Personal Finance Canadian Canadian 6th Edition Kapoor Test Bank 1

PERSONAL FINANCE CANADIAN
CANADIAN 6TH EDITION KAPOOR TEST

BANK
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05
Student:
1. When did installment credit explode on the North American scene?
A. Just after World War II

B. with the advent of television in the late 1940s
C. with the advent of the automobile in the early 1900s
D. during the recession of the 1950s
E. during the inflation of the 1970s
2. The 25-to 44-age group currently represents about 30 percent of the population but holds
nearly
percent of the debt
outstanding.
A. 80
B. 70
C. 60
D. 50
E. 40
3. Although credit permits more immediate satisfaction of needs and desires, it
A. does increase total purchasing power.

B. is always best to avoid credit purchases.
C. does not diminish your ability to buy more goods and services on
credit. D. has no opportunity costs attached to it.
E. does not increase total purchasing power
4. By paying cash for a purchase, you

A. forgo the opportunity to keep the cash in an interest-bearing
account. B. always get a cash discount.
C. can build a better credit rating.
D. get better personal service from store employees.
E. have a better selection of goods than if you use credit.
5. Another name for credit when loans are made on a continuous basis and borrower is
billed periodically for at least partial payment is known as:
A. a line of credit.
B. convenience
credit. C. revolving
credit.
D. installment
credit. E. bank card
credit.
6. Which of the following is not an example of a consumer loan?
A. home mortgage
B. automobile loan
C. revolving credit
D. debt consolidation loan
E. demand loan
7. A common example of a consumer loan
is: A. a credit card issued by a department
store.
B. a credit card issued by VISA or
MasterCard. C. using overdraft protection at a
bank.
D. using a cashier's check to pay for a
purchase. E. a mortgage loan.
8. Which of the following is not an example of revolving
credit? A. a line of credit.

B. a credit card loan.
C. overdraft
protection. D. charge
cards.
E. automobile loans.
9. The maximum amount of credit you are allowed by a creditor is called
a(n) A. revolving credit.

B. installment cash
credit. C. convenience
credit.
D. line of credit.
E. single lump-sum credit.
10. An installment loan is a
A. direct loan of money for personal purposes.

B. direct loan of money for home
improvement.
C. loan that allows you to receive merchandise such as a refrigerator or
furniture. D. direct loan for vacation purposes.
E. synonym for a single lump-sum credit.
11. A good example of an open-end credit

is
A. the use of a bank credit card to make a purchase.

B. the mortgage loan from a savings and loan
institution. C. automobile loan from a credit union.
D. installment loan from a furniture store.
E. installment loan for purchasing a major appliance.
12. A credit arrangement that has no extra costs and no specific repayment plan is called
A. installment sales
credit. B. incidental
credit.
C. line of credit.
D. single lump-sum
credit. E. revolving check
credit.
13. A personal line of credit is a
A. credit arrangement that has no extra costs.

B. prearranged loan for a specified amount that you can use by writing a special
check. C. credit arrangement that has no specific repayment plan.
D. synonym for installment cash
credit. E. synonym for single
lump-sum credit.
14. Which of these is not a true statement? To avoid online fraud, you should
. A. keep your personal information private.

B. review your monthly bank and credit card statements.
C. give your password only to your internet service
provider. D. use a secure browser.
E. give payment information only to know known businesses.
15. Which of these is not a characteristic of
Paypal? A. Facilitates online auction payments.

B. Offers password protected
accounts. C. Allows use of credit
cards.
D. Transfers funds in U.S.
dollars. E. No annual fees.
16. Which of these is not a financing option for the purchase of a
car? A. factory financing

B. line of credit
C. conditional sales contract
D. installment loan
E. cash
17. In determining your credit capacity, you first provide for basic necessities, such as
A. furniture.
B. home
furnishings. C.
mortgage or rent. D.
automobile.
E. durable goods.
18. Experts suggest that you spend no more than percent of your net income on
credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50
19. If you cosign a loan,
A. you are not being asked to guarantee the debt.

B. it is not your legal responsibility to pay the debt.
C. you'll have to pay up to the full amount of the debt if the borrower does not
pay. D. the creditor must first try to collect from the borrower.
E. the creditor cannot garnish your wages.
20. Debt payments-to-income ratio is
A. calculated by dividing total liabilities by net worth.

B. calculated by dividing monthly debt payments (not including house payments) by net
monthly income.
C. determined by dividing your assets into liabilities.
D. a useless ratio for determining your credit
capacity.
E. rarely used by creditors in determining credit worthiness.
21. Debt-to-equity ratio is
A. a useless ratio for determining your credit capacity.

B. calculated by dividing monthly debt payments by net monthly
income. C. determined by dividing your assets by liabilities.
D. calculated by dividing total liabilities by net worth.
22. Which of the following agencies can produce for a subscribing creditor, almost
instantaneously, a report about your past and present credit activity?
A. The Bank of Canada

B. The Canada Customs and Revenue Agency
C. Your financial institution
D. A debit bureau
E. A credit bureau
23. If your monthly net (after-tax) income is $1,500, what should be your maximum amount spent
on credit payments?
A. $200
B. $300
C. $400
D. $500
E. $600
24. What can be included in your credit report?
A. race
B. nationality
C. sex
D. employer
E. religion
25. Generally, most of the information in your credit file may be reported for only
years. A. 7
B. 9
C. 11
D. 13
E. 15
26. If there is incorrect information in your credit
file, A. you should sue the credit bureau.

B. you must sue the merchant who denied the credit.
C. the credit bureau must reinvestigate and modify or remove inaccurate
data. D. pray that the credit bureau goes bankrupt.
E. you cannot dispute the derogatory information.
27. Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12 equal
payments over the next year to pay for it. She is using:
A. an installment loan
B. open-end credit
C. revolving check credit
D. a line of credit
E. none of the above
28. If you are an Ontario resident and you have declared personal bankruptcy for the first time, that
fact may be reported by credit bureaus for years.
A. 5
B. 7
C. 12
D. 20
E. 25
29. If you have incorrect information in your credit
file, A. you can't really do much about it.

