5. Making Automobile and Housing Decisions
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1. Lowballing is a sales technique where the salesperson quotes a low price for a car to get you to make an offer, and
negotiates the price upward prior to signing the sales agreement.
a. True
b. False
2. In a co-op, the buyer receives title to a unit and joint ownership of the common areas.
a. True
b. False
3. The market price of a house is $125,000, and the home buyer borrows $100,000. Two points are equal to $2,000.
a. True
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4. The property listing in a local Multiple Listing Service (MLS) cannot be accessed by all buyers and sellers.
a. True
b. False
5. Prequalification provides a home buyer with information regarding the specific mortgage amounts he or she is eligible
for subject to the expected changes in interest rates.
a. True
b. False
6. The job of a mortgage banker is to locate conventional loans for clients.
a. True
b. False
5. Making Automobile and Housing Decisions
5. Making Automobile and Housing Decisions
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9. The loss in the value of an automobile that occurs over its period of ownership is called:
a. reinsurance.
b. the acquisition payment.
c. the market price.
d. the repurchase commission.
e. depreciation.
10. The first step in the auto-buying process should be:
a. to test-drive several automobiles.
b. to begin negotiations on various automobiles.
c. to decide whether to trade in your used car or to sell it yourself.
d. to consider alternative buying strategies.
e. to analyze how much you can afford to spend on the car.
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11. Henry has $2,500 for a down payment and thinks he can afford monthly payments of $400. If he can finance a vehicle
with an 8%, 3-year loan from a local bank, what is the maximum amount Henry can spend on the car? (Round to the
nearest dollar.)
a. $12,765
b. $14,400
c. $14,079
d. $15,265
e. $16,879
12. Kurt has $4,500 for a down payment and thinks he can afford monthly payments of $300. If Kurt can finance a vehicle
with a 7%, 4-year loan from the automobile dealer, what is the maximum amount he can afford to spend on the car?
(Round to the nearest dollar.)
a. $12,528
b. $14,400
c. $16,028
d. $17,028
e. $18,028
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13. Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. If she can finance a vehicle
with a 7%, 4-year loan from a credit society, what is the maximum loan amount Jana can afford? (Round to the nearest
dollar.)
a. $12,528
b. $14,208
c. $16,028
d. $17,900
e. $18,028
14. A behavioral bias in which an individual tends to allow an initial estimate (of value or price) to dominate the
subsequent assessment (of value or price) regardless of new information to the contrary is called:
a. foreclosing.
b. anchoring.
c. depreciating.
d. leasing.
e. cooperating.
15. Jacob has taken an SUV on lease from Free Cruisers Inc. for a period of 4 years. Jacob does not need to pay any extra
amount when he turns in the vehicle because he didn’t exceed the mileage specified in the lease and the SUV is not
damaged. He has a:
a. residual lease.
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b. closed-end lease.
c. purchase option lease.
d. right to early termination lease.
e. reassignment option lease.
16. The price of the car you are leasing is called the:
a. money factor.
b. capitalized cost.
c. residual value.
d. purchase option.
e. capital cost reduction.
17. At the end of your car lease period, you intend to turn in the car, and you will not pay extra at that time based on the
residual value of the car. You have a(n) _____ lease.
a. residual
b. open-end
c. purchase option
d. closed-end
e. money factor
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18. Which of the following is a type of down payment that lowers the potential depreciation and therefore your monthly
lease payments on a leased car?
a. Money factor
b. Property depreciation cost
c. Initial residual value
d. Purchase option
e. Capital cost reduction
19. When shopping for a lease, you want:
a. a high insurance cost.
b. a low capitalized cost.
c. a high money factor.
d. a low residual value.
e. high lease payments.
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20. The financing rate on a lease is called the:
a. lease point.
b. residual rate.
c. money factor.
d. purchase option.
e. capitalized cost.
21. You recently bought a new home. You receive title to an individual unit and joint ownership of any common areas and
facilities. You have purchased a:
a. single-family home.
b. cooperative.
c. condominium.
d. row house.
e. mobile home.
22. A foreclosure happens when:
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b. the lenders attempt to recover loan balances from the insolvent borrowers by forcing the sale of the home pledged
as collateral.
c. the borrowers repay their housing loan well before the estimated closing period of the loan.
d. the value of a house is higher than the loan taken on the property.
e. the borrower is planning to restructure the loan taken for making mortgage payments.
23. _____ is a situation where homeowners owe more to the lenders than what their properties are worth.
a. Negative equity
b. A foreclosure
c. A restructure
d. Inflation
e. An expanded mortgage
24. When you lease your apartment from a nonprofit corporation that owns the building and you own a share of the
nonprofit corporation, you own a:
a. single-family home.
b. cooperative apartment.
c. condominium.
d. row house.
e. mobile home.
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25. As home prices have fallen in recent years, the rent ratio:
a. and rent attractiveness have increased.
b. and rent attractiveness have decreased.
c. has increased and rent attractiveness has decreased.
d. has decreased and rent attractiveness has increased.
e. has increased and rent attractiveness has stabilized.
26. If you made a down payment of $11,000 on a house worth $110,000, the lenders will require _____ because of the
size of the down payment.
a. closing points
b. a bond
c. private mortgage insurance
d. application fees
e. homeowner’s insurance
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27. Fees charged by lenders at the time they grant a mortgage loan are called:
a. mortgage points.
b. down payments.
c. add-on charges.
d. commissions.
e. loan discounts.
28. If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 80%, then the borrower
must make a down payment of at least:
a. $100,000.
b. $80,000.
c. $180,000.
d. $20,000.
e. $120,000.
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31. The majority of each monthly payment at the beginning of the loan goes to pay the:
a. principal.
b. interest.
c. real estate taxes.
d. homeowner’s insurance.
e. private mortgage insurance.
32. If you purchase a house worth $110,000 and make a 10% down payment, how much would one mortgage point cost at
closing?
a. $765
b. $990
c. $1,100
d. $1,530
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33. Which of the following are tax deductible if you itemize deductions?
a. Mortgage principal, mortgage interest, property taxes, and homeowner’s insurance
b. Mortgage principal, mortgage interest, and property taxes
c. Mortgage principal and mortgage interest
d. Mortgage interest, property taxes, and homeowner’s insurance
e. Mortgage interest and property taxes
34. _____ are the expenses that borrowers pay during the final step of a real estate purchase.
a. Amortization costs
b. Closing costs
c. Property taxes
d. Insurance costs
e. Mortgage interests
35. If the maximum loan-to-value ratio that a lender will accept on a house costing $100,000 is 90%, then the borrower
must make a: