Focus on Personal Finance Jack Kapoor 6e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Personal Finance, 6e (Kapoor) Chapter 5 Consumer Credit: Advantages, Disadvantages, Sources, and Costs 1) Typically, credit use is not a contributing factor to living beyond your means. …
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Focus on Personal Finance Jack Kapoor 6e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Personal Finance, 6e (Kapoor)
Chapter 5 Consumer Credit: Advantages, Disadvantages, Sources, and Costs
1) Typically, credit use is not a contributing factor to living beyond your means.
Answer: FALSE
Explanation: Many people use credit to live beyond their means.
Difficulty: 2 Medium
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
2) You can lend money to micro-entrepreneurs through Kiva.org, a micro-lending website.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 149
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
3) The information gathered from your loan application and the credit bureau are factors of your credit rating.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 153
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
4) Researchers have discovered a link between credit scores and impatience.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
5) Using the simple interest formula, the interest on a $1,000 loan at 5% interest for one year is $55.
Answer: FALSE
Explanation: I = P × r × T; thus, $1,000 × 5% × 1 year = $50
Difficulty: 3 Hard
Page Ref: 163
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
6) Consumer credit refers to the use of debit cards for personal needs.
Answer: FALSE
Explanation: Consumer credit refers to the use of credit for personal needs (except a home mortgage).
Difficulty: 1 Easy
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
7) Consumer credit dates back to colonial times where farmers came to use it extensively.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
8) Consumer credit may allow businesses to be more efficient or more productive.
Answer: FALSE
Explanation: Consumer credit may allow consumers to be more efficient or more productive.
Difficulty: 2 Medium
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
9) Economists recognize consumer credit as a major force in the American economy.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
10) When used effectively, credit can help a consumer have more and enjoy more.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
11) A trade-off of using credit is that it increases the amount of money that will be available to spend in the future.
Answer: FALSE
Explanation: Using credit decreases the amount of money that will be available in the future.
Difficulty: 2 Medium
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
12) A disadvantage of using credit is the convenience it offers when making a hotel reservation or renting a car.
Answer: FALSE
Explanation: Advantages — Credit offers the convenience of allowing you to make a hotel reservation or rent a car.
Difficulty: 1 Easy
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
13) During the grace period, finance charges are assessed at only half the normal rate.
Answer: FALSE
Explanation: Finance charges are not assessed during the grace period on current purchases if the balance is paid in full each month within 25 days after billing.
Difficulty: 1 Easy
Page Ref: 143
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
14) Credit can indicate stability since lenders consider you a good risk.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 143
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
15) Although credit allows immediate satisfaction of needs and desires, a greater advantage is that it increases total purchasing power.
Answer: FALSE
Explanation: Credit does not increase total purchasing power.
Difficulty: 2 Medium
Page Ref: 143
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
16) Closed-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
Answer: FALSE
Explanation: This definition is for open-end credit.
Difficulty: 1 Easy
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
17) Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
18) Closed-end credit is used for a specific purpose and involves a specific amount.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
19) Installment sales credit is a loan that allows a consumer to purchase high-priced items such as large appliances or furniture.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
20) A consumer applies for open-end credit to make a single purchase, such as a large appliance.
Answer: FALSE
Explanation: Open-end credit does not require an application for each purchase, but closed-end credit does have this requirement.
Difficulty: 2 Medium
Page Ref: 144-145
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
21) The least expensive loans (loans with low interest) are often provided by parents or other family members.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 149
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
22) The most expensive loans are often provided by parents or other family members.
Answer: FALSE
Explanation: These are the least expensive loans. The most expensive loans are provided by finance companies and retail stores that charge high interest rates.
Difficulty: 1 Easy
Page Ref: 149
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
23) The easiest loans to obtain are also the least expensive.
Answer: FALSE
Explanation: The easiest loans are also the most expensive. The most expensive loans are provided by finance companies and retail stores that charge high interest rates.
Difficulty: 2 Medium
Page Ref: 149
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
24) Interest paid on a credit card is tax-deductible.
