Credit Options and Costs Chapter 7 Full Test Bank

Personal Finance, 13e (Kapoor)

Chapter 7 Choosing a Source of Credit: The Costs of Credit Alternatives

1) After you have selected a product, you should buy it immediately before the store runs out of it.

Difficulty: 1 Easy

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

2) Buying on credit is almost always cheaper than paying cash.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

3) Parents or family members are often the source of the least expensive loans.

Difficulty: 1 Easy

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

4) You can often obtain medium-priced loans from commercial banks, federal savings banks, and credit unions.

Difficulty: 1 Easy

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

5) Two key concepts that you should remember when borrowing are the finance charge and the annual percentage rate.

Difficulty: 1 Easy

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

6) The finance charge is the total dollar amount you pay to use credit.

Difficulty: 1 Easy

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

7) The annual percentage rate is the percentage cost (or relative cost) of credit on a yearly basis.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

8) If you want to minimize your borrowing costs, you may need to accept conditions that reduce the risk for your lender.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

9) If you pledge property or other assets as collateral, you will probably pay a higher interest rate on your loan than you would without collateral.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

10) You may be able to borrow at a lower interest rate if you accept a shorter-term loan.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

11) The two most common methods of calculating interest are compound and simple interest formulas.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

12) The most basic method of calculating interest is the compound interest calculation.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

13) When more than one payment is made on a simple interest loan, the method of computing interest is known as the declining balance method.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

14) With the add-on interest method, interest is calculated on the full amount of the original principal.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

15) The fairest method of calculating interest on a credit card is the average daily balance method.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

16) If creditors give you no credit for payments made during the billing period, it is called the adjusted balance method.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

17) The Truth in Lending law does not set the interest rates or tell the creditor how to make interest calculations.

Difficulty: 2 Medium

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

18) If you want to take advantage of the interest-free period on your credit card, you must pay your bill in full every month.

Difficulty: 1 Easy

Topic: Debit, credit, and other cards

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

19) Inflation increases the purchasing power of money.

Difficulty: 1 Easy

Topic: Time value of money - interest rates and inflation

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

20) You can deduct the interest paid on consumer loans on your income tax return.

Difficulty: 2 Medium

Topic: Income tax preparation and computations

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

21) Banks often encourage you to make the maximum payment, referred to as the "cardholder amount due."

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

22) The rule of 78s formula dictates that you pay less interest at the beginning of a loan.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

23) Under the rule of 78s, loans for a year or less usually do not allow for a finance charge rebate.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

24) The most commonly purchased type of credit insurance is credit life insurance.

Difficulty: 2 Medium

Topic: Credit insurance

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

25) Credit life insurance provides for the repayment of the loan if the borrower dies.

Difficulty: 2 Medium

Topic: Credit insurance

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

26) The consumer credit laws require that an advance notice be given before repossessing a car.

Difficulty: 2 Medium

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

27) The Fair Debt Collection Practices Act regulates the ways debt collection agencies do business.

Difficulty: 2 Medium

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

28) "Keeping up with the Joneses" is one of the frequent reasons for indebtedness.

Difficulty: 1 Easy

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

29) Overindulgence of children is a frequent reason for indebtedness.

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

30) Anyone who is overburdened by credit obligations can phone, write, or visit a Consumer Credit Counseling Service (CCCS) office.

Difficulty: 1 Easy

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

31) There is never a charge for a debt repayment plan administered by a Consumer Credit Counseling Service (CCCS) office.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

32) The Consumer Credit Counseling Service (CCCS) counseling is usually free.

Difficulty: 1 Easy

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

33) The Consumer Credit Counseling Service (CCCS) is a lending institution that will refinance all of your existing debts for you.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

34) In addition to the Consumer Credit Counseling Service (CCCS), alternative counseling services (universities, credit unions, military bases, and state and federal housing authorities) sometimes provide nonprofit counseling services.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

35) An increasing number of bankruptcy filers are well-educated, middle-class people.

Difficulty: 2 Medium

Topic: Bankruptcy - costs and considerations

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

36) For some debtors, bankruptcy had become an acceptable tool of credit management based on the number of declared bankruptcies in 2005.

