Chapter 7-Buying Decisions

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Multiple Choice
Identify the choice that best completes the statement or answers the question.

Use the scenario on Zachary and Amy to answer questions 1 through 3.

Zachary and Amy have been married for 5 years. They have finally paid off their student loans and purchased a home. They created a plan for their earning, spending, and saving so they could meet their financial goals. This plan has helped them meet their goals and allow them to live comfortably.

What does this plan demonstrate for Zachary and Amy?

a.	That they are financially irresponsible.	c.	That they are financially responsible.
b.	That they have no financial education.	d.	That they have had many financial options in life.

Zachary and Amy have carefully considered their shopping decisions over the last five years to ensure that they are making choices that reflect their goals. What type of buying decisions have they made?

a.	They have made systematic decisions.	c.	They have made random decisions.
b.	They have made opportunity cost decisions.	d.	They have made financially irresponsible decisions.

Which of the following would not be a result of their plan?

a.	They can provide for their own wants and needs.	c.	They can live a comfortable lifestyle.
b.	They can spend money on luxury items before meeting basic needs.	d.	They can save money for known and unknown events.

Zachary and Amy know that there are different ways to pay for their purchases. What type of payment method would they be using if they used something other than cash or debit to make a purchase?

a.	financial responsibility	c.	financial irresponsibility
b.	financing advance	d.	financing options

Use the scenario on Amelia and Barry to answer questions 5 through 10.

Amelia and Barry have outlined a buying plan to purchase a new car. They have made a list of features and functions that they want the car to have and set a maximum amount of money that they are willing to spend for the car. They want to purchase this car by Christmas so they will have a reliable car to travel to their families for the holidays.
Amelia and Barry selected a car at the local dealer and found that the car had a rebate of $500 cash. The salesman that was helping them suggested that they purchase an extended warranty with the car even though there was a 3 year, 30,000 mile warranty on the car.

What have they set by creating a list of the features and functions of the car they want to purchase?

a.	spending limit	c.	opportunity cost
b.	timeline	d.	criteria

What does the “maximum amount of money” for the car purchase represent?

a.	It is a refund of part of the purchase price of the car.	c.	It is additional coverage beyond the original warranty period.
b.	It is a maximum amount that they are willing to pay for the car.	d.	It is the rules or standards by which the can be judged.

What have Amelia and Barry established by wanting to make this purchase by Christmas?

a.	spending limit	c.	opportunity cost
b.	timeline	d.	criteria

What is an extended warranty?

a.	It is a refund of part of the purchase price of the car.	c.	It is additional coverage beyond the original warranty period.
b.	It is a maximum amount that they are willing to pay for the car.	d.	It is the rule or standards by which the car can be judged.

What is a rebate?

a.	It is a refund of part of the purchase price of the car.	c.	It is additional coverage beyond the original warranty period.
b.	It is a maximum amount that they are willing to pay for the car.	d.	It is the rules or standards by which the car can be judged.

10.

Which of the following would be considered a benefit of Amelia and Barry’s buying plan?

a.	It will allow them to purchase a more expensive car and not make payments.	c.	It will allow them to miss payments and not have enough money to cover bills.
b.	It will help them be financially irresponsible and waste money.	d.	It will help them stretch limited resources and prevent buyer’s remorse.

Use the scenario on Gina to answer questions 11-15

Gina has purchased a home that she financed through her local bank. Her loan is a mortgage loan for 30 years, and she makes monthly payments. When she completed the loan paperwork, her banker obtained a statement of her credit history to determine her eligibility for the loan.

When she purchased her house she had electricity, water and sewer, gas and cable connected to use in her house. Gina needed appliances in her new house so she purchased a stove and refrigerator at the local appliance store. She financed this purchase through the appliance store and will make monthly payments for the next year.

11.

What type of credit is she using by having the utilities connected to her house?

a.	revolving credit	c.	service credit
b.	installment credit	d.	store credit

12.

What type of credit is she using for the purchase of her appliances (stove and refrigerator)?

a.	revolving credit	c.	service credit
b.	installment credit	d.	crazy credit

13.

What type of report did Gina’s banker get a copy of to determine her loan eligibility?

a.	The banker got a copy of her driver’s license.	c.	The banker got a copy of her college transcripts.
b.	The banker got a copy of her birth certificate.	d.	The banker got a copy of her credit report.

14.

What is the typical collateral for a mortgage loan?

a.	Her car.	c.	Her stove.
b.	Her house.	d.	Her refrigerator.

15.

What did the statement that the banker obtained tell the banker about her eligibility for the loan?

a.	It told him of her collegiate skills.	c.	It told him of her ability to repay the loan.
b.	It told him of her ability to drive safely.	d.	It told him of her family medical history.

Use the scenario on Brad and Ruth to answer questions 16 through 18.

Brad and Ruth are married with three small children. They live their lives without a worry in the world. They don’t always pay their bills on time and are constantly trying to borrow money from their parents. They often miss paying their monthly mortgage payment and are constantly fighting with each other.
Ruth has an American Express® card and a Kohl’s® card. She has incurred interest and fees on her Kohl’s® card. Brad also has credit card, his is a VISA® card. He has incurred interest and fees on his card too.

16.

What type of financial responsibility are they demonstrating?

a.	They are being financially responsible.	c.	They are being financially correct.
b.	They are being financially irresponsible.	d.	They are being financially successful.

17.

Which of the following symptoms is not a sign that Brad and Ruth are struggling financially?

a.	They aren’t paying their bills on time.	c.	They aren’t paying their monthly mortgage payment.
b.	They are always trying to borrow money from their parents.	d.	They have enough money to pay all of their bills.

