1(a)
Robert's total debt (not including mortgage) = $7410
Robert's net worth (not including his home) = $21000
So, Debt-Equity ratio = (Robert's total debt /
Robert's net worth)
=> ($7410 / $21000)
=> 0.35 (Ans)
1(b)
No
Since debt-equity ratio is 0.35 which is less than 1, therefore
Robert has not reached upper limit of debt obligation
2(a)
Ans - He should select the card without the annual
fee
Since bobby is going to be paying his dues regularly, then he won't
have any interest obligation, so choosing the option with annual
fees is not a better option for him
2(b)
Ans - He should most likely select the card with lower
interest rate
Since Bobby is goint to have to pay interest charges, therefore he
should choose the option of lower interest rate
3(a)
Total interest on Richard's loan = (Borrowed amount X rate of
interest X term of loan)
=> ($8000 X 11% X 4 years)
=> $3520 (Ans)
3(b)
Total cost of car = (Down payment + Loan borrowed +
Interest)
=> ($2000 + $8000 + $3520)
=> $13520 (Ans)
3(c)
Monthly payment = [(Loan borrowed + Interest) / (4 years X 12
months)]
=> ($11520 / 48 months)
=> $240 per month (Ans)
3(d)
APR = (2 X 12 X interest) / [principal X (number of months
+1)]
=> (2 X 12 X $3520) / [$8000 X (48months +1)]
=> ($84480 / $392000)
=> 21.55% (Ans)
(If there are any issues or questions, kindly let me know in comments. If the solution is to your satisfaction, a thumbs up would be appreciated. Thank you)
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