Finance test 2

The unit price of a 64-ounce carton of orange juice that costs $3.20 is

$0.05 per ounce.

The unit price of a two-pound (32-ounce) box of brown sugar that costs $3.20 is

$0.10 per ounce.

Jordan earns an annual salary of $45,000. If a lender uses 33% of monthly gross income as a guideline for the maximum PITI (principal, interest, taxes, and insurance), what is the maximum mortgage that Jordan can apply for?

$1,237.50

Rachel Efron went to the ATM to draw $200 cash with her debit card. She inadvertently pulled out her credit card instead, not realizing the expenses for cash advances. If her credit card company charges a cash advance fee of 3 percent and interest at 24 percent APR, what are the total fees she will pay for her mistake?

$10

The average used car costs about _______ less than the average new car.

$10,000

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

This type of promotion provides an immediate savings for consumers.

coupons

A service contract

covers the repair costs of a product

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

House

Consumer credit dates back to colonial times when it was extensively used by farmers.

True

Economists recognize consumer credit as a major force in the American economy.

True

FICO and VantageScore are two methods used to judge creditworthiness.

True

If you are a cosigner for a loan and the debt is not repaid, then that fact will appear on your credit report.

True

If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.

True

In the five Cs of credit, character refers to the borrower's trustworthiness and stability.

True

Installment sales credit is a loan that allows a consumer to purchase high-priced items.

True

Most information in your credit file may be reported for only 7 years.

True

Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

True

The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.

True

Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge?

$23.00

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

1

If you have a mortgage that has fixed monthly payments and a very large final payment, you have a(n)

Balloon mortgage.

Motor vehicle coverage typically includes all of the following except

Bodily injury liability of all expenses, no matter the cost, for the most injured.

Home insurance policies include coverage for all except

Business property

If you have an interest rate subsidy from a home builder or real estate developer, you have a

Buy-down.

Which of the following is NOT a strategy for wise buying?

Buying items on impulse

Information about a personal bankruptcy may be reported in your credit file for

10 years

A typical grace period for many credit card issuers is

20 - 25 days

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

20 percent

FICO scores generally range from

350 to 850

A prearranged loan up to a specified amount that a consumer can access by writing a special check is known as

Revolving check credit

If you choose to take responsibility for negative results of a risk, you are using

Risk assumption

If you choose to avoid the risk of a traffic accident by not driving to work, you are using

Risk avoidance

If you choose to wear your seatbelt, you are using

Risk reduction

If you choose to insure your home or your vehicle, you are using

Risk shifting

Choosing the payment method is part of the ____ phase of the decision-making process.

Selection and purchase

Negotiation activities are part of the ____ phase of the decision-making process.

Selection and purchase

Jim wants to make an offer to buy an older house. At this point, he should

Set up a home inspection.

A no-haggling dealer will use a(n) _______

Set-price

An insurance program

Should change along with needs and goals C. Should minimize personal property and liability risks

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

Single lump-sum credit

Major factors that affect the affordability of your mortgage include all of the following except

Size of the home.

If you have a problem whose remedy will be $1,500-$3,000, the appropriate tool to use would be (a)

Small claims court.

The amount printed on a label that is posted on a vehicle is called

Sticker price

The opportunity to have another person take over rent payments and live in the rental unit is called (a)

Subletting.

Abigail checked out brands and prices of blue jeans at several stores. She was comparison shopping.

TRUE

Cam has an overwhelming desire to buy things whenever he goes shopping. One could say that he is a compulsive shopper

TRUE

If you need information to compare Acme Home Insurance and Zebra Home Insurance, you should contact the state insurance commissioner or a consumer organization that deals with insurance.

TRUE

Risk management is an organized plan for protecting yourself, your family, and your property.

TRUE

The first step to setting up an insurance program is to set insurance goals.

TRUE

Most low and middle income people will NOT qualify for a VA-guaranteed loan.

TRUE VA loans assist eligible armed services veterans with home purchases. FHA loans are available for many low and middle income people.

Walt has decided to sell the home he has lived in for 50 years. The house has two bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should

Take steps to make the house appear bright and large.

The Truth in Lending Act requires that creditors explain how they calculate the finance charge.

True

The first sign of stolen identity might be that you get bills for a credit card account that you never opened.

True

The least expensive loans are often provided by parents or other family members.

True

The longer the term for a loan at a given interest rate, the higher the overall interest charges.

True

When used effectively, credit can help a consumer have more and enjoy more.

True

You should keep a record of your credit card number separate from your card.

True

Your lifestyle affects your housing buying decisions.

True

A policy that provides supplemental your basic personal liability coverage is called a(n)

Umbrella policy

A standard measurement used to compare packages of different sizes is

Unit pricing

Various states are trying to reduce the time and cost of settling vehicle injury cases. One alternative is

Using the no-fault system

Because Dan served in the army, he should be eligible for a(n)

VA loan.

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

VantageScore

Before buying goods and services on credit, a consumer should consider all except:

Whether the good or service will be worth more because they were purchased with credit instead of cash

If you are denied credit,

You are entitled to a free copy of your credit report

If you have a loss due to a flood

You need to have purchased special coverage if you live in an area that has frequent floods in order to be covered.

All of the following are signs of financial trouble except:

You pay your credit card bills in full each period.

Which of the following is often the first sign of a stolen identity?

You receive bills for a credit card account you never opened

Which of the following sources would be the LEAST helpful when purchasing a vehicle?

