CHAPTER 10 Review Exercises 653 b) How much interest will Bill save, computed by the actuarial method? $253.14 c) What is the total amount due to pay off the loan? $4150.36 37. Installment Loan Dara’s cost for a new wardrobe was $3420. She made a down payment of $860 and financed the balance on a 24-month fixed payment installment loan. The monthly payments are $111.73. Instead of making her 12th payment, Dara decides to pay the total remaining balance and terminate the loan. a) Determine the APR of the installment loan. 4.5% b) How much interest will Dara save, computed by the actuarial method? $32.12 c) What is the total amount due to pay off the loan? $1420.37 38. Finance Charge Comparison On June 1, the billing date, Tim had a balance due of $485.75 on his credit card. Tim’s transactions during the month of June were June 4 Payment $375.00 June 8 Charge: Car repair 370.00 June 21 Charge: Airline ticket 175.80 June 28 Charge: Clothing 184.75 a) Determine the finance charge on July 1 by using the previous balance method. Assume that the interest rate is 1.3% per month. $6.31 b) Determine the new account balance on July 1 using the finance charge found in part (a). $847.61 c) Determine the average daily balance for the period. $508.99 d) Determine the finance charge on July 1 by using the average daily balance method. Assume that the interest rate is 1.3% per month. $6.62 e) Determine the new account balance on July 1 using the finance charge found in part (d). $847.92 39. Finance Charge Comparison On August 5, the billing date, Pat had a balance due of $185.72 on her credit card. Pat’s transactions during the month of August were August 8 Charge: Shoes $85.75 August 10 Payment 75.00 August 15 Charge: Dry cleaning 72.85 August 21 Charge: Textbooks 275.00 a) Determine the finance charge on September 5 by using the previous balance method. Assume that the interest rate is 1.4% per month. $2.60 b) Determine the new account balance on September 5 using the finance charge found in part (a). $546.92 c) Determine the average daily balance for the period. $382.68 d) Determine the finance charge on September 5 by using the average daily balance method. Assume that the interest rate is 1.4% per month. $5.36 e) Determine the new account balance on September 5 using the finance charge found in part (d). $549.68 10.5 40. Building a House The Drummonds have decided to build a new house. The contractor quoted them a price of $135,700. The taxes on the house will be $3450 per year, and homeowners’ insurance will be $350 per year. They have applied for a conventional loan from a local bank. The bank is requiring a 25% down payment, and the interest rate on the loan is 4.5%. The Drummonds’ annual income is $64,000. They have more than 10 monthly payments remaining on each of the following: $218 on a car, $120 on new furniture, and $190 on a camper. Their bank will approve a loan that has a total monthly house payment of principal, interest, property taxes, and homeowners’ insurance that is less than or equal to 28% of their adjusted monthly income. Determine a) the required down payment. $33,925 b) 28% of their adjusted monthly income. $1345.49 c) the monthly payment of principal and interest for a 30-year loan. $515.68 d) their total monthly payment, including insurance and taxes. $832.35 e) Do the Drummonds qualify for the mortgage? Yes 41. Thirty-Year Mortgage James purchased a home selling for $89,900 with a 15% down payment. The period of the mortgage is 30 years, and the interest rate is 11.5% with no points. Determine the a) amount of the down payment. $13,485 b) monthly payment of principal and interest. $756.73 c) amount of the first payment applied to the principal. $24.42 d) total cost of the house. $285,907.80 e) total interest paid. $196,007.80 42. Adjustable-Rate Mortgage The Cunninghams purchased a new home for $375,000 with a down payment of $140,000. They obtained a 15-year adjustable rate mortgage with the following terms. The interest rate is based on the one-year Treasury bill rate, which is currently at 1.0% and the add-on rate, which is 3.5%. The initial rate period is 5 years, and thereafter the interest rate is adjusted once a year and a new monthly mortgage payment is calculated. a) Determine the Cunninghams’ initial ARM rate. 4.5% b) Determine the Cunninghams’ initial monthly payment for principal and interest. $1797.73
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