Deck 14: Installment Buying

Question 1

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

Answer 1

True

Question 2

A billing cycle is always 30 or 31 days.

Answer 2

False

Question 3

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

Answer 3

True

Question 4

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

Question 5

The APR represents the stated interest rate.

Question 6

APR cannot be calculated by use of tables.

Question 7

The Truth in Lending Act regulates interest charges.

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Amortization is not a payment process.

Question 13

When using Table 14-2 to calculate the monthly payment, first divide the loan amount by $100.

Question 14

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

Question 15

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

Question 16

Calculating APR by table lookup requires that the total amount financed be divided by the interest charge and then multiplied by 100.

Question 17

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

Question 18

The amount financed equals the cash price plus the down payment.

Question 19

The average daily balance is the same as the daily balance.

Question 20

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

Question 21

Match the following terms with their definitions.

-Deferred payment

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 22

Given: $140.10 per month; cash price $5,600; down payment $0
Cash or trade months with bank-approved credit; amount financed $5,600
Finance charge $2,806
Total payments $8,406
(Use the tables in the handbook.)The APR by table lookup is:

A)17.25% - 17.50%
B)17.00%
C)16.75%
D)16.50%
E)None of these

Question 23

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

Question 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

Question 25

Match the following terms with their definitions.

-Finance charge

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 26

Jen purchased a condo in Naples, Florida, for $699,000. She put 20% down and financed the rest at 5% for 35 years. What are Jen's total finance charges?

A)$457,425.60
B)$606,823.20
C)$626,863.20
D)$600,000.00
E)None of these

Question 27

Match the following terms with their definitions.

-Open-end credit

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 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 by table lookup is (use the tables in the handbook):

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

Question 29

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

Question 30

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

Question 31

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

A)$50,236.80
B)$5,023.68
C)$545.76
D)$54,576
E)None of these

Question 32

Match the following terms with their definitions.

-Revolving charge

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 33

Given the following: $$\begin{array} { | l | r | } \hline 29 \text { day billing cycle } \\\hline 4 / 17 \text { Billing date previous balance } & \$ 1,100 \\\hline 4 / 27 \text { Payment } & \$ 700 \\\hline 4 / 29 \text { Charge } & \$ 300 \\\hline \text { 5/7 Payment } & \$ 50 \\\hline\end{array}$$ The average daily balance is:

A)$910.34
B)$755.17
C)$810.43
D)$755.71
E)None of these

Question 34

Match the following terms with their definitions.

-Down payment

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

Which one of the following statements is incorrect?

A)APR is the true effective annual interest charged by sellers
B)The Truth in Lending Act regulates interest charges
C)APR represents the true effective annual rate of interest
D)An installment loan is paid off with a series of equal periodic payments
E)None of these

Question 41

Match the following terms with their definitions.

-Average daily balance

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 42

Calculate the finance charge:
$$\begin{array} { | l | l | l | l | } \hline \begin{array} { l } \text { Sofa } \\\text { purchase } \\\text { price }\end{array} & \text { Down } & \begin{array} { l } \text { Number of } \\\text { monthly } \\\text { payments }\end{array} & \begin{array} { l } \text { Amount of } \\\text { monthly } \\\text { payments }\end{array} \\ & \text { Payment } & \text { payments } \\\hline \$ 1,600 & \$ 400 & 12 & \$ 190 \\\hline\end{array}$$

Question 43

Match the following terms with their definitions.

-Cash advance

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 44

Match the following terms with their definitions.

-Amortization

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 45

Match the following terms with their definitions.

-Truth in Lending Act

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 46

Calculate the average daily balance (assume a 30-day billing cycle):
$\begin{array} { l l l } 4 / 20 & \text { Billing Date Previous Balance } & \$ 700 \\4 / 26 & \text { Payment } & \$ 200 \\4 / 30 & \text { Charge } & \$ 400 \\5 / 4 & \text { Payment } & \$ 150 \\5 / 12 & \text { Cash Advance } & \$ 180\end{array}$

Question 47

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 by table lookup.

Question 48

Match the following terms with their definitions.

-APR

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 49

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 by table lookup?

Question 50

Calculate average daily balance:
$\begin{array}{l}29 \text { Day Billing Cycle }\\\begin{array} { l l l } 9 / 6 & \text { Balance } & \$ 600 \\9 / 18 & \text { Payment } & \$ 200 \\9 / 24 & \text { Charge } & \$ 300\end{array}\end{array}$

Question 51

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?

Question 52

Match the following terms with their definitions.

-Amount financed

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 53

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 is1 $\frac {\text {1 }} { \text {2 } }$ % . The U.S. Rule is used in the calculation. Calculate the balance outstanding after the second month.

Question 54

Calculate the finance charge:
$\begin{array}{|l|r|r|r|}\hline\text { Sofa purchase } && \text { Number of monthly } & \text {Amount of monthly }\\\text { price } & \text { Down Payment } & \text { payments } & \text { payment }\\\hline\$1,500&\$200&12&\$175\\\hline\end{array}$

Question 55

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. Using the loan amortization table, what is his monthly payment?

Question 56

Pete Sole bought a used car for $8,000. Pete put down $2,000 and financed the balance at10 $\frac {\text { 1 }} { \text { 2} }$ % for 60 months. What is his monthly payment? (Use the loan amortization table.)

Question 57

Match the following terms with their definitions.

