Do the Math homework for week 6

Do the Math #1: Monthly Payments and
Finance Charges.
Kimberly Jensen and Rebecca Parker
of Mankato, Minnesota, are both single. The pair share an apartment on the
limited resources provided through Kimberly’s disability check from Social
Security and Rebecca’s part-time job at a grocery store. The two grew tired of
their old furniture and went shopping. A local store offered credit at an APR
of 16 percent, with a maximum term of four years. The furniture they wish to
purchase costs $2,800, with no down payment required. Using Table 7-1 or the
Garman/Forgue companion website, make the following calculations:

  • a) What is the amount of their monthly payment if they
    borrow for four years?
  • b) What are the total finance charges over that four
    year period?
  • c) How would the payment change if Kimberly and Rebecca
    reduced the loan term to three years?
  • d) What are the total finance charges over that
    three-year period?
  • e) How would the payment change if they could afford a
    down payment of $500 with four years of financing?
  • f) What are the total finance charges over that
    four-year period given the $500 down payment?
  • g) How would the payment change if they could afford a
    down payment of $500 with three years of financing?
  • h) What are the total finance charges over that
    three-year period given the $500 down payment?

Do the Math #5: Rule of 78s. Aaron Carson of Hays, Kansas, obtained a two-year
installment loan for $1,500 to buy some furniture eight months ago. The loan
had a 12.6 percent APR and a finance charge of $204.72. His monthly payment is
$71.03. Aaron has made eight monthly payments and now wants to pay off the
remainder of the loan. The lender will use the Rule of 78s method to calculate
a prepayment penalty.

  • a) How much will Aaron need to give the lender to pay
    off the loan?
  • b) What is the dollar amount of the prepayment penalty
    on this loan?

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