Answer: FALSE
Explanation: Interest on home equity loans is tax-deductible.
Difficulty: 2 Medium
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
25) A credit card holder who pays the full balance during the grace period each month is actually getting a free loan from the credit card company.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 146
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
26) A secured credit card is most appropriate for someone with a strong credit history.
Answer: FALSE
Explanation: This type of card would be most appropriate for someone with a bad credit history.
Difficulty: 2 Medium
Page Ref: 146
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
27) Experts suggest that you spend more than 20% of your net (after-tax) income on consumer credit payments.
Answer: FALSE
Explanation: Experts suggest that you spend less than 20% of your net (after-tax) income on consumer credit payments.
Difficulty: 2 Medium
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
28) The debt-to-equity ratio is calculated by dividing your total liabilities, including your mortgage, by your net worth.
Answer: FALSE
Explanation: The ratio is calculated by dividing your total liabilities (not including your mortgage payment) by your net worth.
Difficulty: 2 Medium
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
29) In the five Cs of credit, character refers to the borrower’s trustworthiness and stability.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
30) In the five Cs of credit, capacity refers to the borrower’s trustworthiness and stability.
Answer: FALSE
Explanation: This is the definition of character.
Difficulty: 1 Easy
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
31) In the five Cs of credit, capital refers to the borrower’s ability to pay additional debts.
Answer: FALSE
Explanation: This is the definition of capacity.
Difficulty: 1 Easy
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
32) In the five Cs of credit, conditions refer to what will happen if the borrower does not repay the loan.
Answer: FALSE
Explanation: Conditions refer to general economic conditions that can affect a borrower’s ability to repay a loan.
Difficulty: 1 Easy
Page Ref: 153
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
33) The Equal Credit Opportunity Act requires that a creditor not turn you down for credit based on your age as long as you are old enough to sign a legal contract, which is usually allowed at age 16.
Answer: FALSE
Explanation: The age to sign a legal contract is usually 18-21 years.
Difficulty: 1 Easy
Page Ref: 157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
34) FICO scores are used by creditors to predict how likely it is that you will repay a loan.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 155-156
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
35) FICO is a better score to use than VantageScore for consumers with limited credit histories.
Answer: FALSE
Explanation: VantageScore allows for a more predictive score for consumers, even for those with limited credit histories.
Difficulty: 2 Medium
Page Ref: 156
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
36) The higher your FICO score, the more risk you pose to creditors.
Answer: FALSE
Difficulty: 2 Medium
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
37) A credit file can include your spouse’s name and Social Security number.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
38) The Fair Credit Reporting Act, enacted in 1971, places limits on who can obtain your credit report.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
39) A personal bankruptcy remains on a credit file for no more than 5 years.
Answer: FALSE
Explanation: Bankruptcies remain on a credit file for 10 years.
Difficulty: 1 Easy
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
40) Most information in your credit file (except bankruptcies) may be reported for only 7 years.
Answer: TRUE
Explanation: However, bankruptcies remain on a credit file for 10 years.
Difficulty: 1 Easy
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
41) You have a legal right to sue a credit bureau if you observe an error in your file.
Answer: FALSE
Explanation: You have a legal right to sue if the credit bureau has not followed the rules established by the Fair Credit Reporting Act.
Difficulty: 1 Easy
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
42) The annual percentage rate is lower than the stated rate for loans that are repaid in monthly payments.
Answer: FALSE
Explanation: The APR for these loans is higher than the stated rate.
Difficulty: 2 Medium
Page Ref: 164
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
43) The longer the term for a loan at a given interest rate, the greater the amount you must pay in interest charges.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 162
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
44) The add-on interest calculation uses this formula: Interest = Principal × Rate of interest × Time.
Answer: FALSE
Explanation: The formula is correct for simple interest.
Difficulty: 2 Medium
Page Ref: 164
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
45) The amount of interest paid on a bill is not related to the length of the loan.
Answer: FALSE
Explanation: Longer loans require more interest to be paid.
