Installment credit exploded on the American scene with the advent of the |
B |
Which of the following is a valid reason for borrowing? |
E |
54. Which of the following is NOT a valid reason for borrowing? |
B |
Many people expect |
B |
Many people expect |
E |
When used effectively, credit can result in |
E |
Which of the following is NOT correct? |
D |
Which of the following is NOT correct? |
B |
A typical grace period for many credit card issuers is |
C |
Many think that perhaps the greatest disadvantage of using credit is |
A |
Which of the following can result from a failure to repay a loan? |
E |
Consumer credit |
B |
Before buying goods and services on credit, a consumer should consider all of the following except |
E |
Which of the following is an example of closed-end credit? |
A |
Which of the following is an example of open-end credit? |
B |
A direct loan for personal purposes, home improvements, or vacation expenses is called |
B |
A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is |
E |
Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the |
A |
A line of credit is |
D |
A prearranged loan up to a specified amount that a consumer can access by writing a special check is |
B |
The periodic charge for the use of credit is |
C |
Which of the following is often considered to offer the least expensive loans? |
D |
A cash advance |
D |
Home equity loans should be used for |
C |
Home equity loans |
B |
If you miss payments on a home equity loan, you can lose your |
C |
A credit card holder who pays off his balances in full each month is known as |
B |
Which of the following is NOT associated with credit cards? |
E |
Which of the following electronically subtracts money from your savings or checking account to pay for |
C |
Bankruptcy courts treat gift cards |
C |
Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and |
D |
Experts suggest that the debt payments-to-income ratio should be a maximum of |
B |
If you have reached the upper limit of debt obligations, your debt-to-equity ratio is about |
E |
When calculating the debt-to-equity ratio, the following is NOT included: |
D |
The question "Will you repay the loan?" relates to |
A |
The question "What are your assets and net worth?" relates to |
C |
The use of property or savings to secure a loan relates to |
D |
A loan officer is examining whether or not to will offer you a loan today. Specifically, she is examining |
B |
The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on |
E |
Which of the following is the best scoring technique used in credit applications for consumers with |
E |
FICO scores generally range from |
C |
Which of the following is NOT a valid credit application question? |
E |
When evaluating your credit application, a lender may NOT |
B |
What step can you take if your credit application is denied? |
C |
If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The |
D |
A credit report includes |
A |
Which of the following is NOT a credit bureau? |
D |
Credit bureaus get their information from all of the following except |
D |
Which of the following is the only online source authorized to provide a free credit report each year at |
E |
Credit files can include all of the following except |
D |
Which is NOT true about the Fair Credit Reporting Act? |
E |
Credit reports can be obtained for all of the following reasons except |
D |
Information about a personal bankruptcy may be reported in your credit file for |
D |
If you are denied credit, |
E |
The finance charge for credit includes all of the following except |
E |
The APR is the percentage cost of credit on a(n) ______________ basis. |
D |
If a loan is being paid in installments instead of all at the end of the loan period, the actual rate of |
C |
Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both |
C |
The minimum monthly payment on a credit card is |
D |
If you double the monthly payment for a credit card, the loan will be paid off in |
B |
Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to make |
E |
If you think a bill is wrong or you want more information about the bill, then you and your creditor |
E |
Which of the following is often the first sign of a stolen identity? |
A |
If you think your identity has been stolen, which of the following actions does the Federal Trade |
D |
Which of the following items should be shredded to protect yourself from identity theft? |
B |
Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two |
E |
Who is responsible for a loan repayment? |
D |
All of the following are consumer credit protection laws except |
D |
If you want to file a complaint against a bank, you |
D |
According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting any |
B |
All of the following are signs of financial trouble except |
D |
The Consumer Credit Counseling Service |
A |
Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code? |
D |
Under Chapter 7 of the U.S. bankruptcy code, |
C |
Following the signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, |
D |
Rachel Johnson went to the ATM to draw $300 cash with her debit card. She inadvertently pulled out her |
D |
Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with |
D |
Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally |
C |
If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace |
D |
Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a |
D |
Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, a |
B |
Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. |
B |
Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge? |
C |
Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is |
C |
Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at once |
D |
Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula |
C |
Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest |
D |
Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, |
B |
Personal financial planning is the process of managing your money to achieve personal economic satisfaction. |
TRUE |
A financial plan is an informal report that analyzes past financial decisions. |
FALSE |
A financial plan is another name for a budget. |
FALSE |
Financial Plans are only created by financial planners. |
FALSE |
The life situation of a household has little influence on personal financial planning decisions. |
FALSE |
The long-term goals for a young single will probably be the same as those for an older couple with no dependent children at home. |
FALSE |
Inflation is most harmful to people with incomes expected to increase. |
FALSE |
Inflation reduces the buying power of money. |
TRUE |
When prices are increasing at a rate of 6 percent, the cost of products would double in about 12 years. |
TRUE |
