personal finance exam (ch 5-7)

The total dollar amount you pay to use credit is called the: A. finance charge. B. annual percentage rate. C. price of the good/service purchased. D. amortized rebate.

A

A home owner paid $40,000 for their home. After refinancing, the owner owes $180,000. If the bank will provide home equity loans up to 80% of the value of the home and the maximum the homeowner can borrow is $50,000, what is the value of the home? A. $250,000 B. $287,500 C. $270,000 D. $1,150,000

B

The __________ is where the assessment of the finance charge is after payments made during the billing period have been subtracted. A) Previous balance method B) Average daily balance method C) Adjusted balance method D) Zero balance method

C

To avoid high fees for loans, a person should not borrow from a: A. credit union. B. savings and loan association. C. pawnshop. D. commercial bank. E. mutual savings bank.

C

What is (are) the signal(s) of potential debt problems? A. paying only the minimum balance each month B. missing payments or paying late C. using savings to pay normal bills D. depending on overtime to meet normal expenses E. All of the choices are the danger signals.

E

A UCF graduate writes 22 checks per month and pays $0.04 per check. The bank pays the graduate 1% interest per annum, and he/she maintains an average monthly balance of $600. What is the graduate's net annual cost of maintaining the checking account after giving effect to the interest earned (ignore taxes)? $ 60.00 net cost $ 66.00 net cost $ 7.20 net cost $ 4.56 net cost

$ 4.56 net cost

A student's bank statement reflects $1,600 at month end. The student's checkbook, before reconciling, reflects $1,500. The student has $5 of interest on the bank statement which has not been posted to his/her checkbook, deposits in transit of $100, and outstanding checks of $195. What is the reconciled bank balance? $1,510 $1,505 $1,400 $1,520

$1,505

A student takes a $400 cash advance on his credit card in January. The cash advance fee is 2% of the amount withdrawn. In addition, he/she does not pay off the $400 balance on the credit card at month end. The credit card carries an 12% per annum interest rate. The student just received his February credit card statement. Assuming the beginning January 1 balance was zero, how much money could the student have saved in January had he/she not taken out the cash advance and paid off the balance due on time? $4 $7 $56 $12

$12

The FDIC and NCUA insure non-retirement accounts in banks, savings & loans, and credit unions for up to__________: $10,000 $250,000 $50,000 $100,000 $500,000

$250,000

Using the same information as question 4, what is the cost of financing with Store B in the month of June? $4.50 $3.50 $3.75 $3.00

$3.00

You are shopping for a TV, and three stores carry the same model for $300 each. Each store charges 18% interest per annum, has a 30 day grace period, and sends out their bills on the first of the month. Each store calculates the finance charge using different methods: Store A Average daily balance method Store B Adjusted balance method Store C Previous balance method Assume you bought the TV on May 5, and made one payment of $100 on June 15. What is the cost of financing with Store A for the month of June? $4.50 $3.50 $3.75 $3.00

$3.75

If you finance a car with a dealer, most likely you'll pay interest calculated with the "add on interest" or "tack on interest" method (which not surprisingly works in the favor of the dealer). During the life of the loan, interest is paid on the full amount borrowed, even though some principal is paid back each month. A student buys a car as follows: Down payment - $ 2,000 Amount financed - $ 12,000 Total cost of car - $14,000 Finance charge - Add on interest @ 10% per annum over 4 years (48 months) What is the monthly payment and APR of this loan using your HP 10BII? $270/month with an APR of 19.2% $262.50/month with an APR of 17.6% $240/month with an APR of 19.2% Correct! $350/month with an APR of 17.6%

$350/month with an APR of 17.6%

Using the same information as question 4, what is the cost of financing with Store C in the month of June? (By now you should know which one of these methods is best, and which two to avoid!) $4.50 $3.50 $3.75 $3.00

$4.50

A homeowner paid $75,000 for his/her house and after several refinancings now owes $140,000 on the mortgage. The house is currently worth $200,000. A bank will provide home equity loans up to 90% of the value of the house. What is the maximum amount the homeowner could borrow on a home equity loan? $180,000 $120,000 $40,000 $0 $30,000

$40,000

Note: I highly recommend your review the homework illustration excel file in this module before attempting these problems. A student borrows $500 for one year, and is charged $50 in interest. He/she also pays a fee of $10 for the loan. What is the total cost of financing and the APR? $50 financing cost with a 10% APR $50 financing cost with a 11% APR $60 financing cost with a 12% APR $55 financing cost with a 11% APR