Difficulty: 2 Medium
Page Ref: 165
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
46) The Truth in Lending Act requires that open-end creditors explain how they calculate the finance charge.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 164
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
47) The expected rate of inflation should not be considered when determining the amount of interest a lender should charge.
Answer: FALSE
Explanation: Lenders incorporate the expected rate of inflation when deciding how much interest to charge.
Difficulty: 2 Medium
Page Ref: 164
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
48) The longer it takes for you to pay off a bill, the less interest you pay.
Answer: FALSE
Explanation: The longer it takes to pay off a bill, the more interest is paid.
Difficulty: 1 Easy
Page Ref: 165
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
49) If you purchase something with a credit card, the finance charges you pay on an item could end up being more than the item is worth.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 165
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
50) According to law, a creditor may threaten your credit rating while you are negotiating a billing dispute.
Answer: FALSE
Explanation: A creditor may not threaten your credit rating during this time.
Difficulty: 1 Easy
Page Ref: 166
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
51) According to the Fair Credit Billing Act of 1975, a creditor must adjust the disputed amount in your account or tell you why the bill is correct within 30 days.
Answer: FALSE
Explanation: The creditor must take this action within two billing periods, but not longer than 90 days.
Difficulty: 1 Easy
Page Ref: 166
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
52) According to the Fair Credit Billing Act of 1975, a consumer may tell a credit card company to stop payment for a defective good if the consumer has made a sincere attempt to resolve the problem with the store.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 166
Topic: Cosigning; Debt collection; Debt Management; Laws, rights, protections; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
53) You may not know that your identity has been stolen until you get bills for a credit card account that you never opened.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 166
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
54) If you are a cosigner for a loan and the debt is not repaid, that fact will appear on your credit report.
Answer: TRUE
Difficulty: 2 Medium
Page Ref: 169
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
55) To protect your credit card, you should keep a record of your credit card number separate from your card.
Answer: TRUE
Difficulty: 1 Easy
Page Ref: 167
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
56) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it easier for consumers to file Chapter 7 bankruptcy.
Answer: FALSE
Explanation: The new law made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan.
Difficulty: 2 Medium
Page Ref: 176
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
57) Consumer credit refers to the use of credit for personal needs (except a home mortgage).
Answer: TRUE
Difficulty: 1 Easy
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
58) Although credit allows immediate satisfaction of needs and desires, credit does not increase total purchasing power.
Answer: TRUE
Difficulty: 2 Medium
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
59) The easiest loans to obtain are also the most expensive. The most expensive loans are provided by finance companies and pawn shops.
Answer: TRUE
Difficulty: 2 Medium
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
60) Open-end credit consists of loans made on a continuous basis with periodic bills for at least partial payment.
Answer: TRUE
Difficulty: 1 Easy
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
61) The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made it more difficult for consumers to file a Chapter 7 bankruptcy and forces them into a Chapter 13 repayment plan.
Answer: TRUE
Difficulty: 2 Medium
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
62) Installment credit, in which the debt is repaid in equal installments over a specified period of time, exploded on the American scene with the advent of the
Answer: B
Explanation: Installment credit exploded on the American scene in the early 1900s.
Difficulty: 2 Medium
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
63) Which of the following is a valid reason for using credit?
Answer: E
Difficulty: 2 Medium
Page Ref: 147
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
64) Which of the following is NOT a valid reason for borrowing?
Answer: B
Difficulty: 2 Medium
Page Ref: 144
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
65) Many people expect
Answer: B
Difficulty: 2 Medium
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
66) Which of the following questions is NOT needed before deciding how and when to make a major purchase?
Answer: E
Difficulty: 1 Easy
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
67) When misused, credit can result in
Answer: E
Difficulty: 1 Easy
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
68) Which of the following is NOT correct?
Answer: D
Explanation: Credit cards can provide a float of up to 50 days.
Difficulty: 2 Medium
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
69) Which of the following is NOT correct?
