Personal Finance Chapter 6 Study Guide
Aman is attending school and had a financial emergency. He contacted his school's financial aid office and asked about a subsidized student loan. Aman's school facilitates these loans and determined that Aman qualifies for a $500 loan. Aman is able to repay the loan over the next 12 months while he is still in school. How much interest will Aman pay on this loan?
$0 because interest on subsidized loans does not accrue until Aman stops attending school
What will be the monthly payment on a car loan if the purchase price is $18,000, there is no down payment, the loan rate is 4.5%, and the loan duration is 5 years? (Hint: You may need to review time value of money calculations.)
$335.57.
Ann is thinking about paying points to a lender to obtain a lower interest rate on her mortgage. The loan is in the amount of $350,000. If she pays 2 points, she can reduce the interest rate from 5.25% to 4.50%. How much in loan points must Ann pay to get this deal?
$7,000.
Emily owns a house with a fair market value of $175,000. When she purchased the home she paid $210,000, but that was several years ago. She currently owes $193,000. How much equity has Emily built since she first purchased the house?
-$18,000.
Izzy just received a credit card offer in the mail. The credit card has an APR of 18%. What is the monthly interest rate that will apply to any unpaid balances on this credit card? Assume 12 equal months.
1.5%.
Timia needs some cash in a hurry. She owns her car outright and is considering a title loan. The lender has told Timia that she could borrow $1,000 for 1 month and the fee would be $100. What is the APR on Timia's loan? Assume 12 equal months.
120% APR
Susan borrowed money from her credit union using her car as collateral. The monthly interest rate on the loan is 0.2%. There were no other fees associated with the loan. What is the APR of Susan's car loan? Assume 12 equal months.
2.4% APR.
In a recent survey, U.S. households were asked how they would come up with $2,000 in an emergency. What percentage of those who said they could get $2,000 in an emergency said they would use alternative financial services?
20%.
What is the APR for a loan that charges $25 to borrow $300 for 14 days?
217.3% APR.
What is the APR for a loan that charges 2.4% every 30-day payment period?
28.0% APR.
What is the APR for a loan that charges a $12 fee to borrow $100 for a loan period of 10 days?
438% APR.
When you rent an apartment, you are entitled to which of the following?
A refund of your application fee if you are accepted into an apartment complex but decide not to move in.
Unlike renters, homeowners are required to pay for what common expenses?
All of the answer choices are correct.
Federal student loans offer which of the following advantages?
I, II, and III.
What is not found in a good faith estimate?
Yard maintenance fees.
Money paid in advance to cover the cost of excess damage you might cause while renting is called a(n):
security deposit.
All of the following statements are true, except:
there is a relatively small difference in the total finance charge between mainstream and alternative financial service provider.
One segment of the U.S. population that is less likely to have a credit card is:
young adults just starting their careers.
Haley just graduated from college. She accepted a position with a firm at an annual salary of $40,000. Using HUD guidelines, what is the maximum Haley should pay for rent on a monthly basis?
$12,000.
What is the approximate monthly mortgage payment if the loan amount is $300,000, the annual interest rate is 3%, and the loan duration is 15 years? (Hint: You may need to review time value of money calculations).
$2,072.
How much can Jorge afford to spend on a monthly car payment if his excess monthly cash flow is $380, and he expects the following monthly expenses: $45 gas, $90 insurance, and $20 for maintenance and repairs?
$225.
Which of the following loans has the lowest APR?
A payday loan of $220 for a fee of $22 due in 15 days.
All of the following are benefits of direct consolidation loans, except:
All of the answer choices are benefits of direct consolidation loans.
An advantage of a line of credit from a bank over an installment loan is that:
All of the answer choices are correct.
Peer-to-peer lending options:
All of the answer choices are correct.
Some individuals facing financial emergencies will attempt to skip certain payments to make other payments. This strategy is generally not helpful because:
All of the answer choices are correct.
Which of the following reasons might require you to get a guarantor for a lease agreement?
All of the answer choices are correct.
Which of the following will increase wear and tear and decrease your chances of getting 100% of your security deposit back?
All of the answer choices are correct.
Which of the following statements is true?
All of the answer choices are true.
When searching for a vehicle to purchase, which of the following variables is an important factor in the purchase decision-making process?
