Financial Decisions and Loans: Understanding Interest Rates and Emergency Funds, Exams of Economics

Download Financial Decisions and Loans: Understanding Interest Rates and Emergency Funds and more Exams Economics in PDF only on Docsity! Leah uses online spreadsheets and investment portfolio management tools to keep track of her different investments in various financial products. Which skill does Leah use in the given scenario? • a.) The technology skill • d.) The productivity skill Which of the following loan options provides better protection to consumers and costs less in terms of interest? • c.) A loan from banks • d.) A loan from pawn shops Daniel urgently requires $500 because of a sudden leakage in the roof of his house. Which of the following would be a productive financial decision for Daniel? ECO 110 UNIT 3 CHALLENGES AND MILESTONE QUESTIONS WITH ANSWERS CHALLENGE 1 • b.) The agility skill • c.) The problem-solving skill • a.) A payday loan • b.) A title loan • a.) Daniel should get a payday loan to pay the repair bill. • b.) Daniel should get a line of credit to pay the repair bill. • d.) Daniel should get an installment loan to pay the repair bill Which of the following is a feature of a direct unsubsidized loan? • d.) It is a type of financial aid that is available only to undergraduate students. Naveen opts to buy a car. After doing his research, he identifies a vehicle model suitable for him. Keeping in mind the steps involved in purchasing a vehicle, what should Naveen's next step be? • c.) He should contact his insurance company and figure out the cost to insure the vehicle. • c.) Daniel should declare his home as collateral and get a title loan to pay the repair bill. • a.) The interest accrued on the loan amount is added to the loan balance until the student can begin the repayment of the loan. • b.) Students need to show financial need to receive these loans. • c.) The interest accrued on the loan amount is paid by the federal government. • a.) He should determine how much money he can spare every month to spend on the car. • b.) He should analyze his transport needs and cost to determine if he needs the car. • c.) Grace decides to deposit $500 in her dedicated savings account for use in an emergency. • d.) Grace decides to withdraw money from her savings account to buy a gift for her friend. Maya has contributed annually to a Roth IRA for the last 10 years and also has a traditional IRA. Which of the following financial decisions will prove most beneficial for Maya if she needs money to make an emergency payment? • d.) Maya withdraws the interest earned on the principal invested in the Roth IRA to make the emergency payment CHALLENGE 3 Nigel is self-employed. He seeks funding to expand his business operations. What must Nigel do in order to sell shares in the business to raise funds? the emergency payment. Maya withdraws the principal amount invested in the Roth IRA to make c.) • b.) Grace decides to invest in an unconventional and risky financial investment that promises a high return. • a.) Maya withdraws the interest earned from her traditional IRA. • b.) Maya withdraws from the principal amount of the traditional IRA. • a.) Obtain a business loan for the amount of the shares • d.) Convert the business into a corporation The stock price of Greengold Corp. is $18 per share, and the formula for market capitalization is as follows: Market capitalization = Stock price per share × Total number of shares in marketplace. If Greengold's total number of shares in the stock market is 10 million, what is their market capitalization? • a.) $180 million • d.) $10 million Helga buys bonds in a company as an investment. Which of the following will be true in this scenario? • b.) Helga will earn money through interest payments the company makes to her. • b.) Sell bonds in the business for the same amount as the business's shares • c.) Convert the business from a public company to a private enterprise • b.) $18 million • c.) $480 million • a.) Helga is entitled to dividends only if the firm's board of directors decides to make a payment. • d.) Helga now owns a percentage of the company Why is investing in mutual funds a productive financial decision for its investors? • d.) It is a type of investment that has a slow growth rate but guarantees high returns with zero losses. Dana is a young lawyer who has a moderate level of financial risk tolerance, but she wants to maximize the returns she receives. Which of the following investment options will best suit Dana? • d.) Dana should invest her money in speculative stocks • c.) Helga will have to retain