Unit 5: Credit (Practice Test)

Which word represents the total cost of the item you’re purchasing on credit minus any down payment you make upfront?

• Principal

• Term

• Interest rate

• APR

1. Each of the following represents an installment loan EXCEPT…

• 1. Home mortgage

• 1. Auto loan

• 1. Student loan

• 1. Credit card

1. Which statement is true of both debit AND credit cards?

• 1. Both can trap you in an endless cycle of debt if you’re not careful

• 1. Both allow you to make purchases in a store or online

• 1. Both typically have interest rates between 10-30%

• 1. Both require you to  pay a minimum monthly payment when your bill arrives

Felix opens a credit card with no annual fee, so he assumes that using the credit card regularly will be absolutely free for the next two years while he finishes grad school. Why is his assumption incorrect?

• Unless he pays the whole bill every month, he will pay interest according to his APR

• He will automatically pay penalty fees if he uses his credit card for more than 3 consecutive months

• If his grace period is any longer than 10 days, he will have to pay fees

• He will need to pay a separate student fee because he is still in grad school

Which statement best describes a Schumer box?

• The final calculation of how much you owe on your credit card bill each month

• A standardized way of presenting the key terms of your credit card agreement

• A legal document stating that you’re behind on your credit card payments

• The outstanding balance on your credit card once you’ve made your recent payment

If you buy a $1000 bicycle, which credit card payoff strategy will result in your paying the LEAST total amount?

• Pay the minimum monthly payment

• Pay $100 per month for 10 months

• Pay $250 per month until it’s paid off

• Don’t make any payments until you have the full $1000 saved, regardless of how long that takes

If your credit card limit is $800 and your outstanding balance is $725, what is the largest amount you can charge on that card in the upcoming month?

• $0

• $75

• $725

• $800

Each of the following people has $5,000 in debt. Which debt is most worthwhile?

• Phil, who spent mostly on GoFundMe campaigns for people he saw on social media

• Tyree, who took out a loan for an old used car so he can drive to and from campus

• JJ, who used a credit card to pay his daily expenses while he was out of a job

• It’s impossible to tell, because we don’t know how much they each valued the spending, how much it impacted their lives, or how easily they can repay the debt

As you move through your payment schedule on an amortized loan, what will happen to the interest portion of each month’s payment?

• The interest portion will grow

• The interest portion will shrink

• The interest portion will stay the same

• The interest portion will sometimes grow and sometimes shrink

It’s time for Roxanne to start repaying her student loans, which are amortized over the next ten years. Her first month’s payment due is $396. How much should she expect to owe next month?

• Substantially less than $396

• Slightly less than $396

• Exactly $396

• Slightly more than $396