Financial Algebra Chapter 4 Flashcards

Questions and Answers

What is credit?

A corporate financial statement

A type of loan for buying a house

To purchase something you pay for immediately

To purchase something you do not pay for immediately (correct)

Who are debtors?

People who use credit

Who are creditors?

People that extend credit to consumers

What is earning power?

Ability to earn money now and in the future Signup and view all the answers

What does a credit rating indicate?

How well you meet your financial obligations Signup and view all the answers

What is a FICO score?

Credit scores that summarize the probability that debtors will repay their debt Signup and view all the answers

What is an installment plan?

A payment option for paying for merchandise/services over time Signup and view all the answers

What is a down payment?

Paying part of the selling price at the time of purchase Signup and view all the answers

What is interest?

A fee charged to installment buyers added to the cost Signup and view all the answers

What is a finance charge?

The same as interest Signup and view all the answers

The formula for the monthly payment is M = ____

p (r/12) (1 + r/12) ^ 12(t) / ((1 + r/12) ^ 12(t) - 1) Signup and view all the answers

What is a promissory note?

A document stating the conditions of a loan Signup and view all the answers

What is the principal?

The amount you borrow Signup and view all the answers

What does APR stand for?

Annual Percentage Rate Signup and view all the answers

What is life insurance in relation to loans?

Covers the loan in the event the borrower dies before the loan is paid Signup and view all the answers

What is a prepayment privilege?

Allows borrower to make payments before the due date Signup and view all the answers

What is a prepayment penalty?

Requires borrower to pay a fee if they pay back the entire loan before due date Signup and view all the answers

What is a wage assignment?

Deduction from employee's paycheck to pay off debts Signup and view all the answers

What is wage garnishment?

Employer deducts money from employee's paycheck to pay creditor Signup and view all the answers

What is a balloon payment?

Last monthly payment on loans that is higher than previous payments Signup and view all the answers

What is a lending institution?

Organizations that extend loans and make profit by charging interest Signup and view all the answers

What is collateral?

Something left with the money-lender in exchange for the loan Signup and view all the answers

What is a credit card?

Card that allows the holder to make purchases and pay later Signup and view all the answers

What is impulse buying?

Buying something you had no intention of buying Signup and view all the answers

What is a revolving charge account?

Type of credit card account where the entire bill doesn't have to be paid in full each month Signup and view all the answers

What does the Truth-in-Lending Act do?

Protects you if a credit card is lost or stolen Signup and view all the answers

What is the Fair Credit Billing Act?

Protects you if there are errors in your monthly statement Signup and view all the answers

What is a debit card?

Not a credit/charge card; money comes directly out of your savings account Signup and view all the answers

What does EFT stand for?

Electronic Funds Transfer Signup and view all the answers

What does 'mean' refer to in finance?

Average Signup and view all the answers

What is the average daily balance?

Average of amounts owed each day of the billing period Signup and view all the answers

What is a billing cycle?

Predetermined amount of time used to calculate your credit card bill Signup and view all the answers

What is a credit card statement?

Accounting of your credits and debits from credit company Signup and view all the answers

What is an account number?

Each credit card account has a unique number Signup and view all the answers

What is a credit line?

Maximum amount you can owe at any time Signup and view all the answers

What is available credit?

Difference between max amount you can owe and the actual amount you owe Signup and view all the answers

What is the billing date?

Date the bill (statement) was written Signup and view all the answers

What is the payment due date?

Monthly payment must be received by creditor on this date Signup and view all the answers

What are transactions?

Lists where purchases were made and the date Signup and view all the answers

What is the difference between debit and credit?

Debit is amount charged to your account; credit is a payment made to reduce your debt Signup and view all the answers

What is the previous balance?

Any money owed before the current billing period Signup and view all the answers

What are payments/credits?

Total amount received by creditor Signup and view all the answers

What are new purchases?

Sum of purchases on the current bill Signup and view all the answers

What is a late charge?

Penalty for late payments from previous months Signup and view all the answers

What is the finance charge for the current billing period?

Cost of using the credit card for the current billing period Signup and view all the answers

What is the new balance?

Amount you currently owe Signup and view all the answers

What is the minimum payment?

Lowest payment amount the credit company will accept for the current billing period Signup and view all the answers

What is the average daily balance in a billing cycle?

Average amount owed per day during the billing cycle Signup and view all the answers

What is the number of days in a billing cycle?

Time (in days) covered by the current bill Signup and view all the answers

What is the APR?

Yearly interest rate Signup and view all the answers

What is the monthly periodic rate?

APR / 12 Signup and view all the answers

Study Notes

Credit Concepts

Credit: Allows purchases without immediate payment, deferring costs.
Debtor: Individuals who utilize credit facilities for purchases.
Creditor: Entities or individuals that provide credit to consumers.

Financial Evaluation

Earning Power: Assessing a person’s current and future ability to generate income for debt repayment.
Credit Rating: A comprehensive evaluation indicating a consumer's reliability in meeting financial obligations, informed by creditor reports.
FICO Score: Represents the likelihood of debt repayment based on credit usage history.

Payment Structures

Installment Plan: Option for creditworthy buyers to pay for goods or services over time, splitting total costs.
Down Payment: Initial payment made at the time of purchase, reducing the financed amount.
Interest: A fee charged to installment buyers, increasing the total cost of purchases.
Finance Charge: Equivalent to interest, representing the cost of borrowing.

Legal and Formal Agreements

Promissory Note: Legal document outlining the terms and conditions when borrowing money.
APR (Annual Percentage Rate): Yearly interest rate charged on borrowed funds.
Collateral: Asset pledged against a loan, returned upon full repayment.

Payment Alternatives and Obligations

Wage Assignment: Payment deduction from an employee's paycheck directed toward debt repayment.
Wage Garnishment: Court-ordered deduction to settle debts directly from employee wages.
Balloon Payment: Significantly larger payment due at the end of a loan term.

Credit Cards and Their Implications

Credit Card: Enables consumers to make purchases and defer payments.
Impulse Buying: Purchasing behavior characterized by spontaneous decisions, often unplanned.
Revolving Charge Account: Credit account where users can carry a balance month to month.
Truth-in-Lending Act: Legislation ensuring consumer protection regarding credit card use, especially if lost or stolen.
Fair Credit Billing Act: Protects consumers against billing errors.

Transaction Management

Debit Card: Directly withdraws funds from a bank account; not a credit facility.
EFT (Electronic Funds Transfer): Protects against unauthorized debit card transactions.
Billing Cycle: Predefined time period used for billing, establishing the statement cycle.
Credit Card Statement: Detailed account of credits and debits, summarizing transactions and balances.

Financial Metrics

Credit Line: Maximum outstanding balance allowed on credit accounts.
Available Credit: Amount available to borrow, calculated as the difference between the credit line and current debt.
Minimum Payment: Lowest amount due on a credit account each billing period.
Average Daily Balance: Mean of daily owed amounts during the billing period used to calculate finance charges.

Additional Financial Terms

Late Charge: Fees incurred for missed or late payments.
New Balance: Total current debt owed on a credit account after accounting for transactions and payments.
Monthly Periodic Rate: Calculated as the APR divided by twelve, utilized for monthly interest computations.

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Description

Review key concepts from Financial Algebra Chapter 4 with these flashcards. Learn essential finance terms like credit, debtor, and creditor, and understand the importance of earning power in managing debt. Perfect for grasping the fundamentals that underpin personal finance decisions.