Personal Finance Test 3
It is best for college students to wait and begin saving once they are "making more money." Select one: True False
False
Leasing a car may make sense if you drive over 25,000 miles a year. Select one: True False
False
Two advantages of carrying cash are that it's easy to spend and many times you can even recall where you spent it. Select one: True False
False
A debit card is something of a cross between a credit card and a checking account. Select one: True False
True
A mortgage broker earns income based on fees or commissions on the loans they broker. Select one: True False
True
A mortgage with an APR higher than normal is a subprime mortgage. Select one: True False
True
Direct subsidized loans are made only to undergraduates who demonstrate financial need. Select one: True False
True
For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services. Select one: True False
True
Nondeposit-type financial institutions are commonly referred to as mutual funds and brokerage firms. Select one: True False
True
Overdraft protection is an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it. Select one: True False
True
Payday loans are a dangerous way to borrow money, and charge an annual interest rate of almost 400%. Select one: True False
True
Smart buying means enjoying the highest standard of living that you can based on your income and budget. Select one: True False
True
The 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended. Select one: True False
True
Gary is taking out a $5,000 loan for 1 year at an APR of 12%. His bank has offered him a loan using the add-on method. Using first the financial calculator method and the add-on method calculate Gary's monthly loan payment. Select one: a. $444.24; $466.67 b. $475.00; $448.94
a. $444.24; $466.67
Tran currently makes $4,500 per month in gross income. He has a student loan payment of $250 per month and a car loan of $450 per month. His credit card payments average $300 per month. What is the largest PITI he could qualify for with a reputable lender? Select one: a. $620 b. $900 c. $1,260 d. $1,620
a. $620
You are examining two different MMMFs. Fund A is tax-exempt and pays 5%. Fund B is taxable and pays 6%. You live in a state that imposes no income taxes and are in a 28% federal tax bracket. At what tax rate would the two funds have identical yields? Select one: a. 16.67% b. 17.76% c. 20.23% d. 28.00% e. Cannot determine from the information provided
a. 16.67%
The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act established fee caps for cards. Card fees cannot total more than ________ of the initial credit limit. Select one: a. 25 percent b. 40 percent c. 45 percent d. 60 percent
a. 25 percent
What is the name for comprehensive financial services packages offered by brokerage firms? Select one: a. Asset management accounts b. Comprehensive management accounts c. Platinum management accounts d. Consolidated management accounts
a. Asset management accounts
Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period? Select one: a. Average daily balance b. Previous balance c. Adjusted balance d. Balance calculation method e. Simple interest
a. Average daily balance
Brenda found out that reputable lenders use the 28/36 rule when determining mortgage qualification. Brenda currently grosses $6,000 per month. From this she pays a $200 car payment; a personal loan of $100 and a student loan payment of $90. Based on this information, would Brenda qualify for a mortgage? Select one: a. Yes b. No
a. Yes
Which of the following does not require you to have a good credit rating to issue you a loan? Select one: a. Your family b. Savings and loan c. Commercial bank d. All of these require a good credit rating to issue a loan.
a. Your family
Suppose that you go to a bank at which you have no account, give the bank cash, and in return obtain a check drawn against that bank which you will use to pay someone else. This is called a Select one: a. cashier's check. b. certified check. c. traveler's check. d. None of these are correct.
a. cashier's check.
You just received a loan from your banker to buy seed and plant your alfalfa field. The loan is a discount loan and is for $5,000 for 1 year and the quoted rate was 10%. What is your APR? Select one: a. 10.00% b. 11.11% c. 12.23% d. 14.33% e. None of these
b. 11.11%
The two most common types of two-step mortgages are the Select one: a. 1/29 and 3/27. b. 5/25 and 7/23. c. 8/22 and 12/18. d. 13/17 and 15/15.
b. 5/25 and 7/23.
The Truth In Lending Act requires that all consumer credit agreements disclose the ________ in bold print? Select one: a. Effective Annual Rate (EAR) b. Annual Percentage Rate (APR) c. Monthly Stated Rate (MSR) d. Nominal Interest Rate (NIR)
b. Annual Percentage Rate (APR)
________ is a publication that provides unbiased ratings and recommendations for a host of products and services Select one: a. USA Consumer b. Consumer Reports c. People Magazine d. Bloomberg Weekly
b. Consumer Reports
Which of the following statements regarding the risk-return relationship is most accurate? Select one: a. Lower credit scores are associated with lower APRs. b. Higher credit scores are associated with lower APRs. c. Longer loan length is associated with lower APRs. d. Shorter loan length is associated with higher APRs. e. Both Higher credit scores are associated with lower APRs and Shorter loan length is associated with higher APRs are correct.
b. Higher credit scores are associated with lower APRs.
Which of the following is not a one-time fee connected with purchasing a house? Select one: a. Down payment b. Private mortgage insurance c. Closing costs d. Points e. Origination fee
b. Private mortgage insurance
You are planning on starting your own business in 18 months and you intend to purchase a new home. You have looked carefully at your budget and have determined that you can afford a PITI of $900 per month. Your banker has told you that you can easily qualify for a PITI of $1,150 per month. Which of the following is the most reasonable explanation for this discrepancy? Select one: a. Your banker knows you really would be happier in a more expensive house. b. Your banker is not aware of your other long-term financial goals. c. Your banker's number is more accurate than your number. d. None of these is a reasonable explanation.
b. Your banker is not aware of your other long-term financial goals.
