Personal Finance Chapters 5-8
By reviewing your credit card statement, you can determine all of the following except A) total purchases made year-to-date. B) your available credit remaining. C) if a payment can be made that will avoid interest charges. D) how much time you have to make a payment.
a
Credit cards have all of the following advantages except A) they allow you to borrow cash interest free for 60 days. B) make purchases without carrying cash. C) obtain free financing until the bill is due. D) itemized monthly statement.
a
In comparing credit cards to other forms of credit, which of the following is true? A) Credit cards are generally the most expensive form of credit. B) You should invest funds before paying off your credit cards. C) It is prudent to borrow from some cards to pay off other credit cards. D) All of the above.
a
Jill just borrowed $6,000 and will be charged a simple interest rate of 12 percent. Jill will pay ________ interest for borrowing the money on September 1 and repaying the money on December 31. A) $240 B) $420 C) $720 D) $1,200
a
Which of the following are good tips on the use of a credit card? A) Treat it as a means of convenience B) Use it as a source of funds C) Make the minimum required monthly payment D) All of the above
a
Which of the following is not true about annual fees on credit cards? A) The fees are the same on all credit cards. B) The fees may be high, up to $70 per year. C) Many cards do not have annual fees. D) Some cards may waive the fees for individuals who pay their credit card bills in a timely manner.
a
Which of the following is not true regarding cash advances on credit cards? A) They are treated just like other charges on your credit card. B) There is a charge for interest from the time you take the advance to the time you pay it off. C) There is also a transaction fee on most cash advances. D) The grace period does not apply to cash advances.
a
Which of the following methods of calculating finance charges on credit cards is least favorable to the cardholder? A) Previous balance method B) Ending balance method C) Average daily balance method D) Adjusted balance method
a
Which of the following personal information should not be asked on a credit card application? A) Stocks and bonds owned B) Income of parents C) Employment history D) Expenses and commitments
b
Which of the following personal information would not be asked on a credit card application? A) Cash inflows B) Country of birth C) Capital and collateral D) Cash outflows
b
or good financial management, you should treat a credit card as A) a source of funds. B) a means of convenience. C) a way to finance everything. D) an inexpensive form of financing.
b
APR means A) actual percentage rate. B) applied percentage rate. C) annual percentage rate. D) all-banks percentage rate.
c
All of the following are provisions of the Credit Card Act of 2009 except A) cardholders must be given at least 21 days from the day in which the bill is mailed to make a payment. B) cardholders less than age 21 must show proof of their income. C) cardholders can spend beyond the limit imposed on the credit card. D) promotional interest rates must be offered for a period of at least six months.
c
Credit cards are generally used for such purchases as A) cars. B) homes. C) meals, clothing, and groceries. D) stocks.
c
If you borrowed $8,700 at 6% for one year, what would your total interest be if you are charged simple interest? A) $600 B) $9,222 C) $522 D) $600
c
If you find yourself with an excessive credit card balance, the first thing you should do is A) borrow funds from family members. B) quit school and get a job. C) spend as little as possible. D) file for personal bankruptcy.
c
A credit card statement does not contain which of the following? A) Previous balance B) Current balance C) Account number D) Who purchased the item
d
A credit card statement will not show the method of calculating finance charges.
false
A disadvantage to credit cards is that there is no way to keep track of individual expenditures.
false
Because of the short-term nature of credit card lending, the condition of the economy is not considered.
false
Credit cards are commonly used for purchases such as clothing, car repairs, or the purchase of a new car.
false
Credit issued by department stores for relatively long periods of time is called non-installment credit.
false
Creditors are willing to extend credit when the economy is weak to stimulate purchases.
false
Funds provided by a borrower that will be repaid in the future, with interest, is credit.
false
If you discover an error on your credit card statement, you should not pay any portion of the balance until the matter has been resolved.
false
If you have credit problems, you should contact a credit repair service instead of trying to resolve the issues yourself.
false
If you refrain from using any credit, it will assure you the lowest possible interest rate when you decide to use it.
false
If your credit card company decides to increase your interest rate, they must notify you 30 days in advance.
false
It is good financial planning to pay only the minimum credit card payment and thus maintain a balance since interest rates are low on credit cards.
false
MasterCard and Visa are not accepted by gas stations such as Shell, which issue their own credit cards.
