Chapter 5—Making Automobile and Housing Decisions
70. An increase in the “rent ratio” indicates that renting is more affordable relative to housing prices.
a.
True
b.
False
True
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
71. Renting affords more flexibility than home ownership.
a.
True
b.
False
True
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
72. A short sale does not affect a distressed homeowner’s credit score as much as a foreclosure.
a.
True
b.
False
True
Challenging
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
73. Variable auto ownership costs are most dependent on
a.
driver behavior.
b.
miles driven.
c.
city lived in.
d.
down payment.
e.
installment payments.
of Capital
Bloom’s: Remembering
Chapter 5—Making Automobile and Housing Decisions
Moderate
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
74. ____ is a fixed auto ownership cost.
a.
b.
c.
d.
e.
e
Moderate
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Understanding
75. The loss of value in a car over time is called
a.
maintenance.
b.
loan payments.
c.
sales payments.
d.
commissions.
e.
depreciation.
e
Moderate
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Understanding
76. The first step in the auto-buying process should be to
a.
test drive several cars.
b.
begin negotiations.
Chapter 5—Making Automobile and Housing Decisions
c.
consider alternative buying strategies.
d.
decide whether to trade in your used car or to sell it yourself.
e.
research which car best meets your needs.
e
Moderate
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
77. Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle
with an 8%, 3-year loan, what is the maximum amount Henry can spend on the car?
a.
$12,765
b.
$14,400
c.
$14,079
d.
$15,265
e.
$16,879
Challenging
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
78. Kurt has $4,500 for a down payment and thinks she can afford monthly payments of $300. If he can finance a vehicle
with a 7%, 4-year loan, what is the maximum amount Kurt can afford to spend on the car?
a.
$13,528
b.
$14,400
c.
$16,028
d.
$17,028
e.
$18,028
Challenging
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Chapter 5—Making Automobile and Housing Decisions
79. Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle
with a 7%, 4-year loan, what is the maximum loan amount Jana can afford?
a.
$12,528
b.
$14,000
c.
$16,028
d.
$17,900
e.
$18,028
Challenging
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
80. Advantages of buying a used car rather than a new car include
a.
certainty about mechanical condition.
b.
will appreciate more quickly.
c.
more choices available.
d.
less expensive.
e.
all of the above.
Easy
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
81. Disadvantages of buying a used car rather than a new car include
a.
uncertainty about mechanical condition.
b.
will depreciate more quickly.
c.
larger down payment required.
d.
all of the above.
a
Easy
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
Chapter 5—Making Automobile and Housing Decisions
82. One can arrange auto loans through
a.
auto dealers.
b.
banks.
c.
credit unions.
d.
consumer finance companies.
e.
all of the above.
e
Easy
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
83. Leasing accounts for about ____ percent of all new vehicles delivered.
a.
10
b.
14
c.
19
d.
25
e.
37
Easy
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
84. Which of the following are reasons people lease vehicles?
a.
Leasing is generally less expensive than buying.
b.
Monthly payments for leases are generally less expensive than loan payments.
c.
One can afford a more expensive car with the same monthly payment by leasing rather than buying.
d.
b and c only
e.
a, b, and c
United States – AK – DISC: Investments
Bloom’s: Evaluating
Chapter 5—Making Automobile and Housing Decisions
85. The price of the car you are leasing is called the
a.
money factor.
b.
capitalized cost.
c.
residual value.
d.
purchase option.
e.
capital cost reduction.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
86. The financing rate on the car you are leasing is called the
a.
money factor.
b.
capitalized cost.
c.
residual value.
d.
purchase option.
e.
capitalcost reduction.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
87. The down payment on the car you are leasing is called the
a.
money factor.
b.
capitalized cost.
c.
residual value.
d.
purchase option.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
Chapter 5—Making Automobile and Housing Decisions
e.
capital cost reduction.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Understanding
88. In which of the following situations would you have to pay additional money when returning a vehicle using a closed-
end lease?
a.
Residual value is less than expected.
b.
Residual value is more than expected.
c.
Mileage limits were exceeded.
d.
Both a and c apply.
e.
Both b and c apply.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
89. In which of the following situations would you have to pay additional money when returning a vehicle using an open-
end lease?
a.
Residual value is less than expected.
b.
Residual value is more than expected.
c.
Mileage limits were exceeded.
d.
Both a and c apply.
e.
Both b and c apply.
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
Chapter 5—Making Automobile and Housing Decisions
90. Anna purchased a vehicle six years ago for $25,000. She recently sold it for $5,000. Over the years, she paid a total of
$5,800 on auto insurance, $4,800 on gas and maintenance, and $2,500 in interest. What was her depreciation cost on this
vehicle?
a.
