Financial Mathematics Unit 3: Loans and Credit Cards

Why would finance charges be applied to a customer with a credit card?

if the customer did not pay off the entire bill

Lesson 13

Credit Cards and Lines of Credit

Lesson 14

Car Loans and Leases

Lesson 12

Cost of Borrowing Money

When would an adjustable-rate mortgage be the most beneficial?

to have a lower payment later in the loan

When can a personal line of credit loan be a better option than using a credit card?

It has lower interest rate.

In which scenario is it better to buy a property than to rent?

lower monthly payment

Lesson 11

Understanding Credit Scores and Credit Reporting

Tamara broke her arm and the medical bills are $2000. Her parents are offering to pay her medical bills at an annual simple interest rate of 5%. How much will Tamara pay in interest at the end of the year?

$100

The mortgage is $500,000 for 30 years. Using the simple interest formula A=P(1+rt), which loan will save him the most interest?

20% down payment

What is true when only the minimum payment is made on a credit card each month?

Interest is charged on the remaining balance.

Jasime always carries cash. Her friends think she should get a credit card. Which reasons show the benefits of having a credit card? Select all that apply.

0.38 of 1/ rewards programs more convenient xxx access to all retailers

Bryan wants to purchase a $20,000 car. The bank has offered him a car loan with a 3.75% interest rate and a 60-month term. He has decided to make a 20% down payment. What is the remaining balance on the car loan at the end of the first year?

$13,035

Zachary is trying to improve his credit. Which two areas will have the greatest effect on his credit score? Select all that apply.

his payment history his debt balance

Two cars with the same purchase price are not worth the same amount at the end of the year. Some cars depreciate faster than others. A truck depreciates at 45%45% and a Jeep depreciates at 25%25% per year. Assume the initial purchase price is $19,000.$19,000. Use a spreadsheet to determine how much more the Jeep is worth in three years.

xxx $14,250

Chin deposited $400 in an account that pays 3% interest compounded annually. What is the balance of Chin's account at the end of 2 years?

$424.36

Ryan wants to invest in a bank account that will double his money in the smallest period of time. He has two options. Account A will compound his principal at 5% every six months. Account B offers him a simple interest rate of 5% on his principal every year. Which account will double his principal first? Why?

Account A will double the principal first due to the compounding of interest.

Anna missed her last three credit card payments. Her credit report shows that her credit card account is overdue. She eventually catches up on making the minimum payments on time. What will happen to her credit score? Select all that apply.

After making the minimum payments on her account, her score will improve. Her credit score will decrease temporarily.

Melanie wants to purchase a car that costs $43,150 She has decided to make a 20% down payment. Her bank offers her a 48-month loan at a 5.25% interest rate. Build a loan amortization schedule. What is the amount of interest paid on the car loan for the first 12 months?

approximately $1622

Nila is trying to choose between leasing or buying an automobile. At the end of the three years, she wants to keep the automobile, but she will buy it back. Create a spreadsheet to determine how much more Nila will pay with the lease option versus the buy option at the end of the three years.

$700

The balance on Taylor's credit card is $2000$2000. It has an interest rate of 12.5%12.5%. She wants to compare the difference between paying $75$75 and $100$100 of the monthly balance. How much does she save in interest and fees if she pays $100$100 instead of $75$75?

$78

Vinnie recently inherited a large sum of money and wants to pay off a few loans he has taken out over the years, but he is not sure if paying them early will be worth the expense. He created this chart to compare his outstanding loans and calculate the interest he will save. Which loans should he pay off early?

Loan 1 and Loan 3

Which answers describe the advantages of having a credit card? Select all that apply.

0.75 of 1 emergencies ease of purchase protection of purchases * try adding building credit line

The overall credit use is 36.25%. Card A is 80%. How much would the credit use percentage be if Card A had a zero balance? Round to the nearest hundredth.

33.75%

The Johnson family buys furniture and appliances for a new house for $10,000.00 with a credit card that has a 15% APR. The Johnsons make a $325.00 monthly payment. How many months will it take to pay off the balance?

