Question

25. Bank credit card accounts are an example of :

a.      revolving charge account

b.      no installment debt

c.                                                         consumer credit      

d.      all of the above

e.      none of the above

26.       If your total debt increases from $35,500 to $39,760 in three years, it would be correct to estimate the annual average growth in your credit obligations by:

a.      12%

b.      3.5%

c.      4%

d.      8%

27. Adjustable rate mortgage would allow lenders to change the interest rate

a.      every year of the term

b.      any time they want to

c.      according to the state of economy during the whole term

4. According to the changes in the cost of credit in the economy, and by the contract terms.

28. A lender can legally discriminate in granting credit based on:

a.      age

b.      credit history

c.      gender

d.      marital status

29. For tax purposes, wage income is reported to the recipient on a

a.     W-4 Form

b.     W-2 Form

c.     Form 1099

d.      Form 1040

30. The people who most likely to pay their taxes by estimation are:

a.     High income employees

b.     Employees who make big tips

c.     Self-employed people

d.     People who do not expect a tax liability

31.       In mortgage loan calculations, a very large percentage increase in down payment would most likely result in a ……….. percentage decrease in monthly payments.

a. similar

b. smaller

c. larger

d. none of any

32.    With a closed-end auto lease, there is

            a. No charge if the end-of-lease value of the vehicle is lower than the originally projected residual value

            b. An option of purchasing the car at the end of the lease for its actual market value

            c. A possibility of some end-of-lease charges on excess mileage

            d. All of the above

33.      When comparing buying vs. renting a house, renting requires a--------------

cash flow while buying typically------------one’s tax liability.

1. lower; increases
2. lower; decreases
3. higher; increases
4. higher; decreases

34.       In addition to the price of the auto, the _____ should be considered in an auto purchase negotiation.

                 a. trade-in value

                 b. financing terms

                 c. service contract cost

                 d. all of the above

35. The Actual Cash Value of a property would consider all of the following except:

                 a. The original cost

                 b. Depreciation

                 c. inflation impact

                 d. current age of the property

                 e. Life expectancy of the property

36. Full coverage of loss in home insurance requires owners to buy an insurance equal to at least …… of the house market value:

                 a.   80%

                 b.   20%

                 c.   90%

                 d.   100%

Answer 1

25) Bank credit card accounts are an example of : (a) revolving charge account

Explanation :-

Revolving credit allows customers the flexibility to access money up to a predetermined limit, known as the credit limit. When the customer pays down an open balance on the revolving credit, that money is once again available for use. It offers the customer access to money from a financial institution and allows the customer to use the funds when needed. It usually is used for operating purposes and the amount drawn can fluctuate each month depending on the customer's current cash flow needs.

Hence, in simple words we can say that Revolving credit allows you to borrow money when you’d like, in any amount you’d like, up to a set limit determined by the lender. Revolving accounts typically have minimum monthly payments, though you can pay more when you desire. Common examples include credit cards and home equity lines of credit.
Revolving accounts, allow you to borrow funds over and over again, up to an approved maximum amount. This max amount, known as your credit limit, is set by your lender. However, you decide how much money you will borrow and how much you will pay back each month, aside from any minimum payment requirements.

26) The correct answer is :- (c) 4%

Explanation :-

The compound annual growth rate (CAGR) shows the rate of return of an investment over a certain period of time, expressed in annual percentage terms. The CAGR provides the one rate that defines the return for the entire measurement period. The formula is:

CAGR = (EB /BB)1/n -1

where, EB = Ending Balance
BB = Beginning Balance
n = Number of years

Here, in the given problem, Ending Balance of the debt amt. =$39760
and Beginning balance of the debt amt. = $35500, n = 3 years

Therefore, Annual Average growth in the credit obligations = { (39760/35500)1/3 - 1} = 0.038499
or expressed in percentage terms = 3.8499% = 4% approximately

27) Adjustable rate mortgage would allow lenders to change the interest rate :- (d) according to the changes in the cost of credit in the economy, and by the contract terms.

Explanation :-

An adjustable-rate mortgage (ARM) is a type of mortgage in which the interest rate applied on the outstanding balance varies throughout the life of the loan. With an adjustable-rate mortgage, the initial interest rate is fixed for a period of time. After this initial period of time, the interest rate resets periodically, at yearly or even monthly intervals. ARMs are also called variable-rate mortgages or floating mortgages. The interest rate for ARMs is reset based on a benchmark or index, plus an additional spread called an ARM margin.

