Problem 1. The future value of a $500 ordinary annuity received for three years is $________, assuming an investment rate of 10%.
a. 1,655.00 b. 665.50 c. 1,820.50 d. 335.65
Problem 2. With an interest rate of 9 percent, your investment would double in about
a. 4 years. b. 6 years. c. 8 years. d. 10 years.
Problem 3. An ordinary annuity assumes __________-of-period payments, while an annuity due assumes __________-of-period payments.
a. End; beginning b. Beginning; end c. End; middle d. Beginning; middle
Problem 4. Which type of computation would a person use to determine current value of a desired amount for the future?
a. Future value of a single amount
b. Future value of a series of deposits
c. Present value of a single amount
d. Present value of a series of deposits
Problem 5. If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type of computation?
a. Future value of a single amount
b. Future value of a series of deposits
c. Present value of a single amount
d. Present value of a series of deposits
Problem 6. At the end of 1999, Phil had a net worth of $10,000. During 2000, he plans to save $2,000 and he also expects the market value of his assets to increase by 5%. If Phil's total liabilities were $4,000 at December 31, 1999, his December 31, 2000 net worth will be
a. $12,000. b. $12,500. c. $12,700. d. $12,800.
Problem 7. In extending an expense item for the current budget year, an oftenused and useful approach is to
a. Use last year's figure.
b. Use the average of the last three years.
c. Use last year's figure plus a usual 10% "fudge factor"
d. Adjust last year's figure upwards by this year's expected
Problem 8. From a budgeting view, which of the following statements is not true concerning variances?
a. A favorable expense variance means the budgeted amount was more than the actual amount.
b. Cumulative variance = current month's variance + variances of previous months.
c. Ideally, cumulative variances for the year will equal zero.
d. Ideally, cumulative variances for the year should have a positive value.
Problem 9. Individuals with above average amounts of mortgage interest, medical expenses and property taxes are likely to:
a. Take both itemized deductions and the standard deduction.
b. Take only the standard deduction.
c. Take only itemized deductions.
d. Take the alternative minimum tax.
Problem 10. Taxpayers should claim itemized deductions only if
a. Itemized deductions exceed the standard deduction.
b. They are also claiming a standard deduction.
c. Itemized deductions exceed tax credits.
d. They use the tax rate tables to calculate their taxes.
Problem 11. Anita sold for $60,000 her home that she purchased ten years ago for $20,000. She then purchased another home a month later for $70,000. The taxable amount of her capital gain is
a. $60,000. b. $40,000. c. $30,000. d. $0.
Problem 12. Evan, who has a 28% marginal tax rate, is considering giving securities to his son, Todd, who is under fourteen years of age. The securities will yield $500 of income each year. If Evan makes the gift, then
a. Todd must pay a gift tax based on $500.
b. Family income after taxes will increase by $140 each year, assuming Todd would have no other taxable income.
c. The family could deduct $500 from its income each year, assuming Evan's wife agrees to the gift.
d. There will be no change in taxes, assuming the family files a joint return.