Solution and test bank personal finance 6th by jeff madura 2017 chapter 8

Answer: TRUE Diff: 1 Question Status: Previous edition 4 When using credit cards, there is no way to keep track of individual expenditures.. Answer: TRUE Diff: 1 Question Status: Previou

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Personal Finance, 6e (Madura)

Chapter 8 Managing Your Credit

8.1 Credit Cards

1) It is not difficult to find a credit card company that is eager to extend credit to you

Answer: TRUE

Diff: 2

Question Status: Previous edition

2) Credit cards are commonly used to pay for items such as clothing, car repairs, or a new car Answer: FALSE

Diff: 1

Question Status: Revised

3) One advantage of credit cards is that you can receive free financing if you pay off your balance each month

Answer: TRUE

Diff: 1

4) When using credit cards, there is no way to keep track of individual expenditures

Answer: FALSE

Diff: 2

5) Advantages of using credit include the ability to make purchases without cash and the convenience of not carrying checks

Answer: TRUE

Diff: 1

6) Credit cards can eliminate the need for carrying large amounts of cash

Answer: TRUE

Diff: 1

7) When applying for a credit card, the amount of savings that you have will not be a factor in the credit card company's decision

Answer: FALSE

Diff: 2

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8) Because of the short-term nature of credit card lending, the condition of the economy is not considered

Answer: FALSE

Diff: 2

9) One of the disadvantages of credit cards is that they allow you to spend beyond your means Answer: TRUE

Diff: 2

10) One advantage of using a credit card is that you receive a list of your purchases, which enables you to keep track of your spending

Answer: TRUE

Diff: 1

11) The easiest way to establish credit is to

A) purchase a new car with a car loan

B) purchase a house with a mortgage

C) obtain a credit card

D) pay cash for all your purchases

Answer: C

Diff: 2

12) When you apply for a credit card, the potential creditor will look at which of the following as

a source of future debt payments if necessary?

13) Credit cards are generally used for such purchases as

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14) Credit cards have all of the following advantages except

A) they allow you to borrow cash interest free for 60 days

B) make purchases without carrying cash

C) obtain free financing until the bill is due

D) itemized monthly statement

Answer: A

Diff: 1

15) Which of the following personal information would not be asked on a credit card

16) Which of the following personal information should not be asked on a credit card

application?

A) Stocks and bonds owned

B) Race or ethnic group

C) Employment history

D) Expenses and commitments

Answer: B

Diff: 1

17) In applying for a credit card, the potential creditor will look at your to determine if you have funds to cover future debt payments if necessary

Answer: capital

Diff: 1

18) Describe the availability of credit today for a person younger than 21 years of age Do you get credit card offers in the mail and are discounts available when signing up for a proprietary credit card?

Answer: The Credit CARD Act of 2009 made it more difficult for persons younger than 21 to obtain credit cards Individuals below the age of 21 must show proof of their income or have an adult, such as a parent, as a cosigner on the account

Diff: 1

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19) Describe the advantages and disadvantages of credit cards

Answer:

Advantages: take advantage of discounts and sales when short on cash; allows for an extended

payment period; establish credit history; security (safer than cash); convenience

Disadvantages: high interest rate if the bill is not paid in full; may also be more difficult to fit

the payments into a tight budget; spending may increase due to a false sense of security; too much credit may mean too much debt with the possibility of bankruptcy

Diff: 1

20) "Wise" use of credit cards includes the following behaviors

A) tracking your purchases

B) paying off the entire card balance monthly to avoid interest charges

C) using credit if you find something "you just have to have."

D) Both A and B are correct

Answer: D

Diff: 2

Question Status: New

21) When using your credit card frequently, it is wise to

A) pay off the balance every month

B) make only the minimum payment to conserve cash

C) use the card that offers the most points regardless of other provisions

D) Both A and C are correct

Answer: A

Diff: 2

8.2 Characteristics of Credit Cards

1) It is good financial planning to pay only the minimum credit card payment and thus maintain a balance since interest rates are low on credit cards

Answer: FALSE

Diff: 1

2) To properly manage your money you should use a credit card only if you will have the cash to cover the payment when you receive your credit card statement

Answer: TRUE

Diff: 2

3) Because credit card interest rates are usually quite high, you should pay off your credit card balances before you invest funds anywhere else

Answer: TRUE

Diff: 1

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4) Even if you cannot pay your credit card bill in full, you should still attempt to pay as much as possible so that you can minimize finance charges