$60 financing cost with a 12% APR

A student has two credit card offers. Credit card "A" has an 19% per annum interest rate with no fee, while credit card "B" has an 12% per annum interest rate with a $50 annual fee. If the student maintains an average balance at month end in excess of $______, he/she should select the card "B" which has a lower rate with an annual fee. (i.e. what is the break-even point?) Instructor's note: You will never get ahead financially in life by carrying high cost credit card balances each month. The ideal solution is to get a card with no fee and pay it off monthly. Notwithstanding my advice, I recognize that some of you will indulge anyway, so you might as well know how to get the best deal! $533.23 $714.29 $1,000.00 $833.33

$714.29

Assume the following exchange rates are "market" rates today: 1 Euro = 1.50 US dollars OR 1 US dollar = .6667 Euros You are planning to exchange $5,000 US dollars for Euros. Which of the following bank deals will give you the most Euros? Hint: See the excel file in the Modules Chapter 5 for an illustration of how to solve this problem. 1 US dollar = .7142 Euros; Exchange fee = 2% 1 US dollar = .6667 Euros; Exchange fee = 4% 1 US dollar = .6451 Euros; No exchange fee 1 US dollar = .6896 Euros; Exchange fee = 1% You Answered 1 US dollar = .625 Euros; Exchange fee = 3%

1 US dollar = .7142 Euros; Exchange fee = 2%

Using the same data as #7 above, how long would it take to pay off the credit card debt if the payments were increased to $600/month? Note: If the website does not work, you can solve this on your HP. Use 12 payments per year) 19.3 months 23.9 months 34.2 months 44.8 months

19.3 months

Experts advise that your debt payments to take home pay ratio should not exceed 20%. A homeowner has the following monthly income and expenses: Item Value Gross salary $2,000 Taxes/social security $ 340 Visa card payments $ 35 Mastercard payments $ 30 Discover card payments $ 20 Auto loan payments $ 300 What is the homeowner's "debt payments to take home pay" ratio? 23.2% 19.3% 22.3% None of the above

23.2%

A UCF graduate has $7,000 of debt excluding her house and a net worth of $30,000 ($24,000 excluding her house). What is the graduate's debt to net worth ratio exclusive of the house? Experts say the ideal target ratio should not exceed 1 (100%). 33.3% 23.3% 28% 29.2% None of the above

29.2%

This question is based on a true story. A Navy petty officer needs cash and goes to a paycheck advance company for some money. He/she agrees to pay $560 in two weeks (when his/her paycheck arrives) in exchange for $500 today. What is the interest rate implicit in this loan? Hint: This is a TVM problem, and the payments per year should be listed as 365, with n = 14. 297% 249% 36% 28% 21%, the maximum rate allowed by law

297%

Using data from the web work, how long will it take to pay off a $10,000 credit card debt at 18% interest per annum with payments of $300/month? (Note: if the website does not work, you can solve this on your HP. Use 12 payments per year) 72.3 months 61.5 months 52.9 months 46.5 months

46.5 months

It's time for another financial calculator problem. A UCF student (who has not taken FIN 2100) decides that he really needs a large screen HD TV for football season. The student goes to a "rent to own" center and agrees to rent a TV for $60 per month (end of month). After 36 months, the student will own the TV. Assuming that the student could buy the same TV today for $1,000, what is the interest rate (APR) of renting the TV? 51% 59% 33% 23% None of the above

59%

Most of the information in your credit file may be reported for only _________ years (if you have 7 15 20 23

7

6. Using your financial calculator, solve for APR assuming you borrow $300 and pay it back in equal payments each quarter for the next 4 quarters at a 12% APR? What is the payment and what is the effective interest rate? A. PMT = $80.71; EFF = 12.55% B. PMT = $98.77; EFF = 12% C. PMT = $84.00; EFF = 12% D. PMT = $86.77; EFF = 12.55%

A

A bank that is looking at your past payment records on your loans by examining your credit report is most likely examining which aspect of the 5 C's of lending? A) Character B) Capacity C) Collateral D) Capital E) Conditions

A

A bank that is looking at your past payment records on your loans is most likely examining which aspect of the 5Cs of lending? A. character B. capacity C. collateral D. capital E. conditions

A

A saver will usually earn the highest rate with which of the following types of savings plans? A. a five year certificate of deposit B. debit account C. passbook account D. share account E. NOW account

A

A(n) __________ is a financial institution that offers a full range of financial services to individuals, businesses and government agencies. A) Commercial bank B) Savings and Loan C) Credit union D) Investment company E) None of the above

A

Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12; Outstanding checks $145; Interest $3.50; Deposit in transit $80 A. $145 B. $12 C. $157 D. $148.50 E. $80

A

Savings compounded ____________ would have the highest effective yield. A. daily B. annually C. semi-annually D. monthly E. weekly

A

Suppose John Ashby has calculated that the value of all of his assets (excluding the value of his home) is $225,000. He has also estimated that the value of all of his debts (excluding his mortgage) is $100,000. What is John's debt to equity ratio? A) .80 B) .44 C) 1.25 D) 2.25 E) None of the above

A

The debit card: A. debits your account at the moment you buy goods or services. B. credits your account at the moment you buy goods or services. C. is a new type of a credit card issued by VISA International. D. is really like a travel and entertainment card. E. is declared illegal in many states.

