Module 2 Practice Problems
Problem 2.1: Hendrik has a credit card that charges him 16.99% annual interest. Below is his statement summary for July.
| Date | Activity |
| July 1 | Opening Balance of $1,500 |
| July 9 | Purchase of $600 |
| July 14 | Purchase of $200 |
| July 19 | Payment of $1,000 |
| Jule 28 | Purchase of $100 |
- Calculate the ADB.
- Calculate the interest payment.
- Calculate the minimum monthly payment (using interest + 2% rule).
Answers: ABD=$1,654.84; $23.88; $51.88
Problem 2.2: Eduards has a credit card that charges him 26.99% annual interest. Below is his statement summary for November.
| Date | Activity |
| Nov 1 | Opening Balance of $3,500 |
| Nov 3 | Purchase of $500 |
| Nov 11 | Purchase of $800 |
| Nov 18 | Purchase of $600 |
| Nov 24 | Payment of $500 |
| Nov 27 | Purchase of $900 |
- Calculate the ADB.
- Calculate the interest payment.
- Calculate the minimum monthly payment (using interest + 2% rule).
Answers: ABD=$4,763.33; $105.67; $221.67
Problem 2.3: Islam purchases a house in Bethel Park for $275,000. He made a 20% down payment so there will be no PMI. The bank approves a 30-year mortgage at a rate of 3.5%. The bank also makes Islam pay for property tax, homeowners insurance, and PMI with each payment. In Bethel Park, the property tax rates are as follows: county rate of 4.73 mills, municipality rate of 2.73 mills, and school rate of 21.7654 mills. The homeowners insurance is expected to cost $800/year. Calculate the PITI payment.
Answer: $1,724.32/month
Problem 2.4: Harriet purchases a house in Houston (Pa) for $195,000. She made a 5% down payment so there will be PMI. The bank approves a 30-year mortgage at a rate of 4.55%. The bank also makes Harriet pay for property tax, homeowners insurance, and PMI with each payment. In Houston, the property tax rates are as follows: county rate of 2.43 mills, municipality rate of 2.52 mills, and school rate of 12.576 mills. The homeowners insurance is expected to cost $600/year and the PMI will cost $80/month. Calculate the PITI payment.
Answer: $1,358.95/month
Problem 2.5: Jevon is looking to purchase a $300,000 home. He will have a 20% downpayment. He is offered the following loan options:
- 30 years at 3.95%
- 20 years at 3.66%
- 15 years at 3.41%
Calculate the P&I payment for each. Additionally, find the difference in interest payments between the three options.
Answers: $1,138.89; $1,411.72; $1,705.13 (see video for other information)
Problem 2.6: Let us again consider Jevon from problem 2.5. For each of the three options, create the first month of the amortization schedule.
Answer: See video for amortization schedules.
Problem 2.7: Adrian wants to purchase a car for $32,000. She has a trade-in with $7,000 worth of equity but there are also $1,500 worth of fees and taxes. She plans no down payment (other then the trade-in equity). The bank offers her the following loan options:
- 48-month at 1.99%
- 60-month at 2.99%
- 72-month at 3.99%
- 84-month at 4.99%
Calculate the payment for each. Additionally, calculate the difference in interest charges for the different loans.
Answers: $574.81; $476.05; $414.48; $374.42 (see video for other information)
Problem 2.8: Vladamir is going to purchase a car. He has no down payment nor does he have a trade-in. He has been approved for a 60-month loan at a rate of 5.75%. He wants a payment of no more than $300 per month. What is the most expensive car he can afford?
Answer: $15,611.40