Your cousin who has never purchased a car

If you think a bill is wrong or you want more information about the bill, then you and your creditor should follow all of the steps below except

Your creditor must reimburse you for your time spent researching the error.

Which of the following is NOT a credit bureau?

FICO

Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to make credit card or revolving credit payments on defective goods, and promptly crediting accounts?

Fair Credit Billing Act of 1975

Experts suggest that you spend more than 20 percent of your after-tax (net) income on consumer credit payments.

False

The higher your FICO score, the more risk you pose to creditors.

False

According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.

False A creditor may not threaten your credit rating during this time.

A bankruptcy remains on a credit file for no more than 5 years.

False Bankruptcies remain on credit file for 10 years

In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.

False Conditions refer to general economic conditions that can affect a borrower's ability to repay a loan.

Consumer credit allows businesses to be more efficient or more productive.

False Consumer credit allows consumers to be more efficient

Consumer credit refers to the use of debit cards for personal needs.

False Consumer credit refers to the use of credit

A trade off of credit is that it increases the amount of money that will be available to spend in the future

False Credit decreases the amount of money that will be available in the future

Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.

False Credit does not increase total purchasing power

A disadvantage of using credit is its use when making a hotel reservation.

False Credit offers the convenience to make a hotel reservation

Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.

False Definition is for open-end credit

Interest paid on a credit card is tax-deductible.

False Interest on home equity loans is tax deductible

The expected rate of inflation should not be considered when determining the amount of interest a creditor should charge.

False Lenders incorporate the expected rate of inflation when deciding how much interest to charge.

The amount of interest paid is independent of the length of the loan.

False Longer Loans require more interest to be paid

A consumer applies for open-end credit to make a single purchase, such as a large appliance.

False Open-end credit does not require an application for each purchase

The Annual Percentage Rate is lower than the stated rate for loans that are repaid in monthly payments.

False The APR for these loans is higher than the stated rate.

The Equal Credit Opportunity Act requires that a lender not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.

False The age to sign a legal contract is usually 18 - 21 years.

According to the Fair Credit Billing Act from 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.

False The creditor must take this action within two billing periods, but not longer than 90 days.

The add-on interest calculation uses the formula: Interest = Principal Rate of interest Time

False The formula is correct for simple interest

The longer it takes for you to pay off a bill, the less interest you pay.

False The longer it takes to pay, the more interest to be paid.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.

False The new law made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan.

The debt-to-equity ratio is calculated by dividing your total liabilities, including mortgage, by net worth.

False The ratio excludes mortgage

The most expensive loans are often provided by parents or other family members.

False These are the least expensive loans

In the five Cs of credit, capital refers to the borrower's ability to pay additional debts.

False This refers to capacity

In the five Cs of credit, capacity refers to the borrower's trustworthiness and stability.

False This refers to character

A secured credit card is most appropriate for someone with a strong credit background.

False This type of card would be most appropriate for someone with a bad credit history

FICO is a better score to use than VantageScore for consumers with limited credit histories.

False VantageScore allows for a more predictive score for consumers, even for those with limited credit histories

You have a legal right to sue a credit bureau if you observe an error in your file.

False You have a legal right to sue if the credit bureau has not followed the rules established by the Fair Credit Reporting Act.

The easiest loans to obtain are also the least expensive.

False the easiest loans are also the most expensive

If you think your identity has been stolen, which of the following actions does the Federal Trade Commission recommend you take immediately?

File a police report

Which of the following costs will increase directly with the number of miles driven?

Gasoline

Which of the following should reduce your auto insurance premium?

Get good grades in college

Homeowner's insurance includes all of the forms listed except

HO-8

When purchasing a used vehicle, it is a good idea to

Have a trained and trusted mechanic of your choice check out the vehicle

Home equity loans

Have interest that is tax-deductible

Paul bought some bad gasoline that damaged the gas tank of his vehicle.

He should provide the gas station with documentation of his purchase and all repair costs.

Franklin wants to sell his house himself. Which of the following is NOT correct about his sale?

He should show the house only when he is home alone.

If a loan is being paid in installments instead of all at the end of the loan period, the actual rate of interest will be

Higher than the stated rate

Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except

His original cost.

Vincent is applying for insurance for his new home. Which of the following is correct?

His personal belongings should automatically be covered with his home at 55 percent to 75 percent of his home's insured amount.

Georgina and Henry are looking at houses. Which of the following is correct?

They should assess the school system in the area they want to live.

Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin's actual rate of return on the loan?

4%

Acme Home Lending offers home equity loans up to 75 percent of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme?

$110,000

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to

$117,000.

Brett bought a house five years ago for $150,000. At that time he borrowed $140,000 from his bank. The house is now worth $162,000. If he wants to stop paying his private mortgage insurance, he can request termination of PMI. The current value of his mortgage must be no higher than

$126,360.

Timothy Calibe 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 only accepted 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 percent cash advance) and his APR was increased to 21 percent. Given the cost of the meal ($125) plus the associated fees, how much did his meal cost him?

$130.94

A If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward principal?

$180.50

If Vince charged $200 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?

$200.00

Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest formula for this two-year, 8% loan. What is his total interest?

$224

Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is his finance charge?

$23.00

Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at once after one year, what is your average balance?

$300

If you have a $150,000 30-year 5% mortgage, how much of your first monthly payment of $805.50 would go toward interest?

$625.00

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest?

$90

Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, a student loan payment of $150, a mortgage payment of $1,200, and a credit card minimum payment of $45. What is his debt-payments-to-income ratio?

