Financial Math PART 2: after midterm exam (ALL QUIZZES AFTER EXAM 1)

The following statement is from the contract Peter signed with his Homeowners' Association (HOA). "Overnight parking on community streets is prohibited. For the purpose of this contract, 'overnight' will be defined as the hours between 11:00 p.m. and 4:00 a.m. The HOA will monitor overnight parking not less than once every calendar week with nightly patrols by community security. "In the event a car is found parked on community streets overnight and that ownership of the offending car can accurately be verified as a community homeowner, the homeowner will receive one (1) written warning asking him or her to correct the situation. A second and third infraction by the same homeowner, whether or not it is with the same car, will result in a monetary fine as permitted by CC&R guidelines and HOA bylaws. Further infractions (past 3) will result in monetary fines in addition to the towing of the car at the homeowner's expense." Peter just received a written warning from the HOA concerning the parking of his car overnight on a community street. Which of the following statements is true? a. Parking in the street overnight tonight may get Peter fined. b. Parking in the street overnight tonight may get Peter's car towed. c. Parking in the street overnight tonight may get Peter fined and his car towed. d. Parking in the street overnight tonight will probably just get Peter another warning.

A.

The principal on Jan's loan was $4,700, but by the time she had paid it off after four years, the interest and principal totaled $5,388. If Jan made regular quarterly payments of $355 until the loan was paid off, how much did Jan pay for service charges? a. $292 b. $688 c. $980 d. $18

A.

Ursula took out an unsubsidized Stafford loan to help pay for her first of her four years at college. The loan had a principal of $6,400, an interest rate of 6.9% compounded monthly. After college, Ursula started making monthly payments over a 10 year period on her loan. What percentage of the total cost of the loan is the finance charge? a. 45.25% b. 27.91% c. 43.50% d. 82.66%

A.

What percent does a lender generally look for when considering the debt-to-income (DTI) ratio of a loan applicant? a. less than or equal to 36% b. less than or equal to 42% c. less than or equal to 50% d. less than or equal to 72%

A.

When calculating the effective rate of a loan, which statement or statements must be true if n is equal to 1? I. The nominal rate equals the effective rate. II. The length of the loan is exactly one year. III. The interest is compounded annually. a. I and III b. II and III c. I only d. III only

A.

Which of the following statements explains the difference between a lease and a loan? a. At the end of a loan the car belongs to you, but at the end of a lease, the car still belongs to the lease company. b. At the end of a loan, the car still belongs to the lease company, but at the end of a lease the car belongs to you. c. A loan requires a large down payment at the beginning while a lease does not. d. A lease requires a large down payment at the beginning while a loan does not.

A.

Why do interest rates on loans tend to be higher in a strong economy than in a weak one? a. Credit markets increase in a strong economy, and with increased demand come increased prices. b. A strong economy encourages borrowers to take out very long-term loans, which have higher interest rates. c. Credit is plentiful in a strong economy, so it is harder to build up the good credit rating necessary for a low interest rate. d. People in a strong economy have more money, so they can afford more expensive loans.

A.

Why is credit history such an important factor in being considered for a loan? a. Credit history shows how responsible people are in making payments on time and their general ability to make monthly payments. b. Credit history shows a bank precisely how many valuable things a potential borrower owns. c. Credit history shows that a person is willing to make extreme sacrifices in order to borrow money. d. Credit history is only helpful when applying for a personal loan.

A.

Why is the APR considered the most important factor to be mindful of in a car loan? a. The APR helps a customer determine the true cost of the loan, allowing them to compare many loans and choose the most advantageous one. b. The current national APR helps a consumer decide how much they want to spend on a car. c. The APR determines how many cars a dealership can sell. d. The APR of a loan is directly related to the quality of the associated car loan.

A.

Why is understanding the terms of a contract important for both parties involved? a. Understanding the terms of a contract is important because a person must be certain of the obligations towards the other party, and must also be aware of penalties incurred if those obligations are not met. b. Understanding the terms of a contract is only important for lawyers, and should only ever have to be signed and not read. c. Understanding the terms of a contract is important because people involved in contracts are almost always taken to court, and must know the contract to give a good defense. d. Understanding the terms of a contract is only important when the other party seems shady or untrustworthy.

A.

Annie would like to take out a loan to put a new playground in her yard for her kids. She offers her car which is worth $7,800 as collateral. The loan officer at the bank is permitted to loan Annie 92% of the value of her collateral. How much will Annie be able to borrow for the playground using her car as collateral? a. $7,708.00 b. $7,176.00 c. $7,800.00 d. $8,478.26

B.

Brian took eight years to pay off his $71,900 loan. The loan had an interest rate of 8.16%, compounded quarterly. If Brian paid quarterly and made the same payment every time, how much was each payment that he made? a. $2,342.66 b. $3,081.54 c. $1,022.28 d. $1,466.76

B.

Claudius took out an unsubsidized Stafford loan at the beginning of his six-year college career. The loan had a principal of $4,850, an interest rate of 6.5% compounded monthly, and a duration of ten years. If Claudius started paying off the loan when he graduated, what is his monthly payment? Round all dollar values to the nearest cent. a. $71.37 b. $81.25 c. $55.07 d. $76.55

B.

