Question 1

In calculating the daily balance, cash advances are:

Accepted Answer

Cash advances are considered as part of the balance and are added in when calculating the daily balance.

Question 2

Most companies calculate the finance charge on credit card accounts as a percentage of the:

Accepted Answer

Most credit card companies calculate the finance charge as a percentage of the average daily balance. This is calculated by adding up the balance at the end of each day in the billing period and then dividing by the number of days in the period. This method is considered the most fair and accurate way to calculate finance charges.

Question 3

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.

Accepted Answer

The answer of Pete Size read the following partial advertisement:...

Question 4

The APR represents the:

Accepted Answer

APR stands for Annual Percentage Rate, which represents the true effective annual rate of interest charged by the seller. It includes not only the stated interest rate, but also any other fees or charges associated with the loan.

Question 5

Given the following: The average daily balance is:

Accepted Answer

The answer of Given the following: The average daily balance...

Question 6

The average daily balance is equal to the sum of daily balances:

Accepted Answer

The average daily balance is calculated by adding up the daily balances for each day in the billing cycle and then dividing by the number of days in the billing cycle.

Question 7

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:

Accepted Answer

The APR (Annual Percentage Rate) can be calculated using the formula for the finance charge and the total amount financed. Given the finance charge of $2,806 and the amount financed of $5,600 over 60 months, the APR is approximately 17.30%.

Question 8

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?

Accepted Answer

The answer of Bill Moore bought a stereo selling for...

Question 9

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:

Accepted Answer

The total amount financed is $22,000 - $7,000 = $15,000. The total finance charge is the total amount paid - the total amount financed:
Total amount paid = $290 x 60 = $17,400
Total finance charge = $17,400 - $15,000 = $2,400. Therefore, the answer is C.

Question 10

Calculate average daily balance:

Accepted Answer

The answer of Calculate average daily balance:
 ...

Question 11

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:

Accepted Answer

The total amount financed is $7,400 ($8,200 - $800). The total payments over 60 months are $10,799.40 ($179.99 x 60). Using the formula for APR, the calculated APR is between 16.00% and 16.25%.

Question 12

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:

Accepted Answer

First, we need to subtract the down payment from the total cost of the boat: $17,000 - $2,500 = $14,500. Then, we need to add the finance charges to the cost of the boat: $14,500 + $4,900 = $19,400. Next, we can use a loan payment calculator or formula to find the monthly payment:

PMT = (P*r)/(1 - (1+r)^-n)

where PMT is the monthly payment, P is the loan amount (in this case, $19,400), r is the monthly interest rate (which we can find by dividing the annual interest rate by 12 and converting it to a decimal), and n is the number of months in the loan term (60 in this case).

Assuming an annual interest rate of 6%, the monthly interest rate would be 0.06/12 = 0.005. Plugging these values into the formula, we get:

PMT = (19400*0.005)/(1 - (1+0.005)^-60) 
PMT ≈ $323.33

Therefore, the monthly payment is $323.33, which corresponds to choice B.

Question 13

Which one of the following statements is incorrect?

Accepted Answer

The answer of Which one of the following statements is...

Question 14

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:

Accepted Answer

The balance at the end of month 1 can be calculated by first adding the 1 ½% monthly interest charge on the unpaid balance of $7,500, which is $112.50 (7500 * 0.015). So, the new balance before payment is $7,612.50. After paying $600, the outstanding balance is $7,012.50, which is not listed among the options provided.

Question 15

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

Accepted Answer

The answer of Calculate the average daily balance (assume a...

Question 16

Calculate APR (to nearest hundredth percent):

Accepted Answer

The answer of Calculate APR (to nearest hundredth percent):
 ...

Question 17

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:

Accepted Answer

The total amount paid for the truck is the down payment plus the total of all monthly payments: $6,000 + ($390 * 70) = $6,000 + $27,300 = $33,300. The total finance charge is the total amount paid minus the original price of the truck: $33,300 - $28,000 = $5,300.

Question 18

Open credit in a revolving charge plan results in:

Accepted Answer

Open credit in a revolving charge plan allows for as many charged purchases as the credit limit allows.

Question 19

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?

Accepted Answer

The answer of Pete Sole bought a used car for...

Question 20

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.

Accepted Answer

The answer of Marika Katz bought a $7,000 computer. Based...

Quiz 10: Installment Buying and Revolving Charge Credit Cards