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Final Flashcards

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1
Q

Ben Collins plans to buy a house for $210,000. If that real estate is expected to increase in value 3% each year, what would its approximate value be six years from now?

A

$250,750.98

210,000 [+/-] [PV] 3 [I/YR] 6 [N] [CPT] [FV]

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2
Q

If you desire to have $20,000 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 4%.

A

$16,438

20,000 [FV] 4 [I/YR] 5 [N] [CPT] [PV]

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3
Q

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $15,000 available each year for various school and living expenses. If he earns 4% on his money, how much must be deposited at the start of his studies to be able to withdraw $15,000 a year for three years?

A

$41,626.37

15,000 [PMT] 3 [N] 4 [I/YR] [CPT] [PV]

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4
Q

Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9% over the 40 years until her retirement, what will be the value of her retirement account?

A

$1,148,800.13

3400 [+/-] 9 [I/YR] 40 [N] [CPT] [FV]

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5
Q

If you earn 7% on your investments, how long would it take for your money to double?

A

10.24 years

100 [+/-] [PV] 200 [FV] 7 [I/YR] [CPT] [N]

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6
Q

How many years will it take to have $100 to grow to $300 if invested at 20% compounded annually?

A

6.03 years

100 [+/-] [PV] 300 [FV] 20 [I/YR] [CPT] [N]

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7
Q

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

A

19%

85000 [+/-] [PV] 484050 [FV] 10 [N] [CPT] [I/YR]

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8
Q

If you deposit $400 at the end of each year for 10 years in a savings account that pays 6% interest per year, how much will you have at the end of 10 years?

A

$5,272.32

400 [+/-] [PMT] 10 [N] 6 [I/YR] [CPT] [FV]

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9
Q

The Fuller Company has received a $50,000 loan. The annual payments are $6,202.70. If the Fuller Company is paying 9% interest per year, how many loan payments must the company make?

A

15

50000 [PV] 6202.70 [+/-] [PMT] 9 [I/YR] [CPT] [N]

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10
Q

Your firm plans to buy a warehouse for $100,000. The bank offers you a 30-year loan with equal annual payments and an interest rate of 8% per year. The bank requires that your firm pay 20% of the purchase price as a down payment, so you can borrow only $80,000. What is the annual loan payment?

A

$7,106.19

80,000 [PV] 30 [N] 8 [I/YR] [CPT] [PMT]

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11
Q

Kent Fuller is in the 28% tax bracket. A nontaxable employee benefit with a value of $500 would have a tax-equivalent value of approximately _________.

A

Answer: $694

Tax-equivalent value = Tax-exempt value/(1 –tax rate)$500/(1 − 0.28) = $694.44

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12
Q

Caroline lives in City A and earns $40,000 per year. The cost of living index in City A is 80. She is considering a move to City B which has a cost of living index of 90. How large a salary will she require in City B to maintain her current standard of living?

A

$45,000

Salary in City A x(City B COLindex/City A COL index)=$40,000(90/80)=$45,000

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13
Q

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of_____.

A

$28,000

Net Worth=Assets − Liabilities= $50,000 − $22,000 = $28,000

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14
Q

This month, Kenneth Goldberg has cash inflows of $2,950 and cash outflows of $2,800, resulting in a ______.

A 
Answer: surplus of $150
Cash Inflows=$2,950
Cash Outflows=$2,800
Cash Inflows–Cash Outflows=$150>0
This is a surplus.
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15
Q

When preparing her monthly budget, Maria Kent has projected income of $3,700. Each month she pays $1,200 in rent, $42 for life insurance, and $240 for her auto loan. What percentage of her budget goes for these fixed expenses?

A

Answer:40%

Total Fixed expenses / projected income = ($1,200 + $42 + $240) / $3,700 = $1,482 / $3,700 = 0.40 = 40%

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16
Q

A taxable investment produced interest earnings of $1,200. A person in a 22% tax bracket would have after-tax earnings of ____.

A

Answer: $936
•Taxable gross earnings –tax owed = After-tax earnings
Tax owed = earnings x tax rate = $1,200 ×0.22 = $264
After-tax earnings=$1,200-$264=$936
•Or:After-tax earnings=Taxable gross earnings x(1–tax rate)= $1,200 x (1 –0.22) = $936

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17
Q

A person has $5,000 in medical expenses and an adjusted gross income of $33,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5% of adjusted gross income, what would be the amount of the deduction in this situation?

A

$2,525

$5,000 − ($33,000 ×7.5%) = $2,525.

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18
Q

George Washburn had earnings from his salary of $32,000, interest on savings of $200, a contribution to a traditional individual retirement account of $1,200, and dividends from mutual funds of $125. George’s adjusted gross income (AGI) would be _____.

A

$31,125

$32,000 + $200 + $125 –$1,200 = $31,125.

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19
Q 
Kim Lee is single and earns $32,000 in taxable income. Use the following tax rate schedule to calculate the taxes he owes. 
Up to $9,525 10%
$9,525-$38,700 12%
$ 38,700 -$82,500 22%
$82,500-$157,500 24%
A

$3,649.50

[$9,525 ×0.10] + [($32,000 –$9,525) ×0.12] = $3,649.50

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20
Q

A balance sheet specifies

A

what you own and what you owe.

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21
Q

cash flow statement

A

summary of cash receipts and payments for a given period, such as a month or a year.

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22
Q

A budget, or spending plan, is to help you:

A

live within your income, spend your money wisely, reach your financial goals, and prepare for financial emergencies.

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23
Q

sales tax

A

added to the purchase price of products

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24
Q

excise tax

A

imposed on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires, air travel, and telephone service

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25
Q

estate tax

A

imposed on the value of an individual’s property at the time of his or her death

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26
Q

inheritance tax

A

levied on the value of property bequeathed by a deceased individual

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27
Q

social security tax

A

used to finance the retirement, disability, and life insurance benefits of the federal government’s social security program

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28
Q

Types of Financial Services

A

–Savings
–Cash Availability and Payment Services
–Borrowing for the short-term or long-term
–Investments and Other Financial Services

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29
Q

commercial bank

A

offers a full range of financial services to individuals, businesses, and government agencies

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30
Q

Savings and loan association (S&L)

A

traditionally specialized in savings accounts and mortgage loans.