Higher inflation usually results in lower interest rates. |
FALSE |
Developing a budget is part of the "spending" component of financial planning. |
FALSE |
Retirement planning includes thinking about your housing situation, recreational activities, and possible volunteer or part-time work. |
TRUE |
Short-term goals are usually achieved within the next year or so. |
TRUE |
Intermediate goals are usually achieved within the next year or so. |
FALSE |
Purchasing a car is an example of a consumable-product goal. |
FALSE |
Purchasing a car is an example of a durable-product goal. |
TRUE |
Opportunity costs refer to money already spent. |
FALSE |
Opportunity costs refer to time, money, and other resources that are given up when a decision is made. |
TRUE |
Interest earned is calculated by multiplying the principle times the opportunity cost. |
FALSE |
Risks associated with most financial decisions are easy to measure. |
FALSE |
A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n) |
B FINANCIAL PLAN |
The major function of a financial plan is to |
C ACHIEVE FINANCIAL GOALS |
An advantage of personal financial planning is: |
C. Increased control of financial affairs |
The stages that an individual goes through based on stages in the family and financial needs is called the |
D. Adult life cycle |
Sally Smith’s friends have told her that they think she should consider a visit to a personal financial planner. Why do you think her friends made the suggestion? |
D. Sally plans to quit her job and volunteer for local organizations. |
John Jones was laid off of his job two months ago. He just received an offer for a position that pays 2/3 the salary of his old job. Why should he set up a financial plan? |
A. To increase the effectiveness of obtaining, using, and protecting his financial resources. |
The consumer price index reflects: |
C. The change in prices of products and services of urban consumers |
The inflation rate for a household will be: |
D. Either greater than or less than the inflation rate as reported by the CPI depending on the household’s "basket" of goods and services purchased |
The Rule of 72 is: |
B. Used to estimate how long it takes for prices to double using a given annual inflation rate |
Who is most likely to benefit by inflation? |
C. Borrowers |
Higher consumer prices are likely to be accompanied by |
D. Higher interest rates |
An investor should expect to receive a risk premium for |
C. Higher potential earnings due to uncertainty |
Which of the following would increase the interest rate for a loan? |
A. Poor credit rating |
Patrick Guitman recently graduated from college with $20,000 in student loans and $5,000 in credit card debt. He usually makes minimum payments on his debt and he has been late with three payments in the last year. He wants to buy a new car but was told that his interest rate on a loan would be very high. What is the most likely reason this might be so? |
B. His credit rating is poor because of his late payments |
Attempts to increase income are part of the _____________ component of financial planning. |
A. Obtaining |
The ‘borrowing’ activity in a financial plan relates to |
E. Maintaining control of credit-buying habits |
The problem of bankruptcy is associated with poor decisions in the ______________ component of financial planning. |
D. Borrowing |
A question associated with the saving component of financial planning is: |
A. Do you have an adequate emergency fund? |
Which of the following short-term goals is stated most clearly? |
A. Buy a car for less than $17,000 within 6 months |
Which of the following long-term goals is stated most clearly? |
E. Invest $50 per month for the next 18 years for my nephew’s college fund |
Which of the following intermediate goals is stated most clearly? |
C. Purchase a house with a mortgage no greater than $150,000 within 3 years |
Which of the following goals would be the easiest to implement and measure? |
D. Save $100 a month to create a $4,000 emergency fund. |
The goal of investing $50 per month for the next 18 years for your nephew’s college fund is a(n) __________ goal. |
C. Long-term |
Many Americans have money problems because of |
A. Poor planning and weak money management habits |
Fran Gardner has a goal of "saving $25 per month for a TV." Fran’s goal lacks |
E. A time frame |
Which of the following is correct? |
E. Food and clothing are consumable-product goals |
_________ goals relate to infrequently purchased, expensive items. |
C. Durable-product |
To develop a financial plan, one should |
D. Identify specific, realistic goals along with the time frame and an action plan |
The goal of purchasing a long-term care insurance policy would be most appropriate for |
D. A single adult nearing retirement age. |
Opportunity cost refers to |
B. The trade-off of a decision. |
Rob Redbird is interested in attending a concert next weekend. Unfortunately, he is scheduled to work. If he finds a substitute for his shift so he can attend the concert, what kind of cost is he incurring? |
B. Opportunity |
Which of the following is an example of opportunity cost? |
B. Saving money instead of taking a vacation |
An example of a personal opportunity cost would be |
D. Time comparing several brands of personal computers. |
The time value of money refers to |
D. Increases in an amount of money as a result of interest earned. |
Because of interest that can be earned, if I can invest a dollar today, it should be worth _________ in the future. |
C. MORE |
To calculate the time value of money, we need to consider all except the |
D. TYPE OF INVESTMENT |
Future value computations are also referred to as |
C. COMPOUNDING |
Present value computations are also referred to as |
A. DISCOUNTING |
Jake Jones wants to deposit $100 per month into an account earning 5 percent for the next 4 years so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have for his purchase? |
E. Future value of an annuity |
Wanda Green wants to take out a 4 year loan to purchase a car. What type of computation would she use to calculate her monthly payments? |
D. Present value of an annuity |
Tim Calibe received a $500 gift from his grandparents. He wants to invest this money for the down payment of a house he plans to purchase in 3 years. What type of computation should he use? |
B. Future value of a single amount |
Rebecca Gladyn plans to attend graduate school in 5 years. She thinks that she will need a total of $32,000 to pay for school and she wants to save money each month to reach her goal. What type of computation should she use? |
E. Future value of an annuity |
Paul Jacoby wants to deposit money today for a vacation he plans to take to Asia after he graduates from Grad School. Which formula should he use to determine the amount of money he will have available for his vacation? |
