the house typically pays the
a. loan application fee.
b. real estate agent’s commission.
c. appraisal fee.
d. points.
e. title search and insurance.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

120. For the first 15 years of a 30-year mortgage, the majority of each monthly payment goes to
a. principal.
b. interest.
c. real estate taxes.
d. homeowner’s insurance.
e. private mortgage insurance.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

121. Most lenders do not want mortgage payments to exceed ____ percent of your monthly gross income.
a. 10–15
b. 15–18
c. 25–30
d. 30–33
e. 33–38
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

122. Most lenders do not want mortgage payments plus other installment loan payments to exceed ____ percent of your monthly gross income.
a. 10–15
b. 15–18
c. 25–30
d. 30–33
e. 33–38
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

123. An escrow account is used to collect ____ from one’s monthly mortgage payment.
a. interest
b. principal
c. real estate taxes
d. homeowner’s insurance
e. c and d only
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

124. Homeowner’s annual insurance costs usually amount to approximately ____ percent of the home’s market value.
a. 0.15 to 0.20
b. 0.25 to 0.50
c. 0.50 to 0.75
d. 0.75 to 1.00
e. 1.00 to 2.00
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

125. A financial advantage of renting compared to purchasing housing is
a. income tax treatment.
b. no need for a down payment.
c. required security deposit.
d. the legal obligation.
e. stable monthly payments.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Creating

126. The ____ would be included in a rental contract or lease agreement.
a. amount of the monthly payment
b. payment date
c. length of lease agreement
d. deposit required
e. all of these
ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

127. ____ is a reason for preferring to rent rather than to buy.
a. Flexibility
b. No maintenance worries
c. Lower monthly cash flows
d. Down payment money better used elsewhere
e. All of these
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

128. A real estate sales contract will include
a. the amount you are willing to pay for the property.
b. the terms of the mortgage loan.
c. deed restrictions.
d. market value of the property.
e. all of these.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

129. The most popular mortgage loan for financing a home purchase is a
a. 30-year fixed-rate mortgage.
b. 15-year fixed rate mortgage.
c. convertible ARM.
d. two-step ARM.
e. growing equity mortgage.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

130. The interest rates and monthly mortgage payments will not change over the life of your mortgage if you have a(n)
a. reverse-annuity mortgage.
b. fixed-rate mortgage.
c. adjustable rate mortgage.
d. rollover mortgage.
e. graduated-payment mortgage.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

131. The FHA ____ high loan-to-value ratio mortgages.
a. guarantees
b. insures
c. subsidizes
d. grants
e. allows
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

132. The act requiring mortgage lenders to give borrowers HUD booklets and good faith estimates of the closing costs is called the
a. Equal Credit Opportunity Act.
b. Truth-in-Lending Act.
c. Real Estate Settlement Procedures Act.
d. Mortgage Lenders Act of 1980.
e. none of the above.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

133. When refinancing your mortgage, you should consider
a. the interest rates of the old and new mortgages.
b. the years you expect to remain in the home.
c. any prepayment penalties on the old mortgage.
d. closing costs of the new mortgage.
e. all of these.
ANSWER: e
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

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.
a. federal income taxes
b. an early withdrawal penalty
c. social security taxes
d. a and b
e. a, b, and c
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Applying

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.
a. federal income taxes
b. an early withdrawal penalty
c. social security taxes
d. a and b
e. a, b, and c
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Applying

136. Which of the following is tax deductible if one itemizes deductions?
a. Principal, interest, property taxes, and homeowner’s insurance
b. Principal, interest, and property taxes
c. Principal and interest
d. Interest, property taxes, and homeowner’s insurance
e. Interest and property taxes
ANSWER: e
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

137. ____ and ____ are often paid as part of one’s house payment and held in an escrow account.
a. Closing costs; interest
b. Insurance; real estate taxes
c. Principal; interest
d. Insurance; utilities
e. Utilities; real estate taxes
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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?

Monthly gross income $4,000
Car payment 350
Student loan payment 200
a. $1,400
b. $1,208
c. $1,050
d. $850
e. $500
ANSWER: d
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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?

Monthly gross income $5,000
Car payment 400
Student loan payment 300
Current rent payment 1,000
a. $1,700
b. $1,600
c. $900
d. $600
e. $500
ANSWER: c
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

140. The type of mortgage that will most likely need to be refinanced is the ____ mortgage.
a. fixed-rate
b. adjustable-rate
c. balloon-payment
d. graduated-payment
e. growing-equity
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

141. Which of the following is true regarding auto loans?
a. Longer term, lower rate, lower payment
b. Shorter term, lower rate, lower payment
c. Longer term, higher rate, lower payment
d. Shorter term, higher rate, higher payment
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Understanding

142. As home prices have fallen in recent years, the rent ratio
a. has increased and rent affordability has increased
b. has decreased and rent affordability has decreased
c. has increased and rent affordability has decreased
d. has decreased and rent affordability has increased
ANSWER: b
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Evaluating

143. A declining rent ratio indicates
a. lower housing prices relative to renting
b. lower rent relative to housing prices
c. higher housing prices relative to renting
d. none of the above
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

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].
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

145. The biggest fixed cost of owning a car is [the loan payment | insurance].
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

146. A major variable cost of owning a car is [the loan payment | gasoline].
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

148. The most popular type of lease is the [closed-end | open-end] lease.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

149. Terminating a lease early is typically [difficult | easy].
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
ANSWER: b
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-2 – LO: 5-2
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

