Personal Finance 1200
Test #2-Chapters 5-7
True/False Questions
1.Higher returns on savings will usually result in less liquidity.
2. Consumers will usually obtain the best overall value of their dollar by having all financial services with the same institution.
3.ATM fees are about the same in different geographic areas.
4.Direct deposit usually requires a waiting period for a availability of funds.
5.Using a "debit" card is basically the same as writing a check.
6.Demand deposit is another term for checking accounts.
7.Credit unions frequently offer lower loan rates than other financial institutions.
8.A regular savings account usually offers a higher rate of return to savers than other savings plans.
9.A certificate of deposit is usually considered to be very liquid.
10.The more frequent the compounding, the less a person will earn on a savings account.
11.When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance.
12.Credit is an arrangement to receive cash, goods, or services now and pay for them in the future.
13.Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals.
14.Consumer credit dates back to colonial time.
15.There are very few valid reasons for using credit
16.Perhaps the greatest disadvantage of using credit is the temptation to overspend.
17.Although credit allows more immediate satisfactory of needs and desires, it does not increase total purchasing power.
18.With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts.
19. In a closed-end credit, loans are made on a continuous basis and you make at least partial payment.
20.Using a credit card, such as Visa or MasterCard is an example of closed-end credit
21.Cobranding is the linking of a credit card with a business trade name offering "points" or premiums toward the purchase of a product or service.
22.You should sign your new credit cards as soon as they arrive.
23.A home equity loan is usually set up as a revolving line of credit, typically with a variable interest rate.
24.The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including house payments) by your net worth.
25.The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers
26.Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors and court records.
27.In the 5 C's of credit, character refers to borrower's attitude toward credit obligations
28. In the 5Cs of credit, capital refers to your assets or net worth.
29.Buying on credit is almost always cheaper than paying cash.
30.Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate.
31.The Annual Percentage Rate is the percentage cost of credit on a yearly basis.
32.With collateral, you'll probably pay a higher interest rate on your loan.
33.The two most common methods of calculating interest are compound and simple interest formulas.
34.If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month
35.You can deduct interest paid on consumer loans for state and federal income tax returns.
36.The rule of 78s formula dictates that you pay less interest at the beginning of a loan.
37.You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.
Multiple Choice Questions
38.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.
39.Checking accounts are frequently referred to as ______deposits.
A)common
B)time
C)current
D)loan
E)demand
40.To avoid high fees for loans, a person should not borrow from a:
A)credit union.
B)savings and loan association.
C)pawnshop.
D)commercial bank.
E)mutual savings bank.
41.A savings account at a credit union is called a ______account.
A)share
B)now
C)club
D)certificate
E)money market
42.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.
43.A $200 savings account that earns $13 interest in a year has a yield of ______percent.
A)6
B)13
C)7
D)11.25
E)6.5
44.In the bank reconciliation process, service fees should be:
A)Add to the bank statement balance.
B)subtracted from the bank statement balance.
C)Added to the checkbook balance.
D)subtracted from the checkbook balance.
45.Based on the following information, what amount would be SUBTRACTED from the BANK BALANCE side of a checking account reconciliation? Service charge $12, Outstanding checks $145, Interest $3.50, Deposit in transit $80.
A)$145
B)$12
C)$157
D)$148.50
E)$80
46.The rate that commercial banks charge large corporations for loans is:
A)the prime rate
B)the discount rate
C)the mortgage rate
D)the treasury bond rate
E)none of the above
47.A CD that has earnings based on the stock market is:
A)a bump-up cd
B)an indexed cd
C)a callable cd
D)a global cd
E)a promotional CD
48.Consumer credit:
A)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 had been declining in recent years.
49.A good example of a closed-end credit is:
A)a credit card issued by a department store.
B)a credit card issued by visa or mastercard.
C)using overdraft protection at a bank.
D)using a cashier’s check to pay for a purchase.
E)a mortgage loan
50.Revolving check credit is a:
A)Credit arrangement that has no extra costs.
B)Prearranged loan for a specified amount that you can use by writing a special check.
C)Credit arrangement that has no specific repayment plan.
D)Synonym for installment cash credit.
E)Synonym for single lump-sum credit.
51.Experts suggest that you spend no more than ______percent of your net income on credit purchases.
A)10
B)20
C)30
D)40
52.If you cosign a loan:
A)You are not being asked to guarantee the debt.
B)It is not your legal responsibility to pay the debt.
C)You’ll have to pay up to the full amount of the debt if the borrower does not pay.
D)The creditor must try to collect from the borrower.
E)The creditor cannot garnish your wages.
53.Most of the information in your credit file may be reported for only ______years.
A)7
B)9
C)11
D)13
E)15
54.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 into liabilities.
D)A useless ratio for determining your credit capacity.
E)Rarely used by creditors in determining credit worthiness
55.Dave’s take home pay per month is $2200. What is the maximum dollar amount of debt payments he should have?
A)&880
B)$440
C)$330
D)$220
E)$0
56. If you have declared personal bankruptcy, that fact may be reported to credit bureaus for: ______years
A)7
B)10
C)12
D)15
E)20
57.The borrower’s attitude toward his or her credit obligations is called:
A)capacity.
B)capital.
C)character
D)collateral.
E)conditions.
58.A term that refers to the borrower's assets or net worth is called:
A)capacity.
B)character.
C)capital.
D)collateral.
E)conditions.
59.When you complain about your billing error, the creditor must acknowledge your letter within ______days.
A)10
B)20
C)30
D)60
E)90
60.While you are resolving a billing dispute, a creditor may:
A)not threaten your credit rating.
B)send this information to a credit bureau.
C)require you to pay the bill in full and then credit your account if the error is found.
D)start the collection process.
E)demand that you surrender the credit card.
61.Which of the following is a disadvantage of using credit?
A)The use of credit can allow you receive advance notice of sales
B)The use of credit can lead to overspending
C)The use of credit allows for the purchase of goods even when funds are low
D)The use of credit can allow for the easier return of merchandise
E)All of the above are disadvantages of using credit
62.Jim Roy visits the doctor for his annual check up which costs $85. He is billed for this at the end of the month. What type of credit did Jim use?
A)Installment sales credit
B)single lump sum credit
C)revolving credit
D)incidental credit
63.Which 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)A loan from a relative
64.Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The bank starts charging your 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?
A)$12
B)$9
C)$21
D)$0
65.If you are denied credit by a bank or a credit union, you should:
A)Reapply for a loan after thirty days.
B)Question your ability to afford the loan.
C)Run to the nearest loan shark for a loan.
D)Beg your friends for a loan
E)File a complaint with the Better Business Bureau
66.If you borrow $100 at 10 percent simple annual interest and repay it in one lump sum at the end of one year, you will have to pay:
A)$100
B)$105
C)$110
D)$115
E)$120
67.Which interest formula may be used by creditors to determine how much interest you have paid at any point in a loan?
A)Simple interest formula
B)Compound interest formula
C)Multiple compound interest formula
D)The rule of 78s
E)The rule of 72s
68.If you find that you cannot make your payments:
A)Skip town.
B)Declare personal bankruptcy.
C)Borrow from a loan shark to make the payment.
D)Let the borrower go to a collection agency.
E)Contact your creditors at once and try to work out a modified payment plan with them.
69.
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