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.
- Determine the required monthly payment on her father's equity line. What amount will the balloon payment be at the end of the term?
- 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?
- Using the information given, what is Mary Lou's interest rate on her current auto loan?
- 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% | ||||||||||
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