Finance 3000 Quiz 2 Chapters 5-9 - Spring 2005 - Wednesday, April 06, 2005


Dr. William Dowling Name: __________________________

Instructions: You are to circle the letter of the correct answer on this exam and you are to record your answers using

your wireless transmitter in CPS.


1. Joan Zemke expects interest rates to decline over the next few months. To maximize her earnings she should use a(n)

A) interest-bearing checking account.

B) money market fund

C) six-month certificate of deposit.

D) regular savings account.

E) five-year certificate of deposit.


2. When interest rates are rising, a person would be best served by

A) variable-rate loans.

B) short-term loans.

C) short-term savings instruments.

D) long-term savings instruments.


3. Which of the following savings plans is not covered by federal deposit insurance?

A) a certificate of deposit

B) a money market account

C) a passbook account

D) a regular checking account

E) a money market fund


4. The convenience of using a financial institution with 24-hour banking frequently requires a trade-off with

A) growth of savings.

B) a lower rate of return.

C) personal service.

D) safety.

E) liquidity.


5. A certificate of deposit usually has

A) limited liquidity.

B) high interest-rate risk.

C) no minimum deposit amount

D) low safety for savers.

E) a variable rate of return.


6. A personal check with guaranteed payment is called a

A) certified check.

B) traveler's check.

C) cashier's check.

D) bank draft.

E) money order.


7. Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs?

A) a NOW account

B) a share draft account

C) an activity account

D) an interest-earning checking account

E) an EFT account


8. A savings account at a credit union is called a ____________ account.

A) certificate

B) money market

C) share


E) club


9. Checking accounts are frequently referred to as ____________ deposits.

A) loan

B) demand

C) common

D) time

E) current


10. A trust has the purpose of

A) obtaining low-interest loans.

B) handling daily money management activities.

C) improving a person's budgeting skills.

D) solving a person's financial problems.

E) managing the assets of a person.


11. If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent on credit payments?

A) $300

B) $400

C) $600

D) $200

E) $500


12. Which Federal agency writes regulations to carry out the consumer credit laws?

A) The Comptroller of the Currency

B) The Justice Department

C) Federal Reserve System

D) Federal Trade Commission

E) The U.S. Department of Commerce


13. If your credit application is denied, you

A) don't have any rights provided by law.

B) can reapply for credit after 30 days.

C) are entitled to know the specific information.

D) can file a complaint against the merchant.

E) can sue the credit rating agency.


14. Which federal law requires creditors to inform applicants of acceptance or rejection of their credit application within 30 days of receiving a completed application?

A) Fair Credit Billing Act

B) Fair Debt Collection Practices Act

C) Equal Credit Opportunity Act

D) Fair Credit Reporting Act

E) Truth in Lending Act


15. The Debt-to-equity ratio is

A) a useless ratio for determining your credit capacity.

B) calculated by dividing total liabilities by net worth.

C) rarely used by creditors in determining credit worthiness.

D) determined by dividing your assets by liabilities.

E) calculated by dividing monthly debt payments by net monthly income.



16. If you are denied credit, your first step should be to

A) reapply for credit.

B) check your credit file at the consumer bureau.

C) increase your income and decrease your spending.

D) sue the credit bureau that provided the negative information.

E) hire an attorney and file a suit against the creditor.


17. Installment sales credit is a

A) direct loan of money for personal purposes.

B) direct loan of money for home improvement.

C) loan that allows you to receive merchandise such as a refrigerator or furniture.

D) direct loan for vacation purposes.

E) synonym for a single lump-sum credit.


18. Debt payments-to-income ratio is

A) rarely used by creditors in determining credit worthiness.

B) determined by dividing your assets into liabilities.

C) calculated by dividing total liabilities by net worth.

D) calculated by dividing monthly debt payments (not including house payments) by net monthly income.

E) a useless ratio for determining your credit capacity.


19. A good example of a closed-end credit is

A) a credit card issued by a department store.

B) a credit card issued by VISA or MasterCard.

C) using overdraft protection at a bank.

D) using a cashier's check to pay for a purchase.

E) a mortgage loan.


20. If you have a problem with your creditor, the best solution is to

A) solve your problem directly with the creditor.

B) complain to the Board of Governors.

C) wait for creditor action.

D) complain to the Federal Reserve System.

E) file a lawsuit against the creditor.


21. The CCCS sometimes charges a fee if it

A) provides education to needy families.

B) administers a debt repayment plan.

C) helps families manage their debts better.

D) sets up a realistic budget for them.


22. If you default on your automobile loan,

A) you don't have to pay the full balance due on the loan.

B) an advance notice to you is required before your car is repossessed.

C) no advance notice is required before repossession.

D) the creditor pays the towing and storage costs.

E) the federal consumer credit laws give you protection.


23. If you dispute the debt, within how many days must you write to the debt collector and request verification of the debt?

A) 30

B) 5

C) 20

D) 10

E) 15



24. In a Chapter 7 bankruptcy, a debtor

A) is called a "bankrupt."

B) is absolved of alimony and child support payments.

C) does not have to repay educational loans.

D) is required to draw up a petition listing all assets and liabilities.

E) does not have to pay a filing fee.


25. The Bankruptcy Act of 1978

A) prevents dishonest people from declaring bankruptcy.

B) made personal bankruptcy easier.

C) made personal bankruptcy difficult.

D) was aimed to protect the creditors.

E) was later declared unconstitutional by the U.S. Supreme Court.


26. Financial institutions, the sources of credit,

A) play an important role in our economy.

B) offer a broad range of financial services.

C) come in all shapes and sizes.

D) All of the above choices are correct.


