GP Chap 8 Quiz: Financial Strategies Flashcards
(8 cards)
Mr. and Mrs. pond took out a 30-year mortgage on December 1st of the current year. The payments will start January 1st of next year. The home was purchased for $250,000. They made a $150,000 down payment and financed the remainder. If they have to escrow taxes ($400/mo.) and insurance ($200/mo.), what is the amount of their monthly payments?
A. $971.14
B. $1,171.14
C. $799.55
D. $1,199.55
E. $1205.40
D. $1,199.55.
$559.55 PMT plus taxes and insurance of $600 from escrow = $1,199.55.
Steps on calculator:
IN END MODE
N = 360
I/YR = 0.5 (6 divided by 12)
PV = - $100,000 ($250k - $150k)
PMT = Solving for PMT.
FV = 0
Home equity is a potential source of financing retirement and other financial goals. Which of the following may be used to access home equity for those purposes?
I. A reverse mortgage
II. A home equity loan
III. Sale of the home
IV. Refinance the home mortgage
A. All of the above
B. I, II
C. III, IV
D. III
A. All of the above.
All the techniques listed can be a potential source of financing retirement or financial goals. For example, a HELOC could finance a college education. The home equity loan is still allowed, but the home equity interest income deduction is no longer allowed if used for non-home purchases.
Mr. and Mrs. client provide you with the following data: Their net worth increased by $60,000 during the year. From their cash flow, they purchased a new boat ($25,000) and added $5,000 to their savings. Their mutual funds grew by $10,000 and his 401k increased by $15,000 due to contributions and earnings. From their cash flow, they paid $24,000 on their home mortgage and credit card balances. What amount was the principal reduction on their loans?
A. $5,000
B. $10,000
C. $15,000
D. $20,000
E. $25,000
A. $5,000
Increases to NW from cash flow:
Boat = $25k
Mutual Funds = $10,000
401k = $15,000
Savings = $5,000
Total = $55,000
If we know that all of the above increased the net worth by $55k, and the total NW increase during the year is $60k, then the difference ($60,000 - $55,000 = $5,000), is the amount from their debt balance that reduced principal.
Newlyweds Bob and Allee are recent college graduates. They both accepted positions with firms where relocation is highly likely. Their combined income puts them in a 22% marginal tax bracket. Should they continue to rent an apartment or purchase the home of their dreams?
A. They should purchase a home and take advantage of tax deductions for interest and property taxes.
B. They should purchase a home to take advantage of a highly volatile real estate market and potential tax-free money should they have to sell it.
C. They should continue to rent because of the likelihood of upcoming job-related moves.
D. They should continue to rent to take advantage of the lower rental costs.
C. They should continue to rent due to the high likelihood of job-related moves.
Mr. and Mrs. Bailey have been advised by their financial planner that they can afford to make $650 a month payments on a mortgage loan for a home. Their current rate on a new 30 year mortgage is 6.75%. What amount can they afford to borrow?
A. 495,279
B. 98,213
C. $100,216
D. $100,924
E. $102,100
The correct answer is C.
TVM question on mortgages = Keep in End mode!
For this question, we are solving for PV.
N= 360
I/YR= 0.5625 (6.75/12)
PV = Solving For.
PMT = 650
FV = 0
Which of the following is not considered an unsecure debt?
A. Personal Line of Credit
B. Personal Loan
C. A home mortgage
D. Signature-only Loan
The correct answer is C.
A mortgage is a secured debt because there is collateral for the debt (the house itself is collateral). All other choices in this question ARE forms on unsecure debt.
Which of the following statements about a reverse mortgage is incorrect?
A. To qualify for the reverse mortgage, the home must be owned free and clear.
B. There are no monthly mortgage payments during the life of the loan.
C. There are no income qualifications
D. A reverse mortgage is only available to homeowners 62 years and older living in condominiums and single-family homes.
The correct answer is A.
You do not need to own your home free and clear (aka, not have a mortgage) in order to qualify for a reverse mortgage. All other answer choices are true of reverse mortgages.
Which of the following is true concerning a pro forma statement?
A. A pro forma statement illustrates the sources and amounts of gross income received by the client.
B. It illustrates the solvency ratio of the client.
C. It illustrates what future financial statements are expected to show.
D. It illustrates what occurred in the past.
C.
A pro forma statement projects the expects results of the next year or longer.
