Chapter 4 Master - in Personal Finance - Chapter 4 Test Name_____ Date _____ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Which of the following is not a factor in ...

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  • Foundations in Personal Finance - Chapter 4 Test

    Name___________________________________ Date _______________

    MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers thequestion.

    1) WhichofthefollowingisnotafactorindeterminingaFICOscore?A) Gettingapersonalloanfromabank B) UsingcreditcardsC) Payingcashforallpurchases D) Takingoutamortgageonahouse

    1)

    2) Whichofthefollowingisnotagoodideaforgettingoutofdebt?A) QuitborrowingmoneyB) Getapart-timejoborworkovertimeC) SellsomethingD) Borrowmoneyfromyourparentstopayforthedebt

    2)

    3) Whichofthefollowingthingscannotbedonewithadebitcardbutcanbedonewithacreditcard?

    A) Gointodebt B) RentacarC) Purchasesomethingonline D) Purchaseanairlineticket

    3)

    4) Whatfactorsaffectacreditscore?A) Typeofdebt B) NewdebtC) Durationofdebt D) Alloftheabove

    4)

    5) Whichofthefollowingstatementsisfalse?A) PriortotheFCRA,consumerswereunabletochallengeerrorsintheircreditreports.B) UnderFCRA,consumersareallowedtoreceiveonefreecreditreporteveryfiveyears.C) TheU.S.CongressenactedtheFairCreditReportingActtoaddressconcernsover

    consumercreditreportaccuracy,privacyandfairness.D) UnderFCRA,creditorsmustnotifyconsumersiftheydenycreditbasedonacreditreport

    file,andtheymustalsotelltheconsumerwhichofthethreecreditbureausprovidedthereport.

    5)

    6) WhichofthefollowingisnotarecommendedstepintheDriveFreemethodofpurchasingacar?A) Planyourpurchaseinadvanceusingthesinkingfundmethodofsaving.B) Placeyoursavingsinamutualfundsothatyourmoneycanmakemoremoney.C) Startwithaninexpensivecarandgraduallymoveupincarvalueasyoursavingsincreases.D) Explorenewcardealershipsforthebestinterestrate.

    6)

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  • 7) Whichofthefollowingisthemostcost-effectiveoptionforpurchasingahome?A) Geta15-yearmortgagewitha5%downpayment.B) Geta30-yearmortgagesothatyoucangetthelowestpossiblepayments.C) Themostidealwaytobuyahouseiswith100%down;ifthatisnotanoption,youshould

    getnomorethana15-year,fixedratemortgagewithadownpaymentofatleast10%.D) Geta30-yearmortgagewitha20%downpayment.

    7)

    8) Whichofthefollowingisnotrecommendedinthedebtsnowballmethodofgettingoutofdebt?A) Listyourdebtsinorderfromsmallesttolargestbalanceandfocusonpayingthesmallest

    debtofffirst.B) Everyextradollaryougetshouldbethrownatthelargestdebtfirst.C) Attackyourdebtwithintensity.D) Everytimeyoupayoffadebt,youadditsoldminimumpaymenttoyournextdebt

    payment.

    8)

    9) Whatispaycheckgarnishment?A) Acourt-orderedattachmentthatallowsalendertotakemoniesoweddirectlyfroma

    borrowerspaycheck

    B) ProcessoftakingsomethingbackforfailuretomakepaymentsC) Processbywhichtheholderofamortgagesellsthepropertyofahomeownerwhohas

    fallenbehindonpaymentsD) Alegalprocedurefordealingwithdebtproblemsofindividualsandbusinesses

    9)

    10) Whichofthefollowingbestsummarizeshowtheuseofacreditcardforpurchasesinsteadofcashcanchangeonesspendingbehavior?

    A) Spendingbehaviordoesnotmatteraslongasyoupayoffthecreditcardbalanceeachmonth.

    B) Studiesshowthatthereisnochangeinspendingbehaviorwhetherapersonusescashorcredit.

