Chapter 5—Making Automobile and Housing Decisions
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
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Bloom’s: Creating
126. The ____ would be included in a rental contract or lease agreement.
a.
amount of the monthly payment
b.
payment date
c.
length of lease agreement
d.
deposit required
e.
all of these
e
Easy
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
127. ____ is a reason for preferring to rent rather than to buy.
a.
Flexibility
b.
No maintenance worries
c.
Lower monthly cash flows
d.
Down payment money better used elsewhere
e.
All of these
e
Moderate
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
128. A real estate sales contract will include
a.
b.
c.
Chapter 5—Making Automobile and Housing Decisions
d.
e.
PFIN.BILL.17.5-5 – LO:5-5
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United States – AK – DISC: Investments
Bloom’s: Remembering
129. The most popular mortgage loan for financing a home purchase is a
a.
30-year fixed-rate mortgage.
b.
15-year fixed rate mortgage.
c.
convertible ARM.
d.
two-step ARM.
e.
growing equity mortgage.
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
130. The interest rates and monthly mortgage payments will not change over the life of your mortgage if you have a(n)
a.
reverse-annuity mortgage.
b.
fixed-rate mortgage.
c.
adjustable rate mortgage.
d.
rollover mortgage.
e.
graduated-payment mortgage.
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
131. The FHA ____ high loan-to-value ratio mortgages.
Chapter 5—Making Automobile and Housing Decisions
a.
guarantees
b.
insures
c.
subsidizes
d.
grants
e.
allows
Easy
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Remembering
132. The act requiring mortgage lenders to give borrowers HUD booklets and good faith estimates of the closing costs is
called the
a.
Equal Credit Opportunity Act.
b.
Truth-in-Lending Act.
c.
Real Estate Settlement Procedures Act.
d.
Mortgage Lenders Act of 1980.
e.
none of the above.
c
Easy
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
133. When refinancing your mortgage, you should consider
a.
the interest rates of the old and new mortgages.
b.
the years you expect to remain in the home.
c.
any prepayment penalties on the old mortgage.
d.
closing costs of the new mortgage.
e.
all of these.
e
Moderate
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
of Capital
Chapter 5—Making Automobile and Housing Decisions
134. Sean and Lisa (age 25 and 28, respectively) are purchasing their first home for $200,000 with a 5% down payment.
They will withdraw the down payment from Lisa’s IRA. They will have to pay ____ on the IRA withdrawal.
a.
federal income taxes
b.
an early withdrawal penalty
c.
social security taxes
d.
a and b
e.
a, b, and c
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Applying
135. Mike (age 40) is purchasing his second home for $200,000 with a 25% down payment. He will withdraw some of the
down payment from his IRA. He will have to pay ____ on the IRA withdrawal.
a.
federal income taxes
b.
an early withdrawal penalty
c.
social security taxes
d.
a and b
e.
a, b, and c
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Applying
136. Which of the following is tax deductible if one itemizes deductions?
a.
Principal, interest, property taxes, and homeowner’s insurance
b.
Principal, interest, and property taxes
c.
Principal and interest
d.
Interest, property taxes, and homeowner’s insurance
e.
Interest and property taxes
United States – AK – DISC: Investments
Bloom’s: Understanding
Chapter 5—Making Automobile and Housing Decisions
137. ____ and ____ are often paid as part of one’s house payment and held in an escrow account.
a.
Closing costs; interest
b.
Insurance; real estate taxes
c.
Principal; interest
d.
Insurance; utilities
e.
Utilities; real estate taxes
Moderate
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
138. Barb and Bob want to purchase a new home but don’t know how much mortgage they can qualify for. The lender
requires that total installment loan payments not exceed 35% of gross monthly income. Based on Barb and Bob’s financial
data below, what is the maximum monthly mortgage payment for which they can qualify?
Monthly gross income
$4,000
Car payment
350
Student loan payment
200
a.
$1,400
b.
$1,208
c.
$1,050
d.
$850
e.
$500
Challenging
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United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
Challenging
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Remembering
Chapter 5—Making Automobile and Housing Decisions
139. Pete and Pam want to purchase a new home but don’t know how much mortgage they can qualify for. The lender
requires total installment loan payments not exceed 32% of gross monthly income. Based on Pete and Pam’s financial data
below, what is the maximum monthly mortgage payment for which they can qualify?
