Docsity
Docsity
Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity

Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan

Guidelines and tips
Guidelines and tips
Sell on Docsity
Sell on Docsity
Docsity AI
Docsity AI
Log inSign up

Prepare for your exams

Study with the several resources on Docsity

Find documents

Prepare for your exams with the study notes shared by other students like you on Docsity

Search for your university

Find the specific documents for your university's exams

Docsity AINEW

Summarize your documents, ask them questions, convert them into quizzes and concept maps

Explore questions

Clear up your doubts by reading the answers to questions asked by your fellow students

Earn points to download

Earn points by helping other students or get them with a premium plan

Share documents
download point icon20 Points

For each uploaded document

Answer questions
download point icon5 Points

For each given answer (max 1 per day)

All the ways to get free points
Get points immediately

Choose a premium plan with all the points you need

Study Opportunities

Choose your next study program

Get in touch with the best universities in the world. Search through thousands of universities and official partners

Community

Ask the community

Ask the community for help and clear up your study doubts

Free resources

Our save-the-student-ebooks!

Download our free guides on studying techniques, anxiety management strategies, and thesis advice from Docsity tutors

Chapter 9 please read carefully and, Slides of Environmental science

Environmental science

Enjoy and be strong enough to face challenges.Also,be smart and think before click.

Typology: Slides

2020/2021

Uploaded on 04/22/2021

09683857316
09683857316 🇵🇭

5

(1)

3 documents

1 / 26

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
1"
Copyright © 2017 Pearson Education, Inc.
Personal Finance, 6e (Madura)
Chapter 9 Personal Loans
9.1 Background on Personal Loans
1) A personal loan is different from a credit card in that it is normally used to finance one large
purchase.
Answer: TRUE
Diff: 1
Question Status: Previous edition
2) The most common source of financing for a personal loan is from a financial institution.
Answer: TRUE
Diff: 1
Question Status: Previous edition
3) In securing personal loans from family members or friends, the loan agreement should be
verbal or just consist of a "gentlemen's understanding."
Answer: FALSE
Diff: 1
Question Status: Revised
4) When borrowing money from a family member or a friend, the loan agreement should be in
writing and signed by all parties to avoid any possible misinterpretations.
Answer: TRUE
Diff: 1
Question Status: Previous edition
5) When applying for a personal loan, you will be required to fill out a loan application but you
will seldom need a personal balance sheet or a personal cash flow statement.
Answer: FALSE
Diff: 2
Question Status: Previous edition
6) In determining the amount of your loan, you should ask for about 20% more than you need in
order to give yourself financial flexibility in the future.
Answer: FALSE
Diff: 2
Question Status: Previous edition
7) On an amortization schedule, more interest and less principal is paid each month as the loan
matures.
Answer: FALSE
Diff: 2
Question Status: Previous edition
pf3
pf4
pf5
pf8
pf9
pfa
pfd
pfe
pff
pf12
pf13
pf14
pf15
pf16
pf17
pf18
pf19
pf1a

Partial preview of the text

Download Chapter 9 please read carefully and and more Slides Environmental science in PDF only on Docsity!

1 Personal Finance, 6e (Madura) Chapter 9 Personal Loans 9.1 Background on Personal Loans

  1. A personal loan is different from a credit card in that it is normally used to finance one large purchase. Answer: TRUE Diff: 1 Question Status: Previous edition
  2. The most common source of financing for a personal loan is from a financial institution. Answer: TRUE Diff: 1 Question Status: Previous edition
  3. In securing personal loans from family members or friends, the loan agreement should be verbal or just consist of a "gentlemen's understanding." Answer: FALSE Diff: 1 Question Status: Revised
  4. When borrowing money from a family member or a friend, the loan agreement should be in writing and signed by all parties to avoid any possible misinterpretations. Answer: TRUE Diff: 1 Question Status: Previous edition
  5. When applying for a personal loan, you will be required to fill out a loan application but you will seldom need a personal balance sheet or a personal cash flow statement. Answer: FALSE Diff: 2 Question Status: Previous edition
  6. In determining the amount of your loan, you should ask for about 20% more than you need in order to give yourself financial flexibility in the future. Answer: FALSE Diff: 2 Question Status: Previous edition
  7. On an amortization schedule, more interest and less principal is paid each month as the loan matures. Answer: FALSE Diff: 2 Question Status: Previous edition

