Test Bank For Personal Finance 7th Canadian edition By Kapoor

Test Bank For Personal Finance 7th Canadian edition By Kapoor

Chapter 06
Choosing a Source of Credit: The Costs of Credit Alternatives

True / False Questions

1. After you have selected a product, you should buy it immediately before the store runs out of it.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

2. The most expensive loans available are provided by finance companies, retailers, and banks through credit cards.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

3. Using parents or family members as lenders is the most risky type of loan method.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

4. You can often obtain medium-priced loans from banks, trust companies, and credit unions.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

5. The least expensive loans are available from car dealers, appliance stores, department stores.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

6. Credit unions rarely offer the same range of consumer loans that banks and other financial institutions do.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 Analyze the major sources of consumer credit.
Topic: 06-01 Sources of Consumer Credit

7. The best way to pay off credit is to follow the minimum payment amount stated on your bill.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

8. The disadvantage of using an interest only line of credit is the considerably longer time it takes to repay the loan in comparison to a traditional consumer installment loan.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

9. Credit card co-branding has become popular with banks and industries.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

10. Two key concepts that you should keep in mind when borrowing are the finance charge and the annual percentage rate.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

11. Credit costs usually do not vary.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

12. The Annual Percentage Rate is the percentage cost of credit on a yearly basis.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

13. You want to borrow $100 for a year at an annual rate of 8% compounded semi-annually. The effective annual rate of the loan is 8.04 percent.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

14. The shorter the term of the loan the greater the amount of interest charges that must be paid.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

15. A variable interest rate is based on fluctuating rates in the banking system, such as the prime rate.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

16. With a larger down payment, you’ll probably pay a higher interest rate on your loan.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

17. You may be able to borrow at a lower interest rate if you accept a shorter-term loan.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

18. It takes considerably longer to repay an interest only line of credit than it takes to repay a traditional consumer installment loan.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

19. Lines of credit usually charge a variable interest rate, tied to the lender’s prime rate.
TRUE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit

20. Creditors use the same system to calculate the balance on which they assess finance charges.
FALSE
Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Determine the effective cost of borrowing by considering the quoted rate; the number of compounding periods; the timing of the interest payments; and any other service charges.
Topic: 06-03 The Cost of Credit