    C) Peopletypicallyspendlesswhentheyknowthattheyareearningcreditcardrewards.D) Studiesshowthatconsumerstypicallyspendmorewhenusingcreditasopposedtocash

    purchases.

    10)

    11) Whichofthefollowingisnotacreditmyth?A) Thelotteryandotherformsofgamblingwillmakeyourich.B) Youhavearrivedfinanciallyonceyougetapprovedforacreditcard.C) Debtisatoolandshouldbeusedtocreateprosperity.D) Borrowingmoneycanhaveseriousconsequencesandpreventyoufrombuildingwealth.

    11)

    12) IfyoudonothaveaFICOscore,whatfactorswilldeterminewhetherornotyouqualifyforamortgage?

    A) HistoryofrentalandutilitypaymentsB) AmountofyourdownpaymentandemploymenthistoryC) YoucannotgetamortgagewithoutacredithistoryD) AandB

    12)

    2

  • 13) Acreditscoreisintendedtomeasure:A) YourfinancialsuccessB) TheriskofyournotrepayingdebtC) YourincomelevelD) Theamountofmoneyyouhaveinthebank

    13)

    14) Whichofthefollowingisasignthatyouridentitymayhavebeenstolen?A) AcallfromacollectionagencyaboutadebtyoudidntincurB) BankandbillingstatementsdontarriveontimeC) YourcreditreportshowsaccountsyoudidntopenD) Alloftheabove

    14)

    15) Individualaccountinformationisremovedfromyourcreditreportsevenyearsafterthelastactivityontheaccount,exceptforChapter7bankruptcy,whichstaysonyourcreditreportfor:

    A) 1year B) 10years C) 5years D) 20years

    15)

    TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.

    16) Youmustestablishcreditinordertobuyahouse. 16)

    17) Ifyouareavictimofidentitytheft,youareonlyresponsibleforpayingbackhalfofthedebt. 17)

    18) Therearethreecreditbureaus:Experian,TransUnionandEquifax. 18)

    19) Youcanandshouldobtainafreecopyofyourcreditreportannuallyinordertocheckforanysuspiciousactivity.

    19)

    20) Youneedtohaveacreditcardtorentacarorcheckintoahotel. 20)

    21) Itisokaytouseacreditcardifyoupayitoffeverymonth. 21)

    22) TheFederalTradeCommission(FTC)isoneofmanyU.S.federalagenciesthatregulatetheconsumercreditsystemandenforcethelawsrelatedtoit.

    22)

    23) UndertheFairCreditReportingAct(FCRA),anypersonororganizationmaycheckapersonscreditinformationwithouthavingalegitimateneed.

    23)

    24) Teensareahugetargetofcreditcardcompaniestoday. 24)

    25) Co-signingaloanisagoodwaytohelpafriendorrelative. 25)

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  • VOCABULARY. Define each term or phrase in the space provided or on a separate sheet of paper.

    Selectthewordthatisdescribedinthestatement.

    26) Preferredmethodofdebtrepayment;includesalistofalldebtsorganizedfromsmallesttolargestbalance;minimumpaymentsaremadetoalldebtsexceptforthesmallest,whichisattackedwiththelargestpossiblepayments(creditcounseling,debtsnowball)

    27) Adetailedreportofanindividualscredithistory(creditreport,cashflowstatement)

    28) Timeframethataloanagreementisinforce,andbeforeorattheendofwhichtheloanshouldeitherberepaidorrenegotiated(loanterm,loanfinancing)

    29) Costofborrowingmoneyonanannualbasis;takesintoaccounttheinterestrateandotherrelatedfeesonaloan(annualpercentagerate(APR),annualfee)

    30) Adecreaseorlossinvalue(inflation,depreciation)

    31) Ayearlyfeethatschargedbythecreditcardcompanyfortheconvenienceofthecreditcard(interestrate,annualfee)

    32) Aninterestratechargedtoacustomerduringtheearlystagesofaloan;therateoftengoesupafteraspecifiedperiodoftime(introductoryrate,newcustomerfee)

    33) Along-termrentalagreementonacar;aformofsecuredlong-termdebt(loan,lease)

    34) Whenapersonowesmoreonanitem(likeacarorhouse)thanitisworth,thepersonissaidtobe(secured,upsidedown)ontheloan.