2

  1. Longer maturities for loans result in lower monthly payments and therefore make it easier to cover payments each month. Answer: TRUE Diff: 1 Question Status: Previous edition
  2. Collateral is defined as assets of the lender that back a secured loan in the event of default. Answer: FALSE Diff: 2 Question Status: Previous edition
  3. In general, you will receive more favorable terms on a secured loan than on an unsecured loan. Answer: TRUE Diff: 2 Question Status: Previous edition
  4. If a loan is cosigned and the borrower defaults, the lender has the right to sue the cosigner or try to seize the cosigner's assets just as if that person were the borrower. Answer: TRUE Diff: 1 Question Status: Revised
  5. The monthly payment for a loan is dependent only on the size of the loan and the interest rate. Answer: FALSE Diff: 2 Question Status: Previous edition
  6. Even an unsecured personal loan should be backed by collateral. Answer: FALSE Diff: 1 Question Status: Previous edition
  7. A personal loan is different from a credit card in all of the following except it A) is normally used to finance one large purchase. B) has a specific repayment schedule. C) can be used only once. D) has a longer grace period. Answer: D Diff: 1 Question Status: Revised

4

  1. Personal loans from family members or friends A) are not good sources of financing. B) are more expensive than loans from other sources. C) should have a loan agreement in writing to avoid problems later on. D) are not desirable from the lender's point of view. Answer: C Diff: 1 Question Status: Previous edition
  2. The personal loan process with a financial institution requires all of the following except A) filling out an application. B) sitting through an interview. C) negotiating the loan contract. D) negotiating the interest rate. Answer: B Diff: 2 Question Status: Previous edition
  3. Which of the following would probably not be required when applying for a personal loan? A) A personal r sum B) A personal balance sheet C) A personal cash flow statement D) A loan application Answer: A Diff: 1 Question Status: Previous edition
  4. Which of the following items must you provide when applying for a loan in order to prove you have collateral to back your loan? A) Personal cash flow statement B) Paycheck stub C) Personal balance sheet D) Credit card statements Answer: C Diff: 1 Question Status: Previous edition
  5. The document that specifies the term of the loan as agreed to by the borrower and lender is called the A) loan repayment schedule. B) loan contract. C) loan application. D) terms of agreement. Answer: B Diff: 1 Question Status: Previous edition

5

  1. Which of the following is not included in the loan contract? A) Credit score B) Amount of the loan C) Interest rate D) Loan repayment schedule Answer: A Diff: 1 Question Status: Revised
  2. The loan contract identifies all of the following except A) loan officer. B) maturity. C) loan repayment schedule. D) collateral. Answer: A Diff: 2 Question Status: Previous edition
  3. The size of the monthly payment on a loan is dependent on all of the following except A) principal borrowed. B) interest rate. C) the borrower's age. D) maturity. Answer: C Diff: 1 Question Status: Revised
  4. Regarding the amount of money borrowed on a loan, all of the following are true except A) the amount is based on how much the lender believes you can pay back in the future. B) you should borrow slightly more than you need to cover future inflation. C) you should only borrow the amount you need. D) you will have to pay interest on the entire amount. Answer: B Diff: 1 Question Status: Previous edition
  5. In a loan repayment schedule, the term amortized refers to A) the method by which interest is calculated. B) the repayment of the principal and interest through a series of equal payments. C) the life of the loan. D) assets used to back the loan. Answer: B Diff: 2 Question Status: Previous edition

