1 ) You just received a loan from your banker to buy seed and plant your alfalfa field. The loan is a discount loan and is for $5,000 for 1 year and the quoted rate was 10%. What is your APR?

2) Calculate the interest on $6,000 borrowed at 9% simple interest for 9 months.

3) What are the results of choosing a loan with a longer term?

4) The ________ is the true simple interest rate paid over the life of a loan and provides a reasonable approximation for the true cost of borrowing.

5) You have just obtained a personal loan for a new home movie system under the simple interest method. You have borrowed $12,000 for 9 months at an annual rate of 10%. Your marginal tax rate is 28%. What are the total interest charges you would pay if the loan is paid off on time?

6) How can one determine how much debt he or she can afford?

7) Many lenders will hold Dave to the 28/36 rule in evaluating his application for a mortgage. What does the 36 mean?

A) A down payment of 36 months is required.

B) A down payment of 36% is required.

C) Debt payments including mortgage must be less than 36% of his gross monthly income.

D) Debt payments must be less than 36% of his monthly take-home pay.

E) Mortgage insurance is required during the first 36 months of the loan.

8) How do you know how much debt you can comfortably afford?

Answer: By applying the debt limit ratio you can see, from a lender's point of view, the limitation on consumer debt. It is calculated by dividing your monthly non-mortgage debt payments by your total monthly take-home pay. Ideally, it should be below 15% because you will still have some borrowing reserve for emergencies and the unexpected, and it will be easier to obtain additional borrowing. You should put a maximum of 20% on consumer debt. Once you pass this point, it will be difficult to borrow more, and your ability to meet your monthly financial obligations will be severely limited.

9) How do you know how much debt you can comfortably afford?