Answer: B
Difficulty: 2 Medium
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
70) A typical grace period offered by many credit card issuers is
Answer: C
Difficulty: 1 Easy
Page Ref: 143
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
71) Perhaps the greatest disadvantage of using credit is
Answer: A
Difficulty: 3 Hard
Page Ref: 145
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Analyze
Accessibility: Keyboard Navigation
Gradable: automatic
72) Which of the following can result from a failure to repay a loan?
Answer: E
Difficulty: 2 Medium
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
73) Consumer credit
Answer: B
Difficulty: 1 Easy
Page Ref: 141
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general in Our Economy
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
74) Before buying goods and services on credit, a consumer should consider all of the following except
Answer: E
Difficulty: 2 Medium
Page Ref: 142
Topic: Consumer credit – Advantages and disadvantages; Consumer credit – general
Learning Objective: 05-01 Analyze advantages and disadvantages of using consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
75) Which of the following is an example of closed-end credit?
Answer: A
Difficulty: 2 Medium
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
76) Which of the following is an example of open-end credit?
Answer: B
Difficulty: 2 Medium
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
77) A direct loan for personal purposes, home improvements, or vacation expenses is called
Answer: B
Difficulty: 1 Easy
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
78) A loan that must be repaid in total on a specified day, usually within 30 to 90 days, is
Answer: E
Difficulty: 1 Easy
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
79) Molly purchased a $1,500 dishwasher from Best Appliances. She will make 12 equal payments over the next year to pay for it. She is using
Answer: A
Difficulty: 2 Medium
Page Ref: 144
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
80) A line of credit is
Answer: D
Difficulty: 2 Medium
Page Ref: 144-145
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
81) A prearranged loan for a specified amount that a consumer can use by writing a special check is known as
Answer: B
Difficulty: 1 Easy
Page Ref: 144-145
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
82) The periodic charge for the use of credit is called
Answer: C
Difficulty: 1 Easy
Page Ref: 145
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
83) Which of the following is often considered to offer the least expensive loans (loans with low interest)?
Answer: D
Difficulty: 1 Easy
Page Ref: 149
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
84) A cash advance
Answer: D
Difficulty: 2 Medium
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
85) Home equity loans should be used for
Answer: C
Difficulty: 2 Medium
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
86) Home equity loans
Answer: B
Difficulty: 2 Medium
Page Ref: 149-150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
87) If you miss payments on a home equity loan, you can lose your
Answer: C
Difficulty: 2 Medium
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
88) A credit card holder who pays off his balances in full each month is known as
Answer: B
Difficulty: 1 Easy
Page Ref: 145
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
89) Which of the following is NOT associated with credit cards?
Answer: E
Difficulty: 1 Easy
Page Ref: 145-146
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
90) Which of the following electronically subtracts money from your savings or checking account to pay for goods and services?
Answer: C
Difficulty: 1 Easy
Page Ref: 147
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
91) Bankruptcy courts treat gift cards
Answer: C
Difficulty: 2 Medium
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
92) Before taking out a loan, you should ask yourself whether you can meet all of your essential expenses and still afford the monthly loan payments. This can be determined by
Answer: D
Difficulty: 2 Medium
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
93) Experts suggest that the debt payments-to-income ratio should be a maximum of
Answer: B
Difficulty: 2 Medium
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
94) If you have probably reached the upper limit of debt obligations, your debt-to-equity ratio is about
Answer: E
Difficulty: 2 Medium
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
95) When calculating the debt-to-equity ratio, the following is NOT included:
Answer: D
Difficulty: 2 Medium
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
96) The question “Will you repay the loan?” relates to
Answer: A
Difficulty: 1 Easy
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
97) The question “What are your assets and net worth?” relates to
Answer: C
Difficulty: 1 Easy
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
98) The use of property or savings to secure a loan relates to
Answer: D
Difficulty: 2 Medium
Page Ref: 153
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
99) A loan officer is examining whether or not to offer you a loan today. Specifically, she is examining your income and debts. Which of the five Cs of credit is the loan officer reviewing?
