Personal Finance: Practice midterm exam (Ch. 7,8,&9)
Isabel would spend $200 per week on groceries for her family if she did not use coupons. Her coupons save her 10 percent of that amount. She puts the amount saved into her savings account. How much will she have in her savings account at the end of the first year? Ignore interest earnings.
$1,040
If you borrow $100 at 10 percent simple annual interest and repay it in one lump-sum at the end of one year, you will repay:
$110.
A renter is required to pay a security deposit of $800, on which 4 percent interest will be paid. What amount would the person earn each year?
$32
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?
$34
If closing costs of $1,400 are associated with the refinance of a mortgage that would reduce the monthly payment from $980 to $870, it would take approximately ____ months to cover these costs.
13
Regular vehicle maintenance is essential to extending the life of your car. Engine oil should be changed approximately every ____ months or _______ miles.
3; 3,000
If you receive a phone call from a debt collector, s/he must send you a written notice within ____________ days.
5
An increasing number of personal bankruptcy filers are baby boomers, who now account for what percent of bankruptcies?
60
If a new-car loan costs 6%, a used-car loan would cost approximately ___ percent.
7
The average U.S. household has ______ credit cards.
9
James Monroe is a member of a nonprofit organization that allows him to rent a living unit in a building. What type of housing is James most likely living in?
A cooperative
Which of the following is an example of a conventional mortgage?
A fixed-rate mortgage
Excessive indebtedness can result in:
Almost any bad stress-induced behavior could be a result of excessive indebtedness, including all of these behaviors.
Which home improvement is least likely to increase the value of your home?
An exercise room
You just received your credit card statement. Which of the following are included on that statement?
Annual fee Annual percentage rate for purchases Penalty fees Method used to calculate balance
Which types of problems are least likely to be covered by a home buyer warranty?
Appliance
Which one of these methods is the fairest of calculating interest?
Average daily including purchases method
A newly married couple is having trouble affording a home. What type of mortgage arrangement would reduce the monthly payment as a result of an interest rate subsidy from a builder or real estate developer?
Buy-down
Which method of payment is likely to be the least expensive in the long run?
Cash
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?
Chapter 13
Which type of credit insurance repays your debt in the event of a loss of income due to illness or injury?
Credit accident and health insurance
Which of the following lenders is most likely to be sympathetic about legitimate payment problems?
Credit union
Which document is used to transfer ownership of property from one party to another?
Deed
Chuck Stallings qualifies for a credit card from J.C. Penney. Which of the following offers this type of loan?
Department store
During which phase of the home-buying process would you assess types of housing units?
Determine home ownership needs
Which type of debt would not be forgiven in a straight bankruptcy?
Educational loans
What is the number one reason why consumers default on their debts?
Excessive use of credit
The Federal Trade Commission enforces the:
Fair Debt Collection Practices Act.
Which type of government agencies publish materials to assist consumers with buying decisions and financial planning?
Federal Local State
Which one of the following is an advantage of renting?
Fewer responsibilities
Anthony Newton wants to buy a new sail boat. He makes a down payment of $10,000 which represents 20% of the value of the sail boat he is purchasing. In which way is Anthony reducing his lender's risk?
He is taking a larger stake in the asset he is purchasing.
Gary Simpson notices that his neighbor has a brand new Ford F150 truck parked in the driveway. Even though his current car is fine, Gary decides that he needs a new car and goes out and purchases a Hummer with a six-year loan. Which one of the answers best explains Gary's spending?
Keeping up with the Joneses
Kate plans to rent instead of buying her housing. Which advantage of renting will she realize?
Lower initial costs
Which type of home is most apt to depreciate in value?
Mobile home
The Consumer Credit Counseling Service (CCCS) is affiliated with the:
National Foundation for Consumer Credit.
What does it mean to sublet an apartment?
Obtain another tenant to complete a lease period
Which lender is likely to ask you to write a check for $115 before granting you a $100 loan?
Payday advance company
What is prepaid interest charged by a mortgage company called?
Points
Jennifer Garland is purchasing a home that was assembled in a factory and then moved to the living site. What type of housing is Jennifer purchasing?
Prefabricated home
Paula has completed a mortgage application and provided evidence of employment, income, and existing debt to the potential lending institution. Although Paula has not even begun the process of looking at possible homes to buy, she is eagerly awaiting news from the lender as to whether she has been approved for a mortgage. In what stage of the application process is she?
Prequalification
Which one of the following is not a danger signal of potential debt problems?
Repaying loans faster than required
What is the most popular type of home ownership?
Single family dwelling
Which one of the following is an advantage of buying?
