Question

In: Finance

Mary Lou has now graduated from college and is earning $28,000 per year. She would like...

Mary Lou has now graduated from college and is earning $28,000 per year. She would like to trade in her 1996 Nissan Stanza for a new car but is unsure what she can afford. She still owes 11 payments of $189 for a total of $1,970 on her Nissan and $5,800 to her father's equity line. Her father's equity line requires a minimum monthly payment of 2 percent of the outstanding balance, has an interest rate of 8.75 percent, and 4 years until maturity.

  1. Determine the required monthly payment on her father's equity line. What amount will the balloon payment be at the end of the term?
  2. Calculate Mary Lou's current debt ratio assuming her net income is $22,100. Is it advisable for her to acquire any additional debt? Why?
  3. Using the information given, what is Mary Lou's interest rate on her current auto loan?
  4. Would Mary Lou qualify for a 10 percent, two-year loan to consolidate her two current payments? Assume the only criteria for qualification is a debt ratio less than or equal to 20 percent. Why?

answer all questions and their entirety

Solutions

Expert Solution

Monthly payment on her father's equity line $116.00 (5800*0.02)
Number of months to maturity 48 (4*12)
Monthlyinterest rate=(8.75/12)%= 0.0072917
Future Value of monthly payment of $116.00 at end of 4 years $6,638 (Using FV function of excelwith Rate=0.007292,Nper=48,Pmt=-116)
Future Value of loan amount of $5800 at end of 4 years $8,220 (Using FV function of excelwith Rate=0.007292,Nper=48,Pv=-5800)
Baloon Payment at end of the term $1,582 (8220-6638)
CURRENT DEBT RATIO:
Monthly Payment Debt on Nissan $189
Monthly payment for Father's Equity line $116
Total monthly debt payment $305
Net monthly income $1,842 (22100/12)
Debt Ratio 0.1656109 (305/1842)
Debt Ratio(Percentage) 16.56%
Debt Ratio should be below 10% (excluding mortgage)
It is already 16.56%
It is not advisable to acquire additional debt
With given information interest rate cannot be calculated
Amount of original loan and number of intalments are required
Yes ,she will Qualify.
Because her current debt ratio is below 20%

jeff jeffy answered 1 year ago
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