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Financial Math B: Consumer Credit 1
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Terms in this set (62)
What is an open line of credit?
c
Jeff has a balance of $2,513.77 on his credit card. He would like to pay off his card over the course of a year and a half by making identical monthly payments. The APR on his card is 10.66%, compounded monthly. Assuming that Jeff makes no additional purchases with his card, how much will he have to pay every month to reach his goal? (Round all dollar values to the nearest cent.)
a
Natasha had a $922.93 balance on her credit card at the beginning of September. Her credit card has an APR of 9.89%, compounded monthly, and a minimum monthly payment of 3.08% of the total balance. The following table shows Natasha's credit card purchases over the next two months.
If Natasha makes only the minimum payments, what will her balance at the beginning of November? (Assume that the interest accrues before the monthly payment, and that the monthly payment occurs at the end of the month. Round all dollar values to the nearest cent.)
c
What is the name of the legally mandated area on every credit solicitation which provides information about the terms and conditions of the card?
c WRONG
Darryl's credit card has a minimum monthly payment of 2.51% of the card's balance. If Darryl currently owes $1,431.72, what is his minimum payment, to the nearest cent?
d
Which of the following types of credits would best describe credit cards?
d
Use the following compound interest formula to complete the problem.
Currently you have two credit cards, H and I. Card H has a balance of $1,186.44 and an interest rate of 14.74%, compounded annually. Card I has a balance of $1,522.16 and an interest rate of 12.05%, compounded monthly. Assuming that you make no purchases and no payments with either card, after three years, which card's balance will have increased by more, and how much greater will that increase be?
b WRONG
Rachel has developed a plan to start paying off her credit card debt, and has stopped making purchases with her credit card. She has a credit card balance of $1,120.87. Her card has an APR of 14.12%, compounded monthly, and has a minimum monthly payment of 3.15% of the total balance, which is calculated after the monthly interest. Rachel has decided to pay off her debt by making identical monthly payments over a period of two years. If she starts this month, how much greater will her first payment be than the minimum payment required? (Round final answer to the nearest dollar.)
a WRONG
What is the prime rate?
a
Fran is going to transfer her credit card balance over to a new card. She has an existing balance of $752.69. Her current card charges her a transfer fee of 12.5%, added to her balance, for transferring her debt. The new card has an opening fee of $50, which is also added to her balance. She will also have to make an immediate minimum payment, which is 3.35% of her total balance. How much will her balance be after she makes this payment, assuming that she pays the minimum amount? Round all dollar values to the nearest cent.
a
Which of the following statements is not true of cash advances?
b
Looking for some furniture for her new apartment, Susan visits the local swap meet in search of something cheap. Knowing that most swap meet vendors will not accept credit cards and that she will not have any money until her next payday, Susan decides to take out a $200 cash advance on her credit card at an interest rate of 32%.
If Susan had no previous balance on her credit card, and she manages to pay off the balance within 1 month, how much will she have to pay in interest?
a
Which of the following is not an advantage of using a credit card instead of cash?
a
Tom has offered to sell Julian his motorcycle for $1,200. Julian know this is a very good deal, since the same motorcycle can be purchased at the dealership for $1,800. Since Julian doesn't have $1,200 and Tom does not accept credit cards, they both think a cash advance might be a good idea. Julian's credit card company can offer him a cash advance for the $1,200 he needs at an interest rate of 26%. He would then pay off the balance in 24 months.
Should Julian use the cash advance to purchase the motorcycle?
b
Ralph is purchasing a new gaming system for $300.00. He is trying to decide whether he wants to use cash or his credit card to pay. He has $600.00 available in his checking account.
Which of the following is not an argument that justifies Ralph's use of his cash to purchase the gaming system?
a
Which of the following is not a disadvantage to cash advances on a credit card?
b
Tom is in dire need of a new washing machine. He knows what model he would like to get, but doesn't have the cash to pay for it. He plans to get a line of credit (credit card) at the store when he purchases his new washer. He found four different stores that carry the same washing machine for different prices. The lines of credit they offer also come with different APRs. Tom's primary goal is to minimize his monthly payment as he pays the washing machine off over the next 18 months. From which of the four stores should Tom purchase his washing machine?
b
Which of the following is not a benefit to using credit instead of cash?
b
Which of the following is not a disadvantage of using credit instead of cash?
b
Sam is getting ready for a big date when he realizes that he has no money. His roommate, Bill, also has no money, but he has a credit card. Knowing that nobody will let Sam use Bill's credit card, Sam asks Bill to pull out a cash advance for $120.00. Bill agrees under the condition that Sam is responsible for all interest that accrues on the cash advance which is a 30% interest rate, compounded monthly. 5 full years go by before the $120 cash advance is repaid. How much should Bill ask Sam to pay in interest for the cash advance?
b
Ellen purchased a dishwasher, which cost $315 before the 9.22% sales tax. She used the machine an average of 10 times per week for the next six years, at which point she replaced it. Each time she ran the dishwasher it cost her $0.09 for water and $0.13 for electricity. What was the lifetime cost of Ellen's dishwasher?
a
Brian bought a new air conditioning unit on his credit card. The unit had a base price of $435. Brian made no other purchases on his credit card. Brian's credit card has an interest rate of 9.4%, compounded monthly, and Brian paid off the balance by making monthly payments for a year and a half. If the sales tax in Brian's area is 8.51%, how much did Brian pay in total? (Round all dollar values to the nearest cent.)
d
Robert plans on using his deep fryer about eight times per month. After six years, which brand will have the lower lifetime cost, and by how much?
