UGBA 135 MIDTERM EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026

UGBA 135 MIDTERM EXAM QUESTIONS WELL ANSWERED LATEST UPDATE 2026 FICO Score - Answers measure of consumer credit risk Highest FICO Score - Answers 850 Factors determining FICO Score - Answers Credit report is based on: -35% paying your bills on time over time -30% your debt-to-credit ratio ( borrowing money/ credit limit) -15% length of credit history -10% mix of credit cards and loans (like to see things other than credit card; Rent, any loan (e.g. leasing car)) -10% new accounts and recent applications for credit How many FICO scores does a person have? - Answers 3 How do you establish good credit? - Answers borrow $ and pay it back on time according to its terms How much is taken out of your paycheck for SS and Medicare? - Answers -12.4% of earned income to SS -2.9% of earned income to Medicare Debt-to-credit ratio - Answers how to calculate: -$3000 debt, $6000 in credit :: 3000/6000 = 50% D/C ratio -try to be below 50% || 30% is the best Identity Theft: if you're a victim - Answers -close and replace all accounts that have been tampered with or didn't open -file a police report If you are carrying a balance and you pay more than the minimum payment, where does the excess go? - Answers the excess is used to pay off debt of highest interest rate, not the card with the smallest balance credit hold on account - Answers -when a customer is consistently late in making payments, has exceeded their credit limit, or is identified as a bad risk, you can prevent additional credit purchases by placing their account on credit hold -if hold is executed, it will count against credit Maximum interest on credit card account - Answers no legal maximum Who can see your credit scores? - Answers Website for free credit report (federally mandated for credit reports) - Answers Three credit scoring agencies - Answers Transunion () -- Empirica score Equifax () -- Beacan score Experian () -- Experian model Best time to establish credit - Answers when you don't need it aka younger i thinks When are your credit payments due? - Answers generally about 21-25 days after your billing cycle ends Secure vs unsecure line of credit - Answers Debit is secure Credit is unsecure (nothing to back it up other than credit history) How does cancelling inactive credit cards affect your credit score? - Answers -can lower because it will increase your d/c ratio -if you cancel, cancel newest card first Prepaid cards - Answers -offered by banks and nonbanks -not linked to bank accounts -fees: activation, inactivity, to load money onto cards, if you don't load money each month, check balance info, to use an ATM for cash, for using a check to close an account Cash advance - Answers -using your credit card to withdraw cash -higher interest rates, no grace period (incur interest rates right off the bat) grace period - Answers set length of time after the due date during which payment may be made without penalty What is a retail charge card? - Answers -a credit card issued by a retailer allowing you to charge purchases made only with their store -higher interest rate 20-30% on unpaid balances -no grace period and interest begins on date of purchase -credit score can be lowered if you cancel card Can you increase credit score by increasing your credit limit? - Answers Yes, only if you stay below a 50% debt-to-credit ratio on each credit card. 30% ratio is the best for top scores. Increase credit limit to lower credit ratio How often are credit card balances calculated? - Answers daily Credit report vs Credit score - Answers -credit report: individual report card telling you if you have been making CC and loan payments on time and personal info -credit score: credit report DETERMINES credit score How many interest rates are used in determining how much interest you pay on credit cards? - Answers How often should you balance and review your credit card statement? - Answers Monthly If you are charged penalties and fees, do they charge interest on them? - Answers the next month you start paying a higher interest on balances and fees overdraft fee - Answers applies when you charge more than your credit limit Do all credit cards offer unconditional warranty on products? - Answers Do credit card statements have to show the # of months needed to pay the minimum payment? - Answers Proprietorship - Answers -business owned by one person -business dies when owner dies -unlimited liability Does a proprietor file a separate tax return for the business? - Answers Yes, along with the 1040 form for themselves. -profits are taxed at ordinary income tax rates -losses can be used to reduce taxable income Partnership - Answers -owned by 2 or more entities -death of partner-continue business -limited liability to the amount of their investment -does not pay federal income taxes -share profit/loss proportionally Types of Partners - Answers unlimited and limited General vs Limited Partnership - Answers General: manages and runs partnership; unlimited liability; if dies, business goes to beneficiary Limited: invest in the business and have limited liability; can only lose their investment Are partners in partnerships liable for federal income taxes? - Answers No Do shareholders in corporations have unlimited liability? - Answers No; shareholders have limited liability. What is an IPO? - Answers Initial public offering; the first sale of stock by a private company/corporation to the public K-1 Form - Answers -reports each shareholder's share of income, losses, deductions and credits -shareholders use the information on the K-1 to report the same thing on their separate tax returns W-2 Form - Answers -shows how much employer paid and what they took out -shows net income that you took in If you have $100k earned income, how much monthly would be taken out of your SS and Medicare combined? - Answers 7650 If you are healthy, how long should you wait to claim SS? (age) - Answers Do high income earners pay more for Medicare