Ch 7-9 fin 100

1) Which of the following is the most common source of financing for personal loans?

A) Family and friends B) Financial institutions C) Peer-to-peer lending D) Sales finance companies Answer: B

14) Which of the following federal agencies should always be notified in the event of identity theft?

A) Federal Bureau of Investigation B) Secret Service C) Federal Trade Commission D) Postal Inspection Service Answer: C

15) What is the correct chronological order of the items listed below?

A) Good credit history, loan contract, repayment schedule, loan application B) Good credit history, loan application, loan contract, repayment schedule C) Good credit history, repayment schedule, loan application, loan contract D) Good credit history, repayment schedule, loan contract, loan application Answer: B

13) Why is it so important that you make all of your credit and loan payments on time

A) Late payment history lasts 7 years on your credit file. B) The lender will be annoyed and not extend additional credit to you. C) Late payment history lasts 10 years on your credit file. D) Paying your credit cards and loans late just once will lead to bankruptcy. Answer: A

13) Which of the following can be deducted from your taxable income even if you do not itemize?

A) Mortgage interest expense B) Real estate taxes C) State income taxes D) Student loan interest Answer: D

3) Which of the following will not help you establish a good credit history?

A) Paying your phone bill on time B) Financing a car and making payments on time C) Making as many purchases as possible with cash D) Never exceeding your credit limit on your credit card Answer: C

14) Which of the following items must you provide when applying for a loan in order to prove you have collateral to back your loan?

A) Personal cash flow statement B) Paycheck stub C) Personal balance sheet D) A and C are correct Answer: C

7) Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder?

A) Previous balance method B) Ending balance method C) Average daily balance method D) Adjusted balance method Answer: A

6) Which of the following is not a method by which financial institutions calculate finance charges on credit cards?

A) Previous balance method B) Ending balance method C) Average daily balance method D) Adjusted balance method Answer: B

8) Which of the following are important factors in determining the monthly lease price of a new car?

A) Purchase price or capitalized value B) "Money factor" or interest rate embedded in the lease C) Residual value of the car included in the lease contract D) A, B and C are all key factors in determining the monthly lease payment Answer: D

16) Which of the following will not be included on your credit report?

A) Social Security number B) FICO score C) Unpaid accounts D) Companies that have recently accessed your report Answer: B

12) Which of the following is not true about annual fees on credit cards?

A) The fees are the same on all credit cards. B) The fees may be high, amounting to several hundred dollars per year for some prestige cards. C) Many cards do not have annual fees. D) Some cards may waive the fees for individuals who pay their credit card bills in a timely manner. Answer: A

17) At your place of employment, which of the following is acceptable?

A) Use of your Social Security number as an employee number on your time card B) Inclusion of your Social Security number on your employee identity badge C) Inclusion of your Social Security number on your payroll registry in the accounting office D) Inclusion of your Social Security number on your paycheck Answer: C

2) All of the following are correct statements about credit, except

A) the creditor provides funds. B) credit needs to be paid back in the future. C) credit repayment will include interest. D) the interest is the total amount to be repaid. Answer: D

1) Credit cards have all of the following advantages, except

A) they allow you to borrow cash interest free for 60 days. B) you can make purchases without carrying cash. C) you obtain free financing until the bill is due. D) you receive an itemized monthly statement. Answer: A

6) The advantage to financing a car for a long period of time (of up to seven years) is

A) you will build equity in the car faster. B) the car will be worth more by the time you pay off the loan. C) your monthly payment will be lower. D) you will be able to sell the car before you pay off the loan and have money to pocket. Answer: C

8) As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the average daily balance method and a monthly interest rate of 2.5%, Ben's finance charge would be

November 15 Balance 1100* 15 days = 16500 November 15 Payment of 600 500 * 15 = 7500 Average Daily Balance = 24000 / 30 = 800 Finance Charge = 800 * 2.5% = $20 D) $20.00. Answer: D

15) Ben owes $3500 on his credit card which bears an interest rate of 1.5% per month or 19.6% per year. Since Ben is maxed out on his credit limit, he is no longer charging anything to the card, but is only making the required monthly minimum payment which is 1.25% of the outstanding balance. How much of Ben's next payment will go towards paying off the outstanding balance?