7

  1. You could reduce the size of your monthly payments by A) agreeing to a higher interest rate. B) borrowing the same amount of money but for a shorter period of time. C) borrowing more money initially for the same period of time. D) lengthening the maturity of the loan. Answer: D Diff: 2 Question Status: Previous edition
  2. Which of the following is not usually used as collateral for a loan? A) A boat B) Clothing C) A car D) A house Answer: B Diff: 1 Question Status: Previous edition
  3. Collateral A) gives the lender additional recourse if the payments are not made. B) is used on unsecured loans. C) increases the interest rate on loans. D) is required on all loans. Answer: A Diff: 1 Question Status: Previous edition
  4. If you agree to allow the lender to take your computer in the event you fail to make payments, the loan is which of the following? A) Amortized B) Unsecured C) Secured D) Interest free Answer: C Diff: 1 Question Status: Previous edition
  5. Which kind of loan generally charges the lowest interest rate? A) Unsecured loan B) Secured loan C) Cash advance D) Vacation loan Answer: B Diff: 2 Question Status: Revised

8

  1. All of the following are true regarding a cosigner on an account except A) the cosigner is responsible for any unpaid balance. B) the lender may not seize the assets of the cosigner. C) cosigning an account is a big liability and should be taken seriously. D) cosigning on a loan can restrict the amount that the cosigner is able to borrow. Answer: B Diff: 2 Question Status: Previous edition
  2. Common practices used by dishonest lenders include all of the following except the lender A) prohibiting the borrower from purchasing insurance or other financial services as a condition of the loan. B) charging high loan fees which cause financing costs to be much higher than the quoted rates. C) requiring that the borrower purchase insurance or other financial services. D) requiring a large balloon payment that will necessitate additional financing to pay it off. Answer: A Diff: 1 Question Status: Revised
  3. When the borrower and the lender have agreed to the specific terms of the loan these will be included in the ________. Answer: loan contract Diff: 1 Question Status: Previous edition
  4. If the lender has the right to take certain specified assets of the borrower in the event of a default on the loan, the loan is a(n) ________ loan. Answer: secured Diff: 1 Question Status: Previous edition

10

  1. You could reduce the interest rate you are paying on loans by A) refinancing to a secured loan. B) paying off credit card debt with a home equity loan. C) refinancing to a shorter term loan. D) A, B, and C are all viable possibilities Answer: D Diff: 2 Question Status: New
  2. If you double the principal repayment called for on your car loan each month without doubling the interest payment, you will A) reduce the term of the loan by half. B) reduce the amount of interest you pay by about 30%. C) not have much effect since you are not also doubling the interest paid monthly. D) Both A and B are correct. Answer: A Diff: 3 Question Status: New 9.2 Interest Rates on Personal Loans
  3. If the interest rates are the same, a loan using add-on interest will have higher payments and charges than a loan using simple interest. Answer: TRUE Diff: 2 Question Status: Previous edition
  4. The Truth-in-Lending Act (1969) requires which of the following? A) Adherence to the interest rates established by the Federal Reserve B) Specifying loan rate standardization C) Disclosure of only interest charges but no other fee D) All of the above Answer: B Diff: 2 Question Status: Previous edition
  5. Which of the following is not an interest rate calculation method discussed in the text? A) Annual percentage rate or APR B) Sum of the digits interest C) Simple interest D) Add-on interest Answer: B Diff: 2 Question Status: Previous edition

