Chapter 5

B 52. Installment credit exploded on the American scene with the advent of theA. AirplaneB. AutomobileC. Cell phoneD. ComputerE. Train
E 53. Which of the following is a valid reason for borrowing?A. Purchasing a car so a homemaker can return to workB. Borrowing for a college educationC. Purchasing a homeD. Paying for a medical emergencyE. All of these are valid reasons for borrowing
B 54. Which of the following is NOT a valid reason for borrowing?A. Purchasing a new dishwasher.B. Paying for everyday living expenses.C. Buying a car to start a new job.D. Paying for a medical emergency.E. All of these are valid reasons for borrowing.
B 55. Many people expectA. Their ability to make payments to get harder over time.B. Their incomes to increase to make it easier to make payments.C. Their interest rates to decrease as their credit balances decrease.D. Their interest payments to increase as their credit balances decrease.E. Their household expenses to be covered with their mortgage payment.
E 56. Which of the following questions is NOT needed before deciding how and when to make a majorpurchase?A. Do I have the cash I need for the down payment?B. Does the purchase fit my budget?C. Could I postpone the purchase?D. Could I use the credit I need for this purchase in some better way?E. All of these are valid questions to ask.
E 57. When used effectively, credit can result inA. Default.B. Bankruptcy.C. Loss of creditworthiness.D. Financial loss.E. Improved lifestyle.
D 58. Which of the following is NOT correct?A. Using credit can result in a greater chance of bankruptcy.B. Using credit can decrease the amount of money that will be available to spend in the future.C. Using credit offers convenience when shopping on the Internet.D. Using credit cards typically offer a “float” of up to 10 days.E. Using credit allows a consumer to shop without carrying a large amount of cash.
B 59. Which of the following is NOT correct?A. Using credit is appropriate to pay for medical emergencies.B. Using credit can increase the amount of money that will be available to spend in the future.C. Using credit sometimes occurs automatically, such as for water or electricity usage.D. Using credit cards usually makes returning merchandise without a receipt easier.E. Using credit allows consumers to enjoy goods and services now and pay later.
C 60. A typical grace period for many credit card issuers isA. 0-10 days.B. 10-20 days.C. 20-25 days.D. 30-40 days.E. 45-60 days.
A 61. Many think that perhaps the greatest disadvantage of using credit isA. The temptation to overspend.B. The convenience offered instead of using cash.C. The float from using credit.D. The increase in total purchasing power.E. The increased satisfaction during present and future income periods.
E 62. Which of the following can result from a failure to repay a loan?A. Bankruptcy.B. Loss of income.C. Loss of a good reputation.D. Damage to family relationships.E. All of these answers may be a result of the failure to repay a loan.
B 63. Consumer creditA. Is a privilege of the affluent.B. Dates back to colonial times.C. Carries no finance charge.D. Is not a major force in our economy.E. Use has been declining in recent years.
E 64. Before buying goods and services on credit, a consumer should consider all of the following exceptA. Whether the good or service will have lasting value.B. Whether the good or service will increase personal satisfaction during present income periods.C. Whether the good or service will increase personal satisfaction during future income periods.D. Whether current income will continue or increase.E. Whether the good or service will be worth more because it was purchased with credit instead of cash.
A 65. Which of the following is an example of closed-end credit?A. A mortgage loan.B. A department store credit card.C. Overdraft protection.D. A bank line of credit.E. All of these are examples of closed-end credit.
B 66. Which of the following is an example of open-end credit?A. An automobile loanB. A department store credit cardC. An installment loan for purchasing furnitureD. A mortgage loanE. Single lump-sum credit
B 67. A direct loan for personal purposes, home improvements, or vacation expenses is calledA. A credit card.B. An installment cash credit.C. A bank line of credit.D. Open-end credit.E. Single lump-sum credit.
E 68. A loan that must be repaid in total on a specified day, usually within 30 to 90 days, isA. A credit card.B. An installment cash credit.C. A bank line of credit.D. Open-end credit.E. Single lump-sum credit.
A 69. Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over thenext year to pay for it. She is usingA. Closed-end credit.B. Open-end credit.C. Revolving check credit.D. A line of credit.E. None of these.
D 70. A line of credit isA. The equal payments required for one-time loans.B. The loan amount for installment cash credit.C. The maximum loan amount for closed-end credit.D. The maximum dollar amount of credit the lender has made available.E. The monthly payment required for single lump-sum credit.
B 71. A prearranged loan up to a specified amount that a consumer can access by writing a special check isknown asA. A bank credit card.B. A revolving check credit.C. Installment sales credit.D. Single lump-sum credit.E. Closed-end credit.
C 72. The periodic charge for the use of credit isA. A line of credit.B. A revolving check credit.C. Interest.D. A grace period.E. Principal.
