Multiple Choice
Identify the choice that best
completes the statement or answers the question.
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1.
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Carlos was approved for a mortgage to finance his new house that he purchased
for $325 000. He made a down payment that was 20% of the purchase price. The mortgage is
compounded semi-annually at an interest rate of 4.2%. Carlos will repay the mortgage in 25 with
regular monthly payments. How much will each monthly payment be?
A. | $1744.98 | B. | $1395.99 | C. | $1401.25 | D. | $1751.56 |
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2.
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Carlos was approved for a mortgage to finance his new house that he purchased
for $325 000. He made a down payment that was 20% of the purchase price. The mortgage is
compounded semi-annually at an interest rate of 4.2%. Carlos will repay the mortgage in 25 with
regular monthly payments. How much interest will he have to pay?
A. | $93 796.24 | B. | $198 495.30 | C. | $158
796.24 | D. | $160 375.01 |
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3.
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Catherine wants to travel to England. The trip costs $3000 and she can afford
monthly payments of $150. She can finance her trip using one of her two credit cards.
• Card
1 charges 12.7%, compounded daily.
• Card 2 charges 18.1%, compounded daily, but she gets 3%
cash back on all purchases.
What is the least amount of interest Catherine can pay?
A. | $473.75 | B. | $300.00 | C. | $391.02 | D. | $563.75 |
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4.
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Soloman bought a used car for $12 000 during a sale. The sale was that as long
as the debt was paid off in three years, no interest would be charged. Otherwise, a penalty equal to
an interest rate of 10.5%, compounded monthly, would be charged, starting from when he first borrowed
the money. If he missed the deadline by 1 month, how much more would he have to pay than if he made
the deadline?
A. | $16 420.60 | B. | $4564.28 | C. | $4420.60 | D. | $16 564.28 |
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5.
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Vennie has purchased a statue from an artist in Italy. The statue costs $19 750
and the cost to safely ship the statue is $975. He wants the pay off the debt in 4 years with regular
monthly payments. He has two options to finance the purchase.
• Finance the cost through the
artist at an interest rate of 20%, compounded monthly, with the incentive that the artist will pay
the shipping cost.
• Finance the cost through the bank at an interest rate of 15.7%,
compounded monthly.
What is the least amount of interest he can pay?
A. | $8290.30 | B. | $7315.30 | C. | $6971.15 | D. | $9097.98 |
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6.
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Yu needs a car. He can lease a car for 3 years for $300 per month and a down
payment of $4100. He can purchase a new car for $28 000, which would be financed with a bank loan at
an interest rate of 5.2%, compounded monthly, and a down payment of $3700. He would pay off this loan
with regular monthly payments. He can also rent a car at $75 per day. What is the total cost of
buying the car if it is purchased entirely in 3 years?
A. | $29 997.16 | B. | $32 716.11 | C. | $30
301.26 | D. | $26 297.17 |
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7.
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Nigel is purchasing a house for $225 000 that appreciates at a rate of about 3%
per year. He will finance this purchase with a 20-year mortgage at an interest rate of 4.5%,
compounded semi-annually, with monthly payments, where he is required to make a 15% down payment. How
much is the down payment?
A. | $191 250 | B. | $10 125 | C. | $33
750 | D. | $225 000 |
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8.
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Nigel is purchasing a house for $225 000 that appreciates at a rate of about 3%
per year. He will finance this purchase with a 20-year mortgage at an interest rate of 4.5%,
compounded semi-annually, with monthly payments, where he is required to make a 15% down payment. How
much does he pay monthly?
A. | $1418.41 | B. | $1058.89 | C. | $1205.65 | D. | $922.46 |
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9.
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Johanna needs a place to live. She can either rent an apartment or buy a new
house. Renting costs $300 per week. She can finance the purchase of a house that costs $280 000 with
a mortage. She has negotiated with the bank a mortgage of 87% of the purchase price at an interest
rate of 3.9%, compounded semi-annually. The term of the mortgage is 15 years and it requires regular
monthly payments. The house depreciates at a rate of 4%. If she moves out after 6 years, what is her
total cost of living in the apartment?
A. | $164 984.20 | B. | $93 600.00 | C. | $21
600.00 | D. | $130 000.00 |
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10.
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Johanna needs a place to live. She can either rent an apartment or buy a new
house. Renting costs $300 per week. She can finance the purchase of a house that costs $280 000 with
a mortage. She has negotiated with the bank a mortgage of 87% of the purchase price at an interest
rate of 3.9%, compounded semi-annually. The term of the mortgage is 15 years and it requires regular
monthly payments. The house depreciates at a rate of 4%. If she purchases the house, what will her
regular monthly payments be?
A. | $1200.00 | B. | $2052.75 | C. | $3796.61 | D. | $1785.89 |
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Short Answer
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1.
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Sylvia wants to become debt-free in 2 years by making regular monthly payments.
She currently has an outstanding balance on two different credit cards:
• Card A has a
balance of $1522.77 and an interest rate of 18.5%, compounded daily.
• Card B has a balance
of $2003.45 and an interest rate of 17.7%, compounded daily.
Sylvia wants to consolidate her debts
into a line of credit that charges an interest rate of 9.2%, compounded monthly. How much will Sylvia
save by consolidating her debts?
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2.
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Jose needs a truck for his job. He can lease a truck for 4 years for $500 per
month and a down payment of $5600. He can purchase a new truck for $41 000 which would be financed
with a bank loan at an interest rate of 4.4%, compounded monthly, and a down payment of $6100. He
would pay off this loan with regular monthly payments over 4 years. He can also rent a truck at $85
per day. What is the total cost of buying the truck?
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3.
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Heidi needs a place to live. She has two different options. She can lease an
apartment for $2800 per year. Each lease contract has a length of 2 years and every contract requires
a down payment of $1100. She can also purchase a new house for $245 000 and finance the purchase with
a mortgage worth 92% of the total cost that requires regular monthly payments. The mortgage has an
interest rate of 4.0%, compounded semi-annually, and it has a term of 20 years. If Heidi were to live
in the same place for 20 years, what is the total cost of leasing the apartment?
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Problem
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1.
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Bella borrowed $12 700 at 7.2%, compounded quarterly, to purchase equipment for
her business. The loan is to be repaid in 4 years.
a) What amount will Bella have to pay
back? Show your work.
b) How much interest will Bella have to pay? Show your work.
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2.
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Franklin wants to buy a new riding lawnmower that costs $3700. Franklin wants to
repay the loan in 2 years by making regular monthly payments. He has two different credit
options:
• Use his line of credit which is 2.1%, compounded monthly, above the Bank of
Canada rate, which is currently at 1.3%.
• Finance through the store at an interest rate of
4.0%, compounded monthly.
a) Which option should he choose? Why?
b) If after the
first year the Bank of Canada rate increases to 2.7%, which is the better option now? Why?
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