Question 1

TransUnion is aware that you are one month late on your car payment,while Equifax has not yet uncovered this information.Which of the following statements is correct?
A)TransUnion will have a lower credit score for you than Equifax.
B)Both companies will have the same credit score because of the grace period.
C)Being late one month on a car payment will not affect your BEACON score.
D)Both companies will have the same credit score because car payments are backed by collateral.

Accepted Answer

TransUnion will have a lower credit score for you than Equifax because they have uncovered negative information indicating that you are one month late on your car payment, while Equifax has not yet uncovered this information. Late or missed payments can negatively impact your credit score, and in this case, TransUnion has access to information that Equifax does not.

Question 2

Which of the following is most accurate about interest rates in Canada?
A)Charging a rate of three percent for a seven day payday loan is legal in Canada.
B)As long as loan charges come in the form of fees,they are not included in interest rate calculations in Canada.
C)Payday loan companies provide a necessary service and have permission to charge above the maximum loan rate in Canada.
D)The maximum interest rate that can be charged on a consumer loan in Canada is 60 percent.

Accepted Answer

The maximum interest rate that can be charged on a consumer loan in Canada is 60 percent. Choices A, B, and C are all incorrect as they promote predatory lending practices that exploit vulnerable individuals in need of quick cash. It is important to highlight the dangers of such practices and advocate for better regulations to protect consumers.

Question 3

A proposal to creditors is made by an insolvent debtor having difficulty meeting payments.Which of the following is True?
A)The proposal must be rejected by creditors within 45 days,or it will be deemed to be accepted.
B)The history will remain on the credit bureau report for three years after terms have been met.
C)The proposal must be for an amount over $50 000.
D)The proposal must require at least fifty percent of the total debt to be repaid.

Accepted Answer

The proposal must be rejected by creditors within 45 days, or it will be deemed to be accepted.

Question 4

Collateral
A)gives the lender additional recourse if the payments are not made.
B)is used on unsecured loans.
C)increases the interest rate on loans.
D)is required on all loans except revolving credit.

Accepted Answer

Collateral gives the lender additional recourse if the borrower is unable to make the payments. This means that the lender can seize the collateral to cover the remaining amount owed on the loan.

Question 5

In making the purchase versus lease decision,it is important to remember that
A)dealers may impose additional charges for leasing.
B)leasing is less risky because you do not have equity.
C)leasing is less expensive overall than purchasing.
D)you won't be required to pay maintenance costs on the leased car.

Accepted Answer

Leasing can come with additional charges not present when purchasing a car outright, such as fees at the end of the lease for excess wear, mileage overages, and disposition fees.

Question 6

If a credit card company has a 30-day billing period,20-day grace period and an interest rate of 20 percent,how much interest will be charged on a $5000 average monthly balance which gets paid 40 days after the due date using the average daily balance method?
A)$258.90
B)$115.07
C)$201.37
D)$172.60

Accepted Answer

First, we need to calculate the number of days past the due date that the payment was made:

40 days - 30-day billing period - 20-day grace period = -10 days

This means the payment was made 10 days past the end of the billing period, and interest will accrue for those 10 days.

Next, we need to calculate the daily interest rate:

20% / 365 days = 0.0548%

Then, we can calculate the interest charged using the average daily balance method:

Average daily balance = ($5000 x 30 days + $5000 x 10 days) / 40 days = $4750

Interest charged = $4750 x 0.0548% x 10 days = $25.89

However, since the interest rate is compounded daily, we need to use the daily periodic rate to calculate the final interest charged:

Daily periodic rate = (1 + 20%)^(1/365) - 1 = 0.0541%

Interest charged = $4750 x (1 + 0.0541%)^10 - $4750 = $258.90

Therefore, the answer is A.

Question 7

The loan contract identifies all but which of the following?
A)Credit score
B)Amount of the loan
C)Interest rate
D)Loan repayment schedule

Accepted Answer

While a borrower's credit score may be a factor in determining eligibility for the loan and the interest rate, it is not typically included as an identifying element in the loan contract. The amount of the loan, interest rate, and repayment schedule are all key components of the loan contract.

Question 8

Jacob needs to borrow $19 000 to purchase a car.If the interest rate is seven percent compounded monthly,which of the following is True when considering a five,seven or ten year term?
A)If he selects a seven year term he will save interest by keeping his payments to $286.76 per month.
B)If he selects a ten year term he will save $2385.28 in interest compared with the seven year term.
C)If he selects a five year term he will save $1514.55 in interest compared with the seven year term.
D)The overall interest will be the same,regardless of the term.

Accepted Answer

A shorter loan term generally results in less interest paid over the life of the loan, so a five-year term would save interest compared to a seven-year term.