Colin took out a loan with a principal of $32,800. After five years, the interest and principal totaled $48,872. If Colin made monthly payments of $816 for five years until the loan was paid off, how much did Colin pay in service charges? a. $16,072 b. $88 c. $16,160 d. $163

B.

Edgar has taken out a $6,250 unsubsidized Stafford loan to fund his four-year undergraduate degree. The loan has a duration of 10 years and an interest rate of 6.1%, compounded monthly. How much interest capitalization will have accrued by the time Edgar graduates? Round all dollar values to the nearest cent. a. $1,670.30 b. $1,722.22 c. $664.35 d. $1,524.96

B.

If it is completely impossible to put a contract in writing, which of the following would be the best substitute? a. having a friend witness the verbal agreement b. a video or audio recording of the verbal agreement c. the words "I promise" spoken in a verbal recitation of the contract d. a firm hand-shake between all those involved in the contract

B.

Jason used his car as collateral to borrow money from his bank. After losing his job, Jason is now unable to make his monthly payments for the loan, defaulting on the loan. If Jason is unable to continue to make his payments, what is likely to happen to his car? a. The bank will ask Jason to sell the car to help pay back his loan. b. The bank will seize the car and likely sell it to pay off Jason's loan. c. The bank will notify the local government of Jason's default on his loan, making it illegal for Jason to drive the car. d. The bank will put a "boot" on one wheel of the car, making it un-drivable until Jason begins making his payments again.

B.

Jerry's loan had a principal of $22,000. He made quarterly payments of $640 for nine years until the loan was paid in full. How much did Jerry pay in interest? a. $3,120 b. $1,040 c. $2,010 d. $5,760

B.

Jessica's bank is offering her a loan with a stated rate of 4.90% interest. If the interest is compounded every two months, what will Jessica really pay for interest? a. 4.90% b. 5.00% c. 5.01% d. 4.96%

B.

Laura is currently paying off her four-year car financing. When she purchased her car, it had a list price of $19,858. Laura traded in her previous car, a good-condition 2000 Honda Insight, for 85% of the trade-in value listed below, financing the rest of the cost at 9.5% interest, compounded monthly. She also had to pay 9.27% sales tax, a $988 vehicle registration fee, and a $77 documentation fee. However, because Laura wants to pay off her loan more quickly, she makes a total payment of $550 every month. How much extra is she paying monthly? Round all dollar values to the nearest cent.

B.

Maria is going to take out a loan with a principal of $19,700. She has narrowed down her options to two banks. Bank M charges an interest rate of 7.1%, compounded monthly, and requires that the loan be paid off in five years. Bank N charges an interest rate of 7.8%, compounded monthly, and requires that the loan be paid off in four years. How would you recommend that Maria choose her loan? a. Bank M offers a better loan in every regard, so Maria should choose it over Bank N's. b. Maria should choose Bank M's loan if she cares more about lower monthly payments, and she should choose Bank N's loan if she cares more about the lowest lifetime cost. c. Maria should choose Bank N's loan if she cares more about lower monthly payments, and she should choose Bank M's loan if she cares more about the lowest lifetime cost. d. Bank N offers a better loan in every regard, so Maria should choose it over Bank M's.

B.

Mike is looking for a loan. He is willing to pay no more than an effective rate of 8.000% annually. Which, if any, of the following loans meet Mike's criteria? Loan X: 7.815% nominal rate, compounded semiannually Loan Y: 7.724% nominal rate, compounded monthly Loan Z: 7.698% nominal rate, compounded weekly a. Y only b. X and Z c. Y and Z d. None of these meet Mike's criteria.

B.

Paul has an eight-year loan with a principal of $26,900. The loan has an interest rate of 8.18%, compounded quarterly. If Paul pays $1,527 in service charges and makes quarterly payments on his loan, what will his total finance charge be when the loan is repaid? Round all dollar values to the nearest cent. a. $10,588.28 b. $11,546.36 c. $11,370.04 d. $1,527.00

B.

The following section is a statement from the rental agreement Tim signed when he rented his car this past weekend. "Upon checkout, the fuel level of the vehicle will be determined by turning the vehicle on and visually inspecting the fuel gauge. The approximate fuel level will be recorded on the Check-Out sheet and verified with initials by the vehicle Renter. One copy of the Check-Out sheet will be given to the customer. Another copy will be kept with the on-site records of the vehicle. "The rented vehicle must be returned with a minimum fuel level the same as that indicated on the Check-Out sheet. A vehicle returned with a fuel level less than the approximate level indicated on the Check-Out sheet will be completely refueled with on-site pumps. The price of the fuel used to refuel the vehicle will be added to the Renter's total charge at a cost of $4.50 per gallon plus a $5.00 refueling charge." Tim forgot to refuel the vehicle when he returned it. His Check-Out sheet indicates that the vehicle had about 1/2 of a tank left. The tanks is now nearly empty. If it takes 11.75 gallons of gas to refuel the car Tim rented, how much extra should he expect to pay because he forgot to get gas? a. $26.44 b. $31.44 c. $52.88 d. $57.88

D.

What effect does inflation have on interest rates, and why? a. Inflation decreases interest rates, because it causes the principal amount to rise. b. Inflation decreases interest rates, because borrowers in an inflationary economy cannot afford higher interest rates. c. Inflation increases interest rates, because the money being lent out is more valuable after inflation. d. Inflation increases interest rates, because lenders must charge more to gain a benefit on devalued money.