B. you have no legal remedies.
C. credit bureaus are not required to change
it. D. there are legal remedies available to
you.
E. don't worry much because you will still get the credit.
30. The best way to maintain your credit rating is
to
A. use credit sparingly.

B. pay cash for your
purchases. C. repay your debts
on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.
31. The borrower's attitude toward his or her credit obligations is called
A. capacity.
B. capital.
C. character.
D. collateral.
E. conditions.
32. The borrower's financial ability to meet credit obligations is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
33. A term that refers to the borrower's assets or net worth is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
34. A loan officer is examining your income and the amount of your existing debt payments to help
in the decision to make a loan to you today. Which aspect of the Five Cs of lending is the loan
officer most likely looking at?
A. Character
B. Capacity
C. Capital
D. Collateral
E. Conditions
35. A valuable asset pledged to assure loan payments and subject to seizure upon default is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
36. If you are a woman, a creditor must
A. require a spouse to cosign a loan.

B. ask about your birth control practices or family plans.
C. consider whether you have a telephone listing in your own
home. D. refuse individual credit in your own name.
E. consider income from your part-time employment.
37. In evaluating your credit application, a lender may
A. ask your age.

B. want to know if you are on public
assistance. C. require your marriage
certificate.
D. ask if you are married or
divorced. E. ask your race and
nationality.
38. If your credit application is denied, you
A. can sue the credit rating agency.

B. can file a complaint against the
merchant. C. don't have any rights
provided by law.
D. should ask to know specifically
why. E. can reapply for credit after 30
days.
39. If you think that your bill is wrong, you should first
A. contact the local credit bureau and inform it of the billing

error. B. complain to the Better Business Bureau.
C. contact your provincial consumer protection
agency. D. notify the creditor of the error.
E. contact your attorney to settle the matter.
40. Which of the following is considered to be a consumer
loan? A. Debit card

B. Credit loan
C. Personal line of
credit D. Overdraft
protection E. Mortgage
loan
41. When a creditor looks at the borrower's attitude toward credit obligations, which of the 5 Cs of
credit is she analyzing?
A. Capacity
B. Capital
C. Character
D. Collateral
E. Conditions
42. Valid reasons for using credit include all of the following except
A. medical emergency
B. acquiring a car to return to the workforce
C. borrowing for a higher education
D. borrow for everyday living expenses
E. buying an item now will cost less than in the future
43. Questions you should consider before you decide how and when to make a major purchase
include all except
A. do I have the cash I need for a down payment

B. do I want to use my savings for this purchase
C. could I postpone this purchase
D. what are the psychological costs of using credit (being in debt and responsible for monthly
payments) E. all these questions should be considered
44. The advantages of credit include
A. can purchase goods even when funds are low

B. carrying credit cards is safer than carrying cash
C. a credit card can allow you to carry up to a 30 day "float
D. credit cards may be used for identification when cashing a cheque
E. all of these are advantages of credit
45. Which of the following is not an example of revolving
credit? A. overdraft protection

B. charge cards
C. mortgage
D. line of credit.
E. bank card credit
46. What percentage of Canadian households carry 1 or more credit cards
A. 20%
B. 30%
C. 50%
D. 70%
E. more than 80%
47. What percentage of credit card users generally pay off their balance in full every
month? A. 20%
B. 30%
C. 50%
D. 70%
E. more than 80%
48. Which of these is a characteristic of Paypal?
A. Facilitates online auction payments.

B. Offers password protected accounts.
C. Allows use of credit cards.
D. Transfers funds in U.S.
dollars. E. All are characteristics
of Paypal
49. If you cosign a loan, all of the following are true
except, A. you are being asked to guarantee the debt.

B. it is your legal responsibility to pay the debt.
C. you'll have to pay only a portion of the debt if the borrower does not
E. the creditor can garnish your wages.
50. If your monthly net (after-tax) income is $2,000, what should be your maximum amount spent
on credit payments?
A. $200
B. $300
C. $400
D. $500
E. $600
51. Generally, most of the information in your credit file may be reported for only years.
A. 1
B. 3
C. 7
D. 9
E. 12
52. The best way to maintain your credit standing is
to: A. carry no credit cards

B. pay all credit card invoices within 120 days
C. repay your debts on time
D. cancel any cars with outstanding balances
E. if the balance is high and you cannot pay, claim your card was lost and misused by a 3rd party
53. If your identity is stolen you should
A. Contact the fraud departments of each of the two credit bureaus.

B. Contact the creditors for any accounts that have been tampered with or opened
fraudulently. C. File a police report
D. Keep a copy of the police report
E. Take all of the actions indicated
54. There are main credit bureaus in Canada
A. 1
B. 2
C. 3
D. 5
E. 8
55. Which of the following is the best rating to have on your credit
report? A. L0
B. L10
C. R0
D. R1
E. R9
56. Which of the following is the worst rating to have on your credit
report? A. L0
B. L10
C. R0
D. R1
E. R9
57. A FICO score of 700 would be considered
A. poor
B. very poor
C. a risk to default
D. very good
E. fair
58. FICO scores range between
A. 1-10
B. 1-100
C. 1-1,000
D. 300-900
E. 100-500
59. Credit is an arrangement to receive cash, goods, or services now and pay for them in the
future. True False
60. Consumer credit refers to the use of credit for personal needs (except a home mortgage)
by individuals.
True False
61. Most consumers have only one choice in financing current
purchases. True False

