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Transcript
Unit 5 Example Problem 1. Carol bought a car for $19,500 by making a $2,500 down payment and financing the rest at $490 per month for 42 months. a. What is the Installment Price? Answer: Total Installment payment = 42 x $490 = $20,580 Installment Price = $20,580+ $2500 = $23,080 b. What is the financial charge and amount financed? Answer: Finance charge = $23,080 - $19,500 = $3,580 Amount financed = $19,500 - $2,500 = $17,000 Example Problem 2. At the beginning of October Quinetta’s credit card had an unpaid balance of $3,200. During the October billing cycle she made a payment of $280 and used the card to purchase $110 worth of clothing. The credit card charges a 21% annual percentage rate and uses the unpaid balance method. What is the finance charge at the end of October? Answer: Monthly interest rate = 0.21 / 12 = 0.0175 To find the finance charge for the month of we multiply the beginning unpaid balance by the monthly interest rate. Finance charge = $3,200 * 0.0175 = $56 What is the new balance at the end of October? Answer: New balance at the end of October = Previous month’s unpaid balance + Finance charge + Purchases and cash advances – Payments and credits New balance at the end of October = $3,200 + $56 + $110 - $280 New balance at the end of October = $3086 Example Problem Maria has a credit card. She had a beginning balance on the card of $500 for May (May 1 through May 31). She paid $200 on May 9, charged purchases of $50 on May 11, $100 on May 18, and $40 on May 29. Her Annual Percentage Rate (APR) on the credit card is 19% of the unpaid balance, and interest is charged using the average daily balance method, including current purchases. Find the unpaid balance for the May statement (before interest was charged). Date Transaction Amount Balance May 1 Beginning Balance $500 $500 May 9 Payment ($200) $300 May 11 Purchase $50 $350 May 18 Purchase $110 $460 May 29 Purchase $45 $505 Answer: Balance at the end of May is $505 Find the average daily balance for the month of May (assume 31 days). Dates # of days Balance Partial Sum May 1-8 8 days $500 8($500) = $4,000 May 9-10 2 days $300 2($300) = $600 May 11-17 7 days $350 7($350) = $2,450 May 18-28 11 days $460 11($460) = $5,060 May 29-31 3 days $505 3($505) = $1,515 Totals 31 days Answer: Sum: $13,625 Average Daily Balance = Total Sum/Total Days = $13,625/31 = $439.52 Average Daily Balance is $439.52 Calculate how much interest Maria must pay in addition to the minimum payment. Answer: Finance Charge = Average Daily Balance * Interest Rate Interest = $439.52 * (0.19/12) = $6.96