At the close of the fixed-rate period, ARM interest rates increase or decrease based on an index plus a set margin. In most cases, mortgages are tied to one of three indexes: the maturity yield on one-year Treasury bill or the London Interbank Offered Rate.
For example, a 2/28 ARM features a fixed rate for two years followed by a floating rate for the remaining 28 years.
Although the index rate can change, the margin stays the same. For example, if the index is 5% and the margin is 2%, the interest rate on the mortgage adjusts to 7%. However, if the index is at only 2% the next time the interest rate adjusts, the rate falls to 4%, based on the loan's 2% margin.

28) A lender can legally discriminate in granting credit based on :- (b) credit history

Explanation :-

As per, Equal Credit Opportunity Act (ECOA), passed in 1989, specifically, creditors are not allowed to discriminate against you on the basis of race or color, religion, natural origin, sex, marital status, age or source of income. Creditors can legally ask for, and use, information concerning your financial status, including your employment – what you do, how long you’ve worked and how much you earn.

29) For tax purposes, wage income is reported to the recipient on a (b) W-2 Form

Most income we receive is fully taxable and must be reported on our federal income tax return unless it is specifically excluded by law. Most taxpayers are wage or salary earners reported annually on a W-2 Form.

30)  The people who most likely to pay their taxes by estimation are :- (c) Self-employed people

Explanation :-

As per federal tax laws, If you are an employee, your employer withholds income taxes from each paycheck based on a completed W-4 Form. Usually, that's enough to take care of your income tax obligations. But if you are self-employed or make money on your investments or rental property, you may need to make estimated tax payments every quarter, rather than wait until you file your annual tax return.

31)  In mortgage loan calculations, a very large percentage increase in down payment would most likely result in a larger percentage decrease in monthly payments :- c) larger

Explanation:-

Down payments reduce monthly payments on installment loans. For example, imagine one buys a car for $15,000. If he takes out a loan for $15,000 with a 3% interest rate and a four-year term, his monthly payments are $332. However, if he has a down payment of $3,000, he only needs to borrow $12,000, and his monthly payments fall to $266. That is a savings of $66 per month or $3,168 over the 48-month life of the loan.

32) With a closed-end auto lease, there is a. No charge if the end-of-lease value of the vehicle is lower than the originally projected residual value.

A closed-end lease is a rental agreement that puts no obligation on the lessee (the person making periodic lease payments) to purchase the leased asset at the end of the agreement.

Since the lessee has no obligation to purchase the leased asset upon lease expiration, that person does not have to worry about whether the asset will depreciate more than expected throughout the course of the lease.
For example, suppose your lease payments are based on the assumption that the $20,000 new car that you are leasing will be worth only $10,000 at the end of your lease agreement. If the car turns out to be worth only $4,000, you must compensate the lessor (the company who leased the car to you) for the lost $6,000 since your lease payment was calculated on the basis of the car having a salvage value of $10,000. Basically, since you are buying the car, you must bear the loss of that extra depreciation. But if you have a closed-end lease, you do not have to buy the car so you do not bear the risk of depreciation.

33) (b) lower, decreases

Explanation :-

Many buyers assume that the additional costs of homeownership will be offset by tax savings generated by the mortgage interest deduction. So they often take the buying decision. However, renting requires lesser amt of cash flow.

34) In addition to the price of the auto, the ? should be considered in an auto purchase negotiation.

The correct answer is d) all of the above i.e. trade-in value, financing terms, service contract cost.

What is the trade in value of a car?

The trade in value is the amount that a dealer is willing to offer you towards the purchase of a new vehicle in exchange for your current one. It’s typically based on the market value of your vehicle (the amount it would sell for on the open market).

Service contract cost - If you’re shopping for a new or used car, the salesperson may encourage you to buy an auto service contract to help protect against unexpected or costly repairs.

Financing terms - Financing a car means you're borrowing money from a bank or financial institution so you can purchase the car from a dealership. The auto loans are subject to certain terms & conditions called financing terms.

35) The Actual Cash Value of a property would consider all of the following except :- (c) inflation impact

Explanation :-

Actual Cash Value of a property - A valuation of the damaged property, i.e. its monetary worth at market value immediately preceding the occurrence of the loss, is called actual cash value of the property. It gives the estimate of the cost of replacement or repair of the damaged asset.
Actual cash value is computed by subtracting depreciation from replacement cost while depreciation is figured by establishing an expected lifetime of an item and determining what percentage of that life remains. This percentage, multiplied by the replacement cost, provides the actual cash value.

36) Full coverage of loss in home insurance requires owners to buy an insurance equal to at least ? of the house market value :- (a) 80%

Expalnation :-

The 80% rule means that an insurer will only fully cover the cost of damage to a house if the owner has purchased insurance coverage equal to at least 80% of the house's total replacement value.
The 80% rule is adhered to by most insurance companies.