D 73. Which of the following is often considered to offer the least expensive loans?A. Banks.B. Finance companies.C. Loan companies.D. Parents or family members.E. Savings and loan associations.
D 74. A cash advanceA. Increases a borrower’s credit limit.B. Is the cheapest way to obtain money when away from home.C. Usually is obtained from a bank.D. Accrues interest charges beginning the day the cash advance is made.E. Is tax-deductible
C 75. Home equity loans should be used forA. Buying dinner at a restaurant.B. Borrowing money for impulse purchases.C. Major expenses such as home improvements or education.D. Getting cash for weekend entertainment.E. Selling a car
B 76. Home equity loansA. Are based on the original purchase price of a home.B. Have interest that is tax-deductible.C. Do not have any security attached to the loan.D. Have a 60-day grace period.E. Are the most expensive loans available.
C 77. If you miss payments on a home equity loan, you can lose yourA. Savings account.B. Car.C. House.D. Retirement account.E. Furnishings.
B 78. A credit card holder who pays off his balances in full each month is known asA. An impulsive lender.B. A convenience user.C. A home equity holder.D. A convenience user AND a home equity holder.E. All of these are correct.
E 79. Which of the following is NOT associated with credit cards?A. A grace periodB. A finance chargeC. An annual feeD. Convenience users and borrowersE. A down payment on a home
C 80. Which of the following electronically subtracts money from your savings or checking account to pay forgoods and services?A. A credit cardB. Closed-end creditC. A debit cardD. A gift cardE. A home equity loan
C 81. Bankruptcy courts treat gift cardsA. As illegal loans.B. As bribes.C. The same way they handle unsecured debt.D. As a smart choice.E. The same as debit cards.
D 82. Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses andstill afford the monthly loan payments. This can be determined byA. Adding up basic monthly expenses then subtracting this total from take-home pay.B. Asking what you plan to give up to make the monthly loan payment.C. Multiplying your take-home pay by 50% and subtracting your current loan payments.D.Adding up basic monthly expenses, subtracting this total from take-home pay, and, if needed, figuringout what to give up to make the payment.E. All of these answers are correct.
B 83. Experts suggest that the debt payments-to-income ratio should be a maximum ofA. 0%B. 20%C. 25%D. 50%E. 100%
E 84. If you have reached the upper limit of debt obligations, your debt-to-equity ratio is aboutA. 0.B. 0.2.C. 0.25.D. 0.5.E. 1.
D 85. When calculating the debt-to-equity ratio, the following is NOT included:A. Credit card balances.B. Open-end credit.C. Auto loan balances.D. Mortgage balance.E. All of these are included in the calculation.
A 86. The question “Will you repay the loan?” relates toA. Character.B. Capacity.C. Capital.D. Collateral.E. Conditions.
C 87. The question “What are your assets and net worth?” relates toA. Character.B. Capacity.C. Capital.D. Collateral.E. Conditions
D 88. The use of property or savings to secure a loan relates toA. Character.B. Capacity.C. Capital.D. Collateral.E. Conditions.
B 89. A loan officer is examining whether or not to will offer you a loan today. Specifically, she is examiningyour income and debts. Which of the five Cs is the loan officer reviewing?A. CharacterB. CapacityC. CapitalD. CollateralE. Conditions
E 90. The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based onA. Race.B. Nationality.C. Age.D. Sex.E. All of these are prohibited.
E 91. Which of the following is the best scoring technique used in credit applications for consumers withlimited credit histories?A. CreditHistoryB. CreditReportC. FICOD. LimitedCreditE. VantageScore
C 92. FICO scores generally range fromA. 100 to 1000.B. 200 to 700.C. 350 to 850.D. 450 to 650.E. 500 to 1000.
E 93. Which of the following is NOT a valid credit application question?A. How much of a loan are you requesting?B. What is the account number for your checking account?C. What is the name of the nearest relative not living with you?D. How many dependents do you have?E. All of these are valid credit application questions.
B 94. When evaluating your credit application, a lender may NOTA. Ask your date of birth.B. Deny you credit if you receive public assistance.C. Request a list of the ages of your dependents.D. Inquire if you ever received credit before from that lender.E. Ask the income of your spouse if you have a joint application.
C 95. What step can you take if your credit application is denied?A. Sue the credit rating agency.B. File a complaint against the merchant.C. Ask why you were denied credit.D. Reapply for credit once 30 days have passed.E. Borrowers do not have any rights provided by law.
D 96. If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. Thebureau cannot charge a fee for this service as long as you ask to see your files withinA. 10 days.B. 20 days.C. 30 days.D. 60 days.E. 90 days.
