Question

ou are headed to the mountains for some climbing this summer and you need some gear. The local mountaineering shop is offering 5% financing on all purchases before the end of the month. Your savings account is currently paying 6%, and you are in a marginal tax bracket of 28%. Which of the following is true (after taxes)?

	a.	Borrow from the mountain shop — it is cheaper
	b.	Take the money out of savings — it is cheaper
	c.	It does not matter where you get the money; it will cost the same.

Billy has chosen to purchase a new vehicle. The vehicle costs $15,000. His APR is 10% and he will be financing the vehicle for 36 months. How much will Billy pay each month for his new vehicle?

	a.	$484.05
	b.	$296.35
	c.	$312.66
	d.	$405.88

1. Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?

   	a.	I drive less than 15,000 miles annually
   	b.	I like to have my car under warranty for major repairs
   	c.	It's the only way I can afford a luxury vehicle
   	d.	My automobile needs will change in a few years.

1. George and Betty, a middle-aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement

   Gross monthly income: $8,000

   Income taxes withheld monthly: $1,300

   Monthly interest income from investments: $100

   Monthly insurance payments: $700

   Monthly housing expenses: $4,500

   Monthly food expenses: $800

   What is George and Betty's monthly income available for savings and investment?

   	a.	$900
   	b.	$800
   	c.	$600
   	d.	$8,000

Answer 1

Question-1 you are headed to the mountains for some climbing this summer and you need some gear. The local mountaineering shop is offering 5% financing on all purchases before the end of the month. Your savings account is currently paying 6%, and you are in a marginal tax bracket of 28%. Which of the following is true (after taxes)?

Answer- After tax cost of mountain shop = 5%*(1-Tax rate ) = 5%*(1-0.28) = 3.6%

Total cost is Money is taken out of savings = Opportunity cost of interest- Tax saving on less Interest received

=>Total cost is Money is taken out of savings=6% - [6%*28%] = 4.32%.

hencece  mountain shop is cheaper.

Correct Option-(a) Borrow from the mountain shop— it is cheaper

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Question2-Billy has chosen to purchase a new vehicle. The vehicle costs $15,000. His APR is 10% and he will be financing the vehicle for 36 months. How much will Billy pay each month for his new vehicle?

Answer-

Interest per annum= 10%

Interest per Month= 10%/12 = 0.833% or 0.00833 (i)

Number of month (n) = 36

Present value of loan = $15,000

Let the monthly Payment be ''A''.

Present value of the loan =

=> A or Monthly payment = $484.05

Correct Option= (a)$484.05

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Question-3 Suppose that you were thinking about leasing a new vehicle. Which of the following should not be an important consideration?

Correct Option-(C) It's the only way I can afford a luxury vehicle

Reason-While evaluating leasing option you should think the other ways to get the car.

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Question-4

Gross monthly income	$8000
Monthly interest income from investments	$100
Less:-
Income taxes withheld monthly	$1,300
Monthly insurance payments	$700
Monthly housing expenses	$4,500
Monthly food expenses	$800
monthly income available for savings and investment	$800

Correct Option-(b) $800