Answers26-27 Ignite Technical Math-Financial Math - MA2007Simple Contracts

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Jim has an annual salary of $96,000. His monthly expenses include a $2,500 mortgage payment, a $250 lease payment, $500 in minimum credit card payments, and a $425 payment on his speed boat. He also receives $1,200 in interest from his savings and other accounts each month. Calculate Jim’s DTI (debt-to-income) ratio.

A
30%
B
35%
C
40%
D
45%
2
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Olivia has taken out a $13,100 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 7.6%, compounded monthly. By the time Olivia graduates, how much greater will the amount of interest capitalized be than the minimum amount that Olivia could pay to prevent interest capitalization? Round all dollar values to the nearest cent.

A
$654.45
B
$477.27
C
$995.60
D
$354.22
3

Susan took out a personal loan for $3,500 at an interest rate of 13% compounded monthly. She made arrangements to pay the loan off in 3 years. What will her monthly payment be?

A
$99.34
B
$105.32
C
$117.93
D
$156.60
4

The following statement is from the contract Peter signed with his Homeowner's Association (HOA). "Overnight parking on community streets is prohibited. For the purpose of this contract, 'overnight' will be defined as the hours between 11:00 p.m. and 4:00 a.m. The HOA will monitor overnight parking not less than once every calendar week with nightly patrols by community security. "In the event a car is found parked on community streets overnight and that ownership of the offending car can accurately be verified as a community homeowner, the homeowner will receive one (1) written warning asking him or her to correct the situation. A second and third infraction by the same homeowner, whether or not it is with the same car, will result in a monetary fine as permitted by CC&R guidelines and HOA bylaws. Further infractions (past 3) will result in monetary fines in addition to the towing of the car at the homeowner's expense."Because of the extremely low ground effects and body profile on his racing car, Peter is unable to drive his car off of the street and onto the driveway. He has parked on the street overnight for the past five weeks. He has received one written warning and one monetary fine from the HOA. What consequences should Peter expect after this week's security check?a.His car will be towed.b.He will receive another monetary fine.c.He will receive a monetary fine and his car will be towed.d.A "boot" will be place on his car to prevent him from driving it.

A
A
B
B
C
C
D
D
5

Charles is going to purchase a new car that has a list price of $21,450. He is planning on trading in his good-condition 2004 Dodge Neon and financing the rest of the cost over three years, paying monthly. His finance plan has an interest rate of 12.28%, compounded monthly. Charles will also be responsible for 6.88% sales tax, a $1,089 vehicle registration fee, and a $124 documentation fee. If the dealer gives Charles 80% of the listed trade-in price on his car, once the financing is paid off, what percent of the total amount paid will the interest be? (Consider the trade-in to be a reduction in the amount paid.) Dodge Cars in Good ConditionModel/Year20042005200620072008Viper$7,068$7,225$7,626$7,901$8,116Neon$6,591$6,777$6,822$7,191$7,440Intrepid$8,285$8,579$8,699$9,030$9,121Dakota$7,578$7,763$7,945$8,313$8,581

A
17.64%
B
15.67%
C
16.70%
D
12.86%
6

Susan took out a personal loan for $3,500 at an interest rate of 13% compounded monthly. She made arrangements to pay the loan off in 3 years. What will her monthly payment be?

A
$99.34
B
$105.32
C
$117.93
D
$156.60
7

Jennifer is leasing a car from a local auto retailer. The terms of the lease include a 9% interest rate for 36 months with a residual value of 57%. The MSRP for the car Jennifer is leasing is $17,500. What will Jennifer’s monthly lease payment be?

A
$93.84
B
$99.75
C
$209.03
D
$312.06
8

Olivia has taken out a $13,100 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 7.6%, compounded monthly. By the time Olivia graduates, how much greater will the amount of interest capitalized be than the minimum amount that Olivia could pay to prevent interest capitalization? Round all dollar values to the nearest cent.

A
$654.45
B
$477.27
C
$995.60
D
$354.22
9

Sam is paying off his eight-year, $15,360 loan in semiannual installments. The loan has an interest rate of 9.58%, compounded semiannually, and a service charge of $1,294.64. Once the loan has been fully paid off, what percentage of the total finance charge will the service charge be? Round all dollar values to the nearest cent.

A
5.48%
B
8.43%
C
18.55%
D
15.65%
10

Why do interest rates on loans tend to be lower in a weak economy than in a strong one?

