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Personal Financial Literacy 2nd Edition Jeff Madura, K. Michael Casey, Sherry J. Roberts, Roberts Madura Casey - Solutions
A person decides to lease a $20,000 car for three years instead of buying the car and financing it with a loan. At the end of three years the car is worth $11,000. How much will he receive when he returns the car to the dealership?a. He will only get his security deposit back if one was required
A high school senior whose family is very poor wants to go to college, but the family cannot afford to pay. To help finance her education, she should try to obtain the type of loan where interest charges do not build up while she is in school and even during the first few months after graduation.
If a person does not have renter’s insurance and her laptop computer is stolen from her apartment, shea. does not have to worry because the landlord has to pay for her loss.b. can still buy renter’s insurance and make a claim to be reimbursed for the loss of the laptop.c. can file a claim for
If a person has homeowner’s or renter’s insurance, it will protect the persona. if she loses her job and cannot pay her rent.b. from having to file for bankruptcy.c. if someone falls in her house and sues her.d. from the bank foreclosing on her home for not making mortgage payments.
A person’s bank will only make a home equity loan if the loan and his current mortgage do not exceed 80% of the market value of the home.If he has a $200,000 mortgage and his home is appraised at $400,000, how large of a home equity loan can he hope to obtain?a. He can expect to obtain a loan of
When we say that a person with a home that is valued at $300,000 and who has an outstanding mortgage of $100,000 has a lot of equity in her home, we mean that shea. has a lot of debt.b. owns a large fraction of her home.c. will not be approved for additional loans until her mortgage is paid in
How is a $50,000 home equity loan different from a $50,000 home equity line of credit?a. There are no interest charges on money used from the line of credit;the equity loan rate is the same as the person’s mortgage interest rate.b. Loans require a person to complete an application and go through
Subprime mortgages area. mortgages offered at interest rates below the national average to first-time homeowners.b. low interest rate mortgages awarded to people with excellent credit histories.c. mortgages offered to people who already have at least one mortgage on their current home.d. high
What is a sound financial reason for a person to choose an adjustable rate mortgage (ARM) over a fixed rate mortgage?a. She expects to move to another city in three or four years as her career advances.b. She wants to be sure that she will never have to pay more than her current mortgage amount.c.
Which of the following terms is not correctly matched with its definition?a. Unsecured loan: no collateral is given in support of the loan.b. Mortgage loan: the home serves as the collateral for the loan.c. Secured loan: the collateral for the loan is a person’s good credit history and her
A person learns that the interest rate on his $2,000, one-year auto loan is 5%. He is about to apply for the loan when a friend says that he should first know the APR on the loan. He discovers that there is a$50 application fee, a $50 credit check fee, and a $100 charge related to other closing
Why should a person be very careful before agreeing to cosign a loan?a. The cosigner is required to deposit the amount of the loan into a special bank account until the loan is paid in full.b. The cosigner is agreeing to pay half of the loan.c. The cosigner’s credit score will be changed to the
Why is it possible that the interest rate advertised for a loan is very different from the annual percentage rate (APR) on that loan?a. The APR includes fees associated with the application, credit report check, and closing costs in addition to the annual interest.b. The APR provides for a 10%
What is the purpose of a loan contract?a. It is an offer by the lender to sell something at a given price to another person.b. It is a legally binding agreement that explains the charges to be paid by the buyer and the obligations of the seller.c. It is a promise made to the credit bureaus that the
Why should a person be concerned if she has been offered a “teaser rate” on a loan?a. She will be forced to pay that same rate for the life of the loan.b. After a short time the rate will most likely go up.c. It is not a valid loan and the item being purchased with this loan will probably be
Why does a lender want information about a person’s current cash inflow and outflow?a. The information helps to determine the number of cosigners a person will need for the loan to be approved.b. Most lenders do not make loans to anyone whose assets are not twice his liabilities.c. The lender
Which of the following terms is not correctly matched with its definition?a. Principal: the amount borrowed.b. Terms of the loan: cost of the item if it is not being financed.c. Down payment: the amount of money the buyer gives toward the purchase.d. Repayment schedule: number of months needed to
Which of the following people does not have a financially sound reason for taking a personal loan?a. Ramon has the money to buy a car but he can invest the money and make more than he will be charged for his car loan.b. Carrie needs to borrow money in order to pay for her last year of college.c.