D.

What is required to have a legally valid contract? a. The contract must contain appropriate legalese. b. The contract must be put in writing. c. The contract must represent a valid agreement between parties. d. The contract must represent a valid agreement between parties and an exchange of something of value between parties must have occurred or been promised to occur.

D.

What is the difference between a service charge and a finance charge? a. A service charge is a fee which must be paid every month, while a finance charge is a one-time fee assessed at the beginning or end of a loan period. b. A service charge is a flat fee charged to a borrower, while a finance charge is a fee charged to a borrower based on the amount borrowed. c. A service charge is a fee assessed by a lender, while a finance charge is a fee charged by a financial institution, such as a bank. d. A service charge is a fee assessed by a lender other than interest, and a finance charge is the total of the interest paid on a loan and the service charge.

D.

Which factor or factors listed below are external influences on a loan's interest rate? I. the borrower's credit history II. the length of the loan III. the federal funds rate a. I and II b. I and III c. II and III d. III only

D.

Which of the following would be a good argument to buy rather than lease? a. "Money is really tight. I need the lowest possible monthly payment." b. "It is very important for my image to drive the newest cars available." c. "I'm only going to need it for a few years before I move back to Great Britain." d. "I would prefer to walk out of the deal in the end with something to show for the money I put in."

D.

Why is the Federal Funds Rate so influential on other interest rates? a. The Federal Funds Rate determines how much consumers can borrow per year. b. The Federal Funds Rate determines how many loans per year a bank can issue. c. The Federal Funds Rate is only important to heavy investors. d. The Federal Funds Rate determines at what interest rate banks borrow money.

D.

Wyatt is paying back a loan with a nominal interest rate of 13.62%. If the interest is compounded quarterly, how much greater is Wyatt's effective interest rate than his nominal interest rate? a. 0.96 percentage points b. 0.40 percentage points c. 0.25 percentage points d. 0.71 percentage points

D.

The following section is a statement from the rental agreement Tim signed when he rented his car this past weekend. "Upon checkout, the fuel level of the vehicle will be determined by turning the vehicle on and visually inspecting the fuel gauge. The approximate fuel level will be recorded on the Check-Out sheet and verified with initials by the vehicle Renter. One copy of the Check-Out sheet will be given to the customer. Another copy will be kept with the on-site records of the vehicle. "The rented vehicle must be returned with a minimum fuel level the same as that indicated on the Check-Out sheet. A vehicle returned with a fuel level less than the approximate level indicated on the Check-Out sheet will be completely refueled with on-site pumps. The price of the fuel used to refuel the vehicle will be added to the Renter's total charge at a cost of $4.50 per gallon plus a $5.00 refueling charge." Tim is running extremely late and has just 5 minutes to return his rental car to the agency. The fuel tank in the car is half empty. It was full when he picked it up. (The car has a 12-gallon fuel tank.) He doesn't think he can get gas and get to the agency to return the car in time. Returning the car a day late will result in an extra daily rental charge of $32.00 and refueling the car on his own will cost $2.59 per gallon at the local gas station. Which of the following statements is true? a. It would be cheaper to refuel the car and return it a day late. b. It would be cheaper to return the car on time and pay the refueling costs. c. It would cost about the same to return the car on time without gas or one day late with gas. d. Tim is not responsible for refueling the car when he returns it.

B.

The following statement is from the contract Peter signed with his Homeowner's Association (HOA). "Overnight parking on community streets is prohibited. For the purpose of this contract, 'overnight' will be defined as the hours between 11:00 p.m. and 4:00 a.m. The HOA will monitor overnight parking not less than once every calendar week with nightly patrols by community security. "In the event a car is found parked on community streets overnight and that ownership of the offending car can accurately be verified as a community homeowner, the homeowner will receive one (1) written warning asking him or her to correct the situation. A second and third infraction by the same homeowner, whether or not it is with the same car, will result in a monetary fine as permitted by CC&R guidelines and HOA bylaws. Further infractions (past 3) will result in monetary fines in addition to the towing of the car at the homeowner's expense." Because of the extremely low ground effects and body profile on his racing car, Peter is unable to drive his car off of the street and onto the driveway. He has parked on the street overnight for the past five weeks. He has received one written warning and one monetary fine from the HOA. What consequences should Peter expect after this week's security check? a. His car will be towed. b. He will receive another monetary fine. c. He will receive a monetary fine and his car will be towed. d. A "boot" will be place on his car to prevent him from driving it.

B.

The nominal rate on Sarah's loan is 7.250%. If the interest is compounded monthly, what rate of interest is Sarah actually paying? a. 7.250% b. 7.496% c. 7.510% d. 8.700%

B.

Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of 6.4715%. Which of the following must be true? I. The loan has a duration greater than one year. II. The interest on Thomas's loan is compounded more than once yearly. III. The economy was strong when Thomas took out the loan. a. I and II b. II only c. I and III d. III only

B.

