EXAM 2 FCS 3450 University of Utah
Conditions
5 C's of Credit: Character Capital Capacity Collateral ___________
Collateral
5 C's of Credit: Character Capital Capacity _____________ Conditions
Capacity
5 C's of Credit: Character Capital ____________ Collateral Conditions
Capital
5 C's of Credit: Character _________ Capacity Collateral Conditions
Capacity
5 C's of Credit: _________- can you repay the loan?
Capital
5 C's of Credit: _________- what are your assets and net worth?
Character
5 C's of Credit: __________ Capital Capacity Collateral Conditions
Character
5 C's of Credit: ____________- do you pay bills on time?
Conditions
5 C's of Credit: _____________- what economic conditions would affect your repayment of the loan?
Collateral
5 C's of Credit: _____________- what if you don't repay?
E $13/$200 = .065 or 6.5 percent
A $200 savings account that earns $13 interest in a year has a yield of ____________ percent. A. 6.00 B. 13.00 C. 7.00 D. 11.25 E. 6.50
FALSE
A certificate of deposit is usually considered to be very liquid
C
A certificate of deposit usually has: A. high interest-rate risk. B. low safety for savers. C. limited liquidity. D. a variable rate of return. E. no minimum deposit amount.
A
A debit card: A. immediately deducts the cost of your purchase from your bank account. B. credits your account at the moment you buy goods or services. C. is a new type of a credit card issued by VISA International. D. is another name for a travel and entertainment card. E. typically has a credit limit of $1,000.
E
A good example of closed-end credit is: A. a credit card issued by a department store. B. a credit card issued by VISA or MasterCard. C. the use of overdraft protection at a bank. D. the use of a cashier's check to pay for a purchase. E. a mortgage loan
A 33% = 2.75% (12 months)
A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent. Ignore compounding. A. 33.00 B. 27.50 C. 20.00 D. 5.50 E. 2.75
C
A personal check with guaranteed payment is called a: A. traveler's check. B. bank draft. C. certified check. D. money order. E. cashier's check.
FALSE
A regular savings account usually offers a higher rate of return to savers than other savings plans
A
A savings account at a credit union is called a ____________ account. A. share B. NOW C. club D. certificate E. money market
D 2.88% = 4 %( 1-.28)
A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent. A. 28.00 B. 16.72 C. 4.00 D. 2.88 E. 1.12
Chapter 13 bankruptcy
A voluntary plan proposed to the bankruptcy court for those to want to pay a portion of their debt over a period up to 5 years
financial stability
Advantages of Credit: Current use of goods and services Demonstrates ______________ Use for financial emergencies Convenience when shopping Safer than cash
financial emergencies
Advantages of Credit: Current use of goods and services Demonstrates financial stability Use for ___________________ Convenience when shopping Safer than cash
Safer than cash
Advantages of Credit: Current use of goods and services Demonstrates financial stability Use for financial emergencies Convenience when shopping _______________
Convenience
Advantages of Credit: Current use of goods and services Demonstrates financial stability Use for financial emergencies ______________ when shopping Safer than cash
Current use
Advantages of Credit: ___________ of goods and services Demonstrates financial stability Use for financial emergencies Convenience when shopping Safer than cash
Child support willful
After Chapter 7 Bankruptcy may still owe: Certain taxes and fines ____________ and alimony Educational loans Debts from ________or malicious acts
Chapter 7 Educational
After __________ Bankruptcy may still owe: Certain taxes and fines Child support and alimony ____________ loans Debts from willful or malicious acts
low risk long term savings
Allow even higher returns in exchange for less liquidity
checking accounts
Allows transfer of deposited funds to merchants and service providers, as well as to accounts at other financial institutions.
money market account
Any of a variety of interest-earning accounts that pay relatively high interest rates and offer some limited check-writing privileges.
FALSE
Buying on credit is almost always cheaper than paying cash.
A
By paying cash for a purchase, you: A. forgo the opportunity to keep the cash in an interest-bearing account. B. always get a cash discount. C. can build a better credit rating. D. get better personal service from store employees. E. have a better selection of goods than if you use credit.
Maximizing
Cash Management: ______________interest earnings
Minimizing
Cash Management: ____________fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities
E
Checking accounts are frequently referred to as ____________ deposits. A. common B. time C. current D. loan E. demand
Cashiers
Checks for Special Needs Traveler's Check Money Orders Certified Checks __________ Checks
Certified
Checks for Special Needs Traveler's Check Money Orders ____________Checks Cashier's Checks
Money Orders
Checks for Special Needs Traveler's Check _______________ Certified Checks Cashier's Checks
Travelers
Checks for Special Needs _________Check Money Orders Certified Checks Cashier's Checks
Installment
Closed end credit: Mortgage loan Auto loan ___________ loan
Auto
Closed end credit: Mortgage loan _______ loan Installment loan
Mortgage
Closed end credit: __________ loan Auto loan Installment loan
TRUE
Closed-end in credit is used for a specific purpose and involves a specified amount.
