chapter 5 and 7 exam 2

Rachel Efron went to the ATM to draw $200 cash with her debit card. She inadvertently pulled out her credit card instead, not realizing the expenses for cash advances. If her credit card company charges a cash advance fee of 3 percent and interest at 24 percent APR, what are the total fees she will pay for her mistake?

$10

Timothy Calibe went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with his Mastercard credit card, he use the ATM across the street to withdraw cash using his credit card. Tim did as suggested and didn't pay attention to any fees until he received his credit card statement one month later. He was shocked to see the total fees (3 percent cash advance) and his APR was increased to 21 percent. Given the cost of the meal ($150) plus the associated fees, how much did his meal cost him?

$157.13

Suppose you borrow $200 for one year and pay a finance charge of $20. If you repay this loan all at once after one year, what is your average balance?

$200

Paul borrowed $250 to be repaid in one year. He paid 10 percent interest and a service charge of $2.50. What is his finance charge?

$27.50

Peter borrowed $250. He paid $25 interest and a service charge of $2.50. What is his finance charge?

$27.50

If Vinay charged $300 on his credit card with 18 percent APR and he paid his balance in full within the grace period, how much was he required to pay?

$300.00

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 7 percent loan. What is her total interest?

$70

Acme Home Lending offers home equity loans up to 75 percent of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $65,000, how much can she borrow in a home equity loan from Acme?

$85,000

Hannah has liabilities totaling $25,000 (excluding her mortgage of $75,000). Her net worth is $50,000. What is her debt-to-equity ratio?

.50

Information about a personal bankruptcy may be reported in your credit file for

10 years

Timothy Calibe has net monthly income of $4,200. He has a monthly auto loan payment of $350, a student loan payment of $120, mortgage payment of $1,100 and a credit card minimum payment of $40. What is his debt-payments-to-income ratio?

12.1 percent

Rachel Efron has net monthly income of $2,400. She has a monthly auto loan payment of $250, a student loan payment of $120, and credit card minimum payment of $40. What is her debt-payments-to-income ration?

17 percent

A typical grace period for many credit card issuers is

20 - 25 days

Experts suggest that the debt payments-to-income ratio should be a maximum of

20 percent

FICO socres generally range from

350 to 850

If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within

60 days

Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code?

A and C are correct (Chapter 7 and Chapter 13)

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n) ________

A. ARM

Ricky has a conventional mortgage. He can monitor his interest and principal payments using _____

A. Amortization

When Nancy buys her house, the mortgage company will probably conduct a(n) _______.

A. Appraisal

If you have a mortgage that has a large final payment, you have a(n) ___________

A. Balloon mortgage

Which of the following is a legal form of ownership where the owners pay a monthly fee for maintenance of the common areas?

A. Condominium

Which of the following is the document that transfers ownership of property from one party to another?

A. Deed

Frank and Diane wanted to buy a house. Which of the following do they need before they purchase a house?

A. Down payment

Quinn applied for a loan. He provided information about his finances and the home he plans to purchase. Results of the mortgage calculation include all except

A. Expected maintenance costs

A legal document that includes information about the due date of monthly rent is called a

A. Lease

This gives the landlord the right to take legal action against a tenant for nonpayment of rent or destruction of property

A. Lease

This provides the tenant protection from rent increases

A. Lease

Louise McIntyre's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $35 and $30, respectively. Her monthly payment on an automobile loan is $285. A: What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 2 decimal places.) B: Is Louise living within her means?

A: 25.74 B: No

A cash advance

Accrues interest charges beginning the day the cash advance is made

According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting any billing errors, you have the right to sue for

Actual damages plus twice the amount of any finance charges

The Consumer Credit Counseling Service

Aids families with serious debt problems by helping them to manage their money better and set up a realistic budget

When misused , credit can result in

All of the above

Which of the following is NOT a valid credit application question?

All of the above are valid credit application questions. (How much of a loan are you requesting?, What is the account number for your checking account?, What is the name of the nearest relative not living with you?, and How many dependents do you have?)