Tax benefits
Which interest formula may be used by creditors to determine how much interest you have paid at any point in a loan?
The rule of 78s
Which one of the following is the best example of a personal opportunity cost associated with a consumer purchase?
Time spent comparing prices
Which of the following is an example of a closing cost?
Title insurance
Which organization specializes in the testing of products for electrical and fire safety?
Underwriters Laboratories
Ownership of an individual housing unit in a building is commonly called:
a condominium.
A possible disadvantage of FHA and VA mortgages can be:
a longer processing time.
A cooperative housing arrangement involves:
a nonprofit organization that rents units to its shareholders.
The reduction of a loan balance through payments made over a period of time is called:
amortization
Money that is usually deposited with the lending institution for the payment of property taxes and homeowner's insurance is called:
an escrow account.
Earnest money is used:
as evidence of good faith by a homebuyer.
Most people who are in debt over their heads are:
basically honest people.
A lease is a legal document that protects the rights of:
both the landlord and the tenant.
You can often obtain medium-priced loans from:
commercial banks and credit unions.
Collection agencies are allowed to:
contact you as early as 8 am.
If you find that you cannot make your payments, the first thing you should do is:
contact your creditors and try to work out a modified payment plan with them.
In a Chapter 7 bankruptcy, a person filing for relief is called a:
debtor
The amount of mortgage a person is eligible for would be increased by:
decreasing the interest rate.
A _________ is a building that contains exactly two separate homes.
duplex
A conventional mortgage usually involves:
equal payments.
The purpose of an appraisal is to:
estimate the current value of a home.
The appraised value of your home is the:
estimated current market value.
The total dollar amount you pay to use credit is called the:
finance charge.
The most expensive loans are available from:
finance companies.
Membership in credit unions has been:
growing steadily.
Renting would be most appropriate for people who:
have limited funds currently available.
Prefabricated housing refers to:
housing partially assembled in factories.
The first phase of the consumer buying process is:
identifying the problem.
An example of an economic buying influence would be:
inflation.
Refinancing of a mortgage is recommended when:
interest rates fall.
The most commonly considered factor when selecting a home is the:
location of the home.
Renting is more advantageous than buying a home when you are seeking:
lower short-term living costs.
One of the drawbacks of borrowing from parents or family members is that such loans:
may create tension within the family.
A VA-guaranteed loan program provides assistance to:
military veterans.
The Rule of 78s demonstrates that a borrower pays:
more interest at the beginning of the loan period.
The purpose of a counteroffer is to:
negotiate the purchase price.
When buying an automobile, the best warranties are usually offered by a(n):
new car dealer.
According to consumer affairs experts, the nation's number one family financial problem is:
over-indebtedness.
A condominium involves:
ownership of an individual living unit.
The CCCS is primarily concerned with:
preventing and solving the problems related to credit overextension.
A cost associated with home buying would be:
property taxes.
The purpose of title insurance is to:
protect an owner from unknown claims on the property
By evaluating your credit options, you may:
reduce your finance charges. reconsider your decision to borrow money. discover a less expensive type of loan. find a lender that charges a lower rate.
The purpose of zoning laws is to:
restrict property use.
Most consumer complaints are resolved by:
returning to the place of purchase.
A loan based on the equity of the home that provides the homeowner with tax-free income and which is paid back when the home is sold is called a(n)
reverse mortgage.
A home equity loan may also be referred to as a ____________ mortgage.
second
The CCCS aids families by:
setting up a budget for them.
The items produced for a single retail chain are commonly sold under a ____________ brand.
store
A common opportunity cost associated with renting is interest lost on money spent for:
the security deposit.
In addition to the counseling services of the CCCS, nonprofit services are sometimes provided by:
universities. military bases. credit unions. state and federal authorities.
Impulse buying refers to:
unplanned purchasing.
CCCS counseling is:
usually free.
The assessed value of your home is the:
value used to calculate property taxes.
Which federal law, passed in 1969, requires creditors to state the cost of borrowing in common language?
Truth in Lending Act
In addition to the Consumer Credit Counseling Service (CCCS), the following entities also provide counseling services:
Universities Credit unions Military bases State and federal housing authorities
A contract condition that states that the agreement is binding only if a certain event occurs is a(n):
contingency clause.
The most commonly purchased type of credit insurance is:
credit life insurance.
Payday, cash advance, check advance, and post-dated checks are _________ loans.
expensive
Brett has hired a professional to assess the soundness of the roof, foundation, and building materials of a potential home he is considering. The professional will also be checking other aspects of the home including the plumbing, heating, and cooling systems. Brett is paying for a(n):
inspection.
