In$-$class Problem Solving $2($Chapter $5$&$6$: Cost of Credit$)$

Home Equity Line of Credit $($HELOC$)$

Alexah purchased a home for $$500,000$ a few years ago. The home is worth $$650,000$

now. Her remaining mortgage balance is $$300,000.$ What is the maximum HELOC

$($home equity line of credit$)$ she can borrow?

Credit Limit

Faqiha$$s net take home income is $$4,500.$ What's the maximum she should use on debt

payments?

Debt$-$payments$-$to$-$Income Ratio

Shayla$$s monthly gross income is $$5,500.$ Her employer withholds $$700$ in federal and

provincial income taxes, $$294\mathrm{.}68$ towards the Canada Pension Plan, and $$82\mathrm{.}67$ in EI

contributions. Shayla contributes $$150$ per month to her RRSP$.$ Her monthly credit

payments for VISA and MasterCard are $$85$ and $$105$ respectively. Her monthly

payment on an automobile loan is $$465.$ What is Shayla$$s debt payments$-$to$-$income

ratio? Is she living within his means? Explain.

Effective Cost of Borrowing

Vaani borrowed $$1,000$ and paid $$45$ in interest when she repaid the principal after one

year. The lender also charged her a $$10$ service fee on a discount basis. What was the

effective cost of her loan?

Calculating Effective Annual Rate $($EAR$)$

If interest rate quoted on Vaani$$s loan was $4\mathrm{.}5\%$ and had been compounded monthly,

instead of annually, what would have been the effective annual interest rate charged on

the loan?

Calculating Finance Charge

You have been pricing cellphones in several stores. Three stores have identical prices

of $$450.$ Each of these store charges $19\%$ APR, has a $30-$day grace period, and sends

out bills on the first of the month. On further investigation, you find that Store A

calculates the finance charge by using the average daily balance method; that Store B

uses the adjusted balance method, and that Store C uses the previous balance method.

Assume you purchased the cellphone on May $1$ and made a $$125$ payment on June $15.$

What will the finance charge be for June if you made your purchase from Store A$,$ or

from Store B$,$ or from Store C$?$

May $1$ to $31$ is the $30-$day grace period indicating finance charges begin on June $1.$