CHAPTER 6 QUIZ ANSWERS
True-False
Multiple Choice
1. T (p. 172)
6. D (p.175)
2. F (p. 176)
7. B (p. 176)
3. F (p. 175)
8. B (p. 191)
4. T (p. 183
9. A (p. 187)
5. T (p. 191)
10. A (p. 200)
Name ________________________________________
Date____________________________
CHAPTER 6 QUIZ
TRUE-FALSE
_____1. Credit encourages overspending and ties up future income.
_____2.
With open-end credit, the borrower pays back a onetime loan in a specified
period of time and with a specified number of payments.
_____3.
With closed-end credit, the borrower is permitted to take loans on a continuous
basis and is billed for partial payments periodically .
_____4.
Two general rules of thumb for measuring credit capacity are the debt
payments-to-income ratio and debt-to-equity ratio.
_____5.
Creditors determine credit worthiness on the basis of character, capacity,
capital, collateral, and conditions.
MULTIPLE CHOICE
_____6.
An example of closed-end credit is
a. incidental credit.
b. revolving check credit.
c. credit cards.
d. installment sales credit.
_____7.
An example of open-end credit is
a. installment sales credit.
b. revolving check credit.
c. mortgage loans.
d. automobile loans.
_____8.
Which one of the following is not one of the five Cs of credit?
a. Conditions
b. Climate
c. Character
d. Capacity
_____9.
Most of the information in your credit file may be reported for only
__________ years.
a. 7
b. 15
c. 20
d. 23
_____10. Which federal law provides specific cost disclosure requirements for the
annual percentage rate and the finance charge as a dollar amount?
a. Truth in Lending Act
b. Fair Credit Reporting Act
c. Fair Credit Billing Act
d. Equal Credit Opportunity Act
11. A few years ago, Michael Tucker purchased a home for $100,000. Today, the home is worth
$150,000. His remaining mortgage balance is $50,000. Assuming that Michael can borrow up to 80
percent of the market value, what is the maximum amount he can borrow?
Present market value of Michael’s home = $150,000. Michael can borrow up to 80 percent of the
market value, or $120,000. Michael still owes $50,000 mortgage on his home. Therefore, he can
borrow a maximum of $70,000 ($120,000 - $50,000).
12. Calculating Debt Payments – to - Income Ratio. Suppose that your monthly net income is $2,400.
Your monthly debt payments include your student loan payment, a gas credit card and they total
$360. What is your debt payments – to – income ratio?
Monthly net income = $2,400
Total monthly debt payments = $360
Debt-payments-to-income ratio = $360 ÷ $2,400 = 0.15 or 15%