Car Expenses
A buyer takes out a 5-year loan for a car instead of paying cash. What is the biggest long-term disadvantage of financing a vehicle?
Paying interest increases the total cost of the car.
Why is a mortgage considered a long-term financial commitment?
Because it often takes 15–30 years to fully repay the loan.
Why do insurance companies charge premiums even if customers never file claims?
Premiums are used to spread risk and pay for claims across all policyholders.
What is the difference between secured debt and unsecured debt?
Secured debt is backed by collateral, while unsecured debt is not.
What is the difference between saving and investing?
Saving focuses on protecting money, while investing focuses on growing money.
A car originally worth $40,000 loses 15% of its value in one year. What is the car worth after depreciation?
$34,000.
A homebuyer puts 20% down on a $300,000 house. How much is the down payment?
$60,000
A policy has a $2,000 deductible and $12,000 in covered damages. How much does the insurance company pay?
$10,000
Why can making only the minimum payment on a credit card become financially dangerous?
Interest continues building, making repayment much more expensive over time.
Why can inflation reduce the value of money kept only in a savings account?
Prices may rise faster than the money earns interest.
Why might a used car sometimes be a smarter financial decision than a new car?
Used cars usually cost less and avoid the steepest depreciation.
Why might renting be financially safer for someone who moves frequently for work?
Renting offers flexibility and avoids the costs of buying and selling property.
Why are younger drivers often charged higher car insurance premiums?
Insurance companies consider them statistically more likely to be involved in accidents.
A student loan has a variable interest rate. What is one financial risk of this type of loan?
The interest rate and monthly payment could increase over time.
What usually happens during a bear market?
Stock prices fall and investor confidence decreases.
A person leases a car for three years and exceeds the mileage limit in the contract. What financial consequence could occur?
They may have to pay expensive mileage penalty fees.
What is one major financial risk of buying a home with an adjustable-rate mortgage instead of a fixed-rate mortgage?
Monthly payments could increase if interest rates rise.
What is the main purpose of liability insurance?
To pay for injuries or damage caused to others.
Why are payday loans considered risky forms of borrowing?
They usually have extremely high interest rates and fees.
Why are diversified mutual funds generally considered less risky than buying one individual stock?
Because losses from one company may be balanced by gains from others.
A borrower with poor credit receives a higher interest rate on an auto loan. Why do lenders charge higher rates to risky borrowers?
Because lenders believe there is a greater chance the borrower will fail to repay the loan.
Besides the mortgage payment, what are two major ongoing costs homeowners must budget for?
Property taxes and maintenance/repairs.
Why is having insurance considered a form of financial protection instead of an investment?
Insurance reduces financial risk but does not typically generate profit or wealth growth.
A borrower takes out a $15,000 loan at 8% simple annual interest for one year. What is the total amount owed after one year?
$16,200
An investment of $2,000 earns 6% compound interest annually for two years. What is the final amount?
About $2,247.20.