BUSN 380 help Making Decisions/uophelp.com BUSN 380 help Making Decisions/uophelp.com | Page 31

her IRA. Her monthly credit payments for VISA, MasterCard, and
Discover card are $35, $30, and $20, respectively. Her monthly payment
on an automobile loan is $285. What is Louise’s debt payments-to-
income ratio? Is Louise living within her means?
2. Calculating Debt Payments–to-Income Ratio. Suppose that your
monthly net income is $2,400. Your monthly debt payments include
your student loan payment, a gas credit card and they total $360. What
is your debt payments – to – income ratio?
3. Dave borrowed $500 for one year and paid $50 in interest. The bank
charged him a $5 service charge.
A- What is the finance charge on this loan?
B- Dave borrowed $500 on January 1, 2006, and paid it all back at once
on December 31, 2006. What was the APR?
C- If Dave paid the $500 in 12 equal monthly payments, what is the
APR?
4. Calculating Simple Interest on a Loan. Damon convinced his aunt to
lend him $2,000 to purchase a plasma digital TV. She has agreed to
charge only 6 % simple interest, and he has agreed to repay the loan at
the end of one year. How much interest will he pay for the year?
5. After visiting several automobile dealerships, Richard Welch selects
the car he wants. He likes its $10,000 price, but financing through the
dealer is no bargain. He has $2,000 cash for a down payment, so he
needs an $8,000 loan. In shopping at several banks for an installment
loan, he learns that interest on most automobile loans is quoted at add-on
rates.
That is, during the life of the loan, interest is paid on the full amount
borrowed even though a portion of the principal has been paid back.