62. Consumer credit is based on trust in people's ability and willingness to pay bills when
due. True False
63. A credit file is a report which includes the individual's present employer and position,
former employer(s), public records and a list of cheques returned for insufficient funds.
True False
64. Collateral refers to the borrower's assets or net
worth. True False
65. There are very few valid reasons for using
credit. True False
66. "Shopaholics" and young adults are most vulnerable to misusing
credit. True False
67. College students are not a prime target for credit card
issuers. True False
68. Credit should not be considered a substitute for
cash. True False
69. It is safer to use credit, since charge accounts and credit cards let you shop and travel
without carrying large amounts of cash.
True False
70. The use of credit can provide up to a 45 day
"float." True False
71. The use of credit indicates personal and financial
instability. True False
72. Perhaps the greatest disadvantage of using credit is the temptation to
overspend. True False
73. With an open-end credit, you pay back one-time loans in a specified period of time in
equal amounts.
True False
74. In a closed-end credit, loans are made on a continuous basis and you make at least partial
payment. True False
75. Using a credit card, such as Visa or MasterCard is an example of closed-end
credit. True False
76. A line of credit is the maximum dollar amount of credit the lender has made available to
you. True False
77. Interest is a periodic charge for the use of credit, or other finance
charges. True False
78. Incidental credit is a credit arrangement that has no extra costs and no specific repayment
plan. True False
79. A line of credit is considered a form of revolving
credit. True False
80. A car loan is an example of a consumer
loan. True False
81. A personal line of credit is a pre-arranged loan for a specified amount that you can use by
writing a special check.
True False
82. The credit cardholders who pay off their balances in full each month are known as
convenience users.
True False
83. Cobranding has become increasingly unpopular since General Motors launched its credit card in
1992. True
False
84. Cobranding is the linking of a credit card with a business trade name offering "points" or
premiums toward the purchase of a product or service.
True False
85. In the near future, smart cards will provide a crucial link between the World Wide Web and
the physical world.
True False
86. You should sign your new credit cards as soon as they
arrive. True False
87. Department stores and gasoline companies are good places to obtain your first credit
card. True False
88. A home equity loan is based only on the amount you still owe on your
mortgage. True False
89. A home equity loan is usually set up as a revolving line of credit, typically with a variable
interest rate.
True False
90. Financing from car dealers in affiliation with car manufacturers is called a conditional sales
contract. True False
91. Financing from car dealers in affiliation with financial institutions is called factory
financing. True False
92. A home equity loan is a good source of credit for daily
expenses. True False
93. The debt-payment-to-income ratio is calculated by dividing your total liabilities by your net
worth. True False
94. The debt-to-equity ratio is calculated by dividing your monthly debt payments (not including
house payments) by your net worth.
True False
95. Experts suggest that you spend no more than 20 percent of your net income on credit
payments. (However, 15 percent is much better.)
True False
96. The debt-to-equity ratio is calculated by dividing your total liabilities by your net
worth. True False
97. If your debt-to-equity ratio is about ½, you have reached the upper limit of debt
obligations. True False

98. If your debt-to-equity ratio is about 1, you have probably reached the upper limit of debt
obligations. True False
99. There is always a transaction fee attached to make a cash
advance. True False
100. The larger the debt-to-equity ratio, the riskier the situation is for lenders and
borrowers. True False
101. Some studies show that as many as three out of four cosigners are asked to repay the
loan. True False
102. When you cosign a loan, you are being asked to guarantee this
debt. True False
103. A lender requires a cosigner even when a borrower meets the lender's criteria for making a
loan. True False
104. Most creditors rely heavily on borrowers' bank reports when considering loan
applications. True False
105. Provincial legislation regarding consumer reporting agencies regulate the type of information
that can appear in a credit report and protects the consumer's right not to suffer from false
information.
True False
106. Your credit report may be issued only if this occurs with your
consent. True False
107. Your friends and neighbors can get credit information about
you. True False
108. Generally, most of the information in your credit file may be reported for only 3
years. True False
109. It is legal for creditors to ask or assume anything about a woman's childbearing
plans. True False
110. Consumers have three alternatives in financing current purchases, including drawing up on
savings, use their present earnings, or borrow against their expected future income
True False
111. If you think your bill is wrong, you must notify your creditor in writing within 15 days after the
bill was mailed.
True False
112. A credit card cash withdrawal always incurs interest from the moment of
withdrawal. True False
113. What are the two basic types of credit? Give examples of both.
114. How can you protect yourself against credit/debit card fraud?
115. What can you do if your identity is stolen?
116. What are the two general rules of measuring credit capacity?
117. How do creditors determine your credit-worthiness?

118. As a result of the financials crisis in late med to late 2000 decade, new regulations were brought
into effect to protect Canadian credit card users. Briefly list and describe these.
119. Briefly list and describe the costs associated with credit cards
120. Briefly list and discuss the benefits associated with credit cards
05 KEY
1. (p. 144) When did installment credit explode on the North American scene?
A. Just after World War II

B. with the advent of television in the late 1940s
C. with the advent of the automobile in the early 1900s
D. during the recession of the 1950s
E. during the inflation of the 1970s
Difficulty: Medium
Gradable: automatic
Kapoor - Chapter 05 #1
Learning Objective: 1
2. (p. 144) The 25-to 44-age group currently represents about 30 percent of the population but holds
nearly
percent of the debt outstanding.
A. 80
B. 70
C. 60
D. 50
E. 40
Difficulty: Medium
Gradable: automatic
3. (p. 144) Although credit permits more immediate satisfaction of needs and desires,
it
A. does increase total purchasing power.

B. is always best to avoid credit purchases.
C. does not diminish your ability to buy more goods and services on
credit. D. has no opportunity costs attached to it.
E. does not increase total purchasing power
Difficulty: Medium
Gradable: automatic
4. (p. 146) By paying cash for a purchase, you
A. forgo the opportunity to keep the cash in an interest-bearing

account. B. always get a cash discount.
C. can build a better credit rating.
D. get better personal service from store employees.
E. have a better selection of goods than if you use credit.
Difficulty: Medium
Gradable: automatic
5. (p. 147) Another name for credit when loans are made on a continuous basis and borrower is
billed periodically for at least partial payment is known as:
A. a line of credit.
B. convenience credit.
C. revolving credit.
D. installment
credit. E. bank card
credit.
Difficulty: Easy
Gradable: automatic
6. (p. 147) Which of the following is not an example of a consumer
loan? A. home mortgage

B. automobile loan
C. revolving credit
D. debt consolidation loan
E. demand loan
Difficulty: Easy
Gradable: automatic
7. (p. 147) A common example of a consumer loan
is: A. a credit card issued by a department store.