    35) Acardissuedbyabankthatallowsuserstofinanceapurchase(creditcard,debitcard)

    SHORT ANSWER. Write the word or phrase that best completes each statement or answers thequestion.

    36) Describethedifferencebetweenasecuredandanunsecuredloan. 36)

    37) Explainwhyanadjustableratemortgage(ARM)isabadidea. 37)

    38) Explainwhyfinancingacarisabadidea. 38)

    39) Describethenegativeconsequencesoftakingondebt.Whateffectcandebthaveonyourfuture?

    39)

    40) Whataresomethingsyoucandotoprotectyourpersonalinformation? 40)

    4

  • 41) Explainhowthedebtsnowballworks. 41)

    42) Whatshouldyoudoifyouthinkyouareavictimofidentitytheft? 42)

    5

  • Answer KeyTestname: CHAPTER 4 MASTER

    1) C2) D3) A4) D5) B6) D7) C8) B9) A

    10) D11) D12) D13) B14) D15) B16) FALSE17) FALSE18) TRUE19) TRUE20) FALSE21) FALSE22) TRUE23) FALSE24) TRUE25) FALSE26) debtsnowball27) creditreport28) loanterm29) annualpercentagerate(APR)30) depreciation31) annualfee32) introductoryrate33) lease34) upsidedown35) creditcard36) Anunsecuredloanisgiventoborrowersbasedontheirfinancialresourcesorabilitytorepaytheloan;asecuredloan

    isusuallyneededwhenborrowinglargeamountsofmoney.Theloanissecuredwithcollateral(anassetthatcanbetakeniftheloanisnotpaid).

    37) AnARMisamortgagewithaninterestratethatchangesbasedonmarketconditions.Theyarenotrecommendedbecausethereisincreasedriskoflosingyourhomeifyourrateadjustshigheroryouloseyourjobandyourpaymentbecomestoomuchforyoutoafford.

    38) Spreadingthepurchaseofacaroverfourorfiveyearshindersyourabilitytopayoffdebtorsavemoneyduringthattime;youwillbepayinginterestinadditiontothepurchaseprice;andthecardepreciatesquickly,whichmeansyoumayendupowingmoreonthecarthanitsworth.

    6

  • Answer KeyTestname: CHAPTER 4 MASTER

    39) Constantlyowingmoneytootherspreventsyoufrompayingyourselfthroughsavingandinvesting,makingitdifficultorevenimpossibletobuildwealthovertime.

    40) Useapapershredderanddestroycreditcardoffersandotherdocumentswithpersonalinformation,checkyourcreditreportannually,createstrongpasswordsandkeepthemconfidential,purchaseidentitytheftprotection,andnevergiveoutyourSocialSecuritynumberunlessabsolutelynecessary.

    41) Putallyourdebtsinorderfromsmallesttolargest;payminimumpaymentsonallyourdebtsexceptforthesmallestone;attackthesmallestdebtwithintensityuntilitispaidoff;applythepaid-offdebtspaymenttothenextdebtonthelist,continuingtosnowballpaymentstowardeachlargerdebt.

    42) Obtainacopyofyourcreditreportandlookforanysuspiciousactivity;placeafraud-victimalertonyourcreditbureaureport;ifyourwalletisstolen,cancelallcardsimmediately,getreplacements,andplaceastoppaymentonalllostorstolencards;fileapolicereportandkeepacopyofthereportforyourpersonalrecords;reportanysuspiciouschargesandaccountstotheappropriatecreditissuersandcreditbureausimmediatelyandcanceltheaccounts.

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