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 TestName___________________________________ Date _______________MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers thequestion.1) WhichofthefollowingisnotafactorindeterminingaFICOscore?A) Gettingapersonalloanfromabank B) UsingcreditcardsC) Payingcashforallpurchases D) Takingoutamortgageonahouse1)2) Whichofthefollowingisnotagoodideaforgettingoutofdebt?A) QuitborrowingmoneyB) Getapart-timejoborworkovertimeC) SellsomethingD) Borrowmoneyfromyourparentstopayforthedebt2)3) Whichofthefollowingthingscannotbedonewithadebitcardbutcanbedonewithacreditcard?A) Gointodebt B) RentacarC) Purchasesomethingonline D) Purchaseanairlineticket3)4) Whatfactorsaffectacreditscore?A) Typeofdebt B) NewdebtC) Durationofdebt D) Alloftheabove4)5) Whichofthefollowingstatementsisfalse?A) PriortotheFCRA,consumerswereunabletochallengeerrorsintheircreditreports.B) UnderFCRA,consumersareallowedtoreceiveonefreecreditreporteveryfiveyears.C) TheU.S.CongressenactedtheFairCreditReportingActtoaddressconcernsoverconsumercreditreportaccuracy,privacyandfairness.D) UnderFCRA,creditorsmustnotifyconsumersiftheydenycreditbasedonacreditreportfile,andtheymustalsotelltheconsumerwhichofthethreecreditbureausprovidedthereport.5)6) WhichofthefollowingisnotarecommendedstepintheDriveFreemethodofpurchasingacar?A) Planyourpurchaseinadvanceusingthesinkingfundmethodofsaving.B) Placeyoursavingsinamutualfundsothatyourmoneycanmakemoremoney.C) Startwithaninexpensivecarandgraduallymoveupincarvalueasyoursavingsincreases.D) Explorenewcardealershipsforthebestinterestrate.6)17) Whichofthefollowingisthemostcost-effectiveoptionforpurchasingahome?A) Geta15-yearmortgagewitha5%downpayment.B) Geta30-yearmortgagesothatyoucangetthelowestpossiblepayments.C) Themostidealwaytobuyahouseiswith100%down;ifthatisnotanoption,youshouldgetnomorethana15-year,fixedratemortgagewithadownpaymentofatleast10%.D) Geta30-yearmortgagewitha20%downpayment.7)8) Whichofthefollowingisnotrecommendedinthedebtsnowballmethodofgettingoutofdebt?A) Listyourdebtsinorderfromsmallesttolargestbalanceandfocusonpayingthesmallestdebtofffirst.B) Everyextradollaryougetshouldbethrownatthelargestdebtfirst.C) Attackyourdebtwithintensity.D) Everytimeyoupayoffadebt,youadditsoldminimumpaymenttoyournextdebtpayment.8)9) Whatispaycheckgarnishment?A) Acourt-orderedattachmentthatallowsalendertotakemoniesoweddirectlyfromaborrowerspaycheckB) ProcessoftakingsomethingbackforfailuretomakepaymentsC) ProcessbywhichtheholderofamortgagesellsthepropertyofahomeownerwhohasfallenbehindonpaymentsD) Alegalprocedurefordealingwithdebtproblemsofindividualsandbusinesses9)10) Whichofthefollowingbestsummarizeshowtheuseofacreditcardforpurchasesinsteadofcashcanchangeonesspendingbehavior?A) Spendingbehaviordoesnotmatteraslongasyoupayoffthecreditcardbalanceeachmonth.B) Studiesshowthatthereisnochangeinspendingbehaviorwhetherapersonusescashorcredit.C) Peopletypicallyspendlesswhentheyknowthattheyareearningcreditcardrewards.D) Studiesshowthatconsumerstypicallyspendmorewhenusingcreditasopposedtocashpurchases.10)11) Whichofthefollowingisnotacreditmyth?A) Thelotteryandotherformsofgamblingwillmakeyourich.B) Youhavearrivedfinanciallyonceyougetapprovedforacreditcard.C) Debtisatoolandshouldbeusedtocreateprosperity.D) Borrowingmoneycanhaveseriousconsequencesandpreventyoufrombuildingwealth.11)12) IfyoudonothaveaFICOscore,whatfactorswilldeterminewhetherornotyouqualifyforamortgage?A) HistoryofrentalandutilitypaymentsB) AmountofyourdownpaymentandemploymenthistoryC) YoucannotgetamortgagewithoutacredithistoryD) AandB12)213) Acreditscoreisintendedtomeasure:A) YourfinancialsuccessB) TheriskofyournotrepayingdebtC) YourincomelevelD) Theamountofmoneyyouhaveinthebank13)14) Whichofthefollowingisasignthatyouridentitymayhavebeenstolen?A) AcallfromacollectionagencyaboutadebtyoudidntincurB) BankandbillingstatementsdontarriveontimeC) YourcreditreportshowsaccountsyoudidntopenD) Alloftheabove14)15) Individualaccountinformationisremovedfromyourcreditreportsevenyearsafterthelastactivityontheaccount,exceptforChapter7bankruptcy,whichstaysonyourcreditreportfor:A) 1year B) 10years C) 5years D) 20years15)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)3VOCABULARY. 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)441) Explainhowthedebtsnowballworks. 41)42) Whatshouldyoudoifyouthinkyouareavictimofidentitytheft? 42)5Answer KeyTestname: CHAPTER 4 MASTER1) C2) D3) A4) D5) B6) D7) C8) B9) A10) 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;asecuredloanisusuallyneededwhenborrowinglargeamountsofmoney.Theloanissecuredwithcollateral(anassetthatcanbetakeniftheloanisnotpaid).37) AnARMisamortgagewithaninterestratethatchangesbasedonmarketconditions.Theyarenotrecommendedbecausethereisincreasedriskoflosingyourhomeifyourrateadjustshigheroryouloseyourjobandyourpaymentbecomestoomuchforyoutoafford.38) Spreadingthepurchaseofacaroverfourorfiveyearshindersyourabilitytopayoffdebtorsavemoneyduringthattime;youwillbepayinginterestinadditiontothepurchaseprice;andthecardepreciatesquickly,whichmeansyoumayendupowingmoreonthecarthanitsworth.6Answer KeyTestname: CHAPTER 4 MASTER39) 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.7

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