14.3%

Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-toincome ratio?

19%

zach is applying for insurance for his new home. which of the following is correct?

B. He should insure the building for full replacement coverage.

If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within

60 days

Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio?

67

Homeowner's insurance covers all except

A diamond necklace valued at $25,000

Comparison shopping will be beneficial for buying all of the following except

A hot dog at the baseball park

Personal liability coverage does NOT protect

A housekeeper

If you are selling your house by owner, you should still enlist the assistance of A.

A lawyer or title company to assist with the contract, closing, and other legal matters.

All of the following are acceptable types of documentation for a household inventory except

A listing of items and their details in your memory.

An individual who purchases insurance is

A policyholder

yogi is applying for insurance for his new home. Which of the following is correct?

A. He should base the amount of insurance on the price to rebuild or repair it.

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n)

ARM.

A cash advance

Accrues interest charges beginning the day the cash advance is made

According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting any billing errors, you have the right to sue for

Actual damages plus twice the amount of any finance charges

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, subtracting this total from take-home pay, and, if needed, figuring out what to give up to make the payment.

The Consumer Credit Counseling Service

Aids families with serious debt problems by helping them to manage their money better and set up a realistic budget

Which of the following is a cost associated with a vehicle lease?

All of the above

All of the following are appropriate questions you could ask before making a major purchase except

All of the above are questions that should be asked.

Which of the following is NOT a valid credit application question?

All of the above are valid credit application questions.

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

All of the above are valid questions to ask.

Which of the following is a valid reason for borrowing?

All of the above are valid reasons for borrowing

Buying a vehicle can be a challenging process. When researching a vehicle, a consumer may want to consider all of the following except

All of the above may be considered

Which of the following questions should one ask when developing a risk management plan?

All of the questions should be asked when developing a risk management plan.

Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except

All of the steps above are appropriate to take if she suspects identity theft.

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

All of these answers may be a result of the failure to repay a loan.

Homeowner's insurance covers all except

All of these are covered

The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on

All of these are prohibited.

Which of the following expenses is NOT usually recommended or necessary for a tenant?

All of these are recommended or necessary.

Which of the following is NOT a type of motor vehicle insurance available to drivers?

All of these may be available to drivers

What should a home buyer consider when evaluating a house?

All of these should be evaluated.

Amber had permission from Bradley to borrow his car to run some errands. Unfortunately, while Amber was driving, she looked down to change songs on her iPod and sideswiped a car and hit a bicyclist. Based on her experience, which of the following would be true?

Amber's insurance policy should cover any property damage claims since she was driving Bradley's car with his permission.

The finance charge for credit includes all except:

Amount borrowed

Donald wanted to buy a house in the country, so he sought advice from his cousin Evan. Evan explained the advantages and disadvantages of home ownership; however, he had some information incorrect. Which of the following is incorrect?

An advantage is that the down payment required is less than the security deposit for a rental.

The APR is the percentage cost of credit on a(n) ______________ basis.

Annual

Cindy was contacted by her home insurance agent to discuss ways to decrease her premium. Which of the following should NOT reduce her premium?

B. Increasing the amount of coverage

Medical payments coverage applies to medical expenses of

Anyone in your vehicle, including you.

When Nancy buys her house, the mortgage company will probably conduct a(n)

Appraisal.

What step can you take if your credit application is denied?

Ask why you were denied credit

Which of the following is a disadvantage of a car lease?

At the end of the lease, you have no ownership interest in the vehicle

Installment credit exploded on the American scene with the advent of the

Automobile

Homeowner's insurance covers all except

Automobiles

Cheyenne has a home insured for $300,000. It would cost $320,000 to rebuild her home. If she has home insurance that provides personal property coverage at 70% of value, how much of her belongings would be covered?

B. $210,000

andrew is applying for insurance for his new home. which of the following is correct?

C He should use the replacement value method for settling claims to receive the full cost of repairing or . replacing his personal belongings.

Sally was driving her own car and collided with a pickup truck. Sally sustained $125,000 in injuries, and her passenger sustained $10,000 in injuries. If her coverage was 100/300/50, what are the total medical expenses the insurance company would pay for this accident?

C. $110,000

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

Capacity

The question "what are your assets and net worth?" relates to

Capital

A vehicle lease has several costs. Which of the following is the price of the vehicle?

Capitalized cost

Izzy is thinking about leasing a sports car. She will make monthly payments based on a money factor and the ____________

Capitalized cost

The price of a leased vehicle is known as the

Capitalized cost

Craig wants to get his old car repaired, but he doesn't want to spend much money. He probably will NOT want to go to a

Car dealer.

Which of the following is NOT correct?

Caryn's suggestion to open drapes but keep lights turned off to conserve energy will give her property a positive image.

Under Chapter 7 o f the U. S. Bankruptcy code,

Certain assets receive some protection

Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code?

Chapter 7 and 13

The question "will you repay the loan?" relates to

Character

Which of the following is not a legal option for upper-income consumers?

Class action lawsuit

Molly purchased a $1,500 HDTV 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

Henry was driving at dusk and hit a deer running across the road. His damage would be covered under his

Collision policy.

Sammy was driving on the highway and drove over a piece of metal that was on the highway. The metal punctured her gas tank. This damage would be covered under her

Collision policy.

When Jane researched the brands and prices of her refrigerator, she was

Comparison shopping

Al left his vehicle parked on the street in the front of his house when he went on vacation. While he was gone, his street flooded and his car was severely damaged. This damage would be covered under his

Comprehensive physical damage policy.