A

Which of the following is true about a loan from a commercial bank? A) They often require collateral or security when making a loan. B) They often lend to consumers without establishing a credit history and charge a high rate of interest. C) They make loans to members only. D) They make loans on the cash value of life insurance policies. E) None of the above is true about a loan from a commercial bank.

A

Which of the following would be a relatively inexpensive loan? A) John Smith gets a loan that uses his $10,000 CD as collateral. B) William Jones gets a personal loan from the Tinker Federal Credit Union. C) Jane Carter buys furniture and finances it with a loan from Mathis Brothers, the store where she bought the furniture. D) Melanie Barest buys a new refrigerator and charges it on her credit card and expects to have it paid off within one year. E) All of the above are inexpensive loans.

A

You borrow $1000 and have been told that you will repay it in 4 payments and that your interest rate is 12% on a simple interest loan and that your payments will be determined using the declining balance method. How much would you actually receive when getting this loan and what would be the four payments you must make on this loan? A) You will receive $1000 at the beginning and make payments of $280, $272.50, $265 and $257.50 each quarter. B) You will receive $1000 at the beginning and make payments of $280 each quarter. C) You will receive $1000 at the beginning and make payments of $269.03 each quarter. D) You will receive $880 at the beginning and make payments of $250 each quarter. E) None of the above

A

You purchase $2500 worth of furniture from Mathis Sisters Furniture. You decide to use their plan where you make 12 equal payments over the next year to pay for it. You sign a contract which specifies what your payments are and when they are due. This is an example of: A) Closed-ended credit. B) Open-ended credit. C) Revolving check credit. D) A line of credit. E) None of the above.

A

__________ is the interest computed on principal only and without compounding. A) Simple interest B) Compound interest C) Add-on interest D) Discount interest

A

What do you call a check that a bank writes on its own account made payable to a third party on your behalf? A bank draft A money order A certified check A cashier's check

A cashier's check

Under the compare checking accounts page, click the "Common everyday checking account fees" and a PDF file will appear. Using the data in the PDF, which of the following occurring in each statement cycle will result in waiving the normal monthly fee? Direct deposits totaling $500 ore more $1,500 minimum daily balance 10 debit card purchases and/or payments Linked to a Wells Fargo campus ATM or campus debit card Any of the above would result in the waiver of the monthly fee.

Any of the above would result in the waiver of the monthly fee.

All of the following will help you avoid bankruptcy EXCEPT: A. Mortgage payments based on one salary B. Financing your car for more than 3 years C. Avoiding credit card interest D. Shopping wisely

B

Debt payments-to-income ratio is: A. calculated by dividing total liabilities by net worth. B. calculated by dividing monthly debt payments (not including house payments) by net monthly income. C. determined by dividing your assets into liabilities. D. a useless ratio for determining your credit capacity. E. rarely used by creditors in determining credit worthiness.

B

If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments? A. $200 B. $300 C. $400 D. $500 E. $600

B

John Camey has a house that is worth $150,000. He has a mortgage on it worth $85,000. His bank allows him to borrow up to 90 percent of the value of the house. What size home equity loan can John get? A) $65,000 B) $50,000 C) $135,000 D) $85,000 E) None of the above

B

Miranda Sellars pays off the balance on her credit card every month. What type of credit card user is she known as? A) A borrower B) A convenience user C) A discriminating user D) A economical user E) None of the above

B

Paula Smith has been married for five years and plans on staying married. She wants to establish her own credit history. Which of the following is a step she should take? A) Close all joint accounts. B) Establish a separate credit card account in her own name. C) Change her name. D) Transfer all joint accounts to her name alone. E) All of the above are things she should do.

B

Stacia Wert-Gray has found that her take home pay per month is $2200. What is the maximum dollar amount of debt payments she should have? A) $880 B) $440 C) $330 D) $0 E) None of the above

B

Which of the following is not a good suggestion for choosing a credit card? A) Be aware of some cards that offer 'no fee' or low interest rates but charge you a transaction fee each time you use it. B) Use a local financial institution for your credit card even if the interest rate and annual fee charged are higher. C) Be aware of some credit cards that do not charge you an annual fee or have low interest but start charging you interest as soon as you purchase an item. D) If you are using your credit card as monthly installment credit, look for a credit card with a low monthly finance charges. E) Department stores and gasoline companies are good places to obtain your first credit card.

