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143 Cards in this Set
- Front
- Back
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120. The Tate Manufacturing Company has $150 million in sales revenue with $90 million in cost of goods sold. It has selling and administrative expenses of $10, pays annual taxes in the amount of $10 and has depreciation and other non cash expenses of $30 million. What are this firm’s annual projected cash flows?
A) $150 B) $60 C) $70 D) $40 E) None of the above |
C) $70
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119. Jerry LeGere, a loan officer with First National Bank, checks to see if the house pledged to back up a home mortgage has a clear title and proper insurance. What step in the lending process is Jerry performing?
A) Finding prospective customers B) Evaluating a customer’s character and sincerity C) Making a site visit and evaluating a customer’s credit history D) Evaluating a prospective customer’s financial condition E) Assessing possible collateral and signing the loan agreement |
E) Assessing possible collateral and signing the loan agreement
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118. Terry May, a loan officer with First National Bank, calculates liquidity and debt ratios for the Lava Lamp Company and also examines their cash flow statement. What step in the lending process is Terry performing?
A) Finding prospective customers B) Evaluating a customer’s character and sincerity C) Making a site visit and evaluating a customer’s credit history D) Evaluating a prospective customer’s financial condition E) Assessing possible collateral and signing the loan agreement |
D) Evaluating a prospective customer’s financial condition
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117. Jessica Simpson, a loan officer with First National Bank, visits the Tate Manufacturing Company and talks to other lenders to see their experience with Tate Manufacturing. What step in the lending process is Jessica performing?
A) Finding prospective customers B) Evaluating a customer’s character and sincerity C) Making a site visit and evaluating a customer’s credit history D) Evaluating a prospective customer’s financial condition E) Assessing possible collateral and signing the loan agreement |
C) Making a site visit and evaluating a customer’s credit history
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116. Shelby Mann is a loan officer with the First National Bank. She interviews a potential loan customer to find out exactly why the person needs the loan and whether they would be serious about repaying the loan. Which step in the lending process is Shelby performing?
A) Finding prospective customers B) Evaluating a customer’s character and sincerity C) Making a site visit and evaluating a customer’s credit history D) Evaluating a prospective customer’s financial condition E) Assessing possible collateral and signing the loan agreement |
B) Evaluating a customer’s character and sincerity
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115. Dan Cross is a junior loan officer with First State Bank of Durant. He has been busy visiting local businesses to see of any of them need credit. Which step in the lending process is Dan performing?
A) Finding prospective customers B) Evaluating a customer’s character and sincerity C) Making a site visit and evaluating a customer’s credit history D) Evaluating a prospective customer’s financial condition E) Assessing possible collateral and signing the loan agreement |
A) Finding prospective customers
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114. The law that prevents individuals from being denied credit because of race, sex, religious affiliation, age or receipt of public assistance is called:
A) The Sarbanes-Oxley Act B) The Community Reinvestment Act C) The Equal Credit Opportunity Act D) The Truth in Lending Act E) None of the above |
C) The Equal Credit Opportunity Act
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113. The law that requires banks to make ‘an affirmative effort’ to meet the credit needs of individuals and businesses in their trade territories is called:
A) The Sarbanes-Oxley Act B) The Community Reinvestment Act C) The Equal Credit Opportunity Act D) The Truth in Lending Act E) None of the above |
B) The Community Reinvestment Act
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112. A loan that examiners regard as uncollectible and unsuitable to be called a bank asset is called a:
A) Criticized loan B) Scheduled loan C) Substandard loan D) Doubtful loan E) Loss loan |
E) Loss loan
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111. A loan that appears to examiners to contain significant weaknesses or that represent a dangerous concentration of credit in one borrower or industry are called:
A) Criticized loans B) Scheduled loans C) Substandard loans D) Doubtful loans E) Loss loans |
B) Scheduled loans
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110. The Second National Bank has capital and surplus of $100 million. The bank has decided that the most that it can loan to the Krumlova Manufacturing Company is $15 million. What factor determining the growth and mixture of loans does this most likely reflect for this bank?
A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations |
E) Bank regulations
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109. First State Bank’s loan policy manual states ‘that the goal of the bank is to make high quality loans for home mortgages, the purchase of automobiles and small business accounts receivables’. What factor determining the growth and mixture of loans does this fact reflect?
A) Characteristics of the market area B) Lender Size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations |
D) The written loan policy of the bank
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108. Geoff Willis and Mary Williams the president and CEO of the First National Bank of Edmond both come from a background of retail banking. As a result they have decided to focus their lending activities on consumer loans and loans to small business. What factor determining the growth and mixture of loans does this fact reflect?
A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations |
C) The experience and expertise of management
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107. The Second State Bank has less than $100 million in assets and as a result primarily makes real estate loans, other consumer loans and loans to very small businesses. What factor determining the growth and mixture of loans does this fact reflect?