A low FICO score Select one: a. is a good credit score. b. can cost you quite a bit when you get a mortgage loan. c. may result in a credit card rate half the rate of that paid by those with a high FICO score. d. is the only factor the lender considers when determining whether to give you credit.
b. can cost you quite a bit when you get a mortgage loan.
According to the Keown book, a(n) ________ is a loan involving a formal contract that details exactly how much you're borrowing and when and how you're going to pay the loan back. Select one: a. balloon loan b. consumer loan c. bridge loan d. installment loan
b. consumer loan
A company that gathers and sells consumers' financial history to creditors is a Select one: a. credit card company. b. credit bureau .c. credit investigation bureau. d. credit recovery firm. e. credit issuance firm.
b. credit bureau
Private mortgage insurance is designed to protect the Select one: a. borrower. b. lender. c. lien holder. d. All of these.
b. lender.
Cash and investments that can be easily converted into cash are termed Select one: a. capital assets. b. liquid assets. c. illiquid assets. d. depositable assets. e. None of these are correct.
b. liquid assets.
The ________ is the automatic repayment plan with a 10-year term. Select one: a. extended repayment b. standard repayment c. income-based repayment d. graduated repayment
b. standard repayment
Your credit card company cannot increase your rate for the first 12 months after you open an account unless Select one: a. your card has a fixed interest rate tied to an index and the index goes down. b. your card's introductory rate expires and your rate reverts to the "go-to" rate the company disclosed when you got the card. c. you are more than 15 days late in paying your bill. d. All of these.
b. your card's introductory rate expires and your rate reverts to the "go-to" rate the company disclosed when you got the card.
Bradley currently has a Visa card from his bank with the following terms: 21 percent on purchases, 25 percent on cash advances with a 3 percent cash-advance fee on the amount, and a default or penalty rate of 33 percent. His current statement shows a balance of $9,000. Lately, he has been having a hard time paying more than the minimum payment of 3 percent of his balance. What is Bradley's minimum payment? Select one: a. $158 b. $189 c. $270 d. $1,890
c. $270
According to the 28 percent rule, Natasha can afford a maximum PITI of $1,400. What is her gross monthly income? Select one: a. $2,800 b. $3,888 c. $5,000 d. $5,600 e. $39,200
c. $5,000
Neal's life insurance policy has a cash value of $100,000. He wants to purchase a second home to rent out. How much can Neal borrow against the surrender value of his life insurance policy? Select one: a. $50,000 b. $75,000 c. $95,000 d. $100,000
c. $95,000
More than ________ of the 25 biggest credit card issuers do not charge annual fees. Select one: a. 30 percent b. 50 percent c. 70 percent d. 90 percent
c. 70 percent
Your bank, First Bank, charges you $1.50 every time you use an ATM that is not owned by them. Unfortunately, there is no First Bank ATM near your school. There is a Second Bank ATM in the Student Center, which you use several times a week to withdraw $10 at a time for lunch, video games, etc. What is the best piece of advice regarding these transactions? Select one: a. They will make it hard to balance your account since these transactions won't show up on your monthly statements. b. They're OK as long as you enter the transactions in your check register. c. Avoid them since you are effectively paying 15% interest to access your cash. d. Make sure you have overdraft protection on your account.
c. Avoid them since you are effectively paying 15% interest to access your cash.
________ is not information generally found in your credit report. Select one: a. Employment information b. Personal credit history c. College attended, grades, etc. d. Your public financial history e. Past inquiries regarding your credit report
c. College attended, grades, etc.
Of the following possible sources of credit, which typically has the lowest borrowing rates? Select one: a. Savings and loans b. Personal finance company c. Credit union d. Commercial bank
c. Credit union
What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the entire principal? Select one: a. Simple interest method b. Partial amortization method c. Discount method d. Add-on method e. None of these
c. Discount method
________ is when a borrower is allowed to temporarily stop making student loan payments for a qualified reason such as an illness, financial hardship, or serving in a medical or dental internship or residency. Select one: a. Deferment b. Delinquency c. Forbearance d. Default
c. Forbearance
Over the past decade, the number of new car sales are down and the number of new car leases are up. What is probably the main reason why this is true? Select one: a. The salesman makes a higher commission when cars are leased. b. The manufacturers prefer it when people lease instead of purchase. c. New cars are getting so expensive that the average person can't afford to buy them. d. Both The salesman makes a higher commission when cars are leased and The manufacturers prefer it when people lease instead of purchase are correct.
c. New cars are getting so expensive that the average person can't afford to buy them.
NOW accounts offer an option to traditional demand deposits. All of the following are characteristics of NOW accounts except one. Which is it? Select one: a. You must generally maintain high minimum balances. b. There is a monthly fee associated with them. c. The interest rate is generally higher than other savings accounts. d. The interest rate is generally lower than other cash management alternatives.
c. The interest rate is generally higher than other savings accounts.
One of the unpleasant secrets about using your credit card for a cash advance is that Select one: a. there is usually a 6 to 8 percent upfront fee on the amount. b. the APR on the cash advance is typically lower than the APR for normal purchases. c. payments do not apply to cash advance balances unless the balance for regular credit purchases is zero. d. All but the APR on the cash advance is typically lower than the APR for normal purchases apply to cash advances.
c. payments do not apply to cash advance balances unless the balance for regular credit purchases is zero.