Tim needs a new car while he attends college in the United States for the next three years. The car he would like has an MSRP of $15,000. A local dealer can get him a three-year loan with a 7% interest rate if Tim can make a $1,500 down payment. The same dealer offers the same car for lease with a money factor of 0.00271 and a residual value of 75%. The lease requires an additional fee of $1,250 to cover Tim's security deposit and the acquisition and documentation fees for the car. Tim is looking to drive the car home with the smallest monthly payment. Which of the following statements is true? a. The monthly payment for the loan is lower. b. The monthly payment for the lease is lower. c. The monthly payments for the lease and loan are the same. d. You cannot compare the monthly payments for leases and loans.

B.

Trish is having trouble understanding why she was not approved for her loan. Which of the following probably kept Trish from getting her loan? a. Trish's debt-to-income (DTI) is currently 30%. b. Trish's credit score is a solid 525. c. Trish is a single mom with three kids. d. Trish's gross monthly income is only $2,800.

B.

What would the monthly payment be for a $5,000 loan with a 6.25% interest rate compounded monthly spread over 60 months? a. $25.31 b. $97.25 c. $217.00 d. $320.95

B.

Which of the following is something a lender will not consider when reviewing your loan application? a. collateral b. family size c. credit score d. debt-to-income (DTI) ratio

B.

You have just finished paying off your $35,125 loan, a feat which took ten years of quarterly payments. The loan had an interest rate of 7.44%, compounded quarterly. If you also paid $5,180.70 in service charges, what percentage of the total cost was made up by your finance charges? Round all dollar values to the nearest cent. a. 25.69% b. 36.47% c. 57.41% d. 27.10%

B.

Yvette is considering taking out a loan with a principal of $16,200 from one of two banks. Bank F charges an interest rate of 5.7%, compounded monthly, and requires that the loan be paid off in eight years. Bank G charges an interest rate of 6.2%, compounded monthly, and requires that the loan be paid off in seven years. How would you recommend that Yvette choose her loan? a. Bank F offers a better loan in every regard, so Yvette should choose it over Bank G's. b. Yvette should choose Bank F's loan if she cares more about lower monthly payments, and she should choose Bank G's loan if she cares more about the lowest lifetime cost. c. Yvette should choose Bank G's loan if she cares more about lower monthly payments, and she should choose Bank F's loan if she cares more about the lowest lifetime cost. d. Bank G offers a better loan in every regard, so Yvette should choose it over Bank F's.

B.

Bob and Suzie are both signing a contract where Bob agrees to remove a beehive and Suzie agrees to pay Bob $120.00. What is the consideration in this example? a. beehive removal b. payment of $120.00 c. both the removal of a beehive and the payment of $120.00 d. neither the beehive removal nor the payment of $120.00

C.

Charles is going to purchase a new car that has a list price of $21,450. He is planning on trading in his good-condition 2004 Dodge Neon and financing the rest of the cost over three years, paying monthly. His finance plan has an interest rate of 12.28%, compounded monthly. Charles will also be responsible for 6.88% sales tax, a $1,089 vehicle registration fee, and a $124 documentation fee. If the dealer gives Charles 80% of the listed trade-in price on his car, once the financing is paid off, what percent of the total amount paid will the interest be? (Consider the trade-in to be a reduction in the amount paid.) Dodge Cars in Good Condition Model/Year 2004 2005 2006 2007 2008 Viper $7,068 $7,225 $7,626 $7,901 $8,116 Neon $6,591 $6,777 $6,822 $7,191 $7,440 Intrepid $8,285 $8,579 $8,699 $9,030 $9,121 Dakota $7,578 $7,763 $7,945 $8,313 $8,581 a. 17.64% b. 15.67% c. 16.70% d. 12.86%

C.

In order to approve a loan, lenders want to see a credit score of at least _____. a. 300 b. 500 c. 700 d. 1200

C.

Jim has an annual salary of $96,000. His monthly expenses include a $2,500 mortgage payment, a $250 lease payment, $500 in minimum credit card payments, and a $425 payment on his speed boat. He also receives $1,200 in interest from his savings and other accounts each month. Calculate Jim's DTI (debt-to-income) ratio. a. 30% b. 35% c. 40% d. 45%

C.

Johnny's monthly expenses and income are listed below. Calculate Johnny's debt-to-income (DTI) ratio. Johnny's Monthly Debt and Income Housing: Rent $950.00 Renter's Insurance $25.00 Credit: Student $250.00 Car $239.00 Credit Card #1 $25.00 (minimum) Credit Card #2 $40.00 (minimum) Income: Sales Rep $4,400.00 Tutoring $600.00 a. 28% b. 33% c. 31% d. 35%

C.

Melanie is looking for a loan. She is willing to pay no more than an effective rate of 9.955% annually. Which, if any, of the following loans meet Melanie's criteria? Loan A: 9.265% nominal rate, compounded weekly Loan B: 9.442% nominal rate, compounded monthly Loan C: 9.719% nominal rate, compounded quarterly a. B only b. A and C c. A and B d. None of these fit Melanie's criteria.

C.

Susan took out a personal loan for $3,500 at an interest rate of 13% compounded monthly. She made arrangements to pay the loan off in 3 years. What will her monthly payment be? a. $99.34 b. $105.32 c. $117.93 d. $156.60

C.

Tamora just made the last of her monthly payments on her loan. She had been making these payments for the past nine years. The loan had a principal of $10,675 and an interest rate of 4.75%, compounded monthly. In addition, Tamora paid $939.25 in service charges. What was Tamora's total finance charge? Round all dollar values to the nearest cent. a. $939.25 b. $11,614.25 c. $3,403.53 d. $2,464.28

C.

