Question

In insurance, the larger the number of exposures of a case, the higher the risk for...

  1. In insurance, the larger the number of exposures of a case, the higher the risk for the insurance company to sell insurance for that case.

T       F

2.         Among the many different ways for people to handle risk, buying insurance is an effective way to reduce risk.

       T     F

3.         A mortgage loan with a negative amortization causes both the principal and interest balances to increase over time.

            T       F

4.         Your liability insurance is designed to protect you from financial losses resulting from any damage or destruction to the properties of others that is caused by you.

       T     F

5.         Paying higher deductible and/or higher insurance co-payment would result in increasing the regular premium.

       T     F

6.         Health insurance will generally cover an illness or injury which starts during the period covered, even if the policy expires before treatment ends.

       T     F

7.    If the down payment is less than what the conventional mortgage loan requires, MIP-   insurance would be required, in addition to the HO- insurance.

       T     F

8.         Calculating mortgage payment by the computer financial calculators does not factor in the taxes and insurance portions.

       T     F

9.    Effective Marginal Tax Rate is a collective rate that includes federal, state, local, and other marginal tax rates.

       T     F

10.       In practice, the stated interest rate quoted by lenders may not be exactly the same as the Annual Percentage Rate (APR).

T       F

11.       Both Real income and Nominal income are terms to reflect the actual purchasing power of our money.

       T     F

12. The Consumer price index (CPI) is a broad measure of the change in prices, which is used to quantify inflation.

       T     F

13. The “Residual Value” of a car is the projected market value at the end of the car’s life expectancy.

       T     F

14. Regressive taxes are those taxes which decrease as the base on which they are imposed       decreases.

       T     F

15. A Conversion period is the basic time limit between successive interest calculations.

       T     F

16.       Income-expenses statement is identified by the net worth.

       T     F

17.       A balance sheet describes the financial status at a certain point in time

       T     F

18.   A person who has a negative net worth is technically insolvent.

       T     F

19.       The 30-36 months old car is assumed to be the optimal time to buy for it yields the largest positive difference between value and cost.

       T     F

20. A mortgage loan point is a fee, usually 10% of the amount of the loan, paid at closing.

       T     F

21.       An adjustable-rate mortgage loan is characterized by a variable interest rate and fixed monthly payment.

       T     F

22.       A credit worthiness is determined by both, the lender and borrower.

       T     F

23. Grace period in credit is usually determined by the time between posting date and due date.

       T     F

24. A Manufacturer’s Suggested Retail Price (MSRP) of a car is the same as the “Sticker Price”.

       T     F

Homework Answers

Answer #1

1. True; This is called Adverse selection

2. True; Its proven that insurance is one of the best way to manage risk

3. True ; Negative amortised loan is one scheme where we can pay payments less than the schedule interest and due to this principal amount and interest in the future increases

4. False ; intentional damage, criminal proceeding etc not covered

5. False: paying more deductible reduces premium

6. False; Once benefit period is over, we need to renew the insurance

7. True; if downpayment is less than 20%, MIP(Mortgage Insurance Premium) policy is required

8. True; there are some calculators like PITI calculators which factor in this

9. False: Effective tax rate refers to federal taxes

10. True ; Annualized Percentage Rate include other costs which makes it higher than interest rate usually

11. False; Real income only show actual purchasing power

12. True;

13: True;

14. False; Regressive tax decreases as the base increases

15. True;

16; False; incom-expenses statement shows net profit

17. True

18. True; for technically to be insolvent, if the networth is negative

19. False; cant say this in ideal conditio

20. False; Mortgage point usually 10% is higher and generally 1% is used.

21: False; ARM loan is charecterised by fixed interest rate(not monthly payment) in the beginning and then variable interest rates

22. False; Determined only by lendor

23.False; A grace period is the time allowed after due date where payment can be done without penalty

24. True; Sticker price and MSRP are same

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