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Exam Review

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Study Guide Directions With a partner you both need to have the PowerPoint Review for Unit 5 downloaded. You also need a piece of paper to record your answers on. There are 52 questions total on the Review. When you are finished you will check your answers to see how much you already know! What areas should you focus on when studying? You may download at home and study or save to flash drive. Notecard Use your notecard wisely!

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1. Penny purchased a new DVD using a plastic bank card. Payment for the DVD was deducted immediately from her checking account. What sort of transaction was this? A. A credit-card transaction B. A debit-card transaction C. A credit-score transaction D. A debit-score transaction

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2. Which of the following is a good tip for using a credit card? A. Pay the minimum balance due. B. Always keep three to five cards. C. Shred unused credit card applications. D. Use your card for minor purchases.

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3. What is the annual percentage rate? A. The grace period B. The yearly line of credit C. A record of annual payment history D. The cost of credit expressed as an annual rate

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4. Which of the following information is included in a credit report? A. Savings-account balance B. Checking-account balance C. Income D. Credit history

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5. A credit score is A. a record of an individuals credit history. B. the finance charge on a credit-card bill. C. a number lenders use to help them decide whether to make a loan. D. a formula for calculating an individuals number of defaults.

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6. Which of the following factors is most important in determining your credit score? A. Types of credit in use B. New credit C. Length of credit history D. Payment history

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7. Purchasing which one of the following on credit would be considered a smart use of debt? A. Food B. Clothing C. A home D. Gas

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8. When you purchase a good or service using a credit card, you are A. paying immediately with money out of your checking account. B. paying immediately with money out of your savings account. C. promising to pay money back in the future, plus any interest that may be due. D. promising to pay money back in the future, without interest.

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9. To prevent someone from stealing your identity, you can A. keep your social security card in a safe place and not carry it with you. B. carry all of your credit cards so that if one card is stolen, you have others to use in case of emergency. C. give personal information such as your social security number to any one from a bank or other financial institution who calls you. D. keep unused credit applications easily accessible so that if you need to apply for credit in an emergency, you can do so.

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10. The annual percentage rate (APR) is A.the percent of the credit charges a customer must pay each year. B.the amount of credit a customer has available for use each year. C.the interest rate earned, expressed as a percent per year, for the use of a credit card. D.the interest rate charged, expressed as a percent per year, for the use of a credit card.

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11. Harry received a credit card application in the mail. According to the application, the APR is 12%. This means that: A.Harry can borrow 12% of his credit line each year. B.Harry must pay 12% of what he charges on the card each year. C.Harry would earn 12% interest per year for using the credit card. D.Harry would be charged 12% interest per year for the use of credit.

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12. John agreed to lend his brother money for three months. At that time, Johns brother is supposed to repay the amount. A.John is the lender and his brother is the borrower. B.John is the borrower and his brother is the lender. C.Neither John nor his brother are lenders because they are relatives. D.Neither John nor his brother are borrowers because they are relatives.

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13. If a home buyer chooses a 30-year loan instead of a 15-year loan, the monthly payment is: A.lower and the interest paid lower. B.lower and the interest paid higher. C.higher and the interest paid higher. D.higher and the interest paid higher.

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14. What does a credit bureau do? A.extend credit to qualified buyers. B.provide credit counseling service. C.check credit applications for accuracy. D.track the bill-paying habits of consumers.

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15. Which of the following do creditors consider most important when judging a persons creditworthiness to buy a house or a car? A.marital status, gender, location. B.character, collateral, and capacity. C.number of credit cards, occupation, and income. D.interest rate, length of loan, and income sources.

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16. A written record collected by a credit agency that tracks a borrowers bill-paying habits is called a: A.credit report. B.credit bureau. C.collection report. D.collection bureau

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17. If a person has a high FICO score, he or she is: A.very likely to repay borrowed funds. B.not very likely to repay borrowed funds. C.very likely to collect social security. D.not very likely to collect social security

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18. A credit card is an example of: A.revolving credit. B.installment plan. C.open-ended credit. D.money-market account.

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19. The price associated with using someone elses money is: A.risk. B.interest. C.lending. D.borrowing.

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20. The smallest payment a person is required to make in a given month on an open-ended credit account is the: A.rate of return. B.entire balance. C.minimum payment. D.installment payment.

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21. The interest paid on unpaid credit balances is the: A.rate of return. B.finance charge. C.minimum balance. D.installment payment

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22. Which financial institution would likely charge the highest interest rate for a loan? A.credit unions. B.commercial banks. C.savings and loans. D.payday loan companies.

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23. An important benefit of credit is that it helps people: A.sell assets. B.reduce investment risk. C.increase their liabilities. D.buy a good or service now and pay for it later.

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24. Your parents tell you that their FICO score from the credit agency is 720. A FICO score is: A.the number of points earned in the card game FICO. B.a password for inquiring with a credit agency about your credit rating. C.the number of financial investment options available to your parents based on the credit-reporting agencys evaluation. D.a number applied to a persons credit history to assess the persons reliability to repay borrowed funds.

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25. Several of the important factors used to determine credit scores are: A.the amount of interest paid over time, age of the consumer, and the number of times the consumer uses credit cards each month. B.whether the consumer rents or owns, the number of times the consumer uses credit cards each month, whether the consumer is registered with the credit agency. C.the amount of interest paid over time, whether the consumer is registered with the credit agency, and the age of the consumer. D.whether bills are paid on time, the amount owed on all accounts, number of credit cards, and number of years a person has had credit.