A Chapter 13 personal bankruptcy is characterized by all of the following except Select one: a. you continue to pay at least a portion of most of your debts. b. you maintain title and possession of your assets. c. your creditors vote on restructuring your debt repayments. d. a new debt repayment schedule is determined. e. you get relief from harassment by bill collectors.
c. your creditors vote on restructuring your debt repayments.
Abigail is financing her first home. She is borrowing $125,000. Her bank is loaning her the money for 15 years at an APR of 5.7%. What will Abigail's monthly mortgage payment be? Select one: a. $958.75 b. $998.22 c. $1,001.44 d. $1,034.67
d. $1,034.67
Assuming the APR on your credit card is 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be? Select one: a. $180 b. $60 c. $150 d. $1.50
d. $1.50
You are considering obtaining a mortgage of $220,000. A lower APR is available, but you must pay 2 points to buy the rate down. How much must you pay in dollars? Select one: a. $1,100 b. $2,200 c. $3,300 d. $4,400 e. $6,600
d. $4,400
How long do you have to begin an investigation into a billing problem under the Fair Credit Billing Act? Select one: a. 15 days b. 20 days c. 30 days d. 60 days
d. 60 days
A mortgage loan in which the interest rate charged fluctuates with the level of current interest rates is called a(n) Select one: a. MRA. b. MAR. c. RAM. d. ARM. e. None of these.
d. ARM.
If you are considering purchasing a used car you should Select one: a. do some research so you'll know a fair price for the vehicle you're looking for. b. ask questions about the mechanical history of the car, including whether it has been in any accidents. c. have the car inspected by a mechanic before you purchase it. d. All of these
d. All of these
In evaluating your financial history, lenders generally focus on which of the following? Select one: a. Your income b. Your credit report c. Your FICO score d. All of these
d. All of these
Sandra Smith wants to know the purpose of a title search. What would you tell her? Select one: a. To gain a clear title to the property b. To make sure the person selling the property really owns it c. To protect you against challenges to the title d. All of these
d. All of these
When you decide to buy a home, which of these questions should be answered? Select one: a. What is the maximum amount that a bank will lend me? b. Should I borrow up to this maximum? c. How big of a down payment can I afford? d. All of these
d. All of these
Which of the following characteristics apply to liquid assets? Select one: a. They are characterized by low returns. b. They involve low risk. c. The temptation to spend is greater. d. All of these are correct.
d. All of these are correct.
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. What financial principle do they need to understand better? Select one: a. The time value of money b. Taxes affect personal finance decisions. c. Risk and return go hand in hand. d. All of these are important to their situation.
d. All of these are important to their situation
When college students start saving early Select one: a. in an account earning interest, they immediately put their money to work. b. by automating their savings, they are less likely to spend money. c. they can take advantage of the time value of money and achieve their financial goals. d. All of these.
d. All of these.
Bob and Mary Kay have gross household income of $7,000 per month. They both have great credit scores and the home they are interested in buying appraised higher than the selling price. They have combined monthly debt payments of $300 in student loans, $650 in car loans, and they pay their credit cards in full every month. The PITI on the new home will be $1,800 per month. Before they pay the $250 loan application fee, they are asking you for your opinion on whether they will get approved for a mortgage. What will you advise them? Select one: a. Based on the 28 percent rule they can afford the $1,800 PITI and will be approved for the mortgage. b. Based on the 28 percent rule they cannot afford the $1,800 PITI and will be denied the mortgage. c. Based on the 36 percent rule they will be approved for the mortgage. d. Based on the 36 percent rule they have too much other debt and will be denied the mortgage.
d. Based on the 36 percent rule they have too much other debt and will be denied the mortgage.
With online banking and EFT, many people don't really need checks anymore. If you seldom need a paper check for transactions, what option is available to you that may be cheaper than maintaining a checking account? Select one: a. Certified checks b. Cashiers checks c. Money orders d. Both Cashiers checks and Money orders are good options.
d. Both Cashiers checks and Money orders are good options.
How can you benefit from following the smart buying steps? Select one: a. Smart buying allows a higher standard of living because you make smarter purchases. b. Smart buying allows you to buy what you want when you want it. c. Smart buying helps you maintain your budget. d. Both Smart buying allows a higher standard of living because you make smarter purchases and Smart buying helps you maintain your budget are correct.
d. Both Smart buying allows a higher standard of living because you make smarter purchases and Smart buying helps you maintain your budget are correct.
Which of the following financial institutions is a not-for-profit organization that is open only to members of that institution and tends to offer more favorable interest rates to borrowers and savers? Select one: a. Savings bank b. Commercial bank c. Savings and loan association d. Credit union e. None of these are correct.
d. Credit union
What is the loan clause stating that if you default on a secured loan, the lender can repossess whatever is secured, as well as bill you for the difference if that repossession does not cover what you owe? Select one: a. Insurance clause b. Default clause c. Recourse clause d. Deficiency payments clause e. None of these
d. Deficiency payments clause
When do the payments on a Stafford Loan begin? Select one: a. When your school receives the money from the government b. When your loan balance gets over $5,000 c. You can choose when your payments begin anytime within 24 months of your graduation date. d. None of these is correct.
d. None of these is correct.
