Deck 4: Managing Money

Question 1

Solve the problem.
Suppose that you need a loan of $120,000. Find the total cost of all the monthly payments for each of the loan options listed below. Assume that the loans are fixed rate. Round the total cost of each
Loan to the nearest dollar.

Answer 1

B

Question 2

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
The two accounts were offering the same APR, and both accounts had the same annual
percentage yield, but one account compounded interest monthly while the other
compounded interest quarterly.

Answer 2

No, the statement does not make sense. If both accounts are paying the same APR,
the account which compounds interest monthly will have a higher annual
percentage yield than the account which compounds quarterly.

Question 3

Provide an appropriate response.
Which of the following is not a way the government borrows money from the public?

A)Selling bonds to investors
B)Raising taxes
C)Selling Treasury notes
D)All of the above

Answer 3

B

Question 4

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
In 2005, the federal deficit was about 9 trillion dollars.

Question 5

Provide an appropriate response.

Question 6

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
I was offered a 30-year mortgage at a fixed rate of 8% or an adjustable rate mortgage that
starts at 6% for the first year. The ARM has no rate cap, but I will take that one anyway
because it doesn't look like interest rates will be going up any time soon.

Question 7

Provide an appropriate response.
Which of the following will contribute to an increased federal debt?

A)Increasing international aid
B)Decreasing Social Security benefits
C)Increasing receipts
D)Raising taxes

Question 8

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
The bank paid an annual interest rate (APR)of 7% but at the end of the year my account
balance had grown by only 6.9%

Question 9

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Niyas is starting a college fund for his 4-year old daughter. He will invest money in a
savings account and the money will remain in the account for at least 15 years. The bank
told him that an account offering an APR of 7% compounded annually was a better deal
than an account offering simple interest at 8% per year.

Question 10

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Apartments in a new building can either be bought or rented. Gale calculated that it
would be cheaper for her to buy. Gale's brother did the same calculations for himself for
the same apartment and found that it would be cheaper to rent.

Question 11

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Gabe said "For years there has been no money in the Social Security trust fund, just a bunch
of IOUs". Kim said "That's impossible, if that were true, how come the government has
been able to pay out Social Security benefits all these years?" Who is making more sense?

Question 12

Solve the problem.
Assume you have a balance of $1400 on a credit card with an APR of 19.2%, or 1.6% per
month. You start making monthly payments of $600, but at the same time you charge an
additional $280 per month to the credit card. Assume that interest for a given month is
based on the balance for the previous month. The following table shows how you can
calculate your monthly balance. 1102.40
Complete and extend the table to show your balance at the end of each month until the
debt is paid off.

Question 13

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
My mortgage payment is $1400 per month so I will have a tax deduction of

Question 14

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
I am young and I am looking for high-return investments even if that means higher risk.
That's why I am putting most of my money into stocks.

Question 15

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Steve is planning to open a savings account either at Quarterly Bank or at Daily Bank.
Quarterly Bank is offering an APR of 5.5% compounded quarterly, which is clearly the
better deal since Daily Bank is offering an APR of 5.5% but with daily compounding.

Question 16

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Raul is planning to invest his money for one year only. He chose an account paying simple
interest at 6% per year which was clearly a better deal than an account paying a 5.6% APR
with interest compounded annually.

Question 17

Provide an appropriate response.
Which of the following will allow the federal debt to be retired?

A)Zero gross deficit
B)Zero net surplus
C)Zero net deficit
D)Zero gross debt

Question 18

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
The total return on the account over 10 years was 60%. So the annual return was 6%. That
means if we had received an APY of 6% for 10 years, that would have amounted to the
same thing.

Question 19

Write the word or phrase that best completes each statement or answers the question.Decide whether the statement makes sense. Explain your reasoning.
Bill is in the 15% tax bracket so the tax he owes will be 15% of his taxable income.

Question 20

Provide an appropriate response.
What type of spending is easiest for the government to control?

A)Discretionary spending
B)Entitlement spending
C)Interest payments on the debt
D)Medicare

Question 21

Decide whether the statement makes sense. Explain your reasoning.
My share of the federal government's debt is about the same as my annual net income.

Question 22

Decide whether the statement makes sense. Explain your reasoning.
Paul has about $1800 available for all his personal expenses combined. He figures that he
can easily afford to pay $900 in rent.