The following section is a statement from the rental agreement Tim signed when he rented his car this past weekend. "Upon checkout, the fuel level of the vehicle will be determined by turning the vehicle on and visually inspecting the fuel gauge. The approximate fuel level will be recorded on the Check-Out sheet and verified with initials by the vehicle Renter. One copy of the Check-Out sheet will be given to the customer. Another copy will be kept with the on-site records of the vehicle. The rented vehicle must be returned with a minimum fuel level the same as that indicated on the Check-Out sheet. A vehicle returned with a fuel level less than the approximate level indicated on the Check-Out sheet will be completely refueled with on-site pumps. The price of the fuel used to refuel the vehicle will be added to the Renter's total charge at a cost of $4.50 per gallon plus a $5.00 re-fueling charge." As a part of the check-out process, it is customary for a car rental agency to look over the car with the customer and fill out the Check-Out sheet together. As Tim was walking around the car looking for damages that he didn't want to be held responsible for, the agency representative turned on the car, took note of the fuel level, and indicated it on the Check-Out sheet. Since Tim didn't have any questions, the clerk handed him the keys and a copy of the Check-Out sheet and wished him well. Which action invalidates the contract Tim signed with the rental agency? a. Tim failed to notice a dent under the right front fender. b. The representative failed to give Tim a copy of the Check-Out sheet. c. The representative failed to have Tim initial by the fuel level on the Check-Out sheet. d. Neither Tim nor the representative checked the oil level in the car.

C.

The following table shows a portion of a four-year amortization schedule. 2007-10-05-00-00_files/i0060000.jpg After three years, how much of the principal has been paid off? a. $25,176.60 b. $22,706.64 c. $19,827.08 d. $5,349.52 Please select the best answer from the choices provided

C.

The following table shows a portion of a three-year amortization schedule. 2007-10-05-00-00_files/i0120000.jpg Use the information in the table to decide which of the following statements is true. a. The payment amount changes each month. b. The amount applied to the principal is decreasing each month. c. The amount applied to the principal is increasing each month. d. The amount applied to interest is increasing each month.

C.

Tiffany has taken out a loan with a stated interest rate of 8.145%. How much greater will Tiffany's effective interest rate be if the interest is compounded weekly than if it is compounded semiannually? a. 0.3340 percentage points b. 0.1659 percentage points c. 0.1681 percentage points d. 0.1234 percentage points

C.

Tim and Sally are taking out a personal loan to pay for their wedding expenses. The loan is for $9,000 and comes with an interest rate of 9.5% compounded monthly. The couple wants to pay the loan off as quickly as possible, keeping the monthly payments below $250. The lender offers repayment plans in 12 month increments. How long of a loan should they request? a. 24 months b. 36 months c. 48 months d. 60 months

C.

Tom would like to take out a secured loan to help pay for a vacation this summer. He has offered his car as collateral. His car is worth $3,500. His bank can offer loans for 80% of collateral value. The vacation he has planned will cost $4,750. Approximately how much additional collateral will Tom need to offer in order to borrow enough to go on his vacation as planned? a. $1,000.00 b. $1,362.50 c. $2,437.50 d. $2,800.00

C.

Which statement or statements accurately describe characteristics of subsidized Stafford loan? I. grace period during which payments are not due II. based on student need III. student is responsible for all interest for the lifetime of the loan. a. I only b. II only c. I and II d. I and III

C.

Why do interest rates on loans tend to be lower in a weak economy than in a strong one? a. A weak economy tends to have low inflation, so interest rates drop to match. b. Borrowers in a weak economy are less likely to default on their loans, so interest rates are correspondingly low. c. In a weak economy there is less demand for credit, so the price drops. d. The strength or weakness of an economy is determined by interest rates; low interest rates actually cause a weak economy.

C.

Calculate the monthly lease payment for a 36-month lease on a car with a $29,000 MSRP, a 79% residual value, and a money factor of 0.00365. a. $358.64 b. $128.08 c. $169.17 d. $105.85

A.

If a person wanted to purchase his or her dream car, and keep it for many years, is leasing or buying the better option? Why? a. Buying would be the better option because the overall cost would be less. After the car is paid off, the owner gets much more value from the car, having already paid it off. b. Leasing would be the better option, so the newest model could be driven every few years. c. It wouldn't matter, as long as the person got to drive the dream car. d. Leasing would be the better option because it would allow the person to customize the car and drive it as much as he or she wants.

A.

Orlando has a loan with an effective interest rate of 7.918%, compounded annually. Which of the following must be true? I. In the effective rate formula, n is equal to one. II. The nominal rate is 7.918%. III. The Federal Funds Rate is static. a. I and II b. II only c. III only d. I, II, and III

A.

Say you take out a loan with a principal of $44,500. The interest rate is 13.11%, compounded monthly. If you make consistent monthly payments and pay off the loan over the course of six and a half years, how much interest will you have paid in total? Round dollar amounts to the nearest cent. a. $21,849.92 b. $3,018.03 c. $20,003.60 d. $24,321.18

A.

Which of the following is not a fee that affects the total cost of leasing a car? a. principal charge b. total down payment c. residual value of the car d. documentation and registration fees

A.