Monthly gross income
$5,000
Car payment
400
Student loan payment
300
Current rent payment
1,000
a.
$1,700
b.
$1,600
c.
$900
d.
$600
e.
$500
c
Challenging
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing
140. The type of mortgage that will most likely need to be refinanced is the ____ mortgage.
a.
fixed-rate
b.
adjustable-rate
c.
balloon-payment
d.
graduated-payment
e.
growing-equity
c
Moderate
PFIN.BILL.17.5-6 – LO: 5-6
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
141. Which of the following is true regarding auto loans?
a.
Longer term, lower rate, lower payment
b.
Shorter term, lower rate, lower payment
c.
Longer term, higher rate, lower payment
d.
Shorter term, higher rate, higher payment
c
Chapter 5—Making Automobile and Housing Decisions
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Understanding
142. As home prices have fallen in recent years, the rent ratio
a.
has increased and rent affordability has increased
b.
has decreased and rent affordability has decreased
c.
has increased and rent affordability has decreased
d.
has decreased and rent affordability has increased
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Evaluating
143. A declining rent ratio indicates
a.
lower housing prices relative to renting
b.
lower rent relative to housing prices
c.
higher housing prices relative to renting
d.
none of the above
PFIN.BILL.17.5-3 – LO: 5-3
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
of Capital
Bloom’s: Analyzing
item, B for the second item, and C if neither item will correctly complete the statement.
144. The first major expenditure most people make is to buy a [house | car].
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – KS – DISC: Capital Budgeting and Cost – DISC: Capital Budgeting and Cost
Chapter 5—Making Automobile and Housing Decisions
145. The biggest fixed cost of owning a car is [the loan payment | insurance].
146. A major variable cost of owning a car is [the loan payment | gasoline].
147. With a [closed-end | open-end] lease, you turn in the car at the end of the term and have no additional financial
obligation as a result of the residual value.
148. The most popular type of lease is the [closed-end | open-end] lease.
Chapter 5—Making Automobile and Housing Decisions
149. Terminating a lease early is typically [difficult | easy].
150. With a(n) [closed-end | open-end] lease, one owes more at the end of the lease if the car is worth less than its
projected value at the end of the lease.
151. The condominium buyer shares joint ownership of [common areas | living space].
152. In the same geographic area, the cost of a [ stand-alone home | condo] will usually be lower.
Chapter 5—Making Automobile and Housing Decisions
153. There is direct ownership of your living space in a [condo | co–op apartment].
154. As a homeowner, you can deduct the mortgage interest and [property taxes | property insurance] if you itemize on
your federal taxes.
155. A lender gives you a choice of an 80% loan-to-value ratio or a 90% loan-to-value ratio. The interest rate for the 80%
loan-to-value ratio loan will typically be [higher | lower] than the 90%.
156. The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down
payment of [$34,000 | $28,000].
Chapter 5—Making Automobile and Housing Decisions
157. The purchase price of the house you are buying is $180,000. A loan-to-value ratio of 90% will produce a mortgage
amount of [$162,000 | $180,000].
158. If your lender charges 1 1/2 mortgage points on a house selling for $100,000 on which there is to be a $90,000 loan,
the points will cost you [$1,350 | $1,500].
159. You have a choice of a 25-year or 30-year mortgage. Your monthly payments will be [more | less] with the 30-year
loan.
160. The total amount of interest you would have to pay would be less with a [25 | 20] year mortgage.
Chapter 5—Making Automobile and Housing Decisions
161. Most lenders do not want your monthly installment loan payments to exceed [36 | 50] percent of your monthly
income.
162. You are paying on a car loan, a furniture loan, and a student loan. This will have [an | no] effect on the lender’s
decision to grant you a mortgage loan.
163. [Lessor | Lessee] is another term for landlord.
164. The choice of the index used with an ARM will make [much | little] difference in the volatility of your payment
changes.
Chapter 5—Making Automobile and Housing Decisions
165. A real estate agent will typically be paid by the [buyer | seller] of the house.
166. Seeking mortgage prequalification [is | is not] recommended when you begin your house search.
167. With most ARMs, the interest rate over the lifetime of the loan can [increase to any level | increase only up to the
pre-stated maximum].
168. The interest rate on an ARM can be increased [automatically every year | only when a designated index increases].
Chapter 5—Making Automobile and Housing Decisions
169. Using an FHA mortgage to finance your home would require a [lower | higher] down payment than a conventional
loan.
170. The Real Estate Settlement Procedures Act [limits the amount of closing costs a lender can charge | requires advance
disclosure of closing costs].
171. If you qualify, you might be able to buy a home with no down payment with [an FHA | a VA] loan.
172. The [longer | shorter] the period of time you expect to live in a house, the more likely refinancing is a sound
financial decision.
Chapter 5—Making Automobile and Housing Decisions
173. Paying mortgage points to get a lower rate of interest makes more sense if you expect to live in a home for a [longer |
shorter] period of time.
174. A convertible ARM will have a [higher | lower] interest rate than a traditional ARM.
175. Longer term auto loans have a [lower rate but higher payment | higher rate but lower payment].
176. As home prices have fallen the rent ratio has [increased | decreased].
Chapter 5—Making Automobile and Housing Decisions
177. A decrease in the rent ratio indicates that housing has become [more | less] affordable compared to renting.
178. Homeowners may be able to deduct from their taxable income [mortgage principal | mortgage interest].
179. For most homeowners, the most important financial reason for owning a home is for the [inflation hedge | tax
shelter].
180. Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is
purchasing. If Leslie will be financing $15,000 and she can get a 7.5%, 48-month loan at her credit union, should she take
the $1,000 rebate or the 5.5% loan? (Show all work.)
Chapter 5—Making Automobile and Housing Decisions
181. Patrick would like to know the monthly payments and the total finance charges on the following two loan options:
(Show all work.)
a.
$30,000, 9%, 36 months
b.
$30,000, 9%, 48 months
a.
b.
Bloom’s: Analyzing
182. Greg has negotiated a $20,000 price on a new pickup truck. The manufacturer is offering a $1,500 rebate or 3.9%,
three-year financing. Greg is also able to get 7%, three-year financing at his credit union. If Greg plans to finance $18,000
over three years, should he take the rebate or the 3.9% financing? (Show all work.)
3.9% loan: PV=18,000, I=3.9/12, N=36, PMT=530.63
7.0% loan: PV=18,000, I=7.0/12, N=36, PMT=555.79
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
Bloom’s: Analyzing
183. Judy has $2,000 for a down payment on a vehicle and she can afford monthly payments of $400. She wants to
finance a vehicle over no more than 4 years. If lenders are currently offering 6 percent interest on 5-year loans, what is the
maximum price Judy can pay for a vehicle?
PFIN.BILL.17.5-1 – LO: 5-1
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – KS – DISC: TVM
Bloom’s: Analyzing
Bloom’s: Analyzing
Chapter 5—Making Automobile and Housing Decisions
184. Your mortgage payment is $1,400 per month. Of this amount, insurance is $50, property taxes are $200, and interest
is about $1,000. Assuming you have other itemized deductions that already exceed your standard deduction and that you
are in the 28% marginal tax bracket, what is the reduction in your tax liability as a result of owning a home with this
mortgage? (Show all work.)
185. Dick and Jane have just purchased a home and are calculating how much money they will need when the closing day
rolls around. The purchase price is $200,000. They will make a 20% down payment, and they must pay 2 points on the
loan. Closing costs should be 3% of the purchase price. What is the total dollar amount they will need at closing? (Show
all work.)
186. Felipe and Suzie want to calculate the difference in monthly payments on a $110,000 home as a result of a $5,000
down payment or a $10,000 down payment. Use your financial calculator to figure the monthly payments, assuming they
get a 6.5%, 30-year mortgage.
Chapter 5—Making Automobile and Housing Decisions
187. If a lender requires that mortgage payments cannot exceed 30% of gross income and total installment loan payments
cannot exceed 38% of gross income, calculate the monthly payment for which a person with the following financial data
could qualify.
Gross income
$5,500
Stereo loan payment
250
Furniture loan payment
200
Auto loan payment
400
PFIN.BILL.17.5-4 – LO: 5-4
United States – BUSPROG: Analytic skills – BUSPROG: Analytical skills
United States – AK – DISC: Investments
Bloom’s: Analyzing