Difficulty: 2 Medium

Topic: Bankruptcy - costs and considerations

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

37) You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

38) A person filing for relief under the bankruptcy code is called bankrupt, not a debtor.

Difficulty: 1 Easy

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

39) Chapter 7 bankruptcy is also known as a straight bankruptcy.

Difficulty: 1 Easy

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

40) Both Chapter 7 and Chapter 13 bankruptcy are considered an easy way out of debt.

Difficulty: 1 Easy

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

41) In a straight bankruptcy, many, but not all, debts are forgiven.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

42) In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her property.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

43) You have the right to file your own bankruptcy case and to represent yourself at all court hearings.

Difficulty: 2 Medium

Topic: Bankruptcy - costs and considerations

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

44) There are no costs involved in filing for a bankruptcy.

Difficulty: 2 Medium

Topic: Bankruptcy - costs and considerations

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

45) If you declare a Chapter 7 bankruptcy, you do not have to pay alimony, child support, or educational loans.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

46) If your credit company invites you to skip a monthly payment without a penalty, they are doing you a favor.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

47) Credit unions offer loans with a single repayment schedule to non-members.

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

48) By evaluating your credit options, you may:

A) reduce your finance charges.

B) reconsider your decision to borrow money.

C) discover a less expensive type of loan.

D) find a lender that charges a lower interest rate.

E) All of these

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

49) Which one of the following financing methods usually provides a "float" period?

A) Installment loan

B) Credit card

C) Lump-sum loan

D) Home equity line of credit

E) Auto loan

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

50) A "float" period can be defined as:

A) the interest charged during one billing period.

B) the principal balance due on a loan.

C) a home equity loan.

D) a certain number of days during which no interest is charged.

E) a lump-sum loan from a credit union.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

51) 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

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

A) tend to be more expensive than other types of loans.

B) must be interest-free.

C) can complicate family relationships.

D) are limited to oral agreements.

E) are legally prohibited from establishing repayment dates and terms.

Difficulty: 1 Easy

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

53) Your bank card has an APR of 21% and there is a 3% fee for cash advances. The bank starts charging interest on cash advances immediately. You get a cash advance of $500 on the first day of the month. You get your credit card bill at the end of the month. What is the approximate total finance charge you will pay on this cash advance for the month? Assume each month has 30 days.

A) $15

B) $21

C) $24

D) $0

E) $3

Explanation: $500 × 3% = $15.00 cash advance fee; ($500 + $15) × 0.21 × (1 month/12 months) = $9.02 interest; Total finance charge = $15.00 + $9.02 = $24.02 or rounded to $24.00

Difficulty: 3 Hard

Topic: Cost of credit - rates and fees

Learning Objective: 07-01 Analyze the major sources of consumer credit.; 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

54) You can often obtain medium-priced loans from:

A) parents or family members.

B) American Express.

C) Diners Club.

D) finance companies.

E) credit unions and federal savings banks.

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

55) The number of credit union members has been:

A) growing steadily.

B) declining gradually.

C) static.

D) restricted by the Tax Reform Act of 1986.

E) restricted by state laws.

Difficulty: 1 Easy

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

56) The most expensive loans are available from:

A) parents.

B) friends.

C) federal savings banks.

D) finance companies.

E) credit unions.

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

57) Which federal law, passed in 1969, requires creditors to state the cost of borrowing as a dollar amount?

A) Fair Credit Reporting Act

B) Fair Credit Billing Act

C) Equal Credit Opportunity Act

D) Fair Debt Collection Practices Act

E) Truth in Lending Law

Difficulty: 1 Easy

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

58) 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.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

59) If you borrow $150 at 10 percent interest, how much will you repay in one lump-sum at the end of one year using simple interest?

A) $100.

B) $150.

C) $165.

D) $115.

E) $155.

Explanation: P + I = P + (P × r × T) = $150 + ($150 × 0.10 × 1 year) = $150 + 15 = $165.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

60) If creditors add finance charges after subtracting payments made during the billing period, then this is called the:

A) APR method.

