Personal Finance 7Th Canadian edition By Kapoor – Test Bank

Personal Finance 7Th Canadian edition By Kapoor – Test Bank

Chapter 07

The Finances of Housing

True / False Questions

1. Financial guidelines suggest that you should “spend no more than 10 to 20 percent of your take home pay on housing”.
   FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

2. Opportunity costs of housing can refer to time and effort involved in finding and repairing a place to live along with lost interest earnings on security deposits and down payments.
   TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

3. Ease of mobility is an advantage of renting.
   TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

4. A lease only protects the rights of the tenant.
   FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

5. One significant drawback of home ownership is financial uncertainty.
   TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

6. Real estate agents will provide you with services using an hourly rate.
   FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

7. A lease does not protect tenants from rent increases during the term of the lease.
   FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

8. Condominiums involve the purchase of an individual living unit rather than an entire building.
   TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

9. Cooperative housing involves the renting of a living unit by the people involved in ownership of the building on a nonprofit basis.
   TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

10. Zoning laws are restrictions on how the property area can be used.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

11. Many people believe that location is the most important factor to consider when selecting a home.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

12. Past interest rates can affect the price of a home.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

13. Negotiating a purchase price for a home usually involves an offer and counteroffers.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

14. The amount of the down payment will affect the amount of mortgage a person can afford.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

15. Qualifying for a mortgage is much different then obtaining other forms of credit.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

16. The gross debt service ratio is your monthly mortgage payment (including principal, interest, heating and taxes) as a percentage of your gross monthly income.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

17. The total debt service ratio is your monthly mortgage payment and other outstanding debts as a percentage of your gross monthly income.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

18. Lenders commonly use a GDS ratio of 50% and a TDS ratio of 60% as guidelines to determine the amount you can comfortably afford for housing.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

19. Amortization refers to changes in the monthly payment for a variable rate mortgage.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

20. Variable rate mortgages with a rate cap prevent the borrower from having to pay an interest rate significantly higher than the one in the original agreement.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-04 Obtain mortgage financing.
Topic: 07-16 The Finances of Home Buying

21. An escrow account is designed to reduce the cost of a mortgage.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-04 Obtain mortgage financing.
Topic: 07-16 The Finances of Home Buying

22. Closing costs are the fees and charges owed when making the decision to refinance a home.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-04 Obtain mortgage financing.
Topic: 07-16 The Finances of Home Buying

23. Home improvements may contribute more to the value of the home than the cost of the renovations.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-05 Develop a strategy for selling a home.
Topic: 07-20 Selling Your Home

24. A split-rate mortgage helps to reduce interest rate risk.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-04 Obtain mortgage financing.
Topic: 07-16 The Finances of Home Buying

25. Financial guidelines suggest that you should “spend no more than 25 to 30 percent of your take home pay on housing”.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

26. Ease of mobility is an advantage of owning a house.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

27. One significant drawback of home ownership is financial commitment.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

28. Real estate agents will provide you with services and are paid commission on the selling of a home.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

29. Condominiums involve the purchase of an entire building.
    FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

30. Current interest rates can affect the price of a home.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

31. Lenders commonly use a GDS ratio of 30% and a TDS ratio of 40% as guidelines to determine the amount you can comfortably afford for housing.
    TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

Multiple Choice Questions

32. Renting is more advantageous than buying a home for
    A.lower short-term living costs.
    B. financial benefits.
    C. long-term investment purposes.
    D. receiving tax benefits.
    E. permanence of residence.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

33. A common opportunity cost associated with renting is
    A.interest lost on the down payment.
    B. interest lost on closing costs.
    C. property taxes.
    D. maintenance costs.
    E. interest lost on the security deposit.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

34. Renting would be most appropriate for people who
    A.have limited funds currently available.
    B. have difficulty establishing credit.
    C. want to reduce their taxes.
    D. enjoy remodeling their residence.
    E. desire the financial benefits of increased equity.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

35. Belinda Williams plans to rent instead of buying her house. What advantage of renting will Belinda encounter?
    A.tax advantages
    B. financial benefits
    C. community pride
    D. lower initial costs
    E. home improvement flexibility

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

36. The main financial benefit of renting is
    A.tax deductions.
    B. increased equity.
    C. investment value growth.
    D. lower initial costs.
    E. high financial commitment.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

37. If you decide to purchase a condominium for potential benefits you are probably:
    A.single parent.
    B. young couple, no children.
    C. couple, young children
    D. young single
    E. retired person.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-01 Evaluate available housing alternatives.
Topic: 07-01 Evaluating Housing Alternatives

38. A lease always gives the landlord the right to:
    A.to increase the rent
    B. to evict the tenant at any time
    C. to take legal action against a tenant for nonpayment of rent
    D. to ignore government housing regulations
    E. cancel the lease

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

39. What is the purpose of subletting an apartment?
    A.to increase the rent
    B. to lower maintenance costs
    C. to convert the units to condominiums
    D. to meet certain government housing regulations
    E. to obtain another tenant to complete a lease period

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

40. Which of the following is typically excluded from a lease agreement?
    A.the conditions under which the landlord may enter the apartment.
    B. the tenant’s right to sublet the rental unit.
    C. A list of utilities, appliances etc that are included in the rental amount.
    D. the penalty for missing rental payments.
    E. restrictions regarding specific activities (e.g. remodeling).

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-02 Analyze the costs and benefits associated with renting.
Topic: 07-06 Renting

41. Which of the following are disadvantages of home ownership?
    A.limited responsibility
    B. few financial benefits
    C. low initial costs.
    D. limited mobility.
    E. lifestyle flexibility.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process

42. A cooperative housing arrangement involves
    A.government-supported rental units.
    B. a nonprofit organization.
    C. individual ownership of a living unit in a building.
    D. factory built and on-site assembly.
    E. housing units owned by a real estate developer.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 07-03 Implement the home-buying process.
Topic: 07-12 The Home-Buying Process