-Rule of 78

A)Total of all payments minus amount financed
B)Effective interest rate
C)A payment process
D)A revolving charge account
E)Sum of daily balance divided by number of days in billing cycle
F)Total of all monthly payments plus down payment
G)Used in calculation of average daily balance
H)Doesn't dictate interest rates
I)Cash price minus down payment
J)Used to calculate rebate of finance charge
K)Purchase till maximum credit reached
L)Initial cash payment

Question 58

Joanne Revis bought a home computer for $1,299. She plans to pay $300 per month till the purchase is paid off. Assume there is1 $\frac {\text {1 }} { \text {2 } }$ %
a 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?

Question 59

Vicki King bought a Ford Explorer for $23,000. Vicki made 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?

Question 60

Calculate APR by table lookup (to nearest hundredth percent):
$$\begin{array} { | l | l | l | l | l | } \hline \text { Purchase } && \text { Number of } & & \\\text { Price } & \begin{array} { l } \text { Down } \\\text { Payment }\end{array} & \begin{array} { l } \text { monthly } \\\text { payment }\end{array} & \begin{array} { l } \text { Amount } \\\text { financed }\end{array} & \begin{array} { l } \text { Total } \\\text { payments }\end{array} \\\hline \$ 1,800 & \$ 100 & 20 & \$ 1,700 & \$ 1,900 \\\hline\end{array}$$

Question 61

Calculate the finance charge:
$\begin{array}{|c|c|c|c|}\hline \begin{array}{l}\text { Laptop purchase } \\\text { price }\end{array} & \text { Down Payment } & \begin{array}{l}\text { Number of monthly } \\\text { payments }\end{array} & \begin{array}{l}\text { Amount of monthly } \\\text { payment }\end{array} \\\hline 800 & \$ 300 & 16 & \$ 185 \\\hline\end{array}$

Question 62

Calculate APR by table lookup:
$$\begin{array} { | l | l | l | l | l | } \hline \text { Purchase Price } & \text { Down Payment } & \begin{array} { l } \text { Number of } \\\text { monthly payments }\end{array} & \begin{array} { l } \text { Amount } \\\text { financed }\end{array} & \text { Total Payment } \\\hline \$ 3,000 & \$ 75 & 44 & \$ 2,925 & \$ 3,950 \\\hline\end{array}$$

Question 63

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.)

Question 64

Calculate the monthly payment by using the loan amortization table:
$\begin{array} { l l } \text { Loan } & \$ 26,000 \\\text { Down Payment } & \$ 5,000 \\\text { Time } & 36 \text { months } \\\text { Rate } & 11 \%\end{array}$

Question 65

Calculate (A)the average daily balance and (B)the finance charge, if finance charge is 1% on the average daily balance.
$\begin{array}{l}30 \text { Day Billing Cycle }\\\begin{array} { l l r } 4 / 20 & \text { Prev Balance } & \$ 800 \\4 / 27 & \text { Payment } & \$ 100 \\4 / 30 & \text { Charge } & \$ 300 \\5 / 9 & \text { Payment } & \$ 50 \\5 / 12 & \text { Cash Adv } & \$ 200\end{array}\end{array}$

Question 66

Calculate the monthly payment by using the loan amortization table:
$\begin{array} { l l } \text { Loan } & \$ 8,500 \\\text { Down Payment } & \$ 2,000 \\\text { Time } & 48 \text { months } \\\text { Rate } & 10.5 \%\end{array}$

Question 67

Calculate the finance charge:
$\begin{array} { l l } \text { Loan } & \$ 16,500 \\\text { Months of loan } & 36 \\\text { Monthly payment } & \$ 535.00\end{array}$

Question 68

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.)

Question 69

Pete Frank bought a computer for $4,000. Pete put down $500 and financed the balance at 10 ½% for 36 months. What is his monthly payment? (Use loan amortization table.)

Question 70

Calculate APR by table lookup:
$$\begin{array} { | l | l | l | l | l | } \hline \text { Purchase Price } & \text { Down Payment } & \begin{array} { l } \text { Number of } \\\text { monthly payments }\end{array} & \begin{array} { l } \text { Amount } \\\text { financed }\end{array} & \text { Total Payment } \\\hline \$ 5,950 & \$ 150 & 40 & \$ 5,800 & \$ 6,900 \\\hline\end{array}$$

Question 71

Calculate APR by table given the following:
$\begin{array} { l r } \text { Maytag refrigerator: } & \$ 5,000 \\\text { Down payment: } & \$ 200 \\\text { Amount financed: } & \$ 4,800 \\\text { Total of payments: } & \$ 6,900 \\\text { Number monthly payments } & 60\end{array}$

Question 72

Mary Jones just received the following statement. Can you help her calculate (A)the average daily balance and (B)the finance charge, if finance charge is 1 ½% on the average daily balance?
$\begin{array}{l}29 \text { Day Billing Cycle }\\\begin{array} { l l r } 3 / 17 & \text { Prev Balance } & \$ 2,000 \\3 / 28 & \text { Payment } & \$ 100 \\4 / 3 & \text { Charge } & \$ 300\end{array}\end{array}$

Question 73

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?

Question 74

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.

Question 75

Calculate (A)the average daily balance and (B)the finance charge if finance charge is 2 % on average daily balance.
$\begin{array}{l}29 \text { Day Billing Cycle }\\\begin{array} { l l r } 11 / 20 & \text { Prev Balance } & \$ 1,000 \\11 / 27 & \text { Payment } & \$ 200 \\11 / 30 & \text { Charge } & \$ 150 \\12 / 9 & \text { Payment } & \$ 250 \\12 / 14 & \text { Cash Adv } & \$ 400\end{array}\end{array}$

Question 76

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?