Chapter 5 Financial Services: Savings Plans and Payment Accounts


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Chapter 5 Financial Services: Savings Plans and Payment Accounts

  1. 1. Fall 2009 Test #2- Chapters 5-7 Chapter 5 Financial Services: Savings Plans and Payment Accounts True/False Questions 1. A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest. 2. ATM fees are about the same in different geographic areas. 3. Direct deposit usually requires a waiting period for a availability of funds. 4. Using a "debit" card is basically the same as writing a check. 5. Credit unions frequently offer lower loan rates on loans than other financial institutions. 6. A regular savings account usually offers a higher rate of return to savers than other savings plans (like CD’s Money Market Accounts, Savings Bonds). 7. A certificate of deposit is usually considered to be very liquid. 8. The liquidity of a savings account refers to the rate of earning a person will receive. 9. The more frequent the compounding, the less a person will earn on a savings account. 10. When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance Multiple Choice Questions 11. 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. 12. Traditionally, the greatest variety of financial services have been offered by a(n): A) credit union. B) investment company. C) mutual savings bank. D) savings and loan association. E) commercial bank 13. 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 14. An advantage credit unions most often have over other financial institutions is: A) interest-bearing checking accounts. B) low-cost personal loans. C) flexible-rate loans. D) credit cards. E) variable-rate savings plans. 1
  2. 2. Fall 2009 Test #2- Chapters 5-7 15. A financial institution organized for the main purpose of providing loans to purchase homes is a: A) credit union. B) mutual savings bank. C) consumer finance company. D) mortgage company. E) commercial bank. 16. The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution. A) safety B) cost C) compounding D) liquidity E) convenience 17. A saver will usually earn the highest rate with which of the following types of savings plans? A) certificate of deposit B) standard savings account C) passbook account D) share account 18. An advantage of U.S. savings bonds is: A) interest earned is exempt from federal income taxes. B) interest earned is deferred for federal tax purposes. C) a constant rate of earnings. D) they can be converted to other types of investments 19. The rate of return on a savings account is also referred to as: A) liquidity. B) compounding. C) yield. D) insolvency. E) asset management. 20. 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 21. Savings compounded ____________ would have the highest effective yield. A) daily B) annually C) semi-annually D) monthly E) weekly 2
  3. 3. Fall 2009 Test #2- Chapters 5-7 22. Comparison of earnings for different savings plans can best be accomplished using the: A) discounted present value. B) compounded rate of return. C) net present value. D) annual percentage yield. E) after-tax rate of return 23. An account at a commercial bank designed for people who want to earn a higher savings rate is a(n) ____________ account. A) regular savings account B) regular checking C) share draft D) money market account 24. Kevin Friedman only needs to write a couple of checks each month. Which type of checking account would best serve his needs? A) an interest-earning checking account B) an activity account C) an EFT account D) a share draft account E) a NOW account 25. 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. 26. 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. Chapter 6 Introduction to Consumer Credit True/False Questions 27. Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. 28. Consumer credit refers to the use of credit for personal needs (except a home mortgage) by individuals. 29. There are very few valid reasons for using credit. 30. College students are not a prime target for credit card issuers. 31. Credit when effectively used, can help you have more and enjoy more 32. Perhaps the greatest disadvantage of using credit is the temptation to overspend. 33. Smart cards are embedded with a computer chip that can store 500 times the data of a credit card. 34. You should sign your new credit cards as soon as they arrive. 3
  4. 4. Fall 2009 Test #2- Chapters 5-7 35. Department stores and gasoline companies are good places to obtain your first credit card. 36. The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net worth 37. When you cosign a loan, you are being asked to guarantee this debt. 38. Credit bureaus obtain their data from banks, finance companies, merchants, credit card companies, other creditors and court records. Multiple Choice Questions 39. Consumer credit: A) is a privilege of the affluent. B) dates back to colonial times. C) carries no finance charge. D) is not a major force in our economy. E) use has been declining in recent years. 40. The baby boom generation currently represents about 30 percent of the population but holds nearly ____________ percent of the debt outstanding. A) 80 B) 70 C) 60 D) 50 E) 40 41. 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. 42. The debit card: A) debits your account at the moment you buy goods or services. B) credits your account at the moment you buy goods or services. C) is a new type of a credit card issued by VISA International. D) is really like a travel and entertainment card. E) is declared illegal in many states. 43. 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 4
  5. 5. Fall 2009 Test #2- Chapters 5-7 44. If you cosign a loan: A) you are not being asked to guarantee the debt. B) it is not your legal responsibility to pay the debt. C) you'll have to pay up to the full amount of the debt if the borrower does not pay. D) the creditor must first try to collect from the borrower. E) the creditor cannot garnish your wages. 45. Most of the information in your credit file may be reported for only ______ years. A) 7 B) 9 C) 11 D) 13 E) 15 46. Debt payments-to-income ratio is: A) calculated by dividing total liabilities by net worth. B) calculated by dividing monthly debt payments (not including house payments) by net monthly income. C) determined by dividing your assets into liabilities. D) a useless ratio for determining your credit capacity. E) rarely used by creditors in determining credit worthiness. 47. 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 48. 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) should reapply for credit after 30 days. 49. 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. 50. When you complain about your billing error, the creditor must acknowledge your letter within ____________ days. A) 10 B) 20 C) 30 D) 60 E) 90 5
  6. 6. Fall 2009 Test #2- Chapters 5-7 51. Karen Price has determined that her net worth is $30,000. She has also determined that the face value of her mortgage is $80,000. She has determined that the face value of the rest of her debt is $15,000. What is Karen’s debt to equity ratio? A) 3.27 B) 2. C) .5 D) 2.67 E) None of the above 52. The information in your credit report is most likely used to: A) Calculate your debt to equity ratio B) Calculate your FICO credit score C) Calculate your debt payment to income ratio D) Calculate your liquidity ratio E) Calculate your long term capitalization ratio Chapter 7 Choosing a Source of Credit: The Costs of Credit Alternatives True/False Questions 53. After you have selected a product, you should buy it immediately before the store runs out of it. 54. Buying on credit is almost always cheaper than paying cash. 55. Parents or family members are often the source of least expensive loans. 56. You can often obtain medium-priced loans from commercial banks and credit unions. 57. The Annual Percentage Rate is the percentage cost of credit on a yearly basis. 58. With collateral, you'll probably pay a higher interest rate on your loan than without collateral. 59. You may be able to borrow at a lower interest rate if you accept a shorter-term loan. 60. The two most common methods of calculating interest are compound and simple interest formulas. 61. The most basic method of calculating interest is the compound interest calculation. 62. The rule of 78s formula dictates that you pay less interest at the beginning of a loan. 63. You have two choices in declaring personal bankruptcy: Chapter 7 and Chapter 13 bankruptcy. Multiple Choice Questions 64. 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 6
  7. 7. Fall 2009 Test #2- Chapters 5-7 65. The most expensive loans are available from: A) parents. B) friends. C) banks. D) finance companies. E) credit unions. 66. 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. 67. Which formula dictates that you pay more interest at the beginning of the loan and pay less and less interest as the debt is reduced? A) adjusted balance method B) previous balance method C) the rule of 78s D) average daily balance 68. If you find that you cannot make your payments: A) skip town. B) declare personal bankruptcy. C) borrow from a loan shark to make the payment. D) let the borrower go to a collection agency. E) contact your creditors at once and try to work out a modified payment plan with them. 69. Which bankruptcy allows a debtor with a regular income to extinguish his or her debts from future earnings or other property over a period of time? A) Chapter 7 B) Chapter 11 C) Chapter 13 D) Chapter 15 7