Personal Finance Exam

Match the following words to its correct definition.

amortization

mortgage

auto loan

work study

grants

loan

A. job in which the earnings should be used to finance your college education

B. long term debt used to finance the purchase of a home

C. money that has to be repaid

D. process of paying a loan through specially structured payments

E. long term debt used to finance the purchase of a car

F. money that does not have to be repaid

Which of the following is not a long term debt?

Paying off your credit card each month

Taking out a 15 year fixed rate mortgage

Financing an automobile purchase with a 36 month loan

Financing your college education with a 30 year loan

Your friend is confused about types of debts. Which of the following would most likely help his financial portfolio by adding an appreciating asset?

boat loan

car loan

mortgage

none of the above

Which of the following financing options has the least (future) obligation from the student?

scholarship

loan

work study

Which is something you should consider before taking a loan out for college?

interest rate

income potential

length of the loan

all of the above

Which of the following is a type of debt that you will most likely need to finance?

clothing purchase

video game purchase

ipod purchase

new car purchase

When explaining credit to a friend, which of the philosophy can you use?

Buy now, pay later

Buy later, pay now

Don’t worry about paying back

none of the above

Which is the process of paying off a loan through specially structured payments?

using a credit card

amortization

online bill pay

none of the above

Which of the following would you recommend to your friend about mortgages to save the most money?

get the longest loan possible at the highest interest rate

get the shortest loan possible at the lowest interest rate

get the longest loan possible at the lowest interest rate

get the shortest loan possible at the highest interest rate

You and your spouse have a 72 month car loan. What is the best way to shorten the amount of time that it takes you to pay back the loan?

sending in your payments on time

having good credit

using your credit card to make a car payment

making extra car payments several times a year

Which of the following is the best example of amortization?

30 yr mortgage

48 month car loan

15 yr student loan

all of the above

When do most finance professionals recommend that you start saving money?

after you start your first job

as soon as you have money

once you get your feet on the ground after paying of your bills

as you near retirement

Match the following words to its correct definition

income

money

interest

compound interest

currency

gross income

net income

tax

income tax

FICA

social security

Medicare

budget

W-2 form

W-4 form

A. A form that is filled out by employees before they start a job. This will determine the amount of income tax deducted from that person’s paycheck

B. The amount of income received after deductions and taxes are taken out

C. A form that includes a person’s earnings and deductions for a year

D. Federal program that provides medical benefits such as hospital care

E. synonym for money

F. money received from a job

G. Federal program that provides benefits to retirees, the handicapped, and children of deceased workers

H. interest paid on the principal and on the accrued interest of the accumulated interest already earned

I. Government fees on income, property, goods, or other activities

J. the profit made on an investment

K. medium of exchange for a good or service

L. The amount of income earned before any deductions or taxes or taken out

M. A money plan that includes expected income, spending, and any other financials in a given time period

N. Federal Insurance Contributions Act used to fund Social Security and Medicare

O. Tax on the money someone earns from a job

In which of the following scenarios would you have the most money at the end of the year?

2% compounded daily

2% compounded monthly

2% compounded yearly

2% compounded weekly

Why do many people think it is be better to not receive a refund from the IRS at the end of the year?

because you are giving them money interest free instead of putting that money into an interest bearing account

because you should not expect the government to send you a check

because you never file taxes

because you put the Social Security number on your W-2 Form

You want to save money for a down payment on a house in the future. At which interest rate would you have the most savings at the end of ten years?

3%

4%

6%

6.3%

Which one of these tips is NOT a good financial choice?

Create a budget.

Buy items on sale.

Try not to save a little bit each month.

Don’t try to compete with your friends.

What type of income includes all taxes and deductions before they are taken out?

total income

net income

take home pay

gross income

Which of the following factors has the greatest influence on how much a person can afford based on their income?

level of education

where they live

personality

grades in school

What type of expense is your rent each month?

routine expense

variable expense

discretionary expense

nonroutine expense

What type of expense would a night out to dinner with friends be?

fixed expense

routine expense

discretionary expense

essential expense

Which of the following expenses would be considered a discretionary expense?

electricity

cable television

rent

car insurance

Which of the following expenses is a fixed expense?

electricity

gym membership

groceries

entertainment

Which is an example of a good debt?

financing your education

financing trendy clothes

financing a vacation

financing meals

Which of the following should not be considered a “surprise” when it comes to planning your budget?

student loans

gas prices

medical bills

emergency car repairs

How long do you have to pay back a short term debt?

4 months

8 months

2 months

all of the above

Which of the following is a good way to prevent identity theft?

giving your social security number out freely

telling your friends your PIN number for your ATM card

only giving out your personal information when absolutely necessary

giving your credit card information to a telemarketer

Which of the following is NOT one of the main CRAs (Credit Reporting Agencies)?

CreditCheck

Transunion

Equifax

Experion

When using your credit card, what is the best way to keep your standard of living?

Paying the minimum due on each credit card you own.

Paying off your entire credit card bill each month.

Paying your credit card bill late.

Paying only items you feel like paying for that you charged.

You purchase a new stereo at a local electronics store and decide to pay using your credit card. You plan to pay off this debt within a year. Choose the best credit card choice from the following offers.

22% interest

29% interest

0% interest for 1 year and 12% interest after that

6% interest

What is revolving debt?

Debt that never changes

Debt that has a fixed payment each month

Debt that has no fixed payment but is based on a percentage of the outstanding balance

Debt that is used to change things

Which of the following are you usually able to deduct off your tax return?

interest paid on credit cards

interest earned from a bank account

interest paid on a mortgage

none of the above

Which are ways to finance your college education?

work study

grants

student loans

all of the above

What is the best definition of a creditor?

a person who borrows money

a person who lends money

a person who issues credit cards

a person who uses credit

Which is the process of paying off a loan through specially structured payments?

using a credit card

amortization

online bill pay

none of the above

The interest on a mortgage is usually tax deductible.

True

False

One way to take years off of your loan is to make extra voluntary payments.

True

False

A scholarship is a type of loan that you need to pay back.

True

False