Question 1

Which statement is false regarding consumer loans?

Accepted Answer

A) Consumer loans are usually used for bigger purchases. 
B) Consumer loans can range from open credit to credit cards. 
C) Consumer loans are sometimes called "planned borrowing." 
D) Consumer loans can range from single-payment loans to installment loans. 
A) Consumer loans are usually used for bigger purchases. 
B) Consumer loans can range from open credit to credit cards. 
C) Consumer loans are sometimes called "planned borrowing." 
D) Consumer loans can range from single-payment loans to installment loans.

Question 2

You just bought a car and borrowed $15,000 for 5 years at 8% APR.Using the simple interest method;by the time you pay off this loan your total finance costs will be closest to which of the following?

Accepted Answer

A) $6,000 
B) $3,249 
C) $3,784 
D) $1,200 
A) $6,000 
B) $3,249 
C) $3,784 
D) $1,200

Question 3

A recourse clause defines whatever actions a lender can take to recover money from you in case you default on the loan.

Accepted Answer

A) True 
 B)False

Question 4

The 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended.

Accepted Answer

A) True 
 B)False

Question 5

Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral.

Accepted Answer

A) True 
 B)False

Question 6

If your before-tax cost of a home equity loan is 12 percent and you are in the 30 percent marginal tax bracket,your after-tax cost of the home equity loan is 9 percent.

Accepted Answer

A) True 
 B)False

Question 7

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. 
A) bridge loan. 
B) gap loan. 
C) straddle loan. 
D) amortized loan.

Question 8

Income-based repayment plans are based on a percentage of discretionary income,not the amount owed,and provide a 25-year term of payments before loan forgiveness.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Brenda found out that reputable lenders use the 28/36 rule when determining mortgage qualification.Brenda currently grosses $6,000 per month.From this she pays a $200 car payment;a personal loan of $100 and a student loan payment of $90.Based on this information,would Brenda qualify for a mortgage?

Accepted Answer

A) Yes 
B) No 
A) Yes 
B) No

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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 13

Payday loans are a dangerous way to borrow money,and charge an annual interest rate of almost 400%.

Accepted Answer

A) True 
 B)False

Question 14

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.

Accepted Answer

A) $444.24;$466.67 
B) $475.00;$448.94 
A) $444.24;$466.67 
B) $475.00;$448.94

Question 15

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 16

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 amortization 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 amortization would increase (other things held constant). 
D) the payment amount would increase (other things held constant). 
E) none of the above.

Question 17

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 18

Loans using the add-on method are a relative bargain,and should be sought out.

Accepted Answer

A) True 
 B)False

Question 19

Give five things you can do to obtain the most favorable rates on loans,which in essence will allow you to lower the lender's risk.

Accepted Answer

- Develop a strong credit rati

Question 20

What are the risks to the borrower with adjustable-rate loans?

Accepted Answer

A) During times of inflation your salary may increase during the term of the loan. 
B) That the market rates of interest may increase during the term of the loan. 
C) It is harder to budget for loan payments that may increase during the term of the loan. 
D) Both B and C are correct. 
A) During times of inflation your salary may increase during the term of the loan. 
B) That the market rates of interest may increase during the term of the loan. 
C) It is harder to budget for loan payments that may increase during the term of the loan. 
D) Both B and C are correct.

Which statement is false regarding consumer loans?

You just bought a car and borrowed $15,000 for 5 years at 8% APR.Using the simple interest method;by the time you pay off this loan your total finance costs will be closest to which of the following?

A recourse clause defines whatever actions a lender can take to recover money from you in case you default on the loan.

The 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended.

Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral.

If your before-tax cost of a home equity loan is 12 percent and you are in the 30 percent marginal tax bracket,your after-tax cost of the home equity loan is 9 percent.

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

Income-based repayment plans are based on a percentage of discretionary income,not the amount owed,and provide a 25-year term of payments before loan forgiveness.

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

Brenda found out that reputable lenders use the 28/36 rule when determining mortgage qualification.Brenda currently grosses $6,000 per month.From this she pays a $200 car payment;a personal loan of $100 and a student loan payment of $90.Based on this information,would Brenda qualify for a mortgage?

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

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?

Payday loans are a dangerous way to borrow money,and charge an annual interest rate of almost 400%.

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.

Variable-rate loans

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

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

Loans using the add-on method are a relative bargain,and should be sought out.

Give five things you can do to obtain the most favorable rates on loans,which in essence will allow you to lower the lender's risk.

What are the risks to the borrower with adjustable-rate loans?

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

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 Eventsfitting the Pieces Together

Filters

Exam 7: Student and Consumer Loans: the Role of Planned Borrowing

Which statement is false regarding consumer loans?

You just bought a car and borrowed $15,000 for 5 years at 8% APR.Using the simple interest method;by the time you pay off this loan your total finance costs will be closest to which of the following?

A recourse clause defines whatever actions a lender can take to recover money from you in case you default on the loan.

The 28/36 rule says that as long as your total debt payments are under 36 percent of your gross income then you are not overextended.

Lenders tend to like to see borrowers put down large down payments for loans because this is seen as increasing the borrower's desire to pay off the loan since the borrower now has equity in the collateral.

If your before-tax cost of a home equity loan is 12 percent and you are in the 30 percent marginal tax bracket,your after-tax cost of the home equity loan is 9 percent.

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

Income-based repayment plans are based on a percentage of discretionary income,not the amount owed,and provide a 25-year term of payments before loan forgiveness.

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

Brenda found out that reputable lenders use the 28/36 rule when determining mortgage qualification.Brenda currently grosses $6,000 per month.From this she pays a $200 car payment;a personal loan of $100 and a student loan payment of $90.Based on this information,would Brenda qualify for a mortgage?

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

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?

Payday loans are a dangerous way to borrow money,and charge an annual interest rate of almost 400%.

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.

Variable-rate loans

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

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

Loans using the add-on method are a relative bargain,and should be sought out.

Give five things you can do to obtain the most favorable rates on loans,which in essence will allow you to lower the lender's risk.

What are the risks to the borrower with adjustable-rate loans?

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

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 Eventsfitting the Pieces Together

Filters