Chapter 5
111.If you double the monthly payment for a credit card, the loan will be paid off in A. Half the time. B. Less than half the time. C. More than half the time. D. The additional payment will have no impact. E. Not enough information is available to answer.
B
116.Which of the following items should be shredded to protect yourself from identity theft? A. Magazines B. Papers with personal information C. Envelopes D. Privacy notices that are received with credit card statements E. Newspaper ads
B
132.Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, a student loan payment of $150, a mortgage payment of $1,200, and a credit card minimum payment of $45. What is his debt-payments-to-income ratio? A. 13.2% B. 14.3% C. 36.7% D. 42.0% E. 45.9%
B
133.Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio? A. .45 B. .67 C. .75 D. 1.00 E. 1.30
B
139.Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin's actual rate of return on the loan? A. 2% B. 4% C. 6% D. 8% E. 10%
B
129.Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme? A. $50,000 B. $80,000 C. $110,000 D. $150,000 E. $160,000
C
70. A line of credit is A. The equal payments required for one-time loans. B. The loan amount for installment cash credit. C. The maximum loan amount for closed-end credit. D. The maximum dollar amount of credit the lender has made available. E. The monthly payment required for single lump-sum credit.
D
106.The finance charge for credit includes all of the following except A. Interest costs. B. Services charges. C. Credit-related insurance premiums. D. Appraisal fees. E. The amount borrowed.
E
89. A loan officer is examining whether or not to will offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs is the loan officer reviewing? A. Character B. Capacity C. Capital D. Collateral E. Conditions
B
94. When evaluating your credit application, a lender may NOT A. Ask your date of birth. B. Deny you credit if you receive public assistance. C. Request a list of the ages of your dependents. D. Inquire if you ever received credit before from that lender. E. Ask the income of your spouse if you have a joint application.
B
135.Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is his finance charge? A. $3.00 B. $20.00 C. $23.00 D. $200.00 E. $223.00
C
75. Home equity loans should be used for A. Buying dinner at a restaurant. B. Borrowing money for impulse purchases. C. Major expenses such as home improvements or education. D. Getting cash for weekend entertainment. E. Selling a car
C
80. Which of the following electronically subtracts money from your savings or checking account to pay for goods and services? A. A credit card B. Closed-end credit C. A debit card D. A gift card E. A home equity loan
C
81. Bankruptcy courts treat gift cards A. As illegal loans. B. As bribes. C. The same way they handle unsecured debt. D. As a smart choice. E. The same as debit cards.
C
87. The question "What are your assets and net worth?" relates to A. Character. B. Capacity. C. Capital. D. Collateral. E. Conditions
C
95. What step can you take if your credit application is denied? A. Sue the credit rating agency. B. File a complaint against the merchant. C. Ask why you were denied credit. D. Reapply for credit once 30 days have passed. E. Borrowers do not have any rights provided by law.
C
121.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 A. Actual damages. B. Actual damages plus twice the amount of any finance charges. C. The amount owed on the item in question. D. Three times the actual damages. E. Nothing.
B
52. Installment credit exploded on the American scene with the advent of the A. Airplane B. Automobile C. Cell phone D. Computer E. Train
B
54. Which of the following is NOT a valid reason for borrowing? A. Purchasing a new dishwasher. B. Paying for everyday living expenses. C. Buying a car to start a new job. D. Paying for a medical emergency. E. All of these are valid reasons for borrowing.
B
55. Many people expect A. Their ability to make payments to get harder over time. B. Their incomes to increase to make it easier to make payments. C. Their interest rates to decrease as their credit balances decrease. D. Their interest payments to increase as their credit balances decrease. E. Their household expenses to be covered with their mortgage payment.
B
76. Home equity loans A. Are based on the original purchase price of a home. B. Have interest that is tax-deductible. C. Do not have any security attached to the loan. D. Have a 60-day grace period. E. Are the most expensive loans available.
B
78. A credit card holder who pays off his balances in full each month is known as A. An impulsive lender. B. A convenience user. C. A home equity holder. D. A convenience user AND a home equity holder. E. All of these are correct.
B
101.Credit files can include all of the following except A. Employer, position, and income. B. Previous address. C. Spouse's name, Social Security number, employer, and income. D. Race or nationality. E. Checks returned for insufficient funds.
D
103.Credit reports can be obtained for all of the following reasons except A. In response to a court order. B. In connection with a credit transaction. C. For underwriting of insurance. D. Inquiry by a neighbor. E. For some legitimate business need.
D
110.The minimum monthly payment on a credit card is A. The amount to be paid without paying interest. B. The interest amount charged for the month. C. The minimum to be paid to avoid any charges or fees. D. The smallest amount you can pay and remain a borrower in good standing. E. The amount needed to pay off the credit card in one year.
D
115.If you think your identity has been stolen, which of the following actions does the Federal Trade Commission recommend you take immediately? A. Report it to your neighbor. B. Call 911. C. Contact your local bank. D. File a police report. E. All of these steps should be taken immediately.
D
118.Who is responsible for a loan repayment? A. The store granting credit B. The credit card company C. The government D. The cosigner E. The bank
D
119.All of the following are consumer credit protection laws except A. The Truth in Lending and Consumer Leasing Act B. The Equal Credit Opportunity Act C. The Fair Credit Billing Act D. The Credit Lawsuit Act E. The Consumer Credit Reporting Reform Act
D
120.If you want to file a complaint against a bank, you A. Must have an account at the bank. B. Must have at least $100,000 invested in the bank. C. Must have a checking or savings account with the bank. D. Do not need to have an account at the bank. E. Must have a loan outstanding at the bank.
D
122.All of the following are signs of financial trouble except A. You use savings to pay for necessities such as food and utilities. B. You receive second and third payment due notices from creditors. C. You exceed the credit limits on your credit cards. D. You pay your credit card bills in full each period. E. The total balance on your credit cards increases every month.
D
124.Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code? A. Chapter 7 B. Chapter 11 C. Chapter 13 D. Chapters 7 and 13 E. Chapters 11 and 13
D
126.Following the signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors seeking to erase all debts will have to wait ___ year(s) from their last bankruptcy before they can file again. A. one B. three C. seven D. eight E. ten
D
127.Rachel Johnson went to the ATM to draw $300 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% and interest at 24% APR, what are the total fees she will pay for her mistake? A. $3 B. $6 C. $9 D. $15 E. $24
D
100.Which of the following is the only online source authorized to provide a free credit report each year at your request? A. www.annualcreditscore.com B. www.freecreditreport.com C. www.onlinecreditreport.com D. www.freecreditscore.com E. www.annualcreditreport.com
E
102.Which is NOT true about the Fair Credit Reporting Act? A. It regulates the use of credit reports. B. It requires deletion of out-of-date information. C. It gives consumers access to their files and the right to correct any misinformation. D. It places limits on who can obtain a report. E. It gives borrowers the right to know why they are denied credit.
E
105.If you are denied credit, A. You have a legal right to sue the credit bureau. B. Your parent can purchase a copy of your credit report. C. You have a legal right to sue the company that denied you credit. D. The denial will remain in your credit file for 10 years. E. You are entitled to a free copy of your credit report.
E
112.Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to make credit card or revolving credit payments on defective goods, and promptly crediting your payments? A. Experian Act of 1982 B. Fair Credit Reporting Act of 1971 C. Bills and Disputes Act of 1963 D. Equifax Act of 1979 E. Fair Credit Billing Act of 1975
E
104.Information about a personal bankruptcy may be reported in your credit file for A. 1 year. B. 3 years. C. 7 years. D. 10 years. E. Permanently.
D
77. If you miss payments on a home equity loan, you can lose your A. Savings account. B. Car. C. House. D. Retirement account. E. Furnishings.
C
99. Credit bureaus get their information from all of the following except A. Banks. B. Credit card companies. C. Finance companies. D. References. E. Stores
D
114.Which of the following is often the first sign of a stolen identity? A. You receive bills for a credit card account you never opened. B. You see charges to your account for things you purchased. C. You receive a phone call from the thief. D. You receive a duplicate credit card from your credit card company. E. All of these are typical signs of a stolen identity.
A
123.The Consumer Credit Counseling Service A.Aids families with serious debt problems by helping them to manage their money better and set up a realistic budget. B. Is a consolidation firm that will manage bills for a percentage of the total payment due. C. Provides counseling, usually for a fee. D. Is a program to wipe out your debts within two years. E. All of these are correct.