Zachary lived in a neighborhood that was known for gang activity. One day, he noticed that his car had been vandalized. This damage would be covered under his

Comprehensive physical damage policy.

Jacob drives by a Big Box home improvement center on his way home from work. He usually stops and buys something because it makes him feel good. Jacob is

Compulsive shopping

Which of the following is a legal form of ownership in which the owners pay a monthly fee for maintenance of the common areas?

Condominium

Paul and Lora built their home. When they researched contractors, they paid attention to all of the following except

Contractor's property tax payments during construction.

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

Convenience user

Which of the following is a form of housing in which shareholders purchase stock to obtain the right to live in a unit of the building?

Cooperative housing

Which of the following is a form of housing in which the units are owned by a nonprofit organization?

Cooperative housing

All of the following are consumer credit protection laws except

Credit Lawsuit Act

Which of the following is NOT correct?

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

Which of the following is NOT correct?

Credit cards typically offer a "float" of up to 10 days.

A credit report includes

Credit history

Motor vehicle crashes cost more than ______ in lost wages and medical bills every year.

D. $150 billion

Consumer credit

Dates back to colonial times.

Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?

Debit card

Which of the following is the document that transfers ownership of property from one party to another?

Deed

When evaluating your credit application, a lender may NOT

Deny you if you receive public assistance

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

Department store credit card

A fixed operating cost for a vehicle is

Depreciation.

All of the following are variable operating costs for a vehicle except

Depreciation.

If you want to file a complaint against a bank, you:

Do not need to have an account at the bank

Which of the following is NOT associated with credit cards?

Down payment on a home

Frank and Diane want to buy a house. Which of the following do they need before they purchase a house?

Down payment.

Opal is a real estate agent who represents the buyer as well as the seller. In some states, the buyers are required to sign a disclosure acknowledging that they are aware that Opal is working as a(n)

Dual agent.

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except

Home appraisal.

Last month some of your friends were injured in an accident. Their total injuries were as follows: Coverage was 100/300/50. What was the total medical coverage in this accident?

E $250,000

Tom wanted to receive as many discounts from his home insurance as possible. Which of the following would NOT provide a discount?

E. All of these should provide a discount for Tom.

baranby is appying for insurance for his new home. which of the following is correct?

E. His policy should automatically increase coverage as construction costs rise.

Sandra is contacting several insurance companies to compare coverage for her home. Which of the following should NOT affect her premium?

E. Location to a school

Pauline just submitted an offer on her dream home. To show that she is serious, she also included a(n)

Earnest money.

Following the signing of The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors seeking to erase all debts will have to wait ___ years from their last bankruptcy before they can file again.

Eight

When Stanley was visiting Elaine, he tripped on her front porch step and sprained his ankle. His injuries were covered by

Elaine's medical payments coverage.

Which of the following is an account used to pay property taxes and home insurance?

Escrow

Comparison of product features is part of the ____ phase of the decision-making process.

Evaluating alternatives

Price analysis is part of the ____ phase of the decision-making process.

Evaluating alternatives

Quinn applied for a loan. He provided information about his finances and the home he plans to purchase. Results of the mortgage calculation included all of the following except

Expected maintenance costs.

A clear statement of a problem is: "I need to have a car."

FALSE A better statement would be "I need transportation."

A duplex is a house with two or more separate dwellings.

FALSE A duplex is a building with two separate homes.

One of the first steps in a car purchase negotiation should be a discussion of the trade-in vehicle.

FALSE A trade-in vehicle should NOT be mentioned until the cost of the new car has been settled.

At the closing of a home purchase, the buyer conducts a walk-through of the property.

FALSE A walk-through should be completed prior to closing. At closing, documents are signed, last-minute details are settled, and appropriate amounts are paid.

About 50 percent of home sales are By Owner.

FALSE About 10 percent are by owner.

If your home is assessed for $200,000, the market value of the home should be less than $200,000.

FALSE According to the Personal Finance in Practice, the assessed value is normally lower than the market value.

An aesthetic feature of a vehicle is air conditioning.

FALSE Air conditioning is a convenience option.

An assigned risk pool is a method of calculating the insurance premiums for various groups of drivers.

FALSE An assigned risk pool includes people who cannot get motor vehicle insurance due to a poor driving record.

Another name for a homeowner's insurance policy is an umbrella policy.

FALSE An umbrella policy is used in addition to a homeowner's policy.

The best place to find a qualified lawyer who will meet your specific needs is a phone book.

FALSE Common sources of lawyers are referrals from friends, advertisements, and the local division of the American Bar Association.

One of the best ways to compare packaged food products is to use rebate pricing.

FALSE Comparisons are made with unit pricing.

Collision insurance covers your vehicle against risks such as falling objects and hail.

FALSE Comprehensive physical damage coverage protects against these risks.

Prices at the local Quick Market (convenience store) will probably be lower than the regional Big Box Retailer (grocery store).

FALSE Convenience stores usually have higher prices.

An example of a peril is defective wiring.

FALSE Defective wiring is a hazard.

Your decision to rent or to buy your residence should be based solely on lifestyle factors.

FALSE Financial factors should also be considered.

Merrill bought a house and applied for a loan through the VA (Veterans Administration). The VA will provide the down payment when he closes on the house.

FALSE Government agencies, such as the VA, do not provide the down payment. Instead, they help home buyers obtain low-interest, low-down-payment loans.