TRUE
Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals
Open ended
Credit Use and Credit Cards: Consumer Installment Non-installment _____________
Non installment
Credit Use and Credit Cards: Consumer Installment _____________ Open-ended
Installment
Credit Use and Credit Cards: Consumer ____________ Non-installment Open-ended
Consumer
Credit Use and Credit Cards: __________ Installment Non-installment Open-ended
TRUE
Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.
TRUE
Credit unions frequently offer lower loan rates than other financial institutions.
True
Credit when effectively used, can help you have more and enjoy more.
Savings
Current income that is not spent on consumption; provides source of emergency funds and/or temporary place for funds in excess of daily living expenses.
TRUE
Demand deposits are another term for checking accounts.
more expensive Ties up
Disadvantages of Consumer Credit Purchases are _____________ Temptation to overspend Possible financial difficulties Possible loss of merchandise due to late or non-payment __________ future income
overspend merchandise
Disadvantages of Consumer Credit Purchases are more expensive Temptation to ____________ Possible financial difficulties Possible loss of ____________ due to late or non-payment Ties up future income
financial difficulties
Disadvantages of Consumer Credit Purchases are more expensive Temptation to overspend Possible_________________ Possible loss of merchandise due to late or non-payment Ties up future income
half semi annually
EE and Patriot bonds: Are purchased for ________ of face value. Increases in value monthly and interest is compounded ______________
education
EE and Patriot bonds: Interest earned could be tax exempt if used for ______________
state local income
EE and Patriot bonds: There is no _________ and __________ tax on interest earned
30
EE and Patriot bonds: Will reach final maturity in _____ years. Will completely stop earning interest
3 month
EE and Patriot bonds: _____________ interest penalty if bond is redeemed before 5 years
17
EE and Patriot bonds: are guaranteed to reach initial maturity in ________ years
Debt Continuous
Establishing a Debt Limit ________ pay to-disposable-income method Ratio of debt-to-equity method ____________-debt method
B
Experts suggest that you spend no more than ____________ percent of your net income on credit purchases. A. 10 B. 20 C. 30 D. 40 E. 50
types of credit
FICO score calculation: 10% New credit 10% _____________
new credit
FICO score calculation: 10% _____________ 10% types of credit
length of history
FICO score calculation: 15%__________
amounts owed
FICO score calculation: 30%___________________
payment history
FICO score calculation: 35% ______________
authorized persons
Fair Credit Reporting Act Obsolete information must be deleted Only ________________ have access to your report Adverse data can be reported for seven years or bankruptcy for ten
7 10
Fair Credit Reporting Act Obsolete information must be deleted Only authorized persons have access to your report Adverse data can be reported for _______years or bankruptcy for ______
Obsolete
Fair Credit Reporting Act ________information must be deleted Only authorized persons have access to your report Adverse data can be reported for seven years or bankruptcy for ten
Simple interest
I = P x r x T Computed on principal only without compounding
D Cost of credit = ($200 x .12) + $10 = $34
If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10, what is her total cost of credit? A. $10 B. $12 C. $24 D. $34 E. $42
60
If you are denied credit based on your report, you can get a copy of your credit report free within ______ days of your request
C Repayment = $100 + (.10 x $100) = $110
If you borrow $100 at 10 percent simple annual interest (APR) and repay it in one lump-sum at the end of one year, you will repay: A. $100. B. $105. C. $110. D. $115. E. $120.
C
If you cosign a loan: A. you are only responsible for half of the debt obligation. B. you will be asked, but not required, to pay the loan if full if the borrower fails to pay. C. you will be required to pay the loan in full if the borrower defaults on the payments. D. the creditor must first try to collect from the borrower. E. the creditor is prohibited from garnishing your wages if you refuse to pay the loan in full.
B
If you have declared personal bankruptcy, that fact may be reported by credit bureaus for ____________ years. A. 7 B. 10 C. 15 D. 20 E. 25
TRUE
If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.
TRUE
In the 5 Cs of credit, character refers to the borrower's attitude toward credit obligations.
Add on interest
Interest is calculated on the full amount of the original principal, added to the principal, and the total of both is divided by the number of payments to be made
C
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n): A. regular savings account. B. interest-bearing checking account. C. five-year certificate of deposit. D. six-month certificate of deposit. E. money market fund
more total interest
Longer loans=lower payments, but ______________
Bankruptcy
Many, but not all, debts are forgiven Assets are sold to pay creditors Can keep some assets Fresh start
15,000 30,000
Maximum annual purchase limit of EE and patriot bonds is $_________________ with a face value of $_____________
A
Most of the information in your credit file may be reported for only ______ years. A. 7 B. 9 C. 11 D. 13 E. 15
TRUE
Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years.
