Mortgages, Financing A Car, Financial Math Sem 2, Leasing vs. Buying a Car, Test, mortgages, buying vs.renting a home, Buying vs. Renting a Home Practice/Quiz, Topic Test - Mathematical Models with Applications, Annuities - Mathematical Models with A...

Which loan or loans listed below are awarded based on the financial need of the student? I. Perkins loan II. subsidized Stafford loan III. unsubsidized Stafford loan

b. I and II

Maria is going to take out a loan with a principal of $19,700. She has narrowed down her options to two banks. Bank M charges an interest rate of 7.1%, compounded monthly, and requires that the loan be paid off in five years. Bank N charges an interest rate of 7.8%, compounded monthly, and requires that the loan be paid off in four years. How would you recommend that Maria choose her loan?

b. Maria should choose Bank M's loan if she cares more about lower monthly payments, and she should choose Bank N's loan if she cares more about the lowest lifetime cost.

Repayment is the process of paying back borrowed money.

repayment

A secured loan is a loan that is backed by some form of collateral provided by the borrower.

secured loan

A service charge is the sum of lender fees for taking out a loan.

service charge

Jessica's bank is offering her a loan with a stated rate of 4.90% interest. If the interest is compounded every two months, what will Jessica really pay for interest?

b. 5.00%

An unsubsidized student loan is a federally guaranteed loan that accumulates interest and defers payment till 6 months after graduation.

unsubsidized

Any student can qualify for a subsidized Stafford loan, regardless of financial need.

F

An unsecured loan is a loan that is not backed by any form of collateral.

unsecured loan

Describe some of the characteristics of federal student loans.

Federal student loans are funded by the federal government. They usually offer a lower interest rate than private loans. Federal student loans are usually deferred until graduation, meaning that the student does not owe payments until after graduating.

Henry wants to avoid interest capitalization on his $7,800 unsubsidized Stafford loan. Henry will graduate in four years, and the loan has a duration of ten years. The loan has an interest rate of 5.6%, compounded monthly. How much must Henry pay every month to avoid interest capitalization?

NOT b. $43.68

You have just finished paying off your $35,125 loan, a feat which took ten years of quarterly payments. The loan had an interest rate of 7.44%, compounded quarterly. If you also paid $5,180.70 in service charges, what percentage of the total cost was made up by your finance charges? Round all dollar values to the nearest cent.

b. 36.47%

If the purchase price for a house is $218,500, what is the monthly payment if you put 3.5% down for a 30 year loan with a fixed rate of 6.5%?

a. $1,332.73

Carlos took seven years to pay off his loan by making identical quarterly payments. The loan had a principal of $22,375 and 5.49% interest, compounded quarterly. Carlos paid a total of $28,821.67. How much did Carlos pay in service charges? Round all dollar values to the nearest cent.

a. $1,721.31

Antonio has just graduated from four years of college. For the last two years, he took out a Stafford loan to pay for his tuition. Each loan had a duration of ten years and interest compounded monthly. Antonio will pay each of them back by making monthly payments, starting as he graduates. Antonio's loans are detailed in the table below. Year Loan Amount ($) Interest Rate (%) Subsidized? Junior 5,894 6.9 Y Senior 5,258 7.5 N Once all of his loans are paid off, what will Antonio's total lifetime cost be? Round all dollar values to the nearest cent.

a. $16,246.80

Tamora has just graduated from college. When she entered college four years ago, she took out a $9,100 subsidized Stafford loan, which has a duration of ten years. The loan has an interest rate of 5.4%, compounded monthly. If Tamora makes monthly payments, how much interest will she have paid in total by the time the loan is paid off? Round all dollar values to the nearest cent.

a. $2,697.20

Say you take out a loan with a principal of $44,500. The interest rate is 13.11%, compounded monthly. If you make consistent monthly payments and pay off the loan over the course of six and a half years, how much interest will you have paid in total? Round dollar amounts to the nearest cent.

a. $21,849.92

The principal on Jan's loan was $4,700, but by the time she had paid it off after four years, the interest and principal totaled $5,388. If Jan made regular quarterly payments of $355 until the loan was paid off, how much did Jan pay for service charges?

