Finance Exam Ii

Front 1

What is the future value of a stream of $800 annual payments worth to the investor at the end of 10 years if these payments are invested at an annual rate of return of 8.5%?

a.) 12,195.22
b.) 11, 868.08
c.) 13, 334.90
d.) 13, 667.88

Back 1

B. 11, 868.08

Front 2

What is the present value of an annual payment of $1,500 discounted back 15 years at an annual rate of return of 3%?

a.) 13,449.87
b.) 12,334.56
c.) 17,906.90
d.) 10, 663.87

Back 2

C. $17,906.90

Front 3

A series of equal dollar payments at the end of each period for "x" number of time periods is:

a.) an annuity
b.) a complex annuity
c.) an annuity due
d.) a deferred annuity
e.) an equal installment annuity

Back 3

a.) an annuity

Front 4

Assuming that you can afford a car payment of $400 for 36 months, which of the following is closest to the annual interest rate (APR) you would need on a loan to borrow $12,000 for a new car?

a.) 12.25 %
b.) 10.99%
c.) 11.26%
d.) 12.99%

Back 4

a.) 12.25%

Front 5

In evaluating your financial history, lenders generally focus on which of the following?

a.) your income
b.) your credit report
c.) your FICO
d.) All of the above

Back 5

d.) all of the above

Front 6

If creditors add finance charges after subtracting payments made during the billing period, this is called the:

a.) APR method
b.) discount method
c.) previous balance method
d.) adjusted balance method
e.) average daily balance method

Back 6

d.) adjusted balance method

Front 7

You are considering a home purchase. The mortgage terms are for a 30 year fixed mortgage having an interest rate of 4%. Assuming the mortgage is for $175,000, what would your loan balance after ten years?

a.) 63,129
b.) 37,128
c.) 137,872
d.) 111,736
e.) 175,000

Back 7

c.) 137,872

Front 8

Typically, the credit card issuer allows you a grace period, which means:

a.) you do not have to make a payment during the current month
b.) you are not charged any interest during this grace period
c.) you must pay your balance off in full to benefit from the grace period
d.) interest charges are reduced during this time
e.) both B and C apply

Back 8

e.) both B and C apply

Front 9

Which of the following apply to getting a cash advance with a credit card?

a.) the interest rate may be higher than on regular purchases
b.) there may be a cash advance fee
c.) you begin paying interest immediately
d.) cash advances are available at ATM machines
e.) all of the above

Back 9

e.) all of the above

Front 10

Which method sums the outstanding balances owed each day during the billing period and divides by the number of days in the period?

a.) previous balance
b.) balance calculation method
c.) simple interest
d.) average daily balance
e.) adjusted balance

Back 10

d.) average daily balance

Front 11

For the first ten days of Oct, Joe's balance was $900 on his credit card. For the next ten days, his balance was $2,200, and for the last 11 days, his balance was $2,300. His credit card charges him an Annual Percentage Rate (APR) of 18% compounded monthly. Using the Average Daily Balance method calculate Joe's finance charge for the month of October.

a.) $7.12
b.) $28.16
c.) $523.14
d.) $212.36
e.) $27.24

Back 11

e. $27.24

Front 12

Assuming the APR on your credit card is 18% and your average daily balance this month was $10,000, what will your interest or finance charges for the month be?

a.) $150
b.) $60
c.) $1.50
d.) $180

Back 12

a.) 150

Front 13

Which of the following is NOT a single-purpose credit card?

a.) bank of America visa
b.) shell oil
c.) sears
d.) macy's
e.) toys-r-us

Back 13

a.) bank of America visa

Front 14

Assume you are saving for retirement. You start saving $350 a month at age 25 and plan to retire at age 65. If you earn 8% compounded monthly, how much will you have when you retire?

a.) $1,422,353
b.) $1,221,853
c.) $550,575
d.) $14,000
e.) $168,000

Back 14

b.) 1,221,853

Front 15

Credit cards issued in conjunction with particular charities or organizations, like the Sierra Club or the Humane Society, that send a portion of their annual fee or percentage of their purchases back to the sponsoring organization are known as:

a.) prestige cards
b.) traditional charge accounts
c.) affinity cards
d.) secured credit cards
e.) premium cards

Back 15

c.) affinity cards

Front 16

Getting a credit card while a college student is an excellent idea because:

a.) it helps you learn about credit
b.) you can shop online and make reservations
c.) when used correctly it allows you to build up a solid credit history
d.) it works well for emergencies
e.) all of the above