What is the name of the formal document that outlines the legal obligations of both the lender and the borrower? Select one: a. Default b. Claim c. Debenture d. Note e. Tort
d. Note
What kind of valuable information can you find online at websites such as Edmunds.com or Autosite.com concerning smart buying for automobiles? Select one: a. The dealer cost and dealer holdback for the automobile you are interested in. b. The trade-in value on your current automobile. c. The final price you will pay for the automobile at the dealership. d. Only The dealer cost and dealer holdback for the automobile you are interested in and The trade-in value on your current automobile are correct. e. All of these are correct.
d. Only The dealer cost and dealer holdback for the automobile you are interested in and The trade-in value on your current automobile are correct.
Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases Select one: a. the loan maturity would decrease (other things held constant). b. the payment amount would decrease (other things held constant). c. the amoritization would increase (other things held constant). d. the payment amount would increase (other things held constant). e. None of these.
d. the payment amount would increase (other things held constant).
A ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate. Select one: a. prime-rate loan b. convertible-rate loan c. flexible-rate loan d. variable-rate loan
d. variable-rate loan
Which of the following is the best strategy for controlling and managing your credit cards and open debt? Select one: a. Reduce your balance. b. Resolve billing errors. c. Protect against fraud. d. Look for trouble signs in credit card spending. e. All are good strategies.
e. All are good strategies.
Wally currently has a balance of $14,500 on his credit cards and he is having a hard time making the minimum payments on them. He has missed several payments and is now paying the default APR of 29.99%. He and his wife own a nice home with $40,000 in equity. They have $7,500 in a certificate of deposit with a 4% APR. He has come to you in tears asking for advice. What would you tell him to do? Select one: a. Seek out a non-profit credit counseling company. b. Cash out his CD and pay down his credit cards. c. Become a convenience user, and maintain just one credit card. d. Take out an equity loan on the house. e. All of these
e. All of these
What will the courts do if you file Chapter 7 personal bankruptcy? Select one: a. Confiscate most of your assets. b. Liquidate most of your assets to pay off creditors. c. Eliminate most of your debts. d. Allow you a chance to start again financially. e. All of these
e. All of these
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. For John and Maile, money market deposit accounts may offer some advantages. Select the one or ones below that would be the most valuable to John and Maile. Select one: a. They are insured. b. They may have limited checking privileges. c. They have relatively attractive rates of return. d. They have variable market interest rates. e. All of these are advantages.
e. All of these are advantages.
Liquid assets or funds are important to Select one: a. cover unplanned expenses. b. prevent interrupting your long-term investments. c. prevent overdrafts in checking accounts. d. cover some planned expenses. e. All of these are correct.
e. All of these are correct.
What can a couple seeking to get out of debt do? Select one: a. Avoid future use of credit card debt, except on a emergency basis. b. Use savings to pay off current debt. c. See if their creditors will restructure their loans. d. Seek help from a reputable credit counselor. e. All of these are correct.
e. All of these are correct.
One of the five C's of credit is capacity. Most likely, what information would potential creditors consider in evaluating your capacity? Select one: a. Your marital status b. Your age c. Your leverage ratios d. Your liquidity ratios e. Both Your leverage ratios and Your liquidity ratios are correct answers.
e. Both Your leverage ratios and Your liquidity ratios are correct answers.
Salvadore Dobraseri is a military veteran and has been told by a friend to check out a VA or FHA loan for the purchase of the home he and his wife are interested in. Why should he? Select one: a. Generally, they will pay a lower interest rate. b. A smaller down payment is required. c. There are less strict financial requirements for the loan. d. Veterans are required to obtain this type of mortgage. e. Generally, they will pay a lower interest rate, A smaller down payment is required, and There are less strict financial requirements for the loan
e. Generally, they will pay a lower interest rate, A smaller down payment is required, and There are less strict financial requirements for the loan
Which of the following regarding credit application analysis is incorrect? Select one: a. Bankruptcy remains a mark against you for a period of ten years after it occurs. b. Credit card issuers normally assign a minimal acceptable credit cutoff score. c. Lenders may not discriminate on the basis of age. d. You are entitled to one free copy of your credit report each year from the three major credit bureaus. e. None of these statements is incorrect; All of these are true statements.
e. None of these statements is incorrect; All of these are true statements.
Daniel is due to receive the balance of his trust fund in 5 years; as a result he has taken out a(n) ________ mortgage where he has made small payments for several years and will pay off the balance in one large payment with his trust funds. Select one: a. ARM b. graduated payment c. shared appreciation d. fixed rate e. balloon payment
e. balloon payment
An advantage that direct or subsidized student loans have over other types of loans is Select one: a. the after-tax interest rates are very attractive compared with other loans. b. you can borrow at a below-market rate, regardless of your credit situation. c. in an emergency, you can declare bankruptcy and avoid repayment. d. you have the rest of your life to pay it back. e. both the after-tax interest rates are very attractive compared with other loans and you can borrow at a below-market rate, regardless of your credit situation are correct.
e. both the after-tax interest rates are very attractive compared with other loans and you can borrow at a below-market rate, regardless of your credit situation are correct.
The lowest FICO a consumer can achieve is Select one: a. 250. b. 300. c. 400. d. 505.
