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Unit 7: Types of Credit & Modeling Functions Assessment

Last updated over 2 years ago
25 questions
Note from the author:
Reference: Compound Interest Formula
You may refer back to this formula as needed throughout the assessment.

Reference: Compound Interest Formula
You may refer back to this formula as needed throughout the assessment.

Multiple Choice
2

  1. Each of the following is an installment loan, except for a(n) ___________, which is a revolving line of credit.
  2. Auto loan
  3. Credit card
  4. Mortgage
  5. Student loan

2

Keon plans to buy a new GMC Sierra for $47,000 at 5.5% APR. Which financing option would have the lowest total interest?
  1. 60-month term and $2,000 down payment
  2. 60-month term and $3,500 down payment
  3. 36-month term and $3,500 down payment
  4. 36-month term and $5,000 down payment

2

In order to take out federal student loans, you need to…
  1. Have a credit score above 600
  2. Complete and submit the FAFSA
  3. Choose a repayment plan before enrolling
  4. Take out at least $6000 in private student loans

2

Which of the following is an example of a secured debt?
  1. A credit card
  2. A student loan
  3. An auto loan
  4. A personal loan from family

2

Which of the following best describes a Schumer box?
  1. The portion of your monthly credit card bill that lists the minimum monthly payment due
  2. The portion of your credit card agreement that lays out the important rates and fees
  3. The portion of your credit card application that asks for your income and employment status
  4. The portion of a plastic credit card that holds the magnetic stripe or chip

2

What is the main difference between an annual interest rate and an annual percentage rate (APR)?
  1. APR is the interest rate combined with guaranteed fees
  2. APR is almost always lower than interest rate
  3. Interest rate is for loans, while APR is for credit cards
  4. Interest rate is money you earn on investments, while APR is money you pay for debt

2

For most American households, the largest source of debt is:
  1. Student loans
  2. Credit cards
  3. Medical debt
  4. Mortgages

2

If you fall behind on your loan payments, all of the following are recommended steps, EXCEPT…
  1. Calling your lender to negotiate a payment plan that fits your needs
  2. Reducing your spending to divert additional income towards loan payments
  3. Putting your past due loan payments on a credit card
  4. Find additional sources of income to help catch up on past due payments

2

All of the following affect the monthly payment amount of a mortgage EXCEPT…
  1. Down payment
  2. Interest rate
  3. Term of the loan
  4. The bank that issues the mortgage

2

Mason takes out $2700 in Direct Subsidized student loans during their first semester of college. Which of the following statements is true?
  1. Their loans will immediately start accruing interest once taken out
  2. Their loans will start accruing interest after graduation
  3. Their loans will enter repayment after one year
  4. Their loans will enter repayment when they start their first job

2

What is one way to guarantee you don’t pay interest on your credit card?
  1. Pay your entire balance in full every month
  2. Pay your minimum monthly payment on time
  3. Spend less than your credit limit
  4. Only make new purchases every other month

2

After much shopping, Kelli found a car she’d love to buy. When it comes time to talk about financing, the salesperson at the dealer says, “I can offer you 6% on $24,000 for 5 years.” What do each of those numbers mean?
  1. 6% is the term, $24,000 is the down payment, 5 years is the interest rate
  2. 6% is the term, $24,000 is the interest rate, 5 years is the principal
  3. 6% is the interest rate, $24,000 is term, 5 years is the principal
  4. 6% is the interest rate, $24,000 is the principal, 5 years is the term

2

Moto has a $7000 credit card balance, and he cannot afford to pay it all off at once. The larger his monthly payments….
  1. The longer it will take to pay it off and the smaller total interest he’ll pay
  2. The longer it will take to pay it off and the larger total interest he’ll pay
  3. The shorter it will take to pay it off and the smaller total interest he’ll pay
  4. The shorter it will take to pay it off and the larger total interest he’ll pay

