6. Educate a Client about Major Acquisitions (10%) Flashcards
What is a major acquisition?
A. A small personal expense.
B. A long-term financial commitment for a high-cost item.
C. An emergency fund expense.
D. A regular household bill.
B. A long-term financial commitment for a high-cost item.
Major acquisitions often include high-cost items like homes, vehicles, or other long-term purchases.
Which of the following is considered a major acquisition?
A. Groceries
B. A new car
C. Utility bills
D. Dining out
B) A new car
A new car is a significant financial investment and would be considered a major acquisition.
What is the primary purpose of conducting pre-purchase research for a major acquisition?
A. To determine what your neighbors are buying
B. To identify the best prices and quality for the item
C. To make a purchase as quickly as possible
D. To avoid spending time comparing options
B. To identify the best prices and quality for the item
Pre-purchase research helps ensure that the purchase decision is informed and cost-effective.
Which of the following is typically not covered by a standard home warranty?
A. Structural repairs
B. Plumbing systems
C. Kitchen appliances
D. Cosmetic damages
D. Cosmetic damages
Home warranties usually cover systems and appliances, not cosmetic issues like paint or décor.
Which of the following is a key consideration when deciding whether to buy or lease a car?
A. The car’s interior color.
B. The type of tires.
C. Total cost of ownership and length of use.
D. The car’s horsepower.
C Total cost of ownership and length of use
Considering the total cost and how long you plan to keep the vehicle are essential when deciding to buy or lease.
What is the primary advantage of renting a home instead of buying one?
A. Renting offers tax advantages.
B. Renting provides more financial flexibility and fewer long-term obligations.
C. Renting increases home equity.
D. Renting has no monthly costs.
B. Renting provides more financial flexibility and fewer long-term obligations.
Renting is more flexible and does not require the long-term financial commitment of homeownership.
Which of the following is a benefit of purchasing a home rather than renting?
A. No monthly payments
B. Accumulation of equity
C. Fixed maintenance costs
D. Lower insurance premiums
B. Accumulation of equity.
Homeownership allows for the accumulation of equity over time as mortgage payments reduce the loan balance.
What is the primary purpose of Private Mortgage Insurance (PMI)?
A. To protect the homeowner from natural disasters.
B. To protect the lender in case of borrower default.
C. To increase the loan amount available.
D. To lower the monthly mortgage payment.
B. To protect the lender in case of borrower default.
PMI protects the lender if the borrower defaults on a mortgage with a low down payment.
Which of the following is a non-monetary factor to consider before making a major acquisition?
A. The total cost of the item
B. The financing options available
C. The personal value and utility of the item
D. The current market value.
C. The personal value and utility of the item
Non-monetary factors, such as personal utility, are important in determining if the acquisition aligns with personal values and needs.
What is the purpose of negotiating the price of a major purchase?
A. To decrease the quality of the item
B. To reduce the total cost paid
C. To increase the salesperson’s commission
D. To avoid taxes on the purchase
B To reduce the total cost paid
Negotiating the price can help decrease the overall cost, making the purchase more affordable.
A client is considering rolling negative equity from an old car loan into a new car loan. What is a potential consequence?
A. Reduced interest rates on the new loan
B. Lower monthly payments
C. Higher overall loan amount and increased debt
D. Elimination of the negative equity
C. Higher overall loan amount and increased debt
Rolling negative equity increases the new loan amount, leading to more debt.
Which tool would you recommend to a client comparing mortgage options for a home purchase?
A,. Net worth statement
B. Amortization calculator
C. Cash flow statement
D. Spending plan
B. Amortization calculator
An amortization calculator helps compare mortgage terms and interest costs over time.
A client is debating whether to buy or rent a home. Which key factor should they consider?
A. The color of the house
B. The proximity of friends
C. The client’s long-term financial goals and stability.
D. The number of bedrooms.
C. The client’s long-term financial goals and stability
The decision to buy or rent should align with the client’s long-term goals and financial situation.
Which of the following should a client prioritize when financing a major purchase?
A., Choosing the loan with the lowest monthly payment.
B. Selecting the shortest loan term that fits their budget.
C,. Using the longest term available to minimize payments.
D. Opting for the loan with the highest interest rate.
B. Selecting the shortest loan term that fits their budget.
Shorter loan terms generally mean less interest paid over time.
If a client wants to avoid paying PMI, what strategy should they consider?
A. Make a down payment of 20% or more
B. Increase the loan amount
C. Avoid making a down payment
D. Increase the loan term
A. Make a down payment of 20% or more
A 20% down payment typically eliminates the requirement for PMI.