PFIN Test 2 Chapter 5, Chapter 6, and Chapter 7
The most common use of consumer loans is to: a. purchase a car. b. finance college education. c. finance a vacation. d. buy a house. e. buy furniture.
a
A veteran might be able to buy a home with no down payment with a(n): a. FHA mortgage insurance. b. VA loan guarantee. c. buydown. d. conventional mortgage. e. graduated-payment mortgage.
b
A(n) _____ ratio specifies the maximum percentage of the value of a property that a lender is willing to loan. a. affordability-to-expense b. loan-to-value c. rent-to-mortgage d. mortgage points to closing costs e. points-to-mortgage
b
As a percent of take-home pay, monthly consumer credit payments should not exceed: a. 25%. b. 20%. c. 15%. d. 10%. e. 5%.
b
As home prices have fallen in recent years, the rent ratio: a. and rent attractiveness have increased. b. and rent attractiveness have decreased. c. has increased and rent attractiveness has decreased. d. has decreased and rent attractiveness has increased. e. has increased and rent attractiveness has stabilized.
b
An escrow account is used to collect _____ from one's monthly mortgage payment. a. interest b. principal c. real estate taxes d. closing costs e. operating expenses
c
An improper use of extended credit is buying: a. a car. b. a house. c. an expensive dinner. d. a piece of land. e. furniture.
c
Any credit card purchase will effectively be an interest-free loan if you have a zero balance when the grace period begins and you: a. pay for the purchase within 6 months. b. make the minimum payment. c. pay off the entire balance on or before the due date. d. pay a $5 fee or 3% of the amount charged. e. receive a cash advance.
c
Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only when: a. fuel costs have been higher than expected. b. the residual value is more than expected. c. the mileage limits are exceeded. d. the company upgrades the automobile. e. the driver does not have automobile insurance.
c
If a borrower has a high FICO score, then there is: a. a minimal chance of his or her loan getting approved. b. no chance of his or her loan getting approved. c. a high chance of his or her loan getting approved. d. a high chance of more collateral requirements for his or her loan. e. a high chance that a higher interest rate will be charged.
c
Prequalification provides a home buyer with information regarding the specific mortgage amounts he or she is eligible for subject to the expected changes in interest rates. a. True b. False
true
The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000. a. True b. False
true
The property listing in a local Multiple Listing Service (MLS) cannot be accessed by all buyers and sellers. a. True b. False
true
Consumer loans, like open account credits, result from a rather informal process. a. True b. False
False
Credit cards with very low minimum payment requirements are in the consumers' best interest. a. True b. False
False
Credit reports on individual borrowers are provided by credit card issuers. a. True b. False
False
Fixed-rate loans are desirable if interest rates are expected to fall over the course of the loan. a. True b. False
False
From a financial planning perspective, you need not worry about the size of monthly payments when taking a loan. a. True b. False
False
Home equity loans are similar to home equity credit lines because they are also not secured with any collateral. a. True b. False
False
If your debt safety ratio works out to 10%, you are relying too heavily on credit. a. True b. False
False
In a co-op, the buyer receives title to a unit and joint ownership of the common areas. a. True b. False
False
In most cases, lenders take the physical property used as collateral from the borrower and liquidate the collateral until the loan is repaid in a lump sum. a. True b. False
False
It is necessary to give your Social Security number for identification when using a credit card. a. True b. False
False
Loans obtained by life insurance policyholders from their insurance companies are to be repaid on the date established by the loan documents. a. True b. False
False
Most families have only one source for consumer credit. a. True b. False
False
Only stocks can be used as collateral for personal loans. a. True b. False
False
Overspending will help you manage your budget effectively. a. True b. False
False
Retail charge cards are cheaper than credit cards provided by financial institutions. a. True b. False
False
The add-on method is less expensive than the simple interest method when the stated rates of interest are identical. a. True b. False
False
The debt safety ratio indicates the total assets owned by an individual. a. True b. False
False
The intent of the Wage Earner Plan is to eliminate all of a debtor's obligations. a. True b. False
False
The job of a mortgage banker is to locate conventional loans for clients. a. True b. False
False
The key to creditworthiness is to maintain your debt safety ratio at 50% or above. a. True b. False
False
The repayment of the principal of installment loans is made in a lump sum, and the repayment period of installment loans is 6 to 12 months. a. True b. False
False
Using credit is the ideal way to meet basic living expenses. a. True b. False
False
You can borrow, repay, and reborrow from a home equity loan in the same way as you can from a home equity credit line. a. True b. False
False
Your credit bureau file often includes information about your political and religious affiliations. a. True b. False
False
A Chapter 7 bankruptcy filing would result in the discharge of most of your debts. a. True b. False
True
A chattel mortgage is an instrument that gives lenders title to movable personal property in the event of default. a. True b. False
True
A credit card application requests information that is routinely used to predict creditworthiness. a. True b. False
True
An individual can be overusing credit even if he or she can afford to make the minimum monthly payments on time. a. True b. False
True
Arranging for and fully repaying a small loan helps improve creditworthiness. a. True b. False
True