18.

What type of credit is Brad using when he uses his VISA® card?

a.	revolving credit	c.	service credit
b.	installment credit	d.	store credit

19.

What type of credit is Ruth using when she uses her Kohl’s ® card?

a.	revolving credit	c.	service credit
b.	installment credit	d.	store credit

20.

What are the interest and fees called that Ruth and Brad have to pay on their credit cards in addition to their balances?

a.	financing options	c.	line of credit
b.	finance charges	d.	consumer loan

21.

How could Ruth and Brad avoid paying “interest and fees” on their credit cards?

a.	They should continue to charge like normal.	c.	They should pay off their balances monthly.
b.	They should make the minimum monthly payment.	d.	They should take out a loan to pay off their balances.

22.

Charge cards are a form of credit card that must be paid off in full each month. These cards do not have interest fees, but instead have an annual fee or service charge. Which of the following cards is considered a charge card?

a.	VISA®	c.	DISCOVER®
b.	American Express®	d.	MasterCard®

23.

Curtis has a preapproved loan at his local bank. He can borrow against it, pay it back and borrow again as needed. What has Curtis’s bank extended to him?

a.	A consumer loan.	c.	A line of credit.
b.	A revolving credit	d.	A credit card.

Use the scenario on Paige to answer questions 24 through 26.

Paige knows that all of her financial activities such as credit cards and loans are tracked by a credit bureau. This agency gathers, stores and sells this information to any creditors that inquire about her financial activities. She realizes that there the agency creates a score based on different categories to achieve an overall score.

24.

Which of the following categories has the greatest impact on Paige’s credit score?

a.	Her payment history.	c.	Her types of credit used.
b.	Her amounts owed.	d.	Her open accounts.

25.

Which of the following situations would allow Paige to improve this score?

a.	She should take out a loan and not make any payments.	c.	She should pay only cash for all of her purchases and bills.
b.	She should use a credit card and make payments every other month.	d.	She should pay her debts promptly on or before the due date.

26.

What is Paige’s overall score called?

a.	Her IQ score.	c.	Her ACT score.
b.	Her FICO score	d.	Her SAT score.

Use the scenario on Molly and Adam to answer questions 27 through 31.

Molly and Adam are newlyweds. They are trying to organize their finances so they can pay of their student loans and credit card debt so that they may purchase a home.
Molly’s credit card interest rate does not change from month to month. Her card has interest calculated based on the amount owed after she has paid her bill each month and set amount that Molly is required to pay monthly.
Adam’s credit card interest changes every 60 days. His card has interest calculated on the outstanding balance at the end of the previous billing period and a set amount that Adam is required to pay monthly

27.

What type of interest rate does Molly’s card have?

a.	variable interest rate	c.	multiple interest rate
b.	fixed interest rate	d.	periodic interest rate

28.

What type of interest rate does Adam’s card have?

a.	variable interest rate	c.	multiple interest rate
b.	fixed interest rate	d.	periodic interest rate

29.

What is the “set amount” that Molly and Adam are required to pay monthly on their balances?

a.	penalty fee	c.	over-the-limit fee
b.	cancellation fee	d.	minimum payment

Use the scenario on Carolina to answer questions 32 through 36.

Carolina is a senior in college, and she just received her first credit card. She has read the terms of her card agreement carefully, and is aware of the following stipulations about her card.

1.      Charges over the approved credit limit will incur a fee.
2.      If the charge account is closed before the cardholder has been a member for less than 1-year there will be a termination penalty.
3.      A fee will be charged for violating the terms of the credit card agreement.
4.      Interest is computed on the adjusted balance for each day of the month. The adjusted balances for all days are added and then divided by the number of days.

She has been very cautious about the items that she charges on her card. She makes her payments on time and always pays her balance in full. Her recent credit card statement shows a balance of $1,498.13, if she doesn’t pay the balance in full, she will have to pay an additional $32.95 on her next statement balance.

30.

What is the “fee” that Carolina would have to pay if she charges over her approved credit limit?

a.	penalty fee	c.	over-the-limit payment
b.	cancellation fee	d.	minimum payment

31.

What is the “termination penalty” that Carolina would have to pay if she closes her account before 1-year?

a.	penalty fee	c.	over-the-limit payment
b.	cancellation fee	d.	minimum payment

32.

What is the “fee” that will be charged if Carolina violates the terms of her credit card agreement?

a.	penalty fee	c.	over-the-limit payment
b.	cancellation fee	d.	minimum payment

33.

What does the $32.95 represent?

a.	financing options	c.	line of credit
b.	finance charges	d.	consumer loan

34.

What is a temporary interest rate on a new account that is offered to get consumers to get them to switch to a new card?

a.	balance transfer	c.	easy access credit
b.	access checks	d.	introductory rate

35.

Credit card companies sometimes offer consumers the ability to charge against their credit card without swiping the card. These charges are considered to be cash advances. How does a cardholder access this feature?

a.	They access it through balance transfer.	c.	They access it through finance charges.
b.	They access it through access checks.	d.	They access it through a line of credit.

36.

Having a credit card can offer many protections to the user of the card. Which of the following would not be a protection because you used a credit card?

a.	You can have your lost card replaced in 24 hours.	c.	You could have to pay finance charges.
b.	You could have goods that are damaged or stolen replaced.	d.	You could have protection from fraudulent charges.

37.

Credit cards provide many benefits to the cardholder. Which of the following is not a benefit of using a credit card?

a.	You could earn rewards, like cash back or point bonuses.	c.	You would have records of your purchases.
b.	You would have increased spending power.	d.	You would have interest earnings from purchases.