B. a credit card issued by VISA or
MasterCard. C. using overdraft protection at a
bank.
D. using a cashier's check to pay for a purchase.
E. a mortgage loan.
Difficulty: Hard
Gradable: automatic
8. (p. 147) Which of the following is not an example of revolving
credit? A. a line of credit.

B. a credit card loan.
C. overdraft
protection. D. charge
cards.
E. automobile loans.
Difficulty: Medium
Gradable: automatic
9. (p. 148) The maximum amount of credit you are allowed by a creditor is called a(n)
A. revolving credit.
B. installment cash
credit. C. convenience
credit.
D. line of credit.
E. single lump-sum credit.
Difficulty: Medium
Gradable: automatic
10. (p. 147) An installment loan is a
A. direct loan of money for personal purposes.

B. direct loan of money for home
improvement.
C. loan that allows you to receive merchandise such as a refrigerator or
furniture. D. direct loan for vacation purposes.
E. synonym for a single lump-sum credit.
Difficulty: Hard
Gradable: automatic
11. (p. 147) A good example of an open-end credit is
A. the use of a bank credit card to make a purchase.

B. the mortgage loan from a savings and loan
institution. C. automobile loan from a credit union.
D. installment loan from a furniture store.
E. installment loan for purchasing a major appliance.
Difficulty: Medium
Gradable: automatic
12. (p. 148) A credit arrangement that has no extra costs and no specific repayment plan is called
A. installment sales credit.

B. incidental
credit. C. line of
credit.
D. single lump-sum
credit. E. revolving check
credit.
Difficulty: Medium
Gradable: automatic
13. (p. 148) A personal line of credit is a
A. credit arrangement that has no extra costs.

B. prearranged loan for a specified amount that you can use by writing a special
check. C. credit arrangement that has no specific repayment plan.
D. synonym for installment cash
credit. E. synonym for single
lump-sum credit.
Difficulty: Medium
Gradable: automatic
14. (p. 149) Which of these is not a true statement? To avoid online fraud, you should .
A. keep your personal information private.

B. review your monthly bank and credit card statements.
C. give your password only to your internet service
provider. D. use a secure browser.
E. give payment information only to know known businesses.
Difficulty: Medium
Gradable: automatic
15. (p. 152) Which of these is not a characteristic of

cards.
D. Transfers funds in U.S. dollars.
E. No annual fees.
Difficulty: Medium
Gradable: automatic
16. (p. 154) Which of these is not a financing option for the purchase of a
car? A. factory financing

B. line of credit
C. conditional sales contract
D. installment loan
E. cash
Difficulty: Medium
Gradable: automatic
17. (p. 156) In determining your credit capacity, you first provide for basic necessities, such
as
A. furniture.
B. home furnishings.
C. mortgage or rent.
D. automobile.
E. durable goods.
Difficulty: Easy
Gradable: automatic
18. (p. 157) Experts suggest that you spend no more than percent of your net income
on credit purchases.
A. 10
B. 20
C. 30
D. 40
E. 50
Difficulty: Medium
Gradable: automatic
19. (p. 157) If you cosign a loan,
A. you are not being asked to guarantee the debt.

B. it is not your legal responsibility to pay the debt.
C. you'll have to pay up to the full amount of the debt if the borrower does not
E. the creditor cannot garnish your wages.
Difficulty: Medium
Gradable: automatic
20. (p. 157) Debt payments-to-income ratio

is
A. calculated by dividing total liabilities by net worth.

B. calculated by dividing monthly debt payments (not including house payments) by net
monthly income.
C. determined by dividing your assets into liabilities.
D. a useless ratio for determining your credit
capacity.
Difficulty: Hard
Gradable: automatic
21. (p. 157) Debt-to-equity ratio is
A. a useless ratio for determining your credit capacity.

B. calculated by dividing monthly debt payments by net monthly
income. C. determined by dividing your assets by liabilities.
D. calculated by dividing total liabilities by net worth.
Difficulty: Hard
Gradable: automatic
22. (p. 158) Which of the following agencies can produce for a subscribing creditor, almost
instantaneously, a report about your past and present credit activity?
A. The Bank of Canada

B. The Canada Customs and Revenue Agency
C. Your financial institution
D. A debit bureau
E. A credit bureau
Difficulty: Medium
Gradable: automatic
23. (p. 157) If your monthly net (after-tax) income is $1,500, what should be your maximum amount
spent on credit payments?
A. $200
B. $300
C. $400
D. $500
E. $600
Difficulty: Hard
Gradable: automatic
24. (p. 159) What can be included in your credit
report? A. race
B. nationality
C. sex
D. employer
E. religion
Difficulty: Medium
Gradable: automatic
25. (p. 159) Generally, most of the information in your credit file may be reported for only years.
A. 7
B. 9
C. 11
D. 13
E. 15
Difficulty: Medium
Gradable: automatic
26. (p. 162) If there is incorrect information in your credit
file, A. you should sue the credit bureau.

B. you must sue the merchant who denied the credit.
C. the credit bureau must reinvestigate and modify or remove inaccurate
data. D. pray that the credit bureau goes bankrupt.
E. you cannot dispute the derogatory information.
Difficulty: Medium
Gradable: automatic
27. (p. 147) Kathy purchased a $2,000 digital TV from Young's Appliances. She will make 12
equal payments over the next year to pay for it. She is using:
A. an installment loan
B. open-end credit
C. revolving check credit
D. a line of credit
E. none of the above
Difficulty: Medium
Gradable: automatic
28. (p. 162) If you are an Ontario resident and you have declared personal bankruptcy for the first time,
that fact may be reported by credit bureaus for years.
A. 5
B. 7
C. 12
D. 20
E. 25
Difficulty: Medium
Gradable: automatic
29. (p. 162) If you have incorrect information in your credit file,
A. you can't really do much about

it. B. you have no legal remedies.
C. credit bureaus are not required to change it.
D. there are legal remedies available to you.
E. don't worry much because you will still get the credit.
Difficulty: Medium
Gradable: automatic
30. (p. 163) The best way to maintain your credit rating is
to
A. use credit sparingly.

