W!SE Financial Literacy Review Test #2

Which of the following entities primarily uses a person's credit score to make a decision?

• Employers when considering promotions.

• Lenders when deciding on loan approval and interest rates.

• Universities when deciding on scholarship awards.

• Telecommunication companies when setting up payment plans.

Imagine Elijah takes out a mortgage to buy a house, choosing the longest repayment period offered. The downside of this decision is that the longer Elijah has the mortgage, the more _____.

• collateral that is required by the bank

• risk of defaulting on the mortgage

• equity will build after seven years

• total amount of interest paid

What is the primary purpose of adding a restrictive endorsement on a check?

• To increase the speed of the check processing by the bank

• To specify the conditions under which the check can be cashed or deposited

• To ensure the check is only deposited into a specified account

• To make the check non-negotiable and prevent further endorsements

The $5,000 received from a lottery win is considered

• income that must be included on the person's income tax return.

• income that does not have to be included on the person's income tax return.

• a gift that does not have to be included on the person's income tax return.

• a loan that has to be repaid and not included on the person's income tax return.

What action is most beneficial for enhancing your credit score over time?

• Regularly updating personal information with credit bureaus.

• Maintaining a mix of credit types.

• Using a high percentage of your available credit.

• Ensuring timely payment of bills and keeping balances low.

What is known as the fee charged for borrowing money?

• Dividend

• Interest

• Capital Gain

• Liquidity

What is the primary benefit of purchasing a term life insurance policy?

• It offers a savings component that grows over time.

• It provides coverage for a lifetime.

• It pays out a death benefit if the insured dies within the term.

• It accumulates cash value that the policyholder can borrow against.

What is a major drawback of obtaining a payday loan?

• They offer a lower interest rate compared to personal loans

• They can lead to long-term debt and financial instability

• They increase the borrower's credit score significantly

• They are only available to individuals with high income

What term is used to describe the income of an employee after all deductions are subtracted?

• Annual salary

• Gross pay

• Net pay

• Basic pay

If a borrower is charged $60 in interest per year for every $100 borrowed, what is the annual interest rate?

• moderately low

• comparable to a savings account interest

• high

• negligible