Exam 2 Review

The ideal debt to income ratio should be:

20% or less

Which of the following statements regarding a consumer loan is true? - A consumer loan results from a rather informal process and involves no negotiated contracts - A consumer loan is used chiefly to make repeated purchases of relatively low-cost goods and services - A consumer loan provides credit cards and checks to the consumer - A consumer loan is used to finance the purchase of very expensive items

A consumer loan is used to finance the purchase of very expensive items

If the interest rates and monthly mortgage payments will nit change over the life of your mortgage, you have:

A fixed rate mortgage

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 _____.

A prequalification

Which of the following will lead to a poor credit rating? - Opening and using a charge account - Opening checking and savings account - Applying for a long-term loan and occasionally being late with a payment - Discussing with the lender if you foresee difficulty in making a payment - Making payments ahead of schedule

Applying for a long-term loan and occasionally being late with a payment

money market deposit accounts:

Are federally insured

Which of the following is a fixed cost of auto ownership? - Tires - Oil - Fuel - Maintenance - Automobile Insurance

Automobile Insurance

Low interest rates that have persisted since the financial crisis of 2008-2009 have been beneficial to:

Big Banks

Which of the following is an improper use of credit? - buying a house - purchasing a big ticket item - meeting a financial emergency - buying consumer goods

Buying consumer goods

Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car?

Capital Cost Reduction

The price of the car you are leasing is called the:

Capitalized Cost

Compared to other depository financial institutions, credit unions:

Charge lower rates on loans to their members

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of four years. Jacob does not need to pay any extra amount, based on the residual value of the car, at the end of the fourth year. He has a:

Closed-ended lease

You recently bought a new home. You receive title to an individual unit and joint ownership of any common areas and facilities. You have purchased a:

Condominium

The Federal Deposit Insurance Corporation (FDIC) covered stock, bonds, and mutual funds purchased at banks. (t/f)

False

Using credit is the ideal way to meet basic living expenses. (t/f)

False

Non-depository institutions are referred to as banks (t/f)

False- they are stock brokerage firms & mutual funds

Funds in commercial banks are protected by the:

Federal Deposit Insurance Corporation (FDIC)

Which of the following statements regarding fixed-rate loans is true? - Fixed-rate loans are preferable when interest rates are expected to fall - The cost of fixed-rate loans decrease with a decrease in market interest rate - Fixed-rate loans are preferable when interest rates are expected to rise - The cost of fixed-rate loans increase with an increase in the market interest rate - The interest rates on fixed-rate loans have periodic adjustment dates, at which time monthly payments are adjusted.

Fixed-rate loans are preferable when interest rates are expected to rise

Which of the following forms of consumer credit is among the cheapest and offers limited tax deduction? - The Wage Earner Plan - Credit Cards - Overdraft protection lines - Unsecured personal credit - Home equity credit lines

Home Equity Credit Lines

A(n) ______ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum. - a single payment - consolidated - standard - interim - installment

Installment

The majority of each monthly payment at the beginning of a loan will usually go to: - interest - private mortgage insurance - principle - real estate taxes

Interest

Convenience is a reason for the growth in popularity of:

Internet banks

Cash and near-cash resources are known as:

Liquid assets

Credit Unions are:

Member-owned financial cooperatives

If you borrow money on a single payment loan and discover you can not pay it back in time you should:

Negotiate a rollover

Which of the following is a major reason to use credit? - Occasionally for convenience - Regular payment of small cash outlays - Weekly purchase of food - Frequent impulse purchases - Monthly payment of utilities

Occasionally for convenience

To establish credit, you should first: - Open saving and checking account - Arrange for a large loan from close relatives - Pay cash for all purchases - Use credit extensively - Arrange for a small loan

Open savings and checking accounts

Credit should not be consistently used for purchasing nondurable goods. (t/f)

True

Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement. (t/f)

True

Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students. (t/f)

True

The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000 (t/f)

True

The most common method of computing finance changes on a credit card is the average daily balance method including new purchases. (t/d)

True

When one uses more than 20% of one's take-home income to pay off consumer debit, it is one of the signs that one may be headed towards serious credit debit problems. (t/f)

True

You can hold an account with a mutual fund that allows you to write a limited number of checks. (t/f)

True

Your savings will grow faster with monthly interest compound than with quarterly interest compound for a given nominal interest rate (t/f)

True

As a percent of take-home pay, monthly consumer credit payments should not exceed:

20%

A credit report is routinely used to predict creditworthiness. (t/f)

True

If you purchase a home for 110,000 and make a 10% downpayment, how much would 1 point cost at closing?

$990

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

Depreciation

Always paying cash helps in establishing a high level of creditworthiness.

False

Credit reports often include information about your religious and political affilications. (t/f)

False

Credit unions that are profitable, pay their stockholders first before passing on savings to members. (t/f)

False

Fees paid at closing that in effect lower your interest rate for your mortgage are called:

Points

If the down payment is less than 20% you may need ___ for your mortgage.

Private Mortgage Insurance

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

Private Mortgage Insurance (PMI)

The most common use of consumer loans is to: - Finance a vacation - Purchase a car - Buy a home - Buy furniture - Finance college eduction

Purchase a car

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

The account balance is payed in full each month

Which of the following is the biggest fixed auto ownership cost?

The cost of installment loan payments

A foreclosure happens when:

The lender attempts to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral

Which of the following is the correct formula for calculating the debt safety ratio? - Total Monthly Consumer Credit Payments (-) Monthly Take-Home Pay - Gross Monthly Pay (-) Monthly Take-Home Pay - Gross Monthly Pay (-) Total Monthly Consumer Credit Payments - Total Monthly Consumer Credit Payments - Gross Monthly Pay - Monthly Take-Home Pay (-) Total Monthly Consumer Credit Payments

Total Monthly Consumer Credit Payments - Monthly Take-Home Pay

Interest will usually begin to accrue immediately when you use a bank credit card to: - make purchases - send payments - meet financial emergencies - get a cash advance

get a cash advance