a. $292

Tyler is planning to buy a new car. He intends to trade in his existing car, a 2002 Chrysler Sebring in good condition. Using the table below, estimate how much Tyler's car is worth. Chrysler Cars in Good Condition

a. $3,260

Jessica took out a Stafford loan worth $7,175 at the beginning of her six-year college career. The loan has a duration of ten years and an interest rate of 6.3%, compounded monthly. How much greater will Jessica's monthly payment be if the loan is unsubsidized than if the loan is subsidized? Round all dollar values to the nearest cent.

a. $36.98

Niki makes the same payment every two months to pay off his $61,600 loan. The loan has an interest rate of 9.84%, compounded every two months. If Niki pays off his loan after exactly eleven years, how much interest will he have paid in total? Round all dollar values to the nearest cent.

a. $39,695.48

Olivia has taken out a $13,100 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 7.6%, compounded monthly. By the time Olivia graduates, how much greater will the amount of interest capitalized be than the minimum amount that Olivia could pay to prevent interest capitalization? Round all dollar values to the nearest cent.

a. $654.45

Dana just finished paying off the $15,400 loan she took out four years ago. The loan had 6.68% interest, compounded monthly. If Dana paid a total of $18,321.60, how much did she pay in service charges?

a. $730.08

Sam would like to use his extensive stamp collection as collateral for a secured loan. Sam has documentation that says his stamp collection is worth $10,525.00. Sam's bank has a policy that permits loan officers to lend no more than 82.5% of the value of the collateral. What is the maximum loan amount Sam can get from his bank using his stamp collection as collateral?

a. $8,683.13

Determine the monthly payment of a loan for $3,000 at 7.5% interest compounded monthly for 36 months.

a. $93.32

Suzanne has purchased a car with a list price of $23,860. She traded in her previous car, which was a Dodge in good condition, and financed the rest of the cost for five years at a rate of 11.62%, compounded monthly. The dealer gave her 85% of the listed trade-in price for her car. She was also responsible for 8.11% sales tax, a $1,695 vehicle registration fee, and a $228 documentation fee. If Suzanne makes a monthly payment of $455.96, which of the following was her original car? Dodge Cars in Good Condition

a. 2004 Intrepid

Theresa is buying a condo that costs $127,500. She has $8,300 in savings and earns $3,200 a month. Theresa would like to spend no more than 20% of her income on her mortgage payment. Which loan option would you recommend to Theresa?

a. 30 year fixed, 6.5% down at a fixed rate of 5%

A trade-in is most closely related to which of the following

a. A down payment, because it reduces the amount financed

Which of these statements is most accurate regarding mortgage payments through the life of your loan?

a. At the beginning of your loan, your payments are covering mostly interest. At the end of your loan, your payments are covering mostly principal.

RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater increase, relative to its nominal rate, and how much greater is its increase than that of the other loan?

a. Loan I's increase was 0.03 percentage points greater than Loan H's.

Dahlia is trying to decide which bank she should use for a loan she wants to take out. In either case, the principal of the loan will be $19,450, and Dahlia will make monthly payments. Bank P offers a nine-year loan with an interest rate of 5.8%, compounded monthly, and assesses a service charge of $925.00. Bank Q offers a ten-year loan with an interest rate of 5.5%, compounded monthly, and assesses a service charge of $690.85. Which loan will have the greater total finance charge, and how much greater will it be? Round all dollar values to the nearest cent.

a. Loan Q's finance charge will be $83.73 greater than Loan P's.

Kay has decided to take out a $23,100 loan, and she wants to pay it back in quarterly installments. She has narrowed her options down to two banks. Bank V offers a six-year loan with an interest rate of 4.6%, compounded quarterly, and has a service charge of $822.45. Bank W offers an eight-year loan with an interest rate of 3.9%, compounded quarterly, and a service charge of $722.25. Which loan will have the greater total finance charge, and how much greater will it be? Round all dollar values to the nearest cent.

a. Loan W's finance charge will be $335.96 greater than Loan V's.