B. pay cash for your purchases.
C. repay your debts on time.
D. declare a Chapter 7 bankruptcy.
E. use as many credit cards as you can.
Difficulty: Medium
Gradable: automatic
31. (p. 164) The borrower's attitude toward his or her credit obligations is called
A. capacity.
B. capital.
C. character.
D. collateral.
E. conditions.
Difficulty: Easy
Gradable: automatic
32. (p. 165) The borrower's financial ability to meet credit obligations is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
Difficulty: Easy
Gradable: automatic
33. (p. 166) A term that refers to the borrower's assets or net worth is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
Difficulty: Medium
Gradable: automatic
34. (p. 166) A loan officer is examining your income and the amount of your existing debt payments to
help in the decision to make a loan to you today. Which aspect of the Five Cs of lending is
the loan officer most likely looking at?
A. Character
B. Capacity
C. Capital
D. Collateral
E. Conditions
Difficulty: Hard
Gradable: automatic
35. (p. 166) A valuable asset pledged to assure loan payments and subject to seizure upon default is called
A. capacity.
B. character.
C. capital.
D. collateral.
E.
conditions.
Difficulty: Medium
Gradable: automatic
36. (p. 166) If you are a woman, a creditor must
A. require a spouse to cosign a loan.

B. ask about your birth control practices or family plans.
C. consider whether you have a telephone listing in your own
home. D. refuse individual credit in your own name.
E. consider income from your part-time employment.
Difficulty: Medium
Gradable: automatic
37. (p. 167) In evaluating your credit application, a lender may
A. ask your age.

B. want to know if you are on public
assistance. C. require your marriage
certificate.
D. ask if you are married or
divorced. E. ask your race and
nationality.
Difficulty: Medium
Gradable: automatic
38. (p. 170) If your credit application is denied,

you
A. can sue the credit rating agency.

B. can file a complaint against the
merchant. C. don't have any rights
provided by law.
D. should ask to know specifically
why. E. can reapply for credit after 30
days.
Difficulty: Hard
Gradable: automatic
39. (p. 171) If you think that your bill is wrong, you should first
A. contact the local credit bureau and inform it of the billing

error. B. complain to the Better Business Bureau.
C. contact your provincial consumer protection agency.
D. notify the creditor of the error.
E. contact your attorney to settle the matter.
Difficulty: Hard
Gradable: automatic
40. (p. 147) Which of the following is considered to be a consumer
loan? A. Debit card

B. Credit loan
C. Personal line of
credit D. Overdraft
protection E. Mortgage
loan
Difficulty: Easy
Gradable: automatic
41. (p. 166) When a creditor looks at the borrower's attitude toward credit obligations, which of the 5 Cs
of credit is she analyzing?
A. Capacity
B. Capital
C. Character
D. Collateral
E. Conditions
Difficulty: Easy
Gradable: automatic
42. (p. 144) Valid reasons for using credit include all of the following
except
A. medical emergency
B. acquiring a car to return to the workforce
C. borrowing for a higher education
D. borrow for everyday living expenses
E. buying an item now will cost less than in the future
Difficulty: Medium
Gradable: automatic
43. (p. 145) Questions you should consider before you decide how and when to make a major
purchase include all except
A. do I have the cash I need for a down payment

B. do I want to use my savings for this purchase
C. could I postpone this purchase
D. what are the psychological costs of using credit (being in debt and responsible for monthly
payments)
E. all these questions should be considered
Difficulty: Medium
Gradable: automatic
44. (p. 145) The advantages of credit include
A. can purchase goods even when funds are low

B. carrying credit cards is safer than carrying cash
C. a credit card can allow you to carry up to a 30 day "float
D. credit cards may be used for identification when cashing a
cheque
E. all of these are advantages of credit
Difficulty: Medium
Gradable: automatic
45. (p. 147) Which of the following is not an example of revolving credit?
A. overdraft protection
B. charge cards
C. mortgage
D. line of credit.
E. bank card credit
Difficulty: Easy
Gradable: automatic
46. (p. 148) What percentage of Canadian households carry 1 or more credit cards
A. 20%
B. 30%
C. 50%
D. 70%
E. more than 80%
Difficulty: Medium
Gradable: automatic
47. (p. 148) What percentage of credit card users generally pay off their balance in full every month?
A. 20%
B. 30%
C. 50%
D. 70%
E. more than 80%
Difficulty: Medium
Gradable: automatic
48. (p. 152) Which of these is a characteristic of

cards.
D. Transfers funds in U.S. dollars.
E. All are characteristics of Paypal
Difficulty: Easy
Gradable: automatic
49. (p. 157) If you cosign a loan, all of the following are true except,
A. you are being asked to guarantee the debt.

B. it is your legal responsibility to pay the debt.
C. you'll have to pay only a portion of the debt if the borrower does not
E. the creditor can garnish your wages.
Difficulty: Medium
Gradable: automatic
50. (p. 157) If your monthly net (after-tax) income is $2,000, what should be your maximum amount
spent on credit payments?
A. $200
B. $300
C. $400
D. $500
E. $600
Difficulty: Hard
Gradable: automatic
51. (p. 159) Generally, most of the information in your credit file may be reported for only years.
A. 1
B. 3
C. 7
D. 9
E. 12
Difficulty: Medium
Gradable: automatic
52. (p. 170) The best way to maintain your credit standing is
to:
A. carry no credit cards

B. pay all credit card invoices within 120 days
C. repay your debts on time
D. cancel any cars with outstanding balances
E. if the balance is high and you cannot pay, claim your card was lost and misused by a 3rd party
Difficulty: Medium
Gradable: automatic
53. (p. 171) If your identity is stolen you should
A. Contact the fraud departments of each of the two credit bureaus.

