Question

Snipping Tool File Edit Tools Help Apps New - Mode Delay Robert owns a $140,000 town house and still has an unpaid mortgage of $110,000. In addition to his mortgage, he has the following liabilities: Liabilities Visa MasterCard Discover card Education loan Personal bank loan Auto loan Total 565 480 395 920 800 4,250 7,410 $ Robert's net worth (not including his home) is about $21,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. (a) What is Robert's debt-to-equity ratio? (Round your answer to 2 decimal places.) Debt-to-equity ratio (b) Has he reached the upper limit of debt obligations? O Yes O No

Answer 1

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)

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