A. Present value of a single amount |
The first step of the financial planning process is to |
C. Analyze your current personal and financial situation. |
Financial decisions related to income include all except the following |
D. TAKING |
Place the following steps for a personal financial plan in the proper order: |
D. 4, 6, 2, 5, 3, 1 |
The uncertainty associated with decision making is referred to as |
E. RISK |
The changing cost of money is referred to as ____________ risk. |
A. interest-rate |
The rising of prices that causes changes in buying power is referred to as ____________ risk. |
B. INFLATION |
The loss of a job is referred to as ____________ risk. |
C. INCOME |
The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk. |
E. PERSONAL |
The potential for difficulty to convert an investment to cash is referred to as ____________ risk. |
E. LIQUIDITY |
Changes in income, values, and family situation make it necessary to |
A. Evaluate and revise your actions. |
The step in the personal financial planning process that follows "Create and implement your financial action plan" is |
A. Review and revise your plan |
Using the services of financial institutions or specialists (such as insurance agents or investment brokers) will be most evident in your effort to |
D. Implement the financial plan. |
If inflation is expected to be 8 percent, how long will it take for prices to double? |
C. 9 YEARS |
If a $10,000 investment increases to $10,090 in one year, what is its rate of return? |
A. .9 PERCENT |
If a $10,000 investment earns a 9% annual return, what should its value be after one year? |
E. $10,900 |
If a $10,000 investment earns a 9% annual return, what should its value be after 7 years? |
D. $18,280 |
If Patty Shoemaker estimates that her $75 weekly grocery bill will increase at an annual inflation rate of 3%, what should her weekly grocery bill be in 5 years? |
C. $86.93 |
Annual earnings on a $2,000 Certificate of Deposit earning 3.15% would be |
B. 63 |
Randy Hill wants to retire in 40 years with $2,000,000. If he can earn 10% per year on his investments, how much does he need to deposit each year to reach his goal? |
D. $50,000 |
Inflation reduces the buying power of money |
TRUE |
Opportunity costs refer to what a person gives up when making a decision. |
TRUE |
Analyzing your current financial position is a part of the first stage of the financial planning process. |
TRUE |
With an inflation rate of 9 percent, prices would double in about ___________ years. |
C.8 |
The stages that an individual goes through based on age, financial needs, and family situation is called the: |
D. adult life cycle. |
The ability to convert financial resources into usable cash with ease is referred to as: |
B. LIQUIDITY |
As Jean Tyler plans to set aside funds for her young children’s college education, she is setting a(n) ____________ goal. |
B. LONG-TERM |
Opportunity cost refers to: |
B. what a person gives up by making a choice. |
If a person deposited $50 a month for 6 years earning 8 percent, this would involve what type of computation? |
C. future value of a series of deposits |
Which type of computation would a person use to determine current value of a desired amount for the future? |
D. present value of a single amount |
If inflation is increasing at 3 percent per year, and your salary increases at the same rate, how long will it take your salary to double? |
B. 24 YEARS |
If you put $1,000 in a saving account and make no further deposits, what type of calculation would provide you with the value of the account in 20 years? |
A. future value of a single amount |
Which of the following is an example of opportunity cost? |
B. saving money instead of taking a vacation |
The financial planning process concludes with efforts to: |
E. review and revise your actions. |
When prices are rising at a rate of 3 percent, the cost of products and services would double in ______ years. |
D. 24 |
The annual price increase for consumer goods and services measured by the Bureau of Labor Statistics is referred called ________. |
C. the consumer price index |
Barb Hotchkins is in the 28 percent tax bracket. A tax-exempt employee benefit with a value of $500 would have a tax-equivalent value of: |
A. $694. |
Federal tax-deferred employee benefits are: |
C. taxed at some future time. |
Caroline lives in City A and earns $50,000 per year. The cost of living index in City A is .8. She is considering a move to City B which has a cost of living index of .9. How large a salary will she require in City B to maintain her current standard of living? |
C. $56,250 |
Joseph is eligible for a nontaxable life insurance benefit with an annual premium of $400 paid entirely by his employer. Assuming Joseph is in a 25% bracket, how much would he have to earn to pay for this benefit with after-tax dollars? |
B. $533.33 |
Financial records that are referred to on a regular basis should be kept in a safe-deposit box. |
FALSE |
A budget is a specific plan of how a person or family expects to spend their money. |
TRUE |
A personal balance sheet reports your income and expenses. |
FALSE |
A person’s net worth is the difference between the value of the items owned and the amounts owed to others. |
TRUE |
If expenses for a month are greater than income, an increase in net worth will result. |
FALSE |
Opportunity costs refer to: |
D. trade-offs associated with financial decisions. |
Which of the following are considered to be personal financial statements? |
B. balance sheet and cash flow statement |
A personal balance sheet presents: |
D. items owned and amounts owed. |
The current financial position (including net worth) of an individual or family is best presented with the use of a(n): |
C. balance sheet. |
A family with $45,000 in assets and $22,000 of liabilities would have a net worth of: |
B. $23,000. |
Items that you own with a monetary worth are referred to as: |
E. assets. |
Liabilities are amounts representing: |
A. DEBTS |
A person’s net worth would increase as a result of: |
A. reduced amounts owed to others. |
A cash flow statement reports a person’s or a family’s: |
B. current income and payments. |
Total earnings of a person minus the deductions for taxes and other items is called: |
E. take-home pay. |
Payments that do not vary from month to month are ____________ expenses. |
A. FIXED |
During the past month, Jennifer Ernet had income of $3,000. During the month, her net worth declined by $200. If no other financial activities occurred, this means Jennifer’s payments for the month were: |
A. 3,200 |
Which one of the following should be budgeted first? |
C. fixed expenses |
