ADMS 3541 Midterm 2 Review – Winter 2014
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:
Participating term policy
Comprehensive home insurance policy
Cash surrender value
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:
Interest rate on overdue balance
Annual fee, start of year
Collision Damage Waiver
.5% of amount charged
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?
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