Answer: B
Difficulty: 2 Medium
Page Ref: 152
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
100) The Equal Credit Opportunity Act (ECOA) prohibits a lender from discriminating based on
Answer: E
Difficulty: 1 Easy
Page Ref: 157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
101) Which of the following is the best scoring technique used in credit applications for consumers with limited credit histories?
Answer: E
Difficulty: 2 Medium
Page Ref: 156
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
102) FICO scores generally range from
Answer: C
Difficulty: 2 Medium
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
103) Which of the following is NOT a valid credit application question?
Answer: E
Difficulty: 2 Medium
Page Ref: 156
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
104) When evaluating your credit application, a lender may NOT
Answer: B
Difficulty: 2 Medium
Page Ref: 156-157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
105) What step can you take if your credit application is denied?
Answer: C
Difficulty: 2 Medium
Page Ref: 157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
106) If you are denied credit, you can contact the credit bureau and ask for a copy of your credit report. The bureau cannot charge a fee for this service as long as you ask to see your files within of notification that your credit application has been denied.
Answer: D
Difficulty: 2 Medium
Page Ref: 157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
107) A credit report includes
Answer: A
Difficulty: 2 Medium
Page Ref: 153-154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
108) Which of the following is NOT one of the three major credit bureaus?
Answer: D
Difficulty: 2 Medium
Page Ref: 153
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
109) Credit bureaus get their information from all of the following sources except
Answer: D
Difficulty: 1 Easy
Page Ref: 153
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
110) Which of the following is the only online source authorized to provide you with a free copy of your credit report annually?
Answer: E
Difficulty: 1 Easy
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
111) Credit files can include all of the following except
Answer: D
Difficulty: 2 Medium
Page Ref: 153-154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
112) Which is NOT true about the Fair Credit Reporting Act?
Answer: E
Difficulty: 2 Medium
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
113) Credit reports can be obtained for all of the following reasons except
Answer: D
Difficulty: 1 Easy
Page Ref: 154
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
114) Information about a personal bankruptcy may be reported in your credit file for
Answer: D
Difficulty: 1 Easy
Page Ref: 155
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
115) If you are denied credit,
Answer: E
Difficulty: 2 Medium
Page Ref: 157
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
116) The finance charge for credit includes all of the following except
Answer: E
Difficulty: 1 Easy
Page Ref: 160
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
117) The APR is the percentage cost of credit on a(n) ________ basis.
Answer: D
Difficulty: 1 Easy
Page Ref: 161
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
118) If a loan is being paid in installments instead of one lump sum at the end of the loan period, the actual rate of interest
Answer: C
Difficulty: 2 Medium
Page Ref: 162
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
119) Sam is comparing the costs of two loans. The principal amount of each loan is $5,000. One is due in one year and the other is due in four years. Both have the same stated rate of annual interest. Which of the following is true?
Answer: C
Difficulty: 3 Hard
Page Ref: 162
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
120) The minimum monthly payment on a credit card is
Answer: D
Difficulty: 2 Medium
Page Ref: 165
Topic: Cost of credit – rates and fees
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
121) Which of the following acts sets procedures for promptly correcting billing mistakes, refusing to make credit card or revolving credit payments on defective goods, and promptly crediting your payments?
Answer: E
Difficulty: 1 Easy
Page Ref: 166
Topic: Debt collection; Debt Management; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
122) If you think a bill is wrong or you want more information about the bill, then you and your creditor should follow all of the steps here except
Answer: E
Difficulty: 2 Medium
Page Ref: 166
Topic: Debt collection; Debt Management; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
123) Which of the following is often the first sign of a stolen identity?
Answer: A
Difficulty: 2 Medium
Page Ref: 166
Topic: Debt collection; Debt Management; Consumer credit complaints; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
124) If you think your identity has been stolen, which of the following actions does the Federal Trade Commission recommend you take immediately?
Answer: D
Difficulty: 1 Easy
Page Ref: 166-167
Topic: Debt collection; Debt Management; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
125) Which of the following items should be shredded to protect yourself from identity theft?
