FCS 3450 Test #2 Chapters 5-7 Spring 2013
True / False Questions
1. Using a "debit" card is basically the same as writing a check.
2. Demand deposits are another term for checking accounts.
3. Credit unions frequently offer lower loan rates than other financial institutions.
4. The money market fund offered by investment companies is a relatively liquid financial service.
5. A regular savings account usually offers a higher rate of return to savers than other savings plans.
6. A certificate of deposit is usually considered to be very liquid.
7. The more frequent the compounding, the less a person will earn on a savings account.
Multiple Choice Questions
8. Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n):
A. regular savings account.
B. interest-bearing checking account.
C. five-year certificate of deposit.
D. six-month certificate of deposit.
E. money market fund
9. When interest rates are rising, a person would be best served by:
A. short-term savings instruments.
B. long-term savings instruments.
C. short-term loans.
D. variable-rate loans.
E. certificates of deposit.
10. Checking accounts are frequently referred to as ____________ deposits.
A. common
B. time
C. current
D. loan
E. demand
11. To avoid high fees for loans, a person should avoid borrowing from a:
A. credit union.
B. savings and loan association.
C. pawnshop.
D. commercial bank.
E. mutual savings bank.
12. A savings account at a credit union is called a ____________ account.
A. share
B. NOW
C. club
D. certificate
E. money market
13. A certificate of deposit usually has:
A. high interest-rate risk.
B. low safety for savers.
C. limited liquidity.
D. a variable rate of return.
E. no minimum deposit amount.
14. Which one of the following savings plans is not covered by federal deposit insurance?
A. passbook account at a savings and loan
B. regular checking account at a commercial bank
C. money market account at a commercial bank
D. money market fund with an investment company
E. certificate of deposit at a commercial bank
15. A $200 savings account that earns $13 interest in a year has a yield of ____________ percent.
A. 6.00
B. 13.00
C. 7.00
D. 11.25
E. 6.50
16. Savings compounded ____________ would have the highest effective yield.
A. daily
B. annually
C. semi-annually
D. monthly
E. weekly
17. The Truth-in-Savings law requires that financial institutions:
A. provide insurance for savings accounts.
B. send customers monthly bank statements.
C. report annual percentage yield on savings.
D. offer adjustable rate savings accounts.
E. become members of the Federal Reserve System.
18. A personal check with guaranteed payment is called a:
A. traveler's check.
B. bank draft.
C. certified check.
D. money order.
E. cashier's check.
19. Which of the following is a deposit institution?
A. life insurance company
B. investment company
C. mortgage company
D. pawnshop
E. credit union
20. Which of the following is not a deposit institution?
A. life insurance company
B. commercial bank
C. savings and loan association
D. credit union
E. mutual savings bank
21. What type of account would be considered the most liquid?
A. certificate of deposit
B. checking account
C. money market account
D. brokerage account
E. share of stock
22. A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent. Ignore compounding.
A. 33.00
B. 27.50
C. 20.00
D. 5.50
E. 2.75
23. A savings account earns 4 percent. If the saver is in a 28 percent tax bracket, the after-tax savings rate of return would be ____ percent.
A. 28.00
B. 16.72
C. 4.00
D. 2.88
E. 1.12
24. The face value of a Series EE U. S. Savings Bond refers to the:
A. original purchase price
B. redemption value at maturity
C. effective yield of the bond
D. monthly interest accrual amount
E. taxable portion of the accrued interest
True / False Questions
25. Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.
26. Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.
27. Credit when effectively used, can help you have more and enjoy more.
28. With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.
29. Closed-end in credit is used for a specific purpose and involves a specified amount.
30. You should sign your new credit cards as soon as they arrive.
31. The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth.
32. The smaller the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
33. When you cosign a loan, you are being asked to guarantee this debt.
34. Most of the information in your credit file may be reported for only seven years. If you have declared personal bankruptcy, that fact may be reported for 10 years.