B) discount method.

C) previous balance method.

D) adjusted balance method.

E) average daily balance method.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

61) If creditors give you no credit for payments made during the billing period, then this is called the:

A) APR method.

B) discount method.

C) previous balance method.

D) adjusted balance method.

E) average daily balance method.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

62) Which formula is used by creditors and involves tables based on a mathematical formula 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

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

63) The most commonly purchased type of credit insurance is:

A) credit life insurance.

B) credit accident insurance.

C) credit health insurance.

D) credit property insurance.

E) credit disability insurance.

Difficulty: 2 Medium

Topic: Credit insurance

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

64) Which type of credit insurance repays your loan in the event of a loss of income due to illness or injury?

A) Credit life insurance

B) Credit accident and health insurance

C) Credit property insurance

D) Credit casualty insurance

E) Credit inability insurance

Difficulty: 2 Medium

Topic: Credit insurance

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

65) Which formula dictates that you pay more interest at the beginning of a loan and pay less and less interest as the debt is reduced?

A) Adjusted balance method

B) Previous balance method

C) The rule of 78s

D) Average daily balance

E) Accelerated balance

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

66) If you find that you cannot make your payments, the first thing you should do is:

A) skip town.

B) declare personal bankruptcy.

C) borrow from a loan shark to make the payment.

D) let the balance owed go to a collection agency.

E) contact your creditors and try to work out a modified payment plan with them.

Difficulty: 2 Medium

Topic: Consumer credit - general

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

67) According to a consumer affairs columnist, the nation's number one family financial problem is:

A) poor money management.

B) overindebtedness.

C) medical costs.

D) insurance costs.

E) unemployment.

Difficulty: 1 Easy

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

68) If you default on your automobile loan, most automobile financing agreements:

A) require an advance notice be sent to you before your car is repossessed.

B) permit your creditor to repossess your car at any time without notice.

C) permit the federal consumer credit laws to protect your car from being repossessed.

D) allow you to not pay the full balance due on your automobile loan.

E) allow you to pay fifty percent of the balance due on your automobile loan.

Difficulty: 3 Hard

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

69) The Federal Trade Commission enforces the:

A) Truth in Credit Act.

B) Equal Credit Act.

C) Fair Credit Receiving Act.

D) Fair Debt Collection Practices Act.

E) Fair Credit Payment Act.

Difficulty: 2 Medium

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

70) If you receive a phone call from a debt collector:

A) hang up on him or her.

B) expect follow-up written communication within five days.

C) call the police.

D) threaten the collector with a law suit.

E) contact your attorney immediately.

Difficulty: 3 Hard

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

71) If you receive a phone call from a debt collector, s/he must send you a written notice within ________ days.

A) 5

B) 10

C) 15

D) 20

E) 30

Difficulty: 2 Medium

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

72) This morning, you received a phone call alleging you owe a debt. If you dispute this debt, you must write to the debt collector and request verification of the obligation. How many days do you have to send this letter?

A) 5

B) 10

C) 15

D) 20

E) 30

Difficulty: 3 Hard

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

73) A few months ago, you sent a certified letter to a debt collector and requested verification of a debt the collector says you owe. You know the letter was received by the collector but you have not received a response to your request. Today, you received a letter threatening court action. What should you do?

A) Pay the debt and protect your credit rating

B) Insist that communications about the debt cease

C) Renegotiate payment terms with the creditor

D) Sue the collection agency

E) Pay half the outstanding balance

Difficulty: 2 Medium

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

74) What is the most common reason why consumers are unable to pay their bills on time?

A) Medical expenses

B) Defective goods and services

C) Excessive use of credit

D) Fraudulent use of credit

E) Consumer fraud

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

75) Which of the following is/are a signal of potential debt problems?

A) Paying only the minimum balance on credit card bills each month

B) Missing payments or paying late

C) Using savings to pay routine bills

D) Depending on overtime to meet everyday expenses

E) All of these are danger signals

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

76) Which one of the following is not a danger signal of potential debt problems?

