MODULE 3

Question 1

Debt

Answer 1

is usually money, owed by one party to another. Debt is used by many individuals
and companies to make large purchases that they could not afford under other
circumstances (Chen, 2024).

Question 2

Debt (2)

Answer 2

is part of financial transaction of a person to acquire items to meet current and
future needs. The acquisition of debts usually include paying of the interest.

Question 3

Interest

Answer 3

Cost incurred of using money which is percentage based on the principal for a given period of
time

Question 4

Interest rates have ____

Answer 4

simple and compound interest

Question 5

Simple Interest.

Answer 5

It refers to the ratio of the interest paid or earned to the amount borrowed.

Interest = Principal x Interest Rate

Question 6

Compound Interest.

Answer 6

Refers to the result of periodic addition of simple interest to the principal. The
resulting amount (principal + interest) will earn interest

Compound Interest Rate= Principal (1+i)
Where:
i= interest rate
n=number of years

Question 7

Types of Debt

Answer 7

Good Debt
Bad Debt
Borrowing to pay off debt.
Borrowing to invest.

Question 8

Good Debt

Answer 8

We consider debt as “good debt” if it generate income or help an individual increase their net
worth. Some loans that is acquired to acquire for assets can be considered as good debt e.g. business loan, real estate loan.

Examples:
mortgages
student loans
small- business loans

Question 9

Bad Debt

Answer 9

We consider debt as “bad debt” if the amount borrowed is used to acquire a depreciating asset. Some of the items that if acquired using borrowed amount are clothes, vacations etc.

Examples:
credit cards
payday loans
personal loans

Question 10

Borrowing to pay off debt.

Answer 10

If a person already have loans they can acquire for additional loans to
cover their debts.

Question 11

Borrowing to invest.

Answer 11

An individual can acquire for loans to invest in assets. Some of the assets they
can acquire are stocks and bonds. However, one can incur loss when the value of their assets will
decrease

Question 12

Credit Cards

Answer 12

An item issued by a bank or financial services company that allows the owner to borrow funds to pay for the acquisition of goods and services. The owner of the card shall pay the amount incurred along with the interest that is impose for non full payment of the credit transaction made.

Question 13

The credit cards have___

Answer 13

annual percentages rate charges that is higher than the usual rate. When
using a credit card, one should always pay in full. One should be cautious in determining whether
the interest is incurred daily, or monthly.

Question 14

Parts of Credit Card

Answer 14

FRONT
Chip
Card Number
Expiration Date
Cardholder Name

BACK
Magnetic Strip
Signature
CVC Code
Hologram

Question 15

Types of Credit Cards

Answer 15

Rewards Credit Cards.
Branded version credit cards.
Secured Credit Cards.

Question 16

Rewards Credit Cards.

Answer 16

These types of credit card are
generally referred to as cards that there
are incentives being given when the card is being used.

Question 17

Branded version credit cards.

Answer 17

A company may issue credit
card that bears their company names. This is to encourage
customer loyalty. The cardholders may avail of perks such as
discounts, promos etc.

Question 18

Secured Credit Cards.

Answer 18

This credit card should provide a fund deposit. The
cardholder should not spend more than the deposits made. This is similar
to prepaid debit card.

Question 19

Secured Versus Unsecured Cards

Answer 19

SECURED
- Refundable deposit required to open an account
- Low risk to the issuer
- Low-fee cards available for bad credit
- Credit limit is based on the amount of the deposit

UNSECURED
- No deposit or collateral required to open an account
- High risk to the issuer
- Low-fee cards usually require good credit
- Credit limit is based on credit profile and income

Question 20

Annual Fee.

Answer 20

This is a fee being charged for the issuance of card. This usually changes over
time but some issuer do not have annual fees. Some credit cards do not have annual fees.

Question 21

Transaction Date.

Answer 21

This date is the actual date when the card was used to purchase or have
been used by the cardholder.

Question 22

Posting Date.

Answer 22

This date is the date when the card transaction was recorded as deduction
from the balance of the card.

Question 23

Decisions and Attitudes Towards Debt

Answer 23

• The decision when to acquire for debt will be based on the need of the person for
  additional sources of funds.
• One should know when to acquire for debt since it is important that they should pay it on time.
• In analyzing for the type of debt to acquire, the person should also assess if it is a good
  debt or a bad debt. If the person would be focusing on having bad debts, there is the
  tendency that the person will not be able to meet financial obligations.
• the decision and attitude
  towards debt is associated to the cultural differences and also norms. It is important that a person should be aware of the consequences of debts to improve their attitude towards debt.