Home improvements will definitely increase the selling price.

FALSE Home improvements may or may not increase the selling price.

Homeowner's insurance excludes detached structures.

FALSE Homeowner's insurance includes detached structures such as a garage or toolshed.

If you are somewhat interested in a specific vehicle, you should provide a small deposit so the car seller will hold the vehicle for you.

FALSE If you change your mind about the vehicle, you can lose your deposit; therefore, never leave a deposit until you are ready to buy a vehicle.

Uninsured motorist's protection automatically covers you and your family members as well as damage to the vehicle itself.

FALSE In most states, it does NOT cover damage to the vehicle itself.

Angela should decrease her deductible from $1000 to $250 in order to reduce her home insurance premium

FALSE Increasing the deductible should decrease the premium.

It is illegal to use a credit score to determine the premium to charge an individual.

FALSE Insurance companies may consider the credit score when deciding whether to sell, renew, or cancel a policy and what premium to charge. However, an insurer cannot refuse to issue you a home or auto insurance policy solely based on your credit report.

Samuel should buy insurance in order to eliminate his risk.

FALSE Insurance is a risk-sharing business; one cannot eliminate risk with insurance.

Sam's house should be insured for the amount he originally paid for it.

FALSE It should be insured for the cost to rebuild or repair the home, not the original cost.

A household inventory should be stored in a home office.

FALSE It should be stored in a secure location, such as a safe deposit box.

A good time to use a lawyer is when you appear in small claims court.

FALSE Lawyers are often used in more complicated matters.

An approved mortgage application usually locks in an interest rate for 60 - 120 days.

FALSE Lock in periods usually range from 30 to 90 days.

A vehicle that looks rusty on the outside will have major operational problems.

FALSE Looks can be deceiving.

An example of a "preshopping activity" is negotiating the price of a product.

FALSE Negotiations are part of the Selection and Purchase phase of the buying process.

Emergency road service coverage includes coverage for a tow to a service station as well as repairs to make the vehicle drivable.

FALSE Once the vehicle arrives at the repair shop, insurance does not cover repair costs.

Jim and Sandy are setting up their insurance program. One of their goals should be to reduce the possible loss of income due to fire or theft.

FALSE One goal should be to reduce the loss of income caused by premature death, illness, accident, or unemployment. Another goal should be to reduce the loss of property caused by perils, such as fire or theft, or hazards.

Private mortgage insurance is usually required if the down payment for a home is less than 30 percent.

FALSE PMI applies if the down payment is less than 20 percent.

The phases of buying are: problem identification, pre-shopping activities, evaluating alternatives, selection and purchase, post-purchase activities.

FALSE Problem identification is part of the "pre-shopping" activities; therefore, there are four phases.

Every state in the United States has a law requiring people to carry motor vehicle insurance.

FALSE Recently, more than 45 states had laws; however, every state has a financial responsibility law that requires drivers to prove that they can pay for damage or injury caused by an automobile accident.

Insurance coverage for a rental is more expensive than insurance coverage for a mobile home.

FALSE Renter's insurance is relatively inexpensive. Mobile home insurance is quite expensive.

Abigail checked out brands and prices of blue jeans at several stores. She was impulse shopping.

FALSE She was comparison shopping.

When Brett's apartment lease ends, he should receive his entire security deposit back even though the carpet has been damaged while he was living there.

FALSE Since a security deposit is held to cover the cost of damages, Brett may receive only a part of it back.

Thomas bought a vehicle from a used-car dealer. He returned it to the dealer because the transmission fell out 150 miles after he purchased it. The dealer refused to accept the return because the vehicle was sold 'as is.' This is an example of a limited warranty.

FALSE Since the vehicle was sold "as is," no warranty was offered.

Small claims court is used to take legal action by a few individuals on behalf of all who have suffered the same alleged injustice.

FALSE Small claims court is for low-value claims. The legal action taken on behalf of others is a class action suit.

A convenience option that consumers may look for in a vehicle is special trim.

FALSE Special trim is an aesthetic feature on a vehicle.

Studies of consumer problems consistently rank auto repairs as one of the best consumer services with few consumer complaints.

FALSE Studies have ranked auto repairs as one of the top consumer rip-offs.

An advantage of a second mortgage is that the interest rate subsidy from the home builder reduces the mortgage payments during the first few years of the loan.

FALSE The definition is for a buy-down.

A condominium is a form of housing in which the units in a building are owned by a nonprofit organization

FALSE The definition is for cooperative housing.

Risk avoidance is an organized plan for protecting yourself, your family, and your property.

FALSE The definition is for risk management.

Once a risk management plan is in place, the insurance programs that were set up should remain the same even as one's family needs change.

FALSE The insurance programs should grow or shrink as the protection needs change.

Rental insurance isn't very important since the landlord's insurance on the building includes coverage on all tenants' belongings.

FALSE The landlord's insurance is not expected to include the personal belongings of the tenants. It is important to obtain adequate renter's insurance in case of damage.

The only way that you can have long-term financial security is to not save all of your current income.

FALSE The only way is to not SPEND all income.

When interest rates are high and the demand for homes is low, prices of homes will likely be at a premium

FALSE The prices will probably be low.

A landlord is responsible for paying renter's insurance.

FALSE The renter is responsible.

A landlord has the right to sublet an apartment.

FALSE The renter may have this right.

The settlement of a difference by a mediator is legally binding.

