Question

Part I – Consumer Credit

Gregg is planning to apply for a new credit card and is considering the following three choices. He is also planning to buy a $500 big screen television and plans to pay for this over a two-year period by making equal monthly.

Credit Card	Annual Interest Rate	Annual Fee
MBNA True Line Master Card	8.99%	$39
Desjardins Classic Visa	12.90%	$30
American Express Essential Credit Card	12.99%	$0

Question 71

What would be his monthly payments for using the MBNA True Line Master Card over a two-year period?

Question 71 options:

	$23.75
	$22.84
	$23.77
	$24.55
	None of the Above

Question 72

What would be his monthly payments for using the Desjardins Classic Visa card over a two-year period?

Question 72 options:

	$23.75
	$22.84
	$23.77
	$24.55
	None of the Above

Question 73

What would be his monthly payments for the American Express Essential Credit Card over a two-year period?

Question 73 options:

	$23.75
	$22.84
	$23.77
	$24.55
	None of the Above

Question 74

How much in interest charges would he pay using the American Express Essential Credit Card (Hint: Total Interest = (number of payments * amount of payments) – loan amount)?

Question 74 options:

	$48.16
	$69.94
	$70.45
	$55.75
	None of the Above

Question 75

How much in interest charges would he pay using the Desjardins Classic Visa card (Hint: Total Interest = (number of payments * amount of payments) – loan amount)?

Question 75 options:

	$48.16
	$69.94
	$70.45
	$55.75
	None of the Above

Question 76

How much in interest charges would he pay using the MBNA True Line Master Card (Hint: Total Interest = (number of payments * amount of payments) – loan amount)?

Question 76 options:

	$48.16
	$69.94
	$70.45
	$55.75
	None of the Above

Question 77

How much in total financing costs (interest costs and annual fees) for the MBNA True Line Master Card over the 2-year period (Hint: Total Financing Costs = Total Interest Costs + Total Annual Fees)?

Question 77 options:

	$126.16
	$129.94
	$70.45
	$112.75
	None of the Above

Question 78

How much in total financing costs (interest costs and annual fees) for the Desjardins Classic Visa Card over the 2-year period (Hint: Total Financing Costs = Total Interest Costs + Total Annual Fees)?

Question 78 options:

	$126.16
	$129.94
	$70.45
	$112.75
	None of the Above

Question 79

How much in total financing costs (interest costs and annual fees) for the American Express Essential Credit Card over the 2-year period (Hint: Total Financing Costs = Total Interest Costs + Total Annual Fees)?

Question 79 options:

	$126.16
	$129.94
	$70.45
	$112.75
	None of the Above

Question 80

Based on your above calculations, which credit card should Gregg apply for?

Question 80 options:

	MBNA True Line Master Card
	Desjardins Classic Visa
	American Express Essential Credit Card
	They are all the same costs

Answer 1

We can use financial calculator for calculation of monthly payments.

Question 71

Answer is $22.84.

key strokes for calculation of monthly payments.

N = no. of months = 2*12 = 24; I/Y = monthly interest rate = 8.99%/12 = 0.7491666666666667‬%; PV = loan amount = $500; FV = future value = $0 > CPT = compute > PMT = monthly payment = $22.84

Calculator will display PMT as negative value because it's a cash outflow. Annual fee will be paid by Gregg and will not loaned by credit card company.

Question 72

Answer is $23.75.

key strokes for calculation of monthly payments.

N = no. of months = 2*12 = 24; I/Y = monthly interest rate = 12.90%/12 = 1.075‬%; PV = loan amount = $500; FV = future value = $0 > CPT = compute > PMT = monthly payment = $23.75

Question 73

Answer is $23.77.

key strokes for calculation of monthly payments.

N = no. of months = 2*12 = 24; I/Y = monthly interest rate = 12.99%/12 = 1.0825‬%; PV = loan amount = $500; FV = future value = $0 > CPT = compute > PMT = monthly payment = $23.77

Question 74

Answer is $70.45.

Total interest paid = [(no. of payments*amount of per payment) - loan amount]

Total interest paid = [(24*$23.7686) - $500] = $570.45 - $500 = $70.45

monthly payment of $23.7686 was rounded off to $23.77 in question 73.