Unit 6 Understanding Interest and Credit Decisions

Compare the interest rates typically offered by banks and credit unions for personal loans. Which institution generally offers lower rates?

• Banks

• Credit Unions

• Pay-day loan facilities

• Title-pawn companies

What is the annual percentage rate (APR) and how does it affect monthly payments on loans?

• The APR is the interest rate charged per month, and it decreases monthly payments.

• The APR is the yearly interest rate including fees, and it increases monthly payments.

• The APR is the interest rate charged per day, and it has no effect on monthly payments.

• The APR is the interest rate charged per year, and it decreases monthly payments.

Using an online amortization tool, how are payments on a fixed mortgage loan typically applied?

• Entirely to interest at the beginning and entirely to principal at the end.

• Equally to interest and principal throughout the loan term.

• More to interest at the beginning and more to principal towards the end.

• Entirely to principal at the beginning and entirely to interest at the end.

What is the main difference between simple and compound interest?

• Simple interest is calculated on the initial principal only, while compound interest is calculated on the principal and accumulated interest.

• Simple interest is calculated annually, while compound interest is calculated monthly.

• Simple interest is always higher than compound interest.

• Simple interest is calculated on the principal and accumulated interest, while compound interest is calculated on the initial principal only.

Define nominal and real returns. How does inflation affect these returns?

• Nominal returns are adjusted for inflation, while real returns are not.

• Real returns are adjusted for inflation, while nominal returns are not.

• Both nominal and real returns are unaffected by inflation.

• Inflation increases both nominal and real returns equally.

Which type of tax is based on the value of property owned?

• Income tax

• Sales tax

• Property tax

• Capital gains tax

What is the difference between progressive, regressive, and proportional taxes?

• Progressive taxes decrease as income increases, regressive taxes increase as income increases, and proportional taxes remain constant.

• Progressive taxes increase as income increases, regressive taxes decrease as income increases, and proportional taxes remain constant.

• Progressive taxes remain constant, regressive taxes increase as income increases, and proportional taxes decrease as income increases.

• Progressive taxes increase as income decreases, regressive taxes remain constant, and proportional taxes increase as income increases.

How can one access their credit report and credit score?

• By applying for a new credit card.

• By requesting it from a credit reporting agency.

• By checking their bank statement.

• By asking their employer.

Which component of a credit score is most heavily weighted?

• Length of credit history

• Types of credit used

• Payment history

• Amount of available credit

What is the primary difference between revolving credit and installment credit?

• Revolving credit has a fixed payment schedule, while installment credit does not.

• Installment credit has a fixed payment schedule, while revolving credit does not.

• Revolving credit is only for personal loans, while installment credit is only for mortgages.

• Installment credit is only for credit cards, while revolving credit is only for auto loans.