Question 1

The Rule of 78s demonstrates that a borrower pays:
A)more interest at the beginning of the loan period.
B)more interest at the end of the loan period.
C)more interest in the middle of the loan period.
D)less interest than indicated by the APR.
E)equal amounts of interest throughout the loan.

Accepted Answer

The Rule of 78s is a method used to calculate prepayment penalties on certain loans. It assumes that interest is evenly distributed over the life of the loan, but because the borrower is paying off more of the principal at the end of the loan period, they end up paying a higher proportion of interest at the beginning of the loan period. Therefore, option A is correct.

Question 2

Steve Black has two children.He is buying each of them their own TV to put in their rooms so they do not have to join the rest of the family and watch TV together.Which one of the following best explains Gary's spending,which can lead to overindebtedness?
A)Misunderstanding or lack of communication
B)The use of money to punish
C)The expectation of instant comfort
D)Keeping up with the Joneses
E)Overindulgence of children

Accepted Answer

Steve's decision to buy each of his children their own TV could be seen as overindulging them, which can lead to overindebtedness. By constantly giving in to their children's desires and wants, parents can create a sense of entitlement and reliance on material possessions, which can result in poor financial habits in the future.

Question 3

Which type of debt would not be forgiven in a straight bankruptcy?
A)Credit card debt
B)Medical bills
C)Personal loans
D)Educational loans
E)Utility bills

Accepted Answer

Educational loans are not typically forgiven in a straight bankruptcy.

Question 4

Which method of payment is almost always cheaper than using credit?
A)Bank credit card
B)Check written on a home equity line of credit
C)Cash
D)Store credit card
E)Cash advance on a Visa credit card

Accepted Answer

Cash is almost always cheaper than using credit because there are no interest charges or fees associated with it. Using a bank credit card, check written on a home equity line of credit, store credit card, or cash advance on a Visa credit card all have the potential to accrue interest charges, fees, or both.

Question 5

You just received a credit card application.Which of the following are included with this application?
A)Annual fee
B)Annual percentage rate for purchases
C)Penalty fees
D)Method used to calculate balance
E)All of these

Accepted Answer

All of these options are typically included with a credit card application. The annual fee, annual percentage rate for purchases, penalty fees, and method used to calculate the balance are important factors to consider when deciding whether or not to apply for a credit card. It is important to carefully review all of these details before making a decision.

Question 6

In addition to the Consumer Credit Counseling Service,the following entities also provide counseling services:
A)Universities
B)Credit unions
C)Military bases
D)State and federal housing authorities
E)All of these

Accepted Answer

All of the entities listed (universities, credit unions, military bases, and state and federal housing authorities) can provide counseling services on financial matters, including credit counseling. Therefore, the best choice is E, as it includes all of the options.

Question 7

Sarah Parker's husband goes out with the 'boys' for a night on the town and gets home at 4 am waking everyone in the house.In response,Sarah goes out the next day and spends $500 in new clothes for herself putting it all on her credit card.Which one of thefollowing best explains Sarah's spending,which can cause overindebtedness?
A)Misunderstanding or lack of communication
B)The use of money to punish
C)The expectation of instant comfort
D)Keeping up with the Joneses
E)Overindulgence of children

Accepted Answer

Sarah's spending can be seen as a form of retaliation or punishment towards her husband for waking everyone up with his late-night outing. This behavior can lead to overindebtedness if it becomes a regular response to relationship issues.

Question 8

An increasing number of personal bankruptcy filers are baby boomers,who now account for what percent of personal bankruptcies?
A)10
B)20
C)35
D)50
E)60

Accepted Answer

The answer of An increasing number of personal bankruptcy filers...

Question 9

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10,what is her total cost of credit?
A)$10
B)$12
C)$24
D)$34
E)$42

Accepted Answer

(200 F1F1F1S1F1F1F10.12 F1F1F1S1F1F1F101 year) + 10 = $34

Question 10

Before you sign a loan contract,make sure to:
A)explore other financing options.
B)contact several lenders and compare terms, rates, and other costs.
C)know your rights under the law.
D)All of these.
E)None of these.

Accepted Answer

Before signing a loan contract, it's important to explore other financing options to ensure you're getting the best deal possible. Contacting several lenders and comparing their terms, rates, and other costs is essential to make an informed decision. Additionally, you should know your rights under the law to protect yourself from predatory lending practices. All of these steps are important to take before committing to a loan.

Question 11

Shelly Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month.Under the rule of 78s,what is the amount of interest included in her first payment?
A)$16.00
B)$14.77
C)$8.96
D)$4.87
E)$1.23

Accepted Answer

First, solve for rate and find annual dollar interest using the APR formula; 3,000 F1F1F1S1F1F1F10 r = 3,000 F1F1F1S1F1F1F10 [(2 F1F1F1S1F1F1F10 12 F1F1F1S1F1F1F10 96)/3,000(12+1)] = 3,000 F1F1F1S1F1F1F10 2304/39,000 = $177.23; 177.23/12months = $14.77.

Question 12

According to Fair Isaac Corporation,a personal bankruptcy can cause an immediate drop in your credit score of how many points?
A)100
B)150
C)180
D)210
E)260

Accepted Answer

The answer of According to Fair Isaac Corporation,a personal bankruptcy...

