# Db123 Tma02 Essay

1007 Words5 Pages
Part A (50 per cent of the marks) Question 1 Panna wants to buy a new suite of furniture for her flat. The furniture costs £3000 from a furniture store in her local town. The saleswoman suggests that Panna takes out a loan from the store’s finance company to fund the purchase of the furniture. The repayment loan from the finance company would be at a fixed APR of 9 per cent for a repayment term of between one and four years, which Panna can select herself. The loan would take the form of a secured loan. Panna has £3000 in a variable rate online instant access account with her building society, currently earning 3 per cent p.a. after tax. She has no other savings. She also has the possibility of taking an unsecured loan from her own bank of £3000 where the variable APR charged is currently 12 per cent. Panna has also just received a letter from a different bank to apply for a credit card on which the variable interest rate on new purchases for the first four months would be 0 per cent p.a. and would then rise to the normal variable rate (currently the normal rate is 18 per cent p.a.). • Panna could use all her savings to fund the purchase of the furniture outright. State one advantage and one disadvantage of this course of action. (5 marks) • Using the ‘Saving and Borrowing Calculator’ (on the DVD-ROM or online), calculate the monthly repayments required and the total amount of interest paid if Panna used a loan from the store’s finance company, at an APR of 9 per cent, to fully fund the purchase over both (a) one year, and (b) three years. What factors would Panna need to consider in deciding between the one-year or three-year payment period? (8 marks) • What would be the advantages and disadvantages of using each of the three forms of debt available to Panna to purchase the furniture? (12 marks) (Total: 25 marks) Question 2 Adan (26) and Jane (25)