Question 1

Dorothy owns a home that was worth $1,400,000 at the beginning of the year and $1,135,000 at year's end. The same house can be rented for $152,300 per year. Upkeep is $27,500 per year. What is Dorothy's return for the year?

Accepted Answer

The answer of Dorothy owns a home that was worth...

Question 2

Real assets differ from financial assets as:

Accepted Answer

A)   Real assets generally decline in value over time while financial assets often maintain or increase in value over time.
B)   Financial assets generally decline in value over time while real assets often maintain or increase in value over time.
C)   Real assets are generally used in the household currently while financial assets may be reserved for future use.
D)   Both b and c.
E)   Both a and c. E

Question 3

Which of the following is an advantage associated with renting a dwelling?

Accepted Answer

A)   Mandatory repayment of debt.
B)   The necessity of a capital commitment.
C)   Flexibility in changing your dwelling site.
D)   Both a and b.
E)   Both b and c.

Question 4

Which of the following is not a reason to purchase a durable good?

Accepted Answer

A)   To take advantage of a technological improvement with the potential to make household maintenance more time-efficient.
B)   Physical wear and tear that results in an existing durable having reached the end of its useful life.
C)   A change in circumstances.
D)   To attempt to minimize risk.
E)   All of the above are reasons to purchase a durable good.

Question 5

The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should not exceed:

Accepted Answer

A)   14 percent of your total income.
B)   42 percent of your total income.
C)   28 percent of your total income.
D)   36 percent of your total income.
E)   None of the above.

Question 6

Which of the following is not a disadvantage of home ownership?

Accepted Answer

A)   Its lack of short-term liquidity should immediate sale become necessary.
B)   The responsibility for maintaining the home and grounds; and
C)   The noncyclical nature of home prices over shorter periods of time.
D)   All of the above are disadvantages of home ownership.
E)   None of the above is a disadvantage of home ownership.

Question 7

Which of the following is not a major factor when deciding to change automobiles?

Accepted Answer

A)   State of current car.
B)   Existing finances.
C)   Current car promotion.
D)   Attractiveness of new car.
E)   All of the above are major factors.

Question 8

Which of the following factors makes auto leasing less attractive than ownership?

Accepted Answer

A)   Selling an automobile is time-costly.
B)   Inspection standards.
C)   Mileage charges.
D)   Both a and b.
E)   Both b and c.

Question 9

What type of human-related assets is personal finance principally interested?

Accepted Answer

A)   Assets that derive their value from particular people.
B)   Assets that generate income.
C)   Assets in which ownership is represented and traded solely through pieces of paper.
D)   All of the above.
E)   None of the above.

Question 10

Under which of the following are decisions are made by looking at the investment's risk and return characteristics on a stand-alone basis?

Accepted Answer

A)   Individual asset basis.
B)   Within activity basis.
C)   Fully integrated basis.
D)   Both a and b.
E)   Both b and c.

Question 11

Is leasing presented as a liability on the household's balance sheet?

Accepted Answer

A)   Yes.
B)   No.
C)   No, unless the household is attempting to qualify for a new loan.
D)   Yes, unless the household is attempting to qualify for a new loan.
E)   None of the above.

Question 12

When calculating the NPV, what discount rate should we use?

Accepted Answer

A)   A discount rate equal to the investment return that could be earned on nonmarketable securities with similar risk characteristics.
B)   A discount rate equal to the investment return that could be earned on marketable securities with similar risk characteristics.
C)   A discount rate equal to the investment return that could be earned on low-risk marketable securities.
D)   A discount rate equal to the investment return that could be earned on high-risk nonmarketable securities.
E)   None of the above. B

Question 13

Which of the following is never used as an alternative name for real assets?

Accepted Answer

A)   Tangible assets.
B)   Physical assets.
C)   Hard assets.
D)   All of the above are alternative names.
E)   Only a and c are alternative names.

Question 14

The higher one's tax bracket,

Accepted Answer

A)   The greater the "government subsidy" for tax-deductible real estate taxes and interest expense.
B)   The lower the "government subsidy" for tax-deductible real estate taxes and interest expense.
C)   The greater the amount of non-mortgage debt outstanding.
D)   The lower the amount of non-mortgage debt outstanding.
E)   None of the above.