A 97. A credit report includesA. Credit history.B. Assumptions made by credit rating agencies.C. Credit score.D. Credit expectations.E. All of these.
D 98. Which of the following is NOT a credit bureau?A. Experian.B. Equifax.C. Trans Union.D. FICO.E. All of these are credit bureaus.
D 99. Credit bureaus get their information from all of the following exceptA. Banks.B. Credit card companies.C. Finance companies.D. References.E. Stores
E 100.Which of the following is the only online source authorized to provide a free credit report each year atyour request?A. www.annualcreditscore.comB. www.freecreditreport.comC. www.onlinecreditreport.comD. www.freecreditscore.comE.
D 101.Credit files can include all of the following exceptA. Employer, position, and income.B. Previous address.C. Spouse’s name, Social Security number, employer, and income.D. Race or nationality.E. Checks returned for insufficient funds.
E 102.Which is NOT true about the Fair Credit Reporting Act?A. It regulates the use of credit reports.B. It requires deletion of out-of-date information.C. It gives consumers access to their files and the right to correct any misinformation.D. It places limits on who can obtain a report.E. It gives borrowers the right to know why they are denied credit.
D 103.Credit reports can be obtained for all of the following reasons exceptA. In response to a court order.B. In connection with a credit transaction.C. For underwriting of insurance.D. Inquiry by a neighbor.E. For some legitimate business need.
D 104.Information about a personal bankruptcy may be reported in your credit file forA. 1 year.B. 3 years.C. 7 years.D. 10 years.E. Permanently.
E 105.If you are denied credit,A. You have a legal right to sue the credit bureau.B. Your parent can purchase a copy of your credit report.C. You have a legal right to sue the company that denied you credit.D. The denial will remain in your credit file for 10 years.E. You are entitled to a free copy of your credit report.
E 106.The finance charge for credit includes all of the following exceptA. Interest costs.B. Services charges.C. Credit-related insurance premiums.D. Appraisal fees.E. The amount borrowed.
D 107.The APR is the percentage cost of credit on a(n) ______________ basis.A. monthlyB. quarterlyC. semi-annualD. annualE. life-of-loan
C 108.If a loan is being paid in installments instead of all at the end of the loan period, the actual rate ofinterestA. Will be lower than the stated rate.B. Will be the same as the stated rate.C. Will be higher than the stated rate.D. Will be unrelated to the stated rate.E. Cannot be determined without knowing the length of the loan period
C 109.Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Bothhave the same stated rate of interest. Which of the following is true?A. The principal paid for the one-year loan will be lower than the principal paid for the four-year loan.B. The principal paid for the one-year loan will be higher than the principal paid for the four-year loan.C. The interest paid for the one-year loan will be lower than the interest paid for the four-year loan.D. The interest paid for the one-year loan will be higher than the interest paid for the four-year loan.E. The interest and principal payments cannot be compared for the two loans.
D 110.The minimum monthly payment on a credit card isA. The amount to be paid without paying interest.B. The interest amount charged for the month.C. The minimum to be paid to avoid any charges or fees.D. The smallest amount you can pay and remain a borrower in good standing.E. The amount needed to pay off the credit card in one year.
B 111.If you double the monthly payment for a credit card, the loan will be paid off inA. Half the time.B. Less than half the time.C. More than half the time.D. The additional payment will have no impact.E. Not enough information is available to answer.
E 112.Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to makecredit card or revolving credit payments on defective goods, and promptly crediting your payments?A. Experian Act of 1982B. Fair Credit Reporting Act of 1971C. Bills and Disputes Act of 1963D. Equifax Act of 1979E. Fair Credit Billing Act of 1975
E 113.If you think a bill is wrong or you want more information about the bill, then you and your creditorshould follow all of the steps here exceptA. You should notify your creditor in writing.B. You should pay the portion of the bill that is not in question.C. Your creditor must acknowledge your letter within 30 days.D. Your creditor must adjust your account or tell you why the bill is correct within two billing cycles.E. Your creditor must reimburse you for your time spent researching the error.
A 114.Which of the following is often the first sign of a stolen identity?A. You receive bills for a credit card account you never opened.B. You see charges to your account for things you purchased.C. You receive a phone call from the thief.D. You receive a duplicate credit card from your credit card company.E. All of these are typical signs of a stolen identity.
D 115.If you think your identity has been stolen, which of the following actions does the Federal TradeCommission recommend you take immediately?A. Report it to your neighbor.B. Call 911.C. Contact your local bank.D. File a police report.E. All of these steps should be taken immediately.
