QUESTION ONE
UseWorksheet 6.1. Chloe Young is evaluating her debt safety ratio. Her monthly take-home pay is $3,470. Each month, she pays $450 for an auto loan, $150 on a personal line of credit, $60 on a department store charge card, and $80 on her bank credit card. Complete Worksheet 6.1 by listing Chloe's outstanding debts.
- Calculate her debt safety ratio.Round the answer to 1 decimal place. Enter debt safety ratio as a percentage.
%
- Given her current take-home pay, what is the maximum amount of monthly debt payments that Chloe can have if she wants her debt safety ratio to be 17.5%?Round the answer to the nearest dollar.
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- Given her current monthly debt payment load, what would Chloe's take-home pay have to be if she wanted a 17.5% debt safety ratio?Round the answer to the nearest dollar.
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QUESTION TWOHome equity line interest
Kai and Ivy Harris have a home with an appraised value of $240,000 and a mortgage balance of only $120,000.
- Given that an S&L is willing to lend money at a loan-to-value ratio of 75 percent, how big a home equity credit line can Kai and Ivy obtain?
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- How much, if any, of this line would qualify as tax-deductible interest if their house originally cost $100,000?
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QUESTION THREE
Financial Planning Exercise 6
Using overdraft protection line
Grace Wang has an overdraft protection line. Assume that her October 2020 statement showed a latest (new) balance of $557. If the line had a minimum monthly payment requirement of 7 percent of the latest balance, then what would be the minimum amount she'd have to pay on her overdraft protection line?Round your answer to the nearest $5 figure.
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QUESTION FOUR
Financial Planning Exercise 8
Calculating credit card interest
Ruby Wilson, a student at State College, has a balance of $180 on her retail charge card. If the store levies a finance charge of 20 percent per year, how much monthly interest will be added to Ruby’s account? Assume that the balance is computed by the average daily balance method. Assume a 30 day month.Round the answer to 2 decimal places.
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QUESTION FIVE
Financial Planning Exercise 9
Balance transfer credit cards
Zoe Robinson has several credit cards, on which she is carrying a total current balance of $9,500. Her current cards charge her 12% per year. She is considering transferring this balance to a new card issued by a local bank. The bank advertises that, for a 4 percent fee, she can transfer her balance to a card that charges a 0 percent interest rate on transferred balances for the first 9 months. Calculate the fee that Zoe would pay to transfer the balance.
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Describe the benefits and drawbacks of balance transfer cards.