A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations |
B) Lender size
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106. The First State Bank is located in Guyman, Oklahoma which is in the middle of the wheat country of Oklahoma and as a result many of its loans are agriculture loans. What factor determining the growth and mixture of loans does this fact reflect?
A) Characteristics of the market area B) Lender size C) The experience and expertise of management D) The written loan policy of the bank E) Bank regulations |
A) Characteristics of the market area
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105. The Third National Bank of Wichita makes a loan so that Tim Bridges can buy 1000 shares of Coca Cola stock. Which category of loans would this loan fit in best?
A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables |
D) Miscellaneous loan
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104. The First State Bank of Duncan buys railroad cars and rents them to the Santa Fe Railroad Company. What type of loan has this bank made?
A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables |
E) Lease financing receivables
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103. The Price Bank of Edmond makes a loan to Home Depot. What type of loan has this bank made?
A) Financial institution loan B) Commercial and industrial loan C) Loan to an individual D) Miscellaneous loan E) Lease financing receivables |
B) Commercial and industrial loan
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102. A loan for Colin Beverly to purchase a new Mazda Miata would fit into which of the following categories of bank loans?
A) Financial institution loan B) Commercial and industrial loan C) Loan to an Individual D) Miscellaneous loan E) Lease financing receivables |
C) Loan to an Individual
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101. The South Carolina National Bank makes a loan to the Heritage Credit Union. What type of loan did this bank make?
A) Financial institution loan B) Commercial and industrial loan C) Loans to individuals D) Miscellaneous loans E) Lease financing receivables |
A) Financial institution loan
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100. A method whereby the loan officer focuses on how the borrower cash flows may change over time is known as:
A) Indirect cash flow B) Direct cash flow C) Pervasive cash flow D) Variable cash flow E) Total cash flow |
B) Direct cash flow
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99. Which act requires that bank loans to insiders be priced at market?
A) Community Reinvestment Act of 1977 B) Equal Credit Opportunity Act of 1974 C) Sarbanes-Oxley Act of 2002 D) Bank Lending Act of 2003 E) U.S. Patriot Act |
C) Sarbanes-Oxley Act of 2002
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98. A lender reviews the partnership agreement of one of its small business customers. Which of the 6 C’s of lending would this piece of information belong to?
A) Character B) Capacity C) Cash D) Collateral E) Conditions |
B) Capacity
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97. Which of the following should be part of the written loan policy?
A) Lending authority of each loan officer and loan committee B) Lines of responsibility for finding and reporting information within the loan department C) A statement of quality standards for all loans D) A statement for the preferred upper limit for total loans outstanding E) All of the above should be part of the written loan policy |
E) All of the above should be part of the written loan policy
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96. Which of the following is a sign of a potential loan problem?
A) Timely receipt of financial statements from the company with a loan B) Increases in the stock price of the company that has a loan C) Increases in earnings for each of the last three years of a company D) Changes in the methods used to account for inventory, depreciation and other items E) All of the above are signs of problems with the loan |
D) Changes in the methods used to account for inventory, depreciation and other items
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he process of resolving a troubled loan so the lender can recover its funds is called the:
A) Loan Review B) Written Loan Policy C) Loan Workout D) Loan Commitment Agreement E) None of the above |
C) Loan Workout
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94. A bank that primarily makes its loans to individuals, families and small businesses is:
A) A retail bank B) A wholesale lender C) A money center bank D) A money market bank E) None of the above |
A) A retail bank
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93. The TRC Company is required by its bank to pay no dividend over $3 per share. What is this?
A) An affirmative covenant B) A negative covenant C) A Special covenant D) A horizontal covenant E) None of the above |
B) A negative covenant
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92. The loan officer of Second National Bank of Laramie decides to review the insurance coverage of one of its business customers. Which of the 6 C’s of lending would this piece of information belong to?
A) Character B) Capacity C) Cash D) Collateral E) Conditions |
D) Collateral
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91. First National Bank of Edmond asks a prospective customer for her driver’s license. Which of the 6 C’s of lending would this piece of information belong to?
A) Character B) Capacity C) Cash D) Collateral E) Conditions |
B) Capacity
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90. Sean Carter has an excellent credit rating. Which of the 6 C’s of lending would this piece of information belong to?
A) Character B) Capacity C) Cash D) Collateral E) Conditions |
A) Character
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89. A lender that makes a loan to an individual whose only income is commission based and who hasn’t made a sale in six weeks may be violating which of the 6 C’s of lending?
A) Character B) Capacity C) Cash D) Control E) Collateral |
C) Cash
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88. The lender's secondary source of repayment in case of default is:
A) Capacity. B) Collateral. C) Character. D) Capital. E) Credit. |
B) Collateral
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87. A loan to a local business to purchase a new machine would be categorized as:
A) A consumer loan B) An agriculture loan C) A commercial and industrial loan D) A real estate loan E) None of the above |
C) A commercial and industrial loan
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86. Which of the following is a factor in determining the mix of loans that a bank has?
