Chapter 8 MC Flashcards
Which of the following is an appropriate investment for an emergency fund?
(A) a money market mutual fund
Which of the following federal student aid programs is (are) need based? I. Parent Loans for Undergraduate Students II. Federal Perkins loan
II only
I is incorrect because the Parent Loans for Undergraduate Students (PLUS loans) are available for all family incomes and levels; they are not need based.
Federal income tax deductions are available to all taxpayers for which of the following types of education funding costs? I. interest on education loans up to an annual maximum deductible amount II. qualified tuition and related expenses up to an annual maximum deductible amount
Neither I nor II
I is incorrect because the deductibility of even a limited amount of interest on education loans is not available to all taxpayers. It is phased out for high taxpayers. II is incorrect because the deductibility of even a limited amount of higher education expenses is not available to all taxpayers. It is phased out for high income taxpayers.
Which of the following is (are) guaranteed to keep pace with increases in college tuition costs for a state school? I. CollegeSure CDs II. zero coupon bonds
Neither I nor II
I is incorrect because CollegeSure CDs pay an interest rate that is linked to the inflation rate in college costs as measured by the College Board’s cost index for 500 independent colleges; it is not linked to tuition costs for state schools. II is incorrect because baccalaureate bonds do not guarantee that they will keep pace with the increases in college tuition costs for a state school; they typically are poor inflation hedges.
The Free Application for Federal Student Aid form (FAFSA) is used as the basis for estimating the expected contribution from all the following EXCEPT
grandparents
The data contained in the FAFSA is used as the basis for estimating the expected parent contribution and the expected student contribution, which combined equal the expected family contribution. There is no expected contribution from grandparents.
All the following statements concerning auto leases are correct EXCEPT
C) A closed-end lease is riskier for the consumer than an open-end lease
An open-end lease is riskier for the consumer than a closed-end lease. With an open-end lease, if the market value is less than the estimated residual value, the consumer is obligated to make up the difference. In the case of a closed-end lease, if the market value at the end of the lease is less than the projected residual value, the dealer absorbs the loss.
Estimating the cost of funding a college education requires information about all the following EXCEPT the
rate of increase in the consumer price index (CPI)
The rate of increase in the consumer price index is not useful for estimating the cost of funding a college education. What is needed is the education inflation rate.
All the following methods of funding a college education are subject to income restrictions or demonstrated financial need EXCEPT a
Section 529 prepaid tuition plan
Section 529 prepaid tuition plans have no income restrictions nor do they require a demonstration of financial need.
All the following types of loans are secured EXCEPT a(n)
personal loan
By definition, a personal loan is an unsecured debt. The creditor must rely entirely on the debtor’s promise to repay since there is no collateral.
Reasons why an individual may want to reduce the size of an emergency fund include all the following EXCEPT
The individual has his or her own business.
An emergency fund that covers 6 months or even a year’s living expenses may be inadequate if the client is self-employed or works in an industry not known for job security.