A) Paying only the minimum balance due each month

B) Receiving second or third payment notices from creditors

C) Using savings to pay routine bills

D) Repaying loans faster than required

E) Depending on overtime and moonlighting to meet everyday expenses

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

77) Excessive indebtedness can result in:

A) heavy drinking.

B) neglect of children.

C) marital difficulties.

D) drug abuse.

E) All of these

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

78) The Consumer Credit Counseling Service is affiliated with the:

A) National Foundation for Consumer Credit.

B) Federal Trade Commission.

C) Better Business Bureau.

D) U.S. Consumer Protection Agency.

E) Federal Reserve Banks.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

79) Which of the following financially supports the Consumer Credit Counseling Service with contributions?

A) National Foundation for Consumer Credit

B) Community-minded organizations and individuals

C) Federal Reserve Banks

D) The Federal Home Loan Bank

E) Taxpayers

Difficulty: 3 Hard

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

80) Which one of the following is a local, nonprofit organization that provides debt counseling services for families and individuals with serious financial problems?

A) Credit bureau

B) Chamber of Commerce

C) Consumer Credit Counseling Service

D) Internal Revenue Service

E) Better Business Bureau

Difficulty: 1 Easy

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

81) Credit counselors are aware that most people who are in debt over their heads are:

A) criminals who take advantage of creditors.

B) living in poverty-stricken areas.

C) expected to declare Chapter 11 bankruptcy.

D) not college educated.

E) basically honest people.

Difficulty: 1 Easy

Topic: Debt management

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

82) The CCCS is also concerned with:

A) lending money to destitute people.

B) giving debtors food and shelter.

C) helping destitute debtors to relocate into less expensive areas.

D) preventing and solving the problems related to overindebtedness.

E) paying off mortgage loans.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

83) The CCCS aids families by:

A) setting up a realistic budget for them.

B) paying off their loans.

C) providing free basic necessities.

D) providing one month free shelter.

E) relocating them in less expensive areas.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

84) Which of the following is not true of CCCS counseling?

A) It is usually free.

B) It is quite costly.

C) It provides education regarding the pitfalls of unwise credit buying.

D) It suggests techniques for family budgeting.

E) It helps families manage their money.

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

85) The CCCS sometimes charges a nominal fee if it:

A) administers a debt repayment plan.

B) helps families manage their debts better.

C) sets up a realistic budget for them.

D) provides credit education.

E) contacts creditors.

Difficulty: 3 Hard

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

86) In a Chapter 7 bankruptcy, which of the following debts may be excluded from discharge?

A) Debts arising from fraud

B) Debts arising from embezzlement

C) Debts arising from driving while intoxicated

D) Debts arising from larceny

E) All of these

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

87) 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

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

88) In a Chapter 7 bankruptcy, the debtor:

A) is required to draw up a petition listing his or her assets and liabilities.

B) does not have to pay a filing fee.

C) is called a "bankrupt."

D) does not have to pay outstanding alimony and child support payments.

E) does not have to repay educational loans.

Difficulty: 3 Hard

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

89) Which of the following institutions is generally sympathetic to borrowers with legitimate payment problems?

A) Credit union

B) Payday advance company

C) Finance company

D) Department store

E) Commercial bank

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

90) Which payday loan lender is likely to ask you to write a check for $115 before granting you a $100 loan?

A) Credit union

B) Finance company

C) Federal savings bank

D) Department store

E) Commercial bank

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

91) Sandra Jennings gets a loan from General Motors Acceptance Corporation. Which type of lending institution is this?

A) Credit union

B) Check casher

C) Finance company

D) Department store

E) Commercial bank

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

92) Chuck Stallings qualifies for an American Express card. Which of the following offers this type of loan?

A) Credit union

B) Check casher

C) Finance company

D) T&E card

E) Commercial bank

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

93) Chuck Spencer wants to borrow money for six years to purchase a new car. He has been offered a seven percent fixed rate loan and also a variable rate loan that has an initial rate of five percent. By choosing the variable rate loan, Chuck is reducing the lender's risk by:

A) sharing the interest rate risk.