11

  1. The APR measures the finance expenses (including interest and all other expenses) on a loan on a(n) A) quarterly basis. B) annualized basis. C) monthly basis. D) daily basis. Answer: B Diff: 1 Question Status: Previous edition
  2. Which of the following methods of calculating interest is the most expensive? A) Annual percentage rate or APR B) Simple interest C) Add-on interest D) Sum of the digits Answer: C Diff: 2 Question Status: Previous edition
  3. The method of determining the monthly interest amount by adding the interest and loan principal together and dividing by the number of payments is the A) simple-interest method. B) annual percentage method. C) simple-interest declining balance method. D) add-on interest method. Answer: D Diff: 1 Question Status: Previous edition
  4. You obtain a loan of $3,000 based on simple interest with an annual interest rate of 12%. At the end of the first month, the interest owed on $3,000 is A) $30. B) $36. C) $300. D) $360. Answer: A Explanation: A) ($3,000 × 0.12)/12 = $ Diff: 2 Question Status: Revised

13 Use the following two columns of items to answer the matching questions below: A) assets of a borrower that back a secured loan B) interest rate multiplied by the principal C) rate that measures the finance expenses

  1. APR Diff: 1 Question Status: New
  2. simple interest Diff: 1 Question Status: New
  3. collateral Diff: 1 Question Status: New Answers: 11) C 12) B 13) A
  4. What does the Truth-in-Lending Act of 1969 require lenders to do? What is the APR, and how does it fulfill the purpose of the Act? Answer: Lenders are required to disclose a standardized loan rate with directly comparable interest expenses over the life of the loan. This standardized rate is the APR (annual percentage rate) which measures the finance expenses (including interest and all other expenses) on a loan annually. The APR makes it easier for individuals to compare loans offered by different lenders and select the best loan. Diff: 1 Question Status: Revised
  5. Lucky Louie applied for a $5,000 loan payable in one year and was provided the following data; interest due at payoff of $750, application fee $100, credit check $75, processing fee $75. What is the APR of Louie's loan? A) 20% B) 17.5% C) 22.5% D) There is not enough information to determine the answer. Answer: A Diff: 2 Question Status: New

14 9.3 Car Loans

  1. Buying a car from a dealer with a set price (a no haggle dealer) is usually more stress-free and less time consuming. Answer: TRUE Diff: 1 Question Status: Previous edition
  2. Buying a new car online is just about as efficient as buying an airline ticket or a book. Answer: FALSE Diff: 2 Question Status: Previous edition
  3. It is important to buy a car that is not over your budget and to finance the car properly. The more money needed to cover the car payments, the less you can add to your savings or other investments. Answer: TRUE Diff: 1 Question Status: Previous edition
  4. Auto loan Internet sites are a good source to estimate the maximum amount you can borrow, based on financial information you provide. Answer: TRUE Diff: 1 Question Status: Previous edition
  5. Shopping for automobile insurance should begin immediately after you close the deal on the car. Answer: FALSE Diff: 1 Question Status: Previous edition
  6. What should you not consider when selecting a vehicle? A) Personal preferences B) Insurance costs C) All parts are American-made D) Resale value Answer: C Diff: 1 Question Status: Previous edition

16

  1. In the past you have purchased cars that you have driven for 10 years or more. The mileage on these vehicles usually exceeded 100,000 and therefore you would just give them to a younger family member. Based on this history, your primary financial consideration in selecting a car will be A) resale value. B) financing rate. C) repair expense. D) personal preference. Answer: C Diff: 2 Question Status: Revised
  2. Purchasing a car is a big decision. Therefore you should not A) use the Internet to price shop. B) read Consumer Reports to find a good car value. C) ask a friend or relative to go with you to the car lot. D) rely on the dealer personnel as the best source of expert advice. Answer: D Diff: 1 Question Status: Previous edition
  3. When considering how much money to spend on the purchase of a new car, you must consider how your choices affect your spending on other needs. The ________ solution limits your credit card purchases to what you can afford to pay off when your credit card bill arrives each month. A) maximum debt B) limited debt C) no debt D) minimum debt Answer: B Diff: 1 Question Status: Revised
  4. The more expensive the car, the ________ the payments, and the ________ you can put toward other investments. A) higher; more B) higher; less C) lower; less D) lower; more Answer: B Diff: 1 Question Status: Previous edition