If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a: |
A. VARIANCE |
A budget deficit would result when a person’s or family’s: |
B. actual expenses are greater than planned expenses. |
Kyle Burroughs has decided to put $25 more per week in his savings account. He knows this will reduce his ability to go out to eat each week but thinks building his savings is important. This would be an example of: |
B. an opportunity cost. |
Karen Price has created a financial statement for herself that lists all of the assets she owns as well as the debts she owes. This would be an example of: |
C. BALANCE SHEET |
Patricia McDonald has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000, and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Patricia’s net worth? |
C. $162,000 |
A family has a net worth of $156,000 and liabilities of $167,000, what is the amount of their assets? |
D. $323,000 |
This month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting in a |
B. surplus of $150. |
Allen Arnold has determined that the amount of money he spends on his mortgage payment, car insurance payment, and cable bill totals $1,200 each month. What type of expenses has Allen determined with this calculation? |
E. fixed expenses |
For January, Bethany DeWeese had cash inflows of $4,200 and cash outflows of $4,750, resulting in a |
C. deficit of $550. |
A state may impose a personal property tax. |
TRUE |
An estate tax is imposed on the value of an individual’s property at the time of his or her death. |
TRUE |
An exclusion is earnings not included in taxable income. |
TRUE |
Exemptions are deductions for yourself, your spouse, and qualified dependents that you can deduct from adjusted gross income. |
TRUE |
A tax credit is an amount subtracted directly from the amount of taxes owed. |
TRUE |
Taxable income is used to compute a person’s: |
B. INCOME TAX |
A taxpayer with a taxable income of $47,856 and a total tax bill of $5,889 would have an average tax rate of ____ percent. |
C. 12.3 |
Which one of the following is not included in gross income? |
C. EXCLUSION |
Which of the following would be deducted from gross income to obtain adjusted gross income? |
A. alimony payments |
A deduction from adjusted gross income for yourself, your spouse, and qualified dependents is: |
E. an exemption. |
For a dependent to qualify as an exemption, he or she must: |
D. receive more than one half of his or her support from the taxpayer. |
A tax ____________ is an amount subtracted directly from the amount of taxes owed. |
A. CREDIT |
A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person’s taxes by: |
D. 50 |
The state of Oklahoma imposes a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be? |
B. EXCISE TAX |
In which city are coins made? A. Saint Louis B. Philadelphia C. New York D. Washington, D.C. |
B. Philadelphia |
Paper money is produced by the _________________. A. Federal Reserve Bank B. United States Treasury C. Bureau of Engraving and Printing D. Fort Knox Mint |
C |
What gives money its value? A. Supply and demand B. Backed by gold C. Backed by silver D. Present values |
A |
What two cities are currently producing coins? A. Denver and Philadelphia B. Philadelphia and San Francisco C. Denver and San Francisco D. Fort Worth and Washington, D.C. |
A |
What is paper money backed by? A. Gold B. Gold and silver C. The full faith and credit of the U.S. government and the Federal Reserve Bank D. Silver |
C |
Which of the following is paper money backed by? A. The U.S. president B. The full faith and credit of the U.S. government and the Federal Reserve Bank C. The Federal Reserve Bank D. The Bureau of Engraving and Printing and the Federal Reserve Bank |
B |
Where is one place where paper money is printed? A. San Francisco B. Washington, D.C. C. Denver D. Philadelphia |
B |
What gives paper currency value? A. Having a high supply and high demand B. Having a high supply and low demand C. Having a limited supply and relatively high demand D. Having a low supply and low demand |
C |
Paper money is backed by the credit and faith of the U.S. government and _________________. A. Wells Fargo B. The Federal Union C. The USDA D. The Federal Reserve |
D |
Currently, which two U.S. cities produce coins for circulation? A. New York and Washington, D.C. B. Atlanta and Seattle C. Philadelphia and Denver D. Boston and Houston |
C |
What is the money in the United States backed by? A. Gold B. Silver C. The full faith and credit of the U.S government D. The president’s oath of office E. The Chinese yen |
C |
Who controls the circulation of money in the United States? A. Coin mints B. The Bureau of Engraving and Printing C. The Federal Reserve D. The president of the United States |
C |
The _________________ frequently interest is compounded, the _________________ the yield. A. More; lower B. More; higher C. Less; higher D. Less; same |
B |
What is the average amount of a credit card’s late fee? |
B- 26$ |
Your previous balance is $100; you charge $100 more on January 2 nd and your month-end balance is $200. What method would cost the most with 12% APR? |
A. Adjusted balance method |
You used your clothing store credit card this month and your bill arrived in the mail 12 days ago. If you pay your bill today, this is referred to as a(n) |
B. Grace period |
Today Bob Jones purchased an investment grade gold coin for $50,000. He expects the coin to increase in value at a rate of 12% compounded annually for the next 5 years. How much will the coin be worth at the end of the fifth year if his expectations are correct? |
c. $88,117.08 |
To choose the right type of financial instrument, which of the following should you consider? |
D-All of these |
Anna recently opened a savings account and made three deposits in the amounts of $100,000, $65,000, and $200,000. If the Great Depression was to occur again and the bank closed, how much money would Anna be insured for? |
C |
_________________ were established for people who have a common bond. |
D |
Which of the following financial institutions qualify as a financial intermediary? |
D |
Which financial institution would be the best fit for a college-aged student who needs a checking account? |
A |
Higher returns on savings will usually result in less liquidity. |
TRUE |
A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest. |
TRUE |
A certificate of deposit is usually considered to be very liquid |
FALSE |
The more frequent the compounding, the less a person will earn on a savings account. |
FALSE |
Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n): |
C |
When interest rates are rising, a person would be best served by: |
A |
Which of the following statements regarding debit and credit card liability is correct? |
B |
