AnswersPersonal Finance - EL3403The Cost of Credit

The Cost of Credit Answers

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The table shows a schedule of Mr. Kirov’s plan for paying off his credit card balance.Mr. Kirov’s Payment Plan BalancePaymentNew Balance RateInterest$800.00$100$700.000.012$8.40$708.40$100$608.400.012$7.30$615.70$100$515.700.012$6.19If Mr. Kirov continues to make monthly payments of $100 and does not make any new purchases, how many more payments will he need to make before the balance is 0?

4
4 payments
5
5 payments
6
6 payments
7
7 payments
22
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The table shows a schedule of Igor’s payment plan for a used car. Igorr’s Payment Plan for the First Three YearsYearBalanceMonthly PaymentEnd of YearBalance1 $245.33 2 $245.33$8,831.883 $245.33 How much is Igor’s total closed-end credit for the car?

A
$11,775.84
B
$14,719.80
C
$23,551.68
D
$26,495.64
23

Mo has a credit card that gives a 3% discount on every purchase. The annual percentage rate on the card is 12%. He is purchasing an electronic reader for $140. Check all that apply.

A
If Mo uses the credit card and pays the full balance during the billing cycle, the cost of the purchase will be $140.
B
If Mo pays cash, the cost of the purchase will be $140.
C
If Mo uses the credit card and pays off the balance at $30 a month for 7 months with no late fees, the cost of the purchase will be $143.34.
D
If Mo pays cash, the cost of the purchase will be $135.80.
E
If Mo uses the credit card and pays off the balance at $20 a month for 7 months with no late fees, the cost of the purchase will be $139.89.
F
If Mo uses the credit card and pays the full balance during the billing cycle, the cost of the purchase will be $135.80.
24

Maura had to get a $350 emergency loan at a very high interest rate to pay for dental work. The lender did not need her credit history. If she does not pay back the loan within three weeks, she will have to pay an extra $50. Raina says the loan is an example of easy-access credit while Maura says it is an example of open-end credit. Which statement about the loan is correct?

A
Raina is correct because the loan is a line of credit.
B
Maura is correct because the loan has an interest rate.
C
Raina is correct because the loan has a large fee if it is not repaid on time.
D
Maura is correct because the loan does not have an annual fee.
25

Caitlyn has a credit card with a spending limit of $1500 and an APR (annual percentage rate) of 18%. During the first month, Caitlyn charged $375 and paid $250 of that in her billing cycle. Which expression will find the amount of interest Caitlyn will be charged after the first month?

A
(0.18) (250 dollars)
Option A
B
(0.015) (375 dollars)
Option B
C
(0.18) (375 dollars)
Option C
D
(0.015) (125 dollars)
Option D
26

Which is an example of closed-end credit?

p
payday loan
t
title loan
h
home loan
c
credit card
27

Kanya has a credit card that gives a 6% discount on every purchase and free shipping when used online. The annual percentage rate on the credit card is 12%. Kanya wants to buy a laptop that costs $420. Which statement about the cost of the laptop is true?

A
If Kanya uses the credit card and pays the full balance during the billing cycle, she will spend $25.20 more than paying cash for the laptop.
B
If Kanya uses the credit card and pays the full balance during the billing cycle, she will spend $50.40 more than paying cash for the laptop.
C
If Kanya uses the credit card and pays the full balance during the billing cycle, she will spend $50.40 less than paying cash for the laptop.
D
If Kanya uses the credit card and pays the full balance during the billing cycle, she will spend $25.20 less than paying cash for the laptop.
28

Which is an example of closed-end credit?

A
payday loan
B
title loan
C
home loan
D
credit card
29

Open-end credit is

A
a loan given for a short period of time that is not dependent on credit history.
B
pledged to a company as security for a loan repayment.
C
an amount of time during which a loan can be repaid without interest.
D
an agreement with an institution on a certain amount that can be repeatedly borrowed.
30

The table shows a schedule of Evita’s payment plan for a used car. Evita’s Payment Plan for the First Three YearsYearBalanceMonthly PaymentEnd of YearBalance1 $356.82 2 $356.82 3 $356.82$8,563.39Evita paid $2,408.91 in interest. What was the selling price of the car?

A
$12,845.52
B
$17,127.07
C
$19,000.00
D
$21,408.91

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