Answer: TRUE

Diff: 1

5) There is no cost to the merchant when you use a MasterCard or Visa credit card

Answer: FALSE

Diff: 2

6) Financial institutions issuing MasterCard and Visa credit cards typically charge a high rate of interest on the credit extended

Answer: TRUE

Diff: 2

7) MasterCard and Visa credit cards are not accepted by gas stations such as Shell, which issue their own credit cards

Answer: FALSE

Diff: 2

8) Creditors are willing to extend credit when the economy is weak to stimulate purchases Answer: FALSE

Diff: 1

9) MasterCard, Visa, and American Express credit cards all allow you to pay only a portion of your amount due and finance the remainder from month to month

Answer: FALSE

Diff: 2

10) An alternative to MasterCard, Visa, and American Express credit cards is a retail or

proprietary card that is issued for use at a specific retail establishment

Answer: TRUE

Diff: 1

11) One disadvantage of a proprietary credit card is that it limits your purchases to a single merchant

Answer: TRUE

Diff: 1

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12) Credit limits may be as high as $10,000 for those credit card holders who have an

exceptional credit history

Answer: TRUE

Diff: 2

13) Credit card companies offer many incentives, such as airline miles and bonuses to get you to use their cards

Answer: TRUE

Diff: 1

14) Prestige cards always charge higher interest rates, but offer extra benefits such as access to private jet programs and concierge service at hotels

Answer: FALSE

Diff: 2

15) If you pay your total credit card balance before the grace period, you normally are not

charged any interest

Answer: TRUE

Diff: 1

16) The interest charged on purchases and cash advances on credit cards is computed in the same way

Answer: FALSE

Diff: 2

17) Cash advances on credit cards normally cost you interest from the date of the advance and also a transaction fee of 1 to 2 %

Answer: TRUE

Diff: 1

18) Some credit cards offer card users cash rewards if they exceed a certain spending level each month

Answer: TRUE

Diff: 1

19) The annual percentage rate (APR) on credit is the simple interest rate after including any fees (such as an application processing fee) imposed by the creditor

Answer: TRUE

Diff: 2

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20) The annual percentage rate (APR) is useful because it allows you to easily compare financing costs among various possible creditors

Answer: TRUE

Diff: 1

21) In comparing credit cards to other forms of credit, which of the following is true? A) Credit cards are generally the most expensive form of credit

B) You should invest funds before paying off your credit cards

C) It is prudent to borrow from some cards to pay off other credit cards

D) All of the above

Answer: A

Diff: 2

22) In comparing credit cards to other forms of credit, which of the following is false?

A) Credit cards are generally the most expensive form of credit

B) You should pay the most expensive debt off first

C) Credit cards can be viewed as a source of funds

D) A home equity loan is a way of combining credit card and other debt

Answer: C

Diff: 3

23) For good financial management, you should treat a credit card as

A) a source of funds

B) a means of convenience

C) a way to finance everything

D) an inexpensive form of financing

Answer: B

Diff: 2

24) Credit has its advantages and disadvantages Which of the following is false?

A) Credit cards should be used with discipline

B) You should spend up to the limit on all your credit cards

C) Cash advances are available through a credit card

D) Bankruptcy is the worst-case scenario from poor credit management

Answer: B

Diff: 1

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25) Which of the following are good tips on the use of a credit card?

A) Treat it as a means of convenience

B) Use it as a source of funds

C) Make the minimum required monthly payment

D) All of the above

Answer: A

Diff: 2

26) Some credit card companies will waive the annual fee on a credit card if

A) you use the card infrequently

B) you carry a large balance from month to month

C) you pay your bills in a timely manner

D) Credit card companies never waive annual fees

Answer: C

Diff: 2

27) If a credit card has a provision allowing you to make purchases beyond the stated credit limit for a fee, it is referred to as

A) a purchase protection plan

B) over limit protection

C) a grace period

D) a first forgiveness provision

Answer: B

Diff: 2

28) A credit card whose interest rate changes as a specific market interest rate changes is said to have a

29) Credit cards with tiered interest rates charge cardholders who

A) carry large balances a lower rate

B) pay off their balance monthly a higher rate

C) make early payments a higher rate

D) carry large balances a higher rate

Answer: D

Diff: 2

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30) A credit card issued by a financial institution and secured by funds deposited by the

31) All of the following are disadvantages of proprietary credit cards except

A) your purchases are limited to a single merchant per card

B) you may need several credit cards

C) you receive several billing statements

D) it takes considerable time to process your application to allow you to begin obtaining credit Answer: D

Diff: 1

32) When obtaining a credit card you should try to obtain

A) the highest maximum limit possible

B) a maximum limit high enough to cover necessary monthly purchases

C) a maximum limit high enough to cover anything you might wish to purchase

D) the lowest maximum limit possible to restrict your usage

Answer: B

Diff: 2

33) Which of the following may not be a feature of some credit cards?