Credit scoring systems are often used by lenders to determine applicants' creditworthiness. a. True b. False
True
Debit cards work like writing a check. a. True b. False
True
Families that have a steady source of income and a reasonable chance to repay debts would choose Chapter 13 rather than Chapter 7 of the U.S. Bankruptcy Code. a. True b. False
True
For a fee, local credit bureaus can provide credit information to members about prospective borrowers in their community. a. True b. False
True
If you initiated the telephone call, it is okay to give your credit card account number when ordering or purchasing from major catalog houses, airlines, hotels, and so on. a. True b. False
True
It is legal for a lender to charge a prepayment penalty. a. True b. False
True
Lenders use the guideline that a borrower's monthly repayment burden should not be more than 20% of the borrower's take-home income. T/F
True
Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and negotiates the price upward prior to signing the sales agreement. a. True b. False
True
Most consumer loans are made at fixed rates of interest. a. True b. False
True
Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students. a. True b. False
True
Paying a loan on schedule is one way to build a good credit history. a. True b. False
True
Rebates are always more cost effective than the 0% annual percentage rate (APR) loans offered on automobile loans. a. True b. False
True
The cash value of some types of life insurance policies can be used as collateral for loans. a. True b. False
True
The frequency of longer-term installment loans carrying variable interest rates is increasing. a. True b. False
True
The majority of persons filing for bankruptcy choose Chapter 7 of the U.S. Bankruptcy Code. a. True b. False
True
The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases. a. True b. False
True
The purpose of a credit investigation is to evaluate the kind of risk you pose to the lender. a. True b. False
True
When the interest rate on savings is lower than the interest rate on a loan, it is less expensive to use your savings to make a purchase. a. True b. False
True
You should not give your credit card account number over the phone to people or organizations who call you. a. True b. False
True
You should review your credit bureau file every year. a. True b. False
True
A frequent flyer card can be aptly classified as a(n): a. reward card. b. affinity card. c. retail charge card. d. cash advance. e. student card.
a
A loan rollover means that: a. the loan is paid off by taking out another loan. b. the loan is repaid without any defaults in payments. c. the interest on the new loan is lower than the previous loan. d. the maturity period of the new loan is longer than the maturity period of the original loan. e. the new loan will not have any processing fees.
a
A person who pays off his credit balance every month should look for a credit card with a: a. long grace period. b. high annual fee. c. high interest rate. d. low interest rate on existing balance. e. low introductory rate.
a
A real estate sales contract will include: a. the amount you have paid as an earnest money deposit. b. the terms of a mortgage loan taken from a third party. c. expected home maintenance costs. d. the movement in the value of the property over the last 20 years. e. the current value of the properties in the neighboring locations.
a
A(n) _____ is a type of reporting agency that collects and sells credit information about individual borrowers. a. credit bureau b. consumer bureau c. insurance company d. bank e. credit scoring house
a
Borrowing from _____ is not advisable. a. relatives b. consumer finance companies c. asset management companies d. credit unions e. commercial banks
a
A _____ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit. a. personal b. single-payment c. buy-down d. consolidation e. standard
d
Credit should not be consistently used for purchasing nondurable goods. a. True b. False
true
All credit cards have annual fees. a. True b. False
False
A credit card user's credit rating will be hampered if he or she pays only the minimum monthly payment on a credit card. a. True b. False
False
A retail charge card can be accessed by writing checks against demand deposit. a. True b. False
False
Always paying cash helps in establishing a high level of creditworthiness. a. True b. False
False
Consumer finance companies: a. charge rates that are regulated by the states where they do business. b. are cooperative financial institutions that are owned by their members. c. are non-profit financial institutions. d. accept deposits from their members and use the deposits for lending. e. are managed by large manufacturing companies.
a
Fees charged by lenders at the time they grant a mortgage loan are called: a. mortgage points. b. down payments. c. add-on charges. d. commissions. e. loan discounts.
a
If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals her total monthly payments? a. $675 b. $1,200 c. $500 d. $450 e. $890
a
If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be: a. repaid is $2,400. b. disbursed to the borrower is $2,400. c. repaid is $2,650.60. d. disbursed to the borrower is $2,650.60. e. repaid is $2,149.40.
a
If the information in an individual borrower's credit report contains an error, he or she is entitled to: a. request a correction. b. sue the credit bureau. c. erase the credit report. d. refuse to provide credit information. e. withdraw from the credit bureau.
a
If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 90%, then the borrower must make a: a. minimum down payment of $10,000 plus closing costs. b. minimum down payment of $10,000 including closing costs . c. maximum down payment of $10,000 including closing costs and mortgage points. d. maximum down payment of $10,000. e. minimum down payment of $90,000 including closing costs.
a
If you are expecting difficulties in making your payments, it is recommended that you: a. talk to the creditors. b. declare bankruptcy. c. file a legal complaint. d. obtain more credit. e. transfer your debt to another creditor.