Brainstorm how to decide if purchasing a car will fit into your financial plan. Think about all the factors that will influence this decision.
Hopefully by now you have developed your financial plan. Refer to your plan to answer the following questions:(a) Where does a car loan fit into my financial plan?(b) When looking at my financial plan, how much of a car payment can I afford?(c) What other factors will influence my decision on a car
In a team, develop an advertisement for a car of your team’s choice.Present all the features, consumer safety factors, incentives, and financing for the car. You may develop a colorful poster, full-page newspaper advertisement, video ad, or brochure about the car.
Research three cars that you would like to buy. They may be new or used.Be sure to cite the source of your information. Make a chart that shows the following information for each car:● Car’s features (options available on the make, model, color, etc.)● Year of the car● Any down payment you
The agreement that Kayce had with her father was to work a few extra hours at the shop. This worked out well for Kayce at the beginning. But then the racing season got underway and Kayce was really doing great at the track. Each week it seemed that Kayce had another excuse for not being able to
If you get a personal loan to attend college, how much interest will accrue in the first year on a $3,000 loan assuming market rates of interest are 6%? Assume payments are deferred until you graduate.
Which monthly payment will be lower assuming an interest rate of 6%: a $200,000 mortgage financed for 15 years or a $200,000 mortgage financed for 30 years?
If the mortgage lender requires a minimum 5% down payment on a$260,000 house, how much will you be financing?
In the previous problem, how much will you be financing if the same terms apply but the dealer drops the price of the car by 10%?
How much do you have to save for a down payment on a car if the price of the vehicle is $8,000 and the dealer wants a 20% down payment?
How much interest will Blaine owe when he graduates from college if he took out an unsubsidized $2,000 Stafford loan during his last year of college? The interest rate was 4% and interest was deferred during that year.
Lidell bought renter’s insurance with a $500 deductible to cover his possessions that he estimated to be worth approximately $10,000.A fire destroyed his apartment complex and he lost all his possessions. If his insurance coverage maxed out at $5,000, how large was the check he received from the
Mousa borrowed $6,000 to buy a car and he will make 36 monthly payments of $185.81 to repay the loan. How much total interest will he pay over the life of the loan?
(a) What are the advantages and disadvantages of leasing?(b) Give some examples of a person for whom leasing a car would not be a good idea.
(a) What financial criteria should be considered when buying a car versus leasing?(b) Why might you be concerned about having a too-long auto loan?
(a) Who makes possible most of the student loans in the United States?(b) What is the government’s interest in helping to make education affordable?
(a) What kinds of loss does homeowner’s insurance protect against?(b) What would you stand to lose if you maintained a homeowner’s policy that was designed only to pay off the amount you owed on a mortgage in the event of a fire or other disaster?
(a) Describe some of the costs of buying a home.(b) Why do those costs affect the decision to buy or rent?
(a) Describe the characteristics of a fixed-rate mortgage.(b) Why do you think some homeowners prefer a fixed rate mortgage to an adjustable rate mortgage?
(a) What are your responsibilities if you cosign a loan?(b) What are the potential consequences of failing to live up to your responsibilities as a cosigner?
(a) Explain how collateral works.(b) What would you expect to find in comparing interest rates of secured and unsecured loans?
(a) Why do lenders need to collect so much personal information about people who seek loans?(b) Why might someone who has very little credit history have trouble obtaining a loan?
(a) List possible sources of personal loans.(b) Why might a person prefer to take a loan rather than spending money he or she has saved?
What happens when one defaults on a loan?
What is meant by a policy rider? Give two examples of what could be included in a policy rider.
What is the difference between a line of credit and a home equity loan?
What are two major options for paying for a new car?
Why are student loans different from other kinds of personal loans?
By what means do most people finance the purchase of a home?