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31
Q

Mutual savings bank

A

financial institution that is owned by depositors and specializes in savings accounts and mortgage loans

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32
Q

credit union

A

user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members.

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33
Q

What would be the annual percentage yield for a savings account that earned $56 in interest on $800 over the past 365 days?

A 
APY = (100) ×(Interest/Principal)
APY = (100) x ($56/$800) = 7 %
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34
Q

Based on the following information, determine the true balance in your checking account.
Balance in your checkbook, $356 Interest earned on the account, $4
Balance on bank statement, $472 Total of outstanding checks, $187
Service charge and other fees, $15 Deposits in transit, $60

A

Checkbook adjustment: $356 + $4 -$15 = $345

Bank statement adjustment: $472 -$187 + $60 = $345

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35
Q

a) Monthly fee, $3.75; processing fee, $0.25 per check; checks written, an average of 22 a month.
b) Interest earnings of 6% with a $500 minimum balance; average monthly balance, $600; monthly service charge of $15 for falling below the minimum balance, which occurs three times a year (no interest earned in these months).

A

a) (-$3.75 x 12) + (-$0.25 x 22 x 12) = -$111 … net cost is $111
b) [$600x(0.06/12) x 9] –($15 x 3) = $27 -$45 = -$18 … net cost is $18

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36
Q

What would be the value of a savings account started with $1,200, earning 3% (compounded annually) after 10 years?

A

$1,612.70

1200 [+/-] [PV] 3 [I/YR] 10 [N] [CPT] [FV]

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37
Q

What amount would you have if you deposited $2,500 a year for 30 years at 8% (compounded annually) ?

A

$283,208.03

2500 [+/-] [PMT] 30 [N] 8 [I/YR] [CPT] [FV]

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38
Q

consumer credit

A

use of credit for personal needs (except a home mortgage) by individuals and families

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39
Q

Closed-end credit

A

One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts
- EX: a mortgage loan.

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40
Q

Open-end credit

A

line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment

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41
Q

A few years ago, Michael purchased a home for $200,000. Today, the home is worth $300,000. His remaining mortgage balance is $100,000. Assuming that Michael can borrow up to 80% of the market value of his home, what is the maximum amount he can borrow?

A

(0.8 x Market Value) –Loan Balance

= (0.8 x $300,000) -$100,000 = $140,000

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42
Q

Louise’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $35, $30, and $20 respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio?

A

Net income = $2,000 -$400 -$160 -$80 = $1,360
Debt Payments = $35 + $30 + $20 + $285 = $370
Debt Payments to income ratio = 370/1,360 = 27.21%

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43
Q

Robert owns a $140,000 townhouse and still has an unpaid mortgage of $110,000. In addition to his mortgage, he has other liabilities of $7,410. Robert’s net worth (not including his home) is about $21,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. What is Robert’s debt-to-equity ratio?

A

Debt-to-equity ratio = Total liabilities / Net worth

= $7,410/$21,000 = 0.3529

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44
Q

An advantage credit unions may have over other financial institutions is:

A

lower union rates

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45
Q

Based on the following information, what amount would be subtracted from the bank statement side of the bank reconciliation? ATM withdrawal $20; Outstanding checks $154; Interest $1.25; Deposit in transit $75.

A

$154.00

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46
Q

A $200 savings account that earns $8.50 interest in a year has a yield of _______ percent.

A

4.25%

$8.50/$200 = 0.0425 = 4.25%

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47
Q

The market value of Karen’s home is $120,000 and the balance on her mortgage loan is $80,000. The lender has agreed to let her borrow up to 75% of the total value of her home less the mortgage. How much can she borrow with a home equity loan?

A

$10,000

($120,000 ×75%) -$80,000 = $90,000 –$80,000 = $10,000

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48
Q

Leeanna Roberts uses a computer to organize her personal financial records and update her budget activities.. These activities are an example of:

A

money management

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49
Q

One of the main purposes of personal financial statements is to:

A

Measure your progress toward financial goals.

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50
Q

Effective personal tax strategies include:

A
  • take advantage of tax credits for which you qualify.
  • consider tax-exempt investments, such as municipal bonds.
  • search out all possible itemized deductions.
  • maximize contributions to tax-deferred retirement programs.
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51
Q

Which one of the following savings plans is not covered by federal deposit insurance?

a. Account at a savings and loan
b. Regular checking account at a commercial bank
c. Money market account at a commercial bank
d. Money market fund with an investment company
e. Certificate of deposit at a commercial bank

A

Money market fund with an investment company

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52
Q

Which one of the following is true for an interest-earning account?

A

It usually requires a minimum balance.

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53
Q

Jane Calvert is applying for a loan from a bank. The bank knows she owns a house worth $160,000 and a car with a trade-in value of $12,000 as well as other personal assets worth approximately $44,000. Which one of the 5 Cs of credit is the bank looking at?

A

Capital

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54
Q

Which one of the following is not a source that provides data to credit bureaus?

a. Banks
b. Finance companies
c. Credit card companies
d. Court records
e. Internal Revenue Service

A

Internal Revenue Service

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55
Q

Truth in Lending Law

A

requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount.

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56
Q

Damon convinced his aunt to lend him $2,000 to purchase a plasma digital TV. She has agreed to charge only 6% simple interest, and he has agreed to repay the loan at the end of one year. How much interest will he pay for the year?

A

Interest = Principal ×Rate of interest ×Time
I = P ×r ×T
= $2,000 ×.06 ×1 = $120

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57
Q

After visiting several automobile dealerships, Richard selects the used car he wants. He has $2,000 cash for a down payment, so he needs an $8,000 loan. Richard borrows $8,000 for a period of four years at an add-on interest rate of 11%.

a. What is the total interest on Richard’s loan?
b. What is the total cost of the car?
c. What is the monthly payment?