A) The location of the bank B) The size of the bank C) The written loan policy of the bank D) The experience and expertise of the management E) All of the above are factors in determining the mix of loans |
E) All of the above are factors in determining the mix of loans
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85. A lender that makes a loan that violates its written loan policy would be violating which of the 6 C’s of lending?
A) Character B) Capacity C) Cash D) Control E) Collateral |
D) Control
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84. A lender that makes a loan to a minor would be violating which of the 6 C’s of lending?
A) Character B) Capacity C) Cash D) Control E) Collateral |
B) Capacity
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83. Loans granted to businesses to cover such expenses as purchasing inventories, paying taxes, and meeting payrolls are known as:
A) Commercial and industrial loans B) Agricultural loans C) Real estate loans D) Loans to individuals E) None of the above. |
A) Commercial and industrial loans
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82. Loans extended to farm and ranch operations to assist in planting and harvesting crops and to support the feeding and care of livestock are known as:
A) Real estate loans B) Commercial and industrial loans C) Land loans D) Agricultural loans E) None of the above. |
D) Agricultural loans
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81. Loans providing credit to finance the purchase of automobiles, mobile homes, appliances, and other retail goods to repair and modernize homes are classified under the category:
A) Financial institution loans B) Commercial industrial C) Loans to individuals D) Miscellaneous loans E) None of the above |
C) Loans to individuals
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71. The most costly type of loan to make (measured by the cost per dollar of loan) for a bank is usually:
A) Real estate loans B) Agricultural loans C) Commercial and industrial loans D) Loans to financial institutions E) None of the above. |
E) None of the above.
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79. The loan category experiencing the largest losses (loan defaults) is usually:
A) Credit card loans B) Real estate loans C) Agricultural loans D) Commercial and industrial loans E) None of the above |
A) Credit card loans
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78. Loans to finance one-to-four family homes fall under which loan category?
A) Commercial and industrial loans B) Real estate loans C) Loans to individuals D) Single-payment loans E) None of the above. |
B) Real estate loans
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77. Real estate loans made by national banks in the U.S. cannot exceed:
A) 15 percent of a national bank’s total assets or 25 percent of its total capital. B) A national bank’s total capital and surplus or 70 percent of time and savings deposits, whichever is greater. C) 20 percent of a national bank’s capital and surplus or 80 percent of its savings deposits, whichever is smaller in amount. D) 25 percent of capital or 10 percent of the core deposits of a national bank, whichever gives the largest amount. E) None of the above. |
B) A national bank’s total capital and surplus or 70 percent of time and savings deposits, whichever is greater.
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76. In the United States national banks cannot extend an unsecured loan to a single borrower that exceeds of a national bank’s capital and surplus. The correct figure that fills in the blank in the preceding sentence is:
A) 25 percent B) 10 percent C) 15 percent D) 20 percent E) None of the above |
C) 15 percent
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75. The vast majority of FDIC-insured institutions are classified as:
A) Credit card banks B) Agricultural banks C) Consumer lenders D) Commercial lenders E) Mortgage lenders |
D) Commercial lenders
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74. Banks that emphasize lending to commercial customers are labeled:
A) Wholesale banks B) Retail banks C) Personal banks D) Nonbank banks E) Regional banks |
A) Wholesale banks
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73. According to the textbook the largest category (by dollar volume) of loans extended by U.S. banks is:
A) Real estate loans B) Financial institutions C) Agricultural loans D) Commercial and industrial loans E) None of the above |
A) Real estate loans
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72. Loans extended to finance the purchase of automobiles, mobile homes, home appliances, and vacations are classified as:
A) Real estate loans B) Financial institutions C) Agricultural loans D) Commercial and industrial loans E) None of the above |
E) None of the above
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71. The principal economic function of banks is to:
A) Take deposits B) Make loans C) Sell financial services D) Encourage spending E) None of the above |
B) Make loans
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145. As part of the new regulations of the mortgage market, the Federal Reserve Board moved to tighten the rules on mortgage lending in 2008. All of the following would improve transparency of the market except for:
A) Lenders must verify the borrower’s reported income B) Lenders cannot rely on a home’s current market value to judge a borrower’s creditworthiness C) Lenders must rely on a borrower’s stated income D) Lenders must disclose more about the actual terms of a home mortgage loan to a borrower E) All of the above are included in the new rules |
C) Lenders must rely on a borrower’s stated income
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144. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments. If the loan quoted has an add-on rate, what is the approximate annual percentage rate (APR) on the loan?
A) 20% B) 18% C) 14% D) 12% E) 10% |
B) 18%
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143. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments. If the loan quoted has an add-on rate, what are the net proceeds of the loan?
A) $2,200 B) $2,100 C) $2,000 D) $1.800 E) Cannot be determined |
C) $2,000
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142. A bank customer is granted credit for a $2,000 loan at 10% to be repaid in 12 equal installments. If the loan is a discount loan, what is the monthly payment?