C
One of the drawbacks of borrowing from parents or family members is that such loans: A. tend to be more expensive than other types of loans. B. must be interest-free. C. may create tension within the family. D. are limited to oral agreements. E. are legally prohibited from establishing repayment dates and terms.
Overdraft protection
Open end credit: Cards (department stores/ banks) Travel and entertainment cards (diners club, american express) ___________________
Travel entertainment cards
Open end credit: Cards (department stores/ banks) _________ and ______________ (diners club, american express) Overdraft protection
credit Cards
Open end credit: ____________ (department stores/ banks) Travel and entertainment cards (diners club, american express) Overdraft protection
Adjusted balance
Open end credit: Finance charges are calculated after payments made in the billing period have been subtracted
Automatic overdraft loan
Overdraft Protection Good faith agreement Insufficient funds Automatic funds transfer ___________________
Automatic funds transfer
Overdraft Protection Good faith agreement Insufficient funds ____________________ Automatic overdraft loan
Insufficient funds
Overdraft Protection Good faith agreement _______________ Automatic funds transfer Automatic overdraft loan
Good faith agreement
Overdraft Protection _________________ Insufficient funds Automatic funds transfer Automatic overdraft loan
TRUE
Parents or family members are often the source of the least expensive loans
C
Payday, cash advance, check advance, and post- dated checks are _________ loans. A. inexpensive B. medium-priced C. expensive D. low APR E. variable APR
Bank credit card hospital physician
Personal Bankruptcy may no longer owe: Retail store charges ________________ charges Unsecured loans Unpaid __________or ________ bills
Retail store Unsecured
Personal Bankruptcy may no longer owe: _____________charges Bank credit card charges ___________ loans Unpaid hospital or physician bills
consumer credit
Receiving products, services or cash now, and paying for them in the future.
The Credit Card Act
Requires statements to report the due dates, potential late fees, and total costs of making only the minimum payments
A
Savings compounded ____________ would have the highest effective yield. A. daily B. annually C. semi-annually D. monthly E. weekly
The Credit Card Act
Sets a consistent due date for card payments each month Restricts the penalties for over the limit fees Prohibits card issuers from issuing card to consumers under 21 with out a cosigner or independent means to repay debt.
variable interest
Some ways to reduce the lender's risk and the interest rate: Accept a ____________ rate Provide collateral to secure the loan Make a large down payment up front Have a shorter loan term
collateral
Some ways to reduce the lender's risk and the interest rate: Accept a variable interest rate Provide ___________to secure the loan Make a large down payment up front Have a shorter loan term
large down payment
Some ways to reduce the lender's risk and the interest rate: Accept a variable interest rate Provide collateral to secure the loan Make a _________________ up front Have a shorter loan term
shorter loan
Some ways to reduce the lender's risk and the interest rate: Accept a variable interest rate Provide collateral to secure the loan Make a large down payment up front Have a shorter ____________
due date 21
The Credit Card Act Sets a consistent _________ for card payments each month Restricts the penalties for over the limit fees Prohibits card issuers from issuing card to consumers under ___ with out a cosigner or independent means to repay debt.
C
The Truth-in-Savings law requires that financial institutions: A. provide insurance for savings accounts. B. send customers monthly bank statements. C. report annual percentage yield on savings. D. offer adjustable rate savings accounts. E. become members of the Federal Reserve System.
Truth In Lending Act
The ______________ requires creditors to provide you with accurate and complete credit costs and terms. APR
TRUE
The annual percentage rate is the percentage cost of credit on a yearly basis.
C
The borrower's attitude toward his or her credit obligations is called: A. capacity. B. capital. C. character. D. collateral. E. conditions.
lower
The debt limit most people establish for themselves is ___________than what lenders would be willing to lend.
FALSE
The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.
B
The debt payments-to-income ratio is: A. calculated by dividing total liabilities by net worth. B. calculated by dividing monthly debt payments (not including house payments) by net monthly income. C. determined by dividing your assets by your liabilities. D. a useless ratio for determining your credit capacity. E. rarely used by creditors in determining credit worthiness.
A
The debt-to-equity ratio is: A. calculated by dividing total liabilities by net worth. B. calculated by dividing monthly debt payments by net monthly income. C. determined by dividing your assets by your liabilities. D. a useless ratio for determining your credit capacity. E. rarely used by creditors in determining credit worthiness.
