Question 1

Name the advantages and disadvantages of an unsecured loan.

Accepted Answer

Unsecured loans require no collateral, only a signature.Larger unsecured loans are generally given only to borrowers with excellent credit histories.The major fault with these type of loans is that they require higher interest rates.

Question 2

The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is the correct formula to calculate the after-tax cost of a home equity loan?

Accepted Answer

A)  after-tax cost of a home equity loan = before-tax cost (1 + marginal tax rate) 
B)  after-tax cost of a home equity loan = before-tax cost (1 ‑marginal tax rate) 
A)  after-tax cost of a home equity loan = before-tax cost (1 + marginal tax rate) 
B)  after-tax cost of a home equity loan = before-tax cost (1 ‑marginal tax rate) B

Question 4

Which one of these clauses is not found in a typical loan contract?

Accepted Answer

A)  recourse 
B)  deficiency payments 
C)  acceleration 
D)  withdrawal terms 
E)  insurance agreement 
A)  recourse 
B)  deficiency payments 
C)  acceleration 
D)  withdrawal terms 
E)  insurance agreement

Question 5

A short-term loan that provides funding until a longer-term loan can be secured is called a(n)

Accepted Answer

A)  bridge loan. 
B)  gap loan. 
C)  straddle loan. 
D)  amortized loan. 
E)  none of the above 
A)  bridge loan. 
B)  gap loan. 
C)  straddle loan. 
D)  amortized loan. 
E)  none of the above

Question 6

Which is better, a fixed-rate loan or a variable-rate loan?

Accepted Answer

A)  a fixed-rate loan, because the lender bears the risk that interest rates will go up 
B)  a fixed-rate loan, because they generally cost less than variable-rate loans 
C)  a variable-rate loan, because they generally cost less than fixed-rate loans 
D)  a variable rate loan, because the lender bears the risk that interest rates will go up 
E)  Neither is necessarily better; the choice illustrates the "risk and return go hand in hand" principle. 
A)  a fixed-rate loan, because the lender bears the risk that interest rates will go up 
B)  a fixed-rate loan, because they generally cost less than variable-rate loans 
C)  a variable-rate loan, because they generally cost less than fixed-rate loans 
D)  a variable rate loan, because the lender bears the risk that interest rates will go up 
E)  Neither is necessarily better; the choice illustrates the "risk and return go hand in hand" principle.

Question 7

The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing.

Accepted Answer

A)  APP 
B)  APR 
C)  ADR 
D)  ARR 
E)  none of the above 
A)  APP 
B)  APR 
C)  ADR 
D)  ARR 
E)  none of the above

Question 8

What is your potential liability from the deficiency payments clause if you default?

Accepted Answer

A)  Nothing, since the loan is in default it invalidates all loan clauses. 
B)  You will have to pay any legal or repossession fees incurred by the lender. 
C)  You will have to pay the remainder of the loan balance if the proceeds from the repossession are not sufficient to pay off the loan. 
D)  Both B and C are correct. 
A)  Nothing, since the loan is in default it invalidates all loan clauses. 
B)  You will have to pay any legal or repossession fees incurred by the lender. 
C)  You will have to pay the remainder of the loan balance if the proceeds from the repossession are not sufficient to pay off the loan. 
D)  Both B and C are correct.

Question 9

Suppose that you are interested in buying a home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a mortgage?

Accepted Answer

A)  Calculate your debt limit ratio. 
B)  Figure the 28/36 rule. 
C)  Determine what your mortgage payment will be. 
D)  Determine what your income taxes will be. 
E)  Both B and C are correct answers. 
A)  Calculate your debt limit ratio. 
B)  Figure the 28/36 rule. 
C)  Determine what your mortgage payment will be. 
D)  Determine what your income taxes will be. 
E)  Both B and C are correct answers.

Question 10

Of the following possible sources of credit, which typically has the lowest borrowing rates?

Accepted Answer

A)  savings and loans 
B)  personal finance company 
C)  credit union 
D)  commercial bank 
A)  savings and loans 
B)  personal finance company 
C)  credit union 
D)  commercial bank

Question 11

Explain the purpose of a convertible loan.

Accepted Answer

A convertible loan has the potential of

Question 12

Payday lenders

Accepted Answer

A)  make money by providing one-time assistance during a time of financial need. 
B)  make money by keeping borrowers in debt. 
C)  encourage repeat borrowing. 
D)  All of the above 
A)  make money by providing one-time assistance during a time of financial need. 
B)  make money by keeping borrowers in debt. 
C)  encourage repeat borrowing. 
D)  All of the above

Question 13

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?

Accepted Answer

A)  $11,100; $11,100 
B)  $10,000; $11,100 
C)  $8,900; $11,100 
D)  $8,900; $10,000 
E)  None of the above is correct. 
A)  $11,100; $11,100 
B)  $10,000; $11,100 
C)  $8,900; $11,100 
D)  $8,900; $10,000 
E)  None of the above is correct.

Question 14

A ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.