the bonds till the maturity date and cannot sell them before such time. • a.) Investors get premium returns on their investments as they are solely responsible for all the investment decisions. • b.) It provides individuals with limited funding the opportunity to invest in different types of investments. • c.) Individuals do not pay brokerage fees, which increases the earning potential from their investments. • a.) Dana should invest her money in corporate bonds. • b.) Dana should invest her money in a short-term certificate of deposit. • c.) Dana should invest her money in a savings account. He will have limited ability to make improvements to the house. • He will have to pay a large security deposit on the house. • He will have to pay a fixed monthly cost to his landlord. • He will have to pay city and state taxes on the house. • • Personal loans from the bank • Pawn shops • Title loans • Payday lenders • A stop-loss order automatically sells stock if the stock is incurring a loss. • A stop-loss order assures a minimum profit on the sale of the stock. • A stop-loss order specifies to sell the stock when its market value reaches a preset price. Brokerage Accounts 4 Mark starts a new job in another state and decides to buy a house rather than renting one. Which of the following is true if Mark buys the house? Renting a Home 5 Using your problem-solving skills, identify the financial alternative among the following that provides loans with a reasonable rate of interest. Consumer Loans Stella and other shareholders are responsible for paying for any losses the firm may generate. • Stella receives the interest on her investment in the company in a series of predefined payments. • Stella is entitled to a proportional amount of the profits of the company. • Stella will receive guaranteed income in the form of dividends. • A deposit advance • A personal line of credit • An installment loan • A payday loan • 6 Stella buys stock in a pharmaceutical company. Which of the following is true in this case? Introduction to Stocks 7 Tina needs a loan of $18,000 to buy a new car. She has a good credit score and earns $60,000 annually. Which type of personal loan allows Tina to repay the money through regular monthly payments over a fixed period? Personal Loans 8 Aleesha wants to ensure that she has emergency funds to last her for 6 months. She has monetary assets of $12,000 and monthly living expenses of $3,000. The formula for emergency fund ratio is as follows: Emergency Fund Ratio = Monetary Assets / Monthly Living Expenses 45 • 5 • 12 • 0.2 • How much more will Aleesha need to save to cover her emergencies for 6 months? • $8,000 • $3,000 • $6,000 • Aleesha already has sufficient funds to last her for 6 months. Emergency Funds 9 The market price of Golden Inc. stock is $15 per share. The formula for P/E ratio is as follows: P/E ratio = Stock price per share / Earnings per share If the stock earns $3 per share, then its P/E ratio is . Stock Valuation and Ownership 10 Kelvin has $12,000 in outstanding student loans. Which of the following criteria should Kelvin fulfill to be eligible for the Public Service Loan Forgiveness (PSLF) program? • He should have made 50 qualifying payments toward his loan repayment. Miles is 65 years old and has been investing in the Roth IRA for the last 10 years. • Miles is disabled and withdraws his Roth IRA balance within 3 years of opening it. • Miles is 58 years old and withdraws only the principal portion from his Roth IRA. • Miles withdraws money from his Roth IRA to make a down payment for his second home. • Anton, who is 33 years old, wants to begin investing for retirement. • Hanna needs to start an emergency fund for her household. • Julio wants to double his initial investment to pay off his mortgage quickly. • Chloe wants to buy a large piece of land as an investment. • Mutual Funds 15 Miles needs to withdraw $4,500 from his Roth IRA to pay his medical bills. In which of the following scenarios is the money withdrawn from the Roth IRA considered a qualifying distribution for Miles? Roth IRAs 16 In which of the following cases would prioritizing liquidity over returns be the most productive choice? Risk and Return 17 Dan is looking to invest his savings to obtain high returns. He has moderate to high risk tolerance and wants to invest his savings in an investment that has low marketability risk. Which of the following investment options is best suited for Dan? • He should invest in a house. • He should invest in stocks and bonds. • He should invest in a money market savings account. • He should invest in antiques and collectibles.