A) 200.00 B) $192.35 C) $184.20 D) $173.12 E) $166.67 |
E) $166.67
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141. Which regulation requires out-of-state-banks that acquire local banks to commit to continued lending in the area and not use the acquired banks simply as deposit gatherers?
A) Equal Credit Opportunity Act B) National Bank Act C) Federal Lending Act D) Fair Credit Reporting Act E) Community Reinvestment Act |
E) Community Reinvestment Act
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140. Credit reports provided by credit bureaus provide lenders:
A) With personal identifying data B) With personal credit histories derived from data submitted by lenders C) With public information that may bear on a borrower’s honesty and stability D) With the volume of inquiries from lenders about the borrower E) All of the above |
E) All of the above
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139. The Equal Credit Opportunity Act requires that:
A) A bank make loans to all minority applicants B) A bank only make loans to white male applicants C) A bank give reasons in writing for denying the loan D) A bank deny loans if the borrower has only been employed for three months E) None of the above |
C) A bank give reasons in writing for denying the loan
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138. Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10% of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8% for the loan and require monthly payments over the next 4 years. Mark’s monthly payments are 353.50 per month. What is Mark’s total finance charge if he takes the full 4 years to pay off the loan?
A) $468 B) $4,032 C) $4,500 D) $2,488 E) None of the above |
D) $2,488
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137. Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10% of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8% for the loan and require monthly payments over the next 4 years. What is the size of Mark’s monthly payments if he makes the minimum down payment on the car?
A) $353.50 B) $301.67 C) $512.67 D) $402.81 E) None of the above |
A) $353.50
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136. Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10% of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8% for the loan and require monthly payments over the next 4 years. If Mark makes the minimum down payment on the car, what is the amount of the loan that Mark will receive?
A) $18,900 B) $14,850 C) $16,500 D) $14,400 E) None of the above |
B) $14,850
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135. Mark Green is considering buying a new Honda Accord. The purchase price of the car is $21,000 but Mark has a trade-in worth $4500. Mark needs a loan to buy the car and knows that his local bank requires him to put down 10% of the purchase price after the value of the trade-in is considered. Mark also knows that bank will charge 8% for the loan and require monthly payments over the next 4 years. What is the minimum down payment that Mark can make?
A) $2,100 B) $450 C) $1,650 D) $2,550 E) None of the above |
C) $1,650
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134. Which of the following is a challenge of making a consumer loan?
A) Audited financial statements are provided by consumers quarterly B) Consumers must disclose publicly any changes in their health that would affect the loan C) Consumers can more easily hide pertinent information D) Consumers can more easily adjust to financial setbacks than can businesses E) All of the above are challenges of making a consumer loan |
C) Consumers can more easily hide pertinent information
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133. A bank is considering making a loan to John Carter. John is a commissioned sales broker. Some months he earns as much as $10,000 and in other months he earns virtually nothing. Which aspect of evaluating a consumer loan would this be concerned with?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
B) Income level
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132. A bank is considering making a loan to Neville Langdon. Neville has bounced three checks in the last year and already has $10,000 on a credit card and an automobile loan with a large balance. What aspect of evaluating a consumer loan application is this fact concerned with?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
E) Pyramiding of debt
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131. A bank is considering making a loan to Sam Snape. Mr. Snape has $1000 in the bank right now but generally keeps a balance of $4500 most of the year. What aspect of evaluating a consumer loan application is this fact concerned with?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
C) Deposit balance
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130. A bank is considering making a loan to Sean Finnigan. Sean owns his own home and has lived there for the past four years. What aspect of evaluating a consumer loan application is this fact most concerned with?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
D) Employment and residential stability
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129. A bank is considering making a loan to Ron Weasley. Ron has a gross salary per month of $4000 but has take-home pay of $2800 per month. What aspect of evaluating a consumer loan application is this fact most concerned with?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
B) Income level
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128. A bank is considering making a loan to Alice Granger. The bank is looking at her credit report from Equifax and also examining the reason Alice has put on the loan application for needing the loan? What aspect of evaluating a consumer loan application is the bank looking at?
A) Character and purpose B) Income level C) Deposit balance D) Employment and residential stability E) Pyramiding of debt |
A) Character and purpose
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127. Donna Carlon is using her plastic card to buy groceries. The money is taken from her checking account immediately to pay for her groceries. How is Donna using her card?
A) As an installment loan B) As a noninstallment loan C) As a lump sum payer D) As a debit card E) None of the above |
D) As a debit card
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126. Alexis Downs uses her credit card to buy furniture but pays off the credit card at the end of the month before she incurs any interest costs. How is Alexis using her credit card?