34) Which of the following is not true about annual fees on credit cards?

A) The fees are the same on all credit cards

B) The fees may be high, amounting to several hundred dollars per year for some prestige cards C) Many cards do not have annual fees

D) Some cards may waive the fees for individuals who pay their credit card bills in a timely manner

Answer: A

Diff: 1

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35) All of the following are true of prestige credit cards except they

A) have a longer grace period than other cards

B) may have substantially higher fees

C) provide extra benefits to cardholders

D) are given to individuals who have an exceptional credit standing

Answer: A

Diff: 2

36) All of the following are true of the grace period on credit cards except it

A) is usually about 20 days

B) applies only to cash advances

C) is the time in between the time the statement is "closed" and the time the payment is due D) amounts to free credit time

Answer: B

Diff: 1

37) Which of the following is not true regarding cash advances on credit cards?

A) They are treated just like other charges on your credit card

B) There is a charge for interest from the time you take the advance to the time you pay it off C) There is also a transaction fee on most cash advances

D) The grace period does not apply to cash advances

Answer: A

Diff: 1

38) Cash advances are

A) a good way to finance your purchases

B) cheaper than a line of credit

C) not shown on the credit card statement

D) easy to obtain at an ATM

Answer: D

Diff: 2

39) Which of the following is not correct about cash advances?

A) There is no grace period for cash advances

B) The interest rate for cash advances is higher than for purchases

C) A cash advance is like a loan

D) A transaction fee of 5% may be charged

Answer: D

Diff: 2

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40) In comparing credit cards, which of the following is false?

A) Some cards are more widely accepted than others

B) Some cards offer a teaser interest rate

C) Some cards charge an annual fee and others do not

D) Some cards allow you to always carry a balance from month-to-month with no interest Answer: D

Diff: 1

41) A credit card that can only be used in establishments of the issuer is called a(n) credit card

Answer: retail or proprietary

Diff: 1

42) Cards that are purchased at retail establishments and loaded with funds that you provide are called

Answer: prepaid cards

Diff: 1

43) The is usually about 20 days after the credit card statement is closed

Answer: grace period

Diff: 1

44) Which of the following is not true regarding payroll cards?

A) The employer can require employees to accept their wages on these cards

B) Employers use payroll cards because they are cheaper than issuing payroll checks

C) Fees are frequently associated with the cards

D) The cards are convenient for employees who lack bank accounts

Answer: A

Diff: 1

45) Which of the following statements is not true of prepaid cards?

A) Many fees may be associated with them

B) Some prepaid cards can be used to withdraw cash from ATM's

C) They can be useful in rebuilding an individual's credit record

D) They offer less protection against theft than standard credit cards

Answer: C

Diff: 1

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Use the following two columns of items to answer the matching questions below:

A) time allowed without interest before the payment is due

B) allows you to make purchases beyond your stated credit limit for a fee

C) credit card good only with a particular merchant

D) the maximum amount allowed to charge

E) a card that allows for purchases to be paid for at a later date

F) cards that offer extra benefits and are available to persons with high incomes and exceptional credit histories

G) cash borrowed on a credit card

52) proprietary credit card

Diff: 1

Answers: 46) E 47) A 48) D 49) F 50) B 51) G 52) C

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53) Which of the following statements is true about bank credit cards like VISA and

MasterCard?

A) They are an excellent source of emergency funds for unexpected expenses

B) Their interest rate is generally lower than a loan at a credit union

C) Like home equity loans, the interest paid on credit cards is tax deductible

D) Their interest rate is lower than home equity lines of credit

2) The previous balance method takes into account the time that you pay off any part of the outstanding balance

Answer: FALSE

Diff: 1

3) If you find yourself with an excessive credit card balance, the first thing you should do is A) borrow funds from family members

B) quit school and get a job

C) spend as little as possible

D) file for personal bankruptcy

Answer: C

Diff: 1

4) Which of the following is not a method for computing interest on credit cards?

A) Previous balance method

B) Average daily balance method

C) Present value of future payment method

D) Adjusted balance method

Answer: C

Diff: 1

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