It’s quiz time again. If you’ve been following the trends in banking and personal finance-and doing your homework-you should be able to whip this test with no sweat.
Consider yourself econ major material if you answer at least seven out of nine questions correctly.
Question 1: You receive in the mail an offer for a credit card with an introductory 6.9 percent rate good for the first three months and the $20 annual fee waived for the first year. Assuming that the card rate rises to prime (8.75 percent) plus 6 percentage points after the intro period ends and that you always carry a $1,000 balance, which of the following cards would be cheaper than the offered card over a two-year period?:
A) 13 percent fixed rate and $25 annual fee; B) 21 percent fixed rate and $0 annual fee; C) 10.75 percent variable rate and $35 annual fee.
Answer: (C) The cheaper card over two years would cost you $285 in interest and fees, while the offered card would cost you $295.
Question 2: A big out-of-state bank just bought the small local institution where you’ve been keeping your CDs for years. The new outfit:
A) Won’t change your CD rates if the bank it bought was healthy, but could lower your rates if the outfit wasn’t; B) Could close all your accounts if it wanted to; C) Will definitely reduce the yields on your existing CDs.
Answer: (A) Federal regulations allow the buyer to lower existing CD yields at a failed bank, but not at a healthy bank.
Question 3: How much interest could you save over the entire life of a $100,000, 30-year fixed-rate mortgage if you could cut the rate from 8 percent to 7.5 percent?
A) $12,438; B) $9,492; C) $5,064.
Answer: (A) You would save $34.55 per month for 30 years.
Question 4: Overall, by how much have bank bounced-check fees risen in the past three years?
A) 6 percent; B) 12 percent; C) 18 percent.
Answer: (B) According to Bank Rate Monitor, the average fee on a bounced check has risen from $17.86 in 1991 to $19.92 last year.
Question 5: If you invested a penny the first day, doubled your deposit to 2 cents the next day, doubled that again to 4 cents the third day, and so on for 30 days, how much money would you have at the end of 30 days?
A) $10; B) $300; C) $5.3 million.
Answer: (C) Don’t believe it? Work out the math yourself.
Question 6: Bank A in town offers a five-year CD paying 6 percent simple interest. Bank B pays a rate of 5.5 percent, but interest compounds daily. Which bank would pay you more total interest, and by how much, on a $10,000 deposit with all interest left in the account?
A) Bank A would pay $250 more; B) Bank B would pay $165 more; C) The two banks would pay the same total interest.
Answer: (B) The total interest earned at Bank A would be $3,000 and at Bank B would be $3,165.
Question 7: Which of the following is not true about a credit report?
A) Any credit card company can get a full copy of your report; B) You can get a free copy of your report if you have been denied credit; C) Your report can be reviewed when you apply to open a checking account.
Answer: (A) The credit card company must have your permission to get a complete copy. It can get a summary, though.
Question 8: When choosing between whether to lease a new car or finance its purchase, the most important thing to consider is:
A) The monthly payment; B) How long you plan to keep the car; C) The average resale value for comparably equipped models over the last five years.
Answer: (B) The longer you keep the car, the more sense it makes to buy the vehicle instead of making payments on something you don’t own.
Question 9: In general, do banks charge higher upfront and management fees on their mutual funds than mutual funds companies as a whole?
A) Yes; B) No; C) They charge the same fees.
Answer: (B) For example, average front-end charges on a typical equity fund are 4.3 percent at a bank and 4.9 percent at a non-bank.
