AC280 Q7

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

$675

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

12%

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

Collateral is always required by banks to lend to customers with good credit ratings.

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

Credit unions

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

Fixed-rate loans are preferable when interest rates are expected to rise.

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

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

Which of the following statements regarding loan maturity is true? a. The longer the loan maturity, the higher the monthly payments. b. The longer the loan maturity, the lower the total cost of borrowing. c. The longer the loan maturity, the higher the amount of interest paid. d. The shorter the loan maturity, the lower the monthly payments. e. The shorter the loan maturity, the higher the total cost of borrowing.

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

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

actual balance of the loan

Mason Corporation borrows funds for the expansion of its business. The loan is secured with the office building. Therefore, the office building serves as _____ for the loan. a. insurance b. collateral c. a liability d. debt e. corporate deposit

collateral

A _____ loan is intended to help consumers who have an unhealthy credit situation caused by overusing their credit. a. buy-down b. personal c. consolidation d. single-payment e. standard

consolidation

You should consider your _____ before you take on a large consumer loan. a. educational qualification b. financial plans c. career plans d. history of auto ownership e. past employment

financial plans

A single-payment loan is advantageous to a borrower only if: a. the interest rate is more than that on an installment loan offered by commercial banks. b. the finance charges are calculated using the simple interest method. c. it has a collateral note. d. funds are expected to be available in the future to repay the loan in a lump sum. e. the finance charges are calculated using the discount method.

funds are expected to be available in the future to repay the loan in a lump sum.

A(n) _____ loan is repaid in a series of fixed, scheduled payments rather than in a lump sum. a. installment b. standard c. interim d. single-payment e. consolidated

installment

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

members

The most common use of consumer loans is to: a. purchase a car. b. buy furniture. c. buy a house. d. finance college education. e. finance a vacation.

purchase a car

If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan, the amount to be: a. disbursed to the borrower is $2,350.80. b. disbursed to the borrower is $150.80. c. repaid is $2,200. d. repaid is $2,350.80. e. disbursed to the borrower is $2,049.20.

repaid is $2,350.80.

Using the _____ would be least expensive for the borrower when determining the total amount to be paid to the lender. a. add-on interest method b. average loan balance method c. discount method d. sum-of-the-digits method e. simple interest method

simple interest method

It is better to use your savings instead of borrowing to make a purchase when: a. interest rates are falling. b. the cost of borrowing is much greater than the interest earned on savings. c. the borrower has adequate savings. d. interest rates are rising. e. the interest earned on savings is greater than the interest paid on the loan.

the cost of borrowing is much greater than the interest earned on savings.

When comparing two installment loans with the same principal and annual percentage rate (APR), the loan with: a. the longer maturity will have the higher monthly payment and the higher total costs. b. the shorter maturity will have the lower monthly payment and the lower total costs. c. the longer maturity will have the higher monthly payment and the lower total costs. d. the longer maturity will have the lower monthly payment and the higher total costs. e. the shorter maturity will have the lower monthly payment and the higher total costs.

the longer maturity will have the lower monthly payment and the higher total costs.

Commercial banks are able to charge lower interest rates than other lending institutions because: a. they make shorter-term loans. b. they usually take only the best credit risks. c. they get their funds from the money market. d. they make only secured loans. e. their depositors require higher rates.

they usually take only the best credit risks.