Accepted Answer

A)  prime-rate loan 
B)  convertible-rate loan 
C)  flexible-rate loan 
D)  variable-rate loan 
E)  none of the above 
A)  prime-rate loan 
B)  convertible-rate loan 
C)  flexible-rate loan 
D)  variable-rate loan 
E)  none of the above

Question 15

Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases

Accepted Answer

A)  the loan maturity would decrease (other things held constant). 
B)  the payment amount would decrease (other things held constant). 
C)  the amoritization would increase (other things held constant). 
D)  the payment amount would increase (other things held constant). 
E)  none of the above 
A)  the loan maturity would decrease (other things held constant). 
B)  the payment amount would decrease (other things held constant). 
C)  the amoritization would increase (other things held constant). 
D)  the payment amount would increase (other things held constant). 
E)  none of the above

Question 16

Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover interest, and the later payments have a larger proportion going towards the payment of principal.

Accepted Answer

A) True 
 B)False

Question 17

Variable-rate loans

Accepted Answer

A)  usually have rate caps that prevent them from varying too much. 
B)  always adjust every month. 
C)  are never a better option than fixed-rate loans. 
D)  All of the above 
A)  usually have rate caps that prevent them from varying too much. 
B)  always adjust every month. 
C)  are never a better option than fixed-rate loans. 
D)  All of the above

Question 18

Neal's life insurance policy has a cash value of $100,000. He wants to purchase a 2nd home to rent out. How much can Neal borrow against the surrender value of his life insurance policy?

Accepted Answer

A)  $50,000 
B)  $75,000 
C)  $95,000 
D)  $100,000 
A)  $50,000 
B)  $75,000 
C)  $95,000 
D)  $100,000

Question 19

Student loans are loans with federally subsidized interest rates given, based on financial need, to students making satisfactory progress in their degree programs.

Accepted Answer

A) True 
 B)False

Question 20

Many lenders use the 28/36 rule in evaluating mortgage applications. If your mortgage payment itself is 28% of your gross income, that means that the remainder of your monthly debt must be ________% or less.

Accepted Answer

A)  6 
B)  7 
C)  8 
D)  28 
E)  36 
A)  6 
B)  7 
C)  8 
D)  28 
E)  36

Name the advantages and disadvantages of an unsecured loan.

The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines.

Which of the following is the correct formula to calculate the after-tax cost of a home equity loan?

Which one of these clauses is not found in a typical loan contract?

A short-term loan that provides funding until a longer-term loan can be secured is called a(n)

Which is better, a fixed-rate loan or a variable-rate loan?

The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing.

What is your potential liability from the deficiency payments clause if you default?

Suppose that you are interested in buying a home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a mortgage?

Of the following possible sources of credit, which typically has the lowest borrowing rates?

Explain the purpose of a convertible loan.

Payday lenders

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 ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.

Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases

Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover interest, and the later payments have a larger proportion going towards the payment of principal.

Variable-rate loans

Neal's life insurance policy has a cash value of $100,000. He wants to purchase a 2nd home to rent out. How much can Neal borrow against the surrender value of his life insurance policy?

Student loans are loans with federally subsidized interest rates given, based on financial need, to students making satisfactory progress in their degree programs.

Many lenders use the 28/36 rule in evaluating mortgage applications. If your mortgage payment itself is 28% of your gross income, that means that the remainder of your monthly debt must be ________% or less.

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters

Exam 7: Using Consumer Loans: The Role of Planned Borrowing

Name the advantages and disadvantages of an unsecured loan.

The interest that you pay on your student loans will lower your taxable income if you meet IRS guidelines.

Which of the following is the correct formula to calculate the after-tax cost of a home equity loan?

Which one of these clauses is not found in a typical loan contract?

A short-term loan that provides funding until a longer-term loan can be secured is called a(n)

Which is better, a fixed-rate loan or a variable-rate loan?

The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing.

What is your potential liability from the deficiency payments clause if you default?

Suppose that you are interested in buying a home, but are unsure of how much you can afford. What is the best way to determine your prospects for obtaining a mortgage?

Of the following possible sources of credit, which typically has the lowest borrowing rates?

Explain the purpose of a convertible loan.

Payday lenders

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 ________ is tied to a market interest rate, such as the prime rate or the six-month Treasury bill rate.

Which of the following statements would most correctly complete the following sentence? As the interest rate on a loan increases

Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover interest, and the later payments have a larger proportion going towards the payment of principal.

Variable-rate loans

Neal's life insurance policy has a cash value of $100,000. He wants to purchase a 2nd home to rent out. How much can Neal borrow against the surrender value of his life insurance policy?

Student loans are loans with federally subsidized interest rates given, based on financial need, to students making satisfactory progress in their degree programs.

Many lenders use the 28/36 rule in evaluating mortgage applications. If your mortgage payment itself is 28% of your gross income, that means that the remainder of your monthly debt must be ________% or less.

The Financial Planning Process

Measuring Your Financial Health and Making a Plan

Understanding and Appreciating the Time Value of Money

Tax Planning and Strategies

Cash or Liquid Asset Management

Using Credit Cards: The Role of Open Credit

The Home and Automobile Decision

Life and Health Insurance

Property and Liability Insurance

Investment Basics

Securities Markets

Investing in Stocks

Investing in Bonds and Other Alternatives

Mutual Funds: An Easy Way to Diversify

Retirement Planning

Estate Planning: Saving Your Heirs Money and Headaches

Financial Life Events Fitting the Pieces Together

Filters