FIN 2100 EXAM 1 QUESTIONS AND
CORRECT ANSWERS
What are the 5 Cs of credit? - Answer- 1. Character-Do you pay bills on time
2. Capacity- Can you repay the loan
3. Capital- What are your assets and net worth
4. Collateral- What do you have of value that the lender can take if you don't repay
5. Conditions- What economic conditions could affect your repayment of the loan
Most of the information in your credit file may be reported for only _________ years (if
you have not declared bankruptcy). - Answer- 7
What is kind of risk is the inability to get a job upon graduation? - Answer- Income risk
What kind of risk involves rising prices and lost buying power? - Answer- Inflation risk
What kind of risk involves falling prices, discourages borrowing and spending, sending a
bad economy even lower? - Answer- Deflation risk
The Federal Reserve sets monetary policy, its objectives include a _____ mandate,
which can be in conflict - Answer- dual
The Board of Governors of the Federal Reserve System and the Federal Open Market
Committee shall maintain what? - Answer- maximum employment and stable prices
What kind of interest rates does the Fed moderate? - Answer- long term
If inflation is causing the cost of goods to go up, then prices are _____ stable - Answer-
Not
Higher inflation will lead to an ________ in interest rates, which cools the inflated
economy and possibly causes a recession (and loss of jobs) - Answer- increase
Low inflation or a recession will lead to ______ interest rates to stimulate the economy
and lead to higher economic growth and jobs - Answer- lower
Are interest rates high or low today? - Answer- low
,____ interest rates stimulate the economy and should help create more jobs - Answer-
low
What type of risk effects cost of borrowing and rate of return? - Answer- interest risk
What type of risk effects health, safety, or costs? - Answer- Personal risk
Higher return may mean _____ liquidity - Answer- less
What equals the after tax return minus inflation rate? - Answer- real return
Divide ___ by the annual rate of return on your investments to approximate the number
of years it takes to double your money - Answer- 72
_____ financial planning is the process of managing your money to achieve personal
economic satisfaction. - Answer- personal
___% of Americans have no retirement savings - Answer- 36
__% of Americans under 30 have no savings - Answer- 70
When dealing with the financial services industry and third party financial advice, be
highly _______ and aware of potential conflicts of interest. - Answer- skeptical
The recent trend is for the federal government and corporations to shift more
responsibility to the individual with respect to providing for their financial future. -
Answer- true
Assume you bought a 5 year CD last year which pays 5%. If you decide to cash out of
your CD before 5 years, then the bank will impose severe penalty by reducing the
interest you receive. Assume today you could buy a 5 year CD and receive 7% due to
rising interest rates, but the penalty is too severe. This situation is an example of ____
risk. - Answer- liquidity
Assume following:
pre-tax return = 8%
tax rate = 25%
inflation rate = 3%
What is real return? - Answer- 3%
real return = after tax return - inflation rate
after tax return = pre tax return x (1-tax rate)
1. 8% x (1-.25) => .08 x .75 => .06 (6%)
2. 6% - 3% = 3%
, Recently, the highest unemployment rates have been for - Answer- individuals who did
not complete high school
What is the first step in the financial planning process? - Answer- Determine your
current financial situation
Individuals should generally be careful when considering financial advice from those in
the financial services industry since often times there can be a conflict of interest. -
Answer- true
Try to solve without calculator:
You are joining BJs discount club. Annual fee is $40. You expect to save 10% on BJ
purchases. How much do you have to spend at BJs in order to break even on your
annual fee? - Answer- $400
You just received a copy of an email from an unknown investment advisor to a client
recommending the purchase of a stock. The email appears to have been sent by
mistake. Stock trades are $1.37/share and you can afford 300 stocks. Broker believes
company will announce significant increase of stock in future. Best course of action? -
Answer- Do nothing. This is probably a scam. Do not trust the information in this email.
Do not believe the advice from the broker.
Using rule of 72, approx how long does it take for your money to double in value if you
earn an 8% annual return? - Answer- 9 years
72/8
A UCF graduate has two job offers. Job 1 pays $36,500 with a $5,500 non-taxable
benefit, while Job 2 pays $35,000 and has a $6,200 non-taxable benefit. What is the
PRE-TAX value of each job assuming the graduate is in a 15% marginal tax bracket?
(Round to the nearest dollar) - Answer- Job 1: $42,971 Job 2: $42,294
(HOW)
What is the AFTER TAX value of a $5,000 company car, assuming a 35% marginal tax
rate? (Note that if your employer provides you with a car, the personal use of the car will
be added to your W-2, and you will have to pay taxes, thus cars are a "Pre-tax" benefit).
- Answer- 3,250.00
(HOW)
Which of the following is TRUE?
a) More and more employers are using credit reports as hiring tools.
b) Federal law does NOT require applicants to be told if credit histories are being used
in the hiring process.