Back 16

e.) all of the above

Front 17

You want to have $45,000 for a down payment on a house 7 years from now. If you can earn 12% on your savings (compounded monthly), how much do you need to deposit each month to reach your goal?

a.) $241
b.) $344
c.) $298
d.) $166
e.) $179

Back 17

b.) $344

Front 18

Assume you borrow $10,000 to purchase a car, and the dealer charges you a 10% add-on rate. If you plan to repay the loan monthly over four years, what is your monthly payment?

a.) $361.11
b.) $322.67
c.) $291.67
d.) $833.33
e.) need more information

Back 18

c.) 291.67

Front 19

assume you borrow $12,000 for four years and the bank charges you 10% add on interest. If you are required to make 48 payments of $350, what is the true effective rate (APY) you are being charged?

a.) 17.60%
b.) 12%
c.) 19.09%
d.) 24%
e.) 18%

Back 19

c.) 19.09%

Front 20

One of the following lists constitutes the five C's of credit. Select the correct one:

a.) character, capacity, capital, collateral, careful
b.) character, capacity, capital, collateral, conditions
c.) character, capacity, capital, collateral, co-insurance
d.) character, capacity, capital, collateral, credence
e.) character, capacity, capital, collateral, characteristics

Back 20

b.) character, capacity, capital, collateral, conditions

Front 21

A low FICO score:

a.) is the only factor the lender considers when determining whether to give you credit.
b.) can cost you quite a bit when you get a mortgage loan
c.) is a good credit score
d.) may result in a credit card rate half the rate of that paid by those with a high FICO score

Back 21

b.) can cost you quite a bit when you get a mortgage loan

Front 22

Which of the five C's of credit would your actual home be IN RELATION to your mortgage?

a.) collateral
b.) capacity
c.) character
d.) conditions
e.) capital

Back 22

a.) collateral

Front 23

Consider the "five C's of credit." The category that considers your current income level and current borrowing level is:

a.) capital
b.) collateral
c.) capacity
d.) character
e.) none of the above

Back 23

c.) capacity

Front 24

A(n) _______ loan calls for the repayment of both the interest and the principal at regular intervals and is commonly referred to as loan amortization:

a.) open credit
b.) perpetuity
c.) installment
d.) visa
e.) line of credit

Back 24

c.) installment

Front 25

Which of the following characterize secured loans?

a.) the reduce the lenders risk
b.) they are typically easier to get
c.) interest rates tend to be lower than unsecured loans.
d.) they are backed with either physical or investment assets
e.) all of the above

Back 25

e.) all of the above

Front 26

A ______ is tied to a market interest rate, such as the prime rate or the six month treasury bill rate.

a.) convertible-rate loan
b.) flexible-rate loan
c.) prime-rate loan
d.) variable-rate loan
e.) none of the above

Back 26

d.) variable-rate loan

Front 27

A payday loan is a reasonable option if you need a luxury item like a big screen tv.

a.) true
b.) false

Back 27

b.) false

Front 28

Fred ran short on cash and borrowed $300 through a Payday loan company. The company charged him a fee of $60 to borrow the $300 for two weeks. What interest rate (APR) was Fred charged for the aforementioned loan? There are 26 two week periods in a year.

a.) 5.21%
b.) 60%
c.) 520%
d.) 52.13%

Back 28

c.) 520%

Front 29

You are a newlywed, and you and your spouse have just found your dream home. Problem is, you do not have 20% for a down payment on the house. You will probably need to obtain:

a.) EAR
b.) PMI
c.) PTI
d.) APR
e.) non of the above

Back 29

b.) PMI

Front 30

You are considering obtaining a mortgage of $220,000. A lower APR is available, but you must pay 3 points to buy the rate down. How much must you pay in dollars?

a.) $1,100
b.) $2,200
c.) $3,300
d.) $4,400
e.) $6,600

Back 30

e.) 6,600

Front 31

Congratulations! You have just graduated from college and are determining what your monthly student loan payments will be. After consolidating all of your loans, you have a balance of $18,000. At 8% APR for 10 years, what will your monthly payments be?

a.) $218.39
b.) $1,440.14
c.) $161.50
d.) $1,866.66

Back 31

a.) $218.39

Front 32

Your brother, a banker, has just approved a loan for you, an add-on interest loan. You will borrow $2,000 for one year with a 12% annual interest rate. What is your monthly payment?