Ricky is taking out a personal loan for $12,000 to remodel his kitchen. He would like the lowest monthly payment possible, even if it means a bigger finance charge in the end. His bank has offered him a loan at 13% interest for 36 months or 12% interest for 60 months. Which of the following statements most accurately describes what Ricky should be thinking?

a. More payments with the 60 month loan will give him the lowest monthly payment.

Why is deferment an important aspect of student loans?

a. Most students are unable to make monthly payments while studying, so deferment allows them to focus on studying.

When dealing with a loan, who benefits from compounding interest more frequently, and why?

a. The lender benefits, because the interest compounded increases further interest calculations.

Judy needs to take out a personal loan for $2,500 for tuition assistance. Her bank has offered her one of the four loan packages outlined in the chart below. Determine which of the four loans will be cheapest for Judy in the long run. All interest rates are compounded monthly.

a. loan A

Craig is considering four loans. Loan L has a nominal rate of 8.254%, compounded daily. Loan M has a nominal rate of 8.474%, compounded weekly. Loan N has a nominal rate of 8.533%, compounded monthly. Loan O has a nominal rate of 8.604%, compounded yearly. Which of these loans will offer Craig the best effective interest rate?

a. loan L

The following formula is used to calculate the monthly payment on a personal loan. 2007-10-03-00-00_files/i0020000.jpg In this formula, n represents the

a. number of periods over which interest is calculated on the loan

Oliver is looking to go to college. His family does not have very much money, so he qualifies for need-based financial aid. Oliver needs to spend most of his time working at his full-time job, so he will only be able to take a few classes per semester. Oliver's parents have poor credit scores and cannot afford to take on any more debt. Based on Oliver's situation, recommend a federal loan which would be appropriate for him.

a. subsidized Stafford loan

In a secured loan, collateral is

a. valuable property that the borrower promises to give the lender in the event of default on the loan

Karina bought a townhouse for $199,900. She has a 30 year mortgage with a fixed rate of 5.5%. Karina's monthly payments are $998.08. What percent of the purchase price was Karina's down payment?

b. 12%

The Johnsons are buying a house that costs $210,000 and can afford a 20% down payment. If the Johnsons want the lowest monthly payment, which loan option would you recommend?

b. 30 year fixed, 20% down at a fixed rate of 6%

Jerry's loan had a principal of $22,000. He made quarterly payments of $640 for nine years until the loan was paid in full. How much did Jerry pay in interest?

b. $1,040

Rachel took out a personal loan for $4,500 with a monthly payment of $173.06 for 36 months. Determine the finance charge on Rachel's loan if she takes all 36 months to pay it off.

b. $1,730.16

If the purchase price for a house is $345,000, what is the monthly payment if you put 10% down for a 30 year loan with a fixed rate of 6.375%?

b. $1,937.12

Paul has an eight-year loan with a principal of $26,900. The loan has an interest rate of 8.18%, compounded quarterly. If Paul pays $1,527 in service charges and makes quarterly payments on his loan, what will his total finance charge be when the loan is repaid? Round all dollar values to the nearest cent.

b. $11,546.36

Calculate the monthly payment for a loan of $7,500 with an 11% interest rate compounded monthly over a period of 5 years.

b. $163.07

Tyrell bought a house for $186,500. He has a 30 year mortgage with a fixed rate of 6.5%. Tyrell's monthly payments are $1,060.93. How much was Tyrell's down payment?

b. $18,650

If the purchase price for a house is $445,500, what is the monthly payment if you put 5% down for a 30 year loan with a fixed rate of 6.25%?

b. $2,605.87

Brian took eight years to pay off his $71,900 loan. The loan had an interest rate of 8.16%, compounded quarterly. If Brian paid quarterly and made the same payment every time, how much was each payment that he made?

b. $3,081.54

Toby just graduated from four years of college. At the beginning of each year, he took out a Stafford loan with a principal of $6,125. Each loan had a duration of ten years and an interest rate of 5.3%, compounded monthly. All of the loans were subsidized. Toby plans to pay off each loan in monthly installments, starting from his graduation. What is the total lifetime cost for Toby to pay off his 4 loans? Round each loan's calculation to the nearest cent.

