When using the research-based approach for purchasing described in this chapter, which actions do you believe are overlooked by most shoppers?
> Match the following descriptions with the warranties listed here. Write your answer in the space provided. (a) express warranty: (b) service contact: (c) limited warranty: (d) implied warranty: (e) full warranty:
> What types of brands are commonly available to consumers?
> 1. Do you think Kathy’s father was planning wisely for the welfare of his family? Can you suggest ways in which this family could have cut monthly expenses and thus set aside some money for more insurance? 2. Although Mr. Jones’s salary was not big eno
> How does a service contract differ from a warranty?
> In what situations can comparing prices help in purchasing decisions?
> In what circumstances would a $1,000 corporate bond be worth more than $1,000? In what circumstances would the corporate bond be worth less than $1,000?
> Is it legal or ethical for an insurance agent to suggest a variable life insurance policy to an 80-year-old man? Explain your answer.
> Review the settlement options on your family’s life insurance policies, and discuss with your family which option would be the best choice for them at this time.
> Assume you are 30-years old, single, and just beginning to invest. How can you balance, safety, risk, and growth when choosing investments. Which component do you consider the most important?
> Visit a few websites of companies such as Metropolitan Life, New York Life, Transamerica Life, Lincoln Benefit Life, or others of your choice. Then summarize the various types of insurance coverage available from these companies.
> Analyze the four methods of determining life insurance requirements. Which method is best and why?
> After performing a financial checkup, you realize that you have too much credit card debt. What steps can you take to reduce the amount of money you owe on your credit cards?
> Assume that you are choosing an investment for your retired parents. Would you choose a bond issued by the federal government, a state or local government, or a corporation? Justify your answer.
> We Rent, So Why Do We Need Insurance? 1. Why is it important for people who rent to have insurance? 2. Does the building owner’s property insurance ever cover the tenant’s personal property? 3. What is the difference between cash value and replacement va
> Explain the following statement: The potential return on any investment should be directly related to the risk the investor assumes.
> Is it ethical to spend more than you make month after month? What repercussions could you encounter if you overspend on a regular basis?
> You are considering two different corporate bonds. One is rated AAA by Standard & Poor’s and pays 4.5 percent annual interest. The other bond is rated B by Standard & Poor’s and pays 6.2 percent annual interest. What do these ratings mean? Which bond
> Larry and Liz are a young couple both working full time and earning about $70,000 a year. They recently purchased a house and took out a large mortgage. Since both of them work, they own two cars and are still making payments on them. Liz has major me
> Should employers be required to provide employees some type of health insurance coverage even if it is a group plan, with each employee paying his or her full premium?
> Prepare a list of actions to take when selling a home.
> Describe how knowledge of current interest rates would help you better plan when obtaining a mortgage.
> What actions would you recommend to a person who was considering buying a home that needed several improvements?
> While fraud usually involves deceptions against consumers, what are some “frauds” that consumers commit against business?
> Write true and false for the follwing 1. A purchasing decision starts with gathering information. 2. Consumer information from business organizations is usually the most objective type of data available to help in a buying decision. 3. National name prod
> 1. A good rule of thumb is to limit credit purchases to 35 percent of your net (after tax) income. 2. An emergency fund is an amount of money that can be obtained quickly in case of immediate needs. 3. A line of credit is a long-term loan that is appro
> 1. A beneficiary is a person named to receive the benefits from an insurance company. 2. There is a rule of thumb that a good target is life insurance totaling nine to ten times your annual income. 3. A participating policy has somewhat lower premiums t
> What is a “certified preowned” vehicle? What are the benefits and drawbacks of this type of purchase?
> 1. How could the Bowmans benefit from buying a home that needed improvements? 2. How might Beth Young have found out when mortgage rates were at a level that would make refinancing her condominium more affordable? 3. Although the Zorans had good reasons
> 1. Health insurance includes both medical expense insurance and disability income insurance. 2. Hospital expense insurance pays part or all of hospital bills for room, board, and other charges. 3. Dread disease and cancer insurance policies are usually g
> 1. In today's world, you cannot get insurance for just about anything. 2. Homeowner’s insurance covers the cost of living elsewhere while your home is being repaired from a fire. 3. The special form of homeowner’s insurance includes all risks such as lo
> 1. Several financial benefits are associated with renting your place of residence. 2. A lease is mainly designed to protect the rights of the landlord. 3. Cooperative housing involves the purchase of an individual living unit in a multiunit complex or bu
> 1. A(n) __________ warranty covers most repairs of a product. a. limited b. implied c. full d. express 2. The highest prices for used cars are usually at a a. new-car dealer. b. used-car dealer. c. private-party sale. d. public auto auction. 3. When
> 1. Which of the following investments would have the greatest potential for safety? a. Government bonds b. Stocks c. Commodities d. Options 2. Which of the following statements is false? a. Asset allocation is the process of spreading your assets among
> 1. One of the following is not a method of estimating your life insurance requirements. a. DINK b. Family need c. Hard d. Easy 2. Which life insurance provision allows you not to forfeit all accrued benefits? a. Double indemnity b. Non-forfeiture clause
> 1. Health insurance plans can be purchased through a. group health insurance b. individual health insurance c. COBRA d. All of the above 2. Which type of health insurance pays part or all of the surgeon’s fee for an operation? a. Hospital expense b. Sur
> 1. Legal responsibility for the financial cost of another person’s losses or injuries is called a. negligence. b. liability. c. property damage liability. d. comprehensive coverage. 2. Renter’s property insurance would include coverage for a. personal b
> 1. A common advantage associated with home ownership is a. financial benefits. b. ease of mobility. c. limited financial risks. d. low initial costs. 2. Most real estate professionals believe that the most important factor in selecting a home is a. pri
> Using the "nonworking" spouse method, what should be the life insurance needs for a family whose youngest child is ten years old?
