Chapter 5—Making Automobile and Housing Decisions
1. The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
a. True
b. False
2. The greatest fixed cost involved with owning an automobile is usually the auto insurance payments.
a. True
b. False
3. Gasoline is a variable cost of automobile ownership.
a. True
b. False
4. Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
5. Fixed automobile costs increase as the number of miles driven increase.
a. True
b. False
6. Most new car warranties cover a minimum of the first 36,000 miles or 3 years of ownership, whichever comes last.
a. True
b. False
7. Most experts consider extended warranties on new vehicles unnecessary given the relatively long initial warranty
periods now offered by most manufacturers.
a. True
b. False
8. A closed-end automobile lease is the most popular type of lease.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
9. Terminating a car lease before expiration is often difficult and costly.
a. True
b. False
10. The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
a. True
b. False
11. Less rapid depreciation is one advantage of buying a used car rather than a new car.
a. True
b. False
12. Lowballing is a sales technique where the salesperson quotes a low price for a car then tries to get you to purchase a
different, more expensive vehicle.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
13. Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and
negotiates the price upward prior to signing the sales agreement.
a. True
b. False
14. You should secure the trade-in value of your current automobile before you start negotiating the final price on the car
you are purchasing.
a. True
b. False
15. Capitalized cost on an auto lease is similar to the interest rate on a loan.
a. True
b. False
16. Capitalized cost on an auto lease is the same as the price of the car.
Chapter 5—Making Automobile and Housing Decisions
a. True
b. False
17. The money factor on an auto lease is similar to the interest rate on a loan.
a. True
b. False
18. Early termination clauses on an auto lease typically apply to cars that are stolen or totaled in an accident as well as
when you just want to return the vehicle before the end of the lease.
a. True
b. False
19. When buying a used car, it is very important to have it checked by a reputable mechanic.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
20. A signed sales contract binds you to purchase the car at the price stated in the contract.
a. True
b. False
21. To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the
conditions of your offer.
a. True
b. False
22. One who leases an automobile is typically responsible for early termination costs, even when early termination is due
to theft or an auto accident.
a. True
b. False
23. The largest single investment you will undertake in your lifetime will probably be the purchase of a house.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
24. The term condominium refers to a style of architecture.
a. True
b. False
25. Condominium and co–op owners can deduct real estate taxes and mortgage interest on their federal income taxes.
a. True
b. False
26. Condominium and single-family home owners can deduct real estate taxes and mortgage interest on their federal
income taxes but co–op owners cannot take these deductions.
a. True
b. False
27. A condominium buyer will make monthly mortgage payments as well as pay a fee for services and maintenance of
common areas.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
28. In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
a. True
b. False
29. A condominium buyer receives title to an individual unit and joint ownership of the common areas.
a. True
b. False
30. A significant legal difference between a cooperative apartment and a condominium is that the condominium owner
normally holds a title to the property.
a. True
b. False
31. As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
Chapter 5—Making Automobile and Housing Decisions
a. True
b. False
32. Housing prices vary widely from on part of the country to another.
a. True
b. False
33. Condominiums are generally less costly than single-family, detached homes.
a. True
b. False
34. You can deduct mortgage interest and property taxes on your home to reduce your federal income taxes only if you
itemize deductions.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
35. The difference between the market value of your home and the balance of the mortgage is your equity in the property.
a. True
b. False
36. If lenders specify a loan–to-value ratio of 80 percent, then a buyer must make a 20% down payment on the purchase of
a home.
a. True
b. False
37. If lenders specify a loan–to-value ratio of 70 percent, then a buyer must make a 70% down payment on the purchase of
a home.
a. True
b. False
38. A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
39. Points paid to secure a mortgage to purchase a primary residence will generally be tax deductible as interest in the
year they are paid.
a. True
b. False
40. The monthly mortgage payment divided by your monthly gross income equals an affordability ratio.
a. True
b. False
41. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,000.
a. True
b. False
42. The market price of a house is $125,000 and the homebuyer will borrow $100,000. Two points will equal $2,500.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
43. An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.
a. True
b. False
44. First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.
a. True
b. False
45. A PITI payment is composed of principal, interest, property taxes, and homeowner’s insurance.
a. True
b. False
46. Private mortgage insurance (PMI) protects the lender from loss on a loan.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
47. Points paid when a home is refinanced can all be deducted as interest in the year they are paid.
a. True
b. False
48. The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.
a. True
b. False
49. Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
a. True
b. False
50. The job of a mortgage banker is to locate conventional loans for clients.
Chapter 5—Making Automobile and Housing Decisions
a. True
b. False
51. If a buyer withdraws from a transaction without a valid reason after signing a sales contract, he typically loses his
earnest money.
a. True
b. False
52. To be legally binding, real estate buy-sell agreements must be in writing, but leases may be oral.
a. True
b. False
53. The interest rate charged on adjustable-rate mortgages will change from time to time based on a specified index.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
54. Negative amortization is possible with an adjustable-rate mortgage.
a. True
b. False
55. An FHA loan is insured by the federal government.
a. True
b. False
56. The Veterans Administration guarantees mortgage loans given to qualified veterans.
a. True
b. False
57. The affordability ratios used to qualify applicants for FHA loans are more stringent than those used for conventional
loans.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
58. To refinance a mortgage, the lender typically requires at least 20% equity in the home.
a. True
b. False
59. Other factors being equal, fixed-rate mortgages will have higher interest rates initially than adjustable-rate mortgages.
a. True
b. False
60. Graduated payment mortgages and growing equity mortgages are both examples of adjustable-rate mortgages.
a. True
b. False
61. Commercial banks are an important source of both mortgage loans and interim construction loans.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
62. Balloon payment mortgages generally must be refinanced.
a. True
b. False
63. According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid
down to 78% of the original value of the house.
a. True
b. False
64. According to federal law, private mortgage insurance on most loans ends automatically once the mortgage is paid
down to 80% of the home’s current market value.
a. True
b. False
65. An adjustable rate mortgage with a baseline rate of 4%, a margin of 1%, and an annual cap of 1% would have a
mortgage rate no higher than 6% in the second year.
Chapter 5—Making Automobile and Housing Decisions
a. True
b. False
66. An adjustable rate mortgage with a baseline rate of 5%, a margin of 2%, and an annual cap of 1% would have an
initial mortgage rate of 7%.
a. True
b. False
67. The interest rate is likely to be lower on a 6-year auto loan than on a 3-year auto loan
a. True
b. False
68. The monthly payment will be lower on a 6-year auto loan than on a 3-year auto loan.
a. True
b. False
Chapter 5—Making Automobile and Housing Decisions
69. The “rent ratio” has fallen as home prices have fallen.
a. True
b. False
70. An increase in the “rent ratio” indicates that renting is more affordable relative to housing prices.
a. True
b. False
71. Renting affords more flexibility than home ownership.
a. True
b. False
72. A short sale does not affect a distressed homeowner’s credit score as much as a foreclosure.
a. True
b. False
73. Variable auto ownership costs are most dependent on
a. driver behavior.
Chapter 5—Making Automobile and Housing Decisions
b. miles driven.
c. city lived in.
d. down payment.
e. installment payments.
74. ____ is a fixed auto ownership cost.
a. Gasoline
b. Installment loan payment
c. Auto insurance
d. Maintenance
e. Both b and c
75. The loss of value in a car over time is called
a. maintenance.
b. loan payments.
c. sales payments.
d. commissions.
e. depreciation.
76. The first step in the auto-buying process should be to
a. test drive several cars.
b. begin negotiations.
c. consider alternative buying strategies.
d. decide whether to trade in your used car or to sell it yourself.