$5,000
b.
$10,800
c.
$15,000
d.
$20,000
e.
$25,000
Challenging
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
91. Reasons why auto leasing is so popular include all of the following except
a.
lower monthly payments
b.
lower down payment
c.
lower total cost
d.
getting more expensive car for the same monthly payment
e.
rising new car prices
c
Moderate
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
92. The capital cost reduction on a vehicle lease is
a.
like the down payment on a loan.
b.
the rate of interest on a lease.
c.
the residual value at the end of the lease.
d.
the depreciation on a lease.
e.
the same as the purchase option on a lease.
a
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Chapter 5—Making Automobile and Housing Decisions
93. When shopping for a lease, you want
a.
high capitalized cost.
b.
low capitalized cost.
c.
high money factor.
d.
low residual value.
e.
both a and d.
Moderate
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
94. A money factor of 0.0036 on a lease is equivalent to an annual percentage rate of
a.
1.80.
b.
3.60.
c.
4.32.
d.
8.64.
e.
10.80.
Challenging
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
95. A money factor of 0.0028 on a lease is equivalent to an annual percentage rate of
a.
2.80.
b.
3.60.
c.
6.72.
d.
8.64.
e.
10.80.
c
United States – AK – DISC: Investments
Bloom’s: Creating
Chapter 5—Making Automobile and Housing Decisions
96. At the end of the lease period, you may be required to
a.
purchase the vehicle at its residual value.
b.
pay for unreasonable wear and tear.
c.
pay for additional mileage.
d.
do both b and c.
e.
do a, b, and c.
Moderate
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
97. At the end of the lease period, you are never required to
a.
purchase the vehicle at its residual value.
b.
pay for unreasonable wear and tear.
c.
pay for additional mileage.
d.
b and c.
e.
a, b, and c.
a
Easy
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
98. The first choice in housing in the United States is a
a.
single-family home.
b.
condominium.
c.
cooperative apartment.
d.
manufactured home.
Challenging
PFIN.BILL.17.5-2 – LO: 5-2
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
Chapter 5—Making Automobile and Housing Decisions
e.
rental apartment.
a
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
99. When you receive title to an individual unit and joint ownership of any common areas and facilities, you have
purchased
a.
a single-family home.
b.
a cooperative.
c.
a condominium.
d.
a manufactured home.
e.
any one of these.
c
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
100. When you lease your apartment from the corporation that owns the building and your lease is an ownership share,
your apartment is
a.
expensive.
b.
a cooperative.
c.
a condominium.
d.
a duplex.
e.
permanent.
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
Chapter 5—Making Automobile and Housing Decisions
101. ____ is a reason for owning your own home.
a.
Pride of ownership
b.
A feeling of permanence
c.
A sense of stability
d.
A tax shelter
e.
Any of these
e
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Understanding
102. For most homeowners, the most important financial reason for owning a home is
a.
security for loans.
b.
an inflation hedge.
c.
a tax shelter.
d.
a cash flow item.
e.
psychic income.
c
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
103. ____ is(are) an ongoing cost of home ownership.
a.
The down payment
b.
Closing costs
c.
Property taxes
d.
Sales taxes
e.
Points
c
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
of Capital
Chapter 5—Making Automobile and Housing Decisions
United States – AK – DISC: Investments
Bloom’s: Remembering
104. ____ is(are) an up-front, one-time cost of home ownership.
a.
The down payment
b.
Closing costs
c.
Property taxes
d.
Insurance
e.
Both a and b
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
105. Which of the following is true regarding cooperative apartments?
a.
They are essentially the same as condominiums.
b.
It may be more difficult to obtain a home mortgage for them.
c.
They tend to be more expensive than single-family dwellings.
d.
They produce more tax advantages than other types of homes.
e.
All of the above are true.
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
106. Phil and Christina are recently married and unsure of where they will be relocated after Christina finishes her
residency in 9 months. Based on this information, which of the following housing recommendations would be most
appropriate for them?
a.
Rent an apartment.
b.
Buy a condominium.
c.
Buy a single-family dwelling.
d.
Buy a cooperative apartment.
e.
Buy a manufactured home.
a
Chapter 5—Making Automobile and Housing Decisions
107. ____ can be deducted on your federal tax return.
a.
Rent payments
b.
Mortgage interest
c.
Homeowner’s insurance
d.
Utility bills
e.
