Finance MCQ Test: Trivia Quiz
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Finance MICA test: trivia quiz. Debt financing is wide spread not only among businesses but individuals too. A person’s credit score can be affected by outstanding debts they hold in form of mortgage or loans. How well do you know different types of credits and how to understand your credit score? This quiz will help you assess your personal finance knowledge on credit. Give it a try and see what you learn.
Questions and Answers
- 1.
A mortgage is an example of closed-end credit.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A mortgage is an example of closed-end credit because it is a loan that is typically used to purchase a specific property and has a fixed term and repayment schedule. Unlike a credit card or line of credit, which are forms of open-end credit that can be used repeatedly up to a certain limit, a mortgage is a one-time loan with a specific purpose and cannot be continuously borrowed against. Therefore, it falls under the category of closed-end credit.Rate this question:
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- 2.
A loan from a family member is an example of an expensive loan.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
A loan from a family member is not typically considered an expensive loan because it usually does not involve high interest rates or fees. Family loans are often given with more flexible terms and may even be interest-free. Therefore, the statement that a loan from a family member is an example of an expensive loan is incorrect.Rate this question:
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- 3.
A secured loan is one guaranteed to be repaid through safe collateral.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
A secured loan is a type of loan that is backed by collateral, such as a house or a car. This collateral serves as a guarantee for the lender that they will be repaid, even if the borrower defaults on the loan. Therefore, a secured loan is indeed guaranteed to be repaid through safe collateral.Rate this question:
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- 4.
Inflation increases the buying power of money.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
Inflation actually decreases the buying power of money. When there is inflation, the general price level of goods and services increases, meaning that the same amount of money can buy fewer goods and services. This is because the value of money decreases as prices rise. Therefore, the statement that inflation increases the buying power of money is incorrect.Rate this question:
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- 5.
Equifax is a credit bureau.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
Equifax is indeed a credit bureau. Credit bureaus are companies that collect and maintain credit information on individuals and businesses. They gather data from various sources, such as lenders and financial institutions, and use it to create credit reports and scores. Equifax is one of the three major credit bureaus in the United States, along with Experian and TransUnion. They play a crucial role in the financial industry by providing lenders and creditors with information to assess an individual or business's creditworthiness.Rate this question:
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- 6.
When you cosign a loan for a friend, you may be responsible to make loan payments if the other person fails to.
- A.
True
- B.
False
Correct Answer
A. TrueExplanation
When you cosign a loan for a friend, it means that you are legally agreeing to take responsibility for the loan if the other person is unable or unwilling to make the payments. This means that if your friend defaults on the loan, the lender can hold you accountable for repaying the loan in full. Therefore, it is important to carefully consider the risks and trustworthiness of the person before cosigning a loan.Rate this question:
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- 7.
You are responsible to provide proof that disputed information on your credit report is inaccurate.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The statement is false because the responsibility to provide proof lies with the credit reporting agency, not the individual. If a person disputes information on their credit report, the credit reporting agency is required to investigate the claim and remove any inaccurate information. The burden of proof is on the credit reporting agency to verify the accuracy of the disputed information.Rate this question:
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- 8.
The USDA works hard to prevent fraud as it relates to credit records, credit bureaus, and lenders.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The explanation for the answer being False is that the USDA, or United States Department of Agriculture, is primarily responsible for overseeing agriculture, rural development, and food safety. While they may have some involvement in financial programs for farmers, they do not specifically focus on preventing fraud related to credit records, credit bureaus, and lenders. This responsibility typically falls under the jurisdiction of other government agencies such as the Consumer Financial Protection Bureau or the Federal Trade Commission.Rate this question:
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- 9.
Your debt to income ratio formula is gross income divided by the number of monthly loan payments you make.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
The given statement is false. The debt to income ratio formula is not calculated by dividing gross income by the number of monthly loan payments. The correct formula for calculating the debt to income ratio is dividing the total monthly debt payments by the gross monthly income. This ratio is used by lenders to determine an individual's ability to manage their debt and make loan payments.Rate this question:
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- 10.