B. Contact the creditors for any accounts that have been tampered with or opened
fraudulently. C. File a police report
D. Keep a copy of the police report
E. Take all of the actions indicated
Difficulty: Medium
Gradable: automatic
54. (p. 160) There are main credit bureaus in

Canada
A. 1
B. 2
C. 3
D. 5
E. 8
Difficulty: Easy
Gradable: automatic
55. (p. 164) Which of the following is the best rating to have on your credit
report? A. L0
B. L10
C. R0
D. R1
E. R9
Difficulty: Medium
Gradable: automatic
56. (p. 164) Which of the following is the worst rating to have on your credit
report? A. L0
B. L10
C. R0
D. R1
E. R9
Difficulty: Medium
Gradable: automatic
57. (p. 164) A FICO score of 700 would be considered
A. poor
B. very poor
C. a risk to default
D. very good
E. fair
Difficulty: Hard
Gradable: automatic
58. (p. 164) FICO scores range

between
A. 1-10
B. 1-100
C. 1-1,000
D. 300-900
E. 100-500
Difficulty: Medium
Gradable: automatic
59. (p. 144) Credit is an arrangement to receive cash, goods, or services now and pay for them in the
future.
TRUE
Difficulty: Easy
Gradable: automatic
60. (p. 144) Consumer credit refers to the use of credit for personal needs (except a home mortgage)
by individuals.
TRUE
Difficulty: Easy
Gradable: automatic
61. (p. 144) Most consumers have only one choice in financing current
purchases.
FALSE
Difficulty: Easy
Gradable: automatic
62. (p. 144) Consumer credit is based on trust in people's ability and willingness to pay bills when due.
TRUE
Difficulty: Easy
Gradable: automatic
63. (p. 159) A credit file is a report which includes the individual's present employer and position,
former employer(s), public records and a list of cheques returned for insufficient funds.
TRUE
Difficulty: Easy
Gradable: automatic
64. (p. 166) Collateral refers to the borrower's assets or net

worth.
FALSE
Difficulty: Easy
Gradable: automatic
65. (p. 145) There are very few valid reasons for using
credit.
FALSE
Difficulty: Easy
Gradable: automatic
66. (p. 146) "Shopaholics" and young adults are most vulnerable to misusing
credit.
TRUE
Difficulty: Easy
Gradable: automatic
67. (p. 146) College students are not a prime target for credit card
issuers.
FALSE
Difficulty: Easy
Gradable: automatic
68. (p. 146) Credit should not be considered a substitute for

cash.
FALSE
Difficulty: Easy
Gradable: automatic
69. (p. 146) It is safer to use credit, since charge accounts and credit cards let you shop and travel
without carrying large amounts of cash.
TRUE
Difficulty: Easy
Gradable: automatic
70. (p. 146) The use of credit can provide up to a 45 day "float."
FALSE
Difficulty: Easy
Gradable: automatic
71. (p. 146) The use of credit indicates personal and financial
instability.
FALSE
Difficulty: Easy
Gradable: automatic
72. (p. 146) Perhaps the greatest disadvantage of using credit is the temptation to overspend.
TRUE
Difficulty: Easy
Gradable: automatic
73. (p. 147) With an open-end credit, you pay back one-time loans in a specified period of time in
equal amounts.
FALSE
Difficulty: Medium
Gradable: automatic
74. (p. 147) In a closed-end credit, loans are made on a continuous basis and you make at least
partial payment.
FALSE
Difficulty: Medium
Gradable: automatic
75. (p. 147) Using a credit card, such as Visa or MasterCard is an example of closed-end credit.
FALSE
Difficulty: Medium
Gradable: automatic
76. (p. 148) A line of credit is the maximum dollar amount of credit the lender has made available to you.
TRUE
Difficulty: Easy
Gradable: automatic
77. (p. 149) Interest is a periodic charge for the use of credit, or other finance charges.
TRUE
Difficulty: Easy
Gradable: automatic
78. (p. 148) Incidental credit is a credit arrangement that has no extra costs and no specific repayment
plan.
TRUE
Difficulty: Medium
Gradable: automatic
79. (p. 148) A line of credit is considered a form of revolving

credit.
TRUE
Difficulty: Medium
Gradable: automatic
80. (p. 153) A car loan is an example of a consumer

