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- December 18, 2024
Question 41
What is a “uniform settlement statement”?
a) A summary of a borrower’s credit card transactions
b) A legal document listing all costs and fees associated with closing on a mortgage
c) A document provided to cardholders to show outstanding balances
d) A notice of foreclosure proceedings
Answer: b) A legal document listing all costs and fees associated with closing on a mortgage
Explanation: A uniform settlement statement, also known as a closing statement, details all of the costs and fees a borrower must pay when purchasing a home or closing a mortgage.
Question 42
What is “foreclosure”?
a) A legal process in which a lender sues a borrower to recover a loan after default
b) A process in which a borrower voluntarily sells their property to pay off debt
c) A penalty imposed for missing a mortgage payment
d) A process that lowers the interest rate on a loan
Answer: a) A legal process in which a lender sues a borrower to recover a loan after default
Explanation: Foreclosure occurs when a borrower defaults on their mortgage, and the lender takes legal action to seize and sell the property to recover the outstanding loan balance.
Question 43
What is the “finance charge” on a loan?
a) The total amount of money borrowed from a lender
b) The total dollar amount paid to use credit, including interest and fees
c) The amount of interest paid on a loan after one year
d) The amount of money a borrower must repay after defaulting on a loan
Answer: b) The total dollar amount paid to use credit, including interest and fees
Explanation: The finance charge represents the full cost of borrowing, including interest, fees, and any additional charges associated with using credit.
Question 44
What is the “annual percentage rate” (APR)?
a) The yearly interest rate on a loan, including fees and other costs
b) The monthly payment amount required for a loan
c) The percentage of a loan that is used to calculate finance charges
d) The total amount borrowed over the life of a loan
Answer: a) The yearly interest rate on a loan, including fees and other costs
Explanation: The APR is the total annual cost of borrowing, expressed as a percentage, including both the interest rate and any associated fees, making it a more accurate measure of loan costs.
Question 45
What is the “replacement ratio” in retirement planning?
a) The percentage of income replaced by Social Security benefits
b) The percentage of pre-retirement income replaced by retirement savings and benefits
c) The percentage of total savings required to retire comfortably
d) The percentage of total investments that should be allocated to stocks
Answer: b) The percentage of pre-retirement income replaced by retirement savings and benefits
Explanation: The replacement ratio refers to the percentage of a retiree’s pre-retirement income that will be replaced by savings, investments, and Social Security during retirement.
Question 46
What does “transitionally insured” mean in Social Security?
a) A person who is fully insured but not yet eligible for benefits
b) A person who receives limited retirement benefits despite not meeting the full work requirement
c) A person who is not eligible for Medicare but receives Social Security
d) A person who receives higher benefits due to working past retirement age
Answer: b) A person who receives limited retirement benefits despite not meeting the full work requirement
Explanation: Transitionally insured individuals have not worked the required 10 years but may still receive limited Social Security benefits if they meet certain age and work criteria.
Question 47
How is “future value” (FV) calculated?
a) By multiplying the present value of a sum by the number of years
b) By dividing the present value by the interest rate
c) By multiplying the present value by (1 + interest rate) raised to the power of the number of time periods
d) By adding the total interest earned to the principal amount
Answer: c) By multiplying the present value by (1 + interest rate) raised to the power of the number of time periods
Explanation: The future value formula calculates how much an investment will be worth in the future by applying the interest rate over a specified number of periods.
Question 48
What is “simple interest”?
a) Interest that is compounded annually
b) Interest calculated only on the principal amount of a loan or investment
c) Interest calculated on both the principal and previous interest earned
d) Interest charged on a loan with a fixed repayment schedule
Answer: b) Interest calculated only on the principal amount of a loan or investment
Explanation: Simple interest is calculated solely on the original principal amount, without considering any interest that has already been accrued.
Question 49
What is “investment risk”?
a) The likelihood of earning a guaranteed return on an investment
b) The potential for loss or gain on an investment, with higher risk often associated with higher potential returns
c) The probability of defaulting on a loan used for investment purposes
d) The certainty of earning interest on a fixed-rate bond
Answer: b) The potential for loss or gain on an investment, with higher risk often associated with higher potential returns
Explanation: Investment risk refers to the uncertainty of returns on an investment, where higher risk investments may offer higher potential returns, but also carry greater potential for loss.
Question 50
What is the purpose of the “Federal Insurance Contributions Act” (FICA)?
a) To fund the government’s defense programs
b) To collect payroll taxes that fund Social Security and Medicare programs
c) To provide tax deductions for retirement contributions
d) To collect taxes on capital gains and investment income
Answer: b) To collect payroll taxes that fund Social Security and Medicare programs
Explanation: The FICA tax is a payroll tax that funds essential government programs such as Social Security and Medicare, which provide retirement and healthcare benefits.