B) increasing his monthly payments.

C) taking a higher stake in the asset he is purchasing.

D) repaying the loan over a faster period of time.

E) pledging collateral.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

94) Anthony Newton wants to buy a new sail boat. He is planning on making a $9,000 cash down payment, which is a large portion of the cost of what he is financing. In which way is Anthony reducing his lender's risk?

A) He is sharing the interest rate risk with his lender.

B) He is pledging valuable assets that can be seized if the loan is not repaid.

C) He is taking a higher stake in the asset he is purchasing.

D) He is repaying the loan over a faster period of time.

E) He is increasing his monthly payments.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

95) Patricia Newton is going to buy a new car, and she needs to apply for a loan to cover the purchase. She knows she can get a loan for up to 6 years, but she would prefer a shorter-term loan. She selects a 4-year loan. Patricia is lowering her lender's risk by:

A) sharing the interest rate risk.

B) pledging collateral.

C) paying a larger cash deposit.

D) repaying the loan faster.

E) sharing inflation risk with her lender.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

96) Jerrod Dean starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the adjusted balance method (and excludes new purchases). What would Jerrod's finance charges be for the month?

A) $7.50

B) $13.25

C) $11.25

D) $15.00

E) $18.00

Explanation: 800 − 300 = 500;

500 × 1.5% = $7.50.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

97) Jerry Allison starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the previous balance method. What would Jerry's finance charges be for the month?

A) $4.50

B) $7.50

C) $11.25

D) $12.00

E) $18.00

Explanation: 800 × 1.5% = $12.00.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

98) Henry Garrison starts the month with a balance on his credit card of $800. The average daily balance for the month including purchase is $683. The average daily balance for the month excluding new purchase is $550. The bank charges 1.5 percent per month and uses the average daily balance including new purchases method. What would Henry's finance charges be for the month?

A) $8.25

B) $10.25

C) $12.00

D) $15.00

E) $18.00

Explanation: 683 × 1.5% = $10.25.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

99) Randy Ice starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The average daily balance for the month including the new purchase is $683. The average daily balance for the month excluding the new purchase is $550. The bank charges 1.5 percent per month and uses the average daily balance excluding new purchases method. What would Randy's finance charges be for the month?

A) $4.50

B) $7.50

C) $8.25

D) $10.25

E) $12.00

Explanation: 550 × 1.5% = $8.25.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

100) Shelly Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month. Under the APR formula, what is the amount of interest included in her first payment?

A) $16.00

B) $14.77

C) $8.96

D) $4.87

E) $1.23

Explanation: First, solve for rate and find annual dollar interest using the APR formula; $3,000 × r = $3,000 × [(2 × 12 × 96)/$3,000(12+1)] = $3,000 × 2304/39,000 = $177.23; $177.23/12 months = $14.77.

Difficulty: 3 Hard

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

101) Sarah Parker goes out with the girls for a night on the town and gets home late, waking everyone in the house. In response, her husband Jerry goes out the next day and spends $500 on new shoes for himself, putting it all on a credit card. Which one of the following causes of overindebtedness best explains Jerry's spending?

A) Misunderstanding or lack of communication

B) The use of money to punish

C) The expectation of instant comfort

D) Keeping up with the Joneses

E) Overindulgence of children

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

102) Jeff Bloom wants to have a house just like the one his parents had when he was a teenager. He finds the house he wants and gets an interest-only loan on it for the first five years. Which one of the following best explains Jeff's spending, which can lead to overindebtedness?

A) Misunderstanding or lack of communication

B) The use of money to punish

C) The expectation of instant comfort

D) Keeping up with the Joneses

E) Overindulgence of children

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

103) Gary Simpson notices that his neighbor has a brand new Ford F150 truck parked in the driveway. Even though his current car is fine, Gary decides that he needs a new car and goes out and purchases a Tundra with a six-year loan. Which one of the following best explains Gary's spending, which can lead to overindebtedness?