300
A balloon loan calls for repayment of both interest and principal at regular intervals, with the payment levels set so that the loan expires at a preset date. Select one: True False
False
A debit card is the same thing as a smart card. Select one: True False
False
A fixed-rate mortgage is harder to budget for than an adjustable rate mortgage. Select one: True False
False
A money order is typically less liquid than a personal check. Select one: True False
False
A payday loan is a reasonable option if you need a luxury item like a big screen TV. Select one: True False
False
A tax free investment will always have a higher after-tax return than a taxable investment. Select one: True False
False
An appraisal is a typical but not required part of the mortgage approval process. Select one: True False
False
An assessment is a voluntary contribution by the condominium owners. Select one: True False
False
Being able to move with minimum inconvenience is an appealing aspect of buying a home. Select one: True False
False
Brick-and-mortar banks typically offer superior interest rates for borrowers and savers. Select one: True False
False
Credit card issuers are free to set up shop near large university campuses and offer free gifts-anything from free or discounted flights to free Frisbees. Select one: True False
False
Frank ran up a large credit card bill as an undergraduate student, he also took out as much in student loans as possible. He is now unable to pay his credit card debt and his student loan debt. However, he has decided to declare bankruptcy to eliminate his debt. Frank will be able to eliminate his federally subsidized student loan debt by declaring bankruptcy. Select one: True False
False
If the roof of your condominium building needs expensive repairs, then the condominium board will pay for repairs at no expense to you. Select one: True False
False
It is wise to wait until you are earning a substantial amount of money before you establish a disciplined financial plan for your future. Select one: True False
False
It's advisable to always take the biggest loan that a lender will give you. Select one: True False
False
Keeping your funds in liquid assets is riskier than keeping them in illiquid assets and therefore investors require a higher expected rate of return on liquid assets. Select one: True False
False
Most credit users are more interested in free benefits than low APRs. Select one: True False
False
Only Prestige or Premium credit cards offer a grace period. Select one: True False
False
Only a Credit Repair company can remove inaccurate data from your credit report. Select one: True False
False
People with high credit card balances still need to invest money on a regular basis. Select one: True False
False
Smart buying means buying what you want first and figuring out how you'll pay for it later. Select one: True False
False
Student loans are a smart source of financing for school because you only pay part of the interest charges and the rest is subsidized by the lender. Select one: True False
False
The APY can never be the same as the APR. Select one: True False
False
The APY is the APR after taxes. Select one: True False
False
The average daily balance method calculates interest payments based on the ending balance of the previous period. Select one: True False
False
The two most common types of two-step mortgages are the 8/22 and 12/18, in which lenders offer a lower interest rate for the first 8 or 12 years and then adjust the rate for the remaining 22 or 18 years. Select one: True False
False
Using your credit cards for cash advances is a relatively cheap way to borrow money because you usually do not start paying interest until the next billing period. Select one: True False
False
When making a smart purchase you don't need to consider such charges as delivery fees, installation fees or service costs as these are already included in the purchase price. Select one: True False
False
Your credit score may affect how much you pay for health insurance. Select one: True False
False
A single-purpose card is a credit card that can be used only at a specific company. Select one: True False
True
An automobile warranty provides coverage for the basic parts against manufacturer's defects for a set period of time or miles. Select one: True False
True
Automobile leasing is actually just a long-term rental agreement with the lessor. Select one: True False
True
Card-blocking occurs when you use a debit card (or credit card) to check into a hotel or rent a car and the anticipated expenses are blocked-in effect, placing a hold on the money. Select one: True False
True
Crystal tried to use her Macy's credit card at Target but was unsuccessful because her Macy's credit card is a single-purpose card and can only be used at Macy's. Select one: True False
True
For many consumers, a good school district is an important consideration when purchasing a home. Select one: True False
True
For the average consumer there is usually a set limit on open or revolving credit accounts. Select one: True False
True
If you are not yet committed to living in a particular geographic region, rental housing is a good option for you. Select one: True False
True
If you only use your debit card and ATM card and rarely write paper checks, overdraft protection is still a good thing to have. Select one: True False
True
Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral. Select one: True False
True
Not having health insurance could lead to filing for bankruptcy if one has incurred large medical expenses and is unable to pay these bills off in a timely manner. Select one: True False
True
One of the main barriers to home ownership is the down payment. Select one: True False
True
The APR is larger when money is lent under the discount method than when it is lent under the simple interest method. Select one: True False
True
The National Credit Union Association is a federal agency that insures deposits at credit unions. Select one: True False
True
The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis. Select one: True False
True
The deregulation of the 1980s has allowed brokerage firms to offer traditional banking services, and has also let banks offer services formerly found only at investment companies. Select one: True False
True
The first step at the car dealership is to negotiate the best price that you can on the car that you need. Select one: True False
True
The interest rate earned on a money market deposit account is generally higher than the interest earned on a Bank savings account. Select one: True False
True
The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines. Select one: True False
True
The monthly payments on a 36-month lease on a car will often be smaller than the monthly payments on a 36-month loan to purchase the car. Select one: True False
True
Under a Federal Direct Loan, you don't begin making payments until six months after graduation. Select one: True False
True
Virginia Tech's Hokie Passport is an example of a smart card. Select one: True False
True
When you automate your savings you are less likely to spend those dollars because they never become part of the funds in your checking account. Select one: True False
True
Your bank may offer a line of credit, a credit card, or a link to your savings account to cover transactions when you overdraw your account. Select one: True False
True
What is the FDIC? Select one: a. Federal Deposit Insurance Corporation b. Federal Deposit Insurance Collective c. Federal Depository Insurance Committee d. Federal Department of Insurance and Compensation e. None of these are correct.
a. Federal Deposit Insurance Corporation
Financial institutions that provide traditional checking and savings accounts are commonly referred to as Select one: a. deposit-type financial institutions. b. nondeposit-type financial institutions. c. personal depository institutions. d. financial brokerage companies. e. None of these are correct.
a. deposit-type financial institutions.