An example of open-end credit is a(n)
- A.
Mortgage
- B.
Auto loan
- C.
Installment loan
- D.
A credit card charge
Correct Answer
D. A credit card chargeExplanation
A credit card charge is an example of open-end credit because it allows the borrower to continuously borrow money up to a certain credit limit and make payments over time. Unlike a mortgage, auto loan, or installment loan, which have fixed terms and require regular payments until the loan is fully paid off, a credit card charge allows the borrower to make minimum payments and carry a balance from month to month, with the option to pay off the debt in full or make additional payments as desired.Rate this question:
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- 11.
The dollar amount you pay to use credit is the
- A.
Debt to income ratio
- B.
Finance charge
- C.
Annual percentage rate
- D.
Term of the loan
Correct Answer
B. Finance chargeExplanation
The correct answer is finance charge. The finance charge refers to the dollar amount that a person pays to use credit. It includes various fees and interest charges associated with borrowing money. This charge is added to the principal amount and is typically expressed as a percentage of the total borrowed amount. The finance charge is an important factor to consider when evaluating the cost of credit and comparing different loan options.Rate this question:
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- 12.
A higher interest rate is usually the trade-off for a
- A.
Long-term loan
- B.
Secured loan
- C.
Short-term loan
- D.
None
Correct Answer
A. Long-term loanExplanation
A higher interest rate is usually the trade-off for a long-term loan because lenders face a greater risk when lending money for a longer duration. With a long-term loan, there is a higher chance of economic fluctuations, inflation, and borrower default. To compensate for this risk, lenders charge higher interest rates to ensure they earn a sufficient return on their investment. This helps to protect their profitability and offset any potential losses that may occur over the extended repayment period of a long-term loan.Rate this question:
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- 13.
How many major credit bureaus are there in the U.S.?
- A.
1
- B.
2
- C.
4
- D.
3
Correct Answer
D. 3Explanation
There are three major credit bureaus in the U.S. These bureaus, namely Equifax, Experian, and TransUnion, collect and maintain credit information on individuals and businesses. Lenders and creditors rely on these bureaus to assess an individual's creditworthiness and make informed decisions regarding lending and credit approvals.Rate this question:
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- 14.
Information you will need to provide to get a free credit report includes all of the following except
- A.
Date of birth
- B.
Name
- C.
Current address
- D.
Current job
Correct Answer
D. Current jobExplanation
To obtain a free credit report, you need to provide personal information such as your name, date of birth, and current address. However, your current job is not required to access your credit report. This is because your employment status does not directly impact your credit history or score. The credit report mainly focuses on your financial activities, payment history, and outstanding debts. Therefore, your current job is not necessary to obtain a free credit report.Rate this question:
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- 15.
Once you discover an error on your credit report and write the credit bureau about it, the credit bureau has how many days to research it to a conclusion?
- A.
15 days
- B.
30 days
- C.
45 days
- D.
60 days
Correct Answer
B. 30 daysExplanation
After reporting an error on your credit report to the credit bureau, they are required to conduct an investigation and resolve the issue within 30 days. This time frame allows the credit bureau to review the information provided, contact the relevant parties, and make any necessary corrections or updates to your credit report. It is important for the credit bureau to complete this process promptly to ensure the accuracy of your credit information and prevent any negative impact on your credit score.Rate this question:
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- 16.
Take-home pay is $3094 Monthly car payment is $220 Monthly credit card payment is $110 Your spouse wants a car with a bank monthly loan payment of $300 What is your debt to income ratio?
Correct Answer
.203
20%
20 percent
20.3
20.3%
.20
20%Explanation
The debt to income ratio is calculated by dividing the total monthly debt payments by the monthly income. In this case, the total monthly debt payments are the car payment ($220) and the credit card payment ($110), which add up to $330. The monthly income is the take-home pay ($3094). Dividing $330 by $3094 gives a decimal answer of approximately 0.1066. Multiplying this by 100 gives a percentage of approximately 10.66%. Therefore, the correct answer is .203, 20%, 20 percent, 20.3, 20.3%, .20, 20%.Rate this question:
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