Determine the finance charge on an $8,000 loan with a monthly payment of $162.80 for 60 months. a. $29.47 b. $162.80 c. $1,768.00 d. $9,768.00

C.

Kate took out a subsidized Stafford loan worth $9,710 to pay for college. The interest rate on the loan was 5.9%, compounded monthly. It took Kate 5 years to pay off the loan after graduation. What portion of the total amount she paid represented the interest? a. $11,236.22 b. $9,710.00 c. $1,526.22 d. $2,942.37

C.

What is the total finance charge for a $4,250 loan at 13.25% interest compounded monthly for 24 months? a. $25.47 b. $202.55 c. $611.20 d. $4,861.20

C.

Cindy has decided to lease a car. The lease includes a money factor of 0.00354. What interest rate is Cindy being charged in her lease? a. 0.85% b. 8.5% c. 1.475% d. 14.75%

D.

Sally is near the end of a three year lease on a car with an original MSRP of $38,000. Her leasing company claims that the car is now worth only $28,500. Which percentage represents the residual value of Sally's leased car? a. 25% b. 33% c. 67% d. 75%

D.

Why is the interest rate of a loan one of the most important things to consider when shopping around for loans? a. The interest rate should be ignored, because there's nothing a consumer can do to change it. b. The interest rate is essentially how long you have to pay off your loan, and the shorter the better. c. The interest rate can drastically change the total amount paid to the lender, in the case of mortgages, up to thousands of dollars. d. The interest rate does not change, even between banks, so choosing the right time to borrow is essential.

C.

Which of the following is information a basic loan application would not ask you for? a. name b. date of birth c. Social Security number d. auto insurance agency

D.

"Upon checkout, the fuel level of the vehicle will be determined by turning the vehicle on and visually inspecting the fuel gauge. The approximate fuel level will be recorded on the Check-Out sheet and verified with initials by the vehicle Renter. One copy of the Check-Out sheet will be given to the customer. Another copy will be kept with the on-site records of the vehicle. The rented vehicle must be returned with a minimum fuel level the same as that indicated on the Check-Out sheet. A vehicle returned with a fuel level less than the approximate level indicated on the Check-Out sheet will be completely refueled with on-site pumps. The price of the fuel used to refuel the vehicle will be added to the Renter's total charge at a cost of $4.50 per gallon plus a $5.00 re-fueling charge." According to the rental agreement, which is not a responsibility of the rental agency representative? a. Refuel the vehicle before the Renter drives it away. b. Turn on the vehicle and visually inspect the fuel gauge. c. Record the approximate fuel level on the Check-Out sheet. d. Give the Renter a copy of the Check-Out sheet once it is filled out.

A.

A trade-in is most closely related to which of the following? a. A down payment, because it reduces the amount financed. b. An interest payment, because it represents value given to the dealer. c. The list price, because it is derived from the price of a car. d. Amortization, because it is a way of paying for car financing

A.

Carlos took seven years to pay off his loan by making identical quarterly payments. The loan had a principal of $22,375 and 5.49% interest, compounded quarterly. Carlos paid a total of $28,821.67. How much did Carlos pay in service charges? Round all dollar values to the nearest cent. a. $1,721.31 b. $4,725.36 c. $1,670.98 d. $6,446.67

A.

Craig is considering four loans. Loan L has a nominal rate of 8.254%, compounded daily. Loan M has a nominal rate of 8.474%, compounded weekly. Loan N has a nominal rate of 8.533%, compounded monthly. Loan O has a nominal rate of 8.604%, compounded yearly. Which of these loans will offer Craig the best effective interest rate? a. loan L b. loan M c. loan N d. loan O

A.

Andrew is choosing between four loans. Loan P has a nominal rate of 10.393%, compounded daily. Loan Q has a nominal rate of 10.516%, compounded weekly. Loan R has a nominal rate of 10.676%, compounded monthly. Loan S has a nominal rate of 10.755%, compounded annually. Which loan will give Andrew the best effective interest rate? a. loan P b. loan Q c. loan R d. loan S

D.

Anna's bank gives her a loan with a stated interest rate of 10.22%. How much greater will Anna's effective interest rate be if the interest is compounded daily, rather than compounded monthly? a. 0.5389 percentage points b. 0.1373 percentage points c. 0.4926 percentage points d. 0.0463 percentage points

D.

At the beginning of each of her four years in college, Miranda took out a new Stafford loan. Each loan had a principal of $5,500, an interest rate of 7.5% compounded monthly, and a duration of ten years. Miranda paid off each loan by making constant monthly payments, starting with when she graduated. All of the loans were subsidized. What is the total lifetime cost for Miranda to pay off her 4 loans? Round each loan's calculation to the nearest cent. a. $23,650.00 b. $29,481.08 c. $7,834.32 d. $31,337.27

D.

Christopher has just made the final monthly payment necessary to pay off his car financing. The car had a list price of $25,995. He made a down payment of $2,434. Additionally, there was a $1,626 vehicle registration fee and a $275 documentation fee. He also paid sales tax of 8.44% on the cost of the vehicle. He included the taxes and fees with the purchase price of the car in a four-year finance agreement with an interest rate of 11.10%, compounded monthly. After completing payment of the four-year loan, what was the total amount of money that Christopher paid for his car? Round to the nearest dollar. a. $23,310 b. $27,656 c. $34,374 d. $36,808

D.