Variable-rate loans Select one: a. usually have rate caps that prevent them from varying too much. b. always adjust every month. c. are never a better option than fixed-rate loans. d. All of these.
a. usually have rate caps that prevent them from varying too much.
Juanita has determined that the PITI on the house she would like to purchase will be $1,260 per month. What is the minimum gross salary she will need to qualify for a mortgage from a reputable lender? Select one: a. $6,300 per month b. $4,500 per month c. $3,500 per month d. $5,040 per month
b. $4,500 per month
Cedrick's credit card was stolen, and he did not realize that it was stolen until he received his most recent billing statement. He contacted the credit card company immediately after he read his statement. Fraudulent charges were as follows: $250 for a Blue-ray player, $600 for a new set of tires, $200 cash withdrawal, and $40 in interest charges on the above items. He did not carry credit card insurance. How much is Cedrick's potential maximum liability? Select one: a. $40.00 b. $50.00 c. $850.00 d. $1,050.00 e. $1,090.00
b. $50.00
Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR. If Monty buys a new television for $800 this month and sends in a credit card payment of $1,200 when he gets his statement, how much interest will he pay on the television for the month? Select one: a. 18% b. 1.5% c. None, since he paid for the television in full during the grace period. d. None of these answers is correct.
b. 1.5%
The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing. Select one: a. APP b. APR c. ADR d. ARR e. None of these
b. APR
The ________ converts interest rates compounded for different periods into comparable annual rates, allowing you to compare interest rates easily. Select one: a. APR b. APY c. YTD d. YAY
b. APY
Which of the following is the correct formula to calculate the after-tax cost of a home equity loan? Select one: a. After-tax cost of a home equity loan = before-tax cost (1 + marginal tax rate) b. After-tax cost of a home equity loan = before-tax cost (1 -marginal tax rate)
b. After-tax cost of a home equity loan = before-tax cost (1 -marginal tax rate)
Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. Christopher has not received an Income Tax refund in 4 years. Is there anything you could recommend to him? Select one: a. No, without dependents there is not much he can do now. b. He should increase his 401(k) contributions to 6% of his salary. c. He should itemize his deductions. d. He should change his W-2 form and claim more deductions. e. All but No, without dependents there is not much he can do now are good recommendations.
b. He should increase his 401(k) contributions to 6% of his salary.
Sharry is interested in buying her first home. Currently her monthly gross income is $3,000. From this she makes a car payment of $240, a personal loan payment of $300 and a student loan payment of $85. Based on this information would a bank approve Sharry for a mortgage? Select one: a. Yes b. No
b. No
What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it? Select one: a. No fee checking coverage b. Overdraft protection c. Automatic check coverage (ACC) d. Draft-free checking e. None of these are correct answers.
b. Overdraft protection
Bob and Marilyn Hartin know the bank will carefully evaluate their situation before lending them the money for the mortgage for their new home. Which is not a consideration? Select one: a. Their financial history b. The number of children they have c. Their level of debt d. Their ability to pay e. Appraised home value
b. The number of children they have
Why is it important to convert interest rates into the APY on different accounts and with different banks? Select one: a. Some banks and accounts pay higher advertised rates. b. The same advertised rate will vary with different compounding periods. c. The Truth in Savings Act of 1993 omits this comparison. d. With FDIC Banks it is not necessary to convert interest rates for comparison.
b. The same advertised rate will vary with different compounding periods.
Research has determined that undergraduate college students tend to behave in similar manners with regards to their credit card usage. As noted in Chapter 6, which of the following behaviors are indicative of undergraduate students' credit card behaviors? Select one: a. Their parents do not frequently pay their credit card balances for them. b. They make more than their minimum payment each month but still tend to carry a balance on their cards. c. They pay off all of their cards in full each month. d. They make more than the required minimum payment on 90% of all other cards each month.
b. They make more than their minimum payment each month but still tend to carry a balance on their cards.
A loan that is paid back in a single lump sum payment at the due date of the loan is commonly called a(n) Select one: a. fully amortized loan. b. balloon loan. c. installment loan. d. secured loan. e. None of these.
b. balloon loan.
Jeremy does not like the idea of paying points. A point is actually Select one: a. one percent of the selling price of the house. b. one percent of the amount financed with the mortgage. c. one percent of the selling price minus the realtor's fee. d. one percent of the taxable value of the house and property. e. None of these.
b. one percent of the amount financed with the mortgage.
Another name for a closed-end lease is a(n) Select one: a. take-out lease. b. walk-away lease. c. end-purchase lease. d. terminal lease. e. None of these.
b. walk-away lease.