Hint: Assume that either deep fryer can be repurchased at the same price, if needed to provide the desired length of service.
a
Kevin is looking at two brands of washing machines. Between water and electricity, a Brand C washer uses about $0.65 per load, and a Brand D washer uses about $0.27 per load. Kevin averages about five loads of laundry per month. After one year, how much more would the utility costs for a Brand C washer be than the utility costs for a Brand D washer?
a
You are considering making a major purchase on your credit card. You should ask yourself the following questions, except which answer choice?
b
Carlos bought a $235 water heater with his credit card. He used the water heater for five years before replacing it. He paid off the water heater after two years, making monthly payments. The water heater cost him an average of $1.56 per week in electricity, and $0.78 per week in water. If Carlos's credit card has an APR of 14.15%, compounded monthly, and he made no other purchases with it, what percentage of the lifetime cost of the water heater was interest? (Round all dollar values to the nearest cent.)
c
Seth has just decided to replace his computer. His old computer cost him $1,433 when he bought it exactly seven years ago. Seth paid for it with his credit card, which has an APR of 11.70%, compounded monthly. He made no other purchases with the card and paid off his balance after two and a half years of making identical monthly payments. The computer consumed about $0.79 of electricity every day. In total, what percentage of the lifetime cost of the computer did the electricity make up? (Assume that two out of the seven years were leap years, and round all dollar values to the nearest cent.)
c WRONG
Pam has just moved into a new home and wants to purchase an oven. She expects to live in this house for the foreseeable future. She has narrowed her choices down to two options. Consider the following table, which describes the prices, daily electricity costs, and lifespans of the two ovens she is considering:
Which brand will have the lower lifetime cost, and how much lower will it be?
Hints: If the product's expected lifespans differ, assume that repurchase(s) at the same price is possible to equalize the lifespans. Remember that six of the twenty-four years will be leap years, and round all dollar values to the nearest cent.
b
Paul paid $663 for a new freezer. He paid for the freezer with his credit card, which has an interest rate of 15.28% compounded monthly, and made monthly payments for five years until the freezer was paid off. He kept the freezer for seven years, and it used an average of $2.14 of electricity per week. Paul made no other purchases or payments with his credit card until the freezer was paid off. Between the interest and the electricity, which component of the lifetime cost of the freezer was greater, and how much greater was it? (Round all dollar values to the nearest cent.)
c
Of the following, which statement or statements accurately reflect a way in which credit can be safer than cash?
a
Eric is comparing the credit scores of his friends. The scores he gathered are found in the table below.
Among this batch of credit scores, find whether the mean or the median is higher, and how much higher it is. (Round to the nearest whole point, if applicable.)
b
Sophie did an anyonymous survey and collected her friends' credit scores. The scores she found are listed in the table below. What is the mean credit score in this group? (Round to the nearest whole point, if applicable.)
a
You are a loan officer trying to decide which clients deserve your best rates. The table below shows the credit scores of several loan applicants.
Based on each applicant's median credit score, who deserves your best interest rates?
d
Who can access your credit report?
b
Tony is a loan officer. He determines his clients' eligibility for loans and for good interest rates by using their credit scores. The scores of several clients are shown in the following table.
Help Tony evaluate his applicants based on their mean and median credit scores.
b
Of the following statements, which one or ones describe actions harmful to your credit score?
a
Hal is going over the credit scores he received from the three major credit bureaus. He Experian score is 711, his Equifax score is 736, and his TransUnion score is 736. What is the mode of Hal's credit scores? (Round to the nearest whole point, if applicable.)
a
Will's boss has asked him to compile the credit scores of everyone in his department. The data that Will collected is shown in the table below. What is the mode of the credit scores in Will's department? (Round to the nearest whole point, if applicable.)
d
Of the following statements, which one or ones indicate possible effects of a low credit score?
d
Rank the following factors in order from those that have the most effect on your credit score to those that have the least effect on your credit score.
c WRONG
Laura's credit card has an APR of 12.04%, and it computes finance charges using the daily balance method and a 30-day billing cycle. On June 1st, Laura had a balance of $606.40. She made exactly one transaction in June: a payment of $55.25. If Laura's finance charge for June was $5.71, on which day did she make the payment?
a WRONG
To minimize finance charges calculated by the daily balance method, when in the billing cycle is it best to make purchases and payments?
c
Jessica's credit card is on a 30-day billing cycle, and it computes finance charges using the adjusted balance method. The following table details Jessica's use of her credit card in the month of October.