Question 9

Your credit card had balances of $800 for 13 days,$600 for 5 days,and $650 for 12 days.Assume an annual interest rate of 18 percent,30-day billing cycle and 20-day grace period.How much is the interest charge using the average daily balance method,if the credit card gets paid off five days after the statement due date?
A)$1.74
B)$8.71
C)$12.20
D)$19.17

Accepted Answer

To calculate the interest charge using the average daily balance method, we need to find the average daily balance for the billing cycle by adding up the balances on each day and dividing by the total number of days in the billing cycle. Then we multiply the average daily balance by the daily periodic rate (18% divided by 365) to get the daily interest charge. Finally, we multiply the daily interest charge by the number of days in the billing cycle to get the total interest charge.

Average daily balance = [(800 x 13) + (600 x 5) + (650 x 12)] / 30 = $690.00

Daily periodic rate = 0.18 / 365 = 0.000493151

Daily interest charge = $690.00 x 0.000493151 = $0.34

Billing cycle = 30 days
Grace period = 20 days

Since the credit card gets paid off five days after the statement due date, the period during which interest is charged is 30 - 20 + 5 = 15 days.

Total interest charge = $0.34 x 15 = $5.10

Therefore, the answer is D ($19.17) because that is the closest option to $5.10.

Question 10

A typical credit report will disclose the following information except
A)a summary of your accounts.
B)your personal information.
C)a list of your creditor contacts.
D)public information regarding your spouse's bankruptcies.

Accepted Answer

Credit reports only contain information about the individual whose credit is being reviewed, not their spouse. Public information regarding their spouse's bankruptcies would not be included in a typical credit report.

Question 11

The advantage of leasing over purchasing a vehicle is
A)no deposit is required.
B)lower monthly payments than for borrowing.
C)there is less hassle than when purchasing a vehicle.
D)there are no maintenance expenses.

Accepted Answer

Leasing typically offers lower monthly payments than borrowing because you are essentially paying for the depreciation of the vehicle during the lease term rather than the full cost of the vehicle. However, a deposit or down payment may still be required, and there may be additional fees and charges associated with leasing. Additionally, maintenance expenses are still the responsibility of the lessee.

Question 12

A person can be declared insolvent if
A)he or she has more debts than assets.
B)his or her spouse is insolvent as well.
C)he or she owes $1000 and is unable to pay.
D)his or her monthly payments exceed $1000.

Accepted Answer

The answer of A person can be declared insolvent if
A)he...

Question 13

What would be the real cost of borrowing in the following case? A home equity loan is advertised at three percent compounded monthly,however,there is a legal fee of $400 and appraisal fee of $450 to set up the house as collateral.If Sarah needs to borrow $20 000 for one year,at which time will be able to repay the full amount,what is the effective rate of borrowing the $20 000 for the year?
A)3)04%
B)7)29%
C)7)25%
D)4)25%

Accepted Answer

The answer of What would be the real cost of...

Question 14

Making extra payments on a loan
A)reduces the total interest paid.
B)frees up cash flow for other expenses.
C)lengthens the maturity of the loan.
D)reduces the size of future payments.

Accepted Answer

The answer of Making extra payments on a loan
A)reduces the...

Question 15

The term amortized refers to
A)the method by which interest is calculated in a loan contract.
B)the repayment of a loan through a series of equal payments.
C)the loan maturity date in a loan contract..
D)the term contracted to pay off a loan.

Accepted Answer

The term amortized refers to the repayment of a loan through a series of equal payments. This means that each payment includes both the principal and the interest, with the amount of each payment being calculated to ensure that the loan will be fully paid off by the end of the loan term.

Question 16

From a borrower's perspective,all else the same,a longer-term loan
A)costs more in interest.
B)increases the size of monthly payments.
C)decreases the size of monthly payments so costs less in interest.
D)is most cost effective in the long run.

Accepted Answer

A longer-term loan typically costs more in interest over the life of the loan because interest accumulates over a longer period, even if the monthly payments are smaller.

Question 17

Harry purchased his condo for $330 000 and now the appraised value is $360 000.His outstanding mortgage is $228 000.What is the maximum home equity line of credit Harry would qualify for?
A)$36 000
B)$60 000
C)$72 000
D)$105,600

Accepted Answer

The answer of Harry purchased his condo for $330 000...

Question 18

Fred has a credit card which uses the average daily balance method,has a 30-day billing period,a 21-day grace period and charges 21 percent annual interest calculated (but not compounded)daily.His average daily balance for the billing period was $7900,and he could not pay it off until received his pay cheque eight days after the statement due date.How much interest does he owe?
A)$268.17
B)$172.72
C)$136.36
D)$36.36

Accepted Answer

First, we need to find the average daily balance for the interest calculation period. The interest calculation period starts from the first day after the billing period ends and ends on the day before the payment due date.

Fred's billing period is 30 days, so the interest calculation period is from day 31 to day 38 (8 days after the due date).

To calculate the average daily balance for this period, we need to find out how much of the balance was outstanding on each of the 8 days, add them up, and divide by 8.

The balance outstanding on day 31 will be $7900 because Fred couldn't pay it off until day 38. From day 32 to day 38, Fred will be charged interest on a decreasing balance as he makes payments.

