Chapter 8 Homework
Troy has a credit card that charges 22% on outstanding balances and on cash advances. The closing date on the credit card is the first of each month. Last month Troy left a balance on his credit card of $544. This month Troy took out a cash advance of $396 and made $831 in purchases. Troy made a payment of $579. What will the total of Troy's new balance be on his credit card statement, taking into account finance charges? (Assume the adjusted balance method is used and finance charges on the cash advance are applied for the entire month)
$1209.23
Jarrod has narrowed his choice to two credit cards that may meet his needs. Card A has an APR of 27%. Card B has an APR of 18%, but also charges a $38 annual fee. Jarrod will not pay off his balance each month, but will carry a balance forward of about $635 each month. Which credit card should he choose? His total annual expenses for Card A will be His total annual expenses for Card B will be Jarrod should choose
$171.45 $152.30 Card B
You just borrowed $5,500 and are charged a simple interest rate of 8%. How much interest do you pay each year?
$440
Margie has had a tough month. First, she had dental work that cost $611. Next, she had her car transmission rebuilt, which cost $1,659. She put both of these unexpected expenses on her credit card. If she does not pay her credit card balance when due, she will be charged 21% interest. Margie has $17,049 in a money market account that pays 4% interest. How much interest would she pay (annualized) if she does not pay off her credit card balance? How much interest will she lose if she writes the check out of her money market account? Should she pay off the balance?
$476.70 $90.80 Yes
Eileen is a college student who consistently uses her credit card as a source of funds. She has maxed out her credit card at the $4,100 limit. Eileen does not plan on increasing her credit card balance any further, but has already been declined for a car loan on a badly needed vehicle due to her existing credit card debt. Her credit card charges her 21% annually on outstanding balances. If Eileen does not reduce her credit card debt, how much will she pay annually to her credit card company?
$861
Chrissy currently has a credit card that charges 12.3% interest. She usually carries a balance of about $790. How much will she pay in total annual interest with her current card?
$97.17
Paul's credit card closes on the 7th of the month, and his payment is due on the 25th. If Paul purchases a stereo for $300 on June 15th, how many interest-free days will he have? When will he have to pay for the stereo in full in order to avoid finance charges? (Hint: Assume that Paul pays off his credit card each month.) If Paul purchases a stereo for $300 on June 15th, the number of interest-free days he will have is When will he have to pay for the stereo in full in order to avoid finance charges? A. Paul will have to pay for the stereo by July 25th to avoid finance charges. B. Paul will have to pay for the stereo by June 25th to avoid finance charges. C. Paul will have to pay for the stereo by July 15th to avoid finance charges. D. Paul will have to pay for the stereo by July 7th to avoid finance charges.
40 A. Paul will have to pay for the stereo by July 25th to avoid finance charges.
Why should you self-impose a tight credit limit? A. A tight credit limit will assure you have the cash for other expenses and to invest. B. You may qualify for large loan amounts. C. It will increase your credit rating. D. Your interest rate will be lower.
A. A tight credit limit will assure you have the cash for other expenses and to invest.
Cash advances are commonly obtained: A. by writing a check provided by the credit card company or from ATMs. B. in your monthly statement. C. annually, based on your credit limit. D. at the verbal request of the cardholder.
A. by writing a check provided by the credit card company or from ATMs.
Some creditors may also extend credit at higher interest rates to individuals who: A. have a higher risk of defaulting. B. have purchased a home in the past year. C. can show they will gain a large inheritance. D. have a credit score below 400.
A. have a higher risk of defaulting.
You can use a grace period to your advantage by making: A. purchases earlier in the billing cycle, giving you a longer period of free credit. B. purchases later in the billing cycle, giving you a shorter period of free credit. C. the minimum monthly payment. D. cash withdrawals during your grace period.
A. purchases earlier in the billing cycle, giving you a longer period of free credit.
A disadvantage to using a credit card is that: A. the interest rates are high if you do not pay off the balance when due. B. they provide free financing until the statement arrives. C. they will always decrease your credit rating. D. not all credit card companies offer free classes to assist in personal financial planning.
A. the interest rates are high if you do not pay off the balance when due.
Some common credit card fees are: A. monthly fee, late fee, balance transfer fee, and cash advance fee. B. annual fee, late fee, balance transfer fee, and cash advance fee. C. annual fee, early payment fee, balance transfer fee, and cash advance fee. D. annual fee, late fee, balance carryover fee, and cash advance fee.
B. annual fee, late fee, balance transfer fee, and cash advance fee.
A common range of interest rates on credit cards is: A. less than 10%. B. between 15 to 20%. C. between 3 to 20%. D. between 9.99 to 10.99%.
B. between 15 to 20%.
What attribute are creditors looking to avoid? A. low expenses B. high expenses C. high income D. large amounts of savings and assets
B. high expenses
Credit card interest rates tend to be: A. within 3% of rates on other debt. B. higher than rates on other debt. C. equal to rates on other debt. D. lower than rates on other debt.
B. higher than rates on other debt.
A grace period is: A. the time between when you exceed your credit limit and when you can use the card again. B. the time between your statement closing and the due date on the bill. C. a week or two after the due date on the bill. D. a billing cycle, approximately 30 days.
B. the time between your statement closing and the due date on the bill.
Why is paying your credit card balance in full so important? A. Your monthly minimum payment will not change. B. Your ability to borrow will improve. C. You can avoid interest charges. D. Your assets will not be seized.
C. You can avoid interest charges.
Credit cards are a convenience and you should not use them unless you: A. have an APR under 15%. B. have enough home equity to cover the debts. C. have the cash to cover the payment. D. have investment profits greater than your credit card interest rate.
C. have the cash to cover the payment.
Charging large amounts on your credit cards can affect your overall financial planning by: A. increasing your liquidity level and enabling you to get other financing. B. reducing your available funds to lend. C. lowering your liquidity level and restricting you from getting other financing. D. requiring you to rollover your balances.
C. lowering your liquidity level and restricting you from getting other financing.
One advantage of using a credit card is that: A. the interest rates are high if you do not pay off the balance when due. B. they can allow you to spend beyond your means. C. they provide free financing until the statement arrives. D. there are usually not annual fees.
C. they provide free financing until the statement arrives.
A finance charge is applied to credit purchases: A. quarterly, based on purchase amounts. B. when a bill is paid before the billing cycle ends. C. when a bill is not paid in full before the due date. D. in the second month when the bill is not paid in full before the due date.
C. when a bill is not paid in full before the due date.
With cash advances, the interest rate is usually: A. higher, there is an extended grace period, and usually there is a fixed transaction fee. B. lower, there is an extended grace period, and usually there is a fixed transaction fee. C. higher, there is no grace period, and there may be a transaction fee of 1 or 2% of the advance. D. lower, there is no grace period, and there may be a transaction fee if you have an outstanding balance on the card.
C. higher, there is no grace period, and there may be a transaction fee of 1 or 2% of the advance.
What information is not important when applying for credit? A. Your income. B. Your assets. C. Your expenses. D. Your health insurance.
D. Your health insurance.
One step for using credit cards wisely is to: A. maximize your credit limit. B. use cash advances at the beginning of billing cycles. C. never use savings to pay credit card bills. D. impose a tight credit limit
D. impose a tight credit limit
A cash advance is: A. an automatic increase in the length of the grace period. B. a reduction in the APR. C. obtained when goods or services are returned to the merchant. D. when the cardholder receives cash rather than goods or services.
D. when the cardholder receives cash rather than goods or services.
One way to reduce an excessive credit card balance is to: A. file for bankruptcy. B. devote a certain amount of your income to pay off the interest. C. ask the credit card company to eliminate the interest charges on your account. D. work more hours for extra income to pay off credit.
D. work more hours for extra income to pay off credit.
