Question
In: Finance
1. Donna estimates that her take-home pay for the coming year will be $1420 per month....
1. Donna estimates that her take-home pay for the coming year
will be $1420 per month. She expects total monthly expenses to be
as follows: housing and utilities, $800; food, $200; auto, gas, and
insurance, $220; credit card payment, $60; and other expenses $100.
The balance on her credit card is $4300, and she currently pays 18
percent interest on this balance. Donna would like to reduce her
credit card debt. If she decides to budget all of her net monthly
cash flow to this goal, how long will it take (in months) to pay
off her credit card?
A) 61
B) 43
C) 70
D) 33
2. Your bank pays a nominal rate of 4.70% interest on a savings
account. If the interest is compounded monthly, what is the annual
percentage yield (APY) of this account?
A) 4.70%
B) 5.10%
C) 4.80%
D) 4.84%
3. The purpose of reconciling a budget is to:
A) adjust income and spending so that your expenses do not exceed your income.
B) implement the budget plan.
C) balance your assets to your debt and net worth.
D) adjust income so that your surplus does not exceed your budgeted savings.
Solutions
Expert Solution
Answer 1 - Option C
solution
Total Monthly Expense excluding Credit card Payment = $ (800+200+220+100)
= $ 1320
So, Net cash Flow = $ 1420-1320 = $100
Balance of Credit Card = $ 4300
Interest =18% per.annum or 1.5% per.month
Computation
| Months | Amount | Interest @1.5% | Payment | Amount |
| Outstanding at | on Amt o/s at | (fixed ) | Outstanding at | |
| start of month | Start of month | (monthly) | end of month | |
| 1 | 4300.00 | 64.50 | 100.00 | 4264.50 |
| 2 | 4264.50 | 63.97 | 100.00 | 4228.47 |
| 3 | 4228.47 | 63.43 | 100.00 | 4191.89 |
| 4 | 4191.89 | 62.88 | 100.00 | 4154.77 |
| 5 | 4154.77 | 62.32 | 100.00 | 4117.09 |
| 6 | 4117.09 | 61.76 | 100.00 | 4078.85 |
| 7 | 4078.85 | 61.18 | 100.00 | 4040.03 |
| 8 | 4040.03 | 60.60 | 100.00 | 4000.63 |
| 9 | 4000.63 | 60.01 | 100.00 | 3960.64 |
| 10 | 3960.64 | 59.41 | 100.00 | 3920.05 |
| 11 | 3920.05 | 58.80 | 100.00 | 3878.85 |
| 12 | 3878.85 | 58.18 | 100.00 | 3837.04 |
| 13 | 3837.04 | 57.56 | 100.00 | 3794.59 |
| 14 | 3794.59 | 56.92 | 100.00 | 3751.51 |
| 15 | 3751.51 | 56.27 | 100.00 | 3707.78 |
| 16 | 3707.78 | 55.62 | 100.00 | 3663.40 |
| 17 | 3663.40 | 54.95 | 100.00 | 3618.35 |
| 18 | 3618.35 | 54.28 | 100.00 | 3572.63 |
| 19 | 3572.63 | 53.59 | 100.00 | 3526.22 |
| 20 | 3526.22 | 52.89 | 100.00 | 3479.11 |
| 21 | 3479.11 | 52.19 | 100.00 | 3431.30 |
| 22 | 3431.30 | 51.47 | 100.00 | 3382.77 |
| 23 | 3382.77 | 50.74 | 100.00 | 3333.51 |
| 24 | 3333.51 | 50.00 | 100.00 | 3283.51 |
| 25 | 3283.51 | 49.25 | 100.00 | 3232.76 |
| 26 | 3232.76 | 48.49 | 100.00 | 3181.25 |
| 27 | 3181.25 | 47.72 | 100.00 | 3128.97 |
| 28 | 3128.97 | 46.93 | 100.00 | 3075.91 |
| 29 | 3075.91 | 46.14 | 100.00 | 3022.05 |
| 30 | 3022.05 | 45.33 | 100.00 | 2967.38 |
| 31 | 2967.38 | 44.51 | 100.00 | 2911.89 |
| 32 | 2911.89 | 43.68 | 100.00 | 2855.57 |
| 33 | 2855.57 | 42.83 | 100.00 | 2798.40 |
| 34 | 2798.40 | 41.98 | 100.00 | 2740.38 |
| 35 | 2740.38 | 41.11 | 100.00 | 2681.48 |
| 36 | 2681.48 | 40.22 | 100.00 | 2621.70 |
| 37 | 2621.70 | 39.33 | 100.00 | 2561.03 |
| 38 | 2561.03 | 38.42 | 100.00 | 2499.44 |
| 39 | 2499.44 | 37.49 | 100.00 | 2436.94 |
| 40 | 2436.94 | 36.55 | 100.00 | 2373.49 |
| 41 | 2373.49 | 35.60 | 100.00 | 2309.09 |
| 42 | 2309.09 | 34.64 | 100.00 | 2243.73 |
| 43 | 2243.73 | 33.66 | 100.00 | 2177.38 |
| 44 | 2177.38 | 32.66 | 100.00 | 2110.05 |
| 45 | 2110.05 | 31.65 | 100.00 | 2041.70 |
| 46 | 2041.70 | 30.63 | 100.00 | 1972.32 |
| 47 | 1972.32 | 29.58 | 100.00 | 1901.91 |
| 48 | 1901.91 | 28.53 | 100.00 | 1830.43 |
| 49 | 1830.43 | 27.46 | 100.00 | 1757.89 |
| 50 | 1757.89 | 26.37 | 100.00 | 1684.26 |
| 51 | 1684.26 | 25.26 | 100.00 | 1609.52 |
| 52 | 1609.52 | 24.14 | 100.00 | 1533.67 |
| 53 | 1533.67 | 23.00 | 100.00 | 1456.67 |
| 54 | 1456.67 | 21.85 |
100.00<
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