Dave is considering two loans. Loan U has a nominal interest rate of 9.97%, and Loan V has a nominal interest rate of 10.16%. If Loan U is compounded daily and Loan V is compounded quarterly, which loan will have the lower effective interest rate, and how much lower will it be? a. Loan V's effective rate will be 0.3324 percentage points lower than Loan U's. b. Loan V's effective rate will be 0.1187 percentage points lower than Loan U's. c. Loan U's effective rate will be 0.5124 percentage points lower than Loan V's. d. Loan U's effective rate will be 0.0713 percentage points lower than Loan V's.

D.

Gertrude takes out a $5,500 subsidized Stafford loan, which must be paid back in ten years. Gertrude will graduate four years after taking out the loan. If the loan has an interest rate of 6.8%, compounded monthly, and Gertrude makes monthly payments, how much interest will she pay by the time the loan is repaid? Round all dollar values to the nearest cent. a. $4,462.40 b. $1,213.28 c. $1,713.69 d. $2,094.80

D.

How does Truth-in-lending benefit consumers when shopping for a loan? a. Truth-in-lending allows consumers to be frank with the lenders and talk about very personal things. b. Truth-in-lending requires all lending institutions to eventually convert all of their loans to fixed interest rates. c. Truth-in-lending requires consumers to admit whether or not they can actually afford the loan they're applying for. d. Truth-in-lending allows consumers to know every cost that is associated with the loans they research and apply for, and helps them reach the optimal decision.

D.

Jennifer is leasing a car from a local auto retailer. The terms of the lease include a 9% interest rate for 36 months with a residual value of 57%. The MSRP for the car Jennifer is leasing is $17,500. What will Jennifer's monthly lease payment be? a. $93.84 b. $99.75 c. $209.03 d. $312.06

D.

Dahlia is trying to decide which bank she should use for a loan she wants to take out. In either case, the principal of the loan will be $19,450, and Dahlia will make monthly payments. Bank P offers a nine-year loan with an interest rate of 5.8%, compounded monthly, and assesses a service charge of $925.00. Bank Q offers a ten-year loan with an interest rate of 5.5%, compounded monthly, and assesses a service charge of $690.85. Which loan will have the greater total finance charge, and how much greater will it be? Round all dollar values to the nearest cent. a. Loan Q's finance charge will be $83.73 greater than Loan P's. b. Loan Q's finance charge will be $317.88 greater than Loan P's. c. Loan P's finance charge will be $20.51 greater than Loan Q's. d. Loan P's finance charge will be $234.15 greater than Loan Q's.

A.

Dana just finished paying off the $15,400 loan she took out four years ago. The loan had 6.68% interest, compounded monthly. If Dana paid a total of $18,321.60, how much did she pay in service charges? a. $730.08 b. $366.49 c. $1,028.72 d. $266.76

A.

Horatio has taken out a $12,450 unsubsidized Stafford loan to pay for his four-year undergraduate education. The loan has an interest rate of 7.3%, compounded monthly, and a duration of ten years. Horatio will allow interest capitalization. Making monthly payments, how much interest will Horatio have paid in total by the time the loan is paid in full? Round all dollar values to the nearest cent. a. $11,068.80 b. $5,128.80 c. $2,962.32 d. $8,170.08

A.

If denied a loan, which of the following changes to your application process will not increase your chances of approval when you re-apply? a. Apply for a larger loan amount. b. Increase your gross monthly income. c. Have a cosigner apply for the loan with you. d. Eliminate some of your debt before you re-apply.

A.

Joel takes out a loan with a stated rate of 11.85% interest. If the interest is calculated weekly, how much greater is Joel's effective rate than his stated rate? a. 0.72 percentage points b. 0.52 percentage points c. 0.70 percentage points d. 0.67 percentage points

A.

Kevin has just finished paying off his loan. He was assessed a service charge of $422. He paid off the principal and the interest by making weekly payments of $36.13 for four years. If the principal was $7,150, how much did Kevin pay in finance charges, to the nearest dollar? a. $498 b. $365 c. $422 d. $787

D.

John just moved out of state and, in doing so, had to take a salary cut. At his previous job, his annual salary was $47,000 and his monthly expenses included a $850 rent payment, a $325 car payment, and $375 in minimum credit card payments. His new job has a salary of $43,500. He has the same car payment and minimum credit card payments, but his new apartment costs a mere $625 per month. How did John's move affect his debt-to-income (DTI) ratio? a. John's DTI ratio decreased by 3%. b. John's DTI ratio increased by 3%. c. John's DTI ratio decreased by 9%. d. John's DTI ratio increased by 9%.

A.

Leasing a car for a five-year period usually costs about the same as a five-year loan because __________. a. five-year leases are considered more risky and come with a higher interest rate b. the longer time period over which to pay the leasing company creates a higher monthly payment c. if you lease a car for five years, the leasing company transfers it to a sale with the same monthly payment d. even with the lower monthly payments, leasing a car for five years requires a second lease agreement, which comes with additional fees

D.

Kay has decided to take out a $23,100 loan, and she wants to pay it back in quarterly installments. She has narrowed her options down to two banks. Bank V offers a six-year loan with an interest rate of 4.6%, compounded quarterly, and has a service charge of $822.45. Bank W offers an eight-year loan with an interest rate of 3.9%, compounded quarterly, and a service charge of $722.25. Which loan will have the greater total finance charge, and how much greater will it be? Round all dollar values to the nearest cent. a. Loan W's finance charge will be $335.96 greater than Loan V's. b. Loan W's finance charge will be $436.16 greater than Loan V's. c. Loan V's finance charge will be $263.10 greater than Loan W's. d. Loan V's finance charge will be $100.20 greater than Loan W's.

A.

Niki makes the same payment every two months to pay off his $61,600 loan. The loan has an interest rate of 9.84%, compounded every two months. If Niki pays off his loan after exactly eleven years, how much interest will he have paid in total? Round all dollar values to the nearest cent. a. $39,695.48 b. $10,294.26 c. $3,126.29 d. $39,467.12

A.

Olivia has taken out a $13,100 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 7.6%, compounded monthly. By the time Olivia graduates, how much greater will the amount of interest capitalized be than the minimum amount that Olivia could pay to prevent interest capitalization? Round all dollar values to the nearest cent. a. $654.45 b. $477.27 c. $995.60 d. $354.22

A.

RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater increase, relative to its nominal rate, and how much greater is its increase than that of the other loan? a. Loan I's increase was 0.03 percentage points greater than Loan H's. b. Loan I's increase was 0.68 percentage points greater than Loan H's. c. Loan H's increase was 0.16 percentage points greater than Loan I's. d. Loan H's increase was 0.49 percentage points greater than Loan I's.

A.

Reg has just purchased a new car. The car had a list price of $22,499, and he was responsible for 7.96% sales tax, a $2,138 vehicle registration fee, and a $262 documentation fee. Reg's financing has an interest rate of 10.27%, compounded monthly, and a duration of three years. If Reg makes a monthly payment of $773.89, which of the following was his down payment? Round all dollar values to the nearest cent. a. $2,000 b. $2,200 c. $2,500 d. $2,800

D.

Ricky is taking out a personal loan for $12,000 to remodel his kitchen. He would like the lowest monthly payment possible, even if it means a bigger finance charge in the end. His bank has offered him a loan at 13% interest for 36 months or 12% interest for 60 months, both of which are compounded monthly. Which of the following statements most accurately describes what Ricky should be thinking? a. More payments with the 60 month loan will give him the lowest monthly payment. b. Fewer payments with the 36 month loan will give him the lowest monthly payment. c. The 60 month loan comes with a bigger finance charge and, thus, a bigger monthly payment. d. The 36 month loan comes with a bigger finance charge and, thus, a bigger monthly payment.

A.

Suzanne has purchased a car with a list price of $23,860. She traded in her previous car, which was a Dodge in good condition, and financed the rest of the cost for five years at a rate of 11.62%, compounded monthly. The dealer gave her 85% of the listed trade-in price for her car. She was also responsible for 8.11% sales tax, a $1,695 vehicle registration fee, and a $228 documentation fee. If Suzanne makes a monthly payment of $455.96, which of the following was her original car? Dodge Cars in Good Condition Model/Year 2004 2005 2006 2007 2008 Viper $7,068 $7,225 $7,626 $7,901 $8,116 Neon $6,591 $6,777 $6,822 $7,191 $7,440 Intrepid $8,285 $8,579 $8,699 $9,030 $9,121 Dakota $7,578 $7,763 $7,945 $8,313 $8,581 a. 2004 Intrepid b. 2008 Neon c. 2005 Viper d. 2007 Dakota

A.

Sam is paying off his eight-year, $15,360 loan in semiannual installments. The loan has an interest rate of 9.58%, compounded semiannually, and a service charge of $1,294.64. Once the loan has been fully paid off, what percentage of the total finance charge will the service charge be? Round all dollar values to the nearest cent. a. 5.48% b. 8.43% c. 18.55% d. 15.65%

D.

Sam needs to take out a personal loan for $8,900 to pay for a trip to Europe with his classmates. His bank has offered him the four loans listed in the chart below. If all of the loans are compounded monthly, which of the four loans will give Sam the lowest monthly payment? Loan Duration (Months) Interest Rate A 12 9.50% B 24 8.75% C 36 7.75% D 48 6.60% a. loan A b. loan B c. loan C d. loan D

D.

Terry has just purchased a new car, which had a list price of $16,825. She had to pay 7.19% sales tax, a $1,128 vehicle registration fee, and a $190 documentation fee. Terry traded in her previous vehicle, a 2003 Honda Element in good condition, and financed the rest of the cost over five years at an interest rate of 10.59%, compounded monthly. If the dealer gave Terry 90% of the listed trade-in value on her car, how much will Terry have paid in interest, once the loan is paid off? (Round all dollar values to the nearest cent, and consider the trade-in to be a reduction in the amount paid.) Honda Cars in Good Condition Model/Year 2000 2001 2002 2003 Element $5,887 $6,080 $6,225 $6,622 Odyssey $8,450 $8,693 $8,928 $9,224 Insight $4,384 $4,661 $5,006 $5,440 Accord $6,356 $6,626 $6,817 $7,114 a. $5,657.08 b. $3,721.28 c. $3,817.63 d. $3,914.68

D.