> What are potential concerns associated with obtaining furniture, appliances, and other items from a rent-to-own business?
> You are a dual income, childless family. You and your spouse have the following debts (total): mortgage, $200,000; auto loan, $10,000; credit card balance, $4,000; and other debts of $10,000. Further, you estimate that your funeral will cost $8,000. Y
> Mark and Parveen are the parents of three young children. Mark is a store manager in a local supermarket. His gross salary is $75,000 per year. Parveen is a full time stay-at-home mom. Use the easy method to estimate the family's life insurance needs
> Your variable annuity charges administrative fees at an annual rate of 0.15 percent of account value. Your average account value during the year is $200,000. What is the administrative fee for the year?
> Shelly’s variable annuity has a mortality and expense risk charge at an annual rate of 1.25 percent of account value. Her account value during the year is $50,000. What was Shelly’s mortality and expense risk charge for the year?
> A class-action suit against a utility company resulted in a settlement of $1.4 million for 62,000 customers. If the legal fees, which must be paid from the settlement, are $300,000, what amount will each plaintiff receive?
> Based on the following, calculate the costs of buying versus leasing a motor vehicle. (LO 6.2) Purchase Costs Down payment: $1,500 Loan payment: $450 for 48 months Estimated value at end of loan: $4,000 Opportunity cost interest rate: 4 perc
> Based on the data provided here, calculate the items requested: (LO 6.2) Annual depreciation, $2,500 Annual mileage, 13,200 Current year’s loan interest, $650 Miles per gallon, 24 Insurance, $680 License and registration fees, $65 Average gasoli
> Based on the following data, prepare a financial comparison of buying and leasing a motor vehicle with a $24,000 cash price: Down payment (to finance vehicle), $4,000 Monthly loan payment, $560 Length of loan, 48 months Value of vehicle at
> Based on financial and opportunity costs, which of the following do you believe would be the wiser purchase? Vehicle 1: A three-year-old car with 45,000 miles, costing $16,700 and requiring $1,385 of immediate repairs. Vehicle 2: A five-year-old car wit
> If a person saves $62 a month by using coupons and doing comparison shopping, (a) what is the amount for a year? (b) What would be the future value of this annual amount over 10 years, assuming an interest rate of 4 percent?
> What would be the net present value of a microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume an average return on your savings of 4 percent for five years. (Hint: Calculate the present value of the annual s
> A work-at-home opportunity is available in which you will receive 3 percent of the sales for customers you refer to the company. The cost of your “franchise fee” is $600. How much would your customers have to buy to cover the cost of this fee?
> A service contract for a video projection system costs $70 a year. You expect to use the system for five years. Instead of buying the service contract, what would be the future value of these annual amounts after five years if you earn 3 percent on your
> Calculate the unit price of each of the following items: a. Motor oil—2.5 quarts for $1.95 (cents/quart) b. Cereal—15 ounces for $2.17 (cents/ounce) c. Canned fruit—13 ounces for 89 cents (cents/ounce) d. Facial tissue—300 tissues for $2.25 (cents/100 ti
> John Walters is comparing the cost of credit to the cash price of an item. If John makes an $80 down payment and pays $35 a month for 24 months, how much more will that amount be than the cash price of $685?
> An online buying club offers a membership for $300, for which you will receive a 10 percent discount on all brand-name items you purchase. How much would you have to buy to cover the cost of the membership?
> In the preceding example, assuming their insurance rates remain the same, how many years will it take Dave and Ellen to earn back in discounts the cost of the deadbolts? The cost of the smoke detectors? Would you recommend Dave and Ellen invest in the sa
> Five years ago, you purchased a $1,000 corporate bond issued by General Electric. The interest rate for the bond was 4 percent. Today comparable bonds are paying 5 percent. a. What is the approximate dollar price for which you could sell your General
> Assume you are 45 years old, want to retire in 20 years, and currently have an investment portfolio valued at $240,000 invested in technology stocks. After talking with a financial advisor, you feel you have “too many eggs in one basket” and need to div
> In 1994, you purchased a $1,000 corporate bond issued by Boeing. At the time, the interest rate for the bond was 6 percent. Today, comparable bonds are paying 4.30 percent. a. What is the approximate dollar price for which you could sell your Boeing b
> What is the relationship between health insurance coverage and other aspects of financial planning?