and receive higher benefits? - Answers Who pays Part A of Medicare? - Answers Employers Are SS benefits adjusted to cost of living? - Answers Are SS benefits tax free income? - Answers Are there surcharges for Medicare for high income earners? - Answers Are SS and Medicare contributions tax deductible? - Answers No What is the 20% pass-through deduction? - Answers a special business structure that is used to reduce the effects of double taxation -a taxpayer other than a corporation is entitled to a deduction equal to 20% of the taxpayer's "qualified business income" earned in a "qualified trade or business." -available to any taxpayer "other than a corporation" -- proprietorships, S corporations, partnerships Alternative Minimum Tax - Answers -ensures that taxpayers pay at least the minimum -recalculates income tax after adding certain tax preference items back into adjusted gross income -there was the Rupert guy he used as an example Most dollar amount you can deduct for state/local taxes - Answers $10k Estate tax vs Inheritance Tax - Answers estate tax: a tax on your right to transfer property at your death inheritance tax: paid by heir Earned Income - Answers -money you work for: wage, salary, bonus, tips -37% is highest tax rate Unearned Income - Answers taxable interest, ordinary and qualified dividends, business profits or losses, capital gain or losses, investment, interest on savings accounts, stocks, benefits Total Income - Answers Earned + Unearned Income AGI - Answers Total income - contribution to charity, retirement plan, student loan interest (tax deductible) Capital Gains Tax - Answers short term capital gains: for assets owned 12mnths or less, profit is added to income and taxed at maximum of 37% long term capital gains: for assets owned 12mnths, profit is subject to max 20% for singles (taxable income in excess of $425.8k), for married above $479k. below these income amounts, max 15%. even lower, may be eligible for 0%. When do you have to file quarterly estimates of additional taxes? - Answers What is a standard deduction? - Answers a dollar amount you subtract from income before it is taxed Do you need proof/records to substantiate the standard deduction? - Answers Can you and your parents both claim you for a tax credit? - Answers idts Stock options - Answers -the right to purchase shares or stocks (but not obligated) -price of the shares is set by the board of directors of company - set price never changes -within a specified period of time (if still employed - usually lasts for 10 years) stock grants - Answers gifts of stock; many companies have replaced stock options with grants of the company's stock most grants are made to executives and managers granted shares may not be restricted or vested (have met all restrictions and you can take those shares with you) Restricted stock units - how to price - Answers Exchange Traded Funds (ETFs) - Answers -securities that track an index, but trade on an exchange like a stock -provide instant diversification sector funds - Answers like ETFs, but instead track stocks in a specific industry or other category market order - Answers best available price at that moment in time for an immediate purchase or sale of a stock market order to buy - Answers expect to buy at the ASK price market order to sell - Answers expect to sell at the BID price limit order - Answers specific price you set at which you are willing to either buy or sell a stock limit order to buy - Answers you set your TOP price you are willing to pay limit order to sell - Answers you set your LOWEST price you are willing to pay # of disciplines - Answers 11 NEVER borrow money to buy stocks. Market timing. It is best to invest in stocks with money you won't need for 5 years. Identify trends. Dollar-cost averaging is investing a set amount of money in shares of stock on a regular time schedule, regardless of the price. Diversify. Stage and stagger your purchases. Allocation of assets or rebalancing: Review the allocation of assets in your portfolio at least once a year. In attempting to forecast sales and earnings attributable to an individual share of stock, look ahead 6-18 months. Do your homework! Keep it simple and stay informed. good dividend - Answers provides a current yield greater than interest than on a 10 year treasury bond -in down markets, stocks with good dividends tend to hold their value better wash sale rule - Answers cannot declare a tax deductible loss on a security if you buy then sell then buy the same share(s) within 30 days How many times are corporate tax dividends taxed? - Answers twice Net Asset Value (NAV) - Answers total value of the fund's holdings divided by the number of the fund's shares outstanding at that time posted once a day after market closes Do not buy mutual funds at _____ time - Answers end of year until after they make final distribution Target date funds - Answers Successful stock investors look ahead _____ months - Answers 6 - 18 months What is single most important factor to pay more for stocks in future? - Answers Earnings--specifically, prospect of future earnings P/E Ratio - Answers -price of a share divided by earnings per share -tells you what the market is currently paying for each dollar of earnings PEG Rate - Answers -compares how much investors are currently willing to pay for each $ of earnings to the expected growth of future earnings -Used for trying to decide if a stock is in a "buy" or "sell" range -When PEG rate1, BUY. when PEG rate2, SELL/DON'T BUY -compares P/E ratio and Growth rate of earnings Dollar cost averaging - Answers -investing a set amount of money in the shares of a business on a regular time schedule regardless of the price of the shares at the time -mathematically, doing this will allow you to buy more shares at lower prices than at higher prices close end fund - Answers -pooled investment portfolios which raise money by issuing and selling a set number of shares in an IPO -management fees are lower than open-end funds