A) As an installment loan B) As a noninstallment loan C) As a lump sum payer D) As a debit card E) None of the above |
B) As a noninstallment loan
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125. The most profitable credit card customers for a bank are those that:
A) Use their credit card frequently B) Pay off any charges incurred within a few days C) Charge at least $10,000 per year D) Use their credit card as a source of installment loans E) None of the above |
D) Use their credit card as a source of installment loans
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124. Jerry McGuire uses his Visa card to buy a new washer and dryer and a new refrigerator for his home. He plans on paying off the credit card over the next two years. How is Jerry using his credit card?
A) As an installment loan B) As a noninstallment loan C) As a lump sum payer D) As a debit card E) None of the above |
A) As an installment loan
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123. Bill Wells uses his Discover card to buy new furniture for his apartment. The interest rate on this card is 18% and the minimum payment that is due is $100. What type of loan has Bill gotten?
A) Residential mortgage loan B) Installment loan C) Noninstallment loan D) Revolving line of credit E) None of the above |
D) Revolving line of credit
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120. Emily Barnes has gone to the First State Bank and gotten a loan of $5000 so she can go on vacation. She plans on paying the loan back in one payment in three months. What type of loan has Emily gotten?
A) Residential mortgage loan B) Installment loan C) Noninstallment loan D) Revolving line of credit E) None of the above |
C) Noninstallment loan
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121. Tammy Payne wants to buy a used car and wants a loan that she will pay off over the next three years with monthly payments. What type of loan does Tammy want?
A) Residential mortgage loan B) Installment loan C) Noninstallment loan D) Revolving line of credit E) None of the above |
B) Installment loan
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120. Jeremiah Uselton needs a loan to purchase a condo in Sarasota, Florida. What type of loan does Jeremiah need?
A) Residential mortgage loan B) Installment loan C) Noninstallment loan D) Revolving line of credit E) None of the above |
A) Residential mortgage loan
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The most important factor used in the FICO credit scoring system is:
A) The borrower's payment history B) The amount of money owed C) Marital status D) Employment history and salary E) Age |
A) The borrower's payment history
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The very popular FICO credit scoring system provides credit scores in the range:
A) 0 to 10 B) 0 to 1000 C) 100 to 1000 D) 300 to 850 E) 20 to 80 |
D) 300 to 850
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The fastest growing consumer loan category is:
A) Credit card loans B) Auto loans C) Home mortgages D) Personal loans E) Education loans |
C) Home mortgages
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The first major bank within the U.S. to establish a separate department for granting household loans was:
A) First National City Bank of New York B) BankAmerica C) Bank One D) State Street Bank E) Bank of New York |
A) First National City Bank of New York
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Prepaid cards which compete with credit cards and debit cards are:
A) Smart cards B) Deposit cards C) Match cards D) All of the above E) None of the above |
A) Smart cards
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The largest credit card lender (as a group) in the U.S. are:
A) Thrifts B) Insurance companies C) Finance companies D) Oil companies |
C) Finance companies
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Beverly Frickerson asks for a $15,000 loan for one year. The bank tells her that they will give her $13,050 immediately and deduct $1950 in interest up front. What is the effective rate of interest on this loan?
A) 14.94 percent B) 13.00 percent C) 19.50 percent D) 11.50 percent |
A) 14.94 percent
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Jane Smith has asked for a 30 year mortgage to purchase a home in Oklahoma City, Oklahoma. The purchase price of the home is $150,000 of which $125,000 must be borrowed. If the APR on this loan is 8 percent, how much will Jane's total financing charges be?
A) $246,233 B) $205,194 C) $180,194 D) $165,097 E) None of the above |
B) $205,194
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Paul Carter requests an automobile loan of $15,000 that will be repaid over the next four years in monthly repayments. The First National Bank tells Mr. Carter that his total finance charges will be $4675.20. What is the APR on this loan?
A) 16 percent B) 1 percent C) 14 percent D) 7 percent E) None of the above |
C) 14 percent
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Mark Brown receives a $2000 loan with the intention of repaying the loan in 12 months. However, at the end of one month, Mr. Brown discovers he can repay the loan in full. What percentage of the interest charge is Mr. Brown entitled to receive as a rebate?
A) 36.67 percent B) 50.00 percent C) 91.67 percent D) 63.33 percent E) None of the above |
D) 63.33 percent
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A customer wants to borrow $125,000 to purchase a new home. The APR on this loan is 10 percent and it is a 30-year mortgage with monthly payments. What monthly payment will this customer face on this loan?
A) $1097 B) $55 C) $12,500 D) $13,260 E) None of the above |
A) $1097
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A customer wants to borrower $25,000 for one year. TRC State Bank has a discount loan with an interest rate of 15 percent. How much of the loan will be available to the customer?
A) $25,000 B) $28,750 C) $22,500 D) $21,250 E) None of the above |
D) $21,250
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A customer wants to borrow $1200 from Edmond State Bank. Edmond State Bank has an add-on loan with an interest rate of 12 percent and monthly payments for one year. What are the monthly payments this customer will need to make on this loan?