What is the usual purpose of a personal loan?
Understand the unique issues and challenges of financing a car?
Discuss the unique issues and challenges of financing an education?
Explain the unique issues and challenges of financing a home?
Describe the key features and qualities of personal loans?
“Phishing” is the identity thief technique ofa. spreading an online computer virus using a person’s credit card information.b. getting information from a person online by asking her to complete a survey or provide certain information to win a free vacation or product.c. calling a person’s
The best way to protect against identity theft is toa. give out personal information such as credit card numbers only to close friends and people calling to verify personal information.b. print a phone number on personal checks and shop online as much as possible.c. check credit bureau personal
As protection from identity theft, many people do not want to receive mail or phone calls offering preapproved credit card offers because ita. prevents a thief from collecting valuable personal information.b. reduces the amount of mail coming to a person’s house.c. keeps a person from accepting
FICO scores are based on a model created by Fair Isaac Corporation and weight five major factors to determine the score. The action that would have the greatest negative impact on changing a person’s FICO score isa. obtaining a new credit card.b. having a $5,000 line of credit and using all
Everyone can obtain a free credit report once a year from each of the three main credit bureaus. It isa. not necessary to get a copy of the report since a person’s bank reviews all depositors’ credit reports for accuracy.b. a good idea to obtain the reports and review them for accuracy and file
The information collected by credit bureaus such as Experian is accessible toa. only the person whose information has been collected.b. anyone who puts in a written request to the credit bureau.c. only banks and other financial institutions considering making a loan to the person.d. the person’s
The major purpose of the Equal Credit Opportunity Act is toa. make it easier for individuals to file for personal bankruptcy when they get into credit card debt.b. prohibit creditors from using age, religion, or race to deny credit to a person.c. make sure people are billed at least once a month
If a person has a credit card with a limit of $2,000, it means thata. he will not be charged interest on purchases until he uses the credit card to make purchases over the $2,000 limit.b. he must pay the full credit card balance each month even if it is under $2,000.c. the credit card company is
Under what circumstance would it make financial sense for a person to make a purchase with an installment loan?a. He is currently paying off a large credit card balance and the installment loan will enable him to buy new furniture for his living room.b. He expects to receive a holiday bonus at the
A person finds the computer she needs on sale for $900. She can pay for the computer using her credit card and pay the amount borrowed over the course of many months, or she can take advantage of the store’s offer for her to pay for the computer within 30 days, which will be the same as buying
Why might a person decide to take advantage of a noninstallment credit offer?a. Interest on this type of loan is much lower than interest on other types of loans.b. The loan can be paid back without interest charges any time within one year.c. The loan offered by Company A can be used to purchase
Looking at the three questions above, work in groups to brainstorm responses to each question. Put your answers together to make an advice checksheet that you and your classmates can use to maintain healthy credit.
Using paper, poster board, or presentation software, provide facts for your classmates that answer the following questions:(a) What is included in your credit score and how is it calculated?(b) How do you maintain a healthy credit score?(c) Why is a healthy credit score important?
In teams, develop a public service announcement about identity theft.This could be a video to show on the school’s news network or at a parent-teacher meeting. You could also put together a skit to perform for a school assembly or for your class. Or, you could publish a newsletter to tell parents
In this cartoon, Zits is concerned about his father knowing a grade on a quiz. Zits feels it is an invasion of his privacy.Write a paper taking a stand for Zits or for his father. Defend your position. In your defense, relate the concept of “gradesnoop” to the collection of credit information
Joseph began applying for loans to go to vocational school to become an auto mechanic. He went to the bank to begin the process. While there, the loan officer saw that there were problems with Joseph’s credit.It seems that the credit report showed that Joseph was behind by more than 60 days in
Rayburn’s dad offered to loan him $1,000 to buy a car with an annual interest rate of 7%. Assuming he pays his dad back at the end of one year, how much will he have paid for the car?
Sandy borrowed $1,600 from the bank that she will be making interest-only payments on for the first year. Assuming the annual interest rate is 12% (1% monthly), how much will she need to pay every month?
