FINA301 CH 7 USING CONSUMER
LOANS EXAM QUESTIONS &
ELABORATED CORRECT ANSWERS
Wesley went to his credit union for an auto loan. He borrowed $16,000 at 7 percent
interest for 5 years. What will his monthly payment be if the credit union calculates his
installment loan using the simple interest (also called the simple interest on the
declining or outstanding balance) method? Assume end-of-period payments. - Correct
Answer ✔✔ $316.82
if lenders use the Rule of 78s to calculate the amount of interest paid and the principal
balance to date? - Correct Answer ✔✔ The borrowers will pay more finance charges in
the early months and progressively less later.
Leonard's debt safety ratio is 10 percent, and his monthly take-home pay is $3,500.
Leonard's total credit payments are _____. - Correct Answer ✔✔ $350
It is a legal claim that permits a lender to liquidate the items serving as collateral to
satisfy the loan if the borrower defaults. - Correct Answer ✔✔ Lien
They are used when a borrower can no longer promptly service a debt. - Correct
Answer ✔✔ Consolidation loans
If a borrower has money to purchase an item, he or she should: - Correct Answer ✔✔
take a loan if the cash purchase severely depletes his or her liquid reserves.
A shorter maturity on a loan: - Correct Answer ✔✔ Increases the size of the monthly
loan payment
Sidney recently took out a loan of $15,000 at 8 percent interest for 5 years. Her banking
institution uses the add-on method to compute finance charges. What would the annual
percentage rate (APR) on Sidney's loan be, assuming that her monthly payments will be
$350? Assume end-of-period payments. - Correct Answer ✔✔ 14.13%
Margret took out a single-payment loan of $1,000 that is due in one year at 10 percent
interest. If her bank uses the discount method to calculate the finance charges, what
annual percentage rate (APR) is she actually paying? - Correct Answer ✔✔ 11.11%
a feature of a single-payment loan - Correct Answer ✔✔ serves as interim financing
when the needed funds are temporarily unavailable
LOANS EXAM QUESTIONS &
ELABORATED CORRECT ANSWERS
Wesley went to his credit union for an auto loan. He borrowed $16,000 at 7 percent
interest for 5 years. What will his monthly payment be if the credit union calculates his
installment loan using the simple interest (also called the simple interest on the
declining or outstanding balance) method? Assume end-of-period payments. - Correct
Answer ✔✔ $316.82
if lenders use the Rule of 78s to calculate the amount of interest paid and the principal
balance to date? - Correct Answer ✔✔ The borrowers will pay more finance charges in
the early months and progressively less later.
Leonard's debt safety ratio is 10 percent, and his monthly take-home pay is $3,500.
Leonard's total credit payments are _____. - Correct Answer ✔✔ $350
It is a legal claim that permits a lender to liquidate the items serving as collateral to
satisfy the loan if the borrower defaults. - Correct Answer ✔✔ Lien
They are used when a borrower can no longer promptly service a debt. - Correct
Answer ✔✔ Consolidation loans
If a borrower has money to purchase an item, he or she should: - Correct Answer ✔✔
take a loan if the cash purchase severely depletes his or her liquid reserves.
A shorter maturity on a loan: - Correct Answer ✔✔ Increases the size of the monthly
loan payment
Sidney recently took out a loan of $15,000 at 8 percent interest for 5 years. Her banking
institution uses the add-on method to compute finance charges. What would the annual
percentage rate (APR) on Sidney's loan be, assuming that her monthly payments will be
$350? Assume end-of-period payments. - Correct Answer ✔✔ 14.13%
Margret took out a single-payment loan of $1,000 that is due in one year at 10 percent
interest. If her bank uses the discount method to calculate the finance charges, what
annual percentage rate (APR) is she actually paying? - Correct Answer ✔✔ 11.11%
a feature of a single-payment loan - Correct Answer ✔✔ serves as interim financing
when the needed funds are temporarily unavailable