Question 15

Which of the following is a major difference between IRR and NPV?

Accepted Answer

A)   NPV assumes that cash flows from projects are invested at the required rate of return while IRR assumes they are reinvested at the rate of return of that particular project.
B)   IRR assumes that cash flows from projects are invested at the required rate of return while NPV assumes they are reinvested at the rate of return of that particular project.
C)   NPV also gives multiple answers under some circumstances.
D)   Both a and b.
E)   Both b and c.

Question 16

Which of the following best describes financial assets?

Accepted Answer

A)   Assets in which ownership is represented and traded solely through pieces of paper.
B)   Assets that can be sold currently in a public forum for fair value at low transaction costs.
C)   Assets that you can see or touch that have market value.
D)   All of the above.
E)   None of the above.

Question 17

What is the Internal Rate of Return?

Accepted Answer

A)   The Net Present Value.
B)   The rate of return that makes the present value of cash inflows greater than that of cash outflows.
C)   The rate of return that makes the present value of cash inflows equal to that of cash outflows.
D)   Both a and b.
E)   None of the above. C

Question 18

Which of the following ranges reflects total home ownership rates in 2004?

Accepted Answer

A)   20-30%
B)   30-40%
C)   40-50%
D)   50-60%
E)   60-70%

Question 19

Which of the following is not an economic reason for leasing?

Accepted Answer

A)   The lessor may absorb the risk of technological or fashion obsolescence or large unforeseen expenditures on the asset.
B)   The lessor is sometimes able to develop efficiencies in specializing in that asset.
C)   The business owner may receive tax benefits that the lessor will not.
D)   All of the above are economic reasons for leasing.
E)   None of the above is an economic reason for leasing.

Question 20

Which of the following is the NPV?

Accepted Answer

A)   (Sum of Future Cash Flows / Discount Rate)  - Cash Outflow in Current Period.
B)   Present Value of Future Cash Inflows - Cash Outflow in Current Period.
C)   (Sum of Future Cash Flows / Discount Rate)  + Cash Outflow in Current Period.
D)   Either a and b.
E)   Both b and c.

Exam 8: Non Financial Investments

Dorothy owns a home that was worth $1,400,000 at the beginning of the year and $1,135,000 at year's end. The same house can be rented for $152,300 per year. Upkeep is $27,500 per year. What is Dorothy's return for the year?

Correct AnswerverifiedShow Answer

Real assets differ from financial assets as:

Correct AnswerverifiedE

Which of the following is an advantage associated with renting a dwelling?

Correct AnswerverifiedShow Answer

Which of the following is not a reason to purchase a durable good?

Correct AnswerverifiedShow Answer

The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should not exceed:

Correct AnswerverifiedShow Answer

Which of the following is not a disadvantage of home ownership?

Correct AnswerverifiedShow Answer

Which of the following is not a major factor when deciding to change automobiles?

Correct AnswerverifiedShow Answer

Which of the following factors makes auto leasing less attractive than ownership?

Correct AnswerverifiedShow Answer

What type of human-related assets is personal finance principally interested?

Correct AnswerverifiedShow Answer

Under which of the following are decisions are made by looking at the investment's risk and return characteristics on a stand-alone basis?

Correct AnswerverifiedShow Answer

Is leasing presented as a liability on the household's balance sheet?

Correct AnswerverifiedShow Answer

When calculating the NPV, what discount rate should we use?

Correct AnswerverifiedB

Which of the following is never used as an alternative name for real assets?

Correct AnswerverifiedShow Answer

The higher one's tax bracket,

Correct AnswerverifiedShow Answer

Which of the following is a major difference between IRR and NPV?

Correct AnswerverifiedShow Answer

Which of the following best describes financial assets?

Correct AnswerverifiedShow Answer

What is the Internal Rate of Return?

Correct AnswerverifiedC

Which of the following ranges reflects total home ownership rates in 2004?

Correct AnswerverifiedShow Answer

Which of the following is not an economic reason for leasing?

Correct AnswerverifiedShow Answer

Which of the following is the NPV?

Correct AnswerverifiedShow Answer

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E

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B

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C

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