If you sell your home without a real estate agent, you should still employ the services of a(n):
lawyer
The legal document involved in renting an apartment is called a(n):
lease.
Most people select a place of residence based on the following criteria:
lifestyle. needs. financial resources. attitudes.
The purpose of a security deposit is to:
pay for potential damages.
Patricia Newton is going to buy a new car, and she needs to apply for a loan to cover the purchase. She knows she can get a loan for up to 6 years, but she would prefer a shorter-term loan. She selects a 4-year loan. Patricia reducing her lender's risk by:
repaying the loan faster.
Chuck Spencer wants to borrow money for three years to purchase a new car. He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent. By choosing the variable rate loan, Chuck is reducing the lender's risk by:
sharing the interest rate risk.
Frank West wants to borrow money for three years to purchase a new boat. He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent. By choosing the variable rate loan, Chuck is reducing the lender's risk by:
sharing the interest rate risk.
Noelle and Larry have decided to perform the landscaping of their new home by themselves. They also plan to take a do-it-yourself class at a local home store so they can replace the tile in the master bathroom without using a contractor. The effect of performing these tasks themselves will result in an increase in their:
sweat equity.
Legislation that requires that loan applicants be given certain information, including an estimate of closing costs, before the closing is known as:
the Real Estate Settlement Procedures Act.
The sticker price of a car refers to:
the suggested retail price of a new car.
A cost associated with renting would be:
title insurance.
Ted pays $4,500 in real estate property taxes and is in the 28 percent tax bracket. What is the value of this federal tax deduction?
$1,260.
Some real estate experts estimate that remodeling a kitchen can add 130 percent of the cost of remodeling to the value of the house. A remodeled kitchen costing $8,000 could add _____ to the value of the house.
$10,400
Private Mortgage Insurance (PMI) is usually required if the down payment is less than _____ percent of the purchase price of the home.
20
The Homeowners Protection Act requires that a PMI policy be terminated automatically when a homeowner's equity reaches _____ percent of the property value at the time the mortgage was executed.
22
According to Fair Isaac Corporation (FICO), a personal bankruptcy can cause an immediate drop in your credit score of how many points?
260
Gary Smith is purchasing one living unit in a building. What type of housing is Gary most likely going to live in?
Condominium
Which one of the following is a local organization that provides debt counseling services for families and individuals?
Consumer Credit Counseling Service
Which one of the following financing methods provides a float period?
Credit card
Sandra Jennings gets a loan from General Motors Acceptance Corporation. Which type of lending institution is this?
Finance company
Which of the following would increase the amount that a person could afford to spend on a home?
Increase in family income
Which of these is a common financial benefit of home ownership?
Increased property value
Which one of the following is often the source of the least expensive loan?
Parents or family members
A few months ago, you sent a certified letter to a debt collector and requested verification of a debt the collector says you owe. You know the letter was received by the collector but you have received no response to your request. Today, you received a letter threatening court action. What should you do?
Insist that communications about the debt cease
Tiffany Parrish has purchased a new car. Since then she has had to make six trips to the dealer in four weeks to fix several major problems without much luck. She knows that she is entitled to a refund. What type of law gives her the right to ask for a refund?
Lemon Law
____________ is considered a variable operating expense of an automobile.
Maintenance
Steve Black has two children. He is buying each of them their own TV to put in their rooms so they do not have to join the rest of the family and watch TV together. Which one of the answers best explains Gary's spending?
Overindulgence of children
Which one of these situations creates negative amortization?
Paying less than the monthly interest on a mortgage
What is(are) the signal(s) of potential debt problems?
Paying only the minimum balance each month Missing payments or paying late Using savings to pay normal bills Depending on overtime to meet normal expenses
Which of the following expenses is paid from an escrow account?
Property insurance
What is the name commonly used to refer to the recent national crisis in which with many mortgages were issued to borrowers with poor credit histories, resulting in numerous loan defaults?
Subprime crisis
Jeff Bloom wants to have a house just like the one his parents had when he was a teenager. He finds the house he wants and gets an interest-only loan on it for the first five years. Which one of the answers best explains Jeff's spending?
The expectation of instant comfort
Which formula dictates that you pay more interest at the beginning of the loan and pay less and less interest as the debt is reduced?
The rule of 78s
Sarah Parker's husband goes out with the 'boys' for a night on the town and gets home at 4 am waking everyone in the house. In response, Sarah goes out the next day and spends $500 in new clothes for herself putting it all on her credit card. Which one of the answers best explains Sarah's spending?
The use of money to punish
Float can be defined as:
a period of time during which no interest is charged.