false
MasterCard, Visa, and American Express credit cards all allow you to pay only a portion of your amount due and finance the remainder from month to month.
false
Prestige cards (gold or platinum cards) always charge a higher annual fee, but offer extra benefits such as free insurance on rental cars or special warranties on purchases.
false
Revolving open-end credit typically does not specify a maximum amount that can be borrowed.
false
The Bureau of Consumer Financial Protection was created in 2010 to ensure that credit card companies are treated fairly.
false
The interest charged on purchases and cash advances on credit cards is computed in the same way.
false
The previous balance method takes into account the time that you pay off any part of the outstanding balance.
false
The simple interest rate includes any fees charged by the creditor
false
There is no cost to the merchant when you use a MasterCard or Visa.
false
When applying for a credit card, the amount of savings that you have will not be a factor in the credit card company's decision.
false
You should discontinue any credit card that is not sponsored by a company that sells necessities
false
You should invest in risky investments instead of paying off your credit card debt because the return might be higher than the cost of financing.
false
The ________ is usually about 20 days after the credit card statement is closed.
grace period
If you have an exceptional credit standing, the company issuing your credit card may upgrade you to what are called ________.
prestige cards
A credit card that can only be used in establishments of the issuer is called a(n) ________ credit card.
retail or proprietary
A credit card statement lists purchases that were made with the credit card as well as any balance carried forward from the previous statement.
true
A self-imposed credit limit indicates that you will use a credit card only if you will have the cash to cover the payment when you receive your credit card statement.
true
Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks.
true
An alternative to MasterCard, Visa, and American Express credit cards is a retail or proprietary card that is issued for use at a specific retail establishment.
true
Because credit card interest rates are usually quite high, you should pay off your credit card balances before you invest funds anywhere else.
true
Cash advances on credit cards normally cost you interest from the date of the advance and also a transaction fee of 1 to 2 percent.
true
Congress has passed regulations that protect consumers who use credit card services.
true
Credit cards are an example of revolving open-end credit.
true
Credit cards can eliminate the need for carrying large amounts of cash.
true
Credit limits may be as high as $10,000 for those credit card holders who have an exceptional credit history.
true
Finance charges apply only to balances that were not paid in full before their due date in the current billing period
true
Financial institutions issuing MasterCards and Visas typically earn a high rate of interest on the credit extended.
true
If it takes you four years to pay off a loan, you have to pay the annual interest four times.
true
If you have exhausted all efforts to resolve an excessive credit card balance, personal bankruptcy may be your only option.
true
If you pay your total credit card amount before the grace period, you are not normally charged any interest.
true
In order to have credit in the future, you must have used it wisely in the past.
true
It is not difficult to find a credit card company that is eager to extend credit to you.
true
One advantage of credit cards is that you can receive free financing if you pay off your balance each month.
true
One advantage of using a credit card is that you receive a list of your purchases, which enables you to keep track of your spending.
true
One disadvantage of a proprietary credit card is that it limits your purchases to a single merchant.
true
One of the disadvantages of credit cards is that they allow you to spend beyond your means.
true
Some credit cards offer card users cash rewards if they exceed a certain spending level each month.
true
The annual percentage rate (APR) is useful because it allows you to easily compare financing costs among various possible creditors.
true
The annual percentage rate (APR) on credit is the simple interest rate after including any fees (such as an application processing fee) imposed by the creditor.
true
The proper use and control of credit is the best way to build a good credit history.
true
There are many incentives, such as discounts and bonuses, offered by credit card companies to get you to use their cards.
true
To properly manage your money you should use a credit card only if you will have the cash to cover the payment when you receive your credit card statement.
true
Your credit card statement must state how long it will take you to pay off the existing balance due when paying only the minimum amount each month.
true
even if you cannot pay your credit card bill in full, you should still attempt to pay as much as possible so that you can minimize finance charges.
true
the interest you pay when using credit cards can have a major impact on the total amount you owe.
true
A credit card whose interest rate changes as a specific market interest rate changes is said to have a A) variable rate. B) fixed rate. C) constant rate. D) tiered rate.
a
All of the following are true of prestige credit cards except they A) always have considerably higher annual fees. B) are sometimes referred to as gold or platinum cards. C) provide extra benefits to cardholders. D) are given to individuals who have an exceptional credit standing.
a
If you include all fees charged by a lender and the simple interest rate, the result will be the ________.
