hire purchase and simple interest

Question 1

What is hire purchase?

Answer 1

A method of buying goods through an initial deposit followed by installment payments.

Question 2

True or False: In hire purchase, ownership of the item is transferred to the buyer immediately.

Answer 2

False

Question 3

Fill in the blank: In hire purchase, the buyer pays an initial ______ followed by monthly installments.

Answer 3

deposit

Question 4

What does the term ‘principal’ refer to in the context of hire purchase?

Answer 4

The total amount borrowed to purchase the item.

Question 5

How is simple interest calculated?

Answer 5

Simple interest is calculated using the formula I = PRT, where I is interest, P is principal, R is rate, and T is time.

Question 6

If the principal amount is $1000, the interest rate is 5%, and the time is 2 years, what is the simple interest?

Answer 6

$100

Question 7

True or False: The total cost of hire purchase includes both the principal and the interest.

Answer 7

True

Question 8

What is the formula for calculating the total amount payable in a hire purchase agreement?

Answer 8

Total Amount = Principal + Simple Interest

Question 9

Multiple Choice: What is the typical payment structure in hire purchase?

Answer 9

Monthly installments

Question 10

True or False: The buyer can take possession of the item before completing all payments in hire purchase.

Answer 10

True

Question 11

What is the main advantage of hire purchase for consumers?

Answer 11

It allows consumers to acquire goods without paying the full price upfront.

Question 12

Fill in the blank: The interest rate in hire purchase agreements is usually expressed as a ______ rate.

Answer 12

annual

Question 13

If the hire purchase agreement states a total payment of $1200 for a principal of $1000, what is the total interest paid?

Answer 13

$200

Question 14

Multiple Choice: Which of the following is NOT typically included in a hire purchase agreement?

Answer 14

Insurance costs

Question 15

True or False: The total amount paid in hire purchase is generally higher than the cash price of the item.

Answer 15

True

Question 16

What happens if the buyer fails to make the installment payments?

Answer 16

The seller may repossess the item.

Question 17

Fill in the blank: The hire purchase agreement is a form of ______ financing.

Answer 17

consumer

Question 18

What is the typical duration of a hire purchase agreement?

Answer 18

It varies, but often ranges from 1 to 5 years.

Question 19

If an item costs $5000 and the buyer pays a deposit of $1000, what is the principal amount financed?

Answer 19

$4000

Question 20

True or False: Hire purchase agreements require a credit check.

Answer 20

True

Question 21

What does ‘defaulting’ on a hire purchase agreement mean?

Answer 21

Failing to make the required payments on time.

Question 22

Multiple Choice: Which of the following is a disadvantage of hire purchase?

Answer 22

Higher total cost compared to paying cash upfront

Question 23

Fill in the blank: The buyer is responsible for ______ of the item during the hire purchase period.

Answer 23

maintenance

Question 24

What is the key difference between hire purchase and leasing?

Answer 24

In hire purchase, the buyer eventually owns the item, while in leasing, the item is returned at the end of the lease term.

Question 25

True or False: Hire purchase can be used for both consumer goods and real estate.

Answer 25

False

Question 26

If a buyer wants to end a hire purchase agreement early, what may they need to do?

Answer 26

Pay off the remaining balance and any applicable fees.