Question 1

Compare and contrast the average, previous, and adjusted balance methods.

Accepted Answer

The answer of Compare and contrast the average, previous, and...

Question 2

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-What is the current APY on this credit card?

Accepted Answer

The correct answer is D. The annual percentage yield (APY) on this credit card is 19.56%. This is calculated by taking the periodic rate (18%) and multiplying it by the number of periods in a year (12), then adding 1 and raising the result to the power of the number of periods in a year (1). The result is 1.1956, which is the APY.

Question 3

When you withdraw cash from an ATM using your credit card

Accepted Answer

When you withdraw cash from an ATM using your credit card, you typically begin paying interest immediately. There may also be additional fees associated with cash advances, making it one of the most expensive ways to borrow money with a credit card.

Question 4

Teaser rates are very low. How long do they last? Is there any real benefit in them?

Accepted Answer

The answer of Teaser rates are very low. How long...

Question 5

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-What is the APY on Monty's default or penalty rate?

Accepted Answer

To find the APY on Monty's default or penalty rate of 36%, we can use the formula: APY = (1 + interest rate/n)^n - 1, where n is the number of times interest is compounded. Assuming the interest is compounded monthly (12 times a year), we get: APY = (1 + 0.36/12)^12 - 1 = 0.4258 or 42.58%. Therefore, the correct answer is choice C.

As for the best choice, Monty should prioritize paying off his credit card debt as soon as possible, starting with the balances carrying the highest interest rates (i.e. cash advances and purchases). He should also try to negotiate a lower interest rate with his bank or transfer the balance to a card with a lower promotional interest rate. It is not advisable to rely on using a certificate of deposit to pay off debt, as this is essentially borrowing against his own savings and can result in penalties or fees. Selling his car may be an option if he needs additional funds to pay off his debt. Ultimately, the best choice depends on Monty's individual financial situation and goals.

Question 6

Which of the following is not an advantage of credit cards?

Accepted Answer

The finance charge that accrues on the account if not paid off in full each month is not an advantage of credit cards. It is a cost that the user must pay for carrying a balance on the card. The other options listed are advantages of using a credit card.

Question 7

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-What advice would you give to Monty concerning his use of credit cards?

Accepted Answer

Monty needs to learn to live within his means and differentiate between wants and needs. He may also benefit from seeking the help of a non-profit credit counseling company to create a realistic budget and a debt repayment plan.

Question 8

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-If Monty buys a new television for $800 this month and sends in a credit card payment of $1,200 when he gets his statement, how much interest will he pay on the television for the month?

Accepted Answer

Monty will be charged interest of 1.5% on the $800 purchase because he is only paying $1,200 (4% of his balance) and carrying a balance of $5,600, which will accrue interest at 18%. However, he will not be charged any cash advance fees or penalties because he has not taken any new cash advances and has already paid off his previous one.

Question 9

In an emergency, you used your credit card for a cash advance of $100. You just received your statement and your total balance due is $985.00. You want to be sure to pay for the recent cash advance so you send in a payment of $400. Your credit card has an APR of 12%. How much of your $400 payment will apply to the cash advance balance?

Accepted Answer

The answer of In an emergency, you used your credit...

Question 10

Sometimes retailers will give you up to a 5% discount if you pay cash for their products instead of using your credit card. Why?

Accepted Answer

By accepting cash, retailers can avoid paying the Merchants Discount Fee, which is a percentage of each credit card transaction that card issuers charge to retailers for processing the transaction. By passing along the savings to customers, retailers hope to incentivize cash purchases and avoid the fees associated with credit card transactions.

Question 11

Research has determined that undergraduate college students tend to behave in similar manners with regards to their credit card usage. As noted in Chapter 6, which of the following behaviors are indicative of undergraduate students' credit card behaviors?

Accepted Answer

Undergraduate students often exhibit a mix of behaviors with credit cards, including having parents pay balances, carrying balances despite making more than minimum payments, and varying payment strategies across different cards.

Question 12

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-Using the Adjusted Balance Method: If Monty sends in a payment for $1,000, how much will the finance charge be on his remaining balance? (Use the $6,000 balance for your calculations).

Accepted Answer

The answer of Monty currently has a Visa card from...

Question 13

List the five benefits or advantages associated with credit cards. What are the two major disadvantages?

Accepted Answer

The answer of List the five benefits or advantages associated...

Question 14

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-It is now three months later and Monty has missed two payments in a row and he is now paying the default or penalty rate on his balance. How much interest per month will Monty be accruing on his unpaid balance?

Accepted Answer

The answer of Monty currently has a Visa card from...

Question 15

Using your credit card for a cash advance in an emergency is probably a good idea. Using cash advances for non-emergencies is a terrible idea. Explain the characteristics that make cash advances very dangerous.

Accepted Answer

The answer of Using your credit card for a cash...

Question 16

Assuming the APR on your credit card is 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be?

Accepted Answer

To calculate the interest charges for the month, we use the formula: 
Interest Charges = (APR/365) x Average Daily Balance x Number of Days in the Month

Here, APR = 18%, Average Daily Balance = $10,000, and assuming there are 30 days in the month, we get: 
Interest Charges = (0.18/365) x $10,000 x 30 = $147.95

Rounding up, the answer is $150, which is choice C.

Question 17

One of the ugliest secrets about using your credit card for a cash advance is that ________.

Accepted Answer

All of the options are true when it comes to using a credit card for a cash advance. There is an up-front fee, the APR is usually higher, and payments do not apply to cash advance balances unless the balance for regular credit purchases is zero.

Question 18

Monty currently has a Visa card from his bank with the following terms: 18% on purchases, 24% on cash advances with a 4% cash advance fee on the amount, and a default or penalty rate of 36%. His current statement shows a balance of $6,000. So far he has only taken one cash advance, withdrawing $1,000 from a casino in Las Vegas a year ago, which he has already paid off. Lately he has been having a hard time paying more than the minimum payment of 4% of his balance. The only assets he owns are a seven-year-old car and a $2,500 certificate of deposit that has a 5% APR.
-What will be Monty's minimum payment due?

Accepted Answer

Monty's minimum payment is 4% of his current balance of $6,000, which is $240.

Question 19

Alan has a credit limit and a balance of $3,000 on his Visa card. His car broke down, he charged the $500 repairs to his Visa which he knows put him over his credit limit for the month. His payment is due on the 20th so he made sure that he had his $750 payment to the post office on the 20th. Most likely, what penalties or fees, if any, will he incur?

Accepted Answer

Alan will likely incur the penalty APR because he went over his credit limit and the over-the-limit fee. Additionally, since his payment must be received by VISA on the 20th and not just postmarked by the 20th, he may also incur a late fee if his payment is not received in time.

Question 20

Which of the following is not a disadvantage of credit cards?

Accepted Answer

A is not a disadvantage of credit cards. It is actually one of the advantages as credit cards provide convenience in making car rentals and online reservations.

Quiz 6: Using Credit Cards: The Role of Open Credit