40

Yvonne bought a new computer and printer for college. The total cost was $2500, which she put on her new credit card that has an interest rate of 13% She makes a $75.00 monthly payment. How many months will it take to pay off the credit card balance?

42

Lesson 15

Mortgages

Aryana wants to invest $43,000. She has two options. Option A gives her 6% compounded quarterly. Option B gives her 6% simple interest annually. Which option earns higher interest after 3 years and by how much?

Option A earns $8428.00 in interest, which is higher by $688.00 than Option B.

Sandy bought a car for $17,500$17,500. Her monthly car payment is $346$346. The first month the amount applied to the principal is $283$283 and the interest amount is $63$63. Assume that each month the amount applied to the principal increases by $1$1 and the interest amount decrease by $1$1. Which spreadsheet shows the amount of interest she paid in the six months?

look for interest 363 and total 2076

Jake buys a gaming system and equipment for $2200.00 with a credit card that has a 28% APR. He makes a $100.00 monthly payment. What is the total amount of interest based on the APR?

$922

Bud just started trade school and needs a credit card. He chooses two different cards. He starts out with a credit score of 750. Which one of these actions will have the biggest negative effect on his credit score?

He misses monthly payments.

Classmates Isabella, Destiny, and Jana each received $500 as a graduation gift. Isabella deposits her money in an account that earns 8% interest compounded annually and keeps the money in the account for three years. Destiny deposits her money, plus an extra $50, in an account that earns 9% interest compounded annually and keeps the money in the account for two years. Jana deposits her money in an account that earns 7% compounded annually and keeps the money in the account for one year. Who has the most money when they close their accounts and why?

Destiny has the most because she deposited the most money at the highest interest rate.

Which best describes the legal status of American Indian lands?

They are semiautonomous but still subject to federal authority.

What is a benefit of points on a mortgage?

lowers the interest rate

Juan wants to buy a new car for $15,000. He has reviewed three loan offers.

Pixley Bank and Trust

Vanessa is buying a house next year. She applies for a $300,000 loan to be paid in 30 years. Her credit score is 550 Using the table, how much bigger will her monthly payment be than if her score were 850?

$745

The average monthly payment on a new car is $523$523. The interest on a car loan is $8469$8469 a year. The average monthly cost of gasoline is $146$146. Monthly maintenance and repairs is $99$99. Registration, fees, and taxes are $145$145 a year. The average cost of auto insurance is $924$924 per year. The average yearly depreciation is $1115$1115. Use a spreadsheet to determine the total cost of car ownership after five years.

$99,345

Doug is trying to determine whether to lease or buy a car. The following table shows the costs associated with buying and leasing the car. What is the difference in cost over the 4-year period if he leases instead of buying the car?

$2294.40

David saves $425 every month after expenses. He has an outstanding balance of $9200 on his credit card that he wants to pay up. His credit card company has offered him the following options: Repay at 8% interest compounded monthly, over a period of one year. Repay at 7% interest compounded monthly, over a period of two years. Repay at 6.5% interest compounded monthly, over a period of three years. Repay at 6% interest compounded monthly, over a period of four years. Using an online calculator, fill in the below chart for the various options. Select the best option from David's perspective and give a reason for the selection. Answer in dollars such as $400 and round the cents to the nearest dollar.

Option 2 is the best for David because he can spend $412 and it has the second lowest interest outgo.

Jasime's car needs an unexpected repair. She will have to borrow $1000 until her next payday, which is 10 days away. Which is the best loan?

a bank small loan, because the total interest/fees are less

A house is being purchased for $138,000.00.$138,000.00. The 3030-year mortgage has a 10%10% down payment, an interest rate of 4.875%4.875%, and a PMI payment of $25.88$25.88 each month for 7777 months. The yearly taxes are $2400.00$2400.00, and the insurance is $750.00$750.00 per year, which is to be placed into an escrow account. What is the total cost of the loan? Round your answer to the nearest $100.00$100.00. Enter a number, such as $123,500.00.

xxx $238,600.00