FALSE The settlement by an arbitrator is binding. Mediation is a nonbinding process.

If you pay an extra $100 per month on your mortgage, your total loan principal will decrease and your total interest will remain the same.

FALSE The total principal will not change; however, the reduction in interest will reduce the loan period by several years. (The text offers an example of paying an extra $25 per month on a $75,000, 20-year 10 percent mortgage. The impact of the extra payments decreases the loan period by more than 5 years.)

As interest rates increase, more people have the ability to afford an average-priced home.

FALSE These are inversely related.

A disadvantage of home ownership is the deductibility of mortgage interest and real estate tax payments.

FALSE This is a financial benefit.

An advantage of renting is pride of ownership.

FALSE This is an advantage of buying.

The National Flood Insurance Program makes flood and earthquake insurance available for all homeowners.

FALSE This program is available in some places.

Caroline was found liable in an accident. This was probably not due to negligence on her part.

FALSE Usually, liability is because of negligence.

One way to keep auto insurance rates down is to insure each vehicle you own with a different insurer.

FALSE You may receive a multi-vehicle discount if you insure two or more vehicles with the same company.

The best time to ask a lawyer about his fees is after he wins a case for you.

FALSE You should ask about the fee structure and payments when you select the lawyer.

If you have a problem with a product, the first place you should express your dissatisfaction to is the corporate headquarters.

FALSE You should contact the corporate level if a problem is not resolved at the local store.

If you have a problem with a product and you really want to get the attention of someone in customerservice, you should raise your voice during your conversation.

FALSE You should use a calm, rational, persistent approach.

The most common conventional mortgage is the 20 year ARM.

FALSE A conventional mortgage has a fixed rate and fixed payment. An adjustable loan does not fit into this category.

Lemon laws have been enacted in 48 of the 50 states for new vehicle purchases.

FALSE All 50 states and the District of Columbia have enacted lemon laws.

The purpose of an escrow account is to pay the points at closing.

FALSE An escrow is money from your monthly payments used for the payment of property taxes and home insurance.

Service contracts on vehicles usually are wise financial decisions.

FALSE Because of costs and exclusions, service contracts may NOT be a wise financial decision.

Most new mortgages are assumable.

FALSE Due to volatile interest rates, assumable mortgages are seldom offered.

Mortgage points are paid at the end of the mortgage.

FALSE Points are prepaid interest and are paid when you buy the house and take out the mortgage.

Paul is 23 years old and has a small amount to use as a down payment for his first house. He might be eligible for a(n)

FHA loan.

Which of the following is the best way to state a problem?

I need transportation.

Think about consumer complaints. Which of the following is correct?

If you don't get satisfaction from working with the company headquarters, you may get assistance from a mediator in order to avoid legal action.

When used effectively, credit can result in

Improved lifestyle

While Paul was shopping for a new chainsaw, he found a great deal on new drill and bought it. This is an example of

Impulse shopping

The best place to keep a household inventory is

In a safe deposit box

Credit reports can be obtained for all except:

Inquiry by a neighbor

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

Installment cash credit

The largest fixed expense associated with a new automobile is

Insurance.

The periodic charge for the use of credit is

Interest

If you do not pay back any of the loan amount for a portion of the loan period, you have a(n)

Interest-only mortgage.

Helga plans to purchase a pick-up truck. She should begin her price negotiation at the

Invoice price

The dealer's cost is also known as the

Invoice price

Which of the following is correct about the lemon law?

It applies to vehicles that have been serviced four times to correct the same problem in the first 12,000 miles.

Comparison shopping will be beneficial for buying

Items that can be researched easily with advertisements

Sally has a major problem with a product and thinks that many others have had the same problem. Which of the following is the best way to resolve the problem?

Lawyer.

Steven needs to write a will. His best resource is (a)

Lawyer.

This gives the landlord the right to take legal action against a tenant for nonpayment of rent or destruction of property.

Lease

This provides the tenant protection from rent increases.

Lease

A legal document that includes information about the due date of monthly rent is called a

Lease.

Adolph has a low income and needs legal assistance. He should make use of (a)

Legal aid society.

If you double the monthly payment for a credit card, the loan will be paid off in

Less than half the time

The tenant is the

Lessee.

The owner/landlord is known as the

Lessor.

Most customer complaints result from the all of the following except

Long product lives.

Which of the following is NOT a benefit of home ownership?

Maintenance and costs of repairs and home improvements

A variable operating cost for a vehicle is

Maintenance and repairs.

All of the following are fixed operating costs for a vehicle except

Maintenance and repairs.

Home equity loans should be used for

Major expenses such as home improvements or education

Diane purchased her house and had it assembled before it was moved to her lot. She purchased a

Manufactured home.

A process used to settle grievances in a nonbinding process is called a(n)

Mediation.

A vehicle lease has several costs. Which of the following is the interest rate used to calculate the monthly cost?

Money factor

Which of the following is an advantage of a car lease?

Monthly lease payments are usually lower than monthly financing payments

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

Mortgage balance

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

Mortgage loan

Private mortgage insurance

Must be terminated automatically when the home owner's equity reaches 22% of the property value at the time the loan was initiated.

These products are highly advertised and available at many stores

National-brands

Veronica has had a variable-rate mortgage for several years. Unfortunately, the monthly payments have not covered her interest owed. As a result, her home equity is decreasing because of

Negative amortization.

A potential problem with having a long car loan is

Negative equity

Which of the following is correct?