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26. When choosing a credit card, it is best to look for: A.provision of airline miles, easy application process, and ability to select color of card. B.a high annual percentage rate, ability for cash advances, and provision of convenience checks. C.a low annual percentage rate, no annual fee, low penalty fees, and interest calculated using the average daily balance method. D.provision of airline miles, interest calculated with the two-cycle average daily balance method, and a variable annual percentage rate.

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27. Which is the most costly and least desirable payment for a revolving balance account such as a credit card? A.Paying the entire balance every month. B.Paying only the minimum monthly payment. C.Paying more than the minimum monthly payment. D.Paying the minimum payment every other month.

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28. The higher a persons FICO score, the more likely it is that he or she a.has no credit history. b.has declared bankruptcy in the past 7 years. c.may need a co-signer to obtain a bank loan. d.may receive a lower interest rate on a loan.

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29. A borrower cannot default on a a.car loan. b.student loan. c.mortgage loan. d.home equity loan.

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30. In Missouri, victims of investment scams should contact a.the local police department. b.a local attorney. c.the Secretary of States office. d.the Governors office.

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31. A late or missed credit card payment will most likely result in a.a higher APR on the card. b.an annual fee being imposed. c.a shorter grace period. d.the issuer revoking the use of the card.

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32. Which type of financial institution is actually owned by its depositors? a.state bank b.national bank c.credit union d.savings and loan

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33. One advantage of using a debit card instead of a credit card when making a purchase is that with a debit card, the consumer a.can have the product immediately. b.is not making a loan. c.can make the purchase while the product is on sale. d.There is actually no advantage. The cards are identical.

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34. If you pay off your credit card balance each month, you would be least interested in the a.annual fees. b.annual interest rate. c.credit limit. d.payment period.

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35. If you have a mortgage on your home, a home equity line of credit a.can be used to pay a mortgage off early. b.can only be used to remodel the home. c.is the same as taking out a second mortgage on the home. d.both b and c.

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36. When considering the costs and benefits of borrowing from payday loan companies, which of the following statements is true? a.A cost is that many payday loan companies are not open as many days each year as banks. b.A benefit is that the borrower has up to a year to repay the loan. c.A cost is that the borrower will pay a higher interest rate than borrowing from a bank. d.A benefit is that the borrower can borrow enough to make large purchases, such as a car, without collateral

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37. Phishing is a.an attempt to steal identities through email. b.a mass mailing of credit card applications. c.a fraudulent investment operation. d.buying and selling securities to increase commissions.

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38. Which of the following is true about car leases? a.Lease payments are almost always higher than car loan payments. b.Lease payments build equity in the car. c.Leases require the consumer to purchase the car at the end of the lease. d.Leases generally limit the mileage per year.

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39. If a consumer reports a lost or stolen credit card to the card issuer, the maximum liability for the card holder is a.$0. b.$50. c.$100. d.the amount of the credit limit on the card.

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40. The first credit card issued in the United States was a.Diners Club. b.American Express. c.Visa. d.Mastercard.

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41. The most accurate measure of the true cost of credit is the a.late fee. b.monthly payment. c.total finance charge. d.annual percentage rate.

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42. Before purchasing a good or service, the consumer should consider the a.cost and benefit of the purchase. b.potential sale price of the good or service. c.interest rate on the credit card used to make the purchase. d.reliability of the good or service being purchased.

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43. After graduating from college, generally how long is the grace period on federally-insured student loans? a.There is no grace period. b.6 months c.12 months d.18 months

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44. Before purchasing a used car, a consumer might choose to consult the a.FDIC. b.Kelly Blue Book. c.Federal Trade Commission. d.Standard and Poors.

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45. Companies choose to advertise products primarily to a.increase prices on their products. b.increase demand for their products. c.beat out competitors. d.use bait and switch.

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46. Stan received a credit card application in the mail. According to the application, the APR is 18%. This means that a.Stan can borrow 18% of his credit line each year. b.if Stan fails to the entire balance each month, he must pay 18% of what he charges on the card in interest each year. c.Stan would earn 18% interest per year for using the credit card. d.even if Stan pays the entire balance each month, he will be charged 18% interest per year for the use of credit.

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47. Jakes brother asked him for $100 and agreed to repay the money in three months. According to this statement, a.Jake is the lender and his brother is the borrower. b.Jake is the borrower and his brother is the lender. c.Neither Jake nor his brother are lenders because they are relatives. d.Neither Jake nor his brother are borrowers because they are relatives.

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48. Opening a credit card account using someone elses name is known as a.phishing. b.Ponzi scams. c.churning. d.identify theft.

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49. If a home buyer chooses a 30-year loan instead of a 15-year loan, the monthly payment would be a.lower and the interest paid lower. b.lower and the interest paid higher. c.higher and the interest paid higher. d.higher and the interest paid lower.

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50. The main function of a credit bureau is to a.extend credit to qualified buyers. b.provide credit counseling service. c.check credit applications for accuracy. d.track the bill-paying habits of consumers.

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Calculating Finance Charges 51. A single mother purchases a used car by obtaining a simple interest loan. The car costs $5500, and the interest rate that she is being charged on the loan is 12%. The car loan is to be paid back in 3 years. What would the total amount of finance charges be that she will owe? Show Work!

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Calculating Monthly Payments on Auto Loans 52. What would the monthly payment be on a 5-year, $20,000 car loan with a 7.5% annual interest rate? The original price was $21,000 and the customer made a $1,000 down payment. Show work!

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Note Card On a Notecard, record any and all calculations that you think you may need for the test. Calculating Finance Charges Calculating Monthly Payment Calculating APR You may also include any 2 items that you feel you are having a hard time remembering! You are welcome