Personal Finance Test 2

14) You are considering an MMMF. The fund is taxable and pays 8.5% interest. If your top federal tax bracket is 25% and you live in a state that doesn't impose income taxes, what after-tax return would you realize from this investment? A) 6.38% B) 2.13% C) 7.44% D) 8.25%

A 6.38%

10) What are short-term notes of debt issued by the federal government commonly called? A) T-Bills B) T-Notes C) T-Bonds D) T-Accounts

A T-Bills

24) When you use a credit card at a store, the store is generally charged a fee ranging from 1.5% to 5%. What is this fee called? A) Merchant discount fee B) Merchant back-end charge C) Merchant rate D) Discount rate

A) Merchant discount fee

22) Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period? A) Average daily balance B) Previous balance C) Adjusted balance D) Balance calculation method E) Simple interest

A: Average Daily Balance

36) Credit card insurance is usually unnecessary since your liability on credit card losses is limited by law to A) $ 0. B) $50. C) $100. D) $500. Answer: B

Answer: B $50.

32) The lowest FICO a consumer can achieve is A) 250. B) 300. C) 400. D) 505.

Answer: B 300.

33) What type of a credit card is issued in partnership with a specific charity or organization, such as Mothers Against Drunk Driving (MADD), the National Rifle Association (NRA), or a college or university? A) Prestige card B) Affinity card C) Travel and entertainment card D) Social responsibility card

Answer: B Affinity card

5) Pay yourself first refers to A) buy that car you've been wanting. B) put money in a savings account. C) head out on a exotic vacation. D) buy the house you've always dreamed of.

Answer: B put money in a savings account.

3) Cash and investments that can be easily converted into cash are termed A) capital assets. B) liquid assets. C) illiquid assets. D) depositable assets. E) None of the above are correct.

Answer: B) liquid assets.

8) 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? A) Savings bank B) Commercial bank C) Savings and loan association D) Credit union E) None of the above are correct.

Answer: D Credit union

35) Your credit score affects A) the rate you pay on your credit cards. B) the size of your credit line. C) your mortgage rate. D) the amount of junk mail offering additional credit cards that you receive. E) All. of the above are correct answers.

Answer: E All. of the above are correct answers.

34) It is against the law for your potential employer to use your credit score for employment considerations. True or FALSE

Answer: FALSE

4) It is wise to wait until you are earning a substantial amount of money before you establish a disciplined financial plan for your future. True or False

Answer: FALSE

7) Brick-and-mortar banks typically offer superior interest rates for borrowers and savers. True or False

Answer: FALSE

6) Credit unions and Internet-only banks typically offer more attractive interest rates to both borrowers and savers. True or False

Answer: TRUE

15) Why is it important to convert interest rates into the APY on different accounts and with different banks? 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.

28) Most grace periods are A) 7-10 days. B) 21-25 days. C) 14-21 days. D) 30 days.

B) 21-25 days.

23) Credit cards are a form of ________ credit. A) close ended B) revolving C) installment D) service

B: Revolving

13) When you are considering different investment options and want to maximize your returns, be sure to compare the investments' A) quoted rates. B) APRs. C) APYs. D) None of the above

C APYs.

11) NOW accounts offer an option to traditional demand deposits. All of the following are characteristics of NOW accounts except one. Which is it? 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.

25) 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? A) $180 B) $60 C) $150 D) $1.50

C) $150

27 If you carry a balance on your card and have an 18.5% APR compounded monthly, your actual rate will be A) 19.5%. B) 18.5%. C) 20.15%. D) 22.25%.

C) 20.15%.

17) A check drafted on the financial institution's account is a(n) A) certified check. B) traveler's check. C) bank check. D) cashier's check.

D Cashier's Check

9) Online and mobile banking allows you to do the following A) access your accounts at any time of day. B) transfer funds between accounts. C) pay bills and receive payments online. D) all of the above.

D all of the above.

26) Assuming the APR on your credit card is 24 percent and your average daily balance this month was $8,000, what will your interest or finance charges for the month be? A) $1.92 B) $240 C) $192 D) $160

D) $160

2) How do you compare cash management alternatives to determine which is best for you? A) Compare returns using comparable interest rates. B) Take into account their tax status. C) Consider their safety or risk. D) All of the above are correct.

D) All of the above are correct.

29) Which of the following are important to convenience users of credit cards? A) Low annual fee B) Interest-free grace period C) Card benefits and perks D) Only A and B E) All of the above

E) All of the above

37) When you find you cannot pay your credit card bills you must take action! Which option is advisable? A) Adjust your budget to allow for more money to pay for the cards. B) Change to a less expensive credit card or cards. C) Use a secured loan or home equity loan to get a lower interest rate to pay the cards off. D) Use savings to pay off some or all of current credit card debt. E) All of the above Answer: E

E) All of the above Answer: E

31) Your credit score affects A) the rate you pay on your credit cards. B) the size of your credit line. C) your mortgage rate. D) the amount of junk mail offering additional credit cards that you receive. E) All of the above are correct answers.

E) All of the above are correct answers.

21) Typically, the credit card issuer allows you a grace period, which means A) you do not have to make a payment during the current month. B) you are not charged any interest during this grace period. C) you must pay your balance off in full to benefit from the grace period. D) interest charges are reduced during this time. E) both B and C apply.

E) both B and C apply

1) Two advantages of carrying cash are that it's easy to spend and many times you can even recall where you spent it. True or False

False

12) The APY is the APR after taxes. True or False

False

18) 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. True or False

False

30) It is against the law for your potential employer to use your credit score for employment considerations. True or False

False

According to the Bankcard Holders Association of America, about 95 percent of all bank card issuers use the adjusted balance method. True or False

False

Most credit cards offer a 31- to 35-day grace period from the date of the bill to make payments. True or False

False

16) For a consumer who does not have a checking account a prepaid debit card is a means of paying for goods and services. True or False

True