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3. What would be the average tax rate for a person who paid taxes of $4,864.14 on a taxable income of<br />
$39,870?<br />
4. A payday loan company charges 4 percent interest for a two-week period. What would be the annual<br />
interest rate from that company?<br />
5. What is the annual opportunity cost of a checking account that requires a $350 minimum balance to<br />
avoid service charges? Assume an interest rate of 6.5 percent.<br />
<strong>BUSN</strong> <strong>380</strong> DeVry Week 3 Problem Set 3<br />
Problem Set 3<br />
1. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and<br />
local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her<br />
IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20,<br />
respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-toincome<br />
ratio? Is Louise living within her means?<br />
2. Calculating Debt Payments – to – Income Ratio. Suppose that your monthly net income is $2,400. Your<br />
monthly debt payments include your student loan payment, a gas credit card and they total $360. What is<br />
your debt payments – to – income ratio?<br />
3. Dave borrowed $500 for one year and paid $50 in interest. The bank charged him a $5 service charge.<br />
What is the finance charge on this loan?<br />
Dave borrowed $500 on January 1, 2006, and paid it all back at once on December 31, 2006.<br />
What was the APR?<br />
If Dave paid the $500 in 12 equal monthly payments, what is the APR?<br />
4. Calculating Simple Interest on a Loan. Damon convinced his aunt to lend him $2,000 to purchase a<br />
plasma digital TV. She has agreed to charge only 6 % simple interest, and he has agreed to repay the<br />
loan at the end of one year. How much interest will he pay for the year?<br />
5. After visiting several automobile dealerships, Richard Welch selects the car he wants. He likes its<br />
$10,000 price, but financing through the dealer is no bargain. He has $2,000 cash for a down payment,<br />
so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that interest<br />
on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on<br />
the full amount borrowed even though a portion of the principal has been paid back. Richard borrows<br />
$8,000 for a period of four years at an add-on interest rate of 11 percent.
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