a
If you don't have much down payment money, a _____ can effectively act as the cheapest source of down payment. a. rebate b. personal loan c. credit card d. commercial loan e. 0% APR
a
If your lender charges 1.5 mortgage points on a house selling for $100,000, on which there is a $90,000 loan, the points will cost you: a. $1,350. b. $1,500. c. $2,850. d. $150. e. $900.
a
Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan from a credit society, what is the maximum loan amount Jana can afford? (Round to the nearest dollar.) a. $12,528 b. $14,208 c. $16,028 d. $17,900 e. $18,028
a
Matt is considering the purchase of a condo on a mortgage. However, he is not sure of the amount of the mortgage he is eligible for. _____ will help him identify and correct any problems such as credit report errors that may arise on his application. a. Prequalification b. A contingency clause c. A Multiple Listing Service d. The seller's financial institution e. A buyer's agent
a
Most of your debts would be totally discharged under Chapter _____ of the federal bankruptcy law. a. 7 b. 13 c. 12 d. 9 e. 15
a
Most single-payment loans are secured by: a. collateral. b. security claims. c. rollover loans. d. finance charges. e. liens.
a
Nancy's take-home income is $3,000 per month, and she currently has a $700 monthly consumer debt. Which of the following statements applies to Nancy's ability to handle additional debt? a. Nancy cannot take on additional consumer debt because her debt safety ratio is higher than the lenders' guidelines. b. Nancy can take on additional consumer debt because her debt safety ratio is higher than the lenders' guidelines. c. Nancy cannot take on additional consumer debt because her debt safety ratio is lower than the lenders' guidelines. d. Nancy can take on additional consumer debt because her debt safety ratio is lower than the experts' guidelines. e. Nancy cannot take on additional consumer debt because her debt safety ratio is lower than the experts' guidelines.
a
The FICO credit scoring system assigns points according to: a. amounts owed. b. marital status. c. employment history. d. salary. e. where you live.
a
The decision about whether or not to grant you credit will be made by: a. individual creditors. b. local credit bureaus. c. the credit cardholder. d. the Federal Trade Commission. e. national credit bureaus.
a
The most expensive method for determining finance charges on revolving credit would be the: a. average daily balance (ADB) method including new purchases. b. average daily balance (ADB) method excluding new purchases. c. annual percentage rate (APR) method including new purchases. d. annual percentage rate (APR) method excluding new purchases. e. annual percentage rate (APR) method excluding new purchases for student cards.
a
The real estate agent's commission is generally paid by the: a. seller. b. buyer. c. mortgage bank. d. local multiple listing service provider. e. seller's financial institution.
a
To establish credit, you should first: a. open savings and checking accounts. b. use credit extensively. c. arrange for a small loan. d. pay cash for all purchases. e. arrange for a large loan from close relatives.
a
Using the _____ would be least expensive for the borrower when determining the total amount to be paid to the lender. a. simple interest method b. add-on interest method c. discount method d. sum-of-the-digits method e. average loan balance method
a
When canceling a credit card, you should cut up the card and _____ that you are canceling your account. a. inform the issuer in writing b. call to inform the issuer c. inform the credit bureau in writing d. call to inform the credit bureau e. inform the future lender in writing
a
When comparing two installment loans with the same principal and annual percentage rate (APR), the loan with: a. the longer maturity will have the lower monthly payment and the higher total costs. b. the shorter maturity will have the lower monthly payment and the higher total costs. c. the longer maturity will have the higher monthly payment and the higher total costs. d. the shorter maturity will have the lower monthly payment and the lower total costs. e. the longer maturity will have the higher monthly payment and the lower total costs.
a
Which of the following is the correct formula for calculating the debt safety ratio? a. Total Monthly Consumer Credit Payments ÷ Monthly Take-Home Pay b. Monthly Take-Home Pay ÷ Total Monthly Consumer Credit Payments c. Total Monthly Consumer Credit Payments ÷ Gross Monthly Pay d. Gross Monthly Pay ÷ Total Monthly Consumer Credit Payments e. Gross Monthly Pay ÷ Monthly Take-Home Pay
a
Which of the following statements regarding fixed-rate loans is true? a. Fixed-rate loans are preferable when interest rates are expected to rise. b. The cost of fixed-rate loans increases with an increase in the market interest rate. c. The cost of fixed-rate loans decreases with a decrease in the market interest rate. d. Fixed-rate loans are preferable when interest rates are expected to fall. e. The interest rates on fixed-rate-loans have periodic adjustment dates, at which time monthly payments are adjusted.
a
Which of the following statements regarding loan maturity is true? a. The longer the loan maturity, the higher the amount of interest paid. b. The shorter the loan maturity, the higher the total cost of borrowing. c. The longer the loan maturity, the higher the monthly payments. d. The shorter the loan maturity, the lower the monthly payments. e. The longer the loan maturity, the lower the total cost of borrowing.