A

a. What is the total interest on Richard’s loan?
I = P ×r ×T = $8,000 ×0.11 ×4= $3,520
b. What is the total cost of the car?
Total cost = Down payment + total interest + principal
= $2,000 + $3,520 + $8,000 = $13,520
c. What is the monthly payment?
Monthly payment = (Interest+Principal)/Total number of months
($3,520 + $8,000) / 48= $240

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58
Q

You have been pricing an MP3 player in several stores. Three stores have the identical price of $300. Each store charges 18% APR, has a 30-day grace period, and sends out bills on the first of the month. On further investigation, you find that Store A calculates the finance charge by using the average daily balance method, Store B uses the adjusted balance method, and Store C uses the previous balance method. Assume you purchased the MP3 player on May 5 and that you made a $100 payment on June 15. What will the finance charge be if you made your purchase from Store A? From Store B? From Store C?
[Note:APR=18%;Monthly rate=18%/12=1.5%]

A 
Store A:
•Average Daily Balance = ($300 + $200) / 2 = $250
•Finance Charge = $250 ×.015 = $3.75
Store B:
•Adjusted Balance = $300 − $100 = $200
•Finance Charge = $200 ×.015 = $3.00
Store C:
•Previous Balance = $300 − $0 = $300
•Finance Charge = $300 ×.015 = $4.50
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59
Q

Buying Motor Vehicles (4 phases)

A

Phase 1: Pre-shopping Activities
Phase 2: Evaluating Alternatives
Phase 3: Determining Purchase Price
Phase 4: Post-purchase Activities

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60
Q

The process of resolving conflicts between a customer and a business with the use of a third party whose recommendations are nonbinding is called:

A

mediation

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61
Q

arbitration

A

settlement of a difference by a third party—the arbitrator—whose decision is legally binding.

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62
Q

Jerrod Dean starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5% interest per month using the adjusted balance method (and excludes new purchases). What would Jerrod’s finance charges be for the month?

A

$7.50

800 − 300 = 500; 500 ×1.5% = $7.50

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63
Q

Jerry Allison starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5% interest per month using the previous balance method. What would Jerry’s finance charges be for the month?

A

800 ×1.5% = $12.00

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64
Q

Henry Garrison starts the month with a balance on his credit card of $800. The average daily balance for the month including purchase is $683. The average daily balance for the month excluding new purchase is $550. The bank charges 1.5% per month and uses the average daily balance including new purchases method. What would Henry’s finance charges be for the month?

A

$683 ×1.5% = $10.25

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65
Q

trust

A

legal agreement that provides for the management and control of assets by one party for the benefit of another.

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66
Q

Asset management account

A

all-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account.

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67
Q

Automatic teller machine (ATM)

A

computer terminal used to conduct banking transactions; also called a cash machine

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68
Q

Money market fund

A

savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments

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69
Q

share account

A

regular savings account at a credit union

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70
Q

Certificate of deposit (CD)

A

savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate

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71
Q

Money market account

A

savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.

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72
Q

compounding

A

process that calculates interest based on previously earned interest

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73
Q

share draft account

A

interest-bearing checking account at a credit union

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74
Q

overdraft protection

A

An automatic loan made to checking account customers to cover the amount of checks written and payments in excess of the available balance in the checking account.

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75
Q

credit

A

arrangement to receive cash, goods, or services now and pay for them in the future

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76
Q

Line of credit

A

dollar amount, which may or may not be borrowed, that a lender makes available to a borrower

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77
Q

interest

A

periodic charge for the use of credit

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78
Q

Revolving check credit

A

prearranged loan from a bank for a specified amount; also called a bank line of credit

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79
Q

Home equity loan

A

loan based on the current market value of a home less the amount still owed on the mortgage

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80
Q

credit bureau

A

reporting agency that assembles credit and other information about consumers

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81
Q

Fair Credit Reporting Act (1971)

A

Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected.

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82
Q

Equal Credit Opportunity Act (ECOA)

A

Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors

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83
Q

Character

A

borrower’s attitude toward his/her credit obligations

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84
Q

Fair Credit Billing Act (FCBA)

A

Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments

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85
Q

Consumer Credit Reporting Reform Act (1977)

A

Places the burden of proof for accurate credit information on the credit reporting agency

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86
Q

Credit Card Accountability, Responsibility, and Disclosure Act of 2009

A

Places new restrictions on credit card lending and eliminating certain fees

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87
Q

finance charge

A

total dollar amount paid to use credit

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88
Q

Annual percentage rate (APR)

A

percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit.

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89
Q

Simple interest

A

Interest computed on principal only and without compounding

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90
Q

Declining balance method

A

method of computing interest when more than one payment is made on a simple interest loan.

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91
Q

credit insurance

A

Any type of insurance that ensures repayment of a loan in the event the borrower is unable to repay it.

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92
Q

Fair Debt Collection Practices Act (FDCPA)

A

federal law, enacted in 1978, that regulates debt collection activities

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93
Q

bankruptcy

A

legal procedure for dealing with debt problems of individuals

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94
Q

Chapter 7 bankruptcy

A

One type of personal (or straight) bankruptcy in which many debts are forgiven

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95
Q

Chapter 13 bankruptcy

A

voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court

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96
Q

impulse buying

A

Unplanned buying

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97
Q

cooperative

A

nonprofit organization whose member-owners may save money on certain products or services

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98
Q

open dating

A

Information about freshness or shelf life found on the package of a perishable product

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99
Q

unit pricing

A

use of a standard unit of measurement to compare the prices of packages of different sizes.

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100
Q

rebate

A

partial refund of the price of a product

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101
Q

warranty

A

written guarantee from the manufacturer or distributor of a product that specifies the conditions under which the product can be returned, replaced, or repaired

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102
Q

service contract

A

agreement between a business and a consumer to cover the repair costs of a product

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103
Q

Small claim court

A

court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer

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104
Q

Class-action suit

A

legal action taken by a few individuals on behalf of all the people who have suffered the same alleged injustice.

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105
Q

Legal aid society

A

One of a network of publicly supported community law offices that provides legal assistance to consumers who cannot afford their own attorney

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106
Q

Using a financial calculator, what would be the monthly mortgage payments for each of the following situations?

a. $120,000, 15-year loan at 4.5 percent
b. $86,000, 30-year loan at 5 percent
c. $105,000, 20-year loan at 6 percent

A

a. 120000 [PV] 15 x 12 [N] 4.5/12 [I/YR] [CPT] [PMT] => -917.99
b. 86000 [PV] 30 x 12 [N] 5/12 [I/YR] [CPT] [PMT] => -461.67
c. 105000 [PV] 20 x 12 [N] 6/12 [I/YR] [CPT] [PMT] => -752.25

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107
Q

You just received a credit card application. Which of the following are included with this application?