B 116.Which of the following items should be shredded to protect yourself from identity theft?A. MagazinesB. Papers with personal informationC. EnvelopesD. Privacy notices that are received with credit card statementsE. Newspaper ads
E 117.Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that twochecks, her cash, and her debit card were missing. She immediately thought about the increase in identitytheft in her area and decided to take some action. She should take all of the following steps exceptA. Stop payment on the missing checks.B. Cancel her debit card.C. Get a new debit card with a new personal identification number (PIN).D. Close her bank account and open a new one.E. All of these steps are appropriate to take if she suspects identity theft.
D 118.Who is responsible for a loan repayment?A. The store granting creditB. The credit card companyC. The governmentD. The cosignerE. The bank
D 119.All of the following are consumer credit protection laws exceptA. The Truth in Lending and Consumer Leasing ActB. The Equal Credit Opportunity ActC. The Fair Credit Billing ActD. The Credit Lawsuit ActE. The Consumer Credit Reporting Reform Act
D 120.If you want to file a complaint against a bank, youA. Must have an account at the bank.B. Must have at least $100,000 invested in the bank.C. Must have a checking or savings account with the bank.D. Do not need to have an account at the bank.E. Must have a loan outstanding at the bank.
B 121.According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting anybilling errors, you have the right to sue forA. Actual damages.B. Actual damages plus twice the amount of any finance charges.C. The amount owed on the item in question.D. Three times the actual damages.E. Nothing.
D 122.All of the following are signs of financial trouble exceptA. You use savings to pay for necessities such as food and utilities.B. You receive second and third payment due notices from creditors.C. You exceed the credit limits on your credit cards.D. You pay your credit card bills in full each period.E. The total balance on your credit cards increases every month.
A 123.The Consumer Credit Counseling ServiceA.Aids families with serious debt problems by helping them to manage their money better and set up arealistic budget.B. Is a consolidation firm that will manage bills for a percentage of the total payment due.C. Provides counseling, usually for a fee.D. Is a program to wipe out your debts within two years.E. All of these are correct.
D 124.Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code?A. Chapter 7B. Chapter 11C. Chapter 13D. Chapters 7 and 13E. Chapters 11 and 13
C 125.Under Chapter 7 of the U.S. bankruptcy code,A. All debts are forgiven.B. Alimony and child support debts are released.C. Certain assets receive some protection.D. Taxes and fines no longer need to be paid.E. Debt arising from driving while intoxicated is forgiven.
D 126.Following the signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,debtors seeking to erase all debts will have to wait ___ year(s) from their last bankruptcy before they canfile again.A. oneB. threeC. sevenD. eightE. ten
D 127.Rachel Johnson went to the ATM to draw $300 cash with her debit card. She inadvertently pulled out hercredit card instead, not realizing the expenses for cash advances. If her credit card company charges acash advance fee of 3% and interest at 24% APR, what are the total fees she will pay for her mistake?A. $3B. $6C. $9D. $15E. $24
D 128.Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill withhis Mastercard credit card, he was told that the restaurant accepted only cash or American Express. Hiswaiter suggested that he use the ATM across the street to withdraw cash using his credit card. Tim did assuggested and didn’t pay attention to any fees until he received his credit card statement one month later.He was shocked to see the total fees (3% cash advance), and his APR was increased to 21%. Given thecost of the meal ($125) plus the associated fees, how much did his meal cost him?A. $2.19.B. $3.75.C. $125.D. $130.94.E. $151.25.
C 129.Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If SallyJohnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow ina home equity loan from Acme?A. $50,000B. $80,000C. $110,000D. $150,000E. $160,000
D 130.If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the graceperiod, how much was he required to pay?A. $3.00B. $18.00C. $182.00D. $200.00E. $236.00
D 131.Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, astudent loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-toincomeratio?A. 8%B. 13%C. 17%D. 19%E. 20%
B 132.Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, astudent loan payment of $150, a mortgage payment of $1,200, and a credit card minimum payment of$45. What is his debt-payments-to-income ratio?A. 13.2%B. 14.3%C. 36.7%D. 42.0%E. 45.9%
B 133.Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000.What is her debt-to-equity ratio?A. .45B. .67C. .75D. 1.00E. 1.30
C 134.Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge?A. $3.00B. $20.00C. $23.00D. $225.00E. $248.00
C 135.Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What ishis finance charge?A. $3.00B. $20.00C. $23.00D. $200.00E. $223.00
D 136.Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at onceafter one year, what is your average balance?A. $20B. $150C. $160D. $300E. $320
C 137.Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formulafor this one-year, 9% loan. What is her total interest?A. $9B. $45C. $90D. $450E. $1,009
D 138.Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interestformula for this two-year, 8% loan. What is his total interest?A. $16B. $80C. $112D. $224E. $1,416
B 139.Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year,what is her cousin’s actual rate of return on the loan?A. 2%B. 4%C. 6%D. 8%E. 10%

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