1 point) Determine the total first year cost of car ownership for Angela. She has just purchased a

vehicle valued for $15,000 with the following costs:

Auto Loan: Amount $15,000, Duration 4 years, APR 6.65%

Property Taxes: 2%of vehicle value/year

Sales Taxes: 3% of the sales price

Title and Tags: $40/year

Maintenance and Usage Costs: $1,500/year

Insurance: $2,000 a year

2.

(2 points) Noel and Herman need to replace Noel's car, but with the furniture and appliance

payments, the credit card bills and Herman's car payment, the are uncertain if they can afford

another payment.

The auto-financing representative asked them "What size of car payments are

you thinking of?"

Current payments (excluding potential cost of Noel's new car) total $475 of

their $3250 combined monthly take-home pay.

Calculate the debt limit ratio to help them

decide about the car purchase and answer the question "What size payments are you thinking

of?" first by assuming a 15% limit and then "stretching" it to a 20% limit?

3.

(2 points) Noah took out $20,000 in private student loans at 16% APR. His cousin Ava took out

the same amount of student loans, but she got a federal student loan with an APR of 4.66%

What is the difference in the amounts Noah and Ava will pay for their student loans (over 10

years), assuming interest starts accumulating on the same day?

4.

Paul and Evelyn Peters were "house hunting" five years ago when mortgage rates were pretty

high.

The fixed rate they could get on a 30-year mortgage was 4.75% while the 15 year fixed rate

was at 4%.

After looking at many houses, they decided to buy a $300,000 two-story townhome

in the Midwest, and to avoid paying PMI, they borrowed from family members and friends and

collected the 20% down payment.

Since they already had significant credit card debt, and

student loans they were paying off, Evelyn and Paul decided on the 30-year mortgage even

though the interest rate is higher.

a.

(1 point) How much is Paul and Evelyn's Mortgage payment per month?

b.

( 4 points) Prepare an amortization table for the 30 year loan, and calculate how much of

their mortgage principal they have paid down and how much of their interest?

c.

(1 point) What would have been their monthly mortgage payment, had they taken the 15

year loan? How much more per month?

5.

Paul and Evelyn's house (from previous question ) has gone up in value over the last 5 years and

is now worth $425,000.

Since interest rates have also decreased in the last few years, Paul and

 

 

 

Evelyn now have offers to refinance their mortgage. They can refinance with a 15 year mortgage

for 2.75% rate with no closing costs.

a.

(1 point) What would the new monthly payments be for the Peters' if they choose to refinance

the mortgage?

b.

(4 points) How much would they save in interest payments over the remaining life of their loan?

Should they refinance? (hint: you may need to do another amortization table for the new loan)

c.

(4 points) The lenders are also giving Paul and Evelyn the option to cash out some of the equity

on their house. They can borrow up to 80% of the new appreciated home value.

How much can

they cash out? If they choose to cash out, what would the monthly payments on their refinance

loan be? Should they cash out given the returns on most investments are currently 6% a year?