Answer: B
Difficulty: 1 Easy
Page Ref: 167
Topic: Cosigning; Debt collection; Debt Management; Credit counseling services; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
126) Carrie thought she misplaced her checkbook for a few days. When she found it, she noticed that two checks, her cash, and her debit card were missing. She immediately thought about the increase in identity theft in her area and decided to take some action. She should take all of the following steps except
Answer: E
Difficulty: 2 Medium
Page Ref: 167
Topic: Debt collection; Debt Management; Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
127) Who is responsible for a loan repayment?
Answer: D
Difficulty: 1 Easy
Page Ref: 169
Topic: Cosigning; Debt collection; Debt Management
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
128) All of the following are consumer credit protection laws except
Answer: D
Difficulty: 1 Easy
Page Ref: 169-170
Topic: Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
129) If you want to file a complaint against a bank in connection with any of the consumer credit protection laws, you
Answer: D
Difficulty: 2 Medium
Page Ref: 169
Topic: Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
130) According to the Fair Credit Billing Act, if a creditor fails to follow the rules that apply to correcting any billing errors, you have the right to sue for
Answer: B
Difficulty: 2 Medium
Page Ref: 170
Topic: Billing errors and corrections; Consumer credit complaints; Consumer credit – Laws, rights, protections
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
131) All of the following are warning signs of debt problems except
Answer: D
Difficulty: 2 Medium
Page Ref: 171-172
Topic: Debt collection; Debt Management
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
132) The Consumer Credit Counseling Service
Answer: A
Difficulty: 2 Medium
Page Ref: 173
Topic: Debt collection; Debt Management; Credit counseling services
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
133) Personal bankruptcy can be filed under which section(s) of the U.S. bankruptcy code?
Answer: D
Difficulty: 1 Easy
Page Ref: 174
Topic: Debt collection; Debt Management; Bankruptcy – Ch. 7 and 13
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
134) Under Chapter 7 of the U.S. bankruptcy code,
Answer: C
Difficulty: 2 Medium
Page Ref: 175
Topic: Debt collection; Debt Management; Bankruptcy – Ch. 7 and 13
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Understand
Accessibility: Keyboard Navigation
Gradable: automatic
135) Following the signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, debtors seeking to erase all debts will have to wait ________ year(s) from their last bankruptcy before they can file again.
Answer: D
Difficulty: 1 Easy
Page Ref: 175
Topic: Debt collection; Debt Management; Consumer credit – Laws, rights, protections; Bankruptcy – laws and protection
Learning Objective: 05-05 Develop a plan to protect your credit and manage your debts.
Bloom’s: Remember
Accessibility: Keyboard Navigation
Gradable: automatic
136) Rachel Johnson went to the ATM to withdraw $300 cash with her debit card. She inadvertently pulled out her credit card instead, not realizing the expenses for cash advances. If her credit card company charges a cash advance fee of 3% and interest at 24% APR, what are the total fees she will pay for her mistake?
Answer: D
Explanation: Similar to Figure It Out! on page 150.
Cash advance fee = 3% × $300 = $9
Interest for one month = 24% APR × $300/12 months = 72/12 = $6
Total cost for one month = $9 + $6 = $15
Difficulty: 3 Hard
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
137) Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with his MasterCard credit card, he was told that the restaurant accepted only cash or American Express. His waiter suggested that he use the ATM across the street to withdraw cash using his credit card. Tim did as suggested and didn’t pay attention to any fees until he received his credit card statement one month later. He was shocked to see the total fees (3% cash advance), and his APR was increased to 21%. Given the cost of the meal ($125) plus the associated fees, how much did his meal cost him?
Answer: D
Explanation: Similar to Figure It Out! on page 150.
Cash advance fee = 3% × $125 = $3.75
Interest for one month = 21% APR × $125/12 months = 26.25/12 = $2.19
Total cost for one month = $3.75 + $2.19 = $5.94
Total cost for meal + fees = $125 + 5.94 = $130.94
Difficulty: 3 Hard
Page Ref: 150
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
138) Acme Home Lending offers home equity loans up to 80% of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme?
