Installment Buying And Revolving | Test Bank + Answers Ch.10

Chapter 10

Installment Buying and Revolving Charge Credit Cards

True/False Questions
 

1. The amount financed equals the cash price plus the down payment. 
True    False

2. The cost of credit reports would be included in the amount financed. 
True    False

3. Amortization is not a payment process. 
True    False

4. Finance charge equals total of all monthly payments minus amount financed. 
True    False

5. The APR represents the stated interest rate. 
True    False

6. The Truth in Lending Act regulates interest charges. 
True    False

7. APR cannot be calculated by use a financial calculator. 
True    False

8. Calculating APR requires that the total amount financed be divided by the interest charge and then multiplied by 100. 
True    False

9. The Truth in Lending Act requires that the APR be stated accurately to the nearest 1/4 of 1%. 
True    False

10. The monthly payment is calculated by totaling the finance charge and amount financed and dividing that by the number of payments of the loan. 
True    False

11. The Fair Credit and Charge Card Disclosure Act of 1988 is optional advice to credit card companies. 
True    False

12. Revolving charge accounts must be paid off completely by the end of the month. 
True    False

13. The U.S. Rule can be applied to open credit payments. 
True    False

14. Today most companies calculate the finance charge on their credit card accounts as a percentage of the yearly balance. 
True    False

15. A billing cycle is always 30 or 31 days. 
True    False

16. The daily balance is the previous balance plus cash advances plus purchases minus any payments. 
True    False

17. The average daily balance is the same as the daily balance. 
True    False

18. Average daily balance is equal to sum of daily balances divided by number of days in the billing cycle. 
True    False

Multiple Choice Questions
 

19. Amount financed is equal to: 
A. Cash price times down payment
B. Cash price plus down payment
C. Cash price minus down payment
D. Cash price divided by down payment
E. None of these

20. The finance charge is equal to the total of all monthly payments: 
A. Plus amount financed
B. Minus amount financed
C. Divided by amount financed
D. Multiplied by amount financed
E. None of these

21. The APR represents the: 
A. Stated rate of interest
B. True effective quarterly interest rate charged by seller
C. True effective annual rate of interest charged by buyer
D. True effective annual rate of interest charged by seller
E. None of these

22. Which one of the following statements is incorrect? 
A. The Truth in Lending Act was passed in 1969
B. APR is the true effective annual interest charged by sellers
C. The Truth in Lending Act regulates interest charges
D. APR represents the true effective rate annual rate of interest
E. None of these

23. Open credit in a revolving charge plan results in: 
A. One purchase per month
B. The U.S. Rule being applied to each purchase
C. As many cash purchases till credit limit is reached
D. As many charged purchases till credit limit is reached
E. None of these

24. Most companies calculate the finance charge on credit card accounts as a percentage of the: 
A. Daily balance
B. Weekly balance
C. Average daily balance
D. Average weekly balance
E. None of these

25. In calculating the daily balance, cash advances are: 
A. Added in
B. Subtracted out
C. Sometimes added in
D. Sometimes subtracted out
E. None of these

26. The average daily balance is equal to the sum of daily balances: 
A. Plus number of days in billing cycle
B. Minus number of days in billing cycle
C. Divided by number of days in billing cycle
D. Multiplied by number of days in billing cycle
E. None of these

27. Dan Miller bought a new Toyota truck for $28,000. Dan made a down payment of $6,000 and paid $390 monthly for 70 months. The total finance charge was: 
A. $13,300
B. $5,300
C. $11,300
D. $27,300
E. None of these

28. Justin Chan bought a Scion car for a price of $8,200, putting down $800 and financing the remainder with 60 monthly payments of $179.99. The APR is

A. Close to 15%
B. Close to 14%
C. Close to 13 ½%
D. Between 16.00 and 16.25%
E. None of these

29. Given: $140.10 per month; cash price $5,600; down payment $0; 60 payments
Cash or trade months with bank-approved credit; amount financed $5,600
Finance charge $2,806
Total payments $8,406
The APR is: 
 
A. 17.30%
B. 17.00 %
C. 16.75 %
D. 16.50 %
E. None of these

30. Mia Lane bought a high-definition television for $7,500. Based on her income, she could afford to pay back only $600 per month. There is 1 ½% monthly interest charge on the unpaid balance. The U.S. Rule is used in the calculation. At the end of month 1, the balance outstanding is: 
A. $6,012.50
B. $5,012.50
C. $4,012.50
D. $3,012.50
E. None of these

31.Ed Sloan bought a new Explorer for $22,000. He put down $7,000 and paid $290 for 60 months. The total finance charge to Ed is:
A. $15,000
B. $17,400
C. $2,400
D. $4,200
E. None of these

32. John Sullivan bought a new Brunswick boat for $17,000. He made a $2,500 down payment on it. The bank's loan was for 60 months. Finance charges totaled $4,900. His monthly payment is: 
A. $313.33
B. $323.33
C. $332.33
D. $232.33
E. None of these

33. Given the following:
 
The average daily balance is:
A. $910.34
B. $755.17
C. $810.43
D. $755.71
E. None of these 

34. Amanda Chin purchased a home for $296,000; she put 20% down with a mortgage rate of 6% for 30 years. What is Amanda’s monthly payment?

A. $1,776

B. $1,402

C. $1,240.80

D. $1,419.74

E. None of these

35. Darlene Ramirez bought a home for $140,000. She put 20% down with a mortgage rate of 7.5% for 25 years. Her yearly payments are:

A. $1,776

B. $9,932.04

C. $12,415.20

D. $9,329.61

E. None of these

36. Given a mortgage of $48,000 for 15 years with a rate of 11%, what are the total finance charges?

A. $50,202.60

B. $5,023.68

C. $545.76

D. $54,576

E. None of these

37. A condo in Orange Beach, Alabama, listed for $1.4 million with 20% down and financing at 5% for 30 years. What would the monthly payment be?