A) $100 per month B) $112 per month C) $107 per month D) $88 per month E) None of the above |
B) $112 per month
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A customer seeks a $150,000 home mortgage. The bank requires the customer to pay 1 ¾ points up front. How much of the loan is actually available to the customer?
A) $150,000 B) $152,625 C) $147,375 D) $148,000 E) None of the above |
C) $147,375
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Which of the following has the lowest interest rate according to the book?
A) New automobile loan B) Used automobile loan C) Personal loan D) Credit card loan E) All of these have the same interest rate |
A) New automobile loan
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Which of the following has the highest interest rate according to the book?
A) New automobile loan B) Used automobile loan C) Personal loan D) Credit card loan E) All of these have the same interest rate |
D) Credit card loan
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The charge on a home mortgage loan that a borrower may be asked to pay up front is referred to as:
A) Loan Interest Owed B) Points C) Loading D) Tax equity E) None of the above. |
B) Points
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102. The symbols ARM in lending means:
A) Automatic rate modulation B) Amortization rate method C) Adjustable rate mortgage D) Adaptable readjusted mortgage E) None of the above. |
C) Adjustable rate mortgage
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When interest owed on a loan is added to the principal amount of the loan to determine a borrowing customer's required installment payments, this is known as the _________method for figuring a customer's loan rate. Fill in the blank with an appropriate response below.
A) Simple interest B) APR C) Discount D) Add-on E) None of the above |
D) Add-on
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Which of the following is an advantage of a credit scoring model?
A) Credit scoring models rely on the evaluation of an experienced credit officer B) Credit scoring models are immune from charges of discrimination C) Credit scoring models never make mistakes D) Credit scoring models can handle a large volume of applications in a short period of time E) All of the above are advantages of credit scoring models |
D) Credit scoring models can handle a large volume of applications in a short period of time
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Which of the following is not part of the evaluation of an installment loan?
A) The borrower's track record in caring for and maintaining property B) Evidence of stable employment C) Evidence of residence stability D) Evidence of income stability E) All of the above are part of the evaluation of an installment loan |
A) The borrower's track record in caring for and maintaining property
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A loan officer asks a customer what race she belongs to. Which law prohibits the loan officer from asking that question?
A) Truth in Lending Act B) Equal Credit Opportunity Act C) Community Reinvestment Act D) Fair Debt Collection Practices Act E) None of the above |
B) Equal Credit Opportunity Act
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Which of the following is true regarding credit card loans?
A) There is evidence that considerable economies of scale exist B) Credit cards cannot act as installment loans C) Credit cards are very inconvenient for consumers D) Credit cards are very inflexible for consumers E) All of the above are true |
A) There is evidence that considerable economies of scale exist
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The law which was passed to reduce predatory lending is known as:
A) Community Reinvestment Act B) Home Ownership and Equity Protection Act C) Equal Credit Opportunity Act D) Fair Debt Collection Practices Act E) None of the above |
B) Home Ownership and Equity Protection Act
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An abusive practice is which lenders grant loans to weak borrowers and charge them high fees and interest rates which may cause the borrower to default on the loan is known as:
A) Installment loans B) Credit card loans C) Predatory lending D) Herbivore lending E) None of the above |
C) Predatory lending
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The bank's real estate loan officer should consider which of the following aspects of the customer's loan application carefully when making a home mortgage?
A) The amount and stability of the borrower's income B) The borrower's available savings and where the down payment is coming from C) The borrower's track record in caring for and managing property. D) The outlook for real estate sales in the local market area E) All of the above are things that need to be looked at carefully |
E) All of the above are things that need to be looked at carefully
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The federal law that permits consumers to dispute billing errors with a merchant or credit card company and receive a prompt investigation of any billing disputes is the:
A) Fair Credit Reporting Act B) Fair Credit Billing Act C) Fair Debt Collection Practices Act D) Truth in Lending Act E) None of the above |
B) Fair Credit Billing Act
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How did the Tax Reform Act of 1986 increase the appeal of home equity loans?
A) It allowed customers to borrow up to 100 percent of the value of their home B) It eliminated bank income taxes from this type of loan C) It protected homes under Chapter 13 bankruptcy D) It eliminated individuals' tax deduction for interest payments on other types of loans E) It required banks to lend on homes in the geographic area of their deposits |
D) It eliminated individuals' tax deduction for interest payments on other types of loans
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FNMA will not purchase home mortgages in the secondary market if the borrower's monthly debt repayments (including housing costs) exceed _________ percent of the borrower's monthly gross income. The correct percentage figure to complete the sentence above is:
A) 28 B) 30 C) 36 D) 40 E) None of the above |
C) 36
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In order to be eligible for purchase by FNMA a home mortgage cannot have a maturity of less than 10 years nor more than:
A) 25 years B) 30 years C) 35 years D) 40 years E) None of the above |
B) 30 years
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A bank that is judged by examiners as needing to improve under the performance requirements of the Community Reinvestment Act will receive an examiner rating of:
A) 0 B) S C) N D) SN E) None of the above |
C) N
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Which of the following consumer loans has grown in popularity as a result of the passage of the Tax Reform Act of 1986?
