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ADMS 3541 Midterm 2 Review

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ADMS 3541 Midterm 2 Review
ADMS 3541 Midterm 2 Review – Winter 2014
Question 1:
The following parts of the question are not related:
a) What are the four fundamental tax minimization strategies discussed in the textbook? Define or describe each one briefly and provide an example (i.e. no mone than two sentences).

(b) What are the advantages of buying whole life insurance over term life insurance?

(c) Define or describe briefly the following terms:
(i)
Participating term policy
(ii)

No-fault insurance

(iii)

Self-insurance

(iv)

Comprehensive home insurance policy

(v)

Pure Risk

(vi)

Cash surrender value

Question 2:
Lois King and Sam Alagurajah are unhappy with their current credit card and want to switch. They have two choices: the Bank of Middle Ontario (BMO) Flashy Financier card or the Pickering Co-op Farms (PCF)
Cool Cucumber card. Lois and Sam will charge about $20,000 p.a. on the card. They pay off the entire balance on the due date always. They take one weeklong ski vacation a year, for which they have to rent a car. Collision damage waiver on the rental car costs $19 per day. They buy most of their food at the
Pickering Co-op Farms store. The appropriate discount rate is 5%. The features of the two cards are shown on the table:
Feature

BMO

PCF

Interest rate on overdue balance

18%

21%

1

Annual fee, start of year

$100

0

Grace period

25 days

17 days

Collision Damage Waiver

Yes

No

Grocery points

no

.5% of amount charged

Travel points

Yes*

No

Notes: At annual spending of $20,000, it will take three years to get one $500 flight to Calgary, good any time
(why Calgary? For the ski trip). The grocery points charge is just like any affinity card. The points are earned on all purchases charged to the card, not just those charged at the PCF store; they are redeemable only at the store, but clearly the couple would be able to use them all.
a) What is the EAR on the BMO card?
b) Which card should they choose?

Question 3:
Fred Heath wants to borrow $500 for 20 days

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