Dorothy and Matt are ready to purchase their first home. Their current monthly cash inflows are $4,900, and their current monthly cash outflows are $3,650. Their rent makes up $650 of their cash flows. They would like to put 10% of their cash inflows in savings and put another $200 in their checking account for emergencies. How much of a mortgage payment can they manage under these conditions?
> Discuss default risk as it relates to bonds. How may investors use risk ratings? What is the relationship between the risk rating and the risk premium? How do economic conditions affect default risk?
> Discuss the effect of taxes on bond returns.
> When an investor sells a bond in the secondary market before the bond reaches maturity, what determines the return on the bond? How do interest rate movements affect bond returns in general?
> What are corporate bonds? Are corporate bonds subject to default risk? What are junk bonds? Why would investors purchase junk bonds?
> What are federal agency bonds? Compare and contrast the three most common federal agency bonds
> What are municipal bonds? Why are they issued? Are all municipal bonds free from default risk? What characteristic makes municipal bonds especially attractive to high-income investors?
> What are some factors that make estimating life insurance needs difficult?
> What are Treasury bonds? Describe their key characteristics.
> Discuss how bonds are sold on the secondary market.
> What is a bond’s yield to maturity? How does the price paid for a bond affect its yield to maturity?
> What is a convertible bond? How does a bond’s convertibility feature affect its return?
> What is a call feature on a bond? How will a call feature affect investor interest in purchasing the bond?
> What is the purpose of insurance? What is meant by the term liability? How can individuals benefit from insurance?
> You teach Personal Finance at a local community college. The state in which you teach requires proof of liability insurance to renew your license plates. During the discussion of this topic in class, several students admit that they obtain a liability po
> Why is it important to carefully review the types of perils covered by your homeowner’s insurance policy? What are some common perils that are not covered by many homeowner’s policies?
> How does your credit history impact your insurance costs?
> Why does your geographic location impact the cost of homeowner’s insurance? Why does it impact the cost of your automobile insurance?
> What is group term life insurance? What are the advantages of group term life insurance?
> Why do some people choose to accept risk rather than purchase insurance? Why is this mind-set problematic?
> List some ways you can reduce risk and limit your overall exposure to loss.
> What is the purpose of an umbrella personal liability policy? Who might need one?
> How renter’s insurance is different from homeowner’s insurance? Who should consider purchasing renter’s insurance? Briefly describe some of the provisions of a renter’s insurance policy.
> Describe the steps you would take to file a claim on your homeowner’s insurance
> What are some steps you could take to reduce your homeowner’s insurance premium?
> List and briefly describe some of the factors that affect homeowner’s insurance premiums.
> Is personal property typically insured under a homeowner’s insurance policy? If so, are there limits to the coverage of personal property? What is a home inventory?
> List and briefly describe the four packages of homeowner’s insurance that focus on insurance for the home
> What is homeowner’s insurance? How the premiums are normally paid?
> Why do some people postpone buying life insurance even when they need it?
> What steps should you take if you are in a car accident?
> What is the intent of no-fault insurance? How does no-fault insurance generally work? What is a disadvantage of no-fault insurance?
> List and briefly discuss factors that will affect your auto insurance premium.
> Describe collision and comprehensive coverage. Is this type of coverage required by most states? Who may require this type of coverage?
> How does medical payments coverage under an auto insurance policy work? Why is medical payments coverage valuable even if you have a good health insurance plan?
> Describe the two types of financial responsibility laws most states have. Are these laws always effective?
> What do policy limits of 25/50/25 mean? Do you think the minimum amounts of liability insurance required by your state are suitable for all drivers? Explain your answer
> Describe the two components of liability coverage in an auto insurance policy.
> What is the role of insurance underwriters? What is the role of insurance agents? Describe the two different types of insurance agents.
> What is the responsibility of the insurance company that sells you a policy? What is the relationship between insurance company claims and premiums paid by policyholders?
> What is the interest payments option? How does it differ from the installment payments option?
> What is risk? What is risk management? How does insurance fit into risk management?
> Paul wants to purchase his own home. He currently lives in an apartment, and his rent is being paid by his parents. Paul’s parents have informed him that they would not pay his mortgage payments. Paul has no savings, but can save $400 per month. The home
> If the cost of refinancing their house is $3,860, how long would Doug and Lynn (from problem 9) have to remain in their home to recover the cost? (Ignore any interest on the savings in answering this question.)
> Matt (from problem 7) paid mortgage interest of $4,330 during his first year in the condo. His property taxes were $600, and his homeowner’s insurance was $460. If Matt is in a 25% marginal tax rate bracket, what were his tax savings for his first year?
> Matt has found a condominium in an area where he would enjoy living. He would need a $5,000 down payment from his savings and would have to pay closing costs of $2,500 to purchase the condo. His monthly mortgage payments would be $520 including property
> Teresa rents her apartment for $650 per month, utilities not included. When she moved in, she paid a $700 security deposit using money from her savings account that was paying 3% interest. Her renter’s insurance costs her $60 per year. What are Teresa’s
> This month you made a mortgage payment of $700, of which $600 was an interest payment and $100 a payment of the loan principal. You are in the 25% marginal tax bracket. What are the tax savings as a result of this payment?
> Lloyd and Jean are considering purchasing a home requiring a $75,000 mortgage. The payment on a 30-year mortgage for this amount is $498.97. The payment for a 15-year maturity is $674.12. What is the difference in the total interest paid between the two
> Larry and Laurie have found a home and made a $125,000 offer that has been accepted. They make a down payment of 10%. Their bank charges a loan origination fee of 1% of the loan and points of 1.5% (both are based on the loan amount). Other fees include a
> What are settlement options? Which option should you choose?