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except

All of the steps above are appropriate to take if she suspects identity theft. (Stop payment on the missing checks, Cancel her debit card, Get a new debit card with a new personal identification number (PIN), and Close her bank account and open a new one.)

Which is NOT true about the Fair Credit Reporting Act?

Allows borrowers to receive free annual credit reports

The finance charge for credit includes all except:

Amount borrowed

The APR is the percentage cost of credit on a(n) ______ basis.

Annual

What step can you take if your credit application is denied?

Ask why you were denied credit

Installment credit exploded on the American scene with the advent of the

Automobile

If you are selling your house by owner, you should still enlist the assistance of

B. A lawyer or title company to assist with the contract, closing, and other legal matters

If you have an interest rate subsidy from a home builder or real estate developer, you have a(n) ___________

B. Buy-down

Madeline wants to purchase a larger house. However, she had not yet sold her current home. She may want to include a(n) ________ in her offer.

B. Contingency clause

Which of the following is a form of housing in which shareholders purchase stock to obtain the right to live in a unit of the building?

B. Cooperative housing

Which of the following is a form of housing in which the units are owned by a nonprofit organization?

B. Cooperative housing

Which of the following is an account used to pay property taxes and home insurance?

B. Escrow

Paul is 23 years old and has a small amount to use as a down payment for his first house. He might be eligible for a(n)____________

B. FHA loan

The tenant is the

B. Lessee

During a home purchase closing, you should

B. Pay all closing costs, settle last-minute items, and sign documents

Which of the following is an advantage of renting?

B. Renters have fewer responsibilities than homeowners

Jim wants to make an offer to buy an older house. At this point, he should

B. Set up a home inspection

Which of the following is a disadvantage of renting?

B. Tenants cannot take tax deductions for mortgage interest and property taxes

Most tenants sign a lease. Which of the following is part of a lease agreement?

B. The conditions under which the landlord may enter the apartment

The primary benefit of a home equity loan is

B. The deductibility of the loan interest on federal taxes

Georgina and Henry are looking at houses. Which of the following is correct?

B. They should assess the school system in the area they want to live.

Donald wanted to buy a house in the country, so he sought the advice from his cousin Evan. Evan explained the advantages and disadvantages of home ownership; however, he did have some information incorrect. Which of the following is incorrect?

C. An advantage is that the down payment required is less than the security deposit for a rental.

Which of the following is NOT correct?

C. Caryn's suggestion to open drapes but keep lights turned off to conserve energy will give her property a positive image.

If you have the option to change your adjustable-rate mortgage to a fixed-rate mortgage during a certain period, you have a(n) ___________

C. Convertible ARM

Zelda is looking for a mortgage that will give her the option to change it to a fixed-rate mortgage. Which of the following will meet her criterion?

C. Convertible ARM

Opal is a real estate agent who represents the buyer as well as the seller. In some states, the buyers are required to sign a disclosure acknowledging that they are aware that Opal is working as a(n) __________.

C. Dual agent

Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except

C. His original cost

The owner/landlord is known as the

C. Lessor

When Smee applied for a loan, he was assured that his rate would not change if he closed within a specific time period. Smee had a ______.

C. Lock

Diane purchased her house and had it assembled before it was moved to her lot. She purchased a ______

C. Manufactured home

Veronica has had a variable-rate mortgage for several years. Unfortunately, the monthly payments have not covered her interest owed. As a result, her home equity is decreasing because of _____________

C. Negative amortization

A reverse mortgage

C. Provides older homeowners a loan that pays tax-free income and is repaid when the home is sold

A loan officer is examining whether or not he/she will offer you a loan today. Specifically, he/she is examining your income and debts. Which of the five Cs is the loan officer reviewing?

Capacity

Under Chapter 7 of the U.S. Bankruptcy code,

Certain assets receive some protection

The use of property or savings to secure a loan relates to

Collateral

A credit cardholder who pays off his balances in full each month is known as

Convenience user

All of the following are consumer credit protection laws except

Credit Lawsuit Act

A credit report includes

Credit history

Which of the following expenses is NOT usually recommended or necessary for a tenant?

