MAT 110 Personal Finance Exploration

Part I:

Bill and Melinda are a young couple who have just finished college.They have a combined monthly net income of $3,500. Their fixed monthly expenses consist of $975 for rent, a car payment of $267 per month, and a car insurance premium of $68 per month.Their combined expenses per month for gas, utilities, food, clothing and entertainment are $650.

Bill wants to celebrate their successful completion of college by purchasing a brand new $550 television set by using a credit card that has an Annual Percentage Rate (APR) of 19.85%.

If they only pay the minimum monthly payment of $18.50:

1.How long will it take them to pay for the television?

2.What is the total amount they will pay for the television?

3.What is their total cost of using credit to purchase the TV?

Part II:

Melinda would like to purchase a second car.She has found a great used Jeep Grand Cherokee for $18,000.Her bank can offer her the following 2 situations:a 3.75% APR interest rate on a 36 month loan, or a 4.25% APR interest rate on a 60 month loan, using the add-on method for each of these.

1.Calculate the monthly payment for each situation.

2.Determine the total cost of the Jeep for each situation.

3.Using the income and expenses listed on Part I, along with another car insurance premium of $45 per month and $75 in added gas costs, can they afford to buy the Jeep? Explain.

Part III:

Bill and Melinda decided to start a family.Their first child, Jennifer, is now 2 and they want to set up an Ordinary Annuity for her college education.They would like to provide Jennifer with $60,000 for her education upon her high school graduation at 18 years old.If the annual interest rate paid on the annuity is 4.5%, how much money will they need to deposit each month to reach this goal?

Part IV:

With a growing family, Bill and Melinda now have 3 children and would like to purchase a new home. Over the years, Bill has made a pretty good living.He and Melinda now have a combined monthly income of $21,000.They have found a $350,000 home that they would like to purchase.Using 20% as a down payment, determine the monthly mortgage payment for their dream home using the loan terms below.Use the following link to answer the questions below:

https://www.daveramsey.com/mortgage-calculator

1.15-year mortgage term with a 3% interest rate

Total amount paid over the loan term:___________________________

Minimum monthly payment: __________________________________

2.20-year mortgage term with a 6% interest rate

Total amount paid over the loan term: __________________________

Minimum monthly payment: __________________________________

3.30-year mortgage term with a 5% interest rate

Total amount paid over the loan term: __________________________

Minimum monthly payment: __________________________________

Which mortgage would you choose and why