a
Which of the following will help a buyer know ahead of time the specific mortgage amount that he or she will be eligible for subject to changes in rates and terms? a. Prequalification b. The rent ratio c. Leasing d. Anchoring e. The interest rate
a
With a bank credit card, you can often avoid interest charges if: a. the account balance is paid in full every month. b. at least half the account balance is paid every month. c. the minimum payment is made every month. d. the account is a revolving credit account. e. the account balance is below the credit limit.
a
A single-payment loan used to finance a purchase when the cash to be used for repayment is known to be forthcoming in the near future is a form of: a. collateral note. b. interim financing. c. cumulative borrowing. d. loan rollover. e. loan extension.
b
You made a $900 mortgage payment. The interest of $925 on the mortgage for this month leads to an increase in the principal balance. You have: a. experienced a negative amortization. b. signed up for a conventional mortgage. c. refinanced your loan. d. taken a fixed-rate mortgage. e. accepted a buydown.
a
You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on the installment loan will be the: a. add-on method. b. double-declining-balance method. c. discount method. d. simple interest method. e. past-due balance method.
a
_____ are the credit cards issued in conjunction with a sponsoring group—most commonly some type of charitable, political, or professional organization. a. Affinity cards b. Retail charge cards c. Collateralized credit cards d. Reward credit cards e. Secured credit cards
a
_____ involves some type of debt restructuring by establishing a debt repayment schedule. a. The Wage Earner Plan b. Straight bankruptcy c. Pretexting d. Phishing e. Skimming
a
_____ is a situation where homeowners owe more to the lenders than what their properties are worth. a. Negative equity b. A foreclosure c. A restructure d. Inflation e. An expanded mortgage
a
_____ loans do not have to be repaid until after you graduate from college. a. Direct and Perkins b. Direct and Parent Loans for Undergraduate Students (PLUS) c. Perkins and Parent Loans for Undergraduate Students (PLUS) d. Only Direct e. Only Perkins
a
A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary is called: a. foreclosing. b. anchoring. c. depreciating. d. leasing. e. cooperating.
b
A buydown refers to: a. a mortgage that starts with unusually low payments that rise over several years to a fixed payment. b. financing made available by a builder or seller to a potential new-home buyer at well below market interest rates, often only for a short period. c. a fixed-rate mortgage with payments that increase over a specific period. d. a mortgage that requires the borrower to pay only interest; typically used to finance the purchase of more expensive properties. e. a loan on which payments that equal half the regular annual interest amount are made every 6 months.
b
A foreclosure happens when: a. the rates of interest prevalent in the housing market are extremely volatile, forcing the lender to demand additional collateral from the borrower. b. the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged as collateral. c. the borrowers repay their housing loan well before the estimated closing period of the loan. d. the value of a house is higher than the loan taken on the property. e. the borrower is planning to restructure the loan taken for making mortgage payments.
b
A lender will usually require a loan-to-value ratio of _____ or less for a borrower to avoid having to pay private mortgage insurance (PMI). a. 75% b. 80% c. 85% d. 90% e. 95%
b
A payment made using a(n) _____ is equivalent to paying by cash. a. retail credit card b. debit card c. affinity card d. reward card e. student credit card
b
A proper use of open account credit would be to buy: a. food. b. a washing machine. c. expensive wine. d. a designer purse. e. jigsaw puzzles.
b
A single-payment loan is advantageous to a borrower only if: a. the interest rate is more than that on an installment loan offered by commercial banks. b. funds are expected to be available in the future to repay the loan in a lump sum. c. the finance charges are calculated using the discount method. d. the finance charges are calculated using the simple interest method. e. it has a collateral note.
b
Calculating interest using the _____ will result in the highest APR on a single-payment loan. a. double declining balance method b. discount method c. average loan balance method d. simple interest method e. add-on method
b
Clare's annual gross salary is $36,000, and her after-tax income is $28,800. What is Clare's maximum recommended monthly consumer credit payment? a. $600 b. $480 c. $450 d. $360 e. $200
b
Commercial banks are able to charge lower interest rates than other lending institutions because: a. they make shorter-term loans. b. they usually take only the best credit risks. c. their depositors require higher rates. d. they get their funds from the money market. e. they make only secured loans.
b
Credit unions lend money to qualified people who are their: a. employees. b. members. c. suppliers. d. policyholders. e. stockholders.
b
Earnest money is the sum of money the home buyer pledges with the: a. lender to guarantee the purchase. b. seller to indicate the intent to purchase. c. realtor for finding the desired home within a preset budget. d. lender to originate the loan. e. financial institution to prequalify for a mortgage loan.
b
Fredrick purchased a property worth $150,000 on mortgage. He paid $30,000 as a down payment on this property. However, a recent slump in real estate prices forced Fredrick to sell the property for $115,000 only 2 months later. This sale is termed a(n): a. real estate declining equity. b. real estate short sale. c. fixed mortgage sale. d. shrinking principal sale. e. indexed equity.
b
If a loan has a prepayment penalty, there will be an additional cost to repay the loan early: a. if the loan is repaid before the first payment is due. b. if the lender wants to recover part of the full interest that would have been earned. c. if the borrower has defaulted on any monthly payment. d. if the loan is not repaid before the loan maturity date. e. if the loan is prepaid 3 months before the loan maturity.