One question that should be asked when developing a risk management plan is: What do I need to insure?

Trenton wants to buy a house but can provide only a 10% down payment. He probably will be required to have

PMI.

Which of the following items should be shredded to protect yourself from identity theft?

Papers with personal information

Which is often considered to offer the least expensive loans?

Parents or family members

Paul was driving his kids to a piano lesson in a 2005 minivan. While driving, he was hit by an uninsured motorist. Although Paul and his kids had only minor injuries, their vehicle was totaled. Based on this information, which of the following is correct?

Paul's uninsured motorist's protection should cover medical expenses for Paul and his kids.

During a home purchase closing, you should

Pay all closing costs, settle last-minute items, and sign documents.

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

Paying for everyday living expenses

A vehicle lease has several costs. Which of the following is the periodic cost?

Payment amount

Yvette has a flexible-rate mortgage that has a maximum monthly increase. This feature is called a(n)

Payment cap.

Closed-end credit is used for a specific purpose and involves a specific amount

True

Barbara left a skateboard on her front steps. A windstorm then swept the skateboard up and through her window. The windstorm is a

Peril

Insurance that covers valuable items, such as an expensive harp, is called

Personal property floater

Personal property insurance covers

Personal property items up to 55 - 75 percent of the insured value of the home

The two basic types of risk that people face regarding their personal property are

Physical damage and damage caused by criminal behavior

Rebecca paid extra money to reduce her mortgage interest rate. That extra money is called

Points.

Properly maintaining and operating the product is part of the ____ phase of the decision-making process

Post-purchase activities

Resolving purchase concerns is part of the ____ phase of the decision-making process.

Post-purchase activities

Information gathering is part of the ____ phase of the decision-making process.

Pre-shopping activities

Problem identification is part of the ____ phase of the decision-making process.

Pre-shopping activities

If you want to pay a set fee to receive unlimited or reduced-fee assistance, you should use (a)

Prepaid legal services.

Madeline had a severe allergy attack and crashed her car into a telephone pole while sneezing. The damage to the telephone pole would be covered under Madeline's

Property damage liability policy.

Patrick has an old beater car and wants to keep his insurance costs down. In order to minimize the financial impact of an accident he may cause, he should, at a minimum, carry which type of insurance?

Property damage liability.

A reverse mortgage

Provides older home owners with tax-free income in the form of a loan that is repaid when the home is sold or the home owner dies.

Credit files can include all except:

Race or nationality

Credit bureaus get their information from all of the following except:

References

Which of the following is NOT correct about renter's insurance?

Renter's insurance covers the building and other structures on the site.

Which of the following is an advantage of renting?

Renters have fewer responsibilities than home owners.

George has never bought a car before. Which of the following techniques should he use to get the best deal?

Research the actual dealer cost and begin negotiations from that point

A vehicle lease has several costs. Which of the following is the expected value at the end of the lease?

Residual value

The expected value of a vehicle at the end of a lease is called the

Residual value

Which of the following is a disadvantage of renting?

Tenants cannot take tax deductions for mortgage interest and property taxes.

Most tenants sign a lease. Which of the following is part of a lease agreement?

The conditions under which the landlord may enter the apartment.

Who is responsible for a loan repayment?

The cosigner

Tamra went to a restaurant and had an unpleasant experience that sent her to the hospital. The problems at the restaurant should be handled by

The county health department.

The primary benefit of a home equity loan is

The deductibility of the loan interest on federal taxes.

Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both have the same stated rate of interest. Which of the following is true?

The interest paid for the one year loan will be lower than the interest paid for the four year loan.

Liability is defined as:

The legal responsibility for the financial cost of another person's losses or injuries

A line of credit is

The maximum dollar amount of credit the lender has made available

Which of the following is NOT correct?

The number of small claims you have should not affect your premium.

Timothy was driving his friend Nick to football practice. While driving, he was hit by a driver who had coverage of 100/300/50. Tim and Nick each suffered some physical injuries. Based on this information, which of the following is correct?

The policy would provide a maximum of $100,000 for each of the injured, and no more than $300,000 for total injuries sustained in the accident.

Bankruptcy courts treat gift cards

The same way they handle unsecured debt

Kelly selected a home and submitted an offer to the seller.

The seller may choose to provide a counteroffer.

The minimum monthly payment on a credit card is

The smallest amount you can pay and remain a borrower in good standing

Many think that perhaps the greatest disadvantage of using credit is

The temptation to overspend.

Many people expect

Their incomes to increase to make it easier to make payments

Which of the following is NOT correct regarding real estate agents?

They require that you conduct your own showings.

Elaine purchased her living unit in a building with five other separate units. She purchased a

Townhouse.

Which of the following is NOT correct?

Traditional financial guidelines suggest that your home should cost about five times your annual income.

A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.

True

A credit file can include your spouse's name and Social Security number

True

According to the Fair Credit Billing Act from 1975, a consumer may tell his credit card company to stop payment for a defective good if he made a sincere attempt to resolve the problem with the store.

True

Angela wanted to rent an apartment, so her landlord required her to sign a lease. The lease is a legal document that defines the conditions of her rental agreement.

