Chapter 10
Real World Word Problems
1. Chan Chin bought a used Lexus ES300 priced at $25,750, a $2,600 down payment was made.
The loan was for 36 months with monthly payments of $767. From this information, calculate (a)
the amount financed, (b) the finance charge, (c) the deferred payment price, and (d) APR.
2. The Bank Rate Monitor reports the lowest auto rates. Assume the loans were based on $16,000
borrowed for 48 months. New York Citibank reported monthly payments of $390.61. Los
Angeles Sanwa Bank reported monthly payments of $396.26. What would be the APR for each
of these banks?
3. Alvez Mooney bought a $4,000 desk at Furniture.com. Based on his income, Rich could only
afford to pay back $400 per month. The charge on the unpaid balance is 3%. The U.S. Rule is
used in the calculation. Calculate the balance outstanding at the end of month 2.
4. A Range Rover sells for $74,155. Bill Rich made a $15,000 down payment. The loan is for 48
months with a monthly payment of $1,465. From this information calculate (a) the amount
financed, (b) the finance charges, (c) deferred payment price, and (d) APR using the table. Use
the tables in the Business Math Handbook.
5. Jay Lee plans to put $3,680 down on a vehicle costing $28,680 and will finance a vehicle for 48
months. His monthly payments will be $610.32. What would be Jay's finance charges?
6. Margaret Paine purchased a used Hummer car for $18,646 with $1,900 down. The loan is for 48
months with monthly payments of $408.10. (a) What amount did Margaret finance? (b) What is
her finance charge? (c) What is Margaret's APR?
7. Peter Young bought a used Volvo paying $89.11 per month. He put down $95 and financed
$3,889 for 60 months. Calculate Peter's finance charges, deferred payment price, APR, and
monthly payment.
8. A $15,000 loan for 5 years will run a whopping $3,240 in interest for an article that appears in a
magazine. For the same loan over a 4-year period, the total interest cost will be $2,568, which is
$672 less than for the longer loan. What is the APR for the 5-year loan? Use tables in the
Business Math Handbook.
9. Calculate a. the average daily balance and b. finance charge on the statement below.
30-day billing cycle
9/9 Balance $400
9/16 Payment 60
9/22 Charge Macy's
Finance charge 2%
On average daily balance 90
Chapter 10 – Solutions to Real World Quiz Problems
1. a. Cash price – Down payment = Amount financed
$25,750 - $2,600
= $23,150
b. Total of all monthly - Amount = Total finance
payments
financed
charge
36 x $767 = $27,612 - $23,150 = $4,462
c. Total of all monthly + Down = Deferred
payments
payment
payment price
$27,612
+ $2,600 = $30,212
d. APR =
72 x $4,462
=
3($23,150)(36 + 1) + $4,462 (36 - 1)
11.8%
2. New York Citibank
Los Angeles Sanwa Bank
$390.61 x 48 = $18,749.28
$396.26 x 48 = $19,020.48
- 16,000.00
-16,000.00
$ 2,749.28 finance charge
$ 3,020.00 finance
charge
APR =
72 x $2,749.28
= 8%
3($16,000)(48 + 1) + $2,749.28 (48 - 1)
APR =
72 x $3,020
= 8.7%
3($16,000)(48 + 1) + $3,020 (48 - 1)
3.
Month
1
2
Balance
Monthly
Reduction in
Balance
due
Interest
payment
balance
outstanding
$4,000
$120
$400
$280
$3,720
(.03 x $4,000)
($400 - $120) ($4,000 - $280)
$3,720
$111.60
(.03 x $3,720)
$400
$288.40
$3,431.16
($400 – 111.60) ($3,720 - $288.40)
4. a. Cash price - Down payment = Amount financed
$74,155 - $15,000
= $59,155
b. Total of all
monthly payments
48 x $1,465.00 = $70,320 c. Total of all
monthly payments
$70,320
+
Amount
Total
financed
finance charge
$59,155 = $11,165
Down
Def. payment
payment
price
$15,000 = $85,320
d. APR =
72 x $11,165
3($59,155)(48 + 1) + $11,165 (48 - 1)
=
8.7%
5. Purchase
Down
Amount
Number Amount of
price
payment financed of months monthly payments
$28,680 - $3,680 = $25,000
48
x $610.32
= $29,295.36
- 25,000.00
$ 4,295.36
total finance charge
6. a. $18,646 - $1,900 = $16,746.00 amount financed
b. $19,588.80 ($408.10 x 48) - $16,746.00 = $2,842.80 finance charge
c. $19,588.80 ($408.10 x 48) + $1,900 = $21,488.80 deferred payment price
d. APR =
72 x $2,842.80
=
7.9%
3($16,746)(48+ 1) + $2,842.80 (48 - 1)
7. a. Finance charge = $5,346.60 ($89.11 x 60 ) - $3,889 = $1,457.60
b. Deferred payment price = $5,346.60 ($89.11 x 60) + $95 = $5,441.60
c. APR =
72 x $1,457.60
=
13.2%
3($3,889)(60 + 1) + $1,457.60(60 - 1)
d. $1,457.60 + $3,889.00 / 60 = $89.11
8. APR =
9.
72 x $3,240
=
3($15,000)(60 + 1) + $3,240(60 - 1)
a. 7days x $400
= $ 2,800
6 days x $340
= 2,040
17 days (30 – 13) x $430 = 7,310
$12,150 / 30 = $405
b. $405 x .02 = $8.10
7.9%