A
  • Minimum interest charges
  • Annual percentage rate for purchases
  • Penalty fees
  • Method used to calculate balance
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108
Q

If you borrow $150 at 10 percent interest, how much will you repay in one lump-sum at the end of one year using simple interest?

A

$165

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109
Q

The first phase of the consumer buying process involves:

A

identifying the problem.

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110
Q

Federal Trade Commission (FTC) regulations require that:

A

used car buyers be informed of whether or not the vehicle comes with a warranty.

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111
Q

A used car sold “as is” has:

A

an implied warranty of merchantability

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112
Q

Which of the following is the largest fixed expense associated with a new automobile?

A

depreciation

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113
Q

Renting is more advantageous than buying a home when you are seeking:

A

lower initial cost

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114
Q

A major expense associated with home ownership would be:

A

real estate taxes

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115
Q

Using a financial calculator, what would be the monthly mortgage payments for each of the following situations?

a. $120,000, 15-year loan at 4.5%
b. $86,000, 30-year loan at 5%
c. $105,000, 20-year loan at 6 %

A

a. 120000 [PV] 15 x 12 [N] 4.5/12 [I/YR] [CPT] [PMT] => -917.99
b. 86000 [PV] 30 x 12 [N] 5/12 [I/YR] [CPT] [PMT] => -461.67
c. 105000 [PV] 20 x 12 [N] 6/12 [I/YR] [CPT] [PMT] => -752.25

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116
Q

A conventional mortgage usually has:

A

equal payments

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117
Q

If you borrow $150 at 10% interest, how much will you repay in one lump-sum at the end of one year using simple interest?

A

$165

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118
Q

What type of coverage in a home insurance policy is designed to pay for legal action taken against a homeowner who may be legally responsible for another person’s losses or injuries?

A

liability

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119
Q

While cleaning your home, a worker damages some furniture. You take action against the worker’s employer to cover the cost of the damage. This is an example of a(n) ____________ liability.

A

vicarious

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120
Q

An umbrella policy is designed to cover:

A

major personal liability claims

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121
Q

conventional mortgage

A

fixed-rate, fixed-payment home loan with equal payments over 10, 15, 20, 25, or 30 years

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122
Q

Which one of the following types of coverage would pay for damage to your automobile in an accident for which you were at fault?

A

collision

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123
Q

Henry Edwards was injured in an accident caused by another driver who did not have insurance. Henry’s medical expenses would be covered by:

A

uninsured motorists protection

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124
Q

insurance

A

Protection against possible financial loss

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125
Q

insurance company

A

risk-sharing firm that assumes financial responsibility for losses that may result from an insured risk

126
Q

closing costs

A

Fees and charges paid when a real estate transaction is completed; also called settlement costs
EX: title cost

127
Q

What would it cost an insurance company to replace a family’s personal property that originally cost $42,000? The replacement costs for the items have increased 15 percent.

A

$42,000 ×1.15 = $48,300

128
Q

Kurt has 50/100/15auto insurance coverage.
One evening he lost control of his vehicle, hitting a parked car and damaging a storefront along the street. Damage to the parked car was $5,400, and damage to the store was $12,650.
a. What amount will the insurance company pay for the damages?
b. What amount will Kurt have to pay?

A

a. The insurance company will pay $15,000 (policy limit).

b. Kurt will be liable for any unpaid claim amount:($5,400+$12650)-$15,000 = $18,050 − $15,000 = $3,050

129
Q

lease

A

legal document that defines the conditions of a rental agreement

130
Q

condominium

A

individually owned housing unit in a building with several such units

131
Q

cooperative housing

A

form of housing in which a building containing a number of housing units is owned by a nonprofit organization whose members rent the units

132
Q

zoning laws

A

restrictions on how the property in an area can be used

133
Q

earnest money

A

portion of the price of a home that the buyer deposits as evidence of good faith to indicate a serious purchase offer

134
Q

mortgage

A

long-term loan on a specific piece of property such as a home or other real estate

135
Q

What would it cost an insurance company to replace a family’s personal property that originally cost $42,000? The replacement costs for the items have increased 15%.

A

$42,000 ×1.15 = $48,300

136
Q

amortization

A

reduction of a loan balance through payments made over a period of time

137
Q

Adjustable-rate mortgage (ARM)

A

home loan with an interest rate that can change during the mortgage term due to changes in market interest rates; also called a flexible-rate mortgage or a variable-rate mortgage

138
Q

rate cap

A

limit on the increases and decreases in the interest rate charged on an adjustable-rate mortgage

139
Q

payment cap

A

limit on the payment increases for an adjustable-rate mortgage

140
Q

buy-down

A

interest rate subsidy from a home builder or a real estate developer that reduces a home buyer’s mortgage payments during the first few years of the loan

141
Q

second mortgage

A

cash advance based on the paid-up value of a home; also called a home equity loan

142
Q

reverse mortgage

A

loan based on the equity in a home, that provides elderly homeowners with tax-free income and is paid back w/ interest when the home is sold or the homeowner dies

143
Q

points

A

Prepaid interest charged by a lending institution for the mortgage; each discount point is equal to 1% of the loan amount

144
Q

title insurance

A

Insurance that, during the mortgage term, protects the owner and lender against financial loss resulting from future defects in the title and from other unforeseen property claims not excluded by the policy.

145
Q

deed

A

document that transfers ownership of property from one party to another

146
Q

Escrow account

A

Money, usually deposited with the lending financial institution, for the payment of property taxes and homeowner’s insurance

147
Q

appraisal

A

estimate of the current value of a property

148
Q

insurer

A

insurance company

149
Q

policy

A

written contract for insurance

150
Q

premium

A

amount of money a policyholder is charged for an insurance policy

151
Q

insured

A

person covered by an insurance policy.

152
Q

policyholder

A

person who owns an insurance policy

153
Q

risk

A

Chance or uncertainty of loss; also used to mean “the insured.”