True

The most common risks are

all of these are common risks

Ricky has a conventional mortgage. He can monitor his interest and principal payments using _____ information.

amortization

Most products come with some guarantee of quality. Which of the following is usually in written form, created by the seller or manufacturer and has two forms?

express warranty

Mike bought a new car. His new car warranty probably included all except

extended coverage for air conditioning

During the grace period, finance charges are assessed at only half the normal rate.

false Finance charges are not assessed during the grace period

Steve bought a laptop that was defective. This laptop will be fixed or replaced by the manufacturer as long as he returns it in a reasonable amount of time. What type of warranty does he have on his laptop?

full waranty

Most products come with some guarantee of quality. This type of warranty states that a defective product can be fixed or replaced during a reasonable amount of time.

full warranty

Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The skateboard is a

hazard

Frank bought some mini-blinds. Although he did not receive a written warranty, the blinds should be expected to open and close properly. What kind of warranty does Frank have?

implied warranty

Most products come with some guarantee of quality. This type of warranty covers the product's intended use or other basic understandings that are not in writing.

implied warranty

Which of the following is NOT one of the commonly used general risk management techniques?

increase risk

An insurance company will

insure pure risk, but not speculative risk

Which is NOT true about the Fair Credit Reporting Act?

it gives borrowers the right to know why they are denied credit

Karen bought a mixer. She received a warranty that covers only certain aspects of the product. If the product fails, she may be required to pay part of the costs for shipping or repairs. Which of the following warranties does she have?

limited warranty

Most products come with some guarantee of quality. This type of warranty covers only certain aspects of the product, such as parts.

limited warranty

When Smee applied for a loan, he was assured that his rate would not change if he closed within a specific time period. Smee had a(n) ______ on the interest rate.

lock

Barbara left a skateboard on her front steps. Her neighbor then tripped on the skateboard and was injured. The fact that she didn't put away the skateboard is called

negligence

The failure to take ordinary or reasonable care to prevent accidents from happening is called

negligence

This shopping device is used primarily on perishable products.

open dating

Anything that pay possibly cause a loss is called a

peril

The text identifies several phases in the buying process. The correct order of the phases is

pre-shopping activities, evaluating alternatives, selection and purchase, post-purchase activites

What is the fee that a policyholder pays when an insurance company agrees to take on the risk?

premium

These products are sold by one chain of stores and are low-cost alternatives to famous-name products.

private-label or store brands

The partial refund of the price of a product is called

rebates

Insurance allows someone to

shift risk

Joe bought some cheese at his local grocery store. After he brought it home, he noticed it was moldy even though the expiration date was still three weeks away. He should call the toll-free hotline number printed on the package to tell the company of the problem he encountered.

true

A balloon mortgage has fixed monthly payments for a period of time. At the end of that time, the entire principal balance must be paid in full.

true

A brick home should cost less to insure than a similar structure made of wood.

true

A handyman's special is a home that needs work and is priced lower than homes in better condition.

true

A homeowner policy provides coverage for additional living expenses after a fire.

true

A lease for a car or SUV is typically for three to five years.

true

A real estate agent can provide service to save you time and effort with selling your home.

true

A service contract is frequently called an extended warranty even though service contracts are not warranties

true

A trade-in vehicle should NOT be mentioned until the cost of the new car has been settled.

true

A vehicle that looks rusty on the outside may hide a well-maintained engine. TRUE

true

An advantage of a buy-down is that the interest rate subsidy from the home builder reduces the mortgage payments during the first few years of the loan.

true

An advantage of a lease over a purchase is that the buyer can usually obtain a more expensive vehicle for the same monthly payment.

true

An example of a hazard is defective house wiring.

true

An example of a peril is a robbery.

true

An important question that should be asked when setting up an insurance program is: "What do I need to insure?"

true

An insurance claim is a request for payment to cover financial losses.

true

Credit can indicate stability since lenders consider you a good risk.

true

If you drive a model of vehicle that is frequently stolen, you should expect to pay a higher premium for your auto insurance.

true

If you live in a city, you should expect to pay a higher premium for your auto insurance than someone who lives in a rural area.

true

Insurance is protection against possible financial loss.

true

Lenny the landlord has the right to take legal action against Tina the tenant if she does not pay her rent on a timely basis

true

Mortgage lenders require that homeowners purchase home insurance.

true

Motor vehicle insurance falls into two categories: protection for bodily injury and protection for property damage.

true

One of the best places to find a qualified lawyer who will meet your specific needs is referrals from friends.

true

People should be prepared for problems with purchases.

true

Robby fell on a piece of ice on Peter's front steps and broke his arm. This is an example of a liability.

true

The actual cash value method of settling claims is based upon the replacement cost of an item less depreciation.

true

The largest fixed expense associated with a new automobile is depreciation.

true

The settlement of a difference by an arbitrator is legally binding.

true

Thomas bought a toaster that would not toast bread and returned it. The manufacturer accepted the return because it was defective and had a full warranty.

true

Tracy went to a local restaurant and became ill from the meal she ate. She can contact her city or county health department to handle problems with the restaurant.

true

This is a written guarantee from the manufacturer that specifies the conditions under which the product can be returned, replaced, or repaired.

warrranty

Which of the following is the only online source authorized to provide a free credit report each year at your request?

www.annualcreditreport.com

Using the following information, what is the cost to buy a car?

• Down payment $2000 • Monthly loan payment ($300 per month for a 5-year loan) • Opportunity cost of down payment ($2000 loan period (in years) 2% interest) • Estimated value of vehicle at end of ownership period ($2,000

Using the following information, what is the cost to lease a car?

• Security deposit $250 • Monthly lease payment ($300 per month for a 4-year lease) • Opportunity cost of down payment ($250 loan period (in years) 2% interest) • End-of-lease charges $800