35. In the 5 Cs of credit, character refers to the borrower's attitude toward credit obligations.
Multiple Choice Questions
36. By paying cash for a purchase, you:
A. forgo the opportunity to keep the cash in an interest-bearing account.
B. always get a cash discount.
C. can build a better credit rating.
D. get better personal service from store employees.
E. have a better selection of goods than if you use credit.
37. A good example of closed-end credit is:
A. a credit card issued by a department store.
B. a credit card issued by VISA or MasterCard.
C. the use of overdraft protection at a bank.
D. the use of a cashier's check to pay for a purchase.
E. a mortgage loan.
38. A debit card:
A. immediately deducts the cost of your purchase from your bank account.
B. credits your account at the moment you buy goods or services.
C. is a new type of a credit card issued by VISA International.
D. is another name for a travel and entertainment card.
E. typically has a credit limit of $1,000.
39. Experts suggest that you spend no more than ____________ percent of your net income on credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50
40. If you cosign a loan:
A. you are only responsible for half of the debt obligation.
B. you will be asked, but not required, to pay the loan if full if the borrower fails to pay.
C. you will be required to pay the loan in full if the borrower defaults on the payments.
D. the creditor must first try to collect from the borrower.
E. the creditor is prohibited from garnishing your wages if you refuse to pay the loan in full.
41. What would be the maximum limit for an individual's debt-to-equity ratio, excluding the home mortgage?
A. 0.50
B. 0.33
C. 1.00
D. 2.00
E. 2.25
42. Most of the information in your credit file may be reported for only ______ years.
A. 7
B. 9
C. 11
D. 13
E. 15
43. The debt payments-to-income ratio is:
A. calculated by dividing total liabilities by net worth.
B. calculated by dividing monthly debt payments (not including house payments) by net monthly income.
C. determined by dividing your assets by your liabilities.
D. a useless ratio for determining your credit capacity.
E. rarely used by creditors in determining credit worthiness.
44. The debt-to-equity ratio is:
A. calculated by dividing total liabilities by net worth.
B. calculated by dividing monthly debt payments by net monthly income.
C. determined by dividing your assets by your liabilities.
D. a useless ratio for determining your credit capacity.
E. rarely used by creditors in determining credit worthiness.
45. If you have declared personal bankruptcy, that fact may be reported by credit bureaus for ____________ years.
A. 7
B. 10
C. 15
D. 20
E. 25
46. The borrower's attitude toward his or her credit obligations is called:
A. capacity.
B. capital.
C. character.
D. collateral.
E. conditions.
47. Which one of the following is a disadvantage of using credit?
A. receiving advance notice of sales
B. ease of overspending
C. avoiding the necessity of carrying cash
D. ease of returning merchandise
E. having a record of all
48. The information in your credit report is primarily used by the credit bureau to compute your
A. debt to equity ratio
B. FICO credit score
C. debt payment to income ratio
D. liquidity ratio
E. long term capitalization ratio
49. Which FICO credit score would represent the least risky borrower?
A. 415
B. 562
C. 685
D. 702
E. 825
True / False Questions
50. Buying on credit is almost always cheaper than paying cash.
51. Parents or family members are often the source of the least expensive loans.
52. Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate.
53. The annual percentage rate is the percentage cost of credit on a yearly basis.
54. If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.
55. You can deduct interest paid on consumer loans for state and federal income tax returns.
56. You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.
Multiple Choice Questions
57. Which one of the following financing methods provides a float period?
A. installment loan
B. credit card
C. lump-sum loan
D. home equity line of credit
E. auto loan
58. Which one of the following is often the source of the least expensive loan?
A. parents or family members
B. banks
C. savings and loan associations
D. finance companies
E. loan sharks
59. One of the drawbacks of borrowing from parents or family members is that such loans:
A. tend to be more expensive than other types of loans.
B. must be interest-free.
C. may create tension within the family.
D. are limited to oral agreements.
E. are legally prohibited from establishing repayment dates and terms.
60. Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $600 on the first day of the month. You get your credit card bill at the end of the month. What is the total finance charge you will pay on this cash advance for the month? Assume each month has 30 days
A. $12.
B. $9.
C. $21.
D. $0.
E. $2.
61. The total dollar amount you pay to use credit is called the:
A. finance charge.
B. annual percentage rate.
C. price of the good/service purchased.
D. amortized rebate.
E. interest rate.
62. If you borrow $100 at 10 percent simple annual interest (APR) and repay it in one lump-sum at the end of one year, you will repay:
A. $100.
B. $105.
C. $110.
D. $115.
E. $120.
63. Which form of bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time?
A. Chapter 7
B. Chapter 11
C. Chapter 13
D. Chapter 15
E. Chapter 17
64. Which lender is likely to ask you to write a check for $115 before granting you a $100 loan?
A. credit union
B. payday advance company
C. finance company
D. department store
E. commercial bank
65. Which method of payment is likely to be the least expensive in the long run?
A. bank credit card
B. check written on a home equity line of credit
C. cash
D. store credit card
E. cash advance on a Visa credit card
66. Payday, cash advance, check advance, and post- dated checks are _________ loans.
A. inexpensive
B. medium-priced
C. expensive
D. low APR
E. variable APR
67. If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10, what is her total cost of credit?
A. $10
B. $12
C. $24
D. $34
E. $42
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