CORRECT ANSWERS
What are the 5 Cs of credit? - Answer- 1. Character-Do you pay bills on time
2. Capacity- Can you repay the loan
3. Capital- What are your assets and net worth
4. Collateral- What do you have of value that the lender can take if you don't repay
5. Conditions- What economic conditions could affect your repayment of the loan
Most of the information in your credit file may be reported for only _________ years (if
you have not declared bankruptcy). - Answer- 7
What is kind of risk is the inability to get a job upon graduation? - Answer- Income risk
What kind of risk involves rising prices and lost buying power? - Answer- Inflation risk
What kind of risk involves falling prices, discourages borrowing and spending, sending a
bad economy even lower? - Answer- Deflation risk
The Federal Reserve sets monetary policy, its objectives include a _____ mandate,
which can be in conflict - Answer- dual
The Board of Governors of the Federal Reserve System and the Federal Open Market
Committee shall maintain what? - Answer- maximum employment and stable prices
What kind of interest rates does the Fed moderate? - Answer- long term
If inflation is causing the cost of goods to go up, then prices are _____ stable - Answer-
Not
Higher inflation will lead to an ________ in interest rates, which cools the inflated
economy and possibly causes a recession (and loss of jobs) - Answer- increase
Low inflation or a recession will lead to ______ interest rates to stimulate the economy
and lead to higher economic growth and jobs - Answer- lower
Are interest rates high or low today? - Answer- low
,____ interest rates stimulate the economy and should help create more jobs - Answer-
low
What type of risk effects cost of borrowing and rate of return? - Answer- interest risk
What type of risk effects health, safety, or costs? - Answer- Personal risk
Higher return may mean _____ liquidity - Answer- less
What equals the after tax return minus inflation rate? - Answer- real return
Divide ___ by the annual rate of return on your investments to approximate the number
of years it takes to double your money - Answer- 72
_____ financial planning is the process of managing your money to achieve personal
economic satisfaction. - Answer- personal
___% of Americans have no retirement savings - Answer- 36
__% of Americans under 30 have no savings - Answer- 70
When dealing with the financial services industry and third party financial advice, be
highly _______ and aware of potential conflicts of interest. - Answer- skeptical
The recent trend is for the federal government and corporations to shift more
responsibility to the individual with respect to providing for their financial future. -
Answer- true
Assume you bought a 5 year CD last year which pays 5%. If you decide to cash out of
your CD before 5 years, then the bank will impose severe penalty by reducing the
interest you receive. Assume today you could buy a 5 year CD and receive 7% due to
rising interest rates, but the penalty is too severe. This situation is an example of ____
risk. - Answer- liquidity
Assume following:
pre-tax return = 8%
tax rate = 25%
inflation rate = 3%
What is real return? - Answer- 3%
real return = after tax return - inflation rate
after tax return = pre tax return x (1-tax rate)
1. 8% x (1-.25) => .08 x .75 => .06 (6%)
2. 6% - 3% = 3%
, Recently, the highest unemployment rates have been for - Answer- individuals who did
not complete high school
What is the first step in the financial planning process? - Answer- Determine your
current financial situation
Individuals should generally be careful when considering financial advice from those in
the financial services industry since often times there can be a conflict of interest. -
Answer- true
Try to solve without calculator:
You are joining BJs discount club. Annual fee is $40. You expect to save 10% on BJ
purchases. How much do you have to spend at BJs in order to break even on your
annual fee? - Answer- $400
You just received a copy of an email from an unknown investment advisor to a client
recommending the purchase of a stock. The email appears to have been sent by
mistake. Stock trades are $1.37/share and you can afford 300 stocks. Broker believes
company will announce significant increase of stock in future. Best course of action? -
Answer- Do nothing. This is probably a scam. Do not trust the information in this email.
Do not believe the advice from the broker.
Using rule of 72, approx how long does it take for your money to double in value if you
earn an 8% annual return? - Answer- 9 years
72/8
A UCF graduate has two job offers. Job 1 pays $36,500 with a $5,500 non-taxable
benefit, while Job 2 pays $35,000 and has a $6,200 non-taxable benefit. What is the
PRE-TAX value of each job assuming the graduate is in a 15% marginal tax bracket?
(Round to the nearest dollar) - Answer- Job 1: $42,971 Job 2: $42,294
(HOW)
What is the AFTER TAX value of a $5,000 company car, assuming a 35% marginal tax
rate? (Note that if your employer provides you with a car, the personal use of the car will
be added to your W-2, and you will have to pay taxes, thus cars are a "Pre-tax" benefit).
- Answer- 3,250.00
(HOW)
Which of the following is TRUE?
a) More and more employers are using credit reports as hiring tools.
b) Federal law does NOT require applicants to be told if credit histories are being used
in the hiring process.