loan.
TRUE
Difficulty: Medium
Gradable: automatic
81. (p. 152) A personal line of credit is a pre-arranged loan for a specified amount that you can use
by writing a special check.
TRUE
Difficulty: Medium
Gradable: automatic
82. (p. 149) The credit cardholders who pay off their balances in full each month are known as
convenience users.
FALSE
Difficulty: Easy
Gradable: automatic
83. (p. 149) Cobranding has become increasingly unpopular since General Motors launched its credit
card in 1992.
FALSE
Difficulty: Easy
Gradable: automatic
84. (p. 149) Cobranding is the linking of a credit card with a business trade name offering "points"
or premiums toward the purchase of a product or service.
TRUE
Difficulty: Easy
Gradable: automatic
85. (p. 149) In the near future, smart cards will provide a crucial link between the World Wide Web and
the physical world.
TRUE
Difficulty: Easy
Gradable: automatic
86. (p. 149) You should sign your new credit cards as soon as they
arrive.
TRUE
Difficulty: Easy
Gradable: automatic
87. (p. 150) Department stores and gasoline companies are good places to obtain your first credit card.
TRUE
Difficulty: Easy
Gradable: automatic
88. (p. 152) A home equity loan is based only on the amount you still owe on your mortgage.
FALSE
Difficulty: Medium
Gradable: automatic
89. (p. 152) A home equity loan is usually set up as a revolving line of credit, typically with a
variable interest rate.
TRUE
Difficulty: Medium
Gradable: automatic
90. (p. 154) Financing from car dealers in affiliation with car manufacturers is called a conditional
sales contract.
FALSE
Difficulty: Medium
Gradable: automatic
91. (p. 154) Financing from car dealers in affiliation with financial institutions is called factory financing.
FALSE
Difficulty: Medium
Gradable: automatic
92. (p. 152) A home equity loan is a good source of credit for daily
expenses.
FALSE
Difficulty: Easy
Gradable: automatic
93. (p. 158) The debt-payment-to-income ratio is calculated by dividing your total liabilities by your
net worth.
FALSE
Difficulty: Hard
Gradable: automatic
94. (p. 158) The debt-to-equity ratio is calculated by dividing your monthly debt payments (not
including house payments) by your net worth.
FALSE
Difficulty: Hard
Gradable: automatic
95. (p. 158) Experts suggest that you spend no more than 20 percent of your net income on credit
payments. (However, 15 percent is much better.)
TRUE
Difficulty: Medium
Gradable: automatic
96. (p. 158) The debt-to-equity ratio is calculated by dividing your total liabilities by your net worth.
TRUE
Difficulty: Medium
Gradable: automatic
97. (p. 158) If your debt-to-equity ratio is about ½, you have reached the upper limit of debt obligations.
FALSE
Difficulty: Medium
Gradable: automatic
98. (p. 157) If your debt-to-equity ratio is about 1, you have probably reached the upper limit of
debt obligations.
TRUE
Difficulty: Medium
Gradable: automatic
99. (p. 148) There is always a transaction fee attached to make a cash
advance.
TRUE
Difficulty: Medium
Gradable: automatic
100. (p. 158) The larger the debt-to-equity ratio, the riskier the situation is for lenders and borrowers.
TRUE
Difficulty: Medium
Gradable: automatic
101. (p. 158) Some studies show that as many as three out of four cosigners are asked to repay the loan.
TRUE
Difficulty: Medium
Gradable: automatic
102. (p. 159) When you cosign a loan, you are being asked to guarantee this
debt.
TRUE
Difficulty: Medium
Gradable: automatic
103. (p. 159) A lender requires a cosigner even when a borrower meets the lender's criteria for
making a loan.
FALSE
Difficulty: Medium
Gradable: automatic
104. (p. 159) Most creditors rely heavily on borrowers' bank reports when considering loan applications.
FALSE
Difficulty: Easy
Gradable: automatic
105. (p. 161) Provincial legislation regarding consumer reporting agencies regulate the type of
information that can appear in a credit report and protects the consumer's right not to
suffer from false information.
TRUE
Difficulty: Easy
Gradable: automatic
106. (p. 162) Your credit report may be issued only if this occurs with your
consent.
TRUE
Difficulty: Easy
Gradable: automatic
107. (p. 162) Your friends and neighbors can get credit information about
you.
FALSE
Difficulty: Easy
Gradable: automatic
108. (p. 159) Generally, most of the information in your credit file may be reported for only 3 years.
FALSE
Difficulty: Easy
Gradable: automatic
109. (p. 164) It is legal for creditors to ask or assume anything about a woman's childbearing plans.
FALSE
Difficulty: Easy
Gradable: automatic
110. (p. 144) Consumers have three alternatives in financing current purchases, including drawing up
on savings, use their present earnings, or borrow against their expected future income
TRUE
Difficulty: Medium
Gradable: automatic
111. (p. 168) If you think your bill is wrong, you must notify your creditor in writing within 15 days
after the bill was mailed.
FALSE
Difficulty: Medium
Gradable: automatic
112. (p. 149) A credit card cash withdrawal always incurs interest from the moment of withdrawal.
TRUE
Difficulty: Easy
Gradable: automatic
113. (p. 147- What are the two basic types of credit? Give examples of
both.
148)
Consumer loans and revolving credit. Consumer loans are one-time loans that the borrower pays
back in a specified period of time with a pre-determined payment schedule. Ex: home mortgages,
automobile loans, demand loans etc. Revolving credit, loans are made on a continuous basis and you
are billed periodically for at least partial payment. Ex: credit cards, lines or credit, overdraft
protection.
Difficulty: Medium
Gradable: manual
114. (p. 149- How can you protect yourself against credit/debit card fraud?
150)
Here are the ways to protect yourself from fraud.
1. Sign your card as soon as it arrives.

2. Store it in a secure place.
3. Shred anything with your account number before throwing it away.
4. Do not give your card number over the phone or online unless you initiate the call.
5. Do not write your card number on a postcard or on the outside of an envelope.
6. Remember to get your card and receipt after a transaction, and double-check to make sure it is yours.
7. Notify your card issuer immediately if your billing statement is incorrect or your credit cards are
lost or stolen.
8. Call your lender immediately if you are a victim of credit card fraud.
9. Request a copy of your credit report every few years to verify if anyone has applied for credit in
your name and whether any accounts are being used without your knowledge.
Difficulty: Medium
Gradable: manual
115. (p. 171) What can you do if your identity is stolen?
If your identity is stolen, take three actions

immediately:
a. Contact the fraud departments of each of the three credit bureaus.

