Maria and John decide to shop for furnishings for the new house. They choose items that amount to $5600.00. The store has 2 fixed installment simple interest loan options for purchasing: Option 1: 20% down payment and financing at 5% simple interest per year for 3 years. Option 2: no down payment and financing at 5.25% simple interest for 4 years. Answer each of the following questions separately, showing all your work to reach each answer. Which option will result in smaller finance charge (interest)? What will that finance charge/interest be? Which option will result in the smaller monthly payment on this fixed installment loan? What will that monthly payment be?
Maria and John decide to shop for furnishings for the new house. They choose items that amount to $5600.00. The store has 2 fixed installment simple interest loan options for purchasing: Option 1: 20% down payment and financing at 5% simple interest per year for 3 years. Option 2: no down payment and financing at 5.25% simple interest for 4 years. Answer each of the following questions separately, showing all your work to reach each answer. Which option will result in smaller finance charge (interest)? What will that finance charge/interest be? Which option will result in the smaller monthly payment on this fixed installment loan? What will that monthly payment be?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Maria and John decide to shop for furnishings for the new house. They choose items that amount to $5600.00. The store has 2 fixed installment simple interest loan options for purchasing:
Option 1: 20% down payment and financing at 5% simple interest per year for 3 years.
Option 2: no down payment and financing at 5.25% simple interest for 4 years.
Answer each of the following questions separately, showing all your work to reach each answer.
- Which option will result in smaller finance charge (interest)? What will that finance charge/interest be?
- Which option will result in the smaller monthly payment on this fixed installment loan? What will that monthly payment be?
- They decide to defer any purchases and invest a $5600 bonus that Maria will be getting from work in a savings account. The interest rate is 1.8% compounded every month. How much interest will they earn in 4 years?
- They decide to defer any purchases and loan the $5600 bonus to a needy relative at 5% simple interest per year. How long will the term of the loan need to be if they want to earn $500 in interest (assuming the loan is not paid off early).
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