Answer: C
Explanation: Maximum home equity loan = Home value × 80% − Mortgage balance = $200,000 × 80% − $50,000 = $110,000.
Difficulty: 3 Hard
Page Ref: 149
Topic: Open-end credit; Closed-end credit; Debit, credit, and other cards; Sources of consumer credit
Learning Objective: 05-02 Assess the types and sources of consumer credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
139) If Vince charged $200 on his credit card with 18% APR and he paid his balance in full within the grace period, how much was he required to pay?
Answer: D
Explanation: No interest is charged during the grace period.
Difficulty: 3 Hard
Page Ref: 163
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
140) Rachel Johnson has net monthly income of $2,500. She has a monthly auto loan payment of $275, a student loan payment of $150, and a credit card minimum payment of $50. What is her debt-payments-to-income ratio?
Answer: D
Explanation: ($275 + $150 + $50)/$2,500 = 0.19 = 19%.
Difficulty: 3 Hard
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
141) Timothy Carter has net monthly income of $3,800. He has a monthly auto loan payment of $350, a student loan payment of $150, a mortgage payment of $1,200, and a credit card minimum payment of $45. What is his debt-payments-to-income ratio?
Answer: B
Explanation: ($350 + $150 + $45)/$3,800 = 0.1434 = 14.34% = 14.3%.
Difficulty: 3 Hard
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
142) Hannah has liabilities totaling $30,000 (excluding her mortgage of $100,000). Her net worth is $45,000. What is her debt-to-equity ratio?
Answer: B
Explanation: $30,000/45,000 = 0.67.
Difficulty: 3 Hard
Page Ref: 151
Topic: Credit capacity and ratio analysis; Credit reports and ratings; Five C’s of credit; Credit bureaus
Learning Objective: 05-03 Determine whether you can afford a loan and how to apply for credit.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
143) Peter borrowed $225. He paid $20 interest and a service charge of $3.00. What is his finance charge?
Answer: C
Explanation: Finance charge = Interest + Service charge = $20 + $3.00 = $23.00.
Difficulty: 3 Hard
Page Ref: 160
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
144) Paul borrowed $200 to be repaid in one year. He paid 10% interest and a service charge of $3.00. What is his finance charge?
Answer: C
Explanation: Interest = $200 × 10% = $20. Finance charge = Interest + Service charge = $20 + $3.00 = $23.00.
Difficulty: 3 Hard
Page Ref: 163
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
145) Suppose you borrow $300 for one year and pay a finance charge of $20. If you repay this loan all at once after one year, what is your average balance?
Answer: D
Explanation: Average balance = (Loan balance in first month + Loan balance in last month)/2 = ($300 + $300)/2 = $300 borrowed since it is available during the entire loan period.
Difficulty: 3 Hard
Page Ref: 161
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
146) Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9% loan. What is her total interest?
Answer: C
Explanation: I = P × r × T = $1,000 × 0.09 × 1 year = $90.
Difficulty: 3 Hard
Page Ref: 163
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
147) Fredrick received a $1,400 loan from the bank for a new appliance. The bank is using the simple interest formula for this two-year, 8% loan. What is his total interest?
Answer: D
Explanation: I = P × r × T = $1,400 × 0.08 × 2 years = $224.
Difficulty: 3 Hard
Page Ref: 163
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
148) Becka borrowed $100 from her cousin at the rate of 6% per year. If the inflation rate was 2% that year, what is her cousin’s actual rate of return on the loan?
Answer: B
Explanation: Interest rate − Inflation rate = Actual rate of return = 6% − 2% = 4%.
Difficulty: 3 Hard
Page Ref: 164-165
Topic: Cost of credit – simple and compound interest
Learning Objective: 05-04 Determine the cost of credit by calculating interest using various interest formulas.
Bloom’s: Apply
Accessibility: Keyboard Navigation
Gradable: automatic
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