b
If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be: a. disbursed is $1,900.80. b. disbursed to the borrower is $1,800. c. repaid is $1,699.20. d. repaid to the borrower is $1,800. e. disbursed to the borrower is $100.80.
b
If the interest rate and monthly mortgage payment do not change over the life of your mortgage, you have a(n): a. reverse-annuity mortgage. b. fixed-rate mortgage. c. adjustable-rate mortgage. d. rollover mortgage. e. graduated-payment mortgage.
b
If you purchase a house worth $110,000 and make a 10% down payment, how much would one mortgage point cost at closing? a. $765 b. $990 c. $1,100 d. $1,530 e. $1,800
b
Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of 4 years. Jacob does not need to pay any extra amount when he turns in the vehicle because he didn't exceed the mileage specified in the lease and the SUV is not damaged. He has a: a. residual lease. b. closed-end lease. c. purchase option lease. d. right to early termination lease. e. reassignment option lease.
b
Lenders' guidelines say that you are likely to have financial difficulties if your personal credit obligations exceed _____ of your take-home pay. a. 15% b. 20% c. 10% d. 3% e. 25%
b
Loan repayment under the Parent Loans for Undergraduate Students (PLUS) program normally begins within _____ of loan disbursement. a. 30 days b. 60 days c. 90 days d. 120 days e. 180 days
b
Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan. a. a liability b. collateral c. debt d. insurance e. corporate deposit
b
Retail charge cards are advantageous to merchants because: a. they help the merchants get loans. b. they help build consumer loyalty. c. they help the merchants file for bankruptcy. d. they help the merchants save taxes. e. they help the merchants give loans to their suppliers.
b
Russ and Lois have a home valued at $96,000 with an outstanding mortgage of $60,000. If their lender is willing to provide a home equity loan of up to 75% of the market value of the home, how much can they borrow using a home equity loan? a. $0 b. $12,000 c. $27,000 d. $28,000 e. $36,000
b
Sales finance companies: a. buy installment loans from consumers. b. buy installment loans from retailers. c. sell installment loans to retailers. d. buy installment loans from banks. e. sell installment loans to banks.
b
Straight bankruptcy is allowed under _____ of the bankruptcy code. a. Chapter 4 b. Chapter 7 c. Chapter 13 d. Chapter 19 e. Chapter 9
b
The Rule of 78s is used to calculate the _____ when an installment loan is paid off early. a. APR b. balance due c. prepayment penalty d. basic cost of money e. amount saved
b
The annual percentage rate (APR) on a single-payment loan of $1,000 at a simple interest rate of 12% is: a. 10%. b. 12%. c. 15%. d. 18%. e. 24%.
b
The majority of each monthly payment at the beginning of the loan goes to pay the: a. principal. b. interest. c. real estate taxes. d. homeowner's insurance. e. private mortgage insurance.
b
The monthly interest on your adjustable-rate mortgage was $690. You paid $650 as your monthly payment on the loan leading to an increase in the principal balance. This is an example of a(n): a. growing equity. b. negative amortization. c. fixed interest expense. d. shrinking principal. e. indexed equity.
b
The price of the car you are leasing is called the: a. money factor. b. capitalized cost. c. residual value. d. purchase option. e. capital cost reduction.
b
The purchase price of the house you are buying is $140,000. A loan-to-value ratio of 80% will require a down payment of: a. $34,000. b. $28,000. c. $108,000. d. $112,000. e. $20,000.
b
Variable auto ownership costs are dependent on the: a. driver's behavior. b. miles covered by the automobile. c. installment payments on a car loan. d. down payment. e. periodic renewals of vehicle registration.
b
When shopping for a lease, you want: a. a high insurance cost. b. a low capitalized cost. c. a high money factor. d. a low residual value. e. high lease payments.
b
When you lease your apartment from a nonprofit corporation that owns the building and you own a share of the nonprofit corporation, you own a: a. single-family home. b. cooperative apartment. c. condominium. d. row house. e. mobile home.
b
Which of the following forms of consumer credit is among the cheapest and offers limited tax deductions? a. Overdraft protection lines b. Home equity credit lines c. Credit cards d. Unsecured personal credit e. The Wage Earner Plan
b
Which of the following is a feature of a home equity loan? a. The interest rate on a home equity loan is higher than that on other loans. b. The interest paid on a home equity loan is tax deductible. c. A home equity loan is generally the first mortgage loan. d. A home equity loan is a single-payment loan.
b
Which of the following is a result of excess unused credit capacity? a. Additional interest charges b. FICO score reduction c. Easy loan approval d. Longer credit card introductory period e. Chapter 13 bankruptcy
b
Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car? a. Money factor b. Property depreciation cost c. Initial residual value d. Purchase option e. Capital cost reduction
b
Which of the following is an improper use of credit? a. Buying a home b. Buying a short-lived good c. Spreading payments within a budget d. Purchasing a big-ticket item e. Meeting a financial emergency
b
Which of the following sources of consumer loans often has the most favorable terms for borrowers? a. Commercial banks b. Credit unions c. Consumer finance companies d. Savings and loan associations e. Asset management companies
b
Which of the following statements about credit scoring systems is true? a. Lower credit scores are better than higher credit scores. b. The credit scoring system is based on extensive statistical studies. c. Credit unions calculate and sell credit scores to lenders. d. FICO scores consider age, gender, marital status, and so on. e. Strength in key personal traits shows that you are a good risk for lenders and reduce your credit score.
b
Which of the following statements regarding loan collateral is true? a. Loans secured by collateral always have higher finance charges than unsecured loans. b. Collateral is an item of value used to secure the principal portion of a loan. c. Collateral is always required by banks to lend to customers with good credit ratings. d. Collateral is an item of value used to secure the interest portion of a loan. e. Loans are secured by collateral that is readily marketable at a price high enough to cover the interest portion of the loan.
b
Which of the following statements regarding single-payment loans is true? a. They are generally unsecured and do not have any collateral. b. They usually mature in 1 year or less. c. They are usually provided by retailers. d. They are generally used to finance auto purchases. e. They are provided by sales finance companies.
b
With prequalification, a buyer can: a. negotiate a price lower than the quoted price on the property. b. correct any problems on his credit report. c. get a comprehensive list of all the suitable properties in a locality. d. bargain for additional time in a property deal. e. reduce the required down payment.
b
_____ are the expenses that borrowers pay during the final step of a real estate purchase. a. Amortization costs b. Closing costs c. Property taxes d. Insurance costs e. Mortgage interests
b
_____ obtain funds from their stockholders and through open market borrowing. a. Credit unions b. Consumer finance companies c. Commercial banks d. Life insurance companies e. S&Ls
b
A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a: a. loan contract. b. promissory note. c. lien. d. security claim. e. rollover.
c
A type of financing made available by a builder or seller to a potential new-home buyer at interest rates well below market interest rates, often only for a short period, is termed a: a. conventional mortgage. b. convertible ARM. c. buydown. d. two-step ARM. e. growing equity mortgage.
c
A(n) _____ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum. a. interim b. single-payment c. installment d. standard e. consolidated
c
If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan, the amount to be: a. repaid is $2,200. b. disbursed to the borrower is $2,049.20. c. repaid is $2,350.80. d. disbursed to the borrower is $2,350.80. e. disbursed to the borrower is $150.80.
c
If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the size of the down payment. a. closing points b. a bond c. private mortgage insurance d. application fees e. homeowner's insurance
c
It is good to use credit for: a. buying groceries. b. dining at a restaurant. c. buying a car. d. visiting a tourist destination. e. paying rent for your home.
c
Jane and Smith are considering the purchase of a home in downtown Minneapolis. They approached Larson's Mortgagers Inc. to arrange for the financing needed for their home. This process of arranging with a mortgage lender in advance of buying a home is called: a. foreclosure. b. a contingency auction. c. prequalification. d. a real estate short sale. e. diversification.
c
Jenny's monthly take-home pay is $5,000, and her total monthly payments are $1,000. Which of the following is Jenny's debt safety ratio? a. 10% b. 5% c. 20% d. 35% e. 40%
c
Mike has a MasterCard with an annual fee of $25, an 18% interest, and a $1,000 credit limit. He always pays the total outstanding balance monthly. His most recent monthly statement lists the previous month's payment, new charges in the current month totaling $1,500, and a $30 fee. The fee is most likely the result of: a. interest charges. b. his annual fee. c. an over-the-limit fee. d. a late payment. e. transaction fees on purchases.
c
Most lenders immediately will _____ the first time that you have difficulty meeting your loan payments. a. double your interest rate b. file a legal case c. grant an extension d. erase your debt e. repossess the property you purchased
c
Most loans made by savings and loan associations are: a. home improvement loans. b. auto loans. c. mortgage loans. d. education loans. e. consolidation loans.
c
The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer. a. Equal Credit Opportunity Act b. Truth-in-Lending Act c. Real Estate Settlement Procedures Act d. Mortgage Lenders Act e. Real Estate Agents Act
c
The _____ governs closings on owner-occupied houses, condominiums, and apartment buildings of four units or fewer. a. Equal Credit Opportunity Act b. Truth-in-Lending Act c. Real Estate Settlement Procedures Act d. Mortgage Lenders Act e. Tax Cut and Jobs Act of 2017
c
The financing rate on a lease is called the: a. lease point. b. residual rate. c. money factor. d. purchase option. e. capitalized cost.
c
The rate of interest charged on _____ loans changes periodically in keeping with prevailing market conditions. a. nominal-rate b. standard-rate c. variable-rate d. fixed-rate e. low-rate
c
The seller of a house typically pays the: a. appraisal fee. b. loan application fee. c. real estate agent's commission. d. title search and insurance. e. mortgage points.
c
When the simple interest method is used to determine finance charges, the interest is calculated based on the: a. future value of the installments. b. average outstanding balance. c. actual balance of the loan. d. present value of all finance charges. e. future value of all finance charges.