A) Misunderstanding or lack of communication

B) The use of money to punish

C) The expectation of instant comfort

D) Keeping up with the Joneses

E) Overindulgence of children

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

104) Steve Black has two children. He is buying each of them their own TV to put in their rooms so they do not have to join the rest of the family and watch TV together. Which one of the following best explains Gary's spending, which can lead to overindebtedness?

A) Misunderstanding or lack of communication

B) The use of money to punish

C) The expectation of instant comfort

D) Keeping up with the Joneses

E) Overindulgence of children

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

105) Which one of these is the fairest method of calculating finance charges on a credit card?

A) Declining balance method

B) Adjusted balance method

C) Current balance method

D) Average daily balance method

E) Previous balance method

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

106) Which method of payment is almost always cheaper than using credit?

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

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

107) Payday, cash advance, check advance, and postdated checks are ________ loans.

A) inexpensive

B) medium-priced

C) expensive

D) low APR

E) variable APR

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

108) Before you sign a loan contract, make sure to:

A) explore other financing options.

B) contact several lenders.

C) know your rights under the law.

D) compare terms, interest rates, and other fees.

E) All of these

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

109) If a new-car loan costs 6%, then a used-car loan may cost:

A) a lower percentage.

B) the same percentage.

C) slightly more.

D) significantly more.

E) a substantially higher percentage.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

110) If Marjorie Wilcox borrows $300 for one year with an APR of 21% and an annual service fee of $6, what is her total cost of credit?

A) $6

B) $15

C) $21

D) $69

E) $74

Explanation: (300 × 0.21 × 1 year) + 6 = $69.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

111) You just received a credit card application. Which of the following are included with this application?

A) Minimum interest charges

B) Annual percentage rate for purchases

C) Penalty fees

D) Method used to calculate balance

E) All of these

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

112) The Rule of 78s dictates that a borrower pays:

A) more interest at the beginning of the loan period.

B) more interest at the end of the loan period.

C) more interest in the middle of the loan period.

D) less interest than indicated by the APR.

E) equal amounts of interest throughout the loan.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

113) An increasing number of personal bankruptcies are made by well-educated, middle-class people, who represent ________ percent of the adult population.

A) 70

B) 60

C) 50

D) 40

E) 30

Difficulty: 2 Medium

Topic: Bankruptcy - costs and considerations

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

114) According to Fair Isaac Corporation (FICO), a personal bankruptcy can cause an immediate drop in your credit score of how many points?

A) 100

B) 150

C) 180

D) 210

E) 260

Difficulty: 2 Medium

Topic: Credit reports and ratings

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

115) Collection agencies are allowed to:

A) contact you at your place of employment.

B) contact you as early as 8 am.

C) say that you will be arrested if you do not pay the debt.

D) harass you.

E) threaten harm to you or your family.

Difficulty: 1 Easy

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

116) Which of the following is not true about the Credit CARD Act of 2009?

A) States that teaser rates must stay in effect for at least 6 months

B) Makes new disclosure statements clear and more timely

C) Requires credit card issuers to post their standard card agreements on the Internet

D) Allows card issuers to apply new higher interest rates to the existing card balances

E) Requires issuers to mail monthly statements at least 21 days before payment is due

Difficulty: 3 Hard

Topic: Consumer credit - laws, rights, and protections

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

117) In addition to the Consumer Credit Counseling Service (CCCS), the following entities also provide counseling services:

A) Universities

B) Credit unions

C) Military bases

D) State and federal housing authorities

E) All of these

Difficulty: 1 Easy

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

118) Which type of debt would not be forgiven in a straight bankruptcy?

A) Credit card debt

B) Medical bills

C) Personal loans

D) Educational loans

E) Utility bills

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

119) Which of the following methods calculates interest on the full amount of the original principal?

A) Declining balance method

B) Add-on interest method

C) Previous balance method

D) Adjusted balance method

E) Average daily balance method

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

120) When more than one payment is made on a simple interest loan, the method of computing interest is known as the:

A) add-on interest method.

B) average daily balance method.

C) adjusted balance method.

D) declining balance method.

E) previous balance method.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

121) Borrowing from credit unions has several advantages but does not include:

A) costly credit life insurance.