17

  1. The most favorable car financing is that of A) commercial banks. B) credit unions. C) car dealers. D) There is no one best deal every time; it pays to shop around. Answer: D Diff: 1 Question Status: Previous edition
  2. The advantage to financing a car for a long period of time (of up to seven years) is A) you will build equity in the car faster. B) the car will be worth more by the time you pay off the loan. C) your monthly payment will be lower. D) you will be able to sell the car before you pay off the loan and have money to pocket. Answer: C Diff: 3 Question Status: Previous edition
  3. If you are considering trading in a used car when you purchase your new one, it is best to A) tell the dealer right away so that your trade-in credit can be calculated against the purchase of your new car. B) not trade the car in, but rather sell it yourself to someone else. C) make the trade-in deal a separate transaction from the new car deal. D) not be too concerned about the value given, since dealers are required to give you at least blue book value. Answer: C Diff: 1 Question Status: Revised
  4. When assessing the condition of a used car, you should carefully consider all of the following except A) the condition of the interior. B) the insurance premium the previous owner paid. C) the condition of the exterior. D) the history of routine maintenance. Answer: B Diff: 1 Question Status: Previous edition

19

  1. In which of the following scenarios would you favor leasing over purchasing a car? A) The number of miles that you drive each year varies significantly and is hard to predict. B) Repair expenses on the car are very low. C) The car in question is one whose value depreciates rapidly. D) All of the above Answer: C Diff: 2 Question Status: Revised
  2. If you always drive cars many miles and keep them for 10 years, it would probably be best to A) lease a new car. B) lease a used car. C) buy a new car. D) buy a used car. Answer: C Diff: 2 Question Status: Previous edition
  3. The cost of leasing a car versus purchasing one A) is more. B) is less. C) is about the same. D) varies depending on a multitude of factors. Answer: D Diff: 2 Question Status: Previous edition
  4. In making the purchase versus leasing decision, it is important to remember that A) dealers may impose an additional mileage cost. B) leasing is less risky than a purchase. C) leasing is less expensive that a purchase. D) you won't be required to pay maintenance costs on the leased car. Answer: A Diff: 1 Question Status: Previous edition
  5. Advantages of leasing a vehicle include all of the following except A) no substantial down payment. B) don't have to worry about resale of the car when you are finished with it. C) less hassle than purchasing a vehicle. D) no maintenance costs. Answer: D Diff: 1 Question Status: Previous edition

20

  1. Disadvantages of leasing a vehicle include all of the following except A) no equity in the car. B) cost of finding a buyer for the car at the termination of the lease. C) responsibility for maintenance costs. D) additional charges beyond the monthly lease payments. Answer: B Diff: 1 Question Status: Previous edition
  2. What would be the total cost of leasing a vehicle for four years that requires a security deposit of $1,000 (which would be withdrawn from your portfolio, which earns 9% per year), has monthly lease payments of $500, and has a mileage restriction of 20,000 with excess mileage resulting in a 10 cents per mile charge. Assume that over the life of the lease you exceed the mileage limitations by a total of 8,000 miles. A) $24, B) $24, C) $24, D) $25, Answer: D Explanation: D) Lease payment $500 × 48 months $24, Opportunity cost ($1,000 × 0.09) 4 years $ Mileage overage 8,000 × 10 cents $ $25, Diff: 2 Question Status: Revised
  3. What is the total cost of leasing a vehicle for three years that requires a security deposit of $300 (would earn 3% interest in a money market account otherwise), has monthly lease payments of $385, and has a mileage restriction of 10,000 with excess mileage resulting in a 10 cents per mile charge. Assume that over the life of the lease you exceed this limitation by 8, miles. A) $14, B) $13, C) $14, D) $14, Answer: C Explanation: C) Lease payments $385 × 36 months $13, Opportunity cost ($300 × .03) × 3 years $ Mileage overage 8,000 × 10 cents $ $14, Diff: 2 Question Status: Revised