An advantage credit unions may have over other financial institutions is:
lower loan rates
Which savings plan is not covered by federal deposit insurance?
Money market fund with an investment company
usually requires minimum balance
Based on the following information, what amount would be subtracted from the bank statement side of the bank reconciliation? ATM withdrawal $20; Outstanding checks $154; Interest $1.25; Deposit in transit $75.
A $200 savings account that earns $8.50 interest in a year has a yield of
$8.50/$200 = 0.0425 = 4.25%
One example of closed-end credit is:
a mortgage loan
The Five Cs of Credit Management
- Character – borrower’s attitude toward credit obligations
- Capacity – financial ability to meet credit obligations
- Capital – assets or net worth
- Collateral – asset that you pledge to financial institution to obtain loan
- Conditions – general economic conditions that can affect ability to repay loan
Jane Calvert is applying for a loan from a bank. The bank knows she owns a house worth $160,000 and a car with a trade-in value of $12,000 as well as other personal assets worth approximately $44,000. Which one of the 5 Cs of credit is the bank looking at?
The debt payments-to-income ratio is:
calculated by dividing monthly debt payments (excluding mortgage payments) by net monthly income.
The market value of Karen’s home is $120,000 and the balance on her mortgage loan is $80,000. The lender has agreed to let her borrow up to 75% of the total value of her home less the mortgage. How much can she borrow with a home equity loan?
($120,000 ×75%) -$80,000 = $90,000 –$80,000 = $10,000.
sources that provide data to credit bureaus include
banks, finance companies, credit card companies, court records
Which is NOT a source that provides data to credit bureaus?
Internal Revenue Service
What is included with a credit card application?
- minimum interest charges
- annual percentage rate for purchases
- penalty fees
- method used to calculate balance
If you borrow $150 at 10 percent interest, how much will you repay in one lump-sum at the end of one year using simple interest?
P + I = P + (P × r × T) = $150 + ($150 × 0.10 × 1 year) = $150 + 15 = $165.
Jerrod Dean starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the adjusted balance method (and excludes new purchases). What would Jerrod’s finance charges be for the month?
800 − 300 = 500;
500 × 1.5% = $7.50.
Jerry Allison starts the month with a balance on his credit card of $800. On the 10th day of the month, he purchases $200 in clothes with his credit card. On the 15th day of the month he makes a payment on his credit card of $300. The bank charges 1.5 percent interest per month using the previous balance method. What would Jerry’s finance charges be for the month?
800 × 1.5% = $12.00.
Henry Garrison starts the month with a balance on his credit card of $800. The average daily balance for the month including purchase is $683. The average daily balance for the month excluding new purchase is $550. The bank charges 1.5 percent per month and uses the average daily balance including new purchases method. What would Henry’s finance charges be for the month?
683 × 1.5% = $10.25.
The first phase of the consumer buying process involves:
identifying the problem
Federal Trade Commission (FTC) regulations require that:
used car buyers be informed of whether or not the vehicle comes with a warranty.
A used car sold “as is” has:
an implied warranty of merchantability
The process of resolving conflicts between a customer and a business with the use of a third party whose recommendations are nonbinding
Which is the largest fixed expense associated with a new automobile?
P + I =
P + (P × r × T)
legal agreement that provides for the management and control of assets by one party for the benefit of another.
Asset management account
All-in-one account that includes savings, checking, borrowing, investing, and other financial services for a single fee; also called a cash management account.
Automatic teller machine (ATM)
computer terminal used to conduct banking transactions; also called a cash machine.
plastic access card used in computerized banking transactions; also called cash card.
financial institution that offers a full range of financial services to individuals, businesses, and government agencies.
Savings and loan association (S&L)
financial institution that traditionally specialized in savings accounts and mortgage loans.
Mutual savings bank
financial institution that is owned by depositors and specializes in savings accounts and mortgage loans.
user-owned, nonprofit, cooperative financial institution that is organized for the benefit of its members.
Money market fund
savings-investment plan offered by investment companies, with earnings based on investments in various short-term financial instruments
regular savings account at a credit union.
Certificate of deposit (CD)
savings plan requiring that a certain amount be left on deposit for a stated time period to earn a specified interest rate.
Money market account
savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates.
rate of return
percentage of increase in the value of savings as a result of interest earned; also called yield.
process that calculates interest based on previously earned interest.
Annual percentage yield (APY)
percentage rate expressing the total amount of interest that would be received on a $100 deposit based on the annual rate and frequency of compounding for a 365-day period.
Share draft account
interest-bearing checking account at a credit union
automatic loan made to checking account customers to cover the amount of checks written and payments in excess of the available balance in the checking account.
arrangement to receive cash, goods, or services now and pay for them in the future.(
use of credit for personal needs (except a home mortgage)
One-time loans that the borrower pays back in a specified period of time and in payments of equal amounts.
line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment
Line of credit
dollar amount, which may or may not be borrowed, that a lender makes available to a borrower
periodic charge for the use of credit
Revolving check credit
prearranged loan from a bank for a specified amount; also called a bank line of credit
Electronically subtracts the amount of a purchase from the buyer’s account at the moment the purchase is made
Home equity loan
loan based on the current market value of a home less the amount still owed on the mortgage.
reporting agency that assembles credit and other information about consumers.
Fair Credit Reporting Act(1971)
Regulates the use of credit reports, requires the deletion of obsolete information, and gives consumers access to their files and the right to have erroneous data corrected
Equal Credit Opportunity Act (ECOA)
Bans discrimination in the extension of credit on the basis of race, color, age, sex, marital status, and other factors.
Fair Credit Billing Act (FCBA)
Sets procedures for promptly correcting billing mistakes, refusing to make credit card payments on defective goods, and promptly crediting payments.
Credit Card Accountability, Responsibility, and Disclosure Act of 2009
Places new restrictions on credit card lending and eliminating certain fees.
Truth in Lending Law
federal law that requires creditors to disclose the annual percentage rate (APR) and the finance charge as a dollar amount
Annual percentage rate (APR)
percentage cost (or relative cost) of credit on a yearly basis. The APR yields a true rate of interest for comparison with other sources of credit
Adjusted balance method
assessment of finance charges after payments made during the billing period have been subtracted
Previous balance method
method of computing finance charges that gives no credit for payments made during the billing period
Average daily balance method
method of computing finance charges that uses a weighted average of the account balance throughout the current billing period.
Rule of 78s
mathematical formula to determine how much interest has been paid at any point in a loan term
Fair Debt Collection Practices Act (FDCPA)
federal law, enacted in 1978, that regulates debt collection activities
Consumer Credit Counseling Service (CCCS)
local nonprofit organization that provides debt counseling services for families and individuals with serious financial problems.
legal procedure for dealing with debt problems of individuals
Chapter 7 bankruptcy
One type of personal (or straight) bankruptcy in which many debts are forgiven
Chapter 13 bankruptcy
voluntary plan that a debtor with regular income develops and proposes to a bankruptcy court.
nonprofit organization whose member-owners may save money on certain products or services
agreement between a business and a consumer to cover the repair costs of a product.
settlement of a difference by a third party whose decision is legally binding
Small claim court
court that settles legal differences involving amounts below a set limit and employs a process in which the litigants usually do not use a lawyer
Krista Lee can purchase a service contract for all of her major appliances for $180 a year. If the appliances are expected to last for 10 years and she earns 5 percent on her savings, what would be the future value of the amount Krista will pay for the service contract?
180 [+/-] [PMT] 10 [N] 5 [I/YR] [CPT] [FV] => 2,264.02
If Eric Sanchez saves $60 a month by using coupons and doing comparison shopping,
(a) what is the amount for a year?
(b) What would be the future value of this annual amount over 10 years, assuming an interest rate of 3 percent?
(a) $60 ×12 = $720
(b) 720 [+/-] [PMT] 10 [N] 3 [I/YR] [CPT] [FV] => 8,253.99
Pierre Martina is comparing the cost of credit to the cash price of an item. If Pierre makes a $70 down payment and pays $34 a month for 24 months, how much more will that amount be than the cash price of $695?
Cost of credit = $70 + ($34 x 24 months) = $886
Cash price = $695
Difference = $886 -$695 = $191
What would be the net present value of a microwave oven that costs $159 and will save you $68 a year in time and food away from home? Assume an average return on your savings of 4 percent for five years.
- Present value of savings: 68 [+/-] [PMT] 5 [N] 4 [I/YR] [CPT] [PV] => $302.72
- Value of savings –Cost = $302.72 -$159 = $143.72
- The net present value is $143.72.
What would be the total vehicle cost in each of these situations?
•Vehicle 1: A down payment of $3,500 with 48 monthly payments of $312.
•Vehicle 2: A down payment of $2,700 with 60 monthly payments of $276.
(1) $3,500 + ($312 ×48) = $18,476
(2) $2,700 + ($276 x 60) = $19,260
Drew’s monthly net income is $4,000. What is the maximum he should use on debt payments?
Remember the 20% rule.
$4,000 ×0.20 = $800 / month