B

Which of the following would be one of the things listed in the book that you would consider when choosing a savings plan? A) Where the financial institution is located B) The safety of the savings plan C) The convenience of the financial institution D) The size of the financial institution E) All of the above are things you must consider when choosing a savings plan.

B

You borrow $1000 and repay the loan over 2 years with monthly payments on a compound loan. Over the two years you incur $163.68 in interest. Using the approximation formula in your textbook, what is the APR on this loan? A) 17.37% B) 15.71% C) 30.22% D) 32.66% E) None of the above

B

You have a balance in your savings account of $1000. You keep your money in that account for 182 days and earn $28 in interest. What is the annual percentage yield on this account? A) 2.80% B) 5.69% C) 1.39% D) 8.25% E) None of the above

B

Your bank statement shows a balance of $670. Your checkbook register shows a balance of $462. You earned interest of $2, and had a service charge of $4 which had previously been posted to the check register. What is the amount of outstanding checks assuming there are no deposits in transit? A. $210 B. $208 C. $180 D. $12 E. $6

B

__________ is the process of earning interest on interest. A) Rate of return B) Compounding C) Inflation D) Liquidity E) None of the above

B

3. 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 have to pay: A. $100. B. $105. C. $110. D. $115. E. $120.

C

A UCF alum has determined that his/her net worth is $30,000. The alum has also determined that the balance on their mortgage is $80,000. He/she has determined that the amount due today for the rest of her debt is $15,000. What is the alum's debt-to-equity ratio? A. 3.27 B. 2 C. .5 D. 2.67 E. None of the choices

C

A certificate of deposit that starts with a higher initial interest rate and which has a longer time to maturity but which can be retired by the financial institution is: A) A rising or bump-up CD. B) A stock-indexed CD. C) A callable CD. D) A global CD. E) None of the above.

C

A(n) __________ is an all-in-one account that includes savings, checking, borrowing, investing and other services for a single fee. A) Regular savings account B) Regular checking account C) Asset management account D) Certificate of Deposit E) None of the above

C

All of the following are way to improve your FICO score EXCEPT: A. Stop paying bills late B. Pay down credit cards evenly C. Increase your credit card/account applications D. Don't use a new credit card to lower other balances

C

Chandler borrows $1,000 for school this year. He is charged $50 in interest and pays a onetime fee of $15. What is the cost of financing and the APR? A. 6% B. 7% C. 6.5% D. 5%

C

Sue Ann James is depressed and goes to the mall and buys herself three new outfits at Dillards to make herself feel better. Which of the reasons for the over-indebtedness of families is this purchase most likely a result of? A) The use of money to punish a spouse B) The overindulgence of children C) Emotional problems D) Keeping up with the Joneses E) All of the above are reasons Sue Ann goes to the mall.

C

The __________ is a local nonprofit organization affiliated with the National Foundation for Consumer Credit that provides debt counseling services for families and individuals. A) Credit bureau B) Chamber of Commerce C) Consumer Credit Counseling Service D) Internal Revenue Service E) None of the above

C

What is the effect rate of 5% interest compounding quarterly? A. 5% B. 5.12% C. 5.09% D. 5.06%

C

What type of financial institution makes loans to consumers and small businesses. This type of financial institution has short and intermediate term loans with a higher interest rate than other types of financial institutions. It can be easier for people with no credit history or a bad credit history to get a loan from this type of institution. A) Commercial Banks B) Credit Unions C) Finance Companies D) Mortgage Companies E) None of the above

C

Which of the following is a drawback of a money market account? A) Low rate of return B) Penalty for early withdrawal C) High minimum balance D) Not insured E) All of the above are drawbacks of money market accounts.

C

Which of the following is a local organization affiliated with the National Foundation for Consumer Credit that provides debt counseling services for families and individuals? A. Credit Bureau B. Chamber of Commerce C. Consumer Credit Counseling Service D. Internal Revenue Service E. None of the choices.

C

Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging your interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? A. $12 B. $9 C. $21 D. $0 E. None of the choices.

C

Your credit card charges you a 2% fee for cash advances and has an APR of 18%. It also starts charging you interest on cash advances as soon as you get the advance. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? A) $12 B) $9 C) $21 D) $0 E) None of the above

C

Which of the following is not one of the five Cs of credit? Conditions Climate Character Capacity

Climate

A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent. A. 28 B. 16.72 C. 4 D. 2.88 E. 1.12

D

Comparison of earnings for different savings plans can best be accomplished using the: A. discounted present value. B. compounded rate of return. C. net present value. D. annual percentage yield. E. after-tax rate of return.