> Insurance. Justin’s new FHA mortgage is for $131,500. How much will his overall mortgage increase with an upfront fee of 1.5%? How much will his total mortgage be with the upfront PMI fee added? Will Justin always pay PMI on this loan?
> Why is the reputation of the school system in the area of the home you are buying important?
> List the criteria you should use when selecting a home.
> Assume that the Sampsons have paid off their credit card debt and have also achieved their goal of saving $5,000 that they will use as a down payment on a new car. (They have also been saving an additional $300 per month over the last year for their chil
> Jack needs to borrow $1,000 for one year. Bank South will give him the loan at 9%. SunCoast Bank will give him the loan at 7% with a $50 loan origination fee. First National will give him the loan at 6% with a $25 loan origination fee. Determine the tota
> List some typical incentives credit cards issuers offer to encourage you to use their card.
> What is a prepaid credit card? How does it differ from a secured credit card?
> Propose possible solutions to reduce an excessive credit card balance.
> Discuss some ways that charging large amounts on your credit cards might affect your overall financial planning.
> What credit management decisions should be included in your financial plan?
> Explain how use of the Internet can expedite the purchase of life insurance. Why do many customers prefer this method?
> Should you view credit cards as a source of funds? Why or why not? Why should you self-impose a tight credit limit?
> When is a finance charge applied to credit purchases? What is the common range of interest rates on credit cards?
> How might you eliminate the annual fees that are charged by some credit cards?
> What is a credit limit? How can you increase your credit limit?
> Paul’s credit card closes on the 3rd of the month, and his payment is due on the 30th. If Paul purchases a stereo for $300 on June 12th, how many interest-free days will he have? When will he have to pay for the stereo in full in order to avoid finance c
> Chen recently graduated from college and accepted a job in a new city. Furnishing his apartment has proved more costly than he anticipated. To enable him to make purchases, he applied for and received a credit card with a $5,000 credit limit. Chen planne
> Eileen (from question 7) wants a car that costs $12,000. How long would it have taken Eileen to save for the outright purchase of the car if she did not have any credit card debt and used the interest payments to save for the purchase of the car? Eileen
> Troy has a credit card that charges 18% on outstanding balances and on cash advances. The closing date on the credit card is the first of each month. Last month Troy left a balance on his credit card of $200. This month Troy took out a cash advance of $1
> Margie has had a tough month. First, she had dental work that cost $700. Next, she had her car transmission rebuilt, which cost $1,400. She put both of these unexpected expenses on her credit card. If she does not pay her credit card balance when due, sh
> Chrissy currently has a credit card that charges 15% interest. She usually carries a balance of about $500. What will her total annual interest be with her current card?
> List and briefly discuss the factors that affect an individual’s life insurance premium.
> What are three advantages of using a credit card? Can you think of any disadvantages?
> Why should you review your credit card statement before paying the bill? What steps should you take if you discover an error?
> Explain why getting a cash advance on your credit card is a costly source of funds.
> Explain how the Credit CARD Act changed the way credit card issuers assess late fees.
> What is overlimit protection? Explain why consumers should use this feature sparingly.
> How does a secured credit card differ from a standard credit card? Under what circumstances would you need a secured credit card?
> Describe the role of the Consumer Financial Protection Bureau.
> Describe some of the key provisions of the Credit CARD Act.
> Explain how you can impose your own limits on credit card spending.
> What are the three methods used by financial institutions to calculate finance charges on outstanding credit card balances? Briefly describe how interest is computed under each method.
> Describe the budget method to determine the amount of life insurance needed. What elements must be considered in making this calculation?
> Why is paying your credit card balance in full so important? What should you do if you can’t avoid credit card debt? Explain.
> List five tips for using credit cards wisely.
> What should you consider when comparing credit cards?
> List some items that appear on the credit card statement. What accounts for the difference between your previous balance and your new balance?
> How does the interest rate affect your credit payments? What is meant by simple interest? What is the annual percentage rate (APR), and when is it used?
> What is a cash advance? How are they commonly obtained? Discuss interest rates and grace periods with regard to cash advances.
> What is a grace period? How can you use it to your advantage?
> Discuss how credit cards offer incentives to use the cards. How else might credit card companies reward cardholders with excellent credit ratings?
> Describe the differences between a credit card like MasterCard or Visa and a retail (or proprietary) card. How do credit and retail cards generate revenue? What is the biggest disadvantage of a proprietary card?
> Brad Brooks is pleased with your assistance in preparing his personal financial statements and your suggestions for improving his personal financial situation. He has called you for additional guidance. First, he wants to know what factors he should cons
> Discuss why life insurance needs should not be based on a family’s dreams for the future.
> What are some of the risks associated with investing in real estate?
> Brad Brooks is pleased with your assistance in preparing his personal financial statements and your suggestions for improving his personal financial situation. He has called you for additional guidance. First, he wants to know what factors he should cons
> Brad Brooks is pleased with your assistance in preparing his personal financial statements and your suggestions for improving his personal financial situation. He has called you for additional guidance. First, he wants to know what factors he should cons
> Brad Brooks is pleased with your assistance in preparing his personal financial statements and your suggestions for improving his personal financial situation. He has called you for additional guidance. First, he wants to know what factors he should cons
> What credit restrictions apply to persons under age 21?
> How are payments calculated under the add-on interest method?