To avoid high fees for loans, a person should avoid borrowing from a: |
C |
A certificate of deposit usually has: |
C |
The rate of return on a savings account is also referred to as: |
C |
A $200 savings account that earns $13 interest in a year has a yield of ____________ percent. |
E |
Savings compounded ____________ would have the highest effective yield. |
A |
The Truth-in-Savings law requires that financial institutions: |
C |
Comparison of earnings for different savings plans can best be accomplished using the: |
D |
Which of the following is an effective strategy in times of falling interest rates? |
B |
A personal check with guaranteed payment is called a: |
C |
Which of the following institutions makes loans based on the value of tangibles possessions, such as jewelry and collectibles? |
D |
What type of account would be considered the most liquid? |
B |
A pawnshop with a monthly interest rate of 2.75 percent would have an annual interest rate of ____ percent. Ignore compounding. |
A |
A person borrows $200 from a payday loan company, and pays $10 interest for two weeks. This would result in an annual interest rate of approximately ___ percent. Ignore compounding. |
B |
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. |
D |
Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. |
TRUE |
Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals. |
TRUE |
Most consumers have only one choice in financing current purchases |
FALSE |
Credit when effectively used, can help you have more and enjoy more. |
TRUE |
Perhaps the greatest disadvantage of using credit is the temptation to overspend |
TRUE |
With an open-end credit, you pay back one-time loans in a specified period of time in equal amounts. |
FALSE |
Interest is a periodic charge for the use of credit, or other finance charges. |
TRUE |
You should sign your new credit cards as soon as they arrive |
TRUE |
The debt payments-to-income ratio is calculated by dividing your total liabilities by your net worth. |
FALSE |
When you cosign a loan, you are being asked to guarantee this debt. |
TRUE |
Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors, and court records. |
TRUE |
Your friends and neighbors can get credit information about you. |
FALSE |
In the 5 Cs of credit, capital refers to your assets or net worth. |
TRUE |
In the 5 Cs of credit, capital refers to your financial ability to meet credit obligations. |
FALSE |
A good example of closed-end credit is: |
E |
Another name for open-end credit is: |
A |
A debit card: |
A |
Experts suggest that you spend no more than ____________ percent of your net income on credit purchases. |
B |
If you cosign a loan: |
C |
Most of the information in your credit file may be reported for only ______ years. |
A |
The debt payments-to-income ratio is: |
B |
The debt-to-equity ratio is: |
A |
If you have declared personal bankruptcy, that fact may be reported by credit bureaus for ____________ years. |
B |
The borrower’s attitude toward his or her credit obligations is called: |
C |
A term that refers to the borrower’s assets or net worth is called: |
C |
If your credit application is denied, you: |
D |
The best way to maintain your credit rating is to: |
C |
Affan Chawdry has monthly net income of $1,050. He has a house payment of $450 per month, a car loan with payments of $250 per month, a Visa card with payments of $50 per month, and a credit card with a local department store with payments of $100 per month. What is Affan’s debt payments-to-income ratio? |
D |
Karen Price has determined that her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and $15,000 on a car loan. What is Karen’s debt-to-equity ratio? |
C |
The information in your credit report is primarily used by the credit bureau to compute your |
B |
Buying on credit is almost always cheaper than paying cash |
FALSE |
Parents or family members are often the source of the least expensive loans. |
TRUE |
Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate. |
TRUE |
The annual percentage rate is the percentage cost of credit on a yearly basis |
TRUE |
If you want to take advantage of a grace period on your credit card, you must pay your bill in full every month. |
TRUE |
You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy |
TRUE |
Which one of the following is often the source of the least expensive loan? |
A |
One of the drawbacks of borrowing from parents or family members is that such loans: |
C |
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: |
C |
Which lender is likely to ask you to write a check for $115 before granting you a $100 loan? |
B |
Payday, cash advance, check advance, and post- dated checks are _________ loans. |
C |
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? |
D |
One way that leads a person to earn additional income is for the person to |
C |
Entrepreneurs who start a new business with the hope of making a profit are |
D |
Income can be earned or unearned. Which of the following is an example of unearned income? |
C |
Which of the following terms is correctly matched? |
C |
What strategy is an effective way to build adequate financial resources for a family to pay for college tuition? |
A |
Which of the following factors, other than job performance, will result in higher wages being given to many workers? |
D |
Read the information below about the profiles of individuals regarding their federal income tax Mr. Chu – Married with two children, contributes to a retirement plan Mr. Ortiz – Single, age 35, rents an apartment Ms. Lalio – Single, age 58, contributes to a Roth IRA Ms. Feldman – Married, no children, rents a house. Which person listed above is likely to have the greatest number of payroll tax exemptions which lowers taxable income? |
A |
The terms "job" and "career" are often used interchangeably. However, there is a major difference in the meaning of the terms. A career is characterized as |
C |
Which of the following is the best advice for a student with college loans? |
A |
A person is age 16 and looking for part-time work at a restaurant that is part of a national chain. Which of the following is the employer allowed to ask for on a job application? |
B |
What is the opportunity cost of a person selling her stocks and bonds worth $5,000 to spend on a winter vacation? |
B |
Which of the following will help to create discretionary income? |
C |
When a consumer is disappointed with the quality of a product purchased, which of the following should the person try to do first? |
A |
An example of a change in a person’s life situation requiring a review of their financial goals and plans is |
D |
An important responsibility for young adults living independently is to |
D |
