Personal Finance

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timer Asked: Apr 15th, 2017

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MGF2106 (Survey of Mathematics) Project 6: Personal Finance Purpose: Work individually or as a group to solve problems and answer questions related to personal finance. In general, a loan is some amount of money that is borrowed and paid back with interest. Common loans include car loans, student loans, mortgages, and credit cards. Instructions: Complete the project, compiling the various parts into a single document which is submitted to the Assignments link in Falcon Online. The Discussion Board in Falcon Online may be used to find classmates for working as a group. Even if you work as a group, each student must submit an individual project to the Assignments link in Falcon Online by the posted due date. Format for Project Document Submitted to the Assignments Link: 1. The submission must be a single document formatted as .docx, .doc, .rtf, or .pdf. 2. The submission must be typed. Please check with your instructor if you have questions about the format of the document. 3. Put your name on the document. If you worked in a group, also list the names of the other students in the group. 4. Do not type the questions into your project. Just give the answers. Answers obtained with calculations should include the basic process (work) used to obtain the answer. 5. Follow the numbering system used in the project when typing your answers. Part 1: Mortgage A mortgage is a loan used to purchase a home. It is usually paid back over a period of 15, 20, or 30 years. The interest rate is determined by the term of the loan (the length of time to pay back the loan) and the credit rating of the person borrowing the money. Once a person signs the documents to borrow money for a home, they are presented with an amortization table or schedule for the mortgage that shows how much of a monthly payment is for interest and how much is for the principal (the amount borrowed). For a particular home, the mortgage amount needed to purchase the home is $130,000. There are 2 options for a fixed-interest-rate loan. One option is a 15-year loan and the other option is for a 30-year loan. A mortgage calculator can be used to determine the monthly payments for a loan. bankrate.com mortgage-calc.com For monetary answers, round to the nearest dollar. MGF2106 Personal Finance Project 6B 1 1. A 15-year mortgage for $130,000 has a fixed interest rate of 2.75%. a. What is the monthly payment? b. What is the total amount paid for the mortgage after the 15 years of payments? c. How much interest was paid over the 15-year term of the loan? 2. A 30-year mortgage for $130,000 has a fixed interest rate of 3.5%. a. What is the monthly payment? b. What is the total amount paid for the mortgage after the 30 years of payments? c. How much interest was paid over the 30-year term of the loan? 3. Home ownership has other expenses, including property taxes, homeowner’s insurance, and utilities. The annual property tax can be estimated as 1% of the amount borrowed and the annual homeowner’s insurance can be estimated as 2% of the amount borrowed. a. For the mortgage of $130,000, find the estimated annual amount of the property tax. b. Find the monthly amount of the property tax. c. For the mortgage of $130,000, find the estimated amount of the homeowner’s insurance. d. Find the monthly amount of the homeowner’s insurance. 4. If the monthly utilities can be estimated as $200, find the total monthly payment for the mortgage, property tax, homeowner’s insurance, and utilities. a. Find the total monthly payment for the 15-year loan. b. Find the total monthly payment for the 30-year loan. 5. Housing expenses are an important part of a personal budget. Use the internet to determine what percent of a person’s monthly income should be used for housing. 6. The average monthly income for a Volusia county resident is approximately $2500. a. Could a typical Volusia county resident afford the home with the 15-year mortgage? Why or why not? b. Could a typical Volusia county resident afford the home with the 30-year mortgage? Why or why not? 7. a. What other expenses should a person consider for their monthly budget? b. How might these expenses affect the decision of whether to purchase a home? c. Compare the 2 mortgages described, listing good and/or bad aspects of both. MGF2106 Personal Finance Project 6B 2 Part 2: Credit Cards Another type of personal loan is a credit card. A financial institution allows you to “charge” a purchase to your account, and you are required to pay the financial institution at a later time. As with other loans, credit cards charge interest. Interest rates can range from 3% - 22%. When you are paying for debt on a credit card, the financial institution will require a minimum balance be paid each month. The higher the interest rate that is charged on the credit card, the larger the minimum payment will be. credit card payoff calculator 8. Assume you had a balance of $1300 on a credit card. a. If the credit card has an annual interest rate of 13.6% and only the minimum monthly payment of $20 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1300 if the monthly payment is $20? c. If the credit card has an annual interest rate of 13.6% and a monthly payment of $55 is made, how many months will it take to pay off the credit card? d. What is the total amount that would be spent to pay off the $1300 if the monthly payment is $55? 9. Assume you had a balance of $1300 on a credit card. a. If the credit card has an annual interest rate of 22% and only the minimum monthly payment of $30 is made, how many months will it take to pay off the credit card? b. What is the total amount that would be spent to pay off the $1300 if the monthly payment is $30? c. If the credit card has an annual interest rate of 22% and a monthly payment of $80 is made, how many months will it take to pay off the credit card? d. What is the total amount that would be spent to pay off the $1300 if the monthly payment is $80? 10. What are some reasons the interest rates on credit cards vary? 11. What are your opinions on having and using credit cards for your purchases? MGF2106 Personal Finance Project 6B 3 Part 3: Student Loans There are many different types of student loans. The main difference in student loans is whether they are federal or private. Use online searches to answer the questions. 12. a. What is the difference between a subsidized and unsubsidized Federal Direct Student Loan? b. What is the source for these loans (who offers them to students)? c. What is the other name for these loans? 13. Answer the questions for a Plus loan. a. Is this a federal or private loan? b. Who is eligible to get this loan? c. When must repayment of the loan begin? d. What is the current interest rate for the loan? e. What is the maximum amount that can be borrowed? 14. Answer the questions for a Sallie Mae loan. a. Is this a federal or private loan? b. Who is eligible to get this loan? c. When must repayment of the loan begin? d. What is the current interest rate for the loan? e. When does the institution start adding interest to the loan? Part 4: Impact Question 15. This project contains a lot of information about managing money. Discuss how the information in this project may impact your current or future spending habits with regards to using credit cards and loans. MGF2106 Personal Finance Project 6B 4
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