Question 23

Decide whether the statement makes sense. Explain your reasoning.
Jose's car gets about 20 miles to the gallon. He is thinking of buying a new fuel-efficient car
which gets 40 miles to the gallon and which costs $25,000. He reasons in this way: " I drive
about 300 miles per week. Gas costs about $3.50 per gallon. That means I'll save $1365 per
year on gas. That means that if gas remains at $3.50 per gallon it will be about 18 years
before the car has paid for itself. I don't think I can justify buying the new car. "

Question 24

Decide whether the statement makes sense. Explain your reasoning.
Sue opened a savings account and deposited $10,000. On the same day Pat opened an
account at a different bank and also deposited $10,000. Both accounts had the same APR
and both were paying compound interest but after two years Sue had more in her account
than Pat did. Neither person made any additional deposits or withdrawals from their
account during those two years.

Question 25

Decide whether the statement makes sense. Explain your reasoning.
I will be retiring soon so I need low-risk investments. I'm going to put most of my money
into bonds. The return may not be as high as for stocks but as least there is no chance of
losing any of the principal.

Question 26

Decide whether the statement makes sense. Explain your reasoning.
Sheila is in the 25% tax bracket, so a $500 charitable contribution will reduce her total tax
bill by

Question 27

Solve the problem.
The table below shows the expenses and payments for 4 months on a credit card account
with an initial balance of $500. Assume that the interest rate is 1.7% per month (20.4%
APR)and that interest for a given month is based on the balance for the previous month.
Complete the table.

Question 28

Decide whether the statement makes sense. Explain your reasoning.
Paul figures that at today's prices he can live on $40,000 per year. Currently, banks are
offering an APR of 8%. So he says "if I build a retirement fund that gives me $500,000 by
the time I retire, then if the APR remained at 8% for ever, and if I lived for ever, I could live
on the interest alone for ever. That's because 8% of $500,000 is $40,000."

Question 29

Decide whether the statement makes sense. Explain your reasoning.
We will never be able to send our daughter to college. In order to have $100,000 in 20 years
we would have to save at least $500 each month, That's more than we can afford.

Question 30

Decide whether the statement makes sense. Explain your reasoning.
If two accounts offer the same APR, the account which compounds interest daily will be a
better deal than the account which compounds interest weekly.

Question 31

Decide whether the statement makes sense. Explain your reasoning.
Before the government borrows money from its own trust funds such as the Social Security
trust fund to finance a deficit, it first tries to cover the deficit by borrowing from the public
.

Question 32

Decide whether the statement makes sense. Explain your reasoning.
When I bought government bonds, I was effectively lending money to the government.

Question 33

For the loan described, calculate the monthly payment and the portions of the payments that go to principal and tointerest during the first 3 months. Use a table.
Calculate the monthly payment and the portions of the payments that go to the principal
and to interest during the first 3 months for a home mortgage of $124,233 with a fixed APR
of 8.0% for 30 years.

Question 34

Decide whether the statement makes sense. Explain your reasoning.
Sam is in the 15% tax bracket, so a $500 tax credit will reduce his total tax bill by

Question 35

Decide whether the statement makes sense. Explain your reasoning.
If I pay off my mortgage in 8 years instead of 16, I will have to pay about twice as much
per month since I will be paying the mortgage off in half the time.

Question 36

Decide whether the statement makes sense. Explain your reasoning.
Maria saved $1750 in taxes after donating $5000 to charity. So Maria's sister also donated $
5000 to charity thinking that she would save $1750 but she only saved $750.

Question 37

Decide whether the statement makes sense. Explain your reasoning.
The government has been borrowing from the Social Security trust fund for many years.
This will cause a problem when it has to pay out more in Social Security benefits than it
collects in Social Security taxes. Sally, who graduated college in 2005, says that it won't
happen in her lifetime but that it might happen in her children's lifetime.

Question 38

Decide whether the statement makes sense. Explain your reasoning.
I have a fixed-rate 30-year mortgage of $120,000 at 8%. I inherited some money recently.
If I pay off my mortgage in 20 years instead of 30, the total amount of interest I will end up
paying will be less.

Question 39

Decide whether the statement makes sense. Explain your reasoning.
I am young and I'm going to invest my money for at least 6 years. I am going to put all my
money into stocks. The return is higher than for other investments and over such a time
period, there is no risk of losing any of the principal. Historically there has never been a
6-year period in which the Dow ended lower than it started.

Question 40

For the loan described, calculate the monthly payment and the portions of the payments that go to principal and tointerest during the first 3 months. Use a table.
Calculate the monthly payment and the portions of the payments that go to the principal
and to interest during the first 3 months for a student loan of $21,581 with a fixed APR of
7.0% for 15 years.

Question 41

Solve the problem.
In a recent year, the total receipts for the US federal government were estimated to be $2288 billion. The total outlays were estimated to be $2613 billion. The table below shows the makeup of federal
Government outlays in that year- the percentage of total outlays spent in each category. How much was spent on non-defense discretionary outlays that year?