D. All of the above are expected (security deposit, utilities, insurance)

Pauline just submitted an offer on her dream home. To show that she is serious, she also included _______________.

D. Earnest money

Andrew wants a loan that will allow him to pay back his 30-year mortgage in 15 to 18 years. His best choice is _________

D. Growing-equity mortgage

If you have a mortgage that provides for increases in payments that allow the amount owed to be paid off more quickly, you have a(n) ___________

D. Growing-equity mortgage

Franklin wants to sell his house himself. Which of the following is NOT correct about his sale?

D. He should show the house only when he is home alone

Private mortgage insurance

D. Must be terminated automatically when the homeowner's equity reaches 22 percent of the property value when the loan was initiated

Trenton wants to buy a house, but can only provide a 10 percent down payment. He probably will be required to have _______________.

D. PMI

Yvette has a flexible-rate mortgage that has a maximum monthly increase. This feature is called a(n) _______

D. Payment cap

Walt decided to sell the home he lived in for 50 years. The house has 2 bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should

D. Take steps to make the house appear bright and large

Kelly selected a home and submitted an offer to the seller

D. The seller may choose to provide a counteroffer

Which of the following is NOT correct?

D. Traditional financial guidelines suggest that your home should cost about 5 times your annual income

Consumer credit

Dates back to colonial times.

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

Debit card

When evaluating your credit application, a lender may NOT

Deny you if you receive public assistance

If you want to file a complaint against a bank, you:

Do not need to have an account at the bank

What should a home buyer consider when evaluating a house?

E. All of the above should be evaluated

Paul and Lora built their home. When they researched contractors they paid attention to all of the following except

E. Contractor's property tax payments during construction

If you do not pay back any of the loan amount for a portion of the loan period, you have a(n) ___________

E. Interest-only mortgage

Which of the following is NOT a benefit of home ownership?

E. Maintenance and costs of repairs and home improvements

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called

E. Points

Major factors that affect the affordability of your mortgage include all except

E. Size of home

The opportunity to have another person take over rent payments and live in the rental unit is called a

E. Sublease

Which of the following is NOT correct regarding real estate agents?

E. They require that you conduct your own showings.

Elaine purchased her living unit in a building with 5 other separate units. She purchased a _______

E. Townhouse

Since Dan served in the Army, he should be eligible for a(n) _________

E. VA loan

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services include all except

E. Working for the buyer

Following the signing of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors seeking to erase all debts will have to wait _____ years form their last bankruptcy before they can file again.

Eight

Which of the following is NOT a credit bureau?

FICO

Which of the following acts sets procedures for promptly correcting billings mistakes, refusing to make credit card or revolving credit payments on defective goods, and promptly crediting accounts?

Fair Credit Billing Act of 1975

A condominium is a form of housing in which the units in a building are owned by a nonprofit organization

False

A disadvantage of home ownership is the deductibility of mortgage interest and real estate tax payments

False

A landlord has the right to sublet an apartment

False

An advantage or renting is pride of ownership

False

An approved mortgage application usually locks in an interest rate for 60-120 days

False

As interest rates increase, more people are able to afford the cost of an average-priced home.

False

At the closing of a home purchase, the buyer and seller conducts a walk-through of the property

False

Home improvements will definitely increase the selling price at closing.

False

If yo pay an extra $100 per month on your mortgage, your total loan principal will decrease and your total interest will remain the same

False

Merrill bought a house and applied for a loan through the VA. The VA will provide the mortgage money

False

Most low-and middle-icome people can qualify for a VA-gauranteed loan

False

Private mortgage insurance is usually required if the down payment for a home is less than 30%

False

Rental insurance isn't important since the landlord's insurance on the building includes coverage on all tenants' belongings

False

The most common conventional mortgage is the 20-year ARM

False

The purpose of an escrow account is to pay the points at closing

False

When Brett's apartment lease ends, he should receive his entire security deposit back even though the carpet has been damaged while he was living there

False

Your decisions to rent or to buy your residence should be based solely on lifestyle factors

False

If you think your identity has been stolen, which of the following actions does the Federal Trade Commission recommend you take immediately?