A college student wants to buy a bike to ride from a rented apartment to the college campus. Which of the following should be part of the research? |
B |
When selecting a financial planner for advice, it is important to know the |
B |
An individual or family should consult with a lawyer when A. deciding between term or whole life/universal life insurance policies. |
C |
Which of the following can cause a person to become a victim of consumer fraud? |
B |
For the past two years, the price of gasoline increased 10%, while incomes did not increase. Which of the following will impact the monthly budget and financial plans of most people as a result of this price increase? |
C |
A highly successful high school student applied to public and private colleges and he was accepted to all of them, including one very prestigious university. The tuition at these colleges ranges from $15,000 to $55,000 a year. His mother lost her job. What is the first thing the family should do to address this situation? |
D |
Which of the following types of personal information should never be sent in an email or text message? |
B |
When making a will, a person will choose a trusted individual to make sure that the will is carried out as intended. This individual is the |
B |
A person who owns a house needs to reduce her monthly expenses. Which of the following is good advice to help her save money? |
C |
A suggested amount of savings in order to pay for emergencies is |
D |
An example of a tax that raises the price of a product to reduce its popularity is |
A |
Impulse shopping usually results in |
A |
A risk of using a debit card for buying goods and services is that |
A |
The result of 4% inflation on the value of money when bank interest rates are 2% is that |
D |
Which of the following is included when determining a person’s net worth? |
C |
Which of the following is generally considered a tax deduction and may reduce a person’s federal income taxes? |
A |
Maintaining organized records for income and expenses is important in order for a person to know where her money is going. What is an effective strategy? |
B |
People in the U.S. spend 5.5% of their income on food consumed in the home and spend 4.5% of their income on food outside of the home. What does this say about how they spend their money? |
C |
Which of the following is an advantage of people increasing their personal savings? |
C |
Which of the following risks can a person cover by having insurance to protect against financial loss? |
A |
What is an acceptable way for people to lower the cost of their automobile insurance? |
D |
When making online transactions, it is important to minimize the threat of identity theft by |
A |
The premium of a person’s life insurance policy is likely to be more expensive as a result of |
B |
What kind of insurance is extremely important for a single 25-year-old person to buy? |
C |
Which of the following is an example of insurance fraud? |
A |
To reduce the cost of homeowners or renters insurance, policy holders should |
A |
Which of the following is included in a standard homeowners or renters policy? |
C |
Which of the following is likely to DECREASE the auto insurance premium on a policy? |
A |
A woman parked her car and went shopping. When she returned she discovered that her car was damaged while it was parked. When filing a claim, what does she have to provide to her insurance company? |
D |
Which of the following government programs would provide partial income to support someone who is permanently disabled? |
C |
The purpose of long-term care insurance policies is to pay for |
D |
Banks and other companies are willing to issue credit cards because these financial institutions |
A |
"I pay my credit card bill in full five-to-seven days before the due date each month!" Someone who does this is likely to have |
D |
Ms. Jones graduated from college when she was age 30. She had a $10,000 college loan. She did not pay back the loan and still owes $8,000. Now she is 60 years old. Ms. Jones needs to know that |
A |
A person has three credit cards with a total of $15,000 owed and a credit score of 500. She does not have a savings account and wants to improve her credit score and decrease her debt. What is the first thing she should do to address her problem? |
D |
A person’s credit report includes his |
B |
Negative or inaccurate information on a person’s credit report will make it difficult for a person to |
C |
Which of the following federal laws protects borrowers? A. Social Security Act. |
C |
Which of the following is an example of collateral? |
A |
One example of using credit responsibly is |
A |
Credit card transactions are considered a form of borrowing because |
D |
In order to be sure that the checking or savings account linked to the account owner’s debit card has sufficient funds for purchases, banks offer "easy-access" credit as an option. Which of the following explains how "easy access" credit works? |
B |
A major difference between leasing and borrowing to buy is that |
D |
A credit card offers a grace period of 21 days, which mean that the card holder |
A |
When a credit card company contacts a person’s employer or asks for a copy of a school transcript with grades, they are generally evaluating a person’s |
B |
The feature of a fixed-rate mortgage loan that is it different from an adjustable-rate mortgage loan is that the fixed-rate mortgage has |
C |
How does having a loan to pay for a college education affect a person’s net worth? |
D |
A neighborhood restaurant wants to add a place for outdoor dining. In order to do this, the owners need a loan of $50,000. Which of the following can influence getting a new loan approved? |
C |
Anthony’s friend Donald asks to borrow Anthony’s computer for the weekend while Donald’s computer is being repaired. What is most important for Anthony to consider before allowing Donald to borrow the computer? |
D |
Lilia borrows a diamond necklace from her friend Jane for a special event. The necklace is very expensive and is insured on Jane’s parents’ homeowner’s policy. When the necklace is returned, Jane notices that a diamond is missing. Jane should handle this situation by |
C |
The Fair Credit Reporting Act (FCRA) is a major law that protects consumers who apply for loans and people using credit. Which of the following is one of the major rights of consumers under this law? |
A |
One of the reasons lenders review the credit history of individuals applying for credit and loans is to determine |
C |
A person received a free copy of her credit report and found inaccurate information. What should she do? |
D |
The purpose of bankruptcy laws is to |
C |
The Federal Trade Commission provides information to consumers about |
C |
How does credit help borrowers? |
B |
Which of the following is an agency that helps people with credit problems or debt? |
C |
A young man owes $6,000 in income taxes that was due three years ago. To collect this debt, the Internal Revenue Service is able to |
C |
Four friends each deposited $1,000 in a savings account at their local bank on the same day. After two years, from the date of deposit, the friend who had the most amount of money is the one whose bank compounded interest |
A |
A person bought 100 shares of stock for $6,000. After selling these 100 shares for $10,000, the investor is |
C |
Boy: Age 10 Deposited $1,000 earning 4% Interest Value at age 20 = $1,492.00 |
B |
An individual with a high tolerance for risk and volatility in financial markets would be most comfortable with more than 50% of his investments in which of the following? |
D |
Which of the following is an example of how a stock may provide income? |
B |
An investor bought 100 shares of stock in a technology company for $3,000 and three years later, sold all the shares for $4,000. The $1,000 profit is known as |
C |
The amount of savings in a bank account that is protected by the Federal Deposit Insurance Corporation (FDIC) is |
C |
A woman invested $10,000 in a corporate bond offered by a technology company. The interest rate on the bond is 6% and the bond matures in seven years. The company went bankrupt three years after the bond was bought. What happened to her investment? |
A |
Which of the following people can take the greatest amount of investment risk? |
D |
An investor who is interested in diversifying his stock portfolio should buy |
B |
Investment education help investors avoid scams and protect themselves against fraud. Which statement is a red flag that something is wrong? |
C |
When people invest money in stocks, bonds, or real estate, they are |
B |
Which of the following is a correct calculation of simple interest on $1,000 at the end of one year? |
A |
When an employee is vested in his retirement plan, it means that the employee is now entitled to |
A |
What is the difference between a stock and a bond? |
A |
In addition to a Social Security number or taxpayer ID, which of the following documents will a bank require to open a new account? |
C |
In 2010, the U.S. Congress established The Consumer Financial Protection Bureau (CFPB). The purpose of this organization is to |
A |
How are stocks on the secondary market bought and sold? |
A |
Which of the following is an important benefit of long-term investing in the stock market? |
B |
What is the main function of the Securities and Exchange Commission (SEC)? |
A |
A person, who is reluctant to invest in stocks because she has a low tolerance for risk, should consider |
D |
Which of the following is an advantage of opening a Roth Individual Retirement Account (IRA) as a young person with a full time job? |
D |
Which of the following investments provides the greatest amount of liquidity? |
C |
One reason that young people benefit from having a tax advantaged Traditional Individual Retirement Account (IRA) savings account for retirement is that |
A |
The process whereby the value of an investment increases exponentially over time is called the _________________. A. Annual percentage rate B. Time value C. Annual percentage yield D. Compounding |
D |
What is the compounding of interest? A. The initial deposit B. Money in a savings account C. Interest found in a savings account D. Interest on interest added to an initial deposit |
D |
The annual percentage yield indicates: A. How much interest is earned in a year if allowed to compound B. the total amount of money invested plus interest C. The interest rate D. All of these |
A |
What is compounding? A. Depositing money in the bank B. When interest is added to your initial deposit and you begin to earn interest on interest C. Your initial deposit D. The amount of interest you pay on a loan |
B |
If you invest $100 and receive a 12% APR (annual percentage rate), what will your balance be at the end of the year? A. $121.12 B. $121.00 C. $112.00 D. $100.12 |
C |
When interest is added to your initial deposit and you begin to earn interest on interest, this is known as A. The annual percentage rate B. The time value of money C. Compounding D. The future value of money |
C |
If you have $3,000 today with a 10% APY, how much will you have one year from now? A. $3,200 B. $3,300 C. $3,100 D. $3,500 |
B |
Anna is going to deposit $500 into an account that has an annual interest rate of 8% compounded quarterly. How much will she have at the end of one year? A. $541.22 B. $537.68 C. $546.93 D. $538.15 |
A |
Therese made an investment of $1,000 into an account that pays a 10% annual interest rate which is compounded quarterly. At the end of the 12-month period, Therese earned $103.81 in interest on her $1,000 investment. She calculates her annual percentage yield (APY) to be 10.38%. This is an example of how interest is: A. Compounded B. The same as the annual percentage rate (APR) C. Effected by the annual percentage yield (APY) D. Part of the Truth in Savings Act |
A |
What is (1+ r/n)n -1? A. Future value (FV) B. Annual percentage rate (APR) C. Annual percentage yield (APY) D. Compound percentage interest (CPI) |
C |
Which best describes compound interest? A. Interest is added to a deposit B. Interest is added to your initial deposit and you earn interest on interest C. You pay double interest D. You pay two separate interest rates |
B |
What is earning interest on interest? A. Compounding B. APR (annual percentage rate) C. Savings D. Investing |
A |
Which act helped eliminate investor confusion with compounding interest and the related yields? A. The Truth in Savings Act B. The Compound Interest Act C. The Interest and Yield Act D. The Sarbanes Oxley Act |
A |
Which is not a component of the formula APY = (1 + r/n) n – 1? A. N – 1 = Compound minus interest rate B. R = Stated annual interest rate C. N = Number of times you’ll compound every year D. APY = Annual percentage pate |
A |
Which of the following is the correct formula for computing your annual percentage yield? A. APY = (1+ r/n)n -1 B. APY = (1- r/n) – 1 C. APY = [(1- r) n] + 1 D. APY = [(r – n) r] – 1 |
A |
Which example indicates discounting? A. Looking for less inexpensive options when shopping B. Figuring out how much money to invest now to have a certain amount in the future C. Shoplifting D. All of these |
B |
The Truth in Savings Act A. Provides formulas so people can calculate the APY on investments B. Requires that banks must disclose the fees, the APR, and the APY on interest-bearing accounts C. Requires that banks must disclose the fees, the APR, and the APY on loans D. Provides formulas so people can calculate the APY on loans |
