Week 3 Problem Set - Personal Financial Planning

456 Words2 Pages
Personal Financial Planning Problem Set 3 1. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30 and $20, respectively. Her monthly payment on an automotive loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? Louise’s gross income monthly is $2,000. Louise’s net monthly take home pay is $1,360. Louise pays $370/month on her credit card bills. The $370 spent on credit card payments every month out of the monthly total take home pay of $1,360 is 27.2%. The recommended debt to income ratio is 20% so YES Louise is living above her means. 2. Calculating Debt Payments – to – Income Ratio. Suppose that your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payment -to- income ratio? Monthly net income - $2,400. Total monthly debt payments- $360. Debt payment to income ratio - $360 / $2,400 = 0.15 or 15%. 3. Dave borrowed $500 for one year and paid $50 in interest. The bank charged him $5 service charge. A- What is the finance charge on this loan? $50 + $5 = $55 B- Dave borrowed $500 on January 1, 2006 & paid it all back at once on Dec 31, 2006. What was the APR? $55 on $500 or 11% APR C- If Dave paid the $500 in 12 equal monthly payments, what is the APR? 20.3% 4. Calculating Simple Interest on a Loan. Damon convinced his aunt to lend him $2,000 to purchase a plasma digital TV. She has agreed to charge only 6% simple interest, and he agreed to repay the loan at the end of one year. How much interest will be pay for the year? $2,000 x .06 x 1 = $120

More about Week 3 Problem Set - Personal Financial Planning

Open Document