> Based on Exhibit 7–9 , if you were buying a home, what would be the approximate total closing costs (excluding the down payment)? As an alternative, obtain actual figures for the closing items by contacting various real estate organizations or by doing o
> In an attempt to have funds for a down payment in five years, James Dupont plans to save $3,800 a year for the next five years. With an interest rate of 4 percent, what amount will James have available for a down payment after the five years?
> Kelly and Tim Jarowski plan to refinance their mortgage to obtain a lower interest rate. They will reduce their mortgage payments by $56 a month. Their closing costs for refinancing will be $1,670. How long will it take them to cover the cost of refinanc
> If an adjustable-rate 30-year mortgage for $120,000 starts at 4.0 percent and increases to 5.5 percent, what is the amount of increase of the monthly payment?
> Which mortgage would result in higher total payments? (LO 7.3) Mortgage A: $985 a month for 30 years Mortgage B: $780 a month for 5 years and $1,056 for 25 years
> Based on Exhibit 7–7, what would be the monthly mortgage payments for each of the following situations? a. A $160,000,15-year loan at 6.5 percent. b. A $215,000, 30-year loan at 5 percent. c. A $190,000, 20-year loan at 6 percent.
> Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation Monthly gross income, $2,950 Down payment to be made—15 percent of purchase price Other debt (monthl
> Ben and Carla Covington plan to buy a condominium. They will obtain a $220,000, 30-year mortgage, at 5 percent. Their annual property taxes are expected to be $1,800. Property insurance is $480 a year, and the condo association fee is $220 a month. Based
> Condominiums usually require a monthly fee for various services. At $235 a month, how much would a homeowner pay over a 10-year period for living in this housing facility?
> Many locations require that renters be paid interest on their security deposits. If you have a security deposit of $1,800, how much would you expect a year at 3 percent?
> What do you consider to be an “ethical” health care system? Explain your answer.
> When renting, various move-in costs will be encountered. Estimate the following amounts: First month rent $ _______________ Security deposit $ _______________ Security deposit for utilities (if applicable) $ _______________ Moving truck, oth
> Based on the following data, would you recommend buying or renting? / Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent.
> Use Exhibit 10-1 to find the average number of additional years a 25-year-old male and female were expected to live, based on the statistics gathered by the U.S. government as of 2009.
> Obtain premium rates for $50,000 whole life, universal life, and term life policies from local insurance agents. Compare the cost and provisions of these policies.
> Shaan and Anita are married and have two children, ages 4 and 7. Anita is a “nonworking” spouse who devotes all of her time to household activities. Estimate how much life insurance Shaan and Anita should carry.
> You and your spouse are in good health and have reasonably secure careers. Each of you makes about $40,000 annually. You own a home with an $80,000 mortgage, and you owe $15,000 on car loans, $5,000 on personal debts, and $4,000 on credit card loans.
> Sophia purchased a variable annuity contract with a $25,000 purchase payment. Surrender charges being with 7 percent in the first year, and decline by 1 percent each year. In addition, Sophia can withdraw 10 percent of her contract value each year wit
> Using the "nonworking" spouse method, what should be the life insurance needs for a family whose youngest child is 5 years old?
> You are a wage earner in a “typical family,” with $40,000 gross annual income. Use the easy method to determine how much insurance you should carry.
> In 2005, Joelle spent $5,000 on her health care. If this amount increased by 6 percent per year, what would be the amount Joelle spent in 2015 for the same health care? (Hint: Use the Time Value of Money Table in the Chapter 1 Appendix, Exhibit 1-A)
> Pam is 31 and recently divorced, with children ages 3 and 6. She earns $40,000 a year as a secretary. Her employer provides her with basic health insurance coverage. She receives child support from the children’s father, but he misses payments often a
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Ronald Roth started his new job as Controller with Aerosystems today. Carol, the employee benefits clerk, has given Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between
> Georgia has a take-home pay of $600 a week. Her disability insurance coverage replaces 70 percent of her earnings after a four-week waiting period. What amount would she receive in disability benefits if an illness kept Georgia off work for 16 weeks?
> Becky’s comprehensive major medical health insurance plan at work has a deductible of $750. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, i
> As of 2012, per capita spending on health care in the United States was about $9,000. If this amount increased by 7 percent a year, what would be the amount of per capita spending for health care in 8 years?
> The Tucker family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance pay?
> What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $2,000 to replace today and had an estimated life of five years.
> Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If $4,500 worth of jewelry and $6,000 worth of silverware were stolen from a family, what amount of the claim would not b
> You estimate that you can save $3,450 by selling your home yourself rather than using a real estate agent. What would be the future value of that amount if invested for five years at 3 percent?
> How does your age affect the type of investments you choose to obtain your financial goals?
> Calculate the current price for the following bonds.
> Explain what the following bond ratings mean for investors. Aaa BBB CC
> What type of information about bonds is available on the Internet?
> In your own words, describe why corporations sell corporate bonds.
> Calculate the annual interest and the semiannual interest payment for corporate bond issues with a face value of $1,000.
> List the three reasons investors purchase corporate bonds.
> What is the difference between a Treasury bill, a Treasury note, a Treasury bond, and TIPS?
