1.Rico needs approximately $2,500 to buy a new computer. A two-year unsecured loan through the credit union is available for 12 percent interest. The current ratio on his revolving home equity line is 8.75 percent, although he is reluctant to use it. Rico is in the 15 percent federal tax bracket and the 5.75 percent state tax bracket. Which loan should he choose? Why? Regardless of the loan chosen, Rico wants to pay off the loan in 24 months. Calculate the payments for him, assuming both loans use the simple interest calculation method.

2.Shirley, a recent college graduate, excitedly described to her older sister the $1,500 sofa, chair, and tables she found today. However, when asked she could not tell her sister which interest calculation method was to be used on her credit-based purchase. Calculate the monthly payments and total cost for a bank loan assuming a one-year repayment period and 14 percent interest. Now assume the store uses the add-on method of interest calculation. Calculate the monthly payment and total cost with a one-year repayment period and 12 percent interest. Explain why the bank payment and total cost are lower even though the stated interest rate is higher.

3.Rick wants a new wide screen flat panel TV and TXH certified home theater receiver. He figures the system will cost $4,000. The store will finance up to $3,500 for 2 years ata 19.5 percent interest rate. Assuming Rick accepts the stores financing, by how much will he reduce his monthly payment and how much interest will he save if he increases his down payment to $1,000? Solve using the Monthly Installment Loan Tables they have been uploaded in the Activities section of this weeks study module.

4.Antonio would like to replace his golf clubs with a custom measured set. A local sporting goods megastore is advertising custom clubs for $500, including a new bag. In-store financing is available at 5 percent or he can choose not to renew his $500 certificate of deposit (CD), which just matured. The advertised CD renewal rate is 6.4 percent. Antonio knows the in-store financing costs would not affect his taxes, but he knows hell pay taxes (25 percent federal and 5.75 percent state) on the CD interest earnings. Should he cash the CD or use the in-store financing? Why?

5.Noel and Herman need to replace her car. But with the furniture and appliance payments, the credit card bills, and Hermans car payment, they are uncertain if they can afford another payment. The auto-financing representative has asked, What size payments are you thinking of? Current payments total $475 of their $3,250 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? By first assuming a 15 percent limit and then stretching it to a 20 percent limit.

6.Annies mortgage statement shows a total payment of $699.12 with $604.60 paid toward principal and interest and $94.52 paid for taxes and insurance. Taxes and insurance for three months were collected at closing. Now after six months of payments, she is curious about the total in her escrow account. Calculate the amount for her and explain the account.

7.Calculate how much money a prospective homeowner would need for closing costs on a house that costs $100,000. Calculate based on a 20 percent down payment, 2 discount points on the loan a, 1-point origination fee, and $1.400 in miscellaneous other fees.