A. $7,518

B. $6,012.40

C. $6,041.20

D. $7,815.00

E. None of these

38. Jen purchased a condo in Naples, Florida, for $699,000. She put 20% down and financed the rest at 5% for 30 years. What are Jen’s total finance charges?

A. $457,425.60

B. $606,823.20

C. $521,487.20

D. $600,000.00

E. None of these

Short Answer Questions
 

39. 1. Amount financed
2. APR
3. Average daily balance
4. Cash advance
5. Deferred payment
6. Down payment
7. Finance charge
8. Amortization
9. Open-end credit
10. Revolving charge
11. Truth in Lending Act
A. Used in calculation of average daily balance
B. Purchase till maximum credit reached
C. Initial cash payment
D. Cash price minus down payment
E. Doesn't dictate interest rates
F. Total of all monthly payments plus down payment
G. A payment process
H. Sum of daily balance divided by number of days in billing cycle
I. A revolving charge account
J. Effective interest rate
K. Total of all payments minus amount financed 

40. Calculate the finance charge:
   

41. Calculate APR (to nearest hundredth percent):
   

42. Calculate the average daily balance (assume a 30-day billing cycle):
   

43. Joyce Reed bought a used jeep for $13,500. She put down $2,000 and paid $220 monthly for 60 months. What is the amount of finance charge Joyce will pay? 

44. Bill Moore bought a stereo selling for $5,800, putting down $1,200. The payment schedule was for 48 monthly payments of $117.50. What is the APR? 

45. Joanne Revis bought a home computer for $1,299. She plans to pay $300 per month till the purchase is paid off. Assume there is a 1 1/2% interest charge on the unpaid balance and the U.S. Rule is used. What is the outstanding balance due at the end of the first month? 

46. Pete Sole bought a used car for $8,000. Pete put down $2,000 and financed the balance at 10 1/2% for 60 months. What is his monthly payment?

47. Vicki King bought a Ford Explorer for $23,000. Vicki put a down payment of $6,000 and paid $305 monthly for 60 months. What is the total finance charge that Vicki paid at the end of 60 months? 

48. Pete Size read the following partial advertisement: Price $20,999; down payment $1,000; cash or trade; $390.85 per month for 60 months. Calculate (A) the total finance charge and (B) the APR. 

49. Marika Katz bought a $7,000 computer. Based on her income, Marika could afford to pay back only $700 per month. The charge on the unpaid balance is 1 1/2%. The U.S. Rule is used in the calculation. Calculate the balance outstanding after the second month. 

50. Calculate average daily balance:
   

51. Mel Blanc bought a new dining room set for $6,600. Mel put down $1,000 and financed the balance at 12% for 36 months. What will his monthly payment be? 

52. Calculate the finance charge:
   

53. Calculate the finance charge:
   

54. Calculate the monthly payment:
   

55. Calculate the monthly payment:
   

56. Calculate APR:
   

57. Calculate APR:
   

58. Able Long buys a new desk for $2,400. Able will pay back $250 per month. Monthly interest is 3% on the unpaid balance. Calculate the balance outstanding after the second payment. (Use the U.S. Rule.) 

59. Earl Miller buys a new desk for $2,600. Miller will pay back $270 per month. Monthly interest is 5% on the unpaid balance. Calculate the balance outstanding after the second payment. (Use the U.S. Rule.) 

60.   
Calculate (A) finance charge, (B) rebate, and (C) payoff. 

61. Calculate (A) the average daily balance and (B) the finance charge.
  
Finance charge is 1% of average daily balance. 

 62. Calculate (A) the average daily balance and (B) the finance charge.
  
Finance charge is 2% of average daily balance. 

63. Neal Selznick bought a new van for $10,000. Neal put down $1,000 and paid $275 monthly for 40 months. What is the total amount of finance charge that Neal paid at the end of 40 months? 

64. Jennifer Rick buys a new typewriter for $590. Jennifer puts 20% down and will pay $70 a month for the next 10 months. What is (A) the amount of the loan, (B) the total amount of monthly payments, and (C) the total of the finance charge? 

65. Mary Jones just received the following statement. Can you help her calculate (A) the average daily balance and (B) the finance charge?
  
Finance charge is 1½% of average daily balance. 

66. Jane Ranch bought a tractor for $5,000. Jane has decided that she can afford to pay only $1,000 per month. Can you calculate at the end of month 2 the balance of the loan outstanding? Use the U.S. Rule. The monthly interest charged is 5% on the unpaid balance. 

67. Calculate APR by table from this advertisement:
   

68. Pete Frank bought a computer for $4,000. Pete put down $500 and financed the balance at 10 1/2% for 36 months. What is his monthly payment?

69. Mindy buys a home for $249,500 with a down payment of $30,000. Her rate of interest is 6.5% for 30 years. Calculate her monthly payment.

70. Shelley purchased a home in Maryland Heights, MO, for $204,000. Her down payment was 20% of the cash price, and she obtained a mortgage for 20 years at 7%. What is Shelley’s monthly payment and total finance charges?

71. Given a mortgage of $100,000 at 7% for 15 years, prepare a one-month amortization schedule. What is the balance after the first month’s payment?

72. Jamie purchased a condo for $89,900 with a down payment of 20%; her credit terms were 5% for 15 years. What is Jamie’s monthly payment?

73. Kerry has a $1,973 per month mortgage payment. He decides to refinance his $204,000 balance at 5% over 20 years. What is his new monthly payment?