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41. If Liza’s debt safety ratio is 15% and her monthly take-home pay is $4,500, which of the following equals her total
monthly payments?
a. $675
b. $1,200
c. $500
d. $450
42. If a loan has a prepayment penalty, there will be an additional cost to repay the loan early:
a. if the loan is repaid before the first payment is due.
b. if the lender wants to recover part of the full interest that would have been earned.
c. if the borrower has defaulted on any monthly payment.
d. if the loan is not repaid before the loan maturity date.
e. if the loan is prepaid 3 months before the loan maturity.
43. A single-payment loan is advantageous to a borrower only if:
a. the interest rate is more than that on an installment loan offered by commercial banks.
b. funds are expected to be available in the future to repay the loan in a lump sum.
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c. the finance charges are calculated using the discount method.
d. the finance charges are calculated using the simple interest method.
e. it has a collateral note.
44. Which of the following statements regarding single-payment loans is true?
a. They are generally unsecured and do not have any collateral.
b. They usually mature in 1 year or less.
c. They are usually provided by retailers.
d. They are generally used to finance auto purchases.
e. They are provided by sales finance companies.
45. If you borrow money on a single-payment loan and discover that you cannot pay it back when it is due, you should:
a. purchase a credit card.
b. unsecure the loan.
c. pay a prepayment penalty.
d. negotiate a rollover.
e. file for bankruptcy.
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48. The annual percentage rate (APR) on a single-payment loan of $1,000 at a simple interest rate of 12% is:
a. 10%.
b. 12%.
c. 15%.
d. 18%.
e. 24%.
49. A legal claim that allows creditors to liquidate loan collateral is a:
a. loan application.
b. note.
c. security claim.
d. lien.
e. loan rollover.
50. A loan rollover means that:
a. the loan is paid off by taking out another loan.
b. the loan is repaid without any defaults in payments.
c. the interest on the new loan is lower than the previous loan.
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d. the maturity period of the new loan is longer than the maturity period of the original loan.
e. the new loan will not have any processing fees.
51. You want to borrow $1,000 at an interest rate of 10%. The most expensive method of calculating the dollar cost of the
interest on the installment loan will be the:
a. add-on method.
b. double-declining-balance method.
c. discount method.
d. simple interest method.
e. past-due balance method.
52. The monthly payment (rounded to the nearest dollar) on an 8%, 36-month, add-on loan of $10,000 would be:
a. $278.
b. $300.
c. $314.
d. $344.
e. $380.
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7. Using Consumer Loans
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57. _____ obtain funds from their stockholders and through open market borrowing.
a. Credit unions
b. Consumer finance companies
c. Commercial banks
d. Life insurance companies
e. S&Ls
58. Borrowing from _____ is not advisable.
a. relatives
b. consumer finance companies
c. asset management companies
d. credit unions
e. commercial banks
59. When comparing two installment loans with the same principal and annual percentage rate (APR), the loan with:
a. the longer maturity will have the lower monthly payment and the higher total costs.
b. the shorter maturity will have the lower monthly payment and the higher total costs.
c. the longer maturity will have the higher monthly payment and the higher total costs.
d. the shorter maturity will have the lower monthly payment and the lower total costs.
e. the longer maturity will have the higher monthly payment and the lower total costs.
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60. You should consider your _____ before you take on a large consumer loan.
a. educational qualification
b. history of auto ownership
c. past employment
d. financial plans
e. career plans
61. If you don’t have much down payment money, a _____ can effectively act as the cheapest source of down payment.
a. rebate
b. personal loan
c. credit card
d. commercial loan
e. 0% APR
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64. Most single-payment loans are secured by:
a. collateral.
b. security claims.
c. rollover loans.
d. finance charges.
e. liens.
65. You are borrowing $1,000 with an APR of 10% and a loan maturity of 1 year. Total interest charges will be the
highest when:
a. you pay off the loan in 12 monthly installments.
b. you pay off the loan in 10 monthly installments.
c. you make one payment in full at the end of the year.
d. you prepay the loan 6 months prior to the maturity of the loan.
e. you pay off the loan within 30 days.
66. Calculating interest using the _____ will result in the highest APR on a single-payment loan.
a. double declining balance method
b. discount method
c. average loan balance method
d. simple interest method
e. add-on method
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67. A legal claim that allows lenders to liquidate loan collateral, in case the borrower defaults, is called a:
a. loan contract.
b. promissory note.
c. lien.
d. security claim.
e. rollover.
68. Using the _____ would be least expensive for the borrower when determining the total amount to be paid to the
lender.
a. simple interest method
b. add-on interest method
c. discount method
d. sum-of-the-digits method
e. average loan balance method
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69. The Rule of 78s is used to calculate the _____ when an installment loan is paid off early.
a. APR
b. balance due
c. prepayment penalty
d. basic cost of money
e. amount saved
70. If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be:
a. disbursed is $1,900.80.
b. disbursed to the borrower is $1,800.
c. repaid is $1,699.20.
d. repaid to the borrower is $1,800.
e. disbursed to the borrower is $100.80.
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71. If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan, the amount to be:
a. repaid is $2,200.
b. disbursed to the borrower is $2,049.20.
c. repaid is $2,350.80.
d. disbursed to the borrower is $2,350.80.
e. disbursed to the borrower is $150.80.
72. Downward Motors has offered Vicki either a $2,500 rebate or a 2%, 4-year loan on the new SUV she is purchasing for
$33,000 with a $3,000 down payment. Vicki has done her research and knows that she can get a 6%, 4-year loan from her
credit union. Should Vicki take the rebate or the 2% loan from the dealer? (Show your keystrokes.)
73. Jamie is going to buy furniture with a single-payment loan that is discounted. The loan will be for $5,000 for 2 years
at 10% interest. Calculate the annual percentage rate (APR) on this loan. (Show all work.)
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