Using Credit Unit

Ellen purchased a dishwasher, which cost $315 before the 9.22% sales tax. She used the machine an average of 10 times per week for the next six years, at which point she replaced it. Each time she ran the dishwasher it cost her $0.09 for water and $0.13 for electricity. What was the lifetime cost of Ellen's dishwasher?

a. $1,030.44

Jenny used her credit card to buy a refrigerator with a base cost of $824. The refrigerator consumed an average of $0.09 in electricity every day. Jenny made regular monthly payments for three and a half years, at which point the refrigerator was paid off. Over the eight years that Jenny had the refrigerator, it needed repairs three times, costing $68.75 each time. If Jenny's credit card has an APR of 10.54%, compounded monthly, and sales tax in Jenny's area is 7.13%, what was the lifetime cost of Jenny's refrigerator? Assume that Jenny made no other purchases with her credit card, and round all dollar values to the nearest cent. (Remember that leap year occurs every four years.)

a. $1,528.47

Jeff has a balance of $2,513.77 on his credit card. He would like to pay off his card over the course of a year and a half by making identical monthly payments. The APR on his card is 10.66%, compounded monthly. Assuming that Jeff makes no additional purchases with his card, how much will he have to pay every month to reach his goal? (Round all dollar values to the nearest cent.)

a. $151.73

Nicole used her credit card to buy a $1,255 mattress. Her credit card has an APR of 11.56%, compounded monthly, and the mattress was the only purchase on the card. Nicole paid off the mattress after two and a half years. If the sales tax in Nicole's area is 9.08%, how much interest did Nicole pay in total? (Round all dollar values to the nearest cent.)

a. $213.85

Looking for some furniture for her new apartment, Susan visits the local swap meet in search of something cheap. Knowing that most swap meet vendors will not accept credit cards and that she will not have any money until her next payday, Susan decides to take out a $200 cash advance on her credit card at an interest rate of 32%. If Susan had no previous balance on her credit card, and she manages to pay off the balance within 1 month, how much will she have to pay in interest?

a. $5.33

Miles and Nick each separately apply for and receive loans worth $5,000 apiece. Miles has a very good credit score, so his loan has an APR of 7.75%, compounded monthly. Nick's credit score is rather low, so his loan has an APR of 13.10% interest, compounded monthly. If both of them repay their loans over a four year period, making equal monthly payments based on their own loan, how much more will Nick have paid than Miles? (Round all dollar values to the nearest cent.)

a. $619.68

Fran is going to transfer her credit card balance over to a new card. She has an existing balance of $752.69. Her current card charges her a transfer fee of 12.5%, added to her balance, for transferring her debt. The new card has an opening fee of $50, which is also added to her balance. She will also have to make an immediate minimum payment, which is 3.35% of her total balance. How much will her balance be after she makes this payment, assuming that she pays the minimum amount? Round all dollar values to the nearest cent.

a. $866.74

You are considering buying one of two brands of barbecue grills. Brand F costs $650 and will last for about fifteen years. Brand G costs $200 and will last for about five years, so you will need to buy three of them over the years to equal one Brand F grill. In either case, you plan to pay for the grill with your credit card, which has an interest rate of 13.01%, compounded monthly. You will pay off a Brand F grill in five years of monthly payments, and you will pay off a Brand G grill in three years of monthly payments. Assuming that you have no other purchases on your credit card, over a fifteen-year period, which kind of grill will be cheaper, and how much cheaper will it be? (Round all dollar values to the nearest cent.)

a. Brand G will end up costing $159.48 less than Brand F.

Robert is looking to buy a deep fryer. He has narrowed his search down to two models. The following table gives the details of the prices, cost per use in electricity and oil, and lifespan of the two models Robert is considering to purchase. Robert plans on using his deep fryer about eight times per month. After six years, which brand will have the lower lifetime cost, and by how much? Hint: Assume that either deep fryer can be repurchased at the same price, if needed to provide the desired length of service.

a. Brand P will be $118.26 cheaper than Brand Q.

Of the following statements, which one or ones describe actions harmful to your credit score? I. Owing a lot of money II. Having many lines of credit III. Making steady payments

a. I and II

Of the following, which statement or statements accurately reflect a way in which credit can be safer than cash? I. If your credit card gets stolen, you can cancel it and get your money back. II. It is harder to lose a single credit card than a large number of bills. III. If a merchant does not honor the agreement, you can call the credit company and dispute the charges.

a. I and III

What is the prime rate?

a. The prime rate is the best interest rate that banks offer their most creditworthy customers.

Ralph is purchasing a new gaming system for $300.00. He is trying to decide whether he wants to use cash or his credit card to pay. He has $600.00 available in his checking account. Which of the following is not an argument that justifies Ralph's use of his cash to purchase the gaming system?

a. Using cash can help Ralph improve his credit score.