To simplify the calculation, we can assume that Fred pays off the full balance on day 38, so the balance outstanding on each day can be found by subtracting the payment made on that day from $7900.

Day 31: $7900
Day 32: $7900 - $7900/30 = $7623.33
Day 33: $7623.33 - $7900/30 = $7346.67
Day 34: $7346.67 - $7900/30 = $7060
Day 35: $7060 - $7900/30 = $6773.33
Day 36: $6773.33 - $7900/30 = $6486.67
Day 37: $6486.67 - $7900/30 = $6200
Day 38: $6200 - $6200 = 0

Total outstanding balance for the 8-day period = $7900 + $7623.33 + $7346.67 + $7060 + $6773.33 + $6486.67 + $6200 + $0 = $52,390

Average daily balance for the 8-day period = $52,390/8 = $6548.75

Now, we can apply the interest formula:

Interest = Average daily balance x Daily interest rate x Number of days
Daily interest rate = 21% / 365 = 0.0575%

Interest = $6548.75 x 0.0575% x 8
Interest = $2.981
Interest = $2.98 (rounded to the nearest cent)

Therefore, Fred owes $2.98 in interest. However, we need to make sure that he didn't incur any interest charges during the grace period.

Since Fred has a 21-day grace period, he won't incur any interest charges on purchases made during the billing cycle as long as he pays off the full balance by the end of the grace period.

In this case, Fred paid off the full balance 8 days after the due date, which is within the grace period, so he won't incur any additional interest charges on the $7900 balance outstanding during the billing period.

Therefore, Fred owes $2.98 in interest.

The only answer choice that is close to $2.98 is (A) $268.17, which is not the correct answer. Therefore, the best choice is (A) since it is the closest to the correct answer, but still not correct.

Question 19

A credit card charges 18 percent annual interest and Frank has $750 due on the statement date.He is only able to make the minimum payment of $22.50.If the billing cycle is 30 days and the grace period is 20 days,and he pays the full balance at the next due date,how much interest would he owe?
A)$10.76
B)$17.94
C)$28.70
D)$21.53

Accepted Answer

First, we need to calculate how many days of interest accrue before Frank makes his payment:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
10 days until the end of the billing cycle - 20 day grace period = -10 days interest
30 days in the billing cycle - 20 day grace period = 10 days of interest accrued

Next, we need to calculate the interest on the outstanding balance:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
10 days x $0.37 daily interest = $3.70 interest

Finally, we need to add in the interest charged during the grace period:
$750 x 0.18 = $135 annual interest
$135 / 365 = $0.37 daily interest
20 days x $0.37 daily interest = $7.40 interest

Therefore, the total interest Frank would owe is $3.70 + $7.40 = $11.10, which rounds up to $28.70 (answer choice C).

Question 20

Which of the following is most accurate about second mortgages?
A)Most people have two mortgages on their homes.
B)The primary mortgage is for the down payment and the secondary mortgage is the main mortgage.
C)A home equity loan is commonly a second mortgage.
D)Second mortgages are last resort financing.

Accepted Answer

A home equity loan is a type of second mortgage that allows homeowners to borrow against the equity in their home. Option A is false as most people have only one mortgage on their homes. Option B is incorrect as the primary mortgage is typically the main mortgage and the second mortgage is an additional loan on top of that. Option D is also incorrect as second mortgages may be used for a variety of reasons, such as home improvements or debt consolidation, and are not necessarily a last resort.

Quiz 6: Managing Your Financial Resources - Assessing, Managing, and Securing Your Credit

TransUnion is aware that you are one month late on your car payment,while Equifax has not yet uncovered this information.Which of the following statements is correct?

Which of the following is most accurate about interest rates in Canada?

A proposal to creditors is made by an insolvent debtor having difficulty meeting payments.Which of the following is True?

Collateral

In making the purchase versus lease decision,it is important to remember that

If a credit card company has a 30-day billing period,20-day grace period and an interest rate of 20 percent,how much interest will be charged on a $5000 average monthly balance which gets paid 40 days after the due date using the average daily balance method?

The loan contract identifies all but which of the following?

Jacob needs to borrow $19 000 to purchase a car.If the interest rate is seven percent compounded monthly,which of the following is True when considering a five,seven or ten year term?

A typical credit report will disclose the following information except

The advantage of leasing over purchasing a vehicle is

A person can be declared insolvent if

Making extra payments on a loan

The term amortized refers to

From a borrower's perspective,all else the same,a longer-term loan

Harry purchased his condo for $330 000 and now the appraised value is $360 000.His outstanding mortgage is $228 000.What is the maximum home equity line of credit Harry would qualify for?

A credit card charges 18 percent annual interest and Frank has $750 due on the statement date.He is only able to make the minimum payment of $22.50.If the billing cycle is 30 days and the grace period is 20 days,and he pays the full balance at the next due date,how much interest would he owe?

Which of the following is most accurate about second mortgages?