In: Finance

Obligation Debt Amount Min Monthly Amount Annual Interest Rate Student loans $40,000.00 $500.00 6.00% Car loan $11,500.00 $375.00 9.50% Chase credit card $2,100.00 $84.00 18.00% Amazon credit card $1,050.00 $42.00 15.00% TJ Maxx credit card $380.00 $15.00 24.00% You recently graduated with a reasonably well paying job and after reviewing your budget you have an extra $200 a month to put towards paying off your debts as you have built up an appropriate savings. In exactly 12 months, you have been promised a raise that will allow you to put a total of $400 a month towards paying down debts (original $200 plus another $200). How many months will it take to pay off the chase card if you pay the minimum monthly amount listed above on the Chase card? Hint: the first month the interest rate is 18%/12 = 1.5%. The interest owed is 1.5% of $2,100 = $31.50. So you will pay down your debt by $42-$31.50 = $10.50. This means you owe $2,100 - $10.50 = $2,089.50 the next month. (Use a spreadsheet!!). Your answer is between 90 and 100 months!! Use this technique later down below.Discuss two approaches a) paying the highest interest rate debts first or b) paying of the smallest first. Which is theoretically best and which is emotionally best for people. Do appropriate research and reference.

Loan amount due, PV = $ 2,100

Interest rate per month, Rate = 18% / 12 = 1.5%

Min amount = PMT = 42

Period can be calculated using the NPER function of excel.

Period = NPER (Rate, PMT, PV, FV) = NPER (1.5%, 42, 2100, 0) = 93.11 months

It will take 93.11 months to pay off the chase card if you pay the minimum monthly amount listed above on the Chase card.

Discuss two approaches a) paying the highest interest rate debts first or b) paying of the smallest first. Which is theoretically best and which is emotionally best for people.

Theoretically and mathematically, if the funds available are limited, the higher cost of debt should be retired first followed by the lower cost of debt. A delay in retiring higher cost debt, will lead to accumulation of interest at a faster rate. If one decides to delay the repayment of higher cost debt, the accumulated interest will lead to tremendous pressure.

Emotionally, people do think that one should retire the lower cost debt first and then move to the higher cost debt. This is because you can retire a low cost debt relatively faster and then you can focus on the higher cost debt.

You owe $22,000 on student loans at an annual interest rate of
4.55% compounded monthly. You want to pay off the loan in 14
years.
What will your monthly payments be?
$
How much interest do you pay?
$

Jim and Wendy had the following interest expenses in 2019:
Personal Loan………………… $500.00
Student Loan Interest………….
$3,000.00
Mortgage interest……………… $5,000.00
Investment interest…………….$7,500.00
Net
investment income for 2019 is $6,000.00.
What is their interest deduction for 2019?

You currently have two loans outstanding: a car loan and a
student loan. The car loan requires that you pay $329 per month,
starting next month for 28 more months. Your student loan is
requires that you pay $145 per month, starting next month for the
next 119 months.
A debt consolidation company gives you the following offer: It
will pay off the balances of
your two loans today and then charge you $487 per month for the
next 41...

You currently have two loans outstanding: a car loan and a
student loan. The car loan requires that you pay $325 per month,
starting next month for 26 more months. Your student loan is
requires that you pay $87 per month, starting next month for the
next 38 months.
A debt consolidation company gives you the following offer: It
will pay off the balances of
your two loans today and then charge you $501 per month for the
next 45...

You currently have two loans outstanding: a car loan and a
student loan. The car loan requires that you pay $413 per month,
starting next month for 28 more months. Your student loan is
requires that you pay $89 per month, starting next month for the
next 75 months. A debt consolidation company gives you the
following offer: It will pay off the balances of your two loans
today and then charge you $508 per month for the next 37...

You currently have two loans outstanding: a car loan and a
student loan. The car loan requires that you pay $313 per month,
starting next month for 35 more months. Your student loan is
requires that you pay $133 per month, starting next month for the
next 115 months.
A debt consolidation company gives you the following offer: It
will pay off the balances of
your two loans today and then charge you $451 per month for the
next 45...

You
took a loan to buy a new car. The monthly interest rate on the loan
is 1.5% and you have to pay $240 every month for 60 months
1)What is the Present value of the Cash flows if its an
ordinary annuity?
2)What is the future value of cash flows if its an ordinary
annuity?
3)What is the present value of the cash flows if its an
annuity due?
4)What is the future value of cash flows if its...

You expect to graduate with $44200 in student loans. The
interest rate on your loan is 4.8 percent compounded monthly and
the loan calls for fixed monthly payments. If you repay the loan in
21 years how much are you paying in total interest over the life of
the loan? (HINT: you need to calculate the monthly payment
first).

Assume you are to borrow money, the loan amount, at an annual
interest rate to be paid in equal installments each period.
Installment Loan Schedule
Loan
Amount
$25,000
Annual
Interest Rate
9.90%
Periods per
year
12
Years to
payback
5
See Table B.3 in book.
Factor
47.17454194
FACTOR = [1 - (1 / ((1 + R)^n)]/ R
Equal
Payments
$529.95
let R = period interest rate
let n = number of periods to payback loan
Number
of periods:
60
Reduction...

If you take out a car loan for $35,000, will pay an annual
interest rate of 4% on the loan, and make monthly payments of
$547.58, how many payments will you need to make? -What are you
solving for? -What is your answer?

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