Question 1

A foreclosure happens when:

Accepted Answer

A foreclosure occurs when the borrower has defaulted on their mortgage payment, and the lender attempts to recover the unpaid loan balance by forcing the sale of the home pledged as collateral. This process is called foreclosure.

Question 2

Assume that you have taken a car on a closed-end lease for a period of 5 years. At the end of the fifth year, you would need to pay additional money only if:

Accepted Answer

With a closed-end lease, the lessee is only responsible for paying for additional mileage charges if they exceed the predetermined mileage limit outlined in the lease agreement. Therefore, if the lessee has exceeded the mileage limit at the end of the lease term, they will need to pay additional money. Fuel costs, residual value, upgrades by the company, and automobile insurance are not factors that affect the end-of-lease charges for a closed-end lease.

Question 3

Janet is considering the purchase of a condo for $150,000 during a recession phase, partly financed by a mortgage. She is due to retire in a few years. If she cannot make her mortgage payments on time, she is bound to incur a:

Accepted Answer

If Janet cannot make her mortgage payments on time, she is at risk of foreclosure, which means the lender could take possession of her condo and sell it to recover their money. This would result in Janet losing her property and potentially damaging her credit score.

Question 4

At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the residual value of the car. You have a(n) _____ lease.

Accepted Answer

Closed-end leases, also known as "walk-away" leases, allow the lessee to return the vehicle at lease-end and walk away without any further obligations or fees, provided that the vehicle is within certain mileage and wear-and-tear guidelines. This type of lease is the most common for personal use. Residual, open-end, and purchase option leases all require extra fees or decisions at lease-end. Money factor is a term used to describe the interest rate in a lease agreement.

Question 5

A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the subsequent assessment (of value or price) regardless of new information to the contrary is called:

Accepted Answer

This is the definition of the anchoring bias, where the initial estimate (the anchor) influences subsequent assessments, even if new information contradicts it.

Question 6

_____ is a situation where homeowners owe more on their mortgage than what their homes are worth.

Accepted Answer

Negative equity is a term used to describe a situation in which the value of a homeowner's property is less than their outstanding mortgage balances. This typically occurs when property values decline or when homeowners take out mortgages with an initially high loan-to-value ratio.

Question 7

Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly lease payments on a leased car?

Accepted Answer

Capital cost reduction is a type of down payment made at the beginning of a lease that reduces the overall capitalized cost of the leased vehicle. This, in turn, lowers the potential depreciation and therefore the monthly lease payments.

Question 8

The financing rate on a lease is called the:

Accepted Answer

The financing rate on a lease is called the money factor, so the correct choice is C. The other options refer to different terms and aspects of leasing, but not the specific rate charged for financing the lease.

Question 9

Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car? (Round the answer to the nearest dollar.)

Accepted Answer

The answer of Kurt has $4,500 for a down payment...

Question 10

When shopping for a lease, you want:

Accepted Answer

A low capitalized cost means a lower starting price for the vehicle, which will result in lower lease payments. Higher insurance costs, money factors, and residual values will all lead to higher overall costs for the lease.

Question 11

The first step in the auto-buying process should be:

Accepted Answer

Analyzing how much you can afford to spend on the car is the first step in the auto-buying process. It will help you determine your budget and narrow down your choices, ultimately saving you time and money in the long run.

Question 12

The price of the car you are leasing is called the:

Accepted Answer

The price of the car you are leasing is called the capitalized cost.

Question 13

Variable auto ownership costs are dependent on the:

Accepted Answer

Variable auto ownership costs are primarily dependent on the miles covered by the automobile, as these costs include fuel, maintenance, and wear and tear, which vary with usage.

Question 14

Which of the following is usually the biggest fixed auto ownership cost?

Accepted Answer

The cost of installment loan payments is usually the biggest fixed auto ownership cost as it includes the principal amount, interest rate, and loan term, which have a significant impact on the total cost of ownership. The cost of fuel, oil, maintenance and repair, and tires are variable costs that can fluctuate based on usage and other factors.

Question 15

The affordability ratios that are used to qualify applicants for FHA loans are more stringent than those used for conventional loans.

Accepted Answer

FHA loans typically have more lenient affordability ratios compared to conventional loans, allowing applicants with higher debt-to-income ratios to qualify.

Question 16

To refinance a mortgage, the lender typically requires you to have at least 20% equity in your home.

Accepted Answer

Lenders often require at least 20% equity to refinance to ensure the borrower has a significant stake in the property, reducing the lender's risk.

Question 17

The loss in the value of an automobile that occurs over its period of ownership is called:

Accepted Answer

The loss in the value of an automobile is called depreciation. Depreciation occurs as the vehicle gets older and is impacted by factors such as wear and tear, market demand, and technological advancements. It is a natural part of vehicle ownership and can have a significant impact on resale value.

Question 18

Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round the answer to the nearest dollar.)

Accepted Answer

The answer of Henry has $2,500 for a down payment...

Question 19

Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of 4 years. Jacob does not need to pay any extra amount when he turns in the vehicle because he didn't exceed the mileage specified in the lease and the SUV is not damaged. He has a:

Accepted Answer

Jacob has a closed-end lease, also known as a "walk-away" lease, because he is not responsible for any additional fees or damages at the end of the lease term as long as he has not exceeded the mileage limit and the SUV is in good condition.

Question 20

Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle with a 7%, 4-year loan from a credit union, what is the maximum loan amount Jana can afford? (Round the answer to the nearest dollar.)

Accepted Answer

The monthly payment for a 4-year loan at 7% interest on a loan amount of $x is given by:$300 = (x * 0.07 / 12) * (1 - (1 + 0.07 / 12)^(-48))Solving for x gives x = $12,528.

Quiz 5: Making Automobile and Housing Decisions