Personal Finance Chapter 5 & 6

question

What is an opportunity cost of a “free” checking account with a min. balance of $500?
answer

Lost interest
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Why is an asset management account useful?
answer

It combines several financial services for a single fee.
question

Savers should always attempt to obtain an interest rate that is…
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…higher than the inflation rate.
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Borrowers should attempt to obtain an interest rate that is…
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…less than the inflation rate.
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What institution offers the widest variety of financial services?
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Commercial banks.
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What do savings and loan associations specialize in?
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Mortgages and loans
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Why are Credit Unions different than other institutions?
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The offer lower loan rates.
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The money market fund offered by investment companies is a relatively liquid financial service. (T/F)
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True.
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What do consumer finance companies specialize in?
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Short-term loans.
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The convenience of using a financial institution with 24-hour banking usually requires a trade off with…
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…service fees, and personal service.
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If the interest rates are declining, what should you do?
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Take out short-term loans and create long-term savings.
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An advantage credit unions may have over other financial institutions is…
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…lower fees.
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The major services offered by investment companies are…
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…money market funds and mutual funds.
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What institution specializes in helping people save money in a manner that provides high liquidity?
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Investment companies
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What is a savings account called at a credit union?
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A share account.
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A CD usually has…
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…higher earnings and low liquidity.
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A saver will usually earn the highest rate with which type of savings plans?
answer

CD’s
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Which savings plans are NOT covered by federal deposit insurance?
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Investment company accounts, life insurance, and finance and mortgage company accounts.
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Some advantages of a US savings bonds are…
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…guaranteed to get money back, and interest is deferred.
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An account at a commercial bank designed for people who want to earn a higher savings rate is a…
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…money market account.
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The rate that commercial banks charge large corporations for loans is the…
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…prime rate.
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The rate that the Fed. Reserve charges banks for loans is the…
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…discount rate.
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The yield on a long term bond issued by the federal government is the…
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…treasury bond rate.
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What are types of deposit institutions?
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Commercial banks and credit unions
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What are NOT types of deposit institutions?
answer

life insurance comps., investment comps., finance comps., mortgage comps.
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What is a drawback of a money market fund from an investment company?
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not covered by the FDIC
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A CD that offers a higher rate for every six months you invest in it is…
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…a rising rate or bump up CD
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A CD that has earnings based on the stock market is…
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…indexed CD
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A CD that starts with a higher rate and has a long time to maturity but which can be retired by the bank after a set time period is…
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…callable CD
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Which type of institution does not provide home mortgages?
answer

Finance companies
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What is the use of credit for personal needs (except a home mortgage) by individuals called?
answer

Consumer credit
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What is consumer credit based on?
answer

Trust in people’s ability and willingness to pay bills when due.
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What are the 3 types of closed-end credit?
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Installment sales credit, installment cash credit, and single lump-sum credit
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What is a loan that allows you to receive high-priced items?
answer

Installment sales credit
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What is a direct loan of money for personal purposes, home improvements, or vacation expenses?
answer

Installment cash credit
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What is an example of closed-end credit?
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using a credit card, such as Visa or Master Card
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Many retailers use what type of credit?
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Open-end
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The credit cardholders who pay off their balances in full each month are known as…
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…convenience users.
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The linking of a credit card with a business trade name offering points towards the purchase of a product or service is…
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…co-branding
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Where is a good place to obtain your first credit card?
answer

Department stores and gas companies
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A home equity loan is usually set up as a revolving line or credit, typically with a variable interest rate. (T/F)
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True
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Borrowings are permitted up to a specified limit and for a stated period in a…
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…revolving line of credit.
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The smaller the debt-to-equity ratio…
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…the less risky the situation is for lenders and borrowers.
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What regulates the use of credit reports, requires deletion of obsolete info., and gives consumers access to their files?
answer

Fair Credit Reporting Act
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Can a credit ignore your retirement income in rating your application?
answer

No
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Can you be denied credit because you receive Social Security or public assistance?
answer

No
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What sets the procedures for promptly correcting billing errors?
answer

Fair Credit Billing Act
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Another name for closed-end credit is…
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…installment credit
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An example of closed end-credit is…
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…mortgage loan
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Another name for open-end credit is…
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…revolving credit
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The max amount of credit you are allowed by a creditor is called a…
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…line of credit
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An example of open-end credit is…
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…the use of a bank credit card to make a purchase
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Installment credit is…
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…a direct loan of money for personal purposes
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A credit arrangement that has no extra costs and no specific repayment plan is called…
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…incidental credit
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What would be the limit for an individual’s debt-to-equity ratio, excluding the home mortgage?
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1.00
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What can be included in your credit report?
answer

Marital status
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What federal credit law sets the procedure for promptly correcting billing mistakes and protects you against an unauthorized use of your credit card?
answer

Fair Credit Billing Act
question

What federal consumer credit law provides specific cost disclosure requirements for the annual percentage rate and the finance charge as a dollar amount, regulates the advertising of credit terms, prohibits credit card issuers from sending un-requested cards, and limits a cardholder’s liability for unauthorized use of a card to $50?
answer

Truth in Lending Act
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Information in your credit report is most likely used to…
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…calculate you FICO credit score
question

What is an example of a credit bureau?
answer

Experian

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