B) sympathy toward borrowers with legitimate payment problems.

C) personalized service.

D) the same range of consumer loans that banks offer.

E) None of these

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

122) All loans to or from family members should:

A) be in writing.

B) state the interest rate.

C) state the repayment schedule.

D) state the final payment date.

E) All of these

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

123) Which of the following is not true regarding a tax refund loan?

A) It is an inexpensive way to borrow money.

B) It lets you get an advance on a tax refund.

C) APRs as high as 774 percent have been reported.

D) An alternative to these loans is to ask for more time to pay a bill.

E) A cash advance on your credit card may cost less.

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

124) The finance charge may include which of the following:

A) Interest costs

B) Service charges

C) Credit-related insurance premiums

D) Appraisal fees

E) All of these

Difficulty: 3 Hard

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

125) Variations of simple interest do not include the:

A) Add-on interest method

B) Bank discount method

C) Adjusted balance method

D) Simple interest on the declining balance method

E) Compound interest method

Difficulty: 3 Hard

Topic: Cost of Credit - simple and compound interest

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

126) Which of the following is true if your credit company invites you to skip a monthly payment without a penalty?

A) They are doing you a favor.

B) You will not owe finance charges on your unpaid balance.

C) Interest will not be adding up on any purchases you make after the due date you skipped.

D) It would be a mistake to take this offer.

E) You should not ignore this offer.

Difficulty: 3 Hard

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

127) Mature consumers have certain information and:

A) They demonstrate self-discipline.

B) They control their impulses and use sound judgment.

C) They accept responsibility for money management.

D) They are able to postpone expenditures when needed.

E) All of these

Difficulty: 1 Easy

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

128) Danger signals of potential debt problems include:

A) paying early.

B) borrowing money to pay old debts.

C) talking to your spouse about money.

D) paying extra payments.

E) paying the balance in full each month.

Difficulty: 1 Easy

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

129) The Consumer Credit Counseling Service (CCCS) is supported by contributions from:

A) banks.

B) consumer finance companies.

C) credit unions.

D) merchants.

E) All of these

Difficulty: 1 Easy

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

130) Before deciding to borrow money, you should ask yourself:

A) Do I need a loan?

B) Can I afford a loan?

C) Can I qualify for a loan?

D) All of these

E) None of these

Difficulty: 2 Medium

Topic: Consumer credit - general

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

131) Which of the following is true of the minimum monthly payment on a credit card?

A) It is the largest amount you can pay and still be a cardholder in good standing.

B) It is not required to be listed as a warning on your monthly credit card statement.

C) It refers to the maximum payment amount due from a cardholder.

D) It is a financial trap.

E) It refers to the total amount that a cardholder owes.

Difficulty: 2 Medium

Topic: Debt management

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

132) In filing a petition for a Chapter 7 bankruptcy, a debtor must provide the following:

A) A list of creditors and the amount and nature of their claims.

B) The source, amount, and frequency of the creditor's income.

C) A list of all the creditor's property.

D) A detailed list of the creditor's monthly expenses.

E) A list of the creditor's personal references.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

133) Don't make the mistake of trusting which of the following counseling providers that promise to help you clean up your credit report for a fee:

A) University

B) Military base

C) Credit repair clinic

D) Credit union

E) State housing authority

Difficulty: 2 Medium

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

134) Which of the following is not true of debt collection in the United States?

A) The industry employs nearly 120,000 workers.

B) It includes calls and letters.

C) It includes filing lawsuits to collect the debt from consumers.

D) It includes workers across approximately 8,000 collection agencies.

E) It is only a $1 million industry.

Difficulty: 3 Hard

Topic: Debt collection

Learning Objective: 07-03 Develop a plan to manage your debts.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

135) List several national nonprofit organizations that provide information and assist people with debt problems by phone and online. 

Financial Counseling Association of America (fcaa.org)

InCharge Institute of America (www.incharge.org)

Money Management International (www.moneymanagement.org)

Difficulty: 3 Hard

Topic: Credit counseling services

Learning Objective: 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

136) What are the major sources of consumer credit?

