Chapter 7 using consumer loans

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Chapter 7 Using Consumer Loans
Principles of Finance (Trường Đại học Ngoại thương)

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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
1. Even if you do have money, you may still be better off using an installment loan for a big-ticket purchase.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-5 - LO: 7-5
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
TOPICS:
Bloom's: Understanding

2. Consumer loans, like open account credit, result from a rather informal process.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
3. Loans against a life insurance policy do not have to be paid back.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills

NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
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Page 1


lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
4. The most common use of consumer loans is to purchase automobiles.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial

RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
5. From a financial planning perspective when considering a consumer loan, you should ask yourself how the purchase
fits into long-term financial plans.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
6. When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself.
a. True
b. Fals
e
ANSWER:
True
POINTS:

1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
KEYWORDS:

United States - AK - DISC: TVM
Bloom's: Analyzing

7. Collateral is an item of value used to secure the principal portion of a loan.
a. True
b. Fals
e
ANSWER:
True

POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
8. The cash value of a life insurance policy can be used as a source of loan collateral.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering

9. Consolidation loans are used to purchase new furniture and appliances when many items are needed at the same time.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
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Chapter 7—Using Consumer Loans
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
10. Consolidation loans are often used to help borrowers straighten out a critical financial situation.
a. True

b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
11. Borrowing to pay for a college education is a legitimate use of credit.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial

RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
12. College costs have been escalating faster than the overall rate of inflation.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
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Page 4


lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates

United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
13. College costs have been escalating, but not as rapidly as the overall rate of inflation.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
14. The student loans with the lowest rates of interest and the best loan terms are the PLUS loans.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1

JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Creating
15. The student loans with the best loan terms are the Stafford and Perkins loans.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
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Page 5


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Chapter 7—Using Consumer Loans
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills

NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Creating
16. PLUS loans are made to parents or legal guardians rather than to the student.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
17. Student loans are made by banks and other financial institutions, but students apply for these loans through their
universities.
a. True
b. Fals
e
ANSWER:

True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
18. In order to continue receiving student loans, the student must be making satisfactory progress in his academic
program.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
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Page 6


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Chapter 7—Using Consumer Loans
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
19. 529 Plans are the newest type of student loans.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering

20. Student loans are not dischargeable in Chapter 13 bankruptcy proceedings.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
21. Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.
a. True
b. Fals
e
ANSWER:
True
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Page 7

lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
22. Student loans are dischargeable in Chapter 7 bankruptcy proceedings.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial

RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
23. Single-payment loans are often used as a form of interim financing.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
24. Installment loans are typically repaid in one payment.
a. True
b. Fals
e
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Chapter 7—Using Consumer Loans
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
25. Installment loans are typically repaid in monthly payments.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1

JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
26. The repayment period on most installment loans is six to twelve months.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
27. The majority of consumer loans are set up with fixed interest rates.
a. True
b. Fals
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Chapter 7—Using Consumer Loans
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
28. When the market interest rate goes up, the rate on variable-rate loans goes up.
a. True
b. Fals
e
ANSWER:
True

POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
29. Variable-rate loans are desirable if interest rates are expected to fall in the future.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing

30. The lender can adjust the rate on variable-rate loans only on prespecified adjustment dates.
a. True
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Chapter 7—Using Consumer Loans
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
31. Commercial banks are generally more selective in granting loans than finance companies.
a. True

b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
32. Credit unions dominate the consumer loan market.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial

RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
33. Savings and loan associations dominate the consumer loan market.
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Chapter 7—Using Consumer Loans
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates

United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
34. Consumer finance companies usually charge lower rates of interest than commercial banks.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
35. Most loans made by consumer finance companies are for larger amounts and are made to low-risk borrowers.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2

JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
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Chapter 7—Using Consumer Loans
36. Credit unions grant loans only to members of the credit union.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills

NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
37. Credit unions offer some of the most attractive loan terms available.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
38. The primary type of loan made by a savings and loan association is the long-term installment loan used for the
purchase of a home.
a. True
b. Fals
e
ANSWER:

True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
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Chapter 7—Using Consumer Loans
KEYWORDS:

Bloom's: Remembering

39. S&L associations are not allowed to make loans for things like cars, televisions, and appliances.
a. True
b. Fals
e

ANSWER:
False
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
40. Sales finance companies commonly purchase the retail installment contracts of businesses that sell big-ticket items
such as automobiles, furniture, and appliances.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:

Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
41. GMAC is an example of a captive finance company.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
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Chapter 7—Using Consumer Loans
RDS:
KEYWORDS:

Markets and Interest Rates
United States - AK - DISC: TVM
Bloom's: Applying

42. Cash value loans are available from all types of life insurance policies.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
43. The interest rate on a loan against your life insurance policy is set at the time the policy is taken out.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1

DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
44. Life insurance loans could involve a tax penalty if certain conditions are not met.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
45. Because no written contract is usually required, borrowing from friends and relatives is advisable.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Evaluating
46. When loaning money to a friend or family member, it is advisable to lend only the amount that you can afford to give
away.
a. True
b. Fals

e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-2 - LO: 7-2
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
47. When comparing two installment loans with the same principal and APR, the loan with the longer maturity will have
the lower monthly payment and the higher total costs.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
48. When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have
the lower monthly payment and the lower total costs.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:

Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
49. It is becoming increasingly frequent for longer-term installment loans to carry variable interest rates.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
50. Generally speaking, variable-rate loans are desirable to the consumer if interest rates are expected to increase over the
course of the loan.
a. True
b. Fals
e
ANSWER:
False
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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
51. Given the choice, it is almost always better to accept a rebate rather than 0 percent APR on an auto loan.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3

JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
52. If a loan has a prepayment penalty, there will be an additional cost to repay the loan early.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Easy
LEARNING OB PFIN.BILL.17.7-3 - LO: 7-3
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
53. A chattel mortgage is a legal claim that gives lenders the right to liquidate specific personal property to satisfy their
claims in the event of default.
a. True
b. Fals

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Chapter 7—Using Consumer Loans
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering
54. When simple interest is used, the stated rate of interest on single payment loans is equal to the annual percentage rate
(APR).
a. True
b. Fals
e

ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
55. With the discount method, the finance charges are calculated and then added to the amount borrowed.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates

United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
56. Simple interest on an installment loan is calculated as Amount of Loan × Interest Rate × Term of Loan.
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Chapter 7—Using Consumer Loans
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-5 - LO: 7-5
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Remembering

57. The add-on method is less expensive than the simple interest method when stated rates of interest are identical.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-5 - LO: 7-5
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
58. If the add-on method is used to calculate a finance charge of $150.80 on a $2,200 loan, the amount to be repaid is
$2,200.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-5 - LO: 7-5
JECTIVES:

NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
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Chapter 7—Using Consumer Loans
59. If the add-on method is used to calculate a finance charge of $100.80 on a $1,800 loan, the amount to be repaid is
$1,900.80.
a. True
b. Fals
e
ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-5 - LO: 7-5
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills

NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
60. If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be disbursed to
the borrower is $2,400.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
61. If the discount method is used to calculate a finance charge of $250.60 on a $2,400 loan, the amount to be repaid is
$2,400.
a. True
b. Fals
e

ANSWER:
True
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-4 - LO: 7-4
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
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Page 21


lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
62. The most accurate method currently available for calculating the annual percentage rate (APR) on an add-on loan is
the Rule of 78.
a. True
b. Fals
e
ANSWER:

False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-6 - LO: 7-6
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
63. If a 12-month installment loan is prepaid at the end of 6 months, one-half of the interest would be saved.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-6 - LO: 7-6
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM

KEYWORDS: Bloom's: Analyzing
64. The purchase of credit life insurance is highly recommended by most financial planning experts.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-6 - LO: 7-6
JECTIVES:
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Page 22


lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Understanding
65. The average annual cost of a college education at a state school is about $33,000.

a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECT PFIN.BILL.17.7-1 - LO: 7-1
IVES:
NATIONAL STANDA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
RDS:
STATE STANDARDS United States - KS - DISC: Financial Markets and Inte - DISC: Financial
:
Markets and Interest Rates
KEYWORDS:
Bloom's: Remembering
66. About one in three student borrowers have a past due balance.
a. True
b. Fals
e
ANSWER:
False
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECT PFIN.BILL.17.7-1 - LO: 7-1
IVES:

NATIONAL STANDA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
RDS:
STATE STANDARDS United States - KS - DISC: Financial Markets and Inte - DISC: Financial
:
Markets and Interest Rates
KEYWORDS:
Bloom's: Remembering
67. Long-term financial goals often depend on borrowing funds. The type of loan that generally does not fulfill the longterm goal achievement is ____ loans.
a. consumer
b. installment
c. automobile
d. mortgage
e. singlepayment
ANSWER:
e
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lOMoARcPSD|10289698

Chapter 7—Using Consumer Loans
POINTS:
1
DIFFICULTY: Challenging
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:

NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Evaluating
68. A characteristic of consumer loans is that they
a. include a negotiated contract.
b. are arrived at through a formal process.
c. include a repayment schedule.
d. are used to purchase big-ticket durable goods and other
items.
e. are all of these.
ANSWER:
e
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
United States - AK - DISC: TVM
KEYWORDS: Bloom's: Analyzing
69. A consumer loan probably would not be used to
a. purchase an auto.

b. pay for college tuition.
c. consolidate several loans into
one.
d. finance a special vacation.
e. buy back-to-school clothes.
ANSWER:
e
POINTS:
1
DIFFICULTY: Moderate
LEARNING OB PFIN.BILL.17.7-1 - LO: 7-1
JECTIVES:
NATIONAL STA United States - BUSPROG: Analytic skills - BUSPROG: Analytical skills
NDARDS:
STATE STANDA United States - KS - DISC: Financial Markets and Inte - DISC: Financial
RDS:
Markets and Interest Rates
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Page 24