b. $31,616.16

Bernie has decided to purchase a new car with a list price of $18,575. Sales tax in Bernie's state is 7.40%, and he will be responsible for a $795 vehicle registration fee and a $110 documentation fee. Bernie plans to trade in his existing car, a 1999 Buick Riviera in good condition, and finance the rest of the cost for five years at an interest rate of 12.77%, compounded monthly. Assuming that the dealer gives Bernie the listed trade-in price for his car, what will his monthly payment be? Round all dollar values to the nearest cent. Buick Cars in Good Condition

b. $439.12

Cassandra purchased a new car. The car had a list price of $16,870. Cassandra made a down payment of $1,800 and financed the rest, paying 12.3% interest compounded monthly over a payment period of four years. If Cassandra also had to pay 7.8% sales tax, a $895 vehicle registration fee, and a $68 documentation fee, what is her monthly payment

b. $459.42

Annie would like to take out a loan to put a new playground in her yard for her kids. She offers her car which is worth $7,800 as collateral. The loan officer at the bank is permitted to loan Annie 92% of the value of her collateral. How much will Annie be able to borrow for the playground using her car as collateral?

b. $7,176.00

Shauna wants to buy a house and plans to rent the apartment located in the basement for extra income. The house has a purchase price of $195,600 and she will make a 5% down payment. Shauna has qualified for a 30 year mortgage with a fixed rate of 5.875%. Approximately how much rent should she charge for the apartment in order to cover her monthly mortgage payment if she only wants to spend $400 a month of her own money?

b. $700

Claudius took out an unsubsidized Stafford loan at the beginning of his six-year college career. The loan had a principal of $4,850, an interest rate of 6.5% compounded monthly, and a duration of ten years. If Claudius started paying off the loan when he graduated, what is his monthly payment? Round all dollar values to the nearest cent.

b. $81.25

What would the monthly payment be for a $5,000 loan with a 6.25% interest rate compounded monthly spread over 60 months?

b. $97.25

Peter wants to buy a duplex with a purchase price of $226,950. Peter can afford a 10% down payment. Peter earns $2,985 a month and wants to spend no more than 10% of his income on his mortgage payment. Peter is going to rent out the other half of the duplex. He thinks that if he charges $900 a month in rent this will cover the remainder of his mortgage payment. Given that Peter has a 30 year mortgage with a fixed rate of 6.25%, how should Peter adjust how much he charges for rent of the other half of the duplex?

b. Peter should increase the rent by $60.

Sebastian has just graduated after four years of university. He took out an unsubsidized Stafford loan worth $8,180 to help pay for his tuition. The loan has a duration of ten years. If the loan has an interest rate of 5.3%, compounded monthly, how much interest capitalization has occurred by the time he graduated? Round all dollar values to the nearest cent.

c. $1,926.97

Bianca took out a $2,600 unsubsidized Stafford loan. She will be attending school for four years, and she wishes to have the loan paid off five years before its normal ten-year duration is finished. The loan has an interest rate of 6.2%, compounded monthly. How much will she have to pay monthly to avoid interest capitalization?

c. $13.43

Tamora just made the last of her monthly payments on her loan. She had been making these payments for the past nine years. The loan had a principal of $10,675 and an interest rate of 4.75%, compounded monthly. In addition, Tamora paid $939.25 in service charges. What was Tamora's total finance charge? Round all dollar values to the nearest cent.

c. $3,403.53

Roderigo has just finished paying back his $8,575 unsubsidized Stafford loan, which he took out to fund his four-year degree. The loan had a duration of ten years and an interest rate of 7.1%, compounded monthly. Roderigo will allow interest capitalization. If Roderigo made monthly payments to pay off his loan, how much interest did he pay in total? Round all dollar values to the nearest cent.

c. $7,353.80

Determine the finance charge on a $6,500 loan with an interest rate of 9.5% compounded monthly over 36 months.

c. $995.56

When calculating a loan's effective interest rate, if the nominal rate is 8.5%, what value of i do you plug into your equation?

