CAC Financial Analysis 2 — Questions and Answers
Question 1: A borrower earns $4,000 gross per month and has $1,200 in monthly debt payments, including a proposed car payment. What is the debt-to-income (DTI) ratio?
- 25%
- 30% (Correct answer)
- 33%
- 40%
Correct answer: 30%
DTI equals total monthly debt divided by gross monthly income, so $1,200 / $4,000 = 30%.
Question 2: A borrower's proposed auto payment is $500 and gross monthly income is $3,125. What is the payment-to-income (PTI) ratio?
- 12%
- 14%
- 16% (Correct answer)
- 20%
Correct answer: 16%
PTI is the vehicle payment divided by gross monthly income: $500 / $3,125 = 16%.
Question 3: A vehicle is valued at $20,000 and the amount financed is $24,000. What is the loan-to-value (LTV) ratio?
- 83%
- 100%
- 110%
- 120% (Correct answer)
Correct answer: 120%
LTV equals amount financed divided by collateral value: $24,000 / $20,000 = 120%.
Question 4: Which situation best describes negative equity in an auto loan?
- The loan balance is higher than the vehicle's market value (Correct answer)
- The borrower's credit score is lower than 600
- The APR is higher than the contract rate
- The down payment is more than 20% of the price
Correct answer: The loan balance is higher than the vehicle's market value
Negative equity, or being 'upside down,' means the borrower owes more than the vehicle is worth.
Question 5: An indirect auto lender buys a $15,000 retail installment contract from a dealer for $13,500. What is the dealer discount as a percentage of the contract amount?
- 5%
- 10% (Correct answer)
- 11.1%
- 15%
Correct answer: 10%
The discount is $1,500, and $1,500 / $15,000 = 10% of the contract amount.
Question 6: Which financial statement shows a company's assets, liabilities, and equity at a single point in time?
- Income statement
- Statement of cash flows
- Balance sheet (Correct answer)
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet is a snapshot of financial position on a specific date.
Question 7: Under the CECL standard (ASC 326), how must lenders estimate credit losses on loans?
- Only after a loss event is probable
- Based only on the prior year's charge-offs
- Only when a loan is 90 days past due
- Expected lifetime losses from the time the loan is originated (Correct answer)
Correct answer: Expected lifetime losses from the time the loan is originated
CECL requires lenders to record expected credit losses over the full contractual life at origination.
CAC Financial Analysis 2
A borrower earns $4,000 gross per month and has $1,200 in monthly debt payments, including a proposed car payment.
What is the debt-to-income (DTI) ratio?