Difficulty: 2 Medium

Topic: Sources of Consumer Credit

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

137) What are two key concepts to remember if you are thinking of borrowing money or opening a credit account? Describe each concept.

Two key concepts are the finance charge and the APR. The finance charge is the total dollar amount you pay to use credit and includes interest costs and sometimes service charges, credit-related insurance premiums, or appraisal fees. The APR is the percentage cost of credit on a yearly basis. The APR is the key to comparing costs. Both the finance charge and the annual percentage rate should be compared as you shop for credit. Under the Truth in Lending law, the creditor must inform you, in writing and before you sign any agreement, of the finance charge and the APR.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

138) What are the various methods used to calculate interest?

1. Simple Interest- compute interest on principal only and without compounding.

2. Simple Interest on the declining balance- a method used when more than one payment is made on a simple interest loan. Interest is computed only on the amount of the original principal unpaid.

3. Add-on Interest- interest is calculated on the full amount of the original principal. This amount of interest is immediately added to the original principal and then the sum is divided by the number of payments to arrive at the payment amount.

4. Bank discount- interest is calculated on the amount to be paid back and you receive the difference between the amount to be paid back and the interest amount.

5. Compound interest- calculates amount of interest to be paid on the original principal plus the accumulated interest.

Difficulty: 3 Hard

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

139) Explain the Rule of 78s.

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

140) In open-end credit, what are the various systems creditors use to calculate the balance on which they assess finance charges?

(a) adjusted balance method (b) previous balance method, and (c) average daily balance method.

Adjusted balance method — finance charges are added after subtracting payments made during the billing period.

Previous balance method — gives no credit for payments made during the billing period.

Average daily balance method — uses a weighted average of the account balance throughout the current billing period.

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

141) If you are having problems paying your bills and need help, what are several options available to you?

1. You can contact your creditors immediately and try to work out an adjusted repayment plan.

2. You can check your telephone directory for a nonprofit financial counseling program, such as your local Consumer Credit Counseling Service branch and work with a credit counselor. Alternatively, some universities, military bases, credit unions, and state and federal housing authorities provide nonprofit counseling services.

3. Before signing up with a debt consolidation company, investigate it thoroughly.

4. A debtor's last resort is to declare personal bankruptcy. Consider the financial and psychological costs of bankruptcy before taking this extreme step.

Difficulty: 3 Hard

Topic: Debt management

Learning Objective: 07-03 Develop a plan to manage your debts.; 07-04 Evaluate various private and governmental sources that assist consumers with debt problems.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

142) Explain the concept of "float."

Difficulty: 2 Medium

Topic: Cost of Credit - methods

Learning Objective: 07-01 Analyze the major sources of consumer credit.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

143) Explain simple interest.

Difficulty: 3 Hard

Topic: Cost of Credit - simple and compound interest

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

144) In what ways can you lower the risk to your lender in order to reduce your borrowing costs?

- Shorten the loan term

- Pledge property or other assets as collateral

- Accept a variable interest rate to gain a lower initial interest rate

- Place a large down payment on the purchase you are financing

Difficulty: 2 Medium

Topic: Cost of credit - rates and fees

Learning Objective: 07-02 Determine the cost of credit by calculating interest using various interest formulas.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

145) Explain the two choices available in declaring personal bankruptcy.

Chapter 7 is a straight bankruptcy, and Chapter 13 is a wage-earner plan for bankruptcy. Under a Chapter 7 bankruptcy, an individual must list all assets and liabilities. Most debts are forgiven. The debtor's assets are sold to pay creditors. Debts not forgiven include alimony, child support, educational loans, certain taxes, fines, and undisclosed debts. Under Chapter 13 bankruptcy, a debtor with regular income proposes a plan for future earnings or assets to eliminate outstanding debts. Regular payments are made to a Chapter 13 trustee.

Difficulty: 2 Medium

Topic: Bankruptcy - Chapters 7 and 13

Learning Objective: 07-05 Assess the choices in declaring personal bankruptcy.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual