ACE 245 Discussion Section – Week 9
Goals: Prepare students for homework exercise 4, largely about credit.
1.
Anisha’s gross annual income is $35,000.
Her aftertax income is $29,500.
What is the
maximum recommended amount she should be devoting to monthly consumer credit
payments?
[Hint:
Check out the recommended debtsafety ratio.]
a.
$385
b.
$468
c.
$492
[Chap 6 says debtsafety ratio should be
<
20% of take home pay.
d.
$527
(0.2 * 28,800) / 12 = $480]
e.
$600
2.
What would be the final payment for a $10,000 singlepayment
loan issued for 6 months
charging simple interest at APR 12%? (Round to nearest dollar)
10,000 + (0.12 / 2)*10,000 = 10,600
3.
Judy has arranged a loan of $2,500 for which she will pay $300 upfront and return the $2,500
at the end of one year.
What type of loan is this and what is the effective annual interest rate?
Discount loan.
$2500 / ($2500 – 300) = 1.136
interest rate of 13.6%
4.
What is the effective annual rate
of interest on a loan of $2000 due in three months where
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 Fall '07
 Braden
 Annual Percentage Rate, Debt, Interest, annual fee

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