FCS 3450 Fall 2011 Test 3
True / False Questions
1. The first phase in the buying process involves information gathering. TRUE
2. (p. 258) An implied warranty is usually in written form. FALSE
3. (p. 259) Service contracts are usually included in the cost of appliances and other high-priced
items. FALSE
4. (p. 272) Mediation involves a legally binding decision by a third party to solve a consumer
complaint. FALSE
5. (p. 273) Representation by a lawyer is usually required in small claims court. FALSE
6. (p. 273) A class action suit allows many people with the same complaint to take action as a
group. TRUE
7. (p. 255) Unit pricing uses a standard unit of measurement to compare prices of packages of
different sizes. TRUE
8. (p. 258) A limited warranty covers all aspects of the product and does not require the buyer to
incur any of the costs for shipping and repairs. FALSE
Multiple Choice Questions
9. (p. 254) Impulse buying refers to:
A. evaluating alternatives.
B. gathering information.
C. comparison shopping.
D. selecting the least desirable alternative.
E. unplanned purchasing.
10. (p. 254) The items produced for a single retail chain are commonly sold under a
____________ brand.
A. store
B. government
C. regional
D. chain
E. national
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FCS 3450 Fall 2011 Test 3
11. (p. 258) Howard Ramsell recently became aware of implied warranties that exist for
consumer purchases. An implied warranty exists as a result of:
A. a stated intent of the seller.
B. actions by consumers.
C. the intended use of a product.
D. rulings of federal consumer agencies.
E. a written statement from the manufacturer.
12. (p. 272) The process of resolving consumer complaints with the use of a third party whose
recommendations are non-binding is called:
A. mediation.
B. arbitration.
C. a class action suit.
D. a product lawsuit.
E. a small claims court hearing.
13. (p. 272) ____________ is the settlement of a difference by a third party whose decision is
legally binding.
A. Negotiation
B. Mediation
C. Arbitration
D. Servicing
E. Cooperative action
14. (p. 273) The purpose of small claims court is to:
A. regulate fair business activities.
B. provide hearings on proposed consumer protection laws.
C. allow consumers with similar complaints to take action as a group.
D. resolve minor consumer complaints.
E. assist low-income consumers who need legal help.
15. (p. 273) Small claims courts:
A. hear only class-action suits.
B. are located in every state.
C. have no minimum dollar limit on claims.
D. require the use of an attorney.
E. require that claims be in excess of $100,000.
16. (p. 258) A vehicle sold "as is" has:
A. a limited warranty.
B. no express warranty.
C. a 30-day guarantee.
D. a full warranty on parts but not labor.
E. a 90-day guarantee.
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FCS 3450 Fall 2011 Test 3
17. (p. 266) Which of the following is usually the largest fixed expense for a new vehicle?
A. insurance
B. gasoline
C. registration, license, and fees
D. parking
E. depreciation
18. (p. 260) Damian Walker just purchased a new vehicle. He is reading his owner's manual to
know when he needs to take it in for its regular servicing at the dealer. He wants to make sure
this car lasts a while. What step in the purchasing process is Damian carrying out?
A. problem identification
B. information gathering
C. evaluating alternatives
D. determining the purchase price
E. post purchase activities
19. (p. 264) Which of the following would be an advantage of leasing a vehicle?
A. automatic ownership interest in the car
B. unlimited mileage on the car
C. no need to meet credit requirements
D. lease payments are likely to be lower than loan payments
E. all of the other answers are advantages
20. (p. 264) The price that is paid for a vehicle in a lease is called the:
A. residual value.
B. unit price.
C. capitalized cost.
D. deductible.
E. premium.
21. (p. 263) Emily is trying to decide whether to lease or buy a car. Which one of the following
is not a factor necessary in making the comparison?
A. down payment
B. monthly lease payments
C. gasoline costs
D. estimated value of vehicle at end of lease period
E. mileage overage charges
True / False Questions
22. (p. 283) Most people select a place of residence based on available financial resources,
needs, and lifestyle. TRUE
23. (p. 288) Ease of mobility is an advantage of renting. TRUE
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FCS 3450 Fall 2011 Test 3
24. (p. 297) Negotiating a purchase price for a home usually involves an offer and counteroffers.