A
108.If a loan is being paid in installments instead of all at the end of the loan period, the actual rate of interest A. Will be lower than the stated rate. B. Will be the same as the stated rate. C. Will be higher than the stated rate. D. Will be unrelated to the stated rate. E. Cannot be determined without knowing the length of the loan period
C
125.Under Chapter 7 of the U.S. bankruptcy code, A. All debts are forgiven. B. Alimony and child support debts are released. C. Certain assets receive some protection. D. Taxes and fines no longer need to be paid. E. Debt arising from driving while intoxicated is forgiven.
C
61. Many think that perhaps the greatest disadvantage of using credit is A. The temptation to overspend. B. The convenience offered instead of using cash. C. The float from using credit. D. The increase in total purchasing power. E. The increased satisfaction during present and future income periods.
A
65. Which of the following is an example of closed-end credit? A. A mortgage loan. B. A department store credit card. C. Overdraft protection. D. A bank line of credit. E. All of these are examples of closed-end credit.
A
69. 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 A. Closed-end credit. B. Open-end credit. C. Revolving check credit. D. A line of credit. E. None of these.
A
97. A credit report includes A. Credit history. B. Assumptions made by credit rating agencies. C. Credit score. D. Credit expectations. E. All of these.
A
59. Which of the following is NOT correct? A. Using credit is appropriate to pay for medical emergencies. B. Using credit can increase the amount of money that will be available to spend in the future. C. Using credit sometimes occurs automatically, such as for water or electricity usage. D. Using credit cards usually makes returning merchandise without a receipt easier. E. Using credit allows consumers to enjoy goods and services now and pay later.
B
83. Experts suggest that the debt payments-to-income ratio should be a maximum of A. 0% B. 20% C. 25% D. 50% E. 100%
B
137.Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest? A. $9 B. $45 C. $90 D. $450 E. $1,009
C
60. A typical grace period for many credit card issuers is A. 0-10 days. B. 10-20 days. C. 20-25 days. D. 30-40 days. E. 45-60 days.
C
72. The periodic charge for the use of credit is A. A line of credit. B. A revolving check credit. C. Interest. D. A grace period. E. Principal.
C
92. FICO scores generally range from A. 100 to 1000. B. 200 to 700. C. 350 to 850. D. 450 to 650. E. 500 to 1000.
C
113.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 here except A. You should notify your creditor in writing. B. You should pay the portion of the bill that is not in question. C. Your creditor must acknowledge your letter within 30 days. D. Your creditor must adjust your account or tell you why the bill is correct within two billing cycles. E. Your creditor must reimburse you for your time spent researching the error.
E
56. Which of the following questions is NOT needed before deciding how and when to make a major purchase? A. Do I have the cash I need for the down payment? B. Does the purchase fit my budget? C. Could I postpone the purchase? D. Could I use the credit I need for this purchase in some better way? E. All of these are valid questions to ask.
E
79. Which of the following is NOT associated with credit cards? A. A grace period B. A finance charge C. An annual fee D. Convenience users and borrowers E. A down payment on a home
E
63. Consumer credit A. Is a privilege of the affluent. B. Dates back to colonial times. C. Carries no finance charge. D. Is not a major force in our economy. E. Use has been declining in recent years.
B
66. Which of the following is an example of open-end credit? A. An automobile loan B. A department store credit card C. An installment loan for purchasing furniture D. A mortgage loan E. Single lump-sum credit
B
67. A direct loan for personal purposes, home improvements, or vacation expenses is called A. A credit card. B. An installment cash credit. C. A bank line of credit. D. Open-end credit. E. Single lump-sum credit.
B
71. A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as A. A bank credit card. B. A revolving check credit. C. Installment sales credit. D. Single lump-sum credit. E. Closed-end credit.
B
107.The APR is the percentage cost of credit on a(n) ______________ basis. A. monthly B. quarterly C. semi-annual D. annual E. life-of-loan
D
85. When calculating the debt-to-equity ratio, the following is NOT included: A. Credit card balances. B. Open-end credit. C. Auto loan balances. D. Mortgage balance. E. All of these are included in the calculation.
D
88. The use of property or savings to secure a loan relates to A. Character. B. Capacity. C. Capital. D. Collateral. E. Conditions.
D
98. Which of the following is NOT a credit bureau? A. Experian. B. Equifax. C. Trans Union. D. FICO. E. All of these are credit bureaus.
D
134.Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge? A. $3.00 B. $20.00 C. $23.00 D. $225.00 E. $248.00
C
86. The question "Will you repay the loan?" relates to A. Character. B. Capacity. C. Capital. D. Collateral. E. Conditions.