What is Jessica's adjusted balance for October?
b
Which method of calculating finance charge results in the lowest finance charge?
d
Gregory has a credit card with a 30-day billing cycle and an APR of 11.95%. The following table shows Gregory's credit card transactions for the month of April.
Between the adjusted balance method and the daily balance method, which method of computing Gregory's April finance charge will result in a greater finance charge, and how much greater will it be?
b
Which method used to calculate finance charges is most favorable to the card issuer?
c
Calvin's credit card computes finance charges using the daily balance method. His card has a billing cycle of 30 days and an APR of 14.75%. The following table details Calvin's transactions in the month of September.
What will Calvin's starting balance be next month?
c
Yolanda's credit card has an APR of 16.22% and a billing cycle of 30 days. The table below shows her transactions with that credit card in the month of November.
Find Yolanda's finance charge in November using the previous balance method, the adjusted balance method, and the daily balance method. Among those three possible finance charges, what is the value of the one which is neither lowest nor highest?
b
Yvonne's credit card has an APR of 17.79% and a 30-day billing cycle. The following table details her credit card transactions in the month of June.
Between the previous balance method and the daily balance method, which method of calculating Yvonne's June finance charge will result in a greater finance charge, and how much greater will it be?
c WRONG
Adam's credit card calculates finance charges using the adjusted balance method and a 30-day billing cycle. The table below shows his use of that credit card over three months.
If Adam's credit card has an APR of 14.63%, what is Adam's balance at the end of June?
c
Jason is looking for an engagement ring to offer his girlfriend. He has found a similar ring at each of four different jewelry stores. He doesn't have enough money to pay for the ring in cash, so he is planning on opening a line of credit (credit card) at the store he ends up buying the ring from. The chart below outlines the difference in the price of the rings the different stores offer as well as the difference in credit options. Jason plans to pay off the ring purchase in 36 months. According to the information in the table, which of the jewelry stores will have the cheapest ring in the end?
c
Roger has a credit card with an APR of 19.40% and a billing cycle of 30 days. The following table shows his transactions with that credit card in the month of June.
If Roger's finance charge for June is $3.56, which method of calculating the finance charge does Roger's credit card company use?
a
Hannah has a credit card with an APR of 11.90% and a billing cycle of 30 days. The following table shows Hannah's transactions in the month of April.
If Hannah's credit card company calculates finance charges using the daily balance method, what will her April finance charge be?
c
How can credit cards be safer than cash?
c
Of the following statements, which one or ones describe actions helpful to your credit score?
c
Gareth has just remodeled his kitchen and wants to buy one of two stand-alone freezers. Consider the following table, which displays the prices, electricity costs, and lifespans of the two freezers he is considering:
No matter which brand he chooses, Gareth will pay for the freezer on his credit card, which has an APR of 9.31%, compounded monthly. It takes Gareth eighteen months to pay off a Brand S freezer and four years to pay off a Brand R freezer. Assuming that Gareth makes no other purchases or payments with his credit card, over the next ten years, which brand of freezer will have a lower lifetime cost, and how much lower will it be? (Round all dollar values to the nearest cent.)
a
Use the following compound interest formula to complete the problem.
Sandra has two credit cards, P and Q. Card P has a balance of $726.19 and an interest rate of 10.19%, compounded semiannually. Card Q has a balance of $855.20 and an interest rate of 8.63%, compounded monthly. Assuming that Sandra makes no purchases and no payments with either card, after four years, which card's balance will have increased by more, and how much greater will that increase be?
c
Which of the following types of credits would best describes home equity loans?
a
Connie has two credit cards, U and V. Card U has a balance of $414.55, and Card V has a balance of $751.81. The minimum monthly payment on Card U is 2.82% of the balance, and the minimum monthly payment on Card V is 3.09% of the total balance. How much greater is the minimum payment on Card V than on Card U?
d
May currently has a balance of $1,817.43 on her credit card. If she must make a minimum monthly payment of 3.44% of her total balance, what is her minimum payment, to the nearest cent?
b
Jason's credit card has an APR of 17.02% and a 30-day billling cycle. The following table details Jason's transactions with that card in the month of June.
Between the adjusted balance method and the daily balance method, which method of computing Jason's June finance charge will result in a greater finance charge, and how much greater will it be?
a
Elizabeth's credit card computes her finance charges using the previous balance method and a 30-day billing cycle. The table below shows Elizabeth's credit card transactions in July.
If Elizabeth has an APR of 14.61%, how much will her July finance charge be?
c
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