Question 13

Randy Ice starts the month with a balance on his credit card of $1,000.On the 10^th day of the month,he purchases $200 in clothes with his credit card.On the 15^th day of the month he makes a payment on his credit card of $500.The average daily balance for the month including the new purchase is $883.The average daily balance for the month excluding the new purchase is $750.The bank charges 1.5 percent per month and uses the average daily balance excluding new purchases method.What would Randy's finance charges be for the month? A)$7.50 B)$13.25 C)$11.25 D)$15.00 E)$18.00

Accepted Answer

750 F1F1F1S1F1F1F10 1.5% = $11.25.

Question 14

If a new-car loan costs 6%,then a used-car loan would cost:
A)a lower percentage.
B)the same percentage.
C)slightly more.
D)significantly more.
E)none of these.

Accepted Answer

Used-car loans typically come with slightly higher interest rates than new-car loans because used cars have a higher risk of default due to possible wear and tear, age, and mileage. Therefore, a used-car loan would cost slightly more than a new-car loan at 6%.

Question 15

Which of the following is not true about the Credit CARD Act of 2009?
A)States that teaser rates must stay in effect for at least 6 months
B)Makes new disclosure statements clear and more timely
C)Requires credit card issuers to post their standard card agreements on the Internet
D)Allows card issuers to apply new higher interest rates to the existing card balances
E)Requires issuers to mail monthly statements at least 21 days before payment is due

Accepted Answer

The Credit CARD Act of 2009 actually prohibits credit card issuers from applying new higher interest rates retroactively to existing balances.

Question 16

Gary Simpson notices that his neighbor has a brand new Ford F150 truck parked in the driveway.Even though his current car is fine,Gary decides that he needs a new car and goes out and purchases a Tundra with a six-year loan.Which one of the following bestexplains Gary's spending,which can lead to overindebtedness?
A)Misunderstanding or lack of communication
B)The use of money to punish
C)The expectation of instant comfort
D)Keeping up with the Joneses
E)Overindulgence of children

Accepted Answer

Gary's spending behavior can be attributed to the desire to keep up with his neighbor and show that he too can afford a new car. This behavior is commonly referred to as "Keeping up with the Joneses."

Question 17

Which one of these is the fairest method of calculating finance charges on a credit card?
A)Declining balance method
B)Adjusted balance method
C)Current balance method
D)Average daily balance method
E)Previous balance method

Accepted Answer

The average daily balance method is considered the fairest method of calculating finance charges on a credit card. This method takes into account the outstanding balance at the end of each day during the billing cycle and calculates interest based on the average of those daily balances. This method prevents customers from being charged interest on a balance that has already been paid off, unlike the previous balance method. It also does not give too much weight to the balance at the beginning or end of the billing cycle, like the adjusted balance method or the current balance method.

Question 18

Collection agencies are allowed to:
A)contact you at your place of employment.
B)contact you as early as 8 am.
C)say that you will be arrested if you do not pay the debt.
D)harass you.
E)threaten harm to you or your family.

Accepted Answer

Collection agencies are allowed to contact you as early as 8 am, but they are not allowed to harass you, threaten you or your family, or say that you will be arrested if you do not pay the debt. They are also not allowed to contact you at your place of employment if you have asked them not to or if it is prohibited by your employer.

Question 19

Jeff Bloom wants to have a house just like the one his parents had when he was a teenager.He finds the house he wants and gets an interest-only loan on it for the first five years.Which one of the following best explains Jeff's spending,which can lead to overindebtedness?
A)Misunderstanding or lack of communication
B)The use of money to punish
C)The expectation of instant comfort
D)Keeping up with the Joneses
E)Overindulgence of children

Accepted Answer

Jeff's desire to have a house just like his parents' and his decision to get an interest-only loan for the first five years demonstrates an expectation of instant comfort. He may not have the means to afford this house in the long-term and is prioritizing his present comfort over his future financial stability. This mindset can lead to overindebtedness.

Question 20

Payday,cash advance,check advance,and postdated checks are _________ loans.
A)inexpensive
B)medium-priced
C)expensive
D)low APR
E)variable APR

Accepted Answer

Payday, cash advance, check advance, and postdated check loans are considered expensive because they often come with high interest rates and fees. These types of loans should only be used as a last resort and borrowers should make sure they understand the terms and repayment requirements before taking out any loan.

Quiz 7: Choosing a Source of Credit: The Costs of Credit Alternatives

The Rule of 78s demonstrates that a borrower pays:

Steve Black has two children.He is buying each of them their own TV to put in their rooms so they do not have to join the rest of the family and watch TV together.Which one of the following best explains Gary's spending,which can lead to overindebtedness?

Which type of debt would not be forgiven in a straight bankruptcy?

Which method of payment is almost always cheaper than using credit?

You just received a credit card application.Which of the following are included with this application?

In addition to the Consumer Credit Counseling Service,the following entities also provide counseling services:

An increasing number of personal bankruptcy filers are baby boomers,who now account for what percent of personal bankruptcies?

If Marjorie Wilcox borrows $200 for one year with an APR of 12% and an annual service fee of $10,what is her total cost of credit?

Before you sign a loan contract,make sure to:

Shelly Sanders gets a loan for $3,000 and repays the loan in 12 monthly payments of $258 per month.Under the rule of 78s,what is the amount of interest included in her first payment?

According to Fair Isaac Corporation,a personal bankruptcy can cause an immediate drop in your credit score of how many points?

If a new-car loan costs 6%,then a used-car loan would cost:

Which of the following is not true about the Credit CARD Act of 2009?

Which one of these is the fairest method of calculating finance charges on a credit card?

Collection agencies are allowed to:

Jeff Bloom wants to have a house just like the one his parents had when he was a teenager.He finds the house he wants and gets an interest-only loan on it for the first five years.Which one of the following best explains Jeff's spending,which can lead to overindebtedness?

Payday,cash advance,check advance,and postdated checks are _________ loans.