APR
All of the following are true of the grace period on credit cards except it A) is usually about 20 days. B) applies only to cash advances. C) is the time in between the time the statement is "closed" and the time the bill is due. D) amounts to free credit time.
b
Credit has its advantages and disadvantages. Which of the following is false? A) Credit cards should be used with discipline. B) You should spend up to the limit on all your credit cards. C) Cash advances are available through a credit card. D) Bankruptcy is the worst-case scenario from poor credit management.
b
If a credit card has a provision allowing you to make purchases beyond the stated credit limit, it is referred to as A) purchase protection plan. B) overdraft protection. C) grace period. D) first forgiveness provision.
b
In securing a credit card you should try to obtain A) the highest maximum limit possible. B) a maximum limit high enough to cover necessary monthly purchases. C) a maximum limit high enough to cover anything you might wish to purchase. D) the lowest maximum limit possible to restrict your usage.
b
New regulations that provide clearer and more favorable financing rules for individual credit card users do all of the following except A) prohibit interest rate increases if you miss a payment on another credit card. B) cap the amount of any increase to 5%. C) require a 45 day notice of any credit card interest rate increase. D) prohibit the rate on existing credit card balances from being increased unless you are at least 60 days late on payments.
b
On a credit card, a finance charge is applied to A) any purchase. B) any balance not previously paid. C) current purchases. D) future purchases.
b
The annual percentage rate (APR) is all of the following except A) a simple interest rate for borrowing money for a year. B) it requires a complex formula to compute. C) it includes fees such as application processing fees. D) it allows easy comparison of financing costs among various creditors.
b
Which of the following may not be a feature of some credit cards? A) Credit limits B) Annual fees C) Grace periods D) Cash advances
b
In comparing credit cards to other forms of credit, which of the following is false? A) Credit cards are generally the most expensive form of credit. B) You should pay the most expensive debt off first. C) Credit cards can be viewed as a source of funds. D) A home equity loan is a way of combining credit card and other debt.
c
On your credit card statement, the amount that you owe the financial institution now is called the A) previous balance. B) minimum payment. C) new balance. D) payments.
c
Some credit card companies will waive the annual fee on a credit card if A) you use the card infrequently. B) you carry a large balance from month to month. C) you pay your bills in a timely manner. D) Credit card companies never waive annual fees.
c
The easiest way to establish credit is to A) purchase a new car with a car loan. B) purchase a house with a mortgage. C) apply for a credit card. D) pay cash for all your purchases.
c
Which credit card requires full payment each month? A) MasterCard B) Visa C) American Express D) A proprietary card
c
Which of the following is not a method for computing interest on credit cards? A) Previous balance method B) Average daily balance method C) Present value of future payment method D) Adjusted balance method
c
In applying for a credit card, the potential creditor will look at your ________ to determine if you have funds to cover future debt payments if necessary.
capital
All of the following are disadvantages of having proprietary credit cards except A) your purchases are limited to a single merchant per card. B) you may need several credit cards. C) you receive several billing statements. D) it takes considerable time to process your application to allow you to begin obtaining credit.
d
Cash advances are A) a good way to finance your purchases. B) cheaper than a line of credit. C) not shown on the credit card statement. D) easy to make at an ATM machine.
d
Credit card companies' fees cannot exceed ________of the initial credit limit. A) more than 5% B) more than 10% C) more than 50% D) more than 25%
d
Credit cards with a tiered interest rate charge cardholders who A) carry large balances a lower rate. B) pay off their balance monthly a higher rate. C) make early payments a higher rate. D) make late payments a higher rate.
d
In applying for a credit card, the potential creditor will look at which of the following as a source of future debt payments if necessary? A) Cash outflows B) Credit history C) Potential inheritances D) Balances in savings accounts
d
In comparing credit cards, which of the following is false? A) Some cards are more widely accepted than others. B) Some cards offer a teaser interest rate. C) Some charge an annual fee and others do not. D) Some cards allow you to carry a balance from month-to-month with no interest
d
The ________ method charges interest based on the balance at the beginning of the new billing period. A) new cycle B) adjusted balance C) average daily balance D) previous balance
d
Which of the following is not correct about cash advances? A) There is no grace period for cash advances. B) The interest rate for cash advances is higher than for purchases. C) A cash advance is like a loan. D) A transaction fee of 5% may be charged.
d