File a police report

Home equity loans

Have interest that is tax-deductible

If a loan is being paid in installments instead of all at the end of the loan period, the actual rate of interest will be

Higher than the stated rate

If you miss payments on a home equity loan, you can lose your

House

When used effectively, credit can result in

Improved lifestyle

Credit reports can be obtained for all except:

Inquiry by a neighbor

A direct loan for personal purposes, home improvements or vacation expenses is called

Installment cash credit

If you double the monthly payment for a credit card, the loan will be paid off in

Less than half the time

Home equity loans should be used for

Major expenses such as home improvements or education

Which of the following is an example of closed-end credit?

Mortgage

When calculating the debt-to-equity ration, the following is NOT included:

Mortgage balance

Which of the following items should be shredded to protect yourself form identity theft?

Papers with personal information

Which is often considered to offer the least expensive loans?

Parents or family members

Credit files can include all except:

Race or nationality

The Equal Credit Opportunity Act (ECOA) prohibits a lender form discriminating based on

Race, Nationality, Age, and Sex

Credit bureaus get their information from all of the following except:

References

A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as

Revolving check credit

A loan that must be repaid in total on a specified day, usually within 30 to 90 days is

Single lump-sum credit

Who is responsible for a loan repayment?

The cosigner

Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both have the same stated rate of interest. Which of the following is true?

The interest paid for the one year loan will be lower than the interest paid for the four year loan.

A line of credit is

The maximum dollar amount of credit the lender has made available

Bankruptcy courts treat gift cards

The same way they handle unsecured debt

The minimum monthly payment of a credit card is

The smallest amount you can pay and remain a borrower in good standing

A handyman's special is a home that needs work and that you are able to get at a lower price

True

A real estate agent can help screen potential buyers to determine whether they will qualify for a mortgage

True

An advantage of a buy-down is that the interest rate subsidy from the home building reduces the mortgage payments during the first few years of the loan.

True

Angela wanted to rent and apartment so her landlord required her to sign a lease. The lease is a legal document that defines the conditions of her rental agreement

True

Lenny the landlord has the right to take legal action against Tina the tenant for nonpayment of rent or destruction of property

True

Renter's insurance protects the tenant by covering damage or theft to clothing, furniture, and stereo equipment

True

Your lifestyle affects your housing decision

True

Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?

VantageScore

If you are denied credit,

You are entitled to a free copy of your credit report

All of the following are signs of financial trouble except:

You pay your credit card bills in full each period.

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened

If you think a bill is wrong or you want more information about the bill, then you and your creditor should follow all of the steps below except

Your creditor must reimburse you for your time spent researching the error.

A bankruptcy remains on a credit file for no more than 5 years.

false

A disadvantage of using credit is its use when making a hotel reservation.

false

Each year about 50% of home sales are made by the home's owners

false

The add-on interest calculation uses the formula: Interest = Principal (Rate of interest Time).

false

The longer it takes for you to pay off a bill, the less interest you pay.

false

Closed-end credit is used for a specific purpose and involves a specific amount.

true

Which of the following is the only online source authorized to provide a free credit report each year at your request?

www.annualcreditreport.com

If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within of notification that your credit application has been denied.

60 days

A few years ago, Simon Powell purchased a home for $100,000. Today, the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming that Simon can borrow up to 80 percent of the market value, what is the maximum amount he can currently borrow against his home?

70,000

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by:

A and B are correct. ( Adding up basic monthly expenses then subtracting this total form take-home pay, Multiplying your take-home pay by 50 percent and subtracting your current loan payments.)

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by:

Adding up basic monthly expensesand subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.

Which of the following expressions is correct?

As the consumer goes, so goes the U.S. economy.

What step can you take if your credit application is denied?

Ask the reasons why you were denied credit.

The question "what are your assets and net worth?" relates to

Capital

The question "will you repay the loan?" relates to

Character

Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

Closed-end credit.

Which of the following is NOT correct?

Credit cards typically offer a "float" of up to 10 days; Credit can increase the amount of money that will be available to spend in the future.

Which of the following is an example of open-end credit?

