1. © Captus Press Inc., 2012 Chapter 12 Multiple-Choice Questions and Answers

2. © Captus Press Inc., 2012 1.The amount of loan that a bank is willing to lend an individual depends on which of the following reasons? (a)The person’s employment income (b)The value of collateral available (c)The amount of other debt outstanding (d)(a) and (b) (e)(a), (b), and (c) The answer is (e).

3. © Captus Press Inc., 2012 2.On which of the following loans will the bank charge the highest rate of interest? (a)Home equity credit line (b)Investment loan (c)Home mortgage (d)Unsecured credit line (e)Uncertain The answer is (d).

4. © Captus Press Inc., 2012 3.Which of the following statements concerning investment loans is true? (a)The interest expense on the loan is not tax deductible. (b)The rate of interest charged on an investment loan is lower than that of a consumer loan. (c)Investment loan does not depend on the borrower’s income. (d)(b) and (c). (e)None of the above. The answer is (b).

5. © Captus Press Inc., 2012 (a)11% (b)6% (c)14% (d)8% (e)None of the above The answer is (c). 4.Mr. Harris has $2,000. He wants to borrow another $1,000 from the bank at 5% interest so that he can invest $3,000 in a mutual fund that has an expected rate of return of 11%. What is the expected rate of return on investment?

6. © Captus Press Inc., 2012 Why?

7. © Captus Press Inc., 2012 5.Eddie and Cecelia have an annual gross income of $55,000. Their monthly mortgage payment is $1,150. If their GDS ratio is 0.28, what is the annual property tax on their condominium? (a)$1,450 (b)$1,500 (c)$1,600 (d)$1,800 (e)None of the above The answer is (c).

8. © Captus Press Inc., 2012 Why?