151. The condominium buyer shares joint ownership of [common areas | living space].
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

152. In the same geographic area, the cost of a [ stand-alone home | condo] will usually be lower.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

153. There is direct ownership of your living space in a [condo | co-op apartment].
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

154. As a homeowner, you can deduct the mortgage interest and [property taxes | property insurance] if you itemize on your federal taxes.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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%.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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].
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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].
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Evaluating

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.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

160. The total amount of interest you would have to pay would be less with a [25 | 20] year mortgage.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

161. Most lenders do not want your monthly installment loan payments to exceed [36 | 50] percent of your monthly income.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

163. [Lessor | Lessee] is another term for landlord.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

164. The choice of the index used with an ARM will make [much | little] difference in the volatility of your payment changes.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

165. A real estate agent will typically be paid by the [buyer | seller] of the house.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

166. Seeking mortgage prequalification [is | is not] recommended when you begin your house search.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-5 – LO:5-5
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

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].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

168. The interest rate on an ARM can be increased [automatically every year | only when a designated index increases].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

169. Using an FHA mortgage to finance your home would require a [lower | higher] down payment than a conventional loan.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

170. The Real Estate Settlement Procedures Act [limits the amount of closing costs a lender can charge | requires advance disclosure of closing costs].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

171. If you qualify, you might be able to buy a home with no down payment with [an FHA | a VA] loan.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Remembering

172. The [longer | shorter] the period of time you expect to live in a house, the more likely refinancing is a sound financial decision.
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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.
ANSWER: a
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

174. A convertible ARM will have a [higher | lower] interest rate than a traditional ARM.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-6 – LO: 5-6
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Understanding

175. Longer term auto loans have a [lower rate but higher payment | higher rate but lower payment].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Understanding

176. As home prices have fallen the rent ratio has [increased | decreased].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

177. A decrease in the rent ratio indicates that housing has become [more | less] affordable compared to renting.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-3 – LO: 5-3
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Analyzing

178. Homeowners may be able to deduct from their taxable income [mortgage principal | mortgage interest].
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Remembering

179. For most homeowners, the most important financial reason for owning a home is for the [inflation hedge | tax shelter].
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
KEYWORDS: Bloom’s: Remembering

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.)
ANSWER: 7.5% loan: PV=15,000, I=7.5/12, N=48, PMT=362.68 $362.68 × 48 = $17,408.64
5.5% loan: PV=15,000, I=5.5/12, N=48, PMT=348.85 $348.85 × 48 = 16,744.80
$ 663.84
Take the $1,000 rebate since the 5.5% loan saves only $663.84 over the life of the loan.
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – AK – DISC: Investments
United States – KS – DISC: TVM
KEYWORDS: Bloom’s: Analyzing

181. Patrick would like to know the monthly payments and the total finance charges on the following two loan options: (Show all work.)

a. $30,000, 9%, 36 months
b. $30,000, 9%, 48 months
ANSWER: a. 36 month loan: PV=30,000, I=9/12, N=36, PMT=953.99 ($953.99 × 36) − $30,000 = $4,344
b. 48 month loan: PV=30,000, I=9/12, N=48, PMT=746.55 ($746.55 × 48) − $30,000 = $5,834

POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – AK – DISC: Investments
United States – KS – DISC: TVM
KEYWORDS: Bloom’s: Analyzing

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.)
ANSWER: 3.9% loan: PV=18,000, I=3.9/12, N=36, PMT=530.63 $530.63
7.0% loan: PV=18,000, I=7.0/12, N=36, PMT=555.79 555.79
Difference $ 25.16
$25.16 × 36 months = $905.76

Since the 3.9% financing saves Greg only $905.76 over the loan period, he should take the $1,500 rebate and finance his new truck through the credit union.
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – AK – DISC: Investments
United States – KS – DISC: TVM
KEYWORDS: Bloom’s: Analyzing

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?
ANSWER: PMT= $400, I=6/12, N=60, PV = $20,690 + $2,000 = $22,690
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-1 – LO: 5-1
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – AK – DISC: Investments
United States – KS – DISC: TVM
KEYWORDS: Bloom’s: Analyzing

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.)
ANSWER: Monthly tax deduction = $200 + $1,000 = $1,200

Annual tax deduction = $1,200 × 12 = $14,400

Reduction in taxes = $14,400 ×.28 = $4,032
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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.)
ANSWER: Down payment = .20 × $200,000 $40,000
Points = .02 × $160,000 3,200
Closing costs = .03 × $200,000 6,000
Total needed $49,200

POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing

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.
ANSWER: $ 5,000 down payment: PV = $105,000, I = 6.5/12, N = 30 × 12, PMT = $663.67
$10,000 down payment: PV = $100,000, I = 6.5/12, N = 30 × 12, PMT = $632.07
The difference in monthly payments = $31.60
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – AK – DISC: Investments
United States – KS – DISC: TVM
KEYWORDS: Bloom’s: Analyzing

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.

Gross income $5,500
Stereo loan payment 250
Furniture loan payment 200
Auto loan payment 400
ANSWER: $5,500 × 0.3 = $1,650
$5,500 × 0.38 = $2,090
$2,090 − $250 − $200 − $400 = $1,240

The maximum monthly payment would be $1,240.
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: PFIN.BILL.17.5-4 – LO: 5-4
NATIONAL STANDARDS: United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
STATE STANDARDS: United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost of Capital
United States – AK – DISC: Investments
KEYWORDS: Bloom’s: Analyzing