Department store credit card

Which of the following is NOT associated with credit cards?

Down payment on a home

Which of the following is NOT a valid reason for borrowing?

Paying for everyday living expenses

Which of the following is a valid reason for borrowing?

Purchasing a new dishwasher, Borrowing for a college education, Purchasing a home, and Paying for a medical emergency

Before buying goods and services on credit, a consumer should consider all except:

Whether the good or service will be worth more because they were purchased with credit instead of cash

A consumer applies for open-end credit to make a single purchase, such as a large appliance.

false

A secured credit card is most appropriate for someone with a strong credit background.

false

A trade off of credit is that it increases the amount of money that will available to spend in the future.

false

According to law, a creditor may threaten you credit rating while you are negotiating a billing dispute.

false

According to the Fair Credit Billing Act from 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

false

Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.

false

Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

false

Consumer credit allows businesses to be more efficient or more productive.

false

Consumer credit refers to the use of debit cards for personal needs.

false

During the grace period, finance charges are assessed at only half the normal rate.

false

Experts suggest that you spend more than 20 percent of your after-tax (net) income on consumer credit payments.

false

FICO is a better score to use than VantageScore for consumers with limited credit histories.

false

In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.

false

In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.

false

In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.

false

Interest paid on a credit card is a tax-deductible.

false

The Annual Percentage Rate is lower than the stated rate for loans that are repaid in monthly payments.

false

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

false

The Equal Credit Opportunity Act requires that a lender not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.

false

The amount of interest paid is independent of the length of the loan.

false

The debt-to-equity ratio is calculated by dividing your total liabilities, including mortgage, by net worth.

false

The easiest loans to obtain are also the least expensive.

false

The expected rate of inflation should not be considered when determining the amount of interest a creditor should charge.

false

The higher your FICO score, the more risk you pose to creditors.

false

The most expensive loans are often provided by parents or other family members.

false

You have a legal right to sue a credit bureau if you observe an error in your file.

false

According to the Fair Credit Billing Act from 1975, a consumer may tell his credit card company to stop payment for a defective good if he made a sincere attempt to resolve the problem with the store.

true

Consumer credit dates back to colonial times when it was extensively used by farmers.

true

Credit can indicate stability since lenders consider you a good risk.

true

Economists recognize consumer credit as a major force in the American economy.

true

FICO and VantageScore are two methods used to judge creditworthiness.

true

If you are a cosigner for a loan and the debt is not repaid, then that fact will appear on your credit report.

true

If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.

true

In the five Cs of credit, character refers to the borrower's trustworthiness and stability.

true

Installment sales credit is a loan that allows a consumer to purchase high-priced items.

true

Most information in your credit file may be reported for only 7 years.

true

Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

true

The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.

true

The Truth in Lending Act requires that creditors explain how they calculate the finance charge.

true

The first sign of stolen identity might be that you get bills for a credit card account that you never opened.

true

The longer the term for a loan at a given interest rate, the higher the overall interest charges.

true

When used effectively, credit can help a consumer have more and enjoy more.

true

You should keep a record of your credit card number separate form your card.

true

Molly purchased a $1,500 HDTV from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

Closed-end credit

The least expensive loans are often provided by parents or other family members.

true

If you have reached the upper limit of debt obligations, your debt-to-equity is about

1

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

All of the above are valid questions to ask. (Do I have the cash I need for the down payment?, Does the purchase fit my budget?, Could I postpone the purchase?, and Could I use the credit I need for this purchase in some better way?)

Failure to repay a loan may lead to all except:

All of the answers may be a result of the failure to repay a loan. (Bankruptcy, Loss of income, Loss of a good reputation, and Damage to family relationships)

Which of the following is a valid reason for using credit?

All of these are valid reasons for borrowing

The periodic charge for the use of credit is

Interest

Many think that perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Many people expect

Their incomes to increase to make it easier to make payments

Before buying goods and services on credit, a consumer should consider all of the following except

Whether the good or service will be worth more because it was purchased with credit instead of cash.

A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

true

A credit file can include your spouse's name and Social Security number.

true