MM255 PROJECT 5 Rev 11.2011
MM255 PROJECT 5 Rev 11.2011
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Date Created: 11/14/15
Unit 5: Consumer Credit – Instructor Graded Project You must show your work on all problems. You may type your answer right into this document. Total points for project: 45 points. Projects must be submitted as a Microsoft Word document and uploaded to the Drop Box for Unit 5. All Projects are due by Tuesday at 11:59 PM ET of the assigned Unit. NOTE: Project problems should not be posted to the Discussion threads. Questions on the project problems should be addressed to the instructor by sending an email or by attending office hours. Part I. Basic Computations 1. The Morrison family bought a car for $24,000 which was financed at $600 per month for 40 months. The down payment was $5000. a. What is the Installment Price? (5 Points) Answer: $29,000 40*$600=$24,000 $24,000+$5,000=$29,000 b. What is the financial charge and amount financed? (5 Points) Answer: Finance Charge=29000-24000=$5000 Amount Financed=24000-5000=$19000 2. Jason’s credit card’s beginning unpaid balance for August is $3,000. During the August billing cycle he made a payment of $250 and used card to purchase $75 worth of groceries. Credit card charges 23% annual percentage rate and uses the unpaid balance method. a. What is the finance charge at the end of August? (5 Points) Answer: $57.60 23%/12=1.92% 3000*1.90%=57.60 b. What is the new balance at the end of August? (5 Points) Answer: $2882.60 3000+57.60+75-250=2882.60 Part II. Case Study 1. Ling has received been approved for a Visa credit card with a $2000 credit limit, however he has not charged that much since opening the account. On April 24, he discovers a monthly statement from March that had accidentally slid down between his desk and the wall. Because he has been busy at work, he has not had time to carefully review his monthly statements, but is spending the weekend catching up on paying bills and organizing his desk. He is particularly interested in how much he still owes the credit card company. He reviews the statement and discovers there is a page missing – the one with the unpaid balance. He can see that his beginning balance for March (March 1 through March 31) was $800 and that he paid $280 on March 12, charged purchases of $150 on March 5, $100 on March 20, and $50 on March 30. Ling remembers that the Annual Percentage Rate (APR) on the credit card is 16% of the unpaid balance and interest is charged using the average daily balance method, including current purchases. a. (5 points) Find the unpaid balance for the March statement (before interest was charged). b. Answer: $820.00 c. (5 points) Find the average daily balance for the month of March (assume 31 days): d. Answer: $791.92 e. (5 points) Calculate how much interest Ling must pay in addition to the minimum payment. f. Answer: Interest $10.29 d. (10 points) Research some of the guidelines for obtaining and using a credit card for personal purchases. Do you think that Ling is using his credit card wisely? Requirements - Write your essay in this document – do not save it in a separate file. - You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure. - This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources - Your answer must be between 150-250 words (about 1 page of text) - You must cite at least one source (book, website, periodical) using APA format. - Do not use unreliable sources such as Wikipedia, and Yahoo! Answers. Answer: Ling has a $2,000 credit limit and at the beginning of April had a balance of $800. I think that Ling is using his credit card for personal uses well. According to IN.gov you should not use your credit card on everyday purchases. People shouldn’t use your credit card to buy things you can’t afford. Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month. Always pay your bill on time, and preferably in full each month to avoid interest charges. If you must finance a purchase over time, make sure you have a plan to pay it back in full as soon as possible. Never max out your credit card so that you don’t have to pay more in interest and also if you max out the credit card it looks poorly on you credit. References: Using credit cards. (2012). Retrieved from http://www.in.gov/dfi/2545.htm
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