D

The __________ is the law that places the burden of proof for accurate credit information on the credit reporting agency. A) Fair Credit Reporting Act B) Equal Credit Opportunity Act C) Fair Debt Collection Act D) Consumer Credit Reporting Reform Act E) Fair Credit Billing Act

D

Which of the following is liquidity? A) It is the annual yield you earn on a savings plan. B) It is the fact that you may earn interest on interest. C) It is the fact that your purchasing power may change as price levels change and must be considered when comparing savings plans. D) It is the fact that you can withdraw your money on short notice without loss of principal. E) None of the above is liquidity.

D

Which of the following is not an advantage of a credit card? A) Credit cards permit the purchase of goods and services even when funds are low. B) Credit cards allow shopping convenience and the efficiency of paying for several things with one monthly bill. C) The use of credit cards can provide up to a 50-day float on purchases. D) The interest rate on credit cards can be higher than other sources of credit. E) All of the above are advantages of credit cards

D

Which of the following would be a financial service for short-term needs? A) U.S. Savings Bond B) Individual Retirement Account C) Car insurance D) Regular checking account E) All of the above

D

Which of the following would be a potential warning sign of debt problems? A) Increasing the balance on your credit card each month. B) Using savings to pay routine bills such as groceries or utilities. C) Borrowing more to pay old debts. D) Going over your credit limits on credit cards. E) All of the above can be warning signs of debt problems.

E

401-K accounts are tax free. True False

False

Home equity loans are known as a first mortgage. True False

False

There are no costs involved in filing for a bankruptcy. True False

False

In the event that an individual believes that interest rates are likely to move UP in the next year or two, what actions should he/she take? Invest short (such as short term CDs); borrow long term at fixed rates Invest long (such as long term CDs); borrow long term at fixed rates Invest short (such as short term CDs); borrow short term at variable rates Invest long (such as long term CDs); borrow short term at variable rates

Invest short (such as short term CDs); borrow long term at fixed rates

Refer to the College of Business "Cash Course" discussed in the web work. With respect to the 6 Surprising Credit Myths, which of the following statements is TRUE? The only credit score used for consumers is FICO. Potential employers can pull applicants' credit report if they have written permission from the applicant. Multiple inquiries into your credit performance will always weaken your credit score. You do not need to check your credit report if you pay your bills on time each month and don't have much debt. Checking your own credit score is a bad idea.

Potential employers can pull applicants' credit report if they have written permission from the applicant.

An example of open end credit is Home equity loans with a fixed payment schedule Revolving check credit Mortgage loans Auto loans

Revolving check credit

Refer the Bankrate web site discussed in the web work. Find the savings rate and mortgage rate boxes (NATIONAL AVERAGES). Which of the following is a TRUE statement? The "Interest Checking" rate is higher than the MMA (Money Market Account) and Savings interest rate. The 15 year mortgage rate is higher than the 30 year mortgage rate. The 5/1 ARM (Adjustable Rate Mortgage) mortgage rate is higher than the 30 year mortgage rate. The 5 year CD savings rate is higher than the 1 year CD rate.

The 5 year CD savings rate is higher than the 1 year CD rate.

Your bank has two checking account options, one pays tax-free interest at a rate of 3% per annum and the other pays taxable interest at a rate of 4.5% per annum. You are currently in a 25% marginal tax bracket. If you converted the tax-free interest rate to the comparable taxable interest rate you would find that: The comparable taxable rate is 6.0%, thus you would select the tax free account You would always select the account bearing the highest interest rate regardless of whether it's taxable or tax free The comparable taxable rate is 3.08%, thus you would select the tax free account The comparable taxable rate is 4.0%, thus you would select the taxable account

The comparable taxable rate is 4.0%, thus you would select the taxable account

A money market mutual fund that invested in commercial paper issued by corporations would generally be considered a low risk investment. True False

True

Credit unions typically offer lower loan rates than other financial institutions. True False

True

The credit cardholders who pay off their balances in full each month are known as convenience users. True False

True

The slope of the treasury yield curve normally reflects increasing interest rates over time, and represents the cost of borrowing for the US government. True False

True

When you cosign a loan, you are being asked to guarantee this debt. True False

True

You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy. True False

True

Refer to the Web Work regarding free credit reports. Which of the following is NOT required to obtain your free credit report? Your name and address Your social security number Your date of birth Your credit card number All of the items listed are required

Your credit card number