a.) $166.67
b.) $186.67
c.) $240.00
d.) $256.78
e.) none of the above

Back 32

a.) $166.67

Front 33

You have an annual gross income of $40,000. Using the 28/36 rule for maximum mortgage payment (PITI) estimation, what is your maximum PITI payment using your monthly gross income as a guide (28%)?

a.) $840
b.) $933
c.) $680
d.) $640
e.) $880

Back 33

b.) $933

Front 34

Assume you borrow $170,500 to purchase a home. If you plan to repay the loan monthly over thirty years at a stated rate of 4%, how much interest will you pay during the THIRD year of the loan?

a.) $2,265
b.) $3,252
c.) $3,125
d.) $6,643
e.) $6,516

Back 34

e.) 6,516

Front 35

Select the one cost that is NOT involved in home ownership.

a.) down payment
b.) closing/settlement costs
c.) rental deposit
d.) points/discount points
e.) loan origination fee

Back 35

c.) rental deposit

Front 36

Your uncle lends you $2,500 and charges you 10% add-on interest. Assume you plan to repay the loan in 4 equal quarterly installments. What is the effective rate for this loan? I am asking for the effective rate, not the APR.

a.) 12.60%
b.) 15.70%
c.) 16.65%
d.) 13.21%
e.) 21.05%

Back 36

c.) 16.65%

Front 37

What is the effective annual rate if a bank states it will charge you 8% compounded daily?

a.) 8.45%
b.) 8%
c.) 8.33%
d.) 459%
e.) .67%

Back 37

c.) 8.33%

Front 38

Which of the following is NOT a recurring housing cost?

a.) mortgage payments
b.) PITI
c.) points
d.) maintenance and operating costs
e.) homeowners insurance

Back 38

c.) points

Front 39

Chuck Spencer wants to borrow money for three years to purchase a new car. He has been offered a seven 7 percent fixed rate loan and also a variable rate loan that has an initial rate of 5 percent. By choosing the variable rate loan, Chuck is reducing the lenders risk by:

a.) sharing the interest rate risk
b.) increasing his monthly payments
c.) taking a larger stake in the asset he is purchasing
d.) repaying the loan over a faster period of time
e.) pledging collateral

Back 39

a.) sharing the interest rate risk

Front 40

Your uncle lends you $2,500 and charges you 8% add-on interest. Assume you plan to repay the loan in 4 equal quarterly installments. What is the APR for this loan? I am asking for the APR, not the effective rate.

a.) 12.60%
b.) 8%
c.) 0%
d.) 13.21%
e.) 21.05%

Back 40

a.) 12.60%

Front 41

What is the effective annual rate if a bank states it will charge you 8% compounded monthly?

a.) 8.45%
b.) 8%
c.) 8.30%
d.) 459%
e.) .67%

Back 41

c.) 8.30%

Front 42

Which of the following would NOT typically be closed-end credit?

a.) home mortgage
b.) installment loan to purchase new furniture
c.) line of credit from your bank
d.) automobile loan
e.) single lump-sum credit loan due in 90 days

Back 42

c.) line of credit from your bank

Front 43

Which FICO credit score would represent the least risky borrower?

a.) 415
b.) 562
c.) 685
d.) 702
e.) 825

Back 43

e.) 825

Front 44

Based on the textbook and our class discussion, which factor is "most" important in determining your credit score?

a.) new credit
b.) types of credit used
c.) length of credit history
d.) amounts owed
e.) payment history

Back 44

e.) payment history

Front 45

Assume you arranged to borrow $40,000 as a mortgage. The rate stated is 7% fixed for a term of 30 years. Assume you make monthly payments and that the bank also charges a $2,500 fee for the loan. Assume you pay the $2,500 out of pocket. What is the APR for this loan?

a.) 7.65%
b.) 7%
c.) 8.25%
d.) 7.93%
e.) .638%

Back 45

a.) 7.65

Front 46

Annual percentage rate (APR)

Back 46

The true simple interest rate paid over the life of the loan. Its a reasonable approximation for the true cost of borrowing, and the truth in lending act requires that all consumer loan agreements disclose the APR in bold print.

