Personal Finance Ch. 4-7

Credit should not be consistently used for purchasing nondurable goods. T/F

True

For a fee, credit bureaus can provide credit scores of prospective borrowers. T/F

True

Most consumer loans are made at fixed rates of interest-that is, the interest rate charged and the monthly payments remain the same over the life of the obligation.

True

Parent Loans for Undergraduate Students (PLUS) loans are made to the parents or legal guardians rather than to the students.

True

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. T/F

True

Rebates are always more cost effective than the 0 percent annual percentage rate (APR) loans offered on automobile loans. T/F

True

The most common method used by lenders to apply finance charges on credit cards is the average daily balance method including new purchases. T/F

True

The property listing in a local multiple listing service (MLS) cannot be accessed by all buyers and sellers. T/F

True

The purpose of a credit report is to evaluate the kind of risk you pose to the lender. T/F

True

Using more than 20 percent of one's take-home income to pay off consumer debt is one of the signs that he or she may be headed toward serious credit problems. T/F

True

A buydown refers to:

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.

If the interest rates and monthly mortgage payments do not change over the life of your mortgage, you have _____.

fixed-rate mortgage

The decision about whether or not to grant you credit will be made by ____________.

individual creditors

A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a ____________.

lien

To qualify for a subsidized Stafford loan, you must:

make satisfactory academic progress.

Liquid assets would include your savings account and your ____________. ​

money market deposit account

The Real Estate Settlement Procedures Act governs ____________ on owner-occupied houses, condominiums, and apartment buildings of four units or fewer. ​

mortgage closings

If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should:

negotiate a rollover.

Kate tends to issue checks quite often without having sufficient balance in her account. She should look for an account with a(n) ____________ facility. ​

overdraft protection

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.

private mortgage insurance

The most popular use of consumer loans is to:

purchase a car.

A(n) _____ is a noninterest-paying demand deposit account.

regular checking account

The percentage of ____________ out of disposable income has decreased due to low interest rates and has impacted the investment choices of individuals. ​

savings

Persons with very poor credit ratings can still get _____ credit cards.

secured

Earnest money is the sum of money the home buyer pledges with the ____________. ​

seller to indicate the intent of purchase

Consumer credit has become a popular way of making routine purchases because:

the availability of different types of credit is abundant.

The finance charges on two credit cards with the same stated annual percentage rate (APR):

will be determined by the methods used to calculate balances.

A payment made using _____ is equivalent to paying by cash.

. a debit card

If your debt safety ratio works out to 10%, you are relying too heavily on credit.

False

Nondepository institutions are referred to as banks. T/F

False

Retail charge cards are cheaper than credit cards provided by financial institutions. T/F

False

Which of the following is an interest-bearing checking account?

Negotiable order of withdrawal (NOW) account

Which of the following is a fixed auto ownership cost?

The cost of automobile insurance

Which of the following is a feature of a home equity loan?

The interest paid on a home equity loan is tax deductible.

Which of the following is true of loan maturity?

The longer the loan maturity, the higher the amount of interest paid.

Which of the following is true of low interest rates?

They encourage investors to search for stocks paying high dividends.

A certified check is a personal check that a bank certifies to guarantee that funds are available. T/F

True

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 ____________. ​

$1,350

John Anderson deposited $10,000 in a certificate of deposit (CD) for 3 years at 5%. At maturity, it will be worth: (Use time value tables or a financial calculator. Select the closest answer.)

$11,580.

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?

$16,400

Harry received a scholarship of $2,000. He plans to invest this money for five years at 8%, compounded annually. If he accomplishes this, Harry will have an ending balance of: (Use time value tables or a financial calculator. Select the closest answer.)

$2,938.

A lump-sum deposit of $8,000 left in a bank for 12 years at 9%, compounded annually, will result in an ending balance of: (Select the closest answer.)

$22,504.

The monthly payment on an 8%, 36-month, add-on loan of $10,000 would be:

$344.

Mary has calculated her adjusted balance as $500. She notices that her bank's service charges are $20 for this period. Mary's ending balance in her bank account is _____.

$480

You have $900 in your checking account when your ATM card and PIN are stolen. You could lose up to _____ if you notify your bank about the lost ATM card after 60 business days after your periodic statement is mailed.

$900

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 _____.

. prequalification

Variable auto ownership costs are dependent on:

. the miles covered by the automobile.

Banks must notify customers ____________ days before lowering rates on deposit accounts or certificates of deposit. ​

30

Most of your debts would be totally discharged under Chapter ____ of the federal bankruptcy law. ​

7

Which of the following would be an appropriate savings vehicle if you plan to use your savings within a year and expect interest rates to fall over the next few months?

A certificate of deposit

Which of the following is true of a consumer loan?

A consumer loan is used to finance the purchase of goods that are far too expensive.

Which of the following cards is issued as a form of credit by department stores and oil companies?

A retail charge card

Which of the following statements is true about the cash advances that the holder of a bank credit card can obtain from participating banks?

Cash advances obtained from the teller window at a bank are limited by the unused credit in the borrower's account.

_____ are the expenses that borrowers pay when a mortgage loan is closed and they receive title to the purchased property.

Closing costs

Which of the following sources of consumer loans often has the most favorable terms for borrowers?

Credit unions

Which of the following is a result of excess unused credit capacity?

FICO score reduced

A retail charge card can be accessed by writing checks against demand deposit. T/F

False

Credit reports on individual borrowers are provided by credit card issuers. T/F

False

Fixed-rate loans are desirable if interest rates are expected to fall over the course of the loan.

False

Home equity loans are similar to home equity credit lines as they are also not secured with any collateral.

False

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

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. ​

Prequalification

Which of the following is true about phishing?

Pretending to be an employee of a financial institution

People who do not have checking accounts often use ____________. ​

a cashier's check

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 _____ lease.

a closed-end

Consumers whose debt burden has become very heavy might apply for:

a consolidation loan

If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 90 percent, then the borrower must make:

a minimum down payment of $10,000 plus closing costs.

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 _____.

anchoring

As home prices have fallen in recent years, the rent ratio:

and rent attractiveness have decreased.

A 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 as a ____________. ​

buydown

Compared to other depository financial institutions, credit unions:

charge lower rates on loans to their members.

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of four years. Jacob does not need to pay any extra amount, based on the residual value of the car, at the end of the fourth year. He has a ____

closed-end lease

The loss in the value of an automobile over time is called:

depreciation.

Calculating interest using the ____________ will result in the highest APR on a single-payment loan.

discount method