b. Contact the creditors for any accounts that have been tampered with or opened
fraudulently. c. File a police report
Difficulty: Medium
Gradable: manual
116. (p. 158) What are the two general rules of measuring credit
capacity?
The two general rules of measuring credit capacity are debt payments-to-income ratio and
debt-to-equity ratio. Debt payments-to-income ratio is calculated by dividing your monthly debt
payments (not including house payments) by your net monthly income. The debt-to-equity ratio is
calculated by dividing your total liabilities by your net worth.
Difficulty: Hard
Gradable: manual
117. (p. 166) How do creditors determine your

credit-worthiness?
Creditors determine credit worthiness on the basis of the five Cs: character, capacity, capital,
collateral, and conditions.
Difficulty: Medium
Gradable: manual
118. (p. 149) As a result of the financials crisis in late med to late 2000 decade, new regulations
were brought into effect to protect Canadian credit card users. Briefly list and
describe these.
Originally announced in September, 2009, the new regulations:
• Mandate an effective minimum 21-day, interest-free grace period on all new credit card purchases
when a customer pays the outstanding balance in full.
• Lower interest costs by mandating allocations of payment in favour of the consumer. For example,
any payment made in excess of the required minimum must either be allocated to the balance with the
highest interest rate first or distributed proportionally to each type of balance (cash advances,
purchases, etc).
• Provide information on the cardholder's monthly statement on the time it would take to fully repay
the balance, if only the minimum payment is made every month.
For example, a balance of $1,000 on a credit card that charges 18 percent could take more than 10
years to pay off.
• Mandate advance disclosure of interest rate increases prior to their taking effect, even if
this information was included in the credit contract.
• The regulations apply to credit cards issued by federally regulated institutions. Some provisions in
the regulations have broader application to other financial products, such as fixed-and variable-rate
loans and lines of credit.
These new credit card regulations are in addition to those that came into effect earlier in 2009,
which include:
• Providing a summary box on credit contracts and application forms that sets out key features,
such as interest rates and fees.
• Requiring express consent for credit limit increases.
• Limiting debt collection practices used by financial institutions.
Difficulty: Hard
Gradable: manual
119. (p. 150) Briefly list and describe the costs associated with credit
cards
The major fees charged to customers are for:
• Late or overdue payments.

• Charges that result in exceeding the credit limit on the card (whether done deliberately or by
mistake), called over limit fees.
• Returned cheque fees or payment processing fees (e.g., phone payment fee).
• Cash advances and convenience cheques (oft en 3 percent of the amount).
• Transactions in a foreign currency (as much as 3 percent of the amount). (A few financial
institutions do not charge a fee for this.)
• Membership fees (annual or monthly), sometimes a percentage of the credit limit.
• Exchange rate loading fees (sometimes these might not be reported on the customer's statement,
even when applied). The variation of exchange rates applied by different credit cards can be
substantial, as much as 10 percent according to a Lonely Planet report in 2009.
Difficulty: Hard
Gradable: manual
120. (p. 150) Briefly list and discuss the benefits associated with credit cards
If you use the right credit card, and use it responsibly, there are a number of benefits you can enjoy:
• You get a short-term no-interest loan when making a purchase if you pay off the balance each month.
• There are several reward credit cards that let you earn different types of rewards, rebates, or points.
• Insurance that covers purchases made by a credit card. A purchase made with a credit card is a form
of insurance. The credit card issuer can help you in disputes with a dishonest merchant if you run into
problems with incorrect charges. You should note that this is not the case with debit cards. In many
cases your credit card might insure you against damages to or theft s of purchased goods within 90
days of the purchase. A purchase with a credit card may even extend the manufacturer's warranty.
• Federal law states that you are only responsible for the first $50 of unauthorized charges on your
credit card.
• The availability of a credit card in case of an emergency.
Difficulty: Hard
Gradable: manual
05 Summary
Category # of Questions
Difficulty: Easy 40
Difficulty: Hard 16
Difficulty: Medium 64
Gradable: automatic 112
Gradable: manual 8
Kapoor - Chapter 05 120
Learning Objective: 1 19

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Personal Finance Canadian Canadian 6th Edition Kapoor Test Bank 1

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PERSONAL FINANCE CANADIAN

CANADIAN 6TH EDITION KAPOOR TEST

Solution Manual: https://testbankpack.com/p/solution-manual-for-personal-

Test Bank: https://testbankpack.com/p/test-bank-for-personal-finance-canadian-

1. When did installment credit explode on the North American scene?

A. Just after World War II

3. Although credit permits more immediate satisfaction of needs and desires, it

A. does increase total purchasing power.

4. By paying cash for a purchase, you

7. A common example of a consumer loan

is: A. a credit card issued by a department

8. Which of the following is not an example of revolving

credit? A. a line of credit.

9. The maximum amount of credit you are allowed by a creditor is called

a(n) A. revolving credit.

10. An installment loan is a

A. direct loan of money for personal purposes.

11. A good example of an open-end credit

A. the use of a bank credit card to make a purchase.

13. A personal line of credit is a

A. credit arrangement that has no extra costs.

. A. keep your personal information private.

15. Which of these is not a characteristic of

Paypal? A. Facilitates online auction payments.

16. Which of these is not a financing option for the purchase of a

car? A. factory financing

19. If you cosign a loan,

A. you are not being asked to guarantee the debt.

20. Debt payments-to-income ratio is

A. calculated by dividing total liabilities by net worth.

21. Debt-to-equity ratio is

A. a useless ratio for determining your credit capacity.

A. The Bank of Canada

26. If there is incorrect information in your credit

file, A. you should sue the credit bureau.

29. If you have incorrect information in your credit

file, A. you can't really do much about it.

A. use credit sparingly.

32. The borrower's financial ability to meet credit obligations is called

A. require a spouse to cosign a loan.

37. In evaluating your credit application, a lender may

A. ask your age.

38. If your credit application is denied, you

A. can sue the credit rating agency.

A. contact the local credit bureau and inform it of the billing

40. Which of the following is considered to be a consumer

loan? A. Debit card

A. do I have the cash I need for a down payment

44. The advantages of credit include

A. can purchase goods even when funds are low

45. Which of the following is not an example of revolving

credit? A. overdraft protection

46. What percentage of Canadian households carry 1 or more credit cards

A. Facilitates online auction payments.

49. If you cosign a loan, all of the following are true

except, A. you are being asked to guarantee the debt.

52. The best way to maintain your credit standing is

to: A. carry no credit cards

53. If your identity is stolen you should

A. Contact the fraud departments of each of the two credit bureaus.

57. A FICO score of 700 would be considered

58. FICO scores range between

future. True False

61. Most consumers have only one choice in financing current