A)$470 billion
B)$523 billion
C)$388 billion
D)$479 billion

Question 42

Solve the problem.
You need a $159,118 loan. Compute the monthly payment for each of the loan options listed below. Assume that the loans are fixed rate.

Question 43

Decide whether the statement makes sense. Explain your reasoning.
I have a 30-year mortgage and have been paying it off for 6 years now so I should have
paid off about one fifth of the principal by now.

Question 44

Use the compound interest formula for compounding more than once a year to determine the accumulated balance afterthe stated period.
$5150 deposit at an APR of 4% with semiannual compounding for 6 years

A)$6516.39
B)$6386.00
C)$6531.45
D)$5799.74

Question 45

Solve the problem.
Suppose you start saving today for a $20,000 down payment that you plan to make on a house in 10 years. Assume that you make no deposits into the account after your initial deposit. The account
Has quarterly compounding and an APR of 3%. How much would you need to deposit now to
Reach your $20,000 goal in 10 years?

A)$14,832.96
B)$15,490.39
C)$12,342.98
D)$9495.49

Question 46

Find the annual percentage yield (APY).
A bank offers an APR of 2.4% compounded monthly.

A)2.43%
B)0.40%
C)4.85%
D)0.20%

Question 47

Solve the problem. Refer to the table if necessary.
You are single and have a taxable income of $56,767. You make monthly contributions of $455 to a tax-deferred savings plan. Calculate the effect on annual take-home pay of the tax-deferred
Contribution.

A)Take-home pay will be $1365 more per year with tax-deferred plan
B)Take-home pay will be $1820 less per year with tax-deferred plan
C)Take-home pay will be $1820 more per year with tax-deferred plan
D)Take-home pay will be $1365 less per year with tax-deferred plan

Question 48

Use the compound interest formula for compounding more than once a year to determine the accumulated balance afterthe stated period.
$2500 deposit at an APR of 4% with monthly compounding for 6 years

A)$2550.42
B)$2541.48
C)$14,046.64
D)$3176.85

Question 49

Answer the question.
Many insurance companies carry a deductible provision that states how much of a claim you must pay out of pocket before the insurance company pays the remaining expenses. Suppose you have a
Car insurance policy with a $500 deductible provision (per claim)for collisions. During a two-year
Period, you file claims for $400 and $950. The annual premium for the policy is $650. Determine
How much you would pay with and without the insurance policy.

A)With policy $2300, without policy $1450
B)With policy $2200, without policy $1350
C)With policy $2150, without policy $1350
D)With policy $1550, without policy $1350

Question 50

Decide whether the statement makes sense. Explain your reasoning.
My annual income after tax is only $25,000. I need to cut back on my nonessential
spending. Something has to go - either the mango smoothies, the movies, or the vacation. I
figure it's the vacation that is making the biggest dent in my budget. I take a vacation once
a year which costs about $1200. I go to the movies once a week and spend a total of $18
and I have a mango smoothie every day at my favorite cafe. It costs $4.50 plus tax.

Question 51

Compute the total and annual returns on the described investment.
Five years after paying $15,487 for shares in a new company, you sell the shares for $7342.

Question 52

Decide whether the statement makes sense. Explain your reasoning.
Juan won't have to pay any taxes this year. The profit from his business was less than the
amount of the standard deduction.

Question 53

Decide whether the statement makes sense. Explain your reasoning.
Sandi has a credit card balance of $4000. The credit card company charges interest of APR
= 18%, compounded daily. She's broke. She figures if she skips making any payments for
three months, she'll end up owing an extra $180 at the end of the three months. That's
because 18% APR is equivalent to 1.5% monthly and 1.5% of $4000 is $60, and 3 times $60
is $180.

Question 54

Solve.
Genevieve is in the 28% tax bracket. George is in the 35% tax bracket. They each itemize their deductions and they each donate $7402 to charity. Compute their true costs for charitable
Donations.

Question 55

Decide whether the statement makes sense. Explain your reasoning.
In 2013, the United States publicly held debt was $17 trillion. Use the loan payment formula to determine the annual payments needed to pay this debt off in 10 years. Assume an annual interest
Rate of 3%.

A)$1993 billion
B)$1987 billion
C)$2014 billion
D)$2002 billion

Question 56

Decide whether the statement makes sense. Explain your reasoning.
Jeremy hasn't paid off his credit card debt but he knows that it's important to start saving.
He decides to invest some money in a savings account and to continue making just the
minimum payments each month on his credit card. The interest rate on his credit card is
1.5% per month.

Question 57

Decide whether the statement makes sense. Explain your reasoning.
By 2040 projected Social Security payments will be about $900 billion more than collections
from Social Security taxes. The government will then need to redeem $900 billion in IOUs
from the Social Security trust fund. However, it should be fairly easy for the government
to find the $900 billion by cutting discretionary spending.