154
Q

peril

A

chance of a possible loss

155
Q

hazard

A

factor that increases the likelihood of loss through some peril

156
Q

pure risk

A

risk in which there is only a chance of loss; also called insurable risk.

157
Q

speculative risk

A

risk in which there is a chance of either loss or gain

158
Q

self-insurance

A

process of establishing a monetary fund to cover the cost of a loss.

159
Q

negligence

A

Failure to take ordinary or reasonable care in a situation

160
Q

deductible

A

set amount a policyholder must pay per loss on an insurance policy

161
Q

strict liability

A

situation in which a person is held responsible for intentional or unintentional actions

162
Q

Homeowner’s insurance

A

Coverage for a place of residence and its associated financial risks

163
Q

personal property floater

A

Additional property insurance to cover the damage or loss of a specific item of high value

164
Q

household inventory

A

list or other documentation of personal belongings, with purchase dates and cost information

165
Q

Medical payments coverage (homeowner)

A

Home insurance that pays the cost of minor accidental injuries on one’s property

166
Q

endorsement

A

addition of coverage to a standard insurance policy

167
Q

Coinsurance clause

A

policy provision that requires a homeowner to pay for part of the losses if the property is not insured for the specified percentage of the replacement value

168
Q

Actual cash value (ACV)

A

claim settlement method in which the insured receives payment based on the current replacement cost of a damaged or lost item, less depreciation.

169
Q

replacement value

A

claim settlement method in which the insured receives the full cost of repairing or replacing a damaged or lost item

170
Q

Financial responsibility law

A

State legislation that requires drivers to prove their ability to cover the cost of damage or injury caused by an automobile accident

171
Q

Bodily injury liability

A

Coverage for the risk of financial loss due to legal expenses, medical costs, lost wages, and other expenses associated with injuries caused by an automobile accident for which the insured was responsible.

172
Q

Medical payments coverage

A

Automobile insurance that covers medical expenses for people injured in one’s car or as a pedestrian

173
Q

no-fault system

A

automobile insurance program in which drivers involved in accidents collect medical expenses, lost wages, and related injury costs from their own insurance companies.

174
Q

Property damage liability

A

Automobile insurance coverage that protects a person against financial loss when that person damages the property of others.

175
Q

Comprehensive physical damage

A

Automobile insurance that covers financial loss from damage to a vehicle caused by a risk other than a collision, such as fire, theft, glass breakage, hail, or vandalism

176
Q

rating territory

A

place of residence used to determine a person’s automobile insurance premium

177
Q

driver classification

A

category based on the driver’s age, sex, marital status, driving record, and driving habits; used to determine automobile insurance rates

178
Q

assigned risk pool

A

Consists of people who are unable to obtain automobile insurance due to poor driving or accident records and must obtain coverage at high rates through a state program that requires insurance companies to accept some of them

179
Q

The Kelleher family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance company pay?

A

($1,100 -$500) x 0.80 = $600 x 0.80 = $480

180
Q

Ariana’s health insurance policy includes an $800 deductible and a coinsurance provision requiring her to pay 20 percent of all bills. Her total bill is $3,800. What is Ariana’s total cost?

A

$800 + [($3,800 -$800) x 0.20] = $800 + $600 = $1,400

181
Q

In 2009, Mark spent $9,500 on his health care. If this amount increased by 6 percent per year, what would be the amount Mark will spend in 2019?

A

$9,500 x [(1.06)^10] = $17,013.05
or
9500 [+/-] [PV] 6 [I/YR] 10 [N] [CPT] [FV] => 17,013.05

182
Q

You have a gross annual income of $52,000. Use the multiple of income method to determine the minimum amount of life insurance you should carry.

A

$52,000 ×5 = $260,000

183
Q

You are a dual income, no-kids family. You and your spouse have the following debts: Mortgage = $190,000; Auto loan = $10,000; Credit card balance = $2,000, and other debts of $4,000. Further, you estimate that your funeral will cost $6,000. Your spouse expects to continue to work after your death. Using the DINK Method, what should be your need for life insurance?

A
  • One half of mortgage: $190,000 x 0.5 = $95,000
  • One half of car loan: $10,000 x 0.5 = $ 5,000
  • One half of credit card loans:$2,000 x 0.5 = $ 1,000
  • One half of personal debts:$4,000 x 0.5 = $ 2,000
  • Funeral expenses:$6,000
  • Total insurance needs:95,000 + 5,000 + 1,000 + 2,000 + 6,000 = $109,000
184
Q

Tim and Allison are married and have two children, ages 2 and 6. Allison is a “nonworking” spouse who devotes all of her time to household activities. Estimate how much life insurance Tim and Allison should carry to cover Allison.

A
  • To estimate how much insurance Tim and Allison should carry, multiply the number of years before their youngest child, 2, reaches age 18 by $10,000.
  • Insurance needed = 16 x $10,000 = $160,000
185
Q

Which of the following statements is not true?

a. Physician expense insurance coverage normally excludes visits to the doctor’s office, x-rays, and lab tests.
b. Basic health insurance coverage includes hospital expense insurance, surgical expense insurance, and physician expense insurance.
c. A deductible provision requires the policyholder to pay a basic amount before the policy benefits begin.
d. A good health insurance plan should impose no unreasonable exclusions.
e. A hospital indemnity policy is not a substitute for basic or major medical protection.

A

Physician expense insurance coverage normally excludes visits to the doctor’s office, x-rays, and lab tests.

186
Q

Which type of health insurance includes two features (a deductible provision and a coinsurance provision) to help keep the premium within the policyholder’s means?

A

Major medical expense

187
Q

The Kelleher family has health insurance coverage that pays 80% of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance company pay?

A

($1,100 -$500) x 0.80 = $600 x 0.80 = $480

188
Q

Ariana’s health insurance policy includes an $800 deductible and a coinsurance provision requiring her to pay 20% of all bills. Her total bill is $3,800. What is Ariana’s total cost?

A

$800 + [($3,800 -$800) x 0.20] = $800 + $600 = $1,400

189
Q

In 2009, Mark spent $9,500 on his health care. If this amount increased by 6% per year, what would be the amount Mark will spend in 2019?