B |
All of the following are related to the time value of money except: A. FVIF B. PVIFI C. PVIF D. FVIFA |
B |
What is a lump sum? A. A single, one-time payment B. Monthly payments C. Yearly payments D. Money in your savings account |
A |
You have a long-term goal of paying off your school loans in five years. You will graduate with a loan debt of $20,000 and an interest rate of 6%. How much will you need to pay each month to have the debt paid off in five years? A. $386.66 B. $400.00 C. $390.17 D. $368.08 |
A |
If Phil has a $100,000 bond with a 7% interest rate, compounded annually, how much will he have in 8 years? A. $163,452.83 B. $170,978.42 C. $149,867.49 D. $171,818.62 |
D |
What do you call a stream of equal payments received or paid at equal intervals in time? A. A lump sum B. An annuity C. Discounting D. Future value |
B |
If your parents deposited $15,000 into an account for you when you were born as part of a college savings fund and that account is earning 10% annually, how much will you have in your college savings fund on your 18th birthday? A. $36,099.29 B. $83,398.76 C. $162,520.59 D. $50,795.32 |
B |
A stream of equal payments that occurs at the end of a period is called A. An ordinary annuity B. Compounding C. An annuity due D. An end annuity |
A |
An ordinary annuity is a A. Stream of unequal payments that occurs at the end of a period B. Stream of equal payments that occurs at the end of a period C. Stream of equal payments that occurs at the beginning of a period D. Stream of unequal payments that occurs at the beginning of a period |
B |
Using mathematical formulas, financial tables, or a financial calculator, you can find the A. Future value of an amount invested today B. Present value of an amount you will receive in the future C. Future value of an amount you deposit annually D. Present value of an amount if you make annual payments E. All of these |
E |
What is the difference between an annuity and an annuity due? A. There are no payments in an annuity due. B. Payments are at the beginning of the month for an annuity and at the end of the month for an annuity due. C. Payments are at the beginning of the month for an annuity due and at the end of the month for an annuity. D. There is no difference. |
C |
Which of the following correctly defines future value? A. The current value of a said future amount based on the interest rate and time in the account. B. The value of an amount at a future date based on the interest rate and time in the account. C. A single, one-time payment. D. A series of equal payments that are made at equal intervals over time. |
B |
If you put $1,000 into an account earning 5% interest annually, how much will you have in five years? A. $5,000.00 B. $1,276.28 C. $1,050.50 D. $1,500.00 |
B |
If you are investing a stream of equal payments that occur at the beginning of each month, what type of investing is this called? A. Lump sum B. Annuity due C. Discounting D. Ordinary annuity |
B |
Calculate the future value when PV = $1,600, the interest rate is 8%, and there are 10 periods. A. $7,030.26 B. $3,620.37 C. $3,370.60 D. $3,454.28 |
D |
Using the present value long-hand method, how much money would need to be deposited to earn $5,000 in five years with a 5% interest rate compounded annually? A. $3,917.63 B. $3,917.00 C. $3,918.63 D. $3,918.00 |
A |
The government has an unlimited supply of money. |
FALSE |
Each dollar bill has a serial number starting with the letter or the district in which it was printed. |
TRUE |
Paper money is backed by the full faith of the U.S. government and the Federal Reserve Bank. |
TRUE |
You put your $100 in a savings account and earn 12% APR. At the end of one year, you earned $12.00 in interest. This is an example of simple interest. |
TRUE |
The annual percentage yield (APY) is the effective monthly rate of return taking into account the effect of compounding interest. |
FALSE |
The APY earned on $10,000 at 12% interest compounded monthly over the course of one year is the same rate as if compounded daily. |
FALSE |
The time value of money is most commonly applied to two types of cash flows: lump sum and annuity. |
TRUE |
You can use the future value interest factor (FVIF) table to calculate the future amount of a lump sum. |
TRUE |
The process of discounting involves knowing how much money you would have had to deposit yesterday in order to have a specific amount today. |
FALSE |
In which of the following markets may a lender sell a loan that a mortgage banker has previously originated? |
B |
Which of the following is considered a conventional loan? |
C |
Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan? |
B |
All of the following are true of conventional loans except what? |
C |
A buyer wants to take out an FHA loan. The broker should refer the buyer directly to: A) any approved lending institution such as a bank or savings and loan association |
A |
Which type of loan will result in the largest reduction of the principal balance most quickly?A) 10% over 30 years |
C |
Which transaction requires a securities license? |
C |
Who is NOT an originator of primary loans? |
D |
It is not difficult to find a credit card company that is eager to extend credit to you. |
TRUE |
Credit cards are commonly used for purchases such as clothing, car repairs, or the purchase of a new car. |
FALSE |
One advantage of credit cards is that you can receive free financing if you pay off your balance each month. |
TRUE |
A disadvantage to credit cards is that there is no way to keep track of individual expenditures. |
FALSE |
Advantages of using credit include the ability to make purchases when cash inflow is low and the convenience of not carrying cash or checks. |
TRUE |
Credit cards can eliminate the need for carrying large amounts of cash. |
TRUE |
When applying for a credit card, the amount of savings that you have will not be a factor in the credit card company’s decision. |
FALSE |
Because of the short-term nature of credit card lending, the condition of the economy is not considered. |
FALSE |
One of the disadvantages of credit cards is that they allow you to spend beyond your means. |
TRUE |
One advantage of using a credit card is that you receive a list of your purchases, which enables you to keep track of your spending. |
TRUE |
The easiest way to establish credit is to |
C |
In applying for a credit card, the potential creditor will look at which of the following as a source of future debt payments if necessary? |
D |
Credit cards are generally used for such purchases as |
C |
Credit cards have all of the following advantages except |
A |
Chapter 5, Personal finance
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