c. 0.085

John is planning to take out a personal loan for $4,500 to buy a car. He would like to keep his monthly payments at or below $150.00 and pay the loan off in three years. Which of the following is the greatest interest rate John can accept and still meet his criteria?

c. 12.25% compounded monthly

Charles is going to purchase a new car that has a list price of $21,450. He is planning on trading in his good-condition 2004 Dodge Neon and financing the rest of the cost over three years, paying monthly. His finance plan has an interest rate of 12.28%, compounded monthly. Charles will also be responsible for 6.88% sales tax, a $1,089 vehicle registration fee, and a $124 documentation fee. If the dealer gives Charles 80% of the listed trade-in price on his car, once the financing is paid off, what percent of the total amount paid will the interest be? (Consider the trade-in to be a reduction in the amount paid

c. 16.70%

Julio just bought a $267,900 house. He had a 20 year mortgage with a fixed rate of 5.875%. Julio's monthly payments are $1,558.09. What percent of the purchase price was Julio's down payment?

c. 18%

Tim and Sally are taking out a personal loan to pay for their wedding expenses. The loan is for $9,000 and comes with an interest rate of 9.5% compounded monthly. The couple wants to pay the loan off as quickly as possible, keeping the monthly payments below $250. The lender offers repayment plans in 12 month increments. How long of a loan should they request?

c. 48 months

In calculating the monthly payment for a five-year loan, what value should be used for n, the number of periods over which the loan is repaid, as it appears in the following formula?

c. 60

Melanie is looking for a loan. She is willing to pay no more than an effective rate of 9.955% annually. Which, if any, of the following loans meet Melanie's criteria? Loan A: 9.265% nominal rate, compounded weekly Loan B: 9.442% nominal rate, compounded monthly Loan C: 9.719% nominal rate, compounded quarterly

c. A and B

Nick found his dream home that has a purchase price of $192,000. Nick earns $3,325 a month and wants to spend no more than 30% of his income on his mortgage payment. He has saved up $35,000 for a down payment. Nick is considering the following loan option: 20% down, 30 year at a fixed rate of 6.25%. What modification can be made to this loan to make it a viable option, given Nick's situation?

c. Change the down payment to 18% down

Why do interest rates on loans tend to be lower in a weak economy than in a strong one?

c. In a weak economy there is less demand for credit, so the price drops.

Say you are considering two loans. Loan F has a nominal interest rate of 5.66%, compounded monthly. Loan G has a rate of 6.02%, compounded semiannually. Which loan will give the lower effective interest rate, and how much lower will it be?

c. Loan F's effective rate will be 0.302 percentage points lower than Loan G's.

The following table shows a portion of a three-year amortization schedule. Use the information in the table to decide which of the following statements is true

c. The amount applied to the principal is increasing each month

Why is the interest rate of a loan one of the most important things to consider when shopping around for loans?

c. The interest rate can drastically change the total amount paid to the lender, in the case of mortgages, up to thousands of dollars.

Which of the following statements is true?

c. The lower your interest rate is, the lower your monthly payments are.

Collateral is an asset that a borrower pledges to a lender in order to secure a loan.

collateral

Why does it take 30 years to pay off $150,000 loan, even though you pay $1000 a month?

d. Even though the principal would be paid off in just over 10 years, it costs the bank a lot of money fund the loan. The rest of the loan is paid out in interest.

Why do most student loans involve a co-signer?

d. Most students are young enough not to have much of a credit score or credit history, so a second party such as a parent or guardian can establish security of payment.

