Debt and Credit Card Debts

1138 Words Nov 14th, 2013 5 Pages
PROBLEMS (p. 180)
1. A few years ago, Simon Powell purchased a home for $150,000. Today, the home is worth $250,000. His remaining mortgage balance is $100,000. Assuming that Simon can borrow up to 75 percent of the market value, what is the maximum amount he can borrow? (LO 5.2)
Present market value of Simon’s home = $250,000. Simon can borrow up to 75 percent of the market value, or $187,500. Simon still owes $100,000 mortgage on his home. Therefore, he can borrow an additional $87,500.
2. Louise McIntyre’s monthly gross income is $3,000. Her employer withholds $700 in federal, state, and local income taxes and $250 in Social Security taxes per month. Louise contributes $100 per month for her IRA. Her monthly credit payments for VISA
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What was the total amount she paid? What if she had made the purchase with her credit card and paid off her bill in full promptly? (LO 5.4)  Sidney’s cash advance fee was $4.00.
1* At an 18% APR, she paid $3.00 interest for one month.
2* She paid a total of $207.
3* If Sydney had made the purchase with her credit card and paid off the bill in full promptly, she would have paid only $200
The answer is true if the card has a grace period, but if there is no grace period (and some cards don’t offer one), she would have paid the $3 interest charge regardless and would have saved only on the cash advance of $4.
9. Brooke lacks cash to pay for a $500 washing machine. She could buy it from the store on credit by making 12 monthly payments of $44.85 each. The total cost would then be $538.20. Instead, Brooke decides to deposit $42 a month in the bank until she has saved enough money to pay cash for the washing machine. One year later, she has saved $516—$504 in deposits plus interest. When she goes back to the store, she finds that the washing machine now costs $550. Its price has gone up 10 percent—the current rate of inflation. Was postponing her purchase a good trade-off for Brooke? (LO 5.4)

No, it was not a good trade-off for Brooke to postpone her purchase. By waiting one year, she had to pay more to buy the washing machine. Now she had saved $516, but the price of the washing machine has increased from $500 to $550. If she had used credit to buy the washing
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