Front 47

Variable annual percentage rate (APR)

Back 47

the rate you pay is tied to another interest rate.
-ex: many credit cards are tied to the prime rate of interest, which is the rate banks charge their best customers.
-typically charge the prime rate plus a percentage

Front 48

Fixed annual rate percentage (APR)

Back 48

the interest rate a fixed rate credit card charges may indeed change. All the credit card company needs to do is to inform you in writing at least 15 days before changing its rates.

Front 49

Average daily balance method

Back 49

A method of calculating the balance on which interest is paid by summing the outstanding balances owed each day during the billing period and dividing by the number of days in the period.

Front 50

Previous balance method

Back 50

A method of calculating interest payments on outstanding credit using the balance at the end of the previous billing period.

Front 51

Adjusted balance method

Back 51

A method of calculating interest payments on outstanding credit in which interest payments are charged against the balance at the end of the previous billing period less any payments and returns made.

Front 52

the 5 C's of credit

Back 52

1.) Character
2.) Capacity
3.) Capital
4.) Collateral
5.) Conditions

Front 53

Factors that determine your credit score:

Back 53

-payment history (35%)
-amounts owed (30%)
-length of credit history (15%)
-types of credit used (10%)
-new credit (10%)

Front 54

Payday loans

Back 54

payday loans, generally given by check cashing companies, are aimed at people with jobs and checking accounts, but who need some money to tide them over for 1 or 2 weeks or until their next "payday"
-usually $100-$500
-be wary of these loans

Front 55

Discount loans

Back 55

with a discount single method payment loan, the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the principal.

Front 56

Add on interest loans

Back 56

interest charges are calculated using the original balance. These charges are then added to the loan, and this amount is paid off over the life of the loan.
-quite costly

Front 57

Which of the following statements regarding risk-return relationship is most accurate?

a.) higher credit scores are associated with lower APR's
b.) longer loan length is associated with lower APR's
c.) shorter loan length is associated with higher APR's
d.) lower credit scores are associated with lower APR's
e.) both b and d are correct

Back 57

a.) higher credit scores are associated with lower APR's

Front 58

Gary is taking out a $5,000 loan for 1 year at an APR of 12%. His bank has offered him a loan using the add-on method. Using first the financial calculator method and the add-on method calculate Gary's monthly loan payment.

a.) $475.00; $448.94
b.) $444.24; $466.67

Back 58

b.) $444.24; $466.67

Front 59

What is the name of the interest rate banks charge to their most creditworthy customers?

a.) main rate
b.) prime rate
c.) blue chip rate
d.) premier rate
e.) none of the above

Back 59

b.) prime rate

Front 60

Veronica was offered a loan using the discount method of calculation by her bank. She will borrow $10,000 for one year at an APR of 11%. How large will the check be that Veronica receives? How much must she repay?

a.) $8,900; $11,100
b.) $11,100; $11,100
c.) $none of the above are correct
d.) $10,000; $11,100
e.) $8,900; $10,000

Back 60

e.) $8,900; $10,000

Front 61

What is the type of loan where the entire interest charge is subtracted from the loan principal before you receive the money, and at maturity you repay the entire principal?

a.) simple interest method
b.) discount method
c.) partial amortization method
d.) add-on method
e.) none of the above

Back 61

b.) discount method

Front 62

Your brother, a banker, has just approved a loan for you, an add-on interest loan. You will borrow $2,000 for 3 years with a 12% annual interest rate. What is your monthly payment?

a.) $166.67
b.) $186,67
c.) $240.00
d.) $256.78
e.) $75.56

Back 62

e.) $75.56

Front 63

The finance charges for a loan may include:

a.) required insurance fees
b.) fees for a credit check
c.) interest payments
d) only choices A and B
e.) all of the above choices

Back 63

?

Front 64

You just received a loan from your banker to buy seed and plant your alfalfa field. The loan is a discount loan and is for $5,000 for 1 year and the quoted rate was 10%. What is your APR?

a.) 10.00%
b.) 11.11%
c.) 12.23%
d.) 14.33%
e.) none of the above

Back 64

b.) 11.11%

Front 65

Steven is beginning a new job but has not yet been paid. He needs $400 to pay his rent this month. Steven is going to borrow he money through a payday loan establishment. They are charging him an $80 fee to borrow the money for 10 days until he receives his first paycheck (so he receives $400 now and must repay $480). What is the actual interest rate (APR) that Steven is being charged? Hint: there are 36.5 10 day periods in a year.

a.) .073%
b.) 730.0%
c.) 7.3%
d.) 73.0%
e.) none of the above

Back 65

b.) 730.0%