A) Credit card loans B) Home equity loans C) Long-term, noninstallment loans D) Short-term, installment loans E) All of the above |
B) Home equity loans
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The requirement that banks must provide their consumer loan customers with a statement of the APR for the proposed loan was established by:
A) The Fair Credit Reporting Act. B) The Equal Credit Opportunity Act. C) The Truth-in-Lending Act. D) The Community Reinvestment Act. E) None of the above |
C) The Truth-in-Lending Act.
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Which of the following factors have proven most important in credit scoring models?
A) Credit Bureau ratings B) Income bracket C) Number of loans the customer has had D) All of the above E) A and B only |
E) A and B only
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Major laws and regulations which must be complied with in the mortgage lending area include which of the following?
A) National Affordable Housing Act B) Community Reinvestment Act C) Financial Institution Reform Recovery and Enforcement Act D) All of the above E) B and C only |
D) All of the above
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The federal law that requires banks to notify their credit customers in writing when a loan request is denied is known as the:
A) Equal Credit Opportunity Act B) Competitive Equality in Banking Act C) Truth-in-Lending Act D) Community Reinvestment Act E) None of the above. |
A) Equal Credit Opportunity Act
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Short-term loans drawn upon by individuals and families for immediate cash needs and repayable in a lump sum when the borrower's note matures are known as:
A) Noninstallment loans B) Installment loans C) Residential mortgage loans D) Nonresidential cash loans E) None of the above |
A) Noninstallment loans
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Loans to individuals and families to finance the purchase of new homes are known as:
A) Noninstallment loans B) Installment loans C) Residential mortgage loans D) Nonresidential cash loans E) None of the above |
C) Residential mortgage loans
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Short-term to medium-term loans repayable in two or more consecutive payments are known as:
A) Noninstallment loans B) Installment loans C) Residential mortgage loans D) Nonresidential cash loans E) None of the above |
B) Installment loans
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155. A bank has a listed prime rate of 7%. They have estimated that the marginal cost of raising funds is 5%, their default risk premium on a loan is 1.5% and that they want a profit margin of 2%. They have also estimated that the term risk premium is .5%. What is the interest rate this bank will charge if they use the price leadership model (and the prime rate as their base rate)?
A) 8.5% B) 9% C) 12% D) 9.5% E) None of the above |
B) 9%
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154. A bank has a listed prime rate of 7%. They have estimated that the marginal cost of raising funds is 5%, their default risk premium on a loan is 1.5% and that they want a profit margin of 2%. They have also estimated that the term risk premium is .5%. What is the interest rate this bank will charge if they use the cost plus pricing model?
A) 8.5% B) 9% C) 12% D) 9.5% E) None of the above |
A) 8.5%
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153. A bank wants to estimate a firm’s future financial condition. Which of the following is something that allows a bank to do this?
A) Statement of cash flows B) Pro forma statement C) Balance sheet D) Income statement E) None of the above |
B) Pro forma statement
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152. A firm has net sales of $25,000, costs of goods sold of $10,000, selling, general and administrative expenses of $8000 (of which $2000 are depreciation expenses) and taxes (in cash) of $3000. What is this firm’s operating cash flow (using the traditional or direct method)?
A) $4,000 B) $15,000 C) $5,000 D) $8,000 E) None of the above |
C) $5,000
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151. Banks need to be able to compare the firm they are examining to its industry. One company that provides information to banks about the industries their customers are in is:
A) Standard and Poors B) Moody’s C) Dun and Bradstreet D) Morgan Stanley E) None of the above |
C) Dun and Bradstreet
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150. A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firm’s acid test ratio?
A) 1.00 B) 2.00 C) 0.33 D) 3.00 E) 1.50 |
E) 1.50
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149. A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firm’s leverage ratio?
A) 22.50% B) 44.44% C) 50.00% D) 88.89% E) None of the above |
C) 50.00%
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148. A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firm’s net working capital?
A) $9000 B) $4500 C) $4000 D) $2000 E) None of the above |
D) $2000
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147. A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales (all of which are on credit and $2000 in net income. What is this firm’s average collection period?
A) 18 days B) 45 days C) 72 days D) 162 days E) None of the above |
B) 45 days
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146. A firm submits their financial records to a bank. Upon examination, the bank discovers that this firm has $500 in cash, $2500 in accounts receivables, $1000 in inventory, $5000 in plant and equipment and that their assets totaled $9000. In addition this bank discovered that the firm had $2000 in current liabilities, $2500 in long term debt and $4500 in net worth. Finally this bank discovered that this firm had $20,000 in net sales and $2000 in net income. What is this firm’s net profit margin?
