Chapter 5 EXAM

Topics: Debt, Credit, Credit card Pages: 9 (2158 words) Published: December 3, 2014
Chapter 5 Financial Services: Savings Plans and Payment Accounts

True/False Questions
1. A "free" checking account with a minimum balance of $500 has an opportunity cost of lost interest. T 2. ATM fees are about the same in different geographic areas. F 3. Direct deposit usually requires a waiting period for a availability of funds. F 4. Using a "debit" card is basically the same as writing a check. T 5. Credit unions frequently offer lower loan rates on loans than other financial institutions. T 6. A regular savings account usually offers a higher rate of return to savers than other savings plans (like CD’s Money Market Accounts, Savings Bonds). F 7. A certificate of deposit is usually considered to be very liquid. F 8. The liquidity of a savings account refers to the rate of earning a person will receive. F 9. The more frequent the compounding, the less a person will earn on a savings account. F 10. When preparing a bank reconciliation, interest earned on your checking account is added to the bank statement balance F

Chapter 5 Financial Services: Savings Plans and Payment Accounts 1. True Difficulty: Med LO: 1 Page: 141
2. False Difficulty: Med LO: 1 Page: 140
3. False Difficulty: Med LO: 1 Page: 140
4. True Difficulty: Med LO: 1 Page: 141
5. True Difficulty: Med LO: 2 Page: 144
6. False Difficulty: Med LO: 3 Page: 148
7. False Difficulty: Med LO: 3 Page: 148
8. False Difficulty: Med LO: 4 Page: 150
9. False Difficulty: Easy LO: 4 Page: 151
10. False Difficulty: Hard LO: 5 Page: 159

Multiple Choice Questions
11. When interest rates are rising, a person would be best served by:
A)short-term savings instruments.
B)long-term savings instruments.
C)short-term loans.
D)variable-rate loans.
12. Traditionally, the greatest variety of financial services have been offered by a(n):
A)credit union.
B)investment company.
C)mutual savings bank.
D)savings and loan association.
E) commercial bank
13. To avoid high fees for loans, a person should not borrow from a:
A)credit union.
B)savings and loan association.
C)pawnshop.
D)commercial bank.
E) mutual savings bank
14. An advantage credit unions most often have over other financial institutions is:
A)interest-bearing checking accounts.
B)low-cost personal loans.
C)flexible-rate loans.
D)credit cards.
E)variable-rate savings plans.

15. A financial institution organized for the main purpose of providing loans to purchase homes is a:
A)credit union.
B)mutual savings bank.
C)consumer finance company.
D)mortgage company.
E)commercial bank.
16. The business hours and location of a financial institution refer to the ____________ factor of selecting a financial institution.
A)safety
B)cost
C)compounding
D)liquidity
E)convenience
17. A saver will usually earn the highest rate with which of the following types of savings plans?
A)certificate of deposit
B)standard savings account
C)passbook account
D)share account
18. An advantage of U.S. savings bonds is:
A)interest earned is exempt from federal income taxes.
B)interest earned is deferred for federal tax purposes.
C)a constant rate of earnings.
D)they can be converted to other types of investments
19. The rate of return on a savings account is also referred to as:
A)liquidity.
B)compounding.
C)yield.
D)insolvency.
E)asset management.
20. A $200 savings account that earns $13 interest in a year has a yield of ____________ percent.
A)6
B)13
C)7
D)11. 25
E)6. 5
21. Savings compounded ____________ would have the highest effective yield.
A)daily
B)annually
C)semi-annually
D)monthly
E)weekly

22. Comparison of earnings for different savings plans can best be accomplished using the:
A)discounted present...
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