Interest on credit cards | Business & Finance homework help

1. Interest on credit cards can be very expensive. One way to reduce interest would be to
A. pay the minimum monthly required payment on time.
B. pay the minimum monthly payment early.
C. pay the entire balance before the grace period and use the card for convenience.
D. use the card for cash advances.

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2. In addition to interest expenses, many credit cards have other costs, which can include which of the following?
A. Vendor discounts
B. Annual fees

C. Application fees

D. Travel fees

3. A method to charge interest that involves calculating the finance charge and deducting it up front from the loan is called the _______ method.
A. simple interest

B. compound interest

C. discount
D. future value

4. The rule of 78s or sum-of-the digits method would be used to calculate
A. interest.
B. an insurance premium.

C. estimated present value.

D. a prepayment penalty.

5. Many lenders use credit scoring to assist them in making credit decisions. The most important credit-scoring factor is
A. marital status.
B. length of employment.

C. annual income.

D. age.

6. The annual percentage rate (APR) on a single-payment loan for $1,000 at a simple interest rate of 12% is
A. 10%.
B. 12%
C. 15%

D. 18%


7. You’ve agreed to make payments of principal and interest over the next 36 months to a furniture dealer for a new suite of furniture. Which type of loan is this?
A. Single payment
B. Interim financing

C. Open account credit

D. Installment loan

8. Purchasing credit life or disability insurance protection is usually
A. a legal requirement.
B. at the borrower’s option.
C. non-negotiable.

D. a good idea for the borrower.


9. You want the convenience of paying for goods and services with “plastic.” However, you want to avoid any risk of generating a credit balance on which you might incur interest expenses. Which card would be best for you?
A. Affinity card
B. Debit card

C. Secured credit card

D. Prestige card

10. You have a car, a house, credit cards, and other debts and assets. You want to consolidate debt and achieve the lowest possible after-tax cost of borrowing. You should consider which type of loan?
A. Credit card advance
B. Consumer installment loan
C. Overdraft protection

D. Home equity credit line

11. You’re borrowing for education.You want to eliminate interest rate risk and pay the loan back in future years when you can better afford the payments.Your degree will give you a chance to earn a higher income in the future. Which type of loan is best for you?
A. Long-term fixed rate loan

B. Short-term fixed rate loan

C. Long-term floating rate loan
D. Short-term floating rate loan

12. You want to establish credit, but you want to deal with one institution for all your banking and credit services.Your best choice would be a
A. savings and loan.
B. finance company.

C. commercial bank.

D. credit union.

13. If your installment loan has a variable interest rate,
A. the rate will remain the same over the life of the loan.
B. the amount you borrowed will change with the interest rates.
C. the total interest to be paid over the life of the contract isn’t known at the start of the loan.
D. you can calculate the total interest you’ll pay on the loan.

14. Credit cards permit us to enjoy payment convenience when shopping. However, a danger of using credit cards is
A. the computation of interest.
B. the monthly billing cycle.

C. retailer warranties.

D. overspending due to easy credit.

15. As opposed to mortgage loans and auto loans, open-credit loans can lead to excessive debt levels because
A. homeownership is important to the economy.
B. we all have to have cars.
C. the products purchased may not outlive the payments.
D. the required payment changes every month.

16. Because of the Tax Reform Act of 1986, what percent of your consumer loan interest is now tax deductible?
A. 40%

B. 30%

C. 20%

D. 0%

17. You have a debt safety ratio of 40%.You should consider which one of the following
A. Cut spending until you reduce the ratio to 20%
B. Cut spending until you bring the ratio to zero
C. Keep spending the same
D. Increase spending, but only for useful items

18. Often lenders will be reluctant to approve a loan because they perceive the credit risk to be too high. A frequently used technique to improve credit risk is to offer tangible assets. Such an asset is considered
A. pledging.

B. collateral.

C. credit base.

D. improved cash flow.

19. If your monthly take-home pay is $1,500, you maximum monthly consumer credit payments shouldn’t exceed
A. $420.
B. $330.

C. $300.

D. $225.

20. The federal requirements for disclosure of interest rates defines the annual percentage rate or APR. The formula to calculate the APR is
A. total finance charges divided by yearly principal payments.
B. total finance charges divided by loan principal.
C. average annual finance charge divided by average loan balance outstanding.
D. total annual finance charge divided by average loan balance outstanding.


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