Finance Quiz #5

Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $245,000 and a current mortgage of $73,500, how much can she borrow in a home equity loan from Acme?

$122,500

Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with his Mastercard credit card, he was told that the restaurant accepted only cash or American Express. His waiter suggested that he use the ATM across the street to withdraw cash using his credit card. Tim did as suggested and didn't pay attention to any fees until he received his credit card statement one month later. He was shocked to see the total fees (3.0% cash advance), and his APR was increased to 20.0%. Given the cost of the meal ($165) plus the associated fees, how much did his meal cost him?

$172.70

If Vince charged $240 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay?

$240.00

Experts suggest that the debt payments-to-income ratio should be a maximum of

20%

A typical grace period offered by many credit card issuers is

20-25 days.

What is the APR for a $450 loan when the loan is paid off in 12 equal monthly payments at the stated annual interest rate of 12.5 percent? (Round your answer to 2 decimal places.) A)

23.08%

Home equity loans

Have interest that is tax-deductible.

If you miss payments on a home equity loan, you can lose your

House.

Home equity loans should be used for

Major expenses such as home improvements or education.

When calculating the debt-to-equity ratio, the following is NOT included:

Mortgage balance.

Which of the following is often considered to offer the least expensive loans (loans with low interest)?

Parents or family members.

Which of the following is NOT a valid reason for borrowing?

Paying for everyday living expenses

A cash advance

Requires you to pay interest every day until you repay the cash advance.

A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is

Single lump-sum credit.

Before buying goods and services on credit, a consumer should consider all of the following except

Whether the good or service will be worth more because it was purchased with credit instead of cash.

Perhaps the greatest disadvantage of using credit is

the temptation to overspend.

If your monthly net (after-tax) income is $2440, what should be your maximum amount spent on credit payments?

$488.00

If you borrow $480 at 5.5 percent simple annual interest and repay it in one lump sum at the end of one year, you will have to pay:

$506.40

Dave's take home pay (net after-tax income) per month is $3300. What is the maximum dollar amount of debt payments he should have?

$660.00

If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about

1.

A credit card holder who pays off his balances in full each month is known as

A convenience user.

Which of the following is an example of open-end credit?

A department store credit card

Which of the following is an example of closed-end credit?

A mortgage loan.

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as

A revolving check credit.

Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by

Adding up basic monthly expenses and subtracting this total from take-home pay, plus figuring out what to give up to make the monthly loan payment.

Which of the following can result from a failure to repay a loan

All of the above may result from the failure to repay a loan.

Which of the following is a valid reason for using credit?

All of these are valid reasons for borrowing

Which of the following questions is NOT needed before deciding how and when to make a major purchase?

All of these questions should be considered

A direct loan for personal purposes, home improvements, or vacation expenses is called

An installment cash credit.

Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the

Automobile

A loan officer is examining whether or not to offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs of credit is the loan officer reviewing?

Capacity

Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using

Closed-end credit.

The use of property or savings to secure a loan relates to

Collateral.

Consumer credit

Dates back to colonial times

A line of credit is

The maximum dollar amount of credit the lender has made available to a borrower.

Bankruptcy courts treat gift cards

The same way they handle unsecured debt.

Many people expect

Their incomes to increase to make it easier to make payments on past credit purchases.

Which of the following is NOT correct?

Using credit can increase the amount of money that will be available to spend in the future.

Which of the following is NOT correct?

Using credit cards typically provides a "float" of up to 10 days.

Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?

VantageScore