MRS. JONES' PERSONAL FINANCE AND
CONSUMER MATH UNIT 5 TEST (5.1-5.3)
:) QUESTIONS AND ANSWERS WITH
SOLUTIONS 2024
Credit - ANSWER A contractual agreement in which a borrower receives something of value immediately
and agrees to pay for it later, usually with interest.
Principal - ANSWER Amount you are borrowing
Interest - ANSWER The percentage charged by lending you the money
Term - ANSWER Amount of time to pay the loan back
Installment loans - ANSWER Used to finance a specific purchase for a specific amount of time with
regular payments to the interest and principal.
Revolving credit - ANSWER Open line of credit used for any purchases as long as you're under the credit
limit. Payment amounts vary each pay period based on the size of the debt
Secured Debt - ANSWER Debt is tied to a specific asset that can be used as collateral and repossessed if
borrower doesn't make payments.
Unsecured Debt - ANSWER Debt not tied to specific asset; no collateral that can be repossessed if
borrower fails to repay the loan.
Variable-Rate - ANSWER Interest rate can change during the loan duration based on the prime rate or an
index rate.
Fixed-Rate - ANSWER Interest rate remains constant throughout the duration of the loan.
, Why do people sometimes use credit to pay for items instead of just using cash? - ANSWER 1. They
sometimes don't have cash on hand.
2. They want to build their credit score.
3. A credit card is more convenient to carry than cash.
Sometimes, lenders allow or require a downpayment before they extend you the loan. What would be
the advantage to the lender? What would be the advantage to the borrower? - ANSWER 1. It's beneficial
to the lender as it shows that the borrower is committed to the loan.
2. It's beneficial to the borrower as they've now already payed off some of the principal on the loan,
making less interest in the future.
On a loan, why does the amount of interest you own decrease every month? - ANSWER Because as you
pay off the principal, the interest rate goes down.
Debit Cards - ANSWER - Overdraft fees
-Spending limit base
- Protected by federal laws
-Can use ATMs all around the world
Credit Cards - ANSWER - Build credit score
- Can lead to debt
- Most have rewards programs
- Protected by federal government
Prepaid Debit Card - ANSWER - Accessible to anyone
- Many fees associated with them
-Spending limit based on how much is preloaded
- Great for traveling or spending on sites
-Not linked to accounts
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