Fall 2010 Test #2 Chapters 5-7
True / False Questions
1. (p. 141) A "free" checking account with a minimum balance of $500 has an opportunity cost
of lost interest. TRUE
2. (p. 141) Savers should always attempt to obtain an interest rate that is less than the inflation
rate. FALSE
3. (p. 140) Using a "debit" card is basically the same as writing a check. TRUE
4. (p. 148) A certificate of deposit is usually considered to be very liquid. FALSE
5. (p. 153) The liquidity of a savings account refers to the rate of earning a person will receive.
FALSE
6. (p. 151) The more frequent the compounding, the less a person will earn on a savings
account. FALSE
7. (p. 160) When preparing a bank reconciliation, interest earned on your checking account is
added to the bank statement balance. FALSE
Multiple Choice Questions
8. (p. 141) Joan Zemke expects interest rates to decline over the next few months. To maximize
her earnings she should use a(n):
A. regular savings account.
B. interest-bearing checking account.
C. five-year certificate of deposit.
D. six-month certificate of deposit.
E. money market fund
9. (p. 140) The purpose of a debit card is to:
A. obtain a discount on consumer purchases.
B. make credit card purchases.
C. quickly obtain a cash loan.
D. make investments with an investment company.
E. transfer money electronically.
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Fall 2010 Test #2 Chapters 5-7
10. (p. 141) When interest rates are rising, a person would be best served by:
A. short-term savings instruments.
B. long-term savings instruments.
C. short-term loans.
D. variable-rate loans.
11. (p. 140) What is the difference between a lost debit card and a lost credit card?
A. A credit card carries more risk of loss to the cardholder.
B. A debit card carries more risk of loss to the cardholder.
C. There is no cardholder liability if either type of card is lost.
D. There is no difference in liability.
12. (p. 145) To avoid high fees for loans, a person should not borrow from a:
A. credit union.
B. savings and loan association.
C. pawnshop.
D. commercial bank.
E. mutual savings bank.
13. (p. 148) A certificate of deposit usually has:
A. high interest-rate risk.
B. low safety for savers.
C. limited liquidity.
D. a variable rate of return.
E. no minimum deposit amount
14. (p. 150) A $200 savings account that earns $13 interest in a year has a yield of
____________ percent.
A. 6
B. 13
C. 7
D. 11.25
E. 6.5
15. (p. 151) Savings compounded ____________ would have the highest effective yield.
A. daily
B. annually
C. semi-annually
D. monthly
E. weekly
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Fall 2010 Test #2 Chapters 5-7
16. (p. 160) When preparing a bank reconciliation, outstanding checks should be:
A. added to the bank statement balance.
B. subtracted from the bank statement balance.
C. added to the checkbook balance.
D. subtracted from the checkbook balance.
17. (p. 160) In the bank reconciliation process, service fees should be:
A. added to the bank statement balance.
B. subtracted from the bank statement balance.
C. added to the checkbook balance.
D. subtracted from the checkbook balance.
18. (p. 160) Based on the following information, what amount would be SUBTRACTED from
the BANK BALANCE side of a checking account reconciliation? Service charge $12;
Outstanding checks $145; Interest $3.50; Deposit in transit $80
A. $145
B. $12
C. $157
D. $148.50
E. $80
19. (p. 145) A pawnshop with a monthly interest rate of 2.75 percent would have an annual
interest rate of ____ percent.
A. 33
B. 27.5
C. 20
D. 5.5
E. 2.75
20. (p. 145) A person borrows $200 from a payday loan company, paying $10 interest for two
weeks. This would result in an annual interest rate of approximately ___ percent.
A. 260
B. 130
C. 40
D. 20
E. 5
21. (p. 160) Your bank statement shows a balance of $670. Your checkbook register shows a
balance of $462. You earned interest of $2, and had a service charge of $4. What is the
amount of outstanding checks?
A. $210
B. $208
C. $180
D. $12
E. $6
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Fall 2010 Test #2 Chapters 5-7
True / False Questions
22. (p. 169) There are very few valid reasons for using credit. FALSE
23. (p. 169) College students are not a prime target for credit card issuers. FALSE
24. (p. 172) With an open-end credit, you pay back one-time loans in a specified period of time
in equal amounts. FALSE
25. (p. 172) Using a credit card, such as Visa or MasterCard, is an example of closed-end credit.