B
The face value of a Series EE U. S. Savings Bond refers to the: A. original purchase price B. redemption value at maturity C. effective yield of the bond D. monthly interest accrual amount E. taxable portion of the accrued interest
B
The information in your credit report is primarily used by the credit bureau to compute your A. debt to equity ratio B. FICO credit score C. debt payment to income ratio D. liquidity ratio E. long term capitalization ratio
TRUE
The money market fund offered by investment companies is a relatively liquid financial service
FALSE
The more frequent the compounding, the less a person will earn on a savings account
FALSE
The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
A
The total dollar amount you pay to use credit is called the: A. finance charge. B. annual percentage rate. C. price of the good/service purchased. D. amortized rebate. E. interest rate.
C
To avoid high fees for loans, a person should avoid borrowing from a: A. credit union. B. savings and loan association. C. pawnshop. D. commercial bank. E. mutual savings bank.
TRUE
Using a "debit" card is basically the same as writing a check.
B
What type of account would be considered the most liquid? A. certificate of deposit B. checking account C. money market account D. brokerage account E. share of stock
C
What would be the maximum limit for an individual's debt-to-equity ratio, excluding the home mortgage? A. 0.50 B. 0.33 C. 1.00 D. 2.00 E. 2.25
A
When interest rates are rising, a person would be best served by: A. short-term savings instruments. B. long-term savings instruments. C. short-term loans. D. variable-rate loans. E. certificates of deposit.
TRUE
When you cosign a loan, you are being asked to guarantee this debt.
E
Which FICO credit score would represent the least risky borrower? A. 415 B. 562 C. 685 D. 702 E. 825
C
Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time? A. Chapter 7 B. Chapter 11 C. Chapter 13 D. Chapter 15 E. Chapter 17
B
Which lender is likely to ask you to write a check for $115 before granting you a $100 loan? A. credit union B. payday advance company C. finance company D. department store E. commercial bank
C
Which method of payment is likely to be the least expensive in the long run? A. bank credit card B. check written on a home equity line of credit C. cash D. store credit card E. cash advance on a Visa credit card
E
Which of the following is a deposit institution? A. life insurance company B. investment company C. mortgage company D. pawnshop E. credit union
A
Which of the following is not a deposit institution? A. life insurance company B. commercial bank C. savings and loan association D. credit union E. mutual savings bank
B
Which one of the following financing methods provides a float period? A. installment loan B. credit card C. lump-sum loan D. home equity line of credit E. auto loan
A
Which one of the following is often the source of the least expensive loan? A. parents or family members B. banks C. savings and loan associations D. finance companies E. loan sharks
D
Which one of the following savings plans is not covered by federal deposit insurance? A. passbook account at a savings and loan B. regular checking account at a commercial bank C. money market account at a commercial bank D. money market fund with an investment company E. certificate of deposit at a commercial bank
Financial services
Who provides financial services: Banks and depository institutions Mutual funds Stock brokerage firms ________________ companies
Stock brokerage
Who provides financial services: Banks and depository institutions Mutual funds _________________ firms Financial services companies
Mutual funds
Who provides financial services: Banks and depository institutions ______________ Stock brokerage firms Financial services companies
Banks depository
Who provides financial services: ___________ and ___________ institutions Mutual funds Stock brokerage firms Financial services companies
FALSE
With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.
FALSE
You can deduct interest paid on consumer loans for state and federal income tax returns
TRUE
You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.
TRUE
You should sign your new credit cards as soon as they arrive.
C Finance charge = [.02 x $600] + [(.18/12) x $600] = $21
Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? Assume each month has 30 days A. $12. B. $9. C. $21. D. $0. E. $2.
Open end
___________ credit: Cards (department stores/ banks) Travel and entertainment cards (diners club, american express) Overdraft protection
Closed end
___________ credit: Mortgage loan Auto loan Installment loan
Bankruptcy
_____________ is a legal process in which some or all of the assets of a debtor are distributed among the creditors
Chapter 13 bankruptcy
_____________ requirements: Must have a regular income Can't have more than $250,000 unsecured debt or $750,000 in secured debt Payments are made to a trustee Trustee distributes money to your creditors Court may allow you to keep property & pay less than full amount of debts
Overdraft Protection
______________ Good faith agreement Insufficient funds Automatic funds transfer Automatic overdraft loan
Credit insurance
_________________: Loan paid off if insured dies or becomes disabled--Expensive
cash management
___________________: Maximizing interest earnings Minimizing fees on all funds kept readily available for living expenses, recurring household expenses, emergencies, and saving and investment opportunities
Fair Credit Reporting Act
______________________ Obsolete information must be deleted Only authorized persons have access to your report Adverse data can be reported for seven years or bankruptcy for ten
chapter 13
in ____________ bankruptcy: Costs to the debtor include court costs, attorney's fees and trustee's fees and costs
college savings trust funds
low risk long term savings 1. 2. 3._________________
EE patriot bonds
low risk long term savings 1. 2._________________ 3.
CDs
low risk long term savings 1._________________ 2. 3.