3 Questions on one critical thinking exercise:
- Simple Interest: Carmen needed to borrow money in order to buy a car so that she could commute to the local university. She saved $1,500, but when she started shopping she realized that $1,500 would not get her the car she needed. She found a used car she liked with a cost $6,000, and a bank offered her a loan of $4,500 with simple interest terms of 6% annual interest and an 18-month term. She also inquired at the university credit union and found that they offered terms of 5% on a 2-year loan of $4,500. Carmen's loan at both institutions was structured as an installment loan.
- Calculate the finance charge (interest), the total installment price, and the monthly payment for the bank loan.
- Calculate the finance charge (interest), the total installment price, and the monthly payment for the credit union loan.
- Which loan is going cost Carmen more in terms of finance charge? Aside from the finance charge consideration, what other factors might influence Carmen's choice of loan?
- Compound Interest: Devon bought snow sailing equipment for $1,800. He borrowed money from his credit union for the purchase, obtaining a loan with a 7% annual interest rate, monthly compounding, and a 2-year term. If Devon's loan is structured as an installment loan, calculate his total installment cost and his total finance charge (interest).
- Annuity Payment: Eric is saving money for a down payment on an expensive, Patek Phillipe watch. He needs $20,000 in five years to make his down payment and is investing in an annuity yielding an annual interest rate of 8% compounded quarterly. If the annuity requires that Eric make quarterly investments, what annuity payment must Eric make to save enough for his watch down payment?