FALSE
26. (p. 177) You should sign your new credit cards as soon as they arrive. TRUE
27. (p. 180) The debt-payment-to-income ratio is calculated by dividing your total liabilities by
your net worth. FALSE
28. (p. 181) The smaller the debt-to-equity ratio, the riskier the situation is for lenders and
borrowers. FALSE
29. (p. 181) When you cosign a loan, you are being asked to guarantee this debt. TRUE
30. (p. 188) In the 5Cs of credit, capacity refers to the borrower's attitude toward his or her credit
obligations. FALSE
Multiple Choice Questions
31. (p. 171) By paying cash for a purchase, you:
A. forgo the opportunity to keep the cash in an interest-bearing account.
B. always get a cash discount.
C. can build a better credit rating.
D. get better personal service from store employees.
E. have a better selection of goods than if you use credit.
32. (p. 172) Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12
equal payments over the next year to pay for it. She is using:
A. closed-end credit
B. Open-end credit
C. Revolving check credit
D. a line of credit
E. none of the choices
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Fall 2010 Test #2 Chapters 5-7
33. (p. 180) Experts suggest that you spend no more than ____________ percent of your net
income on credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50
34. (p. 184) If you have declared personal bankruptcy, that fact may be reported to credit bureaus
for: ____________ years.
A. 5
B. 10
C. 15
D. 20
E. 25
35. (p. 188) The borrower's attitude toward his or her credit obligations is called:
A. capacity.
B. capital.
C. character.
D. collateral.
E. conditions.
36. (p. 190) If your credit application is denied, you:
A. can sue the credit rating agency.
B. can file a complaint against the merchant.
C. don't have any rights provided by law.
D. are entitled to know the specific reason you were denied credit.
E. can reapply for credit after 30 days.
37. (p. 190) The best way to maintain your credit rating is to:
A. use credit sparingly.
B. pay cash for your purchases.
C. repay your debts on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.
38. (p. 182) Which of the following is a credit bureau?
A. The Federal Reserve System
B. The Federal Trade Commission
C. Better Business Bureau
D. Experian
E. None of the choices are credit bureaus
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Fall 2010 Test #2 Chapters 5-7
True / False Questions
39. (p. 207) Buying on credit is almost always cheaper than paying cash. FALSE
40. (p. 216) With collateral, you'll probably pay a higher interest rate on your loan. FALSE
41. (p. 216) The two most common methods of calculating interest are compound and simple
interest formulas. TRUE
42. (p. 219) If you want to take advantage of the interest-free period on your credit card, you
must pay your bill in full every month. TRUE
43. (p. 233) In a Chapter 13 bankruptcy, the debtor normally keeps all or most of his or her
property. TRUE
Multiple Choice Questions
44. (p. 207) Which is often the source of the least expensive loan?
A. parents or family members
B. banks
C. savings and loan associations
D. finance companies
E. loan sharks
45. (p. 208) Your bankcard has an APR of 18% and there is a 2% fee for cash advances. The
bank starts charging your interest on cash advances immediately. You get a cash advance of
$600 on the first day of the month. You get your credit card bill at the end of the month. What
is the total finance charge you will pay on this cash advance for the month?
A. $12
B. $9
C. $21
D. $0
E. None of the choices.
46. (p. 216) If you borrow $100 at 10 percent simple annual interest and repay it in one lump
sum at the end of one year, you will have to pay:
A. $100.
B. $105.
C. $110.
D. $115.
E. $120.
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Fall 2010 Test #2 Chapters 5-7
47. (p. 227, Exhibit 7-5) Which one of the following is one of 16 danger signals of potential debt
problems?
A. paying maximum balance due each month
B. receiving notice of prompt payment from creditors
C. using savings to pay for major purchases
D. borrowing money to pay old debts
E. occasionally working overtime and moonlighting
48. (p. 228) Most people who are in debt over their heads are:
A. criminals who take advantage of creditors.
B. living in the poverty-stricken areas.
C. expected to declare Chapter 11 bankruptcy.
D. basically dishonest people.
E. basically honest people.
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