27. If creditors add finance charges after subtracting payments made during the billing period, this is called the

A) discount method.

B) average daily balance method.

C) APR method.

D) previous balance method.

E) adjusted balance method.


28. A Consumer Credit Counseling Service (CCCS) is a

A) lending institution of last resort.

B) legal institution.

C) charity organization.

D) local, non-profit organization that provides debt counseling services.

E) governmental agency.


29. Who financially supports a CCCS?

A) the Federal Home Loan Bank

B) Federal Reserve Banks

C) taxpayers

D) community-minded firms and individuals

E) National Foundation for Consumer Credit


30. If you receive a phone call from a debt collector,

A) threaten the collector with a law suit.

B) dispute the fact that you owe the money.

C) contact your attorney immediately.

D) the debt collector must follow the call with a written notice.

E) hang up on him/her and pray.


31. Arbitration differs from mediation in that arbitration

A) allows compromise through negotiation.

B) involves government officials.

C) requires the use of a lawyer.

D) is legally binding.

E) is only available in certain states.



32. For a class action suit to be valid, it must

A) be a legal problem against a government agency.

B) involve several people with the same problem.

C) involve low-income individuals.

D) cover an amount less than the limit set by the state.

E) be a case that would not be handled by an attorney.


33. A vehicle sold "as is" has

A) no implied warranties.

B) a limited warranty.

C) a full warranty on parts but not labor.

D) no express warranty.

E) a 30-day guarantee.


34. The purpose of the invoice price is to inform customers of the

A) sticker price.

B) dealer's cost.

C) suggested retail price.

D) sales tax on the vehicle.

E) charge for optional extras.


35. An implied warranty that comes with a used car is that

A) government agencies will repair safety defects.

B) the vehicle must be in operating condition.

C) a vehicle must operate properly for at least one year.

D) major repairs are the responsibility of the seller.

E) hidden defects will be repaired at no cost to the buyer.


36. A 32-ounce package selling for $1.60 would have a unit price of

A) $2.00 a pound.

B) 5 an ounce.

C) 12 an ounce.

D) $1.60.

E) 80 a quart.


37. The process of resolving consumer complaints with the use of a third party who suggests a solution through discussion and negotiation is

A) arbitration.

B) the legal aid society.

C) mediation.

D) a class action suit.


38. The purpose of an automobile service contract is to

A) repair major problems after the warranty expires.

B) stay informed of government safety recalls.

C) cover regular maintenance.

D) provide automobile insurance at a discount.

E) reduce operating costs of the vehicle.


39. A store with a limited product line is a ____________ store.

A) convenience

B) cooperative

C) specialty

D) discount

E) department



40. The purpose of the Official Used Car Guide is to

A) reduce sales of stolen vehicles.

B) list cars available for sale from government agencies.

C) provide price data.

D) monitor safety problems of existing vehicles.


41. Lonette and Al received a statement reporting that they paid $8,000 in mortgage interest during the past year. If they are in a 28 percent tax bracket, this deduction would reduce their taxable income by

A) $8,000.

B) $1,000.

C) $2,240.

D) $3,000.

E) $4,000.


42. Which of the following would increase the speed of equity growth for a homebuyer?

A) making larger deposits to the escrow account

B) making a down payment of 10 percent instead of 20 percent

C) obtaining a mortgage interest rate of 9 percent instead of 8 percent

D) obtaining a 15-year mortgage instead of a 30-year mortgage


43. Todd Foley is applying for a $100,000 mortgage. He can get a $600 monthly payment for principal and interest and no points, or a $520 monthly payment with 2 points? How many months will it take Todd to cover the cost of the discount points if he takes the lower monthly payment?

A) 10

B) 48

C) 6

D) 18

E) 25


44. The purpose of a rate cap with an adjustable rate mortgage is to

A) prevent changes in the amount of the monthly payment.

B) lower the escrow account.

C) minimize interest costs.

D) increase negative amortization.

E) restrict the amount by which the interest rate can increase.


45. The most common service provided by a real estate agent when selling your home is

A) providing legal advice.

B) qualifying buyers for a mortgage.

C) screening potential buyers.

D) making needed repairs.


46. The most commonly considered factor when selecting a home is the

A) current interest rates.

B) local zoning laws.

C) size of the home.

D) location of the home.

E) condition of the home.


47. Which of the following expenses is paid from an escrow account?

A) real estate agent's commission

B) loan application fee

C) title insurance

D) points

E) property insurance


48. Earnest money has the purpose of

A) paying the real estate agent's commission.

B) being a mortgage application fee.

C) reducing the mortgage interest rate.

D) serving as good faith by a homebuyer.

E) paying real estate property taxes.


49. As Wally Quinten conducts an investigation of property value factors, most real estate experts tell him that ____________ most influences the housing values in an area.

A) zoning laws

B) age of neighborhood

C) quality of schools

D) community pride

E) style of homes


50. What is the purpose of subletting an apartment?

A) to convert the units to condominiums

B) to meet certain government housing regulations

C) to obtain another tenant to complete a lease period

D) to increase the rent

E) to lower maintenance costs

Answer Key


1. E

2. C

3. E

4. C

5. A

6. A

7. C

8. C

9. B

10. E

11. A

12. C

13. C

14. C

15. B

16. B

17. C

18. D

19. E

20. A

21. B

22. C

23. A

24. D

25. B

26. D

27. E

28. D

29. D

30. D

31. D

32. B

33. D

34. B

35. B

36. B

37. C

38. A

39. C

40. C

41. A

42. D

43. E

44. E

45. C

46. D

47. E

48. D

49. C

50. C