Dennis has a credit card with an APR of 10.14% and a billing cycle of 30 days. The following table shows his transactions with that credit card in the month of November. If the finance charge for November is $3.82, which method of calculating the finance charge does Dennis's credit card company use?

a. adjusted balance method

Yolanda's credit card has an APR of 16.22% and a billing cycle of 30 days. The table below shows her transactions with that credit card in the month of November. Find Yolanda's finance charge in November using the previous balance method, the adjusted balance method, and the daily balance method. Among those three possible finance charges, what is the value of the one which is neither lowest nor highest?

b. $11.59

Sam is getting ready for a big date when he realizes that he has no money. His roommate, Bill, also has no money, but he has a credit card. Knowing that nobody will let Sam use Bill's credit card, Sam asks Bill to pull out a cash advance for $120.00. Bill agrees under the condition that Sam is responsible for all interest that accrues on the cash advance which is a 30% interest rate, compounded monthly. 5 full years go by before the $120 cash advance is repaid. How much should Bill ask Sam to pay in interest for the cash advance?

b. $112.80

Patrick has a credit card with an APR of 15.40% and a billing cycle of 30 days. The following table shows Patrick's credit card transactions in the month of August. How much greater will Patrick's August finance charge be if his credit card company computes finance charges using the previous balance method than if it computes finance charges using the adjusted balance method?

b. $3.41

Olivia bought a $1,874 sprinkler system with her credit card. Her credit card has an APR of 10.31%, compounded monthly. She made no other purchases on the card until the sprinkler system was fully paid for, which took four years of identical monthly payments. Over the eight years that Olivia kept the sprinkler system, it used an average of $2.11 in water per week. After eight years, what percentage of the total lifetime cost of the system did the original price make up? (Round all dollar values to the nearest cent.)

b. 59.07%

Describe the effect an increase in i, the interest rate applied to the present value, has on the monthly payment P in the formula

b. An increase in i, the interest rate, will create an increase in P, the monthly payment.

Pam has just moved into a new home and wants to purchase an oven. She expects to live in this house for the foreseeable future. She has narrowed her choices down to two options. Consider the following table, which describes the prices, daily electricity costs, and lifespans of the two ovens she is considering: Which brand will have the lower lifetime cost, and how much lower will it be? Hints: If the product's expected lifespans differ, assume that repurchase(s) at the same price is possible to equalize the lifespans. Remember that six of the twenty-four years will be leap years, and round all dollar values to the nearest cent.

b. Brand U will be $976.92 cheaper than Brand V.

Which of the following is not a disadvantage to cash advances on a credit card?

b. Cash advances require a lot of paperwork and are generally difficult to get.

Currently you have two credit cards, H and I. Card H has a balance of $1,186.44 and an interest rate of 14.74%, compounded annually. Card I has a balance of $1,522.16 and an interest rate of 12.05%, compounded monthly. Assuming that you make no purchases and no payments with either card, after three years, which card's balance will have increased by more, and how much greater will that increase be?

a. Card I's balance increased by $53.16 more than Card H's balance.

What is a credit report?

b. A credit report is a detailed listing of your credit history.

Which of the following statements is not true of cash advances?

b. Credit card companies apply payments to cash advance balances first because the interest is higher.

Rank the following factors in order from those that have the most effect on your credit score to those that have the least effect on your credit score. I. Amount of money owed II. Payment history III. Credit history length

b. II, I, III

Victor has a credit card with an APR of 13.66%, compounded monthly. He currently owes a balance of $1,349.34. Assuming that Victor makes no purchases or payments, how much will he owe after one year, to the nearest cent?

c. $1,545.65

Bill was going to purchase a new mountain bike with his credit card, which he thought had an APR of 13%. His plan was to keep his payments around $75 per month for 24 months. He then found out that his credit card actually had an APR of 17%. Which of the following would not allow Bill to purchase a bike while keeping the same monthly payment?

c. Purchase the bike in a part of town with a higher sales tax rate

Which method used to calculate finance charges is most favorable to the card issuer?

c. previous balance

What is a secure line of credit?

d. A line of credit backed by collateral.

Tony is a loan officer. He determines his clients' eligibility for loans and for good interest rates by using their credit scores. The scores of several clients are shown in the following table. Help Tony evaluate his applicants based on their mean and median credit scores.

b. Neil has the highest mean score, but Jeff has the highest median score.

Paul is going to buy a collectible vintage painting from a local art gallery. The painting is priced at $600 in the gallery. The gallery owner does accept credit cards but prefers cash. In fact, he offers to give Paul a 5% discount if he can pay in cash. Paul doesn't have any cash but can get a cash advance on his credit card. His credit card has an APR of 16% on credit purchases and a 32% APR on cash advances. Assuming Paul wants to pay the painting off over 12 months, which of the following is true?

b. Paul will pay a total of $653.28, over 12 months, if he purchases the painting with his credit card.

Tom is in dire need of a new washing machine. He knows what model he would like to get, but doesn't have the cash to pay for it. He plans to get a line of credit (credit card) at the store when he purchases his new washer. He found four different stores that carry the same washing machine for different prices. The lines of credit they offer also come with different APRs. Tom's primary goal is to minimize his monthly payment as he pays the washing machine off over the next 18 months. From which of the four stores should Tom purchase his washing machine?

b. Steve's Scratch and Dent

You are considering making a major purchase on your credit card. You should ask yourself the following questions, except which answer choice?

b. What else can I purchase to reach my full credit limit?