A) $10 per month B) $0; Ben is not even paying enough to pay the monthly interest charge. C) $8.75 D) $443.75 Answer: B

13) As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the previous balance method and a monthly interest rate of 2.5%, Ben's finance charge would be

A) $15.00. B) $12.50. C) $27.50. D) $20.00. Answer: C outstanding balance * monthly rate 1100 * .025

14) As of November 14, Ben has an outstanding credit card balance of $1,100 from purchases made over the past month. The new billing period begins on November 15. Assume Ben's outstanding balance for the first 15 days of this new billing period (Nov. 15-29) is $1,100. Then on November 29, the financial institution receives a payment of $600 from Ben, reducing his balance to $500. This is the balance for the remaining 15 days. Using the adjusted balance method and a monthly interest rate of 2.5%, Ben's finance charge would be

A) $15.00. B) $12.50. C) $27.50. D) $20.00. Answer: B 500 * .025

16) Suppose you have a credit card balance of $500 that you were unable to pay off. During the current month you purchase another $250 worth of products. You made a payment during the grace period of $300. Assuming your retail credit card company charges an annual interest rate of 22%, compute your new balance.

A) $510.00 B) $250.00 C) $494.00 D) $453.67 Answer: D = Initial credit card balance + Interest for a month + New purchase during the month - Payment made during the month 500 * (.22/12) =9.167 500 + 9.167 + 250 = 759.167 759.167 - 300 = 459.167

12) A credit score of ________ would normally allow you to have easy approval for credit.

A) 500 B) 600 C) 700 D) 1,000 Answer: C

12) Which of the following is a true statement about student loans?

A) All student loans are provided by the U.S. government. B) All student loans have fixed interest rates. C) Interest payments on some loans are deferred until the students graduate and enter the workforce. D) Interest is tax deductible for those at all income levels. Answer: C

4) If you agree to allow the lender to take your computer in the event you fail to make payments, the loan is which of the following?

A) Amortized B) Unsecured C) Secured D) Interest free Answer: C

4) Which of the following is not true regarding revolving open-end credit?

A) Credit cards are an example of it. B) A specific maximum amount of credit is established. C) If the balance is not paid off over a period of months, a penalty is incurred. D) Interest is charged on the remaining balance each month. Answer: C

2) In comparing credit cards to other forms of credit, which of the following is true?

A) Credit cards are generally the most expensive form of credit. B) You should invest funds before paying off your credit cards. C) It is prudent to borrow from some cards to pay off other credit cards. D) All of the above. Answer: A

9) Which of the following is not a factor in the FICO credit scoring?

A) Credit utilization B) Length of relationship with creditors C) Marital status D) Number of inquiries Answer: C

7) Which of the following is not one of the three primary credit bureaus?

A) Equifax B) Experian C) TransUnion D) Fair Isaac Corporation Answer: D

6) The law that prohibits denying credit due to gender, age, race, national origin, religion, or marital status is

A) Fair Labor Standards Act. B) the Fair Isaac Act. C) Equal Credit Opportunity Act. D) Fair Treatment of Borrowers Act. Answer: C

15) Of the following statements, which is not an advantage of using credit?

A) Using credit wisely creates stability and allows you to establish a favorable credit history. B) Buying today and paying tomorrow seems ideal, but continual spending can lead to financial problems. C) Using credit is safe since using charge accounts and credit cards when you shop and travel is safer than carrying large amounts of cash. D) Credit cards permit the purchase of goods even when cash funds are low. Answer: B

7) Which of the following is a key benefit of leasing?

A) You do not have to fill out a credit application. B) You do not have to maintain the car since you do not own it. C) You are able to drive a more expensive car for the same monthly payment versus buying. D) A, B and C are all correct. Answer: C

17) Why is it important to carefully consider your credit cards when developing a budget, financial plan and personal financial objectives?