When borrowing for college, one thing to keep in mind is that you're not just paying for one year of school. About half of all colleges practice what is called "front loading of grants," which means that Select one: a. grants awarded in the fall will be worth more than grants awarded in the spring semester. b. your grants as a freshman will be more generous than your grants as a sophomore, junior, or senior. c. your grants will progressively increase as your graduation date approaches. d. the more your parents or guardians pay upfront for your college expenses, the less grants you will receive.
b. your grants as a freshman will be more generous than your grants as a sophomore, junior, or senior
You are considering a home equity loan. Your marginal tax bracket is 25%. You want to borrow $30,000 and are quoted an APR of 10%. How much money would you save in taxes each year if you use the tax-deductible home equity loan? Select one: a. $1,300 b. $920 c. $750 d. None of these
c. $750
Rhonda is buying a second home to use as income property. She is financing 75% of the home's $100,000 value. Her bank is loaning her the money for 10 years at an APR of 4.5%. How much are Rhonda's mortgage payments? Select one: a. $441.28 b. $598.74 c. $777.28 d. $958.44 e. $1,014.33
c. $777.28
Bradley currently has a Visa card from his bank with the following terms: 21 percent on purchases, 25 percent on cash advances with a 3 percent cash-advance fee on the amount, and a default or penalty rate of 33 percent. His current statement shows a balance of $9,000. Lately, he has been having a hard time paying more than the minimum payment of 3 percent of his balance. What is the current APY on this credit card? Select one: a. 21 percent b. 22.99 percent c. 23.14 percent d. 24 percent
c. 23.14 percent
Many lenders use the 28/36 rule in evaluating mortgage applications. If your mortgage payment itself is 28% of your gross income, that means that the remainder of your monthly debt must be ________% or less. Select one: a. 6 b. 7 c. 8 d. 28 e. 36
c. 8
The choice of a credit card is a matter of personal credit card philosophy. If you are a credit user, the most important decision factor is the card's Select one: a. length of grace period. b. annual fee. c. APR on the unpaid balance. d. minimum payment. e. late payment fee.
c. APR on the unpaid balance.
Pick the advantage of a certificates of deposit from this list of possibilities. Select one: a. The interest paid is compounded daily. b. Early withdrawals after 30 days do not incur a penalty. c. Interest rates are generally higher than typical savings accounts. d. They earn the APY and not the APR.
c. Interest rates are generally higher than typical savings accounts.
You are considering the purchase of one of two different investments. Investment A is tax exempt and pays 6%. Investment B is taxable and pays 8.33%. You live in a state that imposes no income taxes and are in a 28% federal tax bracket and want to earn the highest after tax return possible. Which of the following is true? (round to two decimal places) Select one: a. Investment A is preferred. b. Investment B is preferred. c. Investments A and B have identical after tax yields. d. Investments A and B have identical APYs. e. Not enough information has been provided.
c. Investments A and B have identical after tax yields.
Susan has always maintained an excellent credit rating over the years. She has an annual income of $63,000, has lived at her current residence thirteen years, and has worked at the same job for eight years. Susan works in a clerical position, has two credit cards and maintains two bank accounts. Susan is very conservative and has all of her savings ($12,000) in a NOW account at her local bank. One of her credit cards has a balance of $550 and has an APR of 23%. Susan has been making monthly minimum payments on the credit card. Out of curiosity she would like to know how her credit card companies judge her creditworthiness and what she can do to improve her financial situation. Susan is not married and a female. Which of the following Consumer Credit Laws prohibits credit discrimination on the basis of her status? Select one: a. The Truth in Lending Act b. The Fair Debt Collections Practices Act c. The Equal Opportunity Act d. The Fair Billing Act
c. The Equal Opportunity Act
Which of the following is not a common fee arrangement for checking accounts? Select one: a. Monthly fee b. Minimum balance requirement c. Variable interest rates to reflect fee activity d. Charge per check e. Balance-dependent scaled fees
c. Variable interest rates to reflect fee activity
Credit cards issued in conjunction with particular charities or organizations, like the Sierra Club or the Humane Society, that send a portion of their annual fee or percentage of their purchases back to the sponsoring organization are known as Select one: a. premium cards. b. prestige cards. c. affinity cards. d. secured credit cards.
c. affinity cards.
The ________ is the percentage of the credit card sale that the retailer owes to the credit card company. Select one: a. retailer credit acceptance fee b. card usage allowance c. merchant's discount fee d. franchise fee
c. merchant's discount fee
Which should you consider when house hunting? Select one: a. The selling price b. The neighborhood c. The school district d. All of these
d. All of these
Jerome has three major credit cards and makes payments on them each month. He has had one of them for six years, another for three years, and the last for eleven months. Making just the minimum payment has become automatic at this point, and Jerome barely even looks at the statements. Jerome is beginning to think that his approach to credit may be faulty, and he wants to find out how to adjust it. He just applied for two additional credit cards. Most likely, Jerome is Select one: a. unaware of how much of his payments go toward interest. b. not getting the benefits of a grace period. c. obligating his future income. d. All of these are correct.
d. All of these are correct.
Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. What recommendations would you give Christopher concerning his cash management? Select one: a. Create a budget and set some savings goals. b. Automate a savings plan using EFT. c. Set up an account at a mutual fund company. d. All of these are good recommendations. e. All of these except Set up an account at a mutual fund company are good recommendations.
d. All of these are good recommendations.
You are considering building a new deck on your home, what factors should you consider when deciding whether to borrow the money or take the money out of your savings account? Select one: a. You should compare the after-tax return on your savings with the after-tax APR on your loan. b. It's simple, if you can afford to pay cash then you should not take out the loan. c. What impact the savings withdrawal will have on your liquidity. d. Both You should compare the after-tax return on your savings with the after-tax APR on your loan and What impact the savings withdrawal will have on your liquidity are correct.
d. Both You should compare the after-tax return on your savings with the after-tax APR on your loan and What impact the savings withdrawal will have on your liquidity are correct.