A
109.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? A. The principal paid for the one-year loan will be lower than the principal paid for the four-year loan. B. The principal paid for the one-year loan will be higher than the principal paid for the four-year loan. C. The interest paid for the one-year loan will be lower than the interest paid for the four-year loan. D. The interest paid for the one-year loan will be higher than the interest paid for the four-year loan. E. The interest and principal payments cannot be compared for the two loans.
C
128.Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with his Mastercard credit card, he was told that the restaurant accepted only cash or American Express. His waiter suggested that 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% cash advance), and his APR was increased to 21%. Given the cost of the meal ($125) plus the associated fees, how much did his meal cost him? A. $2.19. B. $3.75. C. $125. D. $130.94. E. $151.25.
D
130.If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay? A. $3.00 B. $18.00 C. $182.00 D. $200.00 E. $236.00
D
131.Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-toincome ratio? A. 8% B. 13% C. 17% D. 19% E. 20%
D
136.Suppose you borrow $300 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? A. $20 B. $150 C. $160 D. $300 E. $320
D
138.Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest formula for this two-year, 8% loan. What is his total interest? A. $16 B. $80 C. $112 D. $224 E. $1,416
D
58. Which of the following is NOT correct? A. Using credit can result in a greater chance of bankruptcy. B. Using credit can decrease the amount of money that will be available to spend in the future. C. Using credit offers convenience when shopping on the Internet. D. Using credit cards typically offer a "float" of up to 10 days. E. Using credit allows a consumer to shop without carrying a large amount of cash.
D
73. Which of the following is often considered to offer the least expensive loans? A. Banks. B. Finance companies. C. Loan companies. D. Parents or family members. E. Savings and loan associations.
D
74. A cash advance A. Increases a borrower's credit limit. B. Is the cheapest way to obtain money when away from home. C. Usually is obtained from a bank. D. Accrues interest charges beginning the day the cash advance is made. E. Is tax-deductible
D
82. 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. Adding up basic monthly expenses then subtracting this total from take-home pay. B. Asking what you plan to give up to make the monthly loan payment. C. Multiplying your take-home pay by 50% and subtracting your current loan payments. D . Adding up basic monthly expenses, subtracting this total from take-home pay, and, if needed, figuring out what to give up to make the payment. E. All of these answers are correct.
D
96. 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 A. 10 days. B. 20 days. C. 30 days. D. 60 days. E. 90 days.
D
117.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 A. Stop payment on the missing checks. B. Cancel her debit card. C. Get a new debit card with a new personal identification number (PIN). D. Close her bank account and open a new one. E. All of these steps are appropriate to take if she suspects identity theft.
E
53. Which of the following is a valid reason for borrowing? A. Purchasing a car so a homemaker can return to work B. Borrowing for a college education C. Purchasing a home D. Paying for a medical emergency E. All of these are valid reasons for borrowing
E
57. When used effectively, credit can result in A. Default. B. Bankruptcy. C. Loss of creditworthiness. D. Financial loss. E. Improved lifestyle.
E
62. Which of the following can result from a failure to repay a loan? A. Bankruptcy. B. Loss of income. C. Loss of a good reputation. D. Damage to family relationships. E. All of these answers may be a result of the failure to repay a loan.
E
64. Before buying goods and services on credit, a consumer should consider all of the following except A. Whether the good or service will have lasting value. B. Whether the good or service will increase personal satisfaction during present income periods. C. Whether the good or service will increase personal satisfaction during future income periods. D. Whether current income will continue or increase. E. Whether the good or service will be worth more because it was purchased with credit instead of cash.
E
68. A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is A. A credit card. B. An installment cash credit. C. A bank line of credit. D. Open-end credit. E. Single lump-sum credit.
E
84. If you have reached the upper limit of debt obligations, your debt-to-equity ratio is about A. 0. B. 0.2. C. 0.25. D. 0.5. E. 1.
E
90. The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on A. Race. B. Nationality. C. Age. D. Sex. E. All of these are prohibited.
E
91. Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories? A. CreditHistory B. CreditReport C. FICO D. LimitedCredit E. VantageScore
E
93. Which of the following is NOT a valid credit application question? A. How much of a loan are you requesting? B. What is the account number for your checking account? C. What is the name of the nearest relative not living with you? D. How many dependents do you have? E. All of these are valid credit application questions.
E