A) You should include more than the minimum payments in the budget to pay off the balances as soon as possible and minimize interest expense. B) Evaluate relative interest rates of all cards and other loans, and investments to understand how best to prioritize payments and decide on best use of excess cash flow. C) A financial plan should really focus on investing excess cash flow for retirement. D) Both A and B are correct. Answer: D

11) Why is it important to carefully consider your credit cards when developing a budget, financial plan and personal financial objectives?

A) You should include more than the minimum payments in the budget to pay off the balances as soon as possible and minimize interest expense. B) Evaluate relative interest rates of all cards and other loans, and investments to understand how best to prioritize payments and decide on best use of excess cash flow. C) A financial plan should really focus on investing excess cash flow for retirement. D) Both A and B are correct. Answer: D

3) If a credit card has a provision allowing you to make purchases beyond the stated credit limit for a fee, it is referred to as

A) a purchase protection plan. B) overlimit protection. C) a grace period. D) a first forgiveness provision. Answer: B

5) On a credit card, a finance charge is applied to

A) any purchase. B) any balance not previously paid. C) current purchases. D) future purchases. Answer: B

4) Credit cards with tiered interest rates charge cardholders who

A) carry large balances a lower rate. B) pay off their balance monthly a higher rate. C) make early payments a higher rate. D) carry large balances a higher rate. Answer: D

18) If you think that your identity has been stolen, the FTC recommends you do all of the following, except

A) contact the credit bureaus. B) file a police report. C) destroy all of your credit cards. D) call your creditors. Answer: C

1) The use of credit may result in ________ spending and ________ debt.

A) controlled; reduced B) excessive; increased C) excessive; reduced D) controlled; increased Answer: B

9) Since not all student loans are issued at the same interest rate over the course of a student's education year, once the student graduates and begins working and is starting to pay back the loans they should

A) defer payment as long as possible. B) make only the minimum payments. C) prioritize the loans from highest interest rate to lowest interest rate and use excess cash flow to make additional payments on the high rate loans. D) pay all loans at an equal pace since they all count in your credit score. Answer: C

5) Credit extended to consumers for short periods of time to make specific purchases is

A) installment credit. B) non-installment credit. C) revolving open-end credit. D) minimum limit credit. Answer: B

9) When making payments on a credit card, the amount paid is first applied to ________ and the remainder is applied to ________.

A) late fees; interest B) balance due; late fees C) interest for the month; balance due D) The entire payment is applied to the balance due. Answer: C

3) The ________ the maturity of a loan, the ________ the payments.

A) longer; smaller B) shorter; larger C) shorter; smaller D) Both A and B are correct Answer: D

10) Credit scores in the 500-600 range will likely result in

A) lower interest rates. B) higher interest rates. C) automatic acceptance of your credit application. D) preferential treatment of your application. Answer: B

10) Credit card companies' fees cannot exceed ________of the initial credit limit.

A) more than 5% B) more than 10% C) more than 50% D) more than 25% Answer: D

2) The size of the monthly payment on a loan is dependent on all of the , except the

A) principal borrowed. B) interest rate. C) borrower's age. D) maturity. Answer: C

10) All of the following are true of a home equity loan, except it

A) provides you with a line of credit or a lump sum of money, depending on the type of loan. B) is a good way to combine different kinds of debt. C) may be tax deductible. D) allows you to borrow up to 20% of the market value of your home. Answer: D

11) Historical credit problems remain on a credit bureau's report for ________ years while a bankruptcy remains for ________ years.

A) ten; twenty B) seven; ten C) eight; fifteen D) five; ten Answer: B

8) The item that receives the most weight in the FICO credit scoring system is

A) the amount of credit used each month. B) credit payment history. C) credit utilization. D) credit inquiries. Answer: B

5) All of the following are true regarding a cosigner on an account, except

A) the cosigner is responsible for any unpaid balance. B) the lender may not seize the assets of the cosigner. C) cosigning an account is a big liability and should be taken seriously. D) cosigning on a loan can restrict the amount that the cosigner is able to borrow. Answer: B

11) All of the following are reasons to avoid payday loans, except

A) the cost of financing with a payday loan is exorbitant. B) you don't want to pay interest on your credit card that charges an annual rate of 18%. C) you may still not have sufficient cash after covering the loan. D) the use of payday loans can create a continual cycle of borrowing. Answer: B