FIN EXAM 2
If you borrow $100 at 10 percent simple annual interest and repay it in one lump-sum at the end of one year, you will repay:
$110. Repayment = $100 + (.10 x $100) = $110
Henry Garrison starts the month with a balance on his credit card of $1,000. The average daily balance for the month including purchase is $883. The average daily balance for the month excluding new purchase is $750. The bank charges 1.5 percent per month and uses the average daily balance including new purchases method. What would Henry's finance charges be for the month?
$13.25 Interest = $883 x .015 = $13.25
Karen Price has determined that her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and $15,000 on a car loan. What is Karen's debt-to-equity ratio?
$15,000/$30,000 = 0.5
If you cosign and the debt is not paid off, that fact does not become a part of your credit record
FALSE
The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.
FALSE
The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.
FALSE
The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
FALSE
There are no costs involved in filing for a bankruptcy.
FALSE
Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.
FALSE
With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts
FALSE
With closed-end credit, loans are made on a continuous basis and you make at least a partial payment each billing period.
FALSE
With collateral, you will probably pay a higher interest rate on your loan than you would without collateral
FALSE
a regular savings account usually offers a higher rate of return to savers than other savings plans
FALSE
if you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child support, or educational loans
FALSE
the rule of 78s formula dictates that you pay less interest at the beginning of a loan.
FALSE
The information in your credit report is primarily used by the credit bureau to compute your
FICO credit score
Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records
TRUE
Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.
TRUE
Demand deposits are another term for checking accounts
TRUE
Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years
TRUE
Parents or family members are often the source of the least expensive loans
TRUE
The annual percentage rate is the percentage cost of credit on a yearly basis
TRUE
The two most common methods of calculating interest are compound and simple interest formulas
TRUE
Using a "debit" card is basically the same as writing a check
TRUE
When you cosign a loan, you are being asked to guarantee this debt
TRUE
You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy
TRUE
You may be able to borrow at a lower interest rate if you accept a shorter-term loan.
TRUE
You should sign your new credit cards as soon as they arrive.
TRUE
if you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month
TRUE
Comparison of earnings for different savings plans can best be accomplished using the:
annual percentage yield.
Which method of payment is likely to be the least expensive in the long run?
cash
What type of account would be considered the most liquid?
checking account
A valuable asset pledged to assure loan payments and subject to seizure upon default is called:
collateral.
Which one of the following agencies can produce for a subscribing member, almost instantaneously, a report about your past and present credit activity?
credit bureau
Savings compounded ____________ would have the highest effective yield.
daily
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n):
five-year certificate of deposit.
Another name for closed-end credit is:
installment credit.
One of the drawbacks of borrowing from parents or family members is that such loans:
may create tension within the family.
The face value of a Series EE U. S. Savings Bond refers to the:
redemption value at maturity
The best way to maintain your credit rating is to:
repay your debts on time.
When interest rates are rising, a person would be best served by:
short-term savings instruments.
If there is incorrect information in your credit file:
the credit bureau must reinvestigate and modify or remove inaccurate data.
Which formula dictates that you pay more interest at the beginning of the loan and pay less and less interest as the debt is reduced?
the rule of 78s
A good example of open-end credit is:
the use of a bank credit card to make a purchase.
if you cosign a loan:
you will be required to pay the loan in full if the borrower defaults on the payments.
A certificate of deposit is usually considered to be very liquid
FALSE
Which FICO credit score would represent the least risky borrower?
(higher) 825
What should be the maximum limit for an individual's debt-to-equity ratio, excluding the home mortgage?
1.00
if you have declared personal bankruptcy, that fact may be reported by credit bureaus for____________ years.
10
Determine the rate of return (yield) on a savings account in which you deposited $300.00 and earned $6.00 in interest after one year.
2% = $6/$300
When you complain about your billing error, the creditor must acknowledge your letter within ____________ days.
30
pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of____ percent. Ignore compounding.
33% = 2.75% (12 months) 33.00
Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?
Chapter 13