Question 1

Match the following terms with their definitions.
-Deferred payment

Accepted Answer

The answer of Match the following terms with their definitions.
-Deferred...

Question 2

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:

Accepted Answer

The APR can be determined using the finance charge, amount financed, and total payments. Based on the given values, the APR falls within the range of 17.25% - 17.50%.

Question 3

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 4

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

Accepted Answer

Most companies calculate the finance charge on credit card accounts based on the average daily balance, which is calculated by taking the sum of the daily balances for a billing cycle and dividing by the total number of days in the cycle. This approach provides a more accurate representation of the borrower's outstanding balance throughout the billing cycle.

Question 5

Match the following terms with their definitions.
-Finance charge

Accepted Answer

A finance charge is the total of all payments minus the amount financed.

Question 6

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?

Accepted Answer

The amount financed is $559,200 ($699,000 x 0.8).

Using a mortgage calculator, the monthly payment would be $2,517.35.

The total finance charges over 35 years would be $626,863.20.

Question 7

Match the following terms with their definitions.
-Open-end credit

Accepted Answer

Open-end credit is a revolving charge account that allows the borrower to make purchases up to a certain credit limit and pay off the balance over time.

Question 8

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):

Accepted Answer

The total amount financed is $7,400 ($8,200 - $800). The monthly payment is $179.99 for 60 months. Using the APR table lookup method, the APR is found to be between 16.00% and 16.25%.

Question 9

Open credit in a revolving charge plan results in:

Accepted Answer

Open credit in a revolving charge plan allows the customer to make multiple charged purchases until they reach their credit limit.

Question 10

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 answer of Ed Sloan bought a new Explorer for...

Question 11

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

Accepted Answer

The total finance charges are the total amount of interest paid over the life of the loan. To calculate the total finance charges, we can use the following formula:Total finance charges = Principal x (Interest rate / 12) x (Number of months)In this case, the principal is $48,000, the interest rate is 11%, and the number of months is 15 x 12 = 180.Plugging these values into the formula, we get:Total finance charges = $48,000 x (0.11 / 12) x 180 = $50,236.80Therefore, the total finance charges are $50,236.80.

Question 12

Match the following terms with their definitions.
-Revolving charge

Accepted Answer

A revolving charge account allows purchases up to a maximum credit limit, with the balance carrying over month to month.

Question 13

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:

Accepted Answer

The answer of Given the following: \[\begin{array} { | l...

Question 14

Match the following terms with their definitions.
-Down payment

Accepted Answer

Down payment is the initial cash payment made in the context of a purchase, typically significant in transactions like buying a home or a car.

Question 15

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 involved in the transaction. The APR helps borrowers compare the true cost of different loan options.

Question 16

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 find the amount of the loan. 
Loan = Total cost of the boat - Down payment 
Loan = $17,000 - $2,500 
Loan = $14,500

Next, we need to add the finance charges to the loan amount. 
Total amount financed = Loan + Finance charges 
Total amount financed = $14,500 + $4,900 
Total amount financed = $19,400

Now, we can use the formula for the monthly payment on a loan:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where: 
M = Monthly payment 
P = Principal (amount financed) 
i = Monthly interest rate 
n = Number of payments

First, we need to find the monthly interest rate. We know the loan is for 60 months, so:

n = 60

To find the monthly interest rate, we need to divide the annual interest rate by 12:

Annual interest rate = Finance charges / Loan 
Annual interest rate = $4,900 / $14,500 
Annual interest rate = 0.3379 or 33.79%

Monthly interest rate = 33.79% / 12 
Monthly interest rate = 0.02816

Now, we can plug in the values:

M = $19,400 [ 0.02816(1 + 0.02816)^60 ] / [ (1 + 0.02816)^60 – 1]

M = $19,400 [ 0.02816(1.02816)^60 ] / [ (1.02816)^60 – 1]

M = $19,400 [ 0.02816(2.47852) ] / [ 2.47852 – 1]

M = $19,400 [ 0.0691 ] / 1.47852

M = $1,342.24 / 1.47852

M = $907.51

So the monthly payment is $907.51, which is closest to choice B, $323.33. However, this answer is not correct, so we need to check our work.

We made a mistake in using the formula. The formula we used is for a fully amortized loan, where the interest and principal are paid off over the term of the loan. However, this loan has a balloon payment at the end, where the entire remaining balance is due.

To find the monthly payment, we need to use the following formula:

M = (P * r) / (1 – (1 + r)^-n)

Where: 
M = Monthly payment 
P = Principal (amount financed) 
r = Monthly interest rate 
n = Number of payments

We already calculated the total amount financed as $19,400.

r = 0.02816 (from our previous calculation)

n = 60 (the number of payments)

M = ($19,400 * 0.02816) / (1 - (1 + 0.02816)^-60)

M = ($547.84) / (1 - 0.22199)

M = ($547.84) / (0.77801)

M = $703.60

So the correct answer is $703.60, which is closest to choice B, $323.33. Therefore, none of the choices are correct.

Question 17

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

Accepted Answer

The definition of average is sum divided by the number of items, so in this case, the sum of the daily balances is divided by the number of days in the billing cycle to get the average daily balance.

Question 18

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 19

In calculating the daily balance, cash advances are:

Accepted Answer

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

Question 20

Which one of the following statements is incorrect?

Accepted Answer

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

Quiz 14: Installment Buying

Match the following terms with their definitions. -Deferred payment

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: