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Personal Finance
1. Of the following statements, which is not a huge disadvantage of using credit?
a. it can be costly to use
b. it can be difficult to use repay if overused
c. it is more difficult to obtain than repay
d. it may tempt you to make impulse purchases

2. Improper use of credit may
a. increase your ability to save money
b. make it necessary to file for bankruptcy
c. increase your personal wealth
d. all of the above

3. Which of the following will not help you establish a good credit history?
a. paying your phone bill on time
b. financing a car and making payments on time
c. making as many purchases as possible with cash
d. never exceeding your credit limit on your credit card

4. The law that prohibits denying credit sue to gender, age, race, natural origin, religion, or marital status is
a. fair labor standards act
b. the fair Isaac act
c. equal credit opportunity act
d. fair treatment of borrowers act

5. Which of the following is not one of the three primary credit bureaus?
a. Equifax
b. Experian
c. TransUnion
d. Fair Isaac Corporation

6. The item that receives the most weight in the FICO credit scoring system is
a. the amount of credit used each month
b. credit payment history
c. credit utilization
d. credit inquiries

7. An unauthorized person who obtains a credit report under false pretenses may be
a. sued by the lender
b. sued by the borrower
c. subject to fine and imprisonment
d. all of the above

8. If you are denied credit, your first step should be to
a. sue the credit bureau that provided the negative information
b. check your credit file at the consumer bureau
c. hire an attorney and file a suit against the creditor
d. reapply for credit after you have increased your income

9. Some credit card companies might 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 call and ask them to
d. credit card companies never waive annual fees

10. A credit rating (score) of _ would normally allow you to have easy approval for credit.
a. 500
b. 600
c. 700
d. 1000

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Solution Preview

1. c
2. b
3. c
4. c
5. d
6. b- about 35% of the credit score is ...

Solution Summary

1. Of the following statements, which is not a huge disadvantage of using credit?
a. it can be costly to use
b. it can be difficult to use repay if overused
c. it is more difficult to obtain than repay
d. it may tempt you to make impulse purchases

2. Improper use of credit may
a. increase your ability to save money
b. make it necessary to file for bankruptcy
c. increase your personal wealth
d. all of the above

3. Which of the following will not help you establish a good credit history?
a. paying your phone bill on time
b. financing a car and making payments on time
c. making as many purchases as possible with cash
d. never exceeding your credit limit on your credit card

4. The law that prohibits denying credit sue to gender, age, race, natural origin, religion, or marital status is
a. fair labor standards act
b. the fair Isaac act
c. equal credit opportunity act
d. fair treatment of borrowers act

5. Which of the following is not one of the three primary credit bureaus?
a. Equifax
b. Experian
c. TransUnion
d. Fair Isaac Corporation

6. The item that receives the most weight in the FICO credit scoring system is
a. the amount of credit used each month
b. credit payment history
c. credit utilization
d. credit inquiries

7. An unauthorized person who obtains a credit report under false pretenses may be
a. sued by the lender
b. sued by the borrower
c. subject to fine and imprisonment
d. all of the above

8. If you are denied credit, your first step should be to
a. sue the credit bureau that provided the negative information
b. check your credit file at the consumer bureau
c. hire an attorney and file a suit against the creditor
d. reapply for credit after you have increased your income

9. Some credit card companies might 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 call and ask them to
d. credit card companies never waive annual fees

10. A credit rating (score) of _ would normally allow you to have easy approval for credit.
a. 500
b. 600
c. 700
d. 1000

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Kim and Dan Bergholt are both government workers. They are considering purchasing a home in the Washington D.C. area for about $280,000. They estimate monthly expenses for utilities at $220, maintenance at $100, property taxes at $380, and home insurance payments at $50. Their only debt consists of car loans requiring a monthly payment of $350.

Kim's gross income is $55,000/year and Dan's is $38,000/year. They have saved about $60,000 in a money market fund on which they earned $5,840 last year. They plan to use most of this for a 20% down payment and closing costs. A lender is offering 30-year variable rate loans with an initial interest rate of 8% given a 20% down payment and closing costs equal to $1,000 plus 3 points.

Before making a purchase offer and applying for this loan, they would like to have some idea whether they might qualify.

Estimate the affordable mortgage and the affordable purchase price for the Bergholts.
Suppose they do qualify; what other factors might they consider before purchasing and taking out a home mortgage?
What future changes might present problems for the Bergholts?
The real estate agent tells the Bergholts that if they don't care to purchase, they might consider renting. The rental option would cost $1,400/month plus utilities estimated at $220 and renter's insurance of $25/month. The Bergholts believe that neither of them is likely to be transferred to another location within the next five years. After that, Dan perceives that he might move out of government service into the private sector. Assuming they remain in the same place for the next five years, the Bergholts would like to know if it is better to buy or rent the home. They expect that the price of housing and rents will rise at an annual rate of 3% over the next five years. They expect to earn an annual rate of 5% on the money market fund. All other prices, including utilities, maintenance, and taxes are expected to increase at a 3% annual rate. After federal, state, and local taxes, they get to keep only 55% of a marginal dollar of earnings.

Estimate whether it is financially more attractive for the Bergholts to rent or to purchase the home over a five-year holding period. (Assuming the contract interest rate of 8%, monthly interest payments over the five-year period would total $87,574.)

Suppose it turns out that they have to relocate after one year. Which is the preferred alternative after one year? (Interest payments over the first year would equal $17,852.)

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