Tom has offered to sell Julian his motorcycle for $1,200. Julian knows this is a very good deal, since the same motorcycle can be purchased at the dealership for $1,800. Since Julian doesn't have $1,200 and Tom does not accept credit cards, they both think a cash advance might be a good idea. Julian's credit card company can offer him a cash advance for the $1,200 he needs at an interest rate of 26%. He would then pay off the balance in 24 months. Should Julian use the cash advance to purchase the motorcycle?

b. Yes. Even with the interest, the total cost of the motorcycle would be less than at the dealership.

Freida's credit card has an APR of 13.73%, and it calculates her finance charge by using the daily balance method and a 30-day billing cycle. On September 1st, Freida had a balance of $449.22. During the month of September, she made a payment of $85.33 and a purchase of $60.99. How much greater will her September finance charge be if the purchase occurred on September 7th and the payment occurred on September 20th than it would be if the payment occurred on September 7th and the purchase occurred on September 20th?

c. $0.72

If Natasha makes only the minimum payments, what will her balance at the beginning of November? (Assume that the interest accrues before the monthly payment, and that the monthly payment occurs at the end of the month. Round all dollar values to the nearest cent.)

c. $1,000.93

Listed below are the balances and annual percentage rates for Jimmy's credit cards. If Jimmy makes the same payment each month to pay off his entire credit card debt in the next 12 months, how much will he have paid in interest in the 12 month period?(Hint, find out how much interest Jimmy pays to each card over the 12 months seperately, and then add them together.)

c. $449.24

Calvin's credit card computes finance charges using the daily balance method. His card has a billing cycle of 30 days and an APR of 14.75%. The following table details Calvin's transactions in the month of September. What will Calvin's starting balance be next month?

c. $625.91

What is the difference between a credit score and a credit rating?

c. A credit score is a number indicating your creditworthiness, and a credit rating is a measurement of how your credit score compares to others.

What is an open line of credit?

c. A line of credit against which additional debt may be drawn.

Laura's credit card has an APR of 12.04%, and it computes finance charges using the daily balance method and a 30-day billing cycle. On June 1st, Laura had a balance of $606.40. She made exactly one transaction in June: a payment of $55.25. If Laura's finance charge for June was $5.71, on which day did she make the payment?

c. June 15th

To minimize finance charges calculated by the daily balance method, when in the billing cycle is it best to make purchases and payments?

c. Payments should be made early in the billing cycle, and purchases should be made late in the billing cycle.

Which answer choice does not name one of the three national credit reporting agencies (also called credit bureaus)?

c. TransAtlantic

Marilyn has two credit cards, D and E. Card D has a balance of $691.64, and Card E has a balance of $1,014.22. The minimum monthly payment on Card D is 3.57% of the total balance, and the minimum monthly payment on Card E is 2.51% of the total balance. How much greater is the minimum payment on Card E than on Card D?

d. $0.77

Tim has four credit cards with the balances and APRs listed in the chart below. What will Tim's total monthly minimum credit card payment need to be to pay off all four credit cards in 24 months?

d. $221.93

Andrew is on a 30-day billing cycle. His credit card has an APR of 16.60% and computes finance charges using the previous balance method. The table below shows transactions that Andrew made in March. Based on the information in the table, what will Andrew's March finance charge be?

d. $24.82

Darryl just received his credit scores from the three major credit bureaus. His Experian score is 719, his Equifax score is 741, and his TransUnion score is 780. What is his mean credit score? (Round to the nearest whole point, if applicable.)

d. 747

Of the following statements, which one or ones indicate possible effects of a low credit score? I. You will have a difficult time qualifying for loans. II. Any loans you take out will be relatively short-term. III. You will have to pay higher than average interest rates.

d. I and III

From the statements below, identify the way or ways in which making only minimum monthly payments on a long-term credit purchase can be a disadvantage. I. It is illegal to make only the minimum payments for more than one year. II. Repeatedly making minimum payments harms your credit score. III. The total cost is higher if the length of the debt is longer.

d. II and III

You are a loan officer trying to decide which clients deserve your best rates. The table below shows the credit scores of several loan applicants. Based on each applicant's median credit score, who deserves your best interest rates?

d. Lisa

Yvonne's credit card has an APR of 17.79% and a 30-day billing cycle. The following table details her credit card transactions in the month of June. Between the previous balance method and the daily balance method, which method of calculating Yvonne's June finance charge will result in a greater finance charge, and how much greater will it be?

d. The previous balance method will have a finance charge $0.40 greater than the daily balance method.

Which of the following is not a disadvantage of using cash instead of credit?

d. Using cash can make it easier to over-spend since you know exactly how much you have.

Which answer choice does not represent an advantage to using credit cards over other forms of payment?

d. interest due on outstanding balance

Which of the following types of credits would best describe credit cards?

d. open and unsecured