None of these
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
108. ____ can be deducted on your federal tax return.
a.
Rent payments
b.
Homeowner’s insurance
c.
Property taxes
d.
Utility bills
e.
None of these
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
109. Brenda is in the 28% marginal tax bracket and has no other itemized deductions except those related to her home. If
her standard deduction is $6,300 and she incurs the following costs related to housing, how much tax savings will she
receive as a result of her home purchase?
Mortgage interest
$13,000
Principal repayment
800
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
Chapter 5—Making Automobile and Housing Decisions
Homeowner’s insurance
1,000
Real estate taxes
4,000
Homeowner’s association fees
1,200
a.
$17,000
b.
$10,700
c.
$4,760
d.
$2,996
e.
none
Challenging
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
110. If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 90 percent, then the borrower
must make
a.
a minimum down payment excluding closing costs of $10,000.
b.
a minimum down payment including closing costs of $10,000.
c.
closing costs plus points of $10,000.
d.
a maximum down payment of $10,000.
e.
none of these.
a
Challenging
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
111. If the maximum loan-to-value ratio that a lender will accept on a $100,000 home is 80 percent, then the borrower
must make a down payment of at least
a.
$100,000.
b.
$80,000.
c.
$50,000.
d.
$20,000.
e.
none of these.
Moderate
Chapter 5—Making Automobile and Housing Decisions
112. If you made a down payment of $11,000 on a $110,000 house, the lender no doubt will require ____ as a result of the
size of the down payment.
a.
closing points
b.
a bond
c.
private mortgage insurance (PMI)
d.
application fees
e.
homeowner’s insurance
c
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Applying
113. A lender will usually require a down payment of ____ or more for you to avoid having to pay private mortgage
insurance (PMI).
a.
10%
b.
15%
c.
20%
d.
25%
e.
30%
c
Easy
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
114. What is the maximum amount a first-time home buyer who is not 59½ years old can withdraw from an IRA without
penalty?
a.
$25,000
b.
$15,000
c.
$10,000
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
Chapter 5—Making Automobile and Housing Decisions
d.
$5,000
e.
$2,000
c
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
115. Which of the following is not associated with buying a home with a lower-than-typical down payment?
a.
Adjustable-rate mortgage
b.
Fannie 3/2
c.
Fannie 97
d.
FHA mortgage
e.
VA mortgage
a
Challenging
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
116. Which of the following is a major source of home mortgages?
a.
Commercial banks
b.
Thrift institutions
c.
Mortgage bankers and brokers
d.
Credit unions
e.
All of these
e
Easy
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
117. A fee charged by lenders as a condition of a mortgage loan that effectively raises the interest rate is called
Chapter 5—Making Automobile and Housing Decisions
a.
mortgage points.
b.
a down payment.
c.
a commission.
d.
an add-on charge.
e.
loan fee.
a
Easy
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
118. If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?
a.
$440
b.
$1,000
c.
$1,760
d.
$2,000
e.
$2,200
c
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
119. The seller of the house typically pays the
a.
loan application fee.
b.
real estate agent’s commission.
c.
appraisal fee.
d.
points.
e.
title search and insurance.
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – AK – DISC: Investments
120. For the first 15 years of a 30-year mortgage, the majority of each monthly payment goes to
a.
principal.
b.
interest.
c.
real estate taxes.
d.
homeowner’s insurance.
e.
private mortgage insurance.
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
121. Most lenders do not want mortgage payments to exceed ____ percent of your monthly gross income.
a.
10–15
b.
15–18
c.
25–30
d.
30–33
e.
33–38
c
Easy
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
122. Most lenders do not want mortgage payments plus other installment loan payments to exceed ____ percent of your
monthly gross income.
a.
10–15
b.
15–18
c.
25–30
d.
30–33
e.
33–38
e
Easy
PFIN.BILL.17.5-4 – LO: 5-4
Bloom’s: Understanding
123. An escrow account is used to collect ____ from one’s monthly mortgage payment.
a.
interest
b.
principal
c.
real estate taxes
d.
homeowner’s insurance
e.
c and d only
e
Moderate
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
124. Homeowner’s annual insurance costs usually amount to approximately ____ percent of the home’s market value.
a.
0.15 to 0.20
b.
0.25 to 0.50
c.
0.50 to 0.75
d.
0.75 to 1.00
e.
1.00 to 2.00
Easy
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
125. A financial advantage of renting compared to purchasing housing is
a.
income tax treatment.
b.
no need for a down payment.
c.
required security deposit.
d.
the legal obligation.
e.
stable monthly payments.
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering