Personal Finance Test 1

  1. Formula to determine future value of annual deposits.
    FV=PMT × FV annuity table factor
  2. Formula to determine salary for cost of living.
    Current salary × (1 + Cost of living increase)
  3. Formula for tax equivalent value
    Nontaxable amount / ( 1 – Tax rate)
  4. Determine salary after many raises
    Current salary × FV single sum table factor
  5. Formula for after-tax value
    Pretax value × (1 – Tax rate)
  6. Formula to determine job value
    Salary + Nontaxable benefits / (1 – Tax rate)
  7. Determine total assets
    Liquid assets + Investment assets + Household assets
  8. Determine total liabilities
    Current liabilities + Long-term liabilities
  9. Determine net worth
    Total assets − Total liabilities
  10. Determine debt ratio
    Liabilities / Assets
  11. What is a desirable debt ratio?
  12. Determine surplus/deficit
    Budgeted amount − Actual amount
  13. Formula to determine budget for inflation
    PV × FV single sum table factor
  14. Determine future value of single deposit
    PV × FV single sum table factor
  15. Determine taxable income

    Gross                      56145
    interest earnings          205
    Dividend income            65
    Standard deduction   12000
    Itemized deduction    11250
    Adjustments to 
    income                      1200
    $56,145 + $205 + $65 − $1,200 − $12,000
  16. If Lola Harper had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $12,000.

    If Lola Harper had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $12,000.

    Donations to church and other charities $6,050 
    Medical and dental expenses exceeding 10 percent of adjusted gross income 2,400 
    State income tax 4,690
    $6,050 + $2,400 + $4,690
  17. Determine tax decduction threshold amount
    Adjusted gross income × Threshold rate
  18. Determine deductible amount
    Qualified medical expenses – Threshold amount
  19. Determine average tax rate
    Total tax / Taxable income
  20. Determine taxable income
    Adjusted gross income – Standard deduction
  21. Determine income tax
    Tax rate × Taxable income
  22. Determine total tax liability
    Income tax – Tax credits
  23. determine taxes due
    Tax liability – Taxes paid
  24. Determine upcoming exemption
    Tax liability – Taxes paid
  25. Determine lost annual income.

    If 400,000 people each receive an average refund of $2,450, based on an interest rate of 3 percent, what would be the lost annual income from savings on those refunds?
    Number of people × Average refund × Interest rate
  26. Determine interest rate for a two week period
    Rate per period × Number of periods per year = rate × (52 weeks / 2 weeks)
  27. Determine annual interest
    Annual interest rate × Investment
  28. Determine penalty for withdrawing investment 2 mo early
    2 months of interest = (2 / 12) × Annual interest = (2 / 12) × $800
  29. determine after-tax yield
    Pretax yield × (1 − Tax rate)
  30. Determine APY
    100 (Interest / Principal)
  31. Determine annual opportunity cost
    Minimum balance × Interest rate
  32. What is the last step before accepting a job position
    Evaluate finacial and other factors of the job
  33. Jared needs to develop a resume. He has a diverse set of skills and time gaps within his experience and work history. He is looking to develop this type of resume because he recently changed careers. Which type of resume is Jared looking for?
    Functional Resume
  34. Callie is looking to develop a resume. She is looking for a resume that is designed for a specific job and highlights the capabilities and experiences most appropriate to the position she is applying for. Which type of resume is Callie looking for?
    Targeted resume
  35. How should the assets you own be reported in your personal balance sheet?
    At the actual or estimated current value of the asset
  36. The __________________ ratio compares your liquid assets to your current liabilities.
  37. Determine savings ratio
    Savings Ratio = Monthly Savings/Gross Income
  38. Determine debt payment ratio
    Monthly Credit Payments/Take-Home Pay
  39. Grace saved $3,000 by using a tax credit. Assume Grace is in a 25% tax bracket. What is the amount of her tax credit?
  40. Jacob contributed $2,200 to charity within this past year, which qualifies for a tax deduction. Tucker saved $2,200 with a tax credit within this past year. Assume both Jacob and Tucker are in a 20% tax bracket. What is the difference between Tucker’s tax credit and Jacob’s tax deduction?
  41. ________________________ is the use of illegal actions to reduce your taxes, where as ________________________ is the use of legitimate methods to reduce one’s taxes.
    Tax evasion; tax avoidance
  42. Retirees also have varying amounts of social security that is taxed based upon the amount of their income. In some cases, the difference can vary between _____ and _____ being taxed.
    50%; 85%
  43. Investments held for less than one year will be taxed at ___________________________, whereas investments that have been held for over one year are taxed at ____________________________.
    Ordinary income rates; capital gains rates
  44. Dean initially invested $3,150 in a company and has held this investment for four years. Dean sold the investment after four years for $5,575. Assuming he is in the 25% tax bracket, what is his capital gains tax?
  45. $363.75
  46. advantages of pre-paid cards, except:Multiple Choice
    unlimited spending
  47. ___________________ individuals are those who have bank accounts, but still use high-cost financial service companies.
  48. Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return?
    Step 1: Determine your top (marginal) tax rate = 22%

    Step 2: Subtract your tax rate from 1.0 = 1.0 – 0.22 = 0.78

    Step 3: Multiply the yield on your savings account with step 2 answer.

              = 0.072 x 0.78 = 5.62%
Card Set
Personal Finance Test 1
Personal Finance Test 1