Skill Quest Chapter 7

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If a loan has a prepayment penalty, there will be _____. a. ​an additional cost to repay the loan early b. ​no additional cost to repay the loan early only if the loan is prepaid 3 months before the loan maturity c. ​an additional cost to repay the loan early only if the loan is prepaid 6 months before the loan maturity d. ​no additional cost to repay the loan early e. ​an additional cost to repay the loan early only if the loan is prepaid 3 months before the loan maturity

a

The annual percentage rate (APR) on a single-payment loan for $1,000 at a simple interest rate of 12% is: a. ​12% b. ​18% c. ​10% d. ​24% e. ​15%.

a

The annual percentage rate is equivalent to the stated rate of interest when the _____ is used to calculate finance charges. a. ​simple interest method b. ​double declining balance method c. ​dollar cost of credit method d. ​discount method e. ​average loan balance method

a

To qualify for a subsidized Stafford loan, you must: a. ​make satisfactory academic progress b. ​be a graduate. c. ​be a professional student d. ​have a sound financial support to repay the loan. e. ​be an independent student.

a

Which of the following is a feature of a home equity loan? a. ​The interest paid on a home equity loan is tax deductible. b. ​A home equity loan is an unsecured loan. c. ​A home equity loan is generally the first mortgage loan d. ​A home equity loan is a single-payment loan. e. ​Interest rates on a home equity loan are higher than on other loans.

a

Which of the following sources of consumer loans often has the most favorable terms? a. ​Credit unions b. ​Consumer finance companies c. ​Savings and loan associations d. ​Commercial banks e. ​Asset management companies

a

The monthly payment on an 8%, 36-month, add-on loan for $10,000 would be: a. ​$278 b. ​$344. c. ​$314. d. ​$380. e. ​$300.

b

Which of the following is true of a consumer loan? a. ​A consumer loan can be used chiefly to make repeated purchases of relatively low-cost goods and services. b. ​A consumer loan is used to finance the purchase of goods that are far too expensive. c. ​A consumer loan provides credit cards and checks to the consumers. d. ​A consumer loan results from a rather informal process and involves no negotiated contracts. e. ​A consumer loan provides a revolving credit to the consumers.

b

Which of the following is true of consumer finance companies? a. ​Consumer finance companies offer consumer loans at the lowest interest rate. b. ​Consumer finance companies make secured and unsecured (signature) loans to qualified individuals. c. ​Consumer finance companies always charge lower rates of interest than commercial banks. d. ​Consumer finance companies offer consumer loans only for home mortgage lending. e. ​Consumer finance companies make large loans to low-risk borrowers.

b

Which of the following is true of fixed-rate loans? a. ​The cost of borrowing fixed-rate loans increases with an increase in the market interest rate. b. ​Fixed-rate loans are preferable when interest rates are expected to rise. c. ​Fixed-rate loans are preferable when interest rates are expected to fall. d. ​The cost of borrowing fixed-rate loans decreases with a decrease in the market interest rate. e. ​The interest rate on fixed-rate-loans have periodic adjustment dates, at which time monthly payments are adjusted.

b

Which of the following is true of installment loans? a. ​Installment loans require the principal to be repaid in a single payment. b. ​Installment loans offer the benefit of tax deductibility of the interest paid on them. c. ​Installment loans are secured using second mortgages only. d. ​Installment loans are issued by the federal government only. e. ​Installment loans are a revolving credit line from which consumers can borrow, repay, and reborrow.

b

_____ loans do not have to be repaid until after you graduate from college a. ​Perkins and PLUS b. ​Stafford and Perkins c. ​Stafford and PLUS d. ​PLUS and SLS e. ​Perkins and SLS

b

​If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should: a. ​consolidate the loan. b. ​negotiate a rollover. c. ​let the payment become past due. d. ​pay prepayment penalty. e. ​file bankruptcy.

b

The annual percentage rate is equivalent to the stated rate of interest when the _____ is used to calculate finance charges. a. ​dollar cost of credit method b. ​average loan balance method c. ​simple interest method d. ​double declining balance method e. ​discount method

c

The majority of loans made by savings and loan associations are: a. ​auto loans. b. home improvement loans.​ c. ​mortgage loans. d. ​consolidation loans. e. ​education loans.

c

Which of the following is true of a loan collateral? a. ​Loans secured by collateral always have higher finance charges than unsecured loans. b. ​Loans are secured by a collateral, which is readily marketable at a price high enough to cover the interest portion of the loan. c. ​Collateral is an item of value used to secure the principal portion of a loan. d. ​Collateral is always required by banks to lend to customers with good credit ratings. e. ​Collateral is an item of value used to secure the interest portion of a loan.

c

Which of the following is true of a loan maturity? a. ​The longer the loan maturity, the higher will be the monthly payments. b. ​The longer the loan maturity, the lower will be the total finance cost c. ​The longer the loan maturity, the higher will be the total finance cost. d. ​The shorter the loan maturity, the lower will be the monthly payments. e. ​The shorter the loan maturity, the higher will be the total finance cost.

c

Sometimes it may be better to use one's savings rather than borrowing to make a purchase. This would be recommended when: a. ​interest rates are falling. b. ​the borrower has adequate savings. c. ​interest rates are rising d. the cost of borrowing is greater than the interest earned on the savings. e. ​the interest earned on savings is greater than the interest paid on the loan

d

When the simple interest method is used to determine finance charges, the interest is calculated based on the: a. ​average outstanding balance. b. ​future value of installments c. ​future value of all finance charges. d. ​actual balance of the loan. e. ​present value of all finance charges.

d

Which of the following loan sources is the most expensive? a. ​Commercial banks b. ​Sales finance companies c. ​Credit unions d. ​Consumer finance companies e. ​Savings and loan associations

d

Which of the following loan sources is the most expensive? a. ​Commercial banks b. ​Sales finance companies c. ​Savings and loan associations d. ​Consumer finance companies e. ​Credit unions

d

Commercial banks generally charge lower interest rates than other lending institutions because: a. ​their depositors require lower rates. b. ​they make shorter term loans. c. ​they get their funds in the open credit market. d. ​they make secured loans only. e. ​they usually take only the best credit risks.

e

Sales finance companies a. ​sell installment loans to banks. b. ​sell installment loans to retailers. c. ​lend money to retailers. d. ​lend money to consumers. e. ​buy installment loans from retailers.

e

A single-payment loan: a. ​usually matures in one year or less. b. ​is generally unsecured and does not have any collateral. c. ​usually matures in five to seven years. d. ​is generally used to finance auto purchases. e. ​is provided by sales finance companies.

a

Consumers whose debt burden has become very heavy might apply for a(n): a. ​consolidation loan. b. ​interim financing. c. ​single-payment loan. d. ​buy-down loan. e. ​personal loan.

a

If Liza's debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals to her total credit payments? a. ​$675 b. ​$890 c. $500​ d. ​$1,200 e. ​$450

a

A legal claim that allows creditors to liquidate a loan collateral is a: a. ​loan application b. ​lien. c. ​loan rollover. d. ​security claim. e. ​note.

b

Credit unions lend money to qualified people who are: a. policyholders.​ b. ​members. c. ​students d. ​stockholders. e. ​employees.

b

The highest interest rate installment loans are usually made by: a. ​life insurance companies. b. ​consumer finance companies. c. ​savings and loan associations. d. ​credit unions. e. ​commercial banks.

b

A single-payment loan is advantageous only if: a. ​calculated using discount method. b. ​it is unsecured. c. ​funds will be available to repay the lump sum. d. ​the interest rate is less than that on an installment loan. e. ​calculated using simple interest method.

c

Which of the following is recommended if you loan money to a friend or relative? a. ​Charge interest at a rate comparable to any high-risk security. b. Make the loan due within one year or less c. ​Put the agreement in writing. d. ​Make informal transactions for friends and relatives. e. ​Always consider offering cash as a gift instead of extending a loan.

c

You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the interest on this installment loan will be the: a. ​simple interest method. b. ​discount method. c. ​past-due balance method. d. ​double declining balance method. e. ​add-on method.

e


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