c
Which of the following cards is issued as a form of credit by department stores and oil companies? a. A debit card b. A student credit card c. A retail charge card d. An affinity card e. A reward card
c
Which of the following does a lender look at before granting credit to an applicant? a. The applicant's political interests b. The applicant's circle of friends c. The applicant's age d. The applicant's religious affiliations e. The applicant's career goals
c
Which of the following is a nondepository institution? a. A commercial bank b. A credit union c. A consumer finance company d. A savings and loan association e. A savings bank
c
Which of the following is the biggest fixed auto ownership cost? a. The cost of fuel b. The cost of oil c. The cost of installment loan payments d. The cost of maintenance and repair e. The cost of tires
c
Which of the following is usually excluded from a monthly credit card statement? a. The minimum payment b. The payment due date c. The type of goods purchased d. The account activity during the current period e. The interest rate
c
Which of the following statements about the cash advances that the holder of a bank credit card can obtain from participating banks is true? a. Cash advances are loans on which interest begins to accrue only when the borrower uses them to make purchases. b. Cash advances without any limits can be withdrawn from an ATM using credit cards. c. Cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account. d. Cash advances can be obtained only during the hours the bank is open. e. Cash advances are loans obtained from an ATM using credit cards that do not allow merchandise purchases.
c
Which of the following statements regarding credit unions is true? a. They make secured loans only to non-members. b. They are owned and managed by the government. c. They provide installment loans to their members. d. They charge higher interest rates than other sources of consumer loans. e. They are profit-making organizations.
c
Which of the following will lead to a poor credit rating? a. Opening checking and savings accounts b. Opening and using a charge account c. Applying for a long-term loan and occasionally being late with a payment d. Making payments ahead of schedule e. Discussing with the lender if you foresee difficulty in making a payment
c
William uses his bank credit card frequently; however, he always pays off the total outstanding balance on the card each month. What should William look for in a credit card given the way he uses one? a. A low annual fee and a grace period b. A low annual fee and a low interest rate c. No annual fee and a grace period d. No annual fee and a low interest rate e. A high annual fee and a low interest rate
c
You are borrowing $1,000 with an APR of 10% and a loan maturity of 1 year. Total interest charges will be the highest when: a. you pay off the loan in 12 monthly installments. b. you pay off the loan in 10 monthly installments. c. you make one payment in full at the end of the year. d. you prepay the loan 6 months prior to the maturity of the loan. e. you pay off the loan within 30 days.
c
You recently bought a new home. You receive title to an individual unit and joint ownership of any common areas and facilities. You have purchased a: a. single-family home. b. cooperative. c. condominium. d. row house. e. mobile home.
c
Credit offered in the form of _____ is most common in department and clothing stores and other high-volume outlets, where customers are likely to make several purchases each month. a. collateralized credit cards b. reward credit cards c. affinity cards d. retail charge cards e. student credit cards
d
A legal claim that allows creditors to liquidate loan collateral is a: a. loan application. b. note. c. security claim. d. lien. e. loan rollover.
d
At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have a(n) _____ lease. a. residual b. open-end c. purchase option d. closed-end e. money factor
d
Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round to the nearest dollar.) a. $12,765 b. $14,400 c. $14,079 d. $15,265 e. $16,879
d
If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80%, then the borrower must make a down payment of at least: a. $100,000. b. $80,000. c. $180,000. d. $20,000. e. $120,000.
d
If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should: a. purchase a credit card. b. unsecure the loan. c. pay a prepayment penalty. d. negotiate a rollover. e. file for bankruptcy.
d
If your monthly before-tax income is $2,000 and your monthly take-home pay is $1,500, your maximum monthly consumer credit payments should not exceed: a. $600. b. $450. c. $400. d. $300. e. $200.
d
It is better to use your savings instead of borrowing to make a purchase when: a. the borrower has adequate savings. b. interest rates are rising. c. interest rates are falling. d. the cost of borrowing is much greater than the interest earned on savings. e. the interest earned on savings is greater than the interest paid on the loan.
d
James finds it difficult to manage credit but wants the convenience of using a credit card. He wants to get a card that will provide direct access to his checking account. James should get a: a. retail charge card. b. gift card. c. student credit card. d. debit card. e. membership card.
d
Janet is considering the purchase of a condo for $150,000 during a recession phase, partly financed by a mortgage. She is due to retire in a few years. If she cannot make her mortgage payments on time, she is bound to incur a: a. neutral equity on her property. b. reduced residual value of the property. c. higher rent ratio. d. foreclosure of her house. e. fine from the local government.
d
Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round to the nearest dollar.) a. $12,528 b. $14,400 c. $16,028 d. $17,028 e. $18,028
d
The monthly payment (rounded to the nearest dollar) on an 8%, 36-month, add-on loan of $10,000 would be: a. $278. b. $300. c. $314. d. $344. e. $380.
