ace 240 exam

As a percent of take-home pay, monthly consumer credit payments should not exceed a. 25%. b. 20%. c. 15%. d. 10%. e. 5%.

b

As well as being among the cheapest forms of consumer credit, interest on these is tax deductible: a. Automobile loans b. Home Equity loans c. Credit cards d. Unsecured personal credit

b

If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed a. $600. b. $450. c. $400. d. $300.

d. 20% of 1500

Clare's gross salary is $36,000 annually and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment? a. $600. b. $480. c. $450. d. $360.

ANS: B 28,800/12 = 2,400/month; 20% of that = $480

Russ and Lois have a home valued at $96,000 and an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of market value, how much could they borrow using a home equity loan? a. $72,000 b. $12,000 c. $45,000 d. $28,000

B 75% or value is $72,000; he already has $60,000 borrowed so bank will loan another $12,000

Persons with very poor credit ratings can still get ____ credit cards. a. secured b. student c. prestige d. affinity

a

The 5 Cs of Credit include all of the following except a. cash. b. capital. c. character. d. collateral.

a

The primary purpose of life insurance is to provide a. financial security for dependents in the event of death. b. protection from creditors and lawsuits. c. tax-advantaged investments. d. high-yield investments.

a

Theresa is a bit of a spendthrift. She has trouble saying no when it comes to buying things. Which of the following cards would the best choice to keep her out of debt? a. debit b. credit c. affinity d. rebate

a

To establish creditworthiness you probably should first a. open savings and checking accounts. b. use credit extensively. c. pay cash for all purchases. d. arrange a large loan from close relatives.

a

Underwriting is best described as: a. Activities related to selecting acceptable risks so that general insurer objectives are met. b. A function most often performed by adjusters c. Production-related activities performed primarily by agents in the field d. Process of developing pricing structures for insurance, often performed by an actuary

a

Sheldon has a home valued at $108,000 and an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of market value, how much could Sheldon borrow using a home equity loan? a. $16,400 b. $86,400 c. $56,000 d. $30,400

a. 80% of value = $86,400; he already has $70,000 borrowed so bank will loan another $16,400

1. The purchase of insurance is a common form of which risk management technique: a. risk retention b. risk transfer c. risk assumption d. risk avoidance

b

Borderline credit risks would most likely receive a. delayed reconsideration for credit application. b. a limited line of credit. c. an increase in their credit limit d. credit at a low interest rate so that their payments will be more affordable.

b

From the standpoint of the person buying insurance, the central purpose of insurance should be: a. to collect for all accidental losses b. to transfer risks of serious losses c. to support the prevention of losses d. to accumulate savings

b

The General Motors card and Citibank's Drivers Edge card are examples of ____ cards. a. debit b. rebate c. prestige d. travel and entertainment

b

____ does not represent a line of credit. a. Retail credit card b. Debit card c. Overdraft protection d. Home equity LOC

b

All of the following are useful ways to build a strong credit rating except a. Open checking and savings accounts. b. Open and use a charge account. c. Apply for a long-term loan and occasionally be late with a payment. d. Make payments on time.

c

Mike has a MasterCard with an annual fee of $25, 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists last month's payment, new charges this month totaling $1,500, and a $30 fee. That fee is most likely the result of a. interest charges. b. his annual fee. c. an over-the-limit fee. d. transaction fees on purchases.

c

The ____ is really a second mortgage on your home. a. affinity card b. unsecured personal credit line c. home equity line of credit d. preferred Visa card

c

The most valuable single technique in personal risk management to assist an individual in determining how much life insurance is needed is: a. Computing the Human Life Value. b. Using the probability of death each year, prevailing interest rates and assumed inflation rates to find the discounted present value of a future income stream. c. Assessing the family's total economic needs and subtracting financial resources available to meet those needs. d. Estimating the sum of money which, when paid in installments, will produce the same income as the person would have earned, after deducting assumed amounts for taxes and personal maintenance expenses.

c

A problem with home equity loans is the a. high rate of interest on these loans. b. difficulty in qualifying for these loans. c. short-term nature of these loans. d. temptation to spread payments over a long term.

d

Cards that can be used to pay for selected items and the amount of the transaction is automatically subtracted from the card value are called ____ cards. a. debit b. credit c. affinity d. prepaid

d

Group life insurance is a. provided by lenders b. now called home service life c. generally a decreasing term policy d. often less expensive than private coverage

d

If the primary beneficiary dies before the insured, proceeds are paid to __________ when the insured dies a. the state b. the probate court c. the insured's estate d. the contingent beneficiary or beneficiaries

d

Interest rates on ____ are typically lower than on any other form of consumer credit. a. travel and entertainment cards b. debit cards c. credit cards d. home equity loans

d

Interest will almost always begin to accrue immediately when you use a bank credit card to a. make purchases. b. send payments. c. compute finance charges. d. get cash advances.

d

Rodney and Toni are a young couple with two small children. They are doing well financially but their life insurance needs are high and their budget is tight. What type of life insurance will give them the most protection for their money? a. continuous premium b. universal life c. paid up life d. term life

d

Which of the following forms of life insurance requires the lowest premium per dollar of death benefits? a. universal life b. whole life c. variable life d. term life

d

Whole life insurance is designed to provide a. protection only b. savings only c. protection and savings and decreasing loan value d. protection and savings

d