Check out this great opportunity! ABC, a loan consolidation company, offers you a line of credit that consolidates current debts and lowers your total monthly payment. You currently have $15,000 in debt with three loans, all charging an annual interest rate of 16% compounded monthly. After looking at your current debt of $15,000, ABC offers to consolidate your debts, lower your annual interest rate to 11.25% compounded monthly, and lower your monthly payment to $141.86 as shown in table below Current monthly payment ABC Consolidation Loan Type Loan Amount Monthly Payment Loan Type Loan Amount Monthly Payment Bank cards $4,000 $156.00 PAID OFF NONE Auto loan $9,500 $310.28 PAID OFF NONE

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Check out this great opportunity! ABC, a loan consolidation company, offers
you a line of credit that consolidates current debts and lowers your total
monthly payment. You currently have $15,000 in debt with three loans, all
charging an annual interest rate of 16% compounded monthly.
After looking at your current debt of $15,000, ABC offers to consolidate your
debts, lower your annual interest rate to 11.25% compounded monthly, and
lower your monthly payment to $141.86 as shown in table below

Current monthly payment ABC Consolidation

Loan Type Loan Amount Monthly Payment Loan Type Loan Amount Monthly Payment
Bank cards $4,000 $156.00 PAID OFF NONE
Auto loan $9,500 $310.28 PAID OFF NONE
Store credit $1,500 $80.52 PAID OFF NONE

  ABC $15,000 $141.86

 

a) How much money would this ABC offer save you each month?
b) How long will it take to pay off each of the three debts under the
current plan?
Bank cards:

Auto loan:


Store credit:


c) If you accept the ABC offer, how long will it take to pay off the full
balance?
d) If you accept the ABC offer, how much money will still be owed 10
years from now?

e) By the end of the 10 years, how much money would you have paid
towards the ABC loan? Explain what has happened to this money.


f) With the interest rate that ABC is offering, how much would the
monthly payment have to be to have the debt completely paid in 10
years?
g) What is the best way to pay off your loans? Explain your choice. 

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