All of the choices are correct.
Which of the following attributes is associated with renting?
Application fee
What makes a vehicle a bad investment?
As a use asset, car values nearly always decline over time.
Which of the following lenders will likely provide the lowest interest rate to qualified borrowers?
Banks and credit unions
Which of the following types of federal student loans accrues interest (i.e., adds the interest to the loan balance) or allows the student to pay the interest while still in school?
Both direct unsubsidized and PLUS loans.
Although most landlords make a tenant pay extra for a pet, which of the following pets tends to be the most acceptable among landlords?
Cat.
Which of the following types of federal student loans does not accrue interest while the student is enrolled in school (i.e., the federal government pays the interest during that time)?
Direct subsidized loan
Which of the following loans requires a lower down payment?
FHA 30-year mortgage.
Maribelle is looking to purchase a car. She is considering all of her options. She is a college student working 30 hours per week. She has been riding the bus to work and school, but it requires 2 hours per day of transit time to get to work (about 25 miles round-trip). If she had her own car, she could cut this time down to 40 minutes per day. Based on this information, which vehicle choice would be the best for Maribelle?
Inexpensive compact car
Melba has been shopping for a new car. She has already visited four dealerships where she test-drove six cars. When she went to the fifth dealership, the salesperson asked where else she had been that day. Melba lied and said she was just now starting to look at cars. How did the salesperson know that Melba was lying?
Melba's credit report showed that other dealers had accessed her credit score before she test drove their cars.
Which of the following provides the least expensive alternative to meet an unforeseen financial expense?
Money in a savings account
Which of the following individuals is in most need of a personal vehicle?
Nicole, who lives in the suburbs but works in a city 35 miles from her home.
Rimi currently earns $2,500 per month. She has the following monthly debt payment expenses: $75 for credit cards, $125 for student loans, and a $235 car payment. She is looking to buy a house. The monthly mortgage, including principal, insurance, and taxes, is $900. Does Rimi meet the FHA housing payments to income ratio guideline?
No, because her ratio is greater than 31%.
Rimi currently earns $2,500 per month. She has the following monthly debt payment expenses: $75 for credit cards, $125 for student loans, and a $235 car payment. She is looking to buy a house. The monthly mortgage, including principal, insurance, and taxes, is $900. Does Rimi pass the FHA total fixed payments-to-income ratio requirement?
No, because her ratio is greater than 31%.
Which of the following forms of federal financial aid must be repaid once the student is out of school for 6 months?
None of the answer choices are correct.
Which of the following is an illegal lease clause?
Requiring you to pay for normal wear and tear.
Which of the following is the most important neighborhood factor that should shape someone's apartment hunting search?
Safety.
What options are available for someone who is underwater with her or his home and can no longer make the monthly mortgage payment?
Short sale.
Who is eligible for a federal subsidized loan?
Undergraduate students with financial need
Which of the following purchase strategies will generally generate the lowest cost for someone purchasing a vehicle?
Using a small amount of savings for a down payment and borrowing the remainder.
All of the following are true, except:
a fee is required to submit the FAFSA form.
Aside from not taking out student loans, the best way to minimize the amount of interest paid on student loans is to:
both repay them as quickly as possible and limit borrowing to direct subsidized loans.
Someone who guarantees that a renter will either pay the rent on time or make the payment for the renter is called a:
co-signer.
Some consumers may not understand the high cost of borrowing in the alternative financial services market and instead focus on the ____________ to justify using alternative financial services.
convenience
A(n) ______ in the loan interest rate and a(n) ______ in the loan duration will increase the monthly auto loan payment
increase; decrease
The interest rate on secured loans is generally _______ the interest rate charged on unsecured loans.
lower than
When making an automobile purchase decision, you should always attempt to find the vehicle that provides the _______ price and the _______ quality.
lowest; highest
Insurance that protects the lender in the event that the borrower does not repay the mortgage is called:
mortgage insurance.
All of the following statements regarding federal student loans are true, except:
private student loans generally have lower interest rates compared to federal student loans.
Collateral is:
property that can be seized by the lender if a loan is unpaid.
With an installment loan, the borrower:
receives the full amount of money upfront and then makes regular payments to repay the loan and interest.