A

$9,500 x [(1.06)^10] = $17,013.05
or
9500 [+/-] [PV] 6 [I/YR] 10 [N] [CPT] [FV] => 17,013.05

190
Q

Your annual income is $45,000. What is your life insurance need based on the easy method?

A

$220,500

$45,000 × 7 years × 70% = $220,500

191
Q

The total debts of you and your spouse include the following: mortgage, $200,000; auto loan, $16,000; credit card balance, $2,000; and personal debts of $4,000. Further, you estimate that your funeral will cost $6,000. Your spouse expects to continue to work after your death. What is your life insurance need using the DINK method?

A

$117,000

$6,000 + ½ ($200,000 + $16,000 + $2,000 + $4,000) = $117,000

192
Q

Using the “nonworking” spouse method, what should be the life insurance needs for a family whose youngest child is 8 years old?

A

$100,000

(18 − 8) × $10,000 = $100,000

193
Q

A suicide clause means that the insurance company:

A

will pay a death benefit equal to the amount of the premium paid, if the insured dies by suicide during the first two years that the policy is in force.

194
Q

How frequently does the premium for a whole life policy change during the insured’s life?

A

it never changes

195
Q

Coordination of benefits (COB)

A

method of integrating the benefits payable under more than one health insurance plan.

196
Q

Which health insurance plan directly employs or contracts with selected physicians to provide managed health care services in exchange for a fixed, prepaid monthly premium?

A

Health maintenance organization (HMO)

197
Q

Renee Carson’s health insurance policy includes a $500 deductible and a coinsurance provision requiring her to pay 20% thereafter. Her medical bills total $7,000. What amount is she required to pay personally?

A

$1,800

$7,000 − $500 = $6,500; $6,500 ×20% =$1,300; $500 + $1,300 = $1,800

198
Q

Physician expense insurance

A

Provides benefits for doctors’ fees for nonsurgical care, x-rays, and lab tests

199
Q

Basic health insurance coverage

A

Combination of hospital expense insurance, surgical expense insurance, and physician expense insurance

200
Q

coinsurance

A

provision under which both the insured and the insurer share the covered losses

201
Q

stop-loss

A

rovision under which an insured pays a certain amount, after which the insurance company pays 100% of the remaining covered expenses.

202
Q

How frequently does the premium for a whole life policy change during the insured’s life?

A

it never changes

203
Q

hospital indemnity policy

A

Pays stipulated daily, weekly, or monthly cash benefits during hospital confinement.

204
Q

Long-term care insurance(LTC)

A

Pays for the cost of day-in, day-out care for long-term illness or disability

205
Q

copayment

A

provision under which the insured pays a flat dollar amount each time a covered medical service is received after the deductible has been met.

206
Q

Blue Cross

A

independent membership corporation that provides protection against the cost of hospital care

207
Q

Blue Shield

A

independent membership corporation that provides protection against the cost of surgical and medical care

208
Q

managed care

A

Prepaid health plans that provide comprehensive health care to members

209
Q

stop-loss

A

provision under which an insured pays a certain amount, after which the insurance company pays 100% of the remaining covered expenses.

210
Q

Point-of-service plan(POS)

A

network of selected contracted, participating providers; also called an HMO-PPO hybridor open-ended HMO.

211
Q

Disability income insurance

A

Provides payments to replace income when an insured person is unable to work

212
Q

Nonparticipating policy

A

Life insurance that does not provide policy dividends; also called a nonpar policy

213
Q

Cash value

A

amount received after giving up a life insurance policy

214
Q

incontestability clause

A

provision stating that the insurer cannot dispute the validity of a policy after a specified period

215
Q

beneficiary

A

person designated to receive something, such as life insurance proceeds, from the insured.

216
Q

rider

A

document attached to a policy that modifies its coverage

217
Q

double indemnity

A

benefit under which the company pays twice the face value of the policy if the insured’s death results from an accident.

218
Q

Chartered life underwriter (CLU)

A

life insurance agent who has passed a series of college-level examinations on insurance and related subjects.

219
Q

Underwriting

A

process that insurance companies use to determine the premiums that will be charged and whom they will insure

220
Q

Interest-adjusted index

A

method of evaluating the cost of life insurance by taking into account the time value of money

221
Q

annuity

A

contract that provides a regular income, typically for as long as the person lives.

222
Q

An example of ____________ risk occurs when the financial return on an investment does not keep up with prices that are increasing in the overall economy.

A

inflation

223
Q

The ability of an investment to be converted to cash without a substantial loss in dollar value is called:

A

liquidity

224
Q

If interest rates in the overall economy decrease, what will happen to the market value of a corporate bond with a fixed interest rate?

A

The value of the bond will increase.

225
Q

What is the primary goal of asset allocation?

A

risk reduction

226
Q

If you invest $2,000 in a stock and the stock pays you $35 in dividends each year and is worth $2,150 at the end of one year, then what is your rate of return?

A

9.25%

227
Q

Christopher Pratt just bought shares of common stock. Which one of the following is he entitled to based on his ownership of these shares?

A

Right to vote at annual meetings

228
Q

The federal government requires that a corporation selling a new issue of securities must disclose information about the company and its finances in a(n):

A

prospectus

229
Q

Mellon Manufacturing has after-tax income of $6 million. It also has 4 million shares of stock outstanding. What is the corporation’s earnings per share?

A

$1.50

230
Q

If the board of directors approves a two-for-one stock split, an investor who owns 125 shares before the split will own ____________ shares after the split.

A

250

231
Q

Which one of the following statements is true?

a. Board members are appointed by a company’s management.
b. Stockholders receive a tax break on dividend income.
c. Investors should be concerned about the corporation’s ability to earn profits and pay dividends in the future.
d. If a cash dividend is declared by the board of directors, each stockholder will receive a different dollar amount per share.
e. Corporate dividends are always paid in cash.

A

Investors should be concerned about the corporation’s ability to earn profits and pay dividends in the future.

232
Q

Which one of the following statements is true regarding bond characteristics?

a. Corporate bonds do not have a maturity date.
b. The maturity dates for corporate bonds are generally less than a year.
c. Corporate bonds do not have to be repaid.
d. Corporate bonds are a form of equity financing.
e. Long-term corporate bonds have maturities over 10 years.