2

May is taking out student loans to pay for college. Why might she take out private student loans in addition to federal student loans?
  1. She is ineligible for some federal student loans due to her parents’ low credit scores
  2. She wants her private student loan balance to be forgiven under the Public Service Loan Forgiveness program
  3. She needs more funding than is available through federal student loans
  4. She wants to take advantage of the lower interest rates offered by private student loans

2

In a fully-amortized loan, which statement is true?
  1. The principal portion of your payment increases and the interest portion decreases over time
  2. The principal portion of your payment increases and the interest portion increases over time
  3. The principal portion of your payment decreases and the interest portion decreases over time
  4. The principal portion of your payment decreases and the interest portion increases over time

2

Nasir just got a letter from his credit card company that the terms of his agreement are changing. In the fine print, he notices that his interest will now be compounded daily instead of monthly. Nasir expects that his total interest will…
  1. Increase due to more frequent compounding
  2. Decrease due to more frequent compounding
  3. Stay the same because the compounding frequency has no effect on interest
  4. Increased by an additional $365

2

Which of the following scenarios could be accurately represented with the following recursive sequence?

a. An $8500 loan with a 4% monthly interest rate, compounded monthly
b. An $8500 loan with a 4% annual interest rate, compounded monthly
c. An $8500 loan that accrues $157 in interest each year
d. An $8500 loan that will take 157 months to pay off

2

When working in a spreadsheet, what symbol is used to create an absolute reference, a cell that will never change no matter where you move the formula?
a. $
b. @
c. &
d. %

2

What is the benefit of creating your own amortization spreadsheet over using the compound interest formula to calculate the total cost of the loan?
  1. An amortization table is more accurate than the compound interest formula that often produces incorrect results due to approximations
  2. An amortization table shows more details about your payments change over time than the compound interest formula
  3. An amortization table involves fewer numbers and variable than the compound interest formula
  4. An amortization table takes less time to set up and learn how to use than the compound interest formula

2

  1. Missy was provided the following information about a loan:
  • Principal: $1,200
  • Interest Rate: 3.25%
  • Compounded: Monthly
  • Term: 4 years
She used the information to set up the following formula:

What error did Missy make?
a. The interest rate should be 0.325
b. The monthly interest rate should not be added to 1 in the parentheses
c. The exponent does not take into account the frequency of compounding
d. The interest rate should not be divided by 12

10

Jay’s store credit card offers a special financing program.  The fine print states that if he does not pay his balance in full in 2 years, he will have to pay interest on his original purchase balance at 22.93% APR compounded daily.  If Jay purchases a $2200 TV and makes no payments for 2 years, what will his balance be? *Show your work and equation used*

10
Use this amortization table to answer the following questions

a. Write the formula that can be entered in cell C7 to calculate the monthly interest. Your formula should be written so that it can be copied and pasted to the rest of the cells in the interest column._______
b. What formula would you enter into Cell E8 to calculate the balance after the 2nd monthly payment?_______
10

Recall the APY formula:

If an auto dealership offers you a car loan at 6.25% APR compounded monthly, what is your APY?  Round to the nearest hundredth of a percent. **Show Equation in your work**

15
Tareq has a $15,000 auto loan with a 5.4% fixed annual interest rate, compounded monthly. He makes the minimum payment of $285 each month.
a. What is Tareq’s monthly interest rate?_______
b. Complete the table for Tareq’s balance over the first 3 months.
n f(n)
#of Months Loan Balance ($)
0 $1500
1 _______
2 _______
3 _______

c. Write a recursive formula that represents Tareq’s balance after n months_______
15
Use this amortization table to answer the following questions

Re-write the appropriate line in the table if an extra $100 was added to the payment in the 4th month of this loan. Show your calculations.
Monthly Pmt # PMT Interest Principal Remaining Balance
_______ _______ _______ _______ _______

What would happen to the total payment amount if the interest rate increased? Why?_______