Question 58

Solve the problem.
Budget Summary for the Wonderful Widget Company (all amounts in thousands of dollars) Assume that , for 2005, total receipts are $1,058,586, operating expenses are $531,674, employee benefits are $189,561, security costs are$133,107, and interest on debt is $63,000. Calculate the
Year-end surplus or deficit.

A)$267,244.00
B)$779,473.00
C)$141,244.00
D)$912,580.00

Question 59

Provide an appropriate response.
True or False? A full-service broker offers advice based on in-depth research.

A)False
B)True

Question 60

Provide an appropriate response.
A(n)________ deduction is the addition of all individual deductions to which you are entitled.

A)standard
B)complete
C)itemized
D)None of the above

Question 61

Solve.

Question 62

Solve the problem. Refer to the table if necessary.
Kevin is married, but he and his wife filed separately. His gross salary was $37,967, and he earned $448 in interest. He had $1141 in itemized deductions and claimed three exemptions for himself
And two children. Find his taxable income.

A)$27,274
B)$28,415
C)$19,474
D)$20,615

Question 63

Solve the problem. Refer to the table if necessary.
Tom and Toni are married and file jointly. Their combined wages were $78,148. They earned a net of $1593 from a rental property they own, and they received $1665 in interest. They claimed four
Exemptions for themselves and two children. They contributed $3364 to their tax-deferred
Retirement plans, and their itemized deductions total $10,516. Find their taxable income.

A)$62,442
B)$49,342
C)$56,070
D)$51,926

Question 64

Determine whether the spending pattern described is at, above, or below the national average. Assume that any salariesor wages are after tax.
A couple under the age of 30 has a combined household income of $3700 per month and spends $ 180 per month on donations.

A)below average
B)at average
C)above average

Question 65

Solve the problem.

Question 66

Solve the equation for the unknown.

Question 67

Use the given stock table to answer the question.
Based on the fact that stocks historically trade at an average P/E ratio of about 12-14, does the stock price of company ABC seem cheap, about right, or expensive right now?

A)cheap
B)about right
C)expensive

Question 68

Solve the problem. Refer to the table if necessary.
Caitlin is single and earned wages of $32,988. She received $300 in interest from a savings account. She contributed $479 to a tax-deferred retirement plan. She had $530 in itemized deductions from
Charitable contributions. Calculate her gross income.

A)$32,279
B)$33,288
C)$33,767
D)$32,809

Question 69

Prorate the given expenses to find the monthly cost.
Keiko pays $320 per month for food, a semiannual health insurance premium of $1500, and an annual car insurance premium of $600. Round your answer to the nearest dollar.

A)$495
B)$620
C)$670
D)$327

Question 70

Provide an appropriate response.
True or False? Early in an installment loan term, the portion going toward interest is relatively high and the portion going toward principal is relatively low. As the term proceeds, the portion
Going toward interest gradually decreases and the portion going toward principal gradually
Increases.

A)False
B)True

Question 71

Assume you have a balance of $3200 on your credit card that you want to pay off. Calculate your monthly payment andtotal payment under the given conditions. Assume you make no additional charges to the card.
The credit card APR is 18% and you want to pay off the balance in 4 years.

A)$112.91; $5419.89
B)$130.64; $6270.75
C)$80.51; $3864.62
D)$94.00; $4512.00

Question 72

Calculate the amount of interest you'll have at the end of the indicated period.
You invest $6000 in an account that pays simple interest of 3% for 6 years.

A)$1080.00
B)$180.00
C)$1380.60
D)$1009.00

Question 73

Solve the problem. Refer to the table if necessary.
Stephen earned $62,292 from wages as an accountant and made $2987 in interest. Find how much he paid in FICA and income taxes. Assume he is single and takes the standard deduction.

A)$14,723
B)$18,585
C)$14,514
D)$14,023

Question 74

Find the annual percentage yield (APY).

Question 75

Compute the total and annual returns on the described investment.

Question 76

Solve the problem.

Question 77

Solve the equation for the unknown.

Question 78

Solve the equation for the unknown.

Question 79

Provide an appropriate response.
________ outlays are expenses that will be paid automatically unless Congress acts to change them.

A)Discretionary
B)Primary
C)Mandatory
D)None of the above

Question 80

Solve the problem.
Budget Summary for the Wonderful Widget Company (all amounts in thousands of dollars) Assume that , for 2005, total receipts are $1,025,209, operating expenses are $542,589, employee benefits are $199,116, security costs are$131,470, and interest on debt is $63,000. Calculate the
Outlays for 2005.

A)$1,829,914.00
B)$941,645.00
C)$1,961,384.00
D)$936,175.00