Please choose the method to use when calculating the after-tax return. Select one: a. Taxable return (1 + marginal tax rate) -nontaxable return b. Taxable return (marginal tax rate -1) -nontaxable return c. Nontaxable return (1 -marginal tax rate) + taxable return d. Taxable return (1 -marginal tax rate) + nontaxable return e. Nontaxable return (1 + marginal tax rate) -taxable return
d. Taxable return (1 -marginal tax rate) + nontaxable return
Which of the following is a disadvantage of credit cards? Select one: a. Allows for consumption before the purchase is fully paid for b. Emergency use c. Allows for online shopping d. The finance charge that accrues on the account if not paid off in full each month
d. The finance charge that accrues on the account if not paid off in full each month
Which one of these clauses is not found in a typical loan contract? Select one: a. Recourse b. Deficiency payments c. Acceleration d. Withdrawal terms e. Insurance agreement
d. Withdrawal terms
With a(n) ________ installment loan, interest charges are calculated using the original balance, and these charges are then added to the loan. Select one: a. simple interest method b. partial amortization method c. discount method d. add-on method e. None of these
d. add-on method
A savings alternative that pays a fixed rate of interest while keeping your funds on deposit for a contracted period of time that can range from 30 days to several years is called a Select one: a. demand deposit. b. negotiable order of withdrawal deposit. c. term deposit. d. certificate of deposit. e. None of these are correct.
d. certificate of deposit.
All of the following are advantages of renting versus buying a home except Select one: a. mobility. b. no property taxes. c. not responsible for home repairs or maintenance. d. control over remodeling and decorating decisions. e. no risk of falling housing prices.
d. control over remodeling and decorating decisions.
Which of the following factors plays a role in determining the monthly lease payment of a car? Select one: a. The agreed-upon price of the vehicle b. The length of the lease c. Your down payment plus any trade-in allowance or rebate d. The value of the vehicle at the end of the lease e. All of these
e. All of these
Four banking conveniences are listed below. Which one is not typical? Select one: a. Safety deposit boxes b. Online banking services c. Direct deposit d. Overdraft protection e. All of these are typical banking conveniences.
e. All of these are typical banking conveniences.
The finance charges for a loan may include Select one: a. fees for a credit check. b. required insurance fees. c. interest payments. d. only choices fees for a credit check and required insurance fees. e. All of these choices.
e. All of these choices.
Nancy Wong has decided to move from her apartment into a house she is purchasing. She wants to enjoy the advantages of home ownership, such as Select one: a. a chance to build equity and wealth. b. greater control over decorations and home improvement. c. mortgage interest will probably be a tax deduction. d. over time being able to take out a home equity loan to enjoy a tax deduction. e. All of these.
e. All of these.
The Johnson family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. What would be your suggestion for the next account John and Maile should open? Select one: a. Series EE bonds b. Certificates of deposit c. Money market deposit account d. Money market mutual funds e. Both Certificates of deposit and Money market deposit account
e. Both Certificates of deposit and Money market deposit account
Suppose that you are interested in buying a home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a mortgage? Select one: a. Calculate your debt limit ratio. b. Figure the 28/36 rule. c. Determine what your mortgage payment will be. d. Determine what your income taxes will be. e. Both Figure the 28/36 rule and Determine what your mortgage payment will be are correct answers.
e. Both Figure the 28/36 rule and Determine what your mortgage payment will be are correct answers.
Mary is 38 years old and many of her friends have gotten into trouble using their credit cards to buy things they can't afford. She feels lucky that her grandmother told her that credit is dangerous and that she should always pay cash for everything. So far, Mary has never had credit in her name and even paid cash for her car. From a personal finance perspective, what advice would you give to Mary? Select one: a. Nothing, it looks like we all could take advice from her! b. Make sure that you keep a lot of money in liquid investments in case of an emergency. c. It's great that you don't owe any money, but you really need to establish credit in your name so you will have it if you need it in the future. d. You might want to talk with your insurance agent because having no credit history is probably causing you to pay higher rates for your insurance. e. Both It's great that you don't owe any money, but you really need to establish credit in your name so you will have it if you need it in the future and You might want to talk with your insurance agent because having no credit history is probably causing you to pay higher rates for your insurance would be good advice for Mary.
e. Both It's great that you don't owe any money, but you really need to establish credit in your name so you will have it if you need it in the future and You might want to talk with your insurance agent because having no credit history is probably causing you to pay higher rates for your insurance would be good advice for Mary.
A simple interest installment loan calculates interest on the unpaid balance. An add-on Select one: a. calculates the same way with the addition of a factor. b. calculates interest on the original balance. c. is less costly. d. is more costly. e. both calculates interest on the original balance and is more costly.
e. both calculates interest on the original balance and is more costly.
The advantages of a fixed-rate mortgage over an ARM include Select one: a. no private mortgage insurance required. b. fixed payments that are easier to budget for. c. less worry about the loan reaching the rate and payment caps. d. None of these. e. both fixed payments that are easier to budget for and less worry about the loan reaching the rate and payment caps.
e. both fixed payments that are easier to budget for and less worry about the loan reaching the rate and payment caps.