TRUE
25. The amount of the down payment will affect the amount of the monthly mortgage needed
to purchase a home. TRUE
26. (p. 307) An escrow account is designed to reduce the cost of a mortgage. FALSE
Multiple Choice Questions
27. (p. 289) Renting is more advantageous than buying a home when you are seeking:
A. lower short-term living costs.
B. a place to remodel.
C. a long-term investment.
D. tax benefits.
E. permanence of residence.
28. (p. 289) A cost associated with home buying would be:
A. renter's insurance.
B. the security deposit.
C. annual appreciation of the property.
D. property taxes.
E. interest lost on the security deposit.
29. (p. 288) Kate plans to rent instead of buying her housing. Which advantage of renting will
she realize?
A. tax deductions
B. lower initial costs
C. property appreciation
D. restricted lifestyle
E. home improvement flexibility
30. (p. 297) Earnest money is used:
A. to pay real estate property taxes.
B. to reduce the mortgage interest rate.
C. as evidence of good faith by a homebuyer.
D. to pay the real estate agent's commission.
E. to pay a mortgage application fee.
31. (p. 299) Which of the following would increase the speed of equity growth for a
homebuyer?
A. making a down payment of 10 percent instead of 20 percent
B. obtaining a mortgage interest rate of 9 percent instead of 8 percent
C. obtaining a 15-year mortgage instead of a 30-year mortgage
D. making larger deposits to the escrow account
E. obtaining an interest-only mortgage
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FCS 3450 Fall 2011 Test 3
32. (p. 301) What is prepaid interest charged by a mortgage company called?
A. escrow
B. points
C. origination fee
D. title fee
E. deed
33. (p. 301) Todd Foley is applying for a $100,000 mortgage. He can select either a $600
monthly payment with no points or a $520 payment with two points. How many months will
it take Todd to cover the cost of the discount points if he takes the lower monthly payment?
A. 6
B. 10
C. 18
D. 25
E. 48
Number of months = (.02 x $100,000)/($600 - 520) = 25 months (Change as shown.)
34. (p. 304) Which one of these situations creates negative amortization?
A. increasing the amount of the monthly mortgage payment
B. paying less than the monthly interest on a mortgage
C. decreasing the amount paid into an escrow account
D. lowering the mortgage interest rate
E. decreasing the amount of the down payment
35. (p. 303) A short-term mortgage with a very large final payment is called a ____________
mortgage.
A. balloon
B. graduated-payment
C. growing-equity
D. shared-appreciation
E. negative-amortization
36. (p. 305) Refinancing of a mortgage is recommended when:
A. interest rates rise.
B. interest rates fall.
C. the escrow account balance declines.
D. two or more points are required by the lender at the time of closing.
E. the escrow account balance increases.
37. (p. 309) The purpose of an appraisal is to:
A. estimate the current value of a home.
B. reduce the amount paid for property taxes.
C. qualify for a reduced mortgage rate.
D. eliminate the need for home insurance.
E. reduce fees paid to realtor.
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FCS 3450 Fall 2011 Test 3
38. (p. 294) Jennifer Garland is purchasing a home that was assembled in a factory and then
moved to the living site. What type of housing is Jennifer purchasing?
A. condominium
B. duplex
C. cooperative
D. prefabricated home
E. penthouse
39. (p. 293) The assessed value of your home is the:
A. value used to calculate property taxes.
B. estimated current market value.
C. the price you paid to purchase the home.
D. amount of money a buyer has offered to purchase the home.
E. cost basis assigned to your home by your insurance company.
40. (p. 301) The appraised value of your home is the:
A. value used to calculate property taxes.
B. estimated current market value.
C. the price you paid to purchase the home.
D. amount of money a buyer has offered to purchase the home.
E. cost remaining after the down payment.
41. (p. 305) A loan based on the equity of the home that provides the homeowner with tax-free
income and which is paid back when the home is sold is called a(an):
A. conventional mortgage.
B. growing equity mortgage.
C. second mortgage.
D. reverse mortgage.
E. adjustable rate mortgage.
42. (p. 291) Ted pays $4,500 in real estate property taxes and is in the 28 percent tax bracket.
What is the value of this federal tax deduction?
A. $4,500.
B. $3,240.
C. $2,500.
D. $1,260.
E. $500.
Tax deduction value = $4,500(.28) = $1,260
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FCS 3450 Fall 2011 Test 3
43. (p. 295) Some real estate experts estimate that remodeling a kitchen can add 130 percent of
the cost of remodeling to the value of the house. A remodeled kitchen costing $8,000 could
add _____ to the value of the house.
A. $4,000
B. $8,000
C. $9,600
D. $10,400
E. $13,000
$8,000(1.3) = $10,400
44. (p. 298) A contract condition that states that the agreement is binding only if a certain event
occurs is a(n):
A. dual agency.
B. contingency clause.
C. counteroffer.
D. zoning law.
E. prefabrication.
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