Cindy would like to borrow money from her bank to restore her collectible car. It will take $12,000 to fully restore the car. Cindy's bank offers secured loans at 89% of the collateral value. How much collateral does Cindy need to offer to get a loan big enough to allow her to fully restore her car?

d. $13,483.15

Hal has just graduated from four years of college. For the last two years, he took out a Stafford loan to pay for his tuition. Each loan had a duration of ten years and interest compounded monthly, and Hal will pay each of them back by making monthly payments, starting as he graduates. Hal's loans are detailed in the table below. Year Loan Amount ($) Interest Rate (%) Subsidized? Junior 4,048 5.9 N Senior 5,295 7.6 Y Once all of his loans are paid off, what will Hal's total lifetime cost be? Round all dollar values to the nearest cent.

d. $13,615.20

Reg has just purchased a new car. The car had a list price of $22,499, and he was responsible for 7.96% sales tax, a $2,138 vehicle registration fee, and a $262 documentation fee. Reg's financing has an interest rate of 10.27%, compounded monthly, and a duration of three years. If Reg makes a monthly payment of $773.89, which of the following was his down payment? Round all dollar values to the nearest cent

d. $2,800

Helena has taken out a $9,300 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 6.4%, compounded monthly. By the time Helena graduates, how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization? Round all dollar values to the nearest cent.

d. $324.33

Kevin has just finished paying off his loan. He was assessed a service charge of $422. He paid off the principal and the interest by making weekly payments of $36.13 for four years. If the principal was $7,150, how much did Kevin pay in finance charges, to the nearest dollar?

d. $787

In calculating the monthly payment for a loan with an 8.5% interest rate, what value should be used for i, the interest rate per period, as it appears in the following formula?

d. 0.0071

When purchasing her new car, Molly traded in her previous car, which was a Buick in good condition. The dealer offered her 80% of the listed trade-in value for her car, giving her a total of $1,340.80. What was Molly's previous car? Buick Cars in Good Condition Model/Year 1998 1999 2000 2001 2002 Century $929 $1,086 $1,150 $1,488 $1,595 LeSabre $2,075 $2,282 $2,690 $2,935 $3,374 Regal $1,676 $1,794 $2,030 $2,214 $2,566 Riviera $1,291 $1,455 $1,520 $1,814 $1,959 a. 1999 LeSabre b. 2002 Century c. 2001 Riviera d. 1998 Regal

d. 1998 Regal

Eli is buying a townhouse that costs $276,650. He has $28,000 in savings and earns $4,475 a month. Eli would like to spend no more than 30% of his income on his mortgage payment. Which loan option would you recommend to Eli?

d. 30 year fixed, 10% down at a fixed rate of 5%

The Williams are buying a house that costs $323,000 and can afford a 10% down payment. If the Williams want the lowest monthly payment, which loan option would you recommend?

d. 30 year fixed, 10% down at a fixed rate of 6%

What is the difference between a service charge and a finance charge?

d. A service charge is a fee assessed by a lender other than interest, and a finance charge is the total of the interest paid on a loan and the service charge.

Ed needs to take out a loan for $7,000 to purchase a car. His bank has offered him a loan at 10.0% interest for 36 months or 10.5% interest for 24 months. Ed's goal is to save as much money as possible by the time he pays off the loan. Which of the following statements best describes what Ed should be thinking?

d. Since the finance charge for the 24 month loan is lower, this loan will save more.

The following table shows the first two years of a three-year amortization schedule Use the information in the table to decide which of the following statements is true. a. The interest amount increases each month. b. The principal amount decreases each month. c. The payment amount changes each month. d. The payment amount each month stays the same

d. The payment amount each month stays the same

How does Truth-in-lending benefit consumers when shopping for a loan?

d. Truth-in-lending allows consumers to know every cost that is associated with the loans they research and apply for, and helps them reach the optimal decision.

What is the portion of a home's purchase price paid in cash and is not part of the mortgage loan?

d. down payment

Whic of the following is not a component of a mortgage payment?

d. down payment

Housing expenses are commonly referred to as PITI. What does PITI stand for?

d. principal, interest, taxes, insurance

Deferment is the process in which a borrower postpones the repayment of a loan for a specified period of time.

deferment

A finance charge is the total cost of taking out a loan, which includes the interest paid over the lifetime of the loan and any service fees applied by the lender.

finance charge

An installment plan is where periodic payments are made by a borrower over the lifetime of a loan.

installment

The difference between the amount paid over the lifetime of a loan, that is compounded n times in a given year, and the principal amount borrowed is defined as the interest.

interest