A

Long-term corporate bonds have maturities over 10 years.

233
Q

The legal conditions for a corporate bond are described in the:

A

bond indenture

234
Q

A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.

A

debenture

235
Q

If a bond is quoted in the newspaper at 103, the current price of a $1,000 face value bond is:

A

$1,030.00.

236
Q

What is the current yield for a $1,000 corporate bond that pays 6% and has a current market value of $600?

A

10%

237
Q

Which one of the following statements is false?

a. The responsibility for choosing the right mutual fund rests with the individual investor.
b. Professional fund managers do make mistakes.
c. Investors should evaluate their investments on a regular basis.
d. There is no need to evaluate mutual fund investments, because investment companies hire the best professional managers they can to manage their funds.
e. Individual investors should be involved in choosing a mutual fund, because they know how the objectives of a mutual fund match their own investment objectives.

A

There is no need to evaluate mutual fund investments, because investment companies hire the best professional managers they can to manage their funds.

238
Q

Which one of the following is true with respect to closed-end funds?

A

Shares are traded on security exchanges similar to stocks.

239
Q

A mutual fund in which investors pay a commission every time they purchase shares is called a ____________ fund.

A

load

240
Q

Together, all the different management fees, 12b-1 fees, and additional operating costs for a specific fund are referred to as a(n):

A

expense ratio

241
Q

The Capitalist Mutual Fund’s portfolio is valued at $40 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 1,250,000 shares. What is the fund’s net asset value?

A

$30.40

242
Q

Beth and Bob Martin have a total take-home pay of $4,600 a month. Their monthly expenses total $3,450. Calculate the minimum amount this couple needs to establish an emergency fund. How did you calculate this amount?

A

$3,450 ×3 months (minimum) = $10,350

243
Q

interest rate risk

A

value of an investment (such as government or corporate bonds) w/ a fixed rate of return decreases (increases) when overall interest rates in the economy increases (decreases).

244
Q

business failure risk

A

Bad management, unsuccessful products, competition, and the economy may cause the business to be less profitable; affects stocks, corporate bonds, and mutual funds that invest in stocks or bonds

245
Q

Which one of the following statements is true regarding bond characteristics?

a. Corporate bonds do not have a maturity date.
b. The maturity dates for corporate bonds are generally less than a year.
c. Corporate bonds do not have to be repaid.
d. Corporate bonds are a form of equity financing.
e. Long-term corporate bonds have maturities over 10 years.

A

Long-term corporate bonds have maturities over 10 years.

246
Q

Three years ago, you purchased 220 shares of IBM stock for $124 a share. Today, you sold your IBM stock for $142 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares and dividends you might have received as a shareholder.

a) What is the amount of profit you earned on each share of IBM stock?
b) What is the total amount of profit for your IBM investment?

A

a) $142 -$124 = $18 per share

b) $18 profit per share ×220 shares = $3,960.

247
Q

Common stock

A

most basic form of ownership for a corporation

248
Q

proxy

A

legal form that lists the issues to be decided at a stockholders’ meeting and requests that stockholders transfer their voting rights to some individual or individuals.

249
Q

Equity financing

A

Money received from the sale of shares of ownership in a business.

250
Q

Closed-end fund

A
  • fund whose shares are issued by an investment company only when the fund is organized
  • Shares are traded on security exchanges similar to stocks.
251
Q

Preferred stock

A

type of stock that gives the owner the advantage of receiving cash dividends before common stockholders are paid any dividends

252
Q

Price-earnings ratio

A

The price of a share of stock divided by the corporation’s earnings per share of stock

253
Q

Annualized holding period yield

A

yield calculation that takes into account the total return, the original investment, and the time the investment is held

254
Q

beta

A

measure reported in many financial publications that companies that compares the volatility associated with a specific stock issue with the volatility of the overall stock market or a index like the Standard & Poor’s 500 Stock Index

255
Q

Market-to-book ratio

A

current price of one share of stock divided by the book value for one share of stock

256
Q

Fundamental analysis

A

investment practice based on the assumption that a stock’s intrinsic or real value is determined by the company’s future earnings

257
Q

Technical analysis

A

investment practice based on the assumption that a stock’s market value is determined by the forces of supply and demand in the stock market as a whole.

258
Q

Efficient market hypothesis (EMH)

A

investment theory based on the assumption that stock price movements are purely random.

259
Q

Primary market

A

market in which an investor purchases financial securities, via an investment bank or other representative, from the issuer of those securities

260
Q

investment bank

A

financial firm that assists corporations in raising funds, usually by helping to sell new security issues.

261
Q

Initial public offering

A

Occurs when a corporation sells stock to the general public for the first time

262
Q

Secondary market

A

market for existing financial securities that are currently traded among investors.

263
Q

Securities exchange

A

marketplace where member brokers who represent investors meet to buy and sell securities

264
Q

specialist

A

Buys or sells a particular stock in an effort to maintain an orderly market.

265
Q

Over-the-counter (OTC) market

A

network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange

266
Q

Nasdaq

A

An electronic marketplace for buying and selling global stocks and securities

267
Q

account executive

A

licensed individual who buys or sells securities for clients; also called a stockbroker

268
Q

Stop-loss order

A

order to sell a particular stock at the next available opportunity after its market price reaches a specified amount

269
Q

day trader

A

individual who buys and then later sells stocks and other securities in a very short period of time

270
Q

selling short

A

Selling stock that has been borrowed from a brokerage firm and must be replaced at a later date

271
Q

option

A

right to buy or sell a stock at a predetermined price during a specified period of time

272
Q

Tammy Jackson purchased 100 shares of All-American Manufacturing Company stock at $31.50 a share. One year later, she sold the stock for $38 a share. She paid her broker a $15 commission when she purchased the stock and a $29 commission when she sold it. During the 12 months she owned the stock, she received $160 in dividends. Calculate Tammy’s total return on this investment.

A
  • Total costs of Initial investment = ($31.50 x 100) + $15 = $3,165•Dividend income = $160
  • Ending value = ($38 x 100) -$29 = $3,771 … from the sale of stock
  • Capital Gain=$3,771-$3,165=$606 •Total return = Dividend Income + Capital Gain = $160 + $606 = $766
273
Q

As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.

a) Calculate the earnings per share of Bozo Oil’s common stock.
b) Assuming that a share of Bozo Oil’s common stock has a market value of $40, what is the firm’s price-earnings ratio?
c) Calculate the book value of a share of Bozo Oil’s common stock.