d
Which of the following modes of identity theft involves thieves obtaining your personal information from financial institutions and other sources under false pretenses? a. Dumpster diving b. Skimming c. Phishing d. Pretexting e. Old-fashioned stealing
d
You are borrowing $5,000 at a 9% interest rate. The total finance cost will be the highest in a: a. 24-month repayment plan. b. 36-month repayment plan. c. 12-month repayment plan. d. 48-month repayment plan. e. 3-month repayment plan.
d
You should consider your _____ before you take on a large consumer loan. a. educational qualification b. history of auto ownership c. past employment d. financial plans e. career plans
d
_____ are loans offering low payments for the first few years, gradually increasing until year three or five, and then remaining fixed. a. Reverse-annuity mortgages b. Fixed-rate mortgages c. Adjustable-rate mortgages d. Graduated-payment mortgages e. Rollover mortgages
d
_____ are ongoing costs of home ownership. a. Down payments b. Closing costs c. Taxes on capital gains d. Property taxes and insurance e. Rental payments
d
A straight bankruptcy: a. eliminates all the obligations of a debtor. b. results in the loss of all the assets of a debtor. c. results in the repayment of debt within 3 to 5 years. d. exempts a debtor from all the tax payments and payments for alimony and child support. e. allows a debtor to retain some other personal assets as per federal regulations.
e
Chapter 7 of the bankruptcy code: a. restores all the losses incurred by the borrower. b. results in the loss of all of one's assets. c. requires the debtor to pay back the debt in the future. d. sells only the home of the borrower. e. eliminates most of the financial obligations of the borrower.
e
Janey makes frequent small purchases and pays off the total outstanding balance on her credit card every month. Which of the following features is most attractive to her when searching for a credit card provider? a. A low required minimum payment percentage b. A high interest rate c. High over-the-limit fees d. No grace period e. No annual fee
e
Sheldon has a home valued at $108,000 with an outstanding mortgage of $70,000. If his lender is willing to provide a home equity loan of up to 80% of the market value of his home, how much can Sheldon borrow using a home equity loan? a. $86,400 b. $80,000 c. $38,000 d. $30,400 e. $16,400
e
The annual percentage rate (APR) is equivalent to the stated rate of interest when the _____ is used to calculate finance charges. a. dollar cost of credit method b. discount method c. average loan balance method d. double declining balance method e. simple interest method
e
The data in a Multiple Listing Service (MLS): a. eliminate the need for a real estate agent. b. are accessible to buyers and sellers directly. c. include the entire ownership history of the listed properties. d. deal only with undervalued properties that are authorized by the government within a geographic location. e. consist of a comprehensive listing of properties for sale in a given community area.
e
The first step in the auto-buying process should be: a. to test-drive several automobiles. b. to begin negotiations on various automobiles. c. to decide whether to trade in your used car or to sell it yourself. d. to consider alternative buying strategies. e. to analyze how much you can afford to spend on the car.
e
The loss in the value of an automobile that occurs over its period of ownership is called: a. reinsurance. b. the acquisition payment. c. the market price. d. the repurchase commission. e. depreciation.
e
Which of the following are tax deductible if you itemize deductions? a. Mortgage principal, mortgage interest, property taxes, and homeowner's insurance b. Mortgage principal, mortgage interest, and property taxes c. Mortgage principal and mortgage interest d. Mortgage interest, property taxes, and homeowner's insurance e. Mortgage interest and property taxes
e
Which of the following cards provides direct access to your checking account? a. Retail charge cards b. Affinity cards c. Student credit cards d. Reward cards e. Bank debit cards
e
Which of the following is a major reason to use credit? a. Weekly purchase of food b. Monthly payment of utility bills c. Regular payment of small cash outlays d. Frequent impulse purchases e. Occasionally for convenience
e
Which of the following is an example of phishing? a. Using bills in the trash to obtain others' personal information b. Rerouting bills to a different address c. Getting information from financial institutions under false pretenses d. Stealing wallets e. Pretending to be an employee of a financial institution
e
Which of the following is not requested in a typical credit card application? a. Charge accounts b. Housing c. Employment d. Income e. Political affiliations
e
Which of the following statements regarding a consumer loan is true? a. A consumer loan is used chiefly to make repeated purchases of relatively low-cost goods and services. b. A consumer loan results from a rather informal process and involves no negotiated contracts. c. A consumer loan provides credit cards and checks to the consumers. d. A consumer loan provides revolving credit to the consumers. e. A consumer loan is used to finance the purchase of very expensive items.
e
Which of the following statements regarding consumer finance companies is true? a. Consumer finance companies accept deposits and give small loans to their members. b. Consumer finance companies make loans of any size to low-risk borrowers. c. Consumer finance companies offer consumer loans at the lowest interest rates. d. Consumer finance companies offer consumer loans only for home mortgage lending. e. Consumer finance companies make secured and unsecured loans to qualified individuals.
e
_____ is a reason that people use credit. a. Being able to increase disposable income b. Being able to provide payments for living beyond one's means c. Being able to afford impulse purchases d. Greater affordability for a luxurious lifestyle e. Being able to meet a financial emergency
e