A) 10.00% B) 22.22% C) 44.44% D) 50% E) None of the above |
A) 10.00%
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145. A bank wants to examine the financial success of a company by examining the profits of a company. What ratio will help the bank examine this issue?
A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth) |
D) Net income/Total assets
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144. A bank is concerned because they feel that a firm will not be able to raise enough cash to pay bills that are due within the next year. What ratio are they most likely to examine to address this concern?
A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth) |
C) Current assets-Current liabilities
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143. A bank feels that a firm has expenses that are too high. What ratio are they most likely to examine to address this concern?
A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth) |
A) Selling and administrative expenses/Net sales
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142. A bank has a concern because they feel that a firm has an excessive amount of assets. They do not feel that the firm is efficient in generating sales from their current level of assets. What ratio are they most likely to examine to answer this question?
A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth) |
B) Net sales/Total assets
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141. A bank has a concern about the Wilson Company’s debt level. They feel that it is too high. What ratio are they most likely to examine to answer this question?
A) Selling and administrative expenses/Net sales B) Net sales/Total assets C) Current assets-Current liabilities D) Net income/Total assets E) Long term debt/(Long term debt + Net worth) |
E) Long term debt/(Long term debt + Net worth)
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140. A bank wants to know whether a customer can raise cash in a timely fashion at a reasonable cost. They are mostly likely to look at which of the following ratios?
A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets – Inventory)/Current liabilities |
E) (Current assets – Inventory)/Current liabilities
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139. A bank wants to examine the adequacy of a business customer’s earnings based on the coverage ratios. They are most likely to look at which of the following ratios?
A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets – Inventory)/Current liabilities |
D) Income before interest and taxes/Interest payments
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138. A bank wants to examine how well a customer markets their goods and services. They are most likely to look at which of the following ratios?
A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets – Inventory)/Current liabilities |
C) Net income after taxes/Net Sales
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137. A bank wants to examine how well a customer uses assets to generate sales. They are most likely to look at which of the following ratios?
A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets – Inventory)/Current liabilities |
B) Accounts Receivables/(Annual credit sales/360)
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136. A bank wants to examine how well customer controls their expenses. They are most likely to look at which of the following ratios?
A) Wages and Salaries/Net Sales B) Accounts Receivables/(Annual credit sales/360) C) Net income after taxes/Net Sales D) Income before interest and taxes/Interest payments E) (Current assets – Inventory)/Current liabilities |
A) Wages and Salaries/Net Sales
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135. The management of the Frickel Frontier Freight Company wants to take the company private by borrowing money and using the proceeds of the loan to purchase the shares of the company in the market. Management believes they can increase revenues enough to be able to pay off the loan. What type of loan is management getting?
A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan |
D) LBO loan
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125. The Jung Company and the Nguyen Company have combined to build a new container ship docking facility in Charleston Harbor. The facility is expected to take two years to complete and cost $3 billion to construct. These companies want to borrow money in order to build this facility. What type of loan is this most likely to be?
A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan |
C) Long term project loan
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132. The Ford Motor Company needs to borrow $50 million. The First National Bank creates a packaged loan with several other banks to lend to Ford Motor Company. This loan package can be sold on the secondary market and carries a rate that is 500 basis points above LIBOR. The First National Bank expects this loan package to ultimately be held by a finance company looking for a good return on their money? What type of loan is this mostly likely to be?
A) Term business loan B) Revolving credit financing C) Long term project loan D) LBO loan E) Syndicated loan |
E) Syndicated loan
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129. Barbara Miller is a small dealer who specializes in healthcare stocks. She needs a loan so that she can sustain her portfolio of stocks until customer buy orders catch up with what she has already purchased from the market. She only expects to need this loan for a week. What type of loan does Barbara need?
A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing |
D) Security dealer financing
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128. Randal Ice needs a loan to purchase pet food and other pet supplies for his local pet store over the next six months. He has estimated that the maximum amount of inventory he will need in the next six months is $200,000 and he knows that he will have to use accounts receivables and the inventory he purchases as collateral for the loan. At the end of six months, he hopes he can get the loan renewed. What type of loan does Randal need?
A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing |
B) Working capital loan
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127. Dick Dowen needs a loan to buy plants and fertilizer for his nursery for the spring planting season. This loan will automatically be paid off as the plants and fertilizer are sold to his customers. What type of loan does Dick need?
A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing |
A) Self-liquidating inventory loan
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126. Lloyd Blenman is building a shopping center in Charlotte and needs to get a loan until the shopping center is finished and he can get a mortgage on the property. What type of loan does he need?
A) Self-liquidating inventory loan B) Working capital loan C) Interim construction financing D) Security dealer financing E) Retailer and equipment financing |
C) Interim construction financing
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Which of the following is an example of a captive finance company?
A) Bank of America B) GMAC C) Toyota Motors D) Koch Industries E) All of the above |
B) GMAC
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