A

a) Calculate the earnings per share of Bozo Oil’s common stock.
EPS = After Tax Income / Number of Shares Outstanding
EPS = $2,000,000 / 750,000 shares = $2.67 per share
b) What is the firm’s price-earnings ratio?
P/E Ratio = Price per share / Earnings per share = $40.00/$2.67 = 15
c)Book value = (Assets − Liabilities) / Number of shares outstanding
Book value = ($9,000,000 -$5,000,000) / 750,000 = $5.33 per share

274
Q

Thompson Home Remodeling has a 1.30 beta. If the overall stock market increases by 9 percent, how much will the stock for Thompson Home Remodeling change?

A

Volatility for a stock = Increase in overall market ×Beta for a specific stock
9% x 1.30 = 11.7 percent increase for Thompson Home Remodeling stock

275
Q

mortgage bond

A

corporate bond that is secured by various assets of the issuing firm

276
Q

subordinated debenture

A

unsecured bond that gives bondholders a claim secondary to that of mortgage or debenture bondholders with respect to interest payments, repayment, and assets

277
Q

convertible bond

A

bond that can be exchanged, at the owner’s option, for a specified number of shares of the corporation’s common stock

278
Q

high-yield bonds

A

corporate bonds that pay higher interest, but also have a higher risk of default

279
Q

callable bond

A

has a call feature that allows the issuing corporation to call in or buy outstanding bonds from current bondholders before the maturity date

280
Q

serial bonds

A

bonds of a single issue that mature on different dates

281
Q

Sandra Waterman purchased a 52-week, $1,000 T-bill issued by the U.S. Treasury. The purchase price was $984.

a. What is the amount of the discount?
b. What is the amount Ms. Waterman will receive when the T-Bill matures?

A

a) Discount = $1,000 maturity value − $984 purchase price = $16
b) Ms. Waterman will receive $1,000, the face value of the T-Bill.

282
Q

Calculate the purchase price for a 52-week, $1,000 treasury bill with a stated interest rate of 1.80 percent.

A

•Discount amount for one year = Maturity value ×interest rate
Discount = $1,000 ×0.0180 = $18
•T-bill Purchase price = Face Value –Discount
Purchase price = $1,000 − $18 = $982

283
Q

What is the current price for a $1,000 bond that has a price quote of 91?

A

Quoted price = Face value x price quote %

$1,000 ×91 percent = $1,000 ×0.91 = $910

284
Q

A $1,000 face value bond with a 6% interest rate is currently selling for $1,040. What is this bond’s current yield?

A

Current yield = interest income/market value
Annual interest income = $1,000 x 6% = $60
Current yield = $60/$1,040 = 5.77%

285
Q

corporate bond

A

corporate’s written pledge to repay a specified amount of money with interest

286
Q

maturity date

A

corporate’s written pledge to repay a specified amount of money with interest

287
Q

face value

A

dollar amount the bondholder will receive at the bond’s maturity

288
Q

trustee

A

financially independent firm that acts as the bondholders’ representative

289
Q

sinking fund

A

fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue

290
Q

registered bond

A

bond that is registered in the owner’s name by the issuing company

291
Q

registered coupon bond

A

bond registered for principal only and not for interest

292
Q

bearer bond

A

bond that is not registered in the investor’s name.

293
Q

yield

A

rate of return earned by an investor who holds a bond for a stated period of time –usually a 12-month period.

294
Q

bond ladder

A

strategy where investors divide their investment dollars among bonds that mature at a regular intervals in order to balance risk and return

295
Q

government bond

A

written pledge of a government or a municipality to repay a specified sum of money, along w/ interest

296
Q

municipal bond

A

debt security issued by a state or local government

297
Q

General obligation bond

A

bond backed by the full faith, credit, and unlimited taxing power of the government that issued it

298
Q

revenue bond

A

bond that is repaid from the income generated by the project it is designated to finance

299
Q

Yield to maturity

A

yield calculation that considers relationship among a bond’s maturity value, the time to maturity, the current price, and the dollar amount of interest

300
Q

Open-end fund

A

mutual fund whose shares are issued and redeemed by the investment company at the request of investors

301
Q

Exchange-traded fund (ETF)

A

fund that generally invests in the stocks or other securities contained in a specific stock or securities index

302
Q

Given the following information, calculate the net asset value (NAV) for the Boston Equity mutual fund.
•Total assets = $966 million
•Total liabilities = $6 million
•Total number of shares = 38 million

A

Net asset value (NAV) = (Assets –Liabilities) / Total number of shares
Net asset value = ($760 million − $30 million) / 50 million = $14.60 per share

303
Q

No-load fund

A

mutual fund for which the individual investor pays no sales charge

304
Q

Contingent deferred sales loan

A

1-5% charge that shareholders pay when they withdraw their investment from a mutual fund.

305
Q

Julie Martin is investing $48,000 in the Invesco Charter mutual fund. The fund charges a 5.50 percent commission when shares are purchased. Calculate the amount of commission Julie must pay.

A
  • Dollar amount of commission = Original investment ×Commission stated as a percentage
  • The commission = $48,000 ×0.055 = $2,640
  • The commission is also referred to as the sales load.
306
Q

Contingent deferred sales loan

A

1-5% charge that shareholders pay when they withdraw their investment from a mutual fund.

307
Q

12b-1 fee

A

fee that an investment company levels to defray the costs of distribution and marketing a mutual fund and commissions paid to brokers who sell shares in the mutual fund.

308
Q

family of funds

A

group of mutual funds managed by one investment company

309
Q

income dividends

A

earnings a fund pays to shareholders from its dividend and interest income

310
Q

Capital gain distribution

A

payments made to a fund’s shareholders that result from the sale of securities in the fund’s portfolio

311
Q

Reinvestment plan

A

service provided by an investment company in which income dividends and capital gain distributions are automatically reinvested to purchase additional shares of the fund.

Personal Finance (5 decks)

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