A
A weak economy tends to have low inflation, so interest rates drop to match.
B
Borrowers in a weak economy are less likely to default on their loans, so interest rates are correspondingly low.
C
In a weak economy there is less demand for credit, so the price drops.
D
The strength or weakness of an economy is determined by interest rates; low interest rates actually cause a weak economy.
11

RJ has two loans. Loan H has a nominal rate of 5.68%, compounded daily. Loan I has a nominal rate of 6.33%, compounded monthly. Which loan's effective rate had the greater increase, relative to its nominal rate, and how much greater is its increase than that of the other loan?

A
Loan I’s increase was 0.03 percentage points greater than Loan H’s.
B
Loan I’s increase was 0.68 percentage points greater than Loan H’s.
C
Loan H’s increase was 0.16 percentage points greater than Loan I’s.
D
Loan H’s increase was 0.49 percentage points greater than Loan I’s.
12

At the beginning of each of her four years in college, Miranda took out a new Stafford loan. Each loan had a principal of $5,500, an interest rate of 7.5% compounded monthly, and a duration of ten years. Miranda paid off each loan by making constant monthly payments, starting with when she graduated. All of the loans were subsidized. What is the total lifetime cost for Miranda to pay off her 4 loans? Round each loan's calculation to the nearest cent.

A
$23,650.00
B
$29,481.08
C
$7,834.32
D
$31,337.27
13

Determine the finance charge on an $8,000 loan with a monthly payment of $162.80 for 60 months.

A
$29.47
B
$162.80
C
$1,768.00
D
$9,768.00
14

You are considering taking out one of two loans. Loan R has a principal of $17,550, an interest rate of 5.32% (compounded monthly), and a duration of seven years. Loan S has a principal of $15,925, an interest rate of 6.07% (compounded monthly), and a duration of nine years. Assuming that you pay back each in monthly intervals, which loan will have a greater lifetime total, and how much greater will it be? Round all dollar values to the nearest cent.

A
Loan S’s lifetime total will be $1,274.12 greater than Loan R’s.
B
Loan S’s lifetime total will be $32.99 greater than Loan R’s.
C
Loan R’s lifetime total will be $350.88 greater than Loan S’s.
D
Loan R’s lifetime total will be $58.96 greater than Loan S’s.
15

Thomas has a loan with a nominal interest rate of 6.4624% and an effective interest rate of 6.4715%. Which of the following must be true?I. The loan has a duration greater than one year.II. The interest on Thomas’s loan is compounded more than once yearly.III. The economy was strong when Thomas took out the loan.

A
I and II
B
II only
C
I and III
D
III only
16

The debt-to-income (DTI) ratio of a borrower is used to compare _____ to the borrower’s gross monthly income.

A
monthly credit expenses (credit cards and loans)
B
monthly debt expenses from loans (home, personal, auto, student)
C
monthly housing expenses (rent or mortgage, homeowner’s insurance, property tax, utilities)
D
monthly living expenses (rent or mortgage, property tax, mortgage insurance, minimum credit card payments, and monthly loan payments)
17

Viola took out a $8,470 Stafford loan at the beginning of her four-year college career. The loan has a duration of ten years and an interest rate of 7.5%, compounded monthly. How much more will Viola’s monthly payment be if the loan is unsubsidized than if the loan is subsidized? Round all dollar values to the nearest cent.

A
$35.05
B
$45.94
C
$96.96
D
$63.52
18

What is the difference between a service charge and a finance charge?

A
A service charge is a fee which must be paid every month, while a finance charge is a one-time fee assessed at the beginning or end of a loan period.
B
A service charge is a flat fee charged to a borrower, while a finance charge is a fee charged to a borrower based on the amount borrowed.
C
A service charge is a fee assessed by a lender, while a finance charge is a fee charged by a financial institution, such as a bank.
D
A service charge is a fee assessed by a lender other than interest, and a finance charge is the total of the interest paid on a loan and the service charge.
19

Johnny’s monthly expenses and income are listed below. Calculate Johnny’s debt-to-income (DTI) ratio. Johnny's Monthly Debt and Income Housing: Rent $950.00 Renter's Insurance $25.00 Credit: Student $250.00 Car $239.00 Credit Card #1 $25.00 (minimum) Credit Card #2 $40.00 (minimum) Income: Sales Rep $4,400.00 Tutoring $600.00

A
28%
B
33%
C
31%
D
35%
20

Trish is having trouble understanding why she was not approved for her loan. Which of the following probably kept Trish from getting her loan?

A
Trish's debt-to-income (DTI) is currently 30%.
B
Trish's credit score is 525.
C
Trish is a single mom with three kids.
D
Trish's gross monthly income is only $2,800.

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