Jeremiah borrowed $1,500 from the bank to buy a home entertainment system. How much will he have to pay back in six months assuming the annual interest rate is 8% and he intends to pay the loan in full?
Judy charged $800 worth of furniture using noninstallment credit since her tax refund is due shortly. If she intends to pay off the entire amount of her purchase, how much will she have to come up with if her refund is $535?
Alan opened a $10,000 line of revolving credit at the bank. How much can he borrow if he has already borrowed $2,000 and paid back $500 of that amount?
Garvin bought skis that cost $500 at the new store opening. The store gave him 60 days of free credit. However, if he does not pay within 60 days, they will charge him a 12% annual interest rate.How much interest will Garvin pay if he lets the account go for 90 days?
Hsui charged four items on his credit card in the past week. If his charges were $13.45, $62.49, $78.32, and $114.51 how much should he pay when his bill comes due?
Salinda bought a new television. The deal was attractive to her because she will be required to make monthly interest-only payments on the $1,200 purchase for the first year. How much interest will she pay each month and over the course of the first year assuming an 18% interest rate?
(a) Name and explain at least three tactics used by identity thieves to obtain information.(b) Discuss steps you can take to safeguard your personal information.
(a) What is identity theft?(b) How do you think technology has affected the problem of identity theft?
(a) What factors determine your credit score?(b) What are some steps you might take to improve your credit score?
(a) What are the six major areas of information that may be included on your credit report?(b) Why is it important to check the information on your credit report regularly?
(a) What three types of information do creditors use to determine a prospective borrower’s creditworthiness?(b) Since lenders are careful who they loan to, why do you think so many people get into credit trouble?
(a) The Equal Credit Opportunity Act prohibits creditors from denying credit for what reasons?(b) Why do you think it is important or helpful to know the reasons you have been denied credit?
(a) What are some advantages and disadvantages of using credit?(b) Of the three types of credit, which do you think poses the greatest threat to your financial future, and why?
(a) What is interest?(b) Why might someone be willing to pay interest on a purchase rather than pay it all in cash?
(a) What are the three types of credit?(b) Under what conditions might a consumer find each type useful?
What is the Credit CARD Act?
Fair Isaac Corporation created what model? How is it used today?
What is the importance of the Fair Credit Reporting Act?
What are the elements of “good credit”?
What are the risks and benefits of consumer credit?
Identify ways to protect your identity?
Describe the keys to building and maintaining healthy credit?
Explain the concept of consumer credit, including the major types and their benefits and drawbacks?
Because of globalization, an individual may have to decide whether toa. sell a house during a recession.b. take a job with an annual salary of $50,000 or a job with an annual salary of $45,000 with a guaranteed cost of living increase.c. invest in a company that drills for oil off the coast of
What is the business cycle?a. It is a period of economic growth followed by a period in which the economy is shrinking.b. It is a 20-year period during which prices for goods and services rise and then fall back to a set level.c. It is the annual change that takes place in the course of a
If a person earned $50,000 last year and again earns $50,000 this year, but the rate of inflation is 4%, this year’s buying power when compared to last year’sa. is $48,000.b. is $50,000.c. is $52,000.d. cannot be determined from the information given.
Which of the following is a true statement about inflation?a. Inflation only affects senior citizens who are living on fixed incomes.b. Some investments are able to grow at a rate greater than the rate of inflation; these investments, however, may carry greater risk.c. A young person is wise to
How do economists measure inflation?a. They survey consumers and ask if they are able to buy the same number of goods today as they were a year ago.b. They compare the cost of today’s imports from China and the Middle East to goods made in the United States.c. They survey employers to determine
A person is collecting his pension and is very happy that his plan has a“cost of living” increase each year. This feature helps the person from feeling the full impact ofa. inflation.b. globalization.c. taxation.d. depression.
As a result of globalizationa. there are more jobs in America for unskilled workers.b. it is easier for American companies to compete with foreign companies for a larger share of the marketplace.c. more goods sold in America are produced in other parts of the world.d. more American goods are sold
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