EXAM 2 FINANCE

as a percentage of take home pay, monthly consumer credit payments should not exceed

25%

Earnest Money

A sum of money given to bind an offer or agreement.

which of the following does a leader look at before granting credit to an applicant ?

AGE

Are the credit cards issued in conjunctions with a sponsoring group - most commonly some type of charitable, political or professional organization

Affinity cards

Low interest rates that have persisted since

BIG BANKS

what is the reason that people use credit?

Being able to meet a financial emergency

which of the following is an example of down payment that lower the potential depreciation and therefore your monthly lease payments on a leased car?

CAPITAL COST REDUCTION

The financing rate on a lease is called the

CAPTALIZED COST

low interest rates

Federal Reserve kept interest rates low; companies borrowed money and expanded more than necessary

Closing costs

Fees and charges associated with the purchase of a property

which of the following forms of consumer credit is among the cheapest and offers limited tax deductions ?

Home equity credit lines

Straight Mortgage

Interest only paid during life of loan. Full principal payment due at end of term.

the least expensive method for banks

Internet

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

Laura should invest $10,000 in a money market deposit account of best bank

Assume that you have taken a car on a close end lease for a period of 5 years. At the end of the 5th year, you need to pay additional $ only when:

Milage limits are exceeded

the monthly interest on your adjustable rate mortgage was $690..

NEGATIVE AMORTIZATION

outstanding checks

checks that have not been deducted from the bank statement balance.

With prequalification, a buyer can

correct in advance any problems on his credit report

is a type of reporting agency that collects and sells credit info about individual borrowers

credit bureau

capitalized cost

the price of a car that is being leased

Cash Management

the routine, day-to-day administration of cash and near-cash resources, also known as liquid assets, by an individual or family

which of the following statements regarding low interest is true ?

they encourage investors to search for stocks paying high dividends

The first step in the auto-buying process should be:

to analyze how much you can afford to spend on the car

which of the following is usually excluded from a monthly credit card statement ?

types of goods purchased

A proper use of open account credit wold be to buy a

washing machine

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

$300

Mary has calculated her adjusted balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is _____.

$480

The purchase price of the house you are buying is 100,000$. A loan-to-value-ratio of 50$ will require a down payment of:

$20,000

is the maximum loan value ratio that a lander....

$20,000

A payment made using a ........ is equivalent to paying by cash

DEBIT CARD

James finds it difficult to manage credit but wants to get a card that will provide direct access to his checking account. James should get

DEBIT CARD

The loss in the value of an automobile that occurs over its period of ownership is called:

Depreciation

Christina's bank allows her employer to directly deposit her paycheck into her personal bank account. This service provided by Christina's bank is called a(n):

EFTS electronic funds transfer system

Cash is the only kind of liquid asset

FALSE

Which of the following is a result of excess unused credit capacity?

FICO score reduction

Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called _____.

PREQUALIFICATION

Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. ------------will help him identify and correct any problems such as credit report errors that may arise on his application.

PREQUALIFICATION

capital cost reduction

Payment similar to down payment that results in lower monthly payment

which of the following modes of identify theft involves thieves obtaining your personal info from financial institutions and other sources under false pretenses ?

Pretexting

...... are ongoing costs of home ownership

Property taxes \ insurance

which of the following cards is issued as a form of credit by department stores and all companies ?

RETAIL CHARGE CARD

An escrow account is used to collect

Real estate taxes

A frequent flyer card can be aptly classified as a

Reward card

Retail charge cards are advantages to merchants because:

SHOWS CUSTOMER LOYALTY

borrower

Someone who receives something with a promise to return it or its equivalent

Cash management helps in financial planning

TRUE

Prequalification provides a home buyer info regarding specific mortgage amount they will be eligible for subject to expected charges in interest rates

TRUE

The majority of persons filling for bankruptcy chose chapter 7 of the U.S bankruptcy code

TRUE

negative equity

The situation where a mortgage loan is bigger than the value of the property.

Which of the following statements regarding safe deposit boxes is true ?

They can be used a sa storage

Anchoring

a behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary

checkbook ledger

a booklet, provided with a supply of checks, used to maintain accurate records of all checking account transactions

Foreclosure

a lender taking over ownership of a property from an owner who has not made loan payments

Close-end credit

a loan for a specific amount that must be repaid, in full, including all finance charges, by a stated due date

with a bank credit card you can often avoid interest charges if:

amount balance is paid in full every month

The FICO credit scoring system assigns point according to

amounts owed

stop payment

an order for a bank not to cash a particular check

Liquid assets include?

any assets that can readily be converted to cash.

which of the following will lead to a poor credit rating?

applying for a long term loan and occasionally

which of the following will lead to a poor credit rating ?

applying fro long-term loan and occasionally being late with payment

interest rate

are the lowest on regular checking account

which of the following cards provides direct access to your checking account ?

bank debit card

... is a reason people use credit

being able to increase disposable income

It is good to use credit for:

buying a car

which of the following is an improper use of credit?

buying a short live good

Funds invested in a _____ should not be withdrawn for a stated period in order to avoid an interest penalty.

certificate of deposit

compared to other depositary financial institutions, credit unions

charge lower rate on loans to their members

chapter 7 of the bankruptcy code:

eliminates most of the financial obligations of the borrowers

a veteran might be able to buy a home with no down payment with a

graduated payment mortgage

condominium

housing consisting of a complex of dwelling units (as an apartment house) in which each unit is individually owned

The majority of each monthly payment at the beginning of the loan goes to pay the:

interest

convenience is a reason for the growth of

internal banks

Cash and near-cash resources are known as _____.

liquid assets

Credit unions are:

member owned financial cooperatives (properties)

If the maximum loan-to-value ratio that a lender will accept on a $100,000 loan is 80 percent, then the borrower must make a down payment of at least

minimum down payment of 10,000$

which of the following is the correct formula for calculating the debt safety ratio ?

monthly take home pay + total monthly consumer credit payments

You made a $900 mortgage payment. The interest of $925 on the mortgage for this month leads to an increase in the principal balance. You have

negative amortization

which of the following is a major reason to use credit?

occasionally for convenience

nondepository institutions

offer banking services but do not accept...

to establish credit you should first

open savings and checking accounts

Kate tends to issue checks quite often without having sufficient balance in her account. She should look for an account with a(n) ___ facility.

overdraft protection

the more frequently a ban compounds interest,

the higher the effective rate for a given nominal rate will be

Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you:

pay off the entire balance on or before the due date

which of the following is not requested in a typical credit card application?

political afflictions

If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ as a result of the size of the down payment.

private mortgage insurance

Fredrick purchased a property worth $150,000 on mortgage. He had paid $30,000 as a down payment on this property. However, because of a recent slump in the real estate prices, the property is worth only $110,000, forcing Fredrick to sell the property. Assuming that no mortgage payments have been made by Fredrick, this sale is termed a(an) _____.

real estate short sale

the seller of a house typically pays the :

real estates agents commission

if the information is in an individual borrower's credit report contains an error, he or she is entitled to:

request a correction

Factors that typically influence the choice of where to maintain a checking account are:

services, insurance, cost

A real estate sales contract will include

the amount you have paid as an earnest money deposit

which of the following statements about scoring systems is true?

the credit scoring system is based on extensive statistical studies.

money factor

the financing rate on a lease; similar to the interest rate on a loan