418 ChapTEr 13 • CONSumEr aNd BuSINESS CrEdIT
REviEw ExERCisEs
Calculate the missing information on the following revolving credit accounts. Interest is
calculated on the unpaid or previous month’s balance.
Previous
Balance
Annual
Percentage
Rate (APR)
Monthly
Periodic
Rate
Finance
Charge
Purchases
and Cash
Advances
Payments
and
Credits
New
Balance
1. $167.88 18% 1.5% $2.52 $215.50 $50.00 $335.90
7. Anny Winslow has a Bank of America revolving credit account with an annual percentage rate
of 12% calculated on the previous month’s balance. Answer the questions that follow using the
monthly statement below.
a. What is the finance charge?
b. What is Anny’s new balance?
Kathy Hansen has a revolving credit account. The finance charge is calculated on the previous
month’s balance, and the annual percentage rate is 21%. Complete the following five-month
account activity table for Kathy.
Month
Previous
Month’s
Balance
Finance
Charge
Purchases
and Cash
Advances
Payments
and Credits
New Balance
End of Month
8. March $560.00 $9.80 $121.37 $55.00 $636.17
to consider and discuss
• the “responsibility” of having credit
• factors they would consider
important in granting credit if they
were the lenders
13
Section i
After years of secrecy, FICO scores are
now available to consumers nationwide.
This all-important credit scoring
system, developed by Fair, Isaac and
Company, provides credit scores and
other information to lending institutions
everywhere. Most lenders rely heavily
on these scores when making credit
decisions, especially mortgages.
A free 10-day trial to get your FICO
report is available at
tion costs $14.95 (minimum of three
www.annualcreditreport.com
• Equifax—800-685-1111
• Experian—888-397-3742
• TransUnion—800-888-4213
in the
Business World NAME
ANNY WINSLOW
ACCOUNT NUMBER
2290-0090-4959
BILLING CYCLE
SEPTEMBER 1–30
Statement of Account
09/01Previous month’s balance $120.00
09/08 Radio Shac
k6
5.52
09/11Payment 70.00
09/14 Union Oil 23.25
09/22 Cash Advance 60.00
09/26 Safeway Supermarket 59.16
DESCRIPTION OF TRANSACTIONSDATE CHARGES
SECTION I • open-end credit—chArge AccountS, credit cArdS, And LineS of credit 419
13. Calculate the average daily balance for November for a revolving credit account with a previous
month’s balance of $550 and the following activity.
Date Activity Amount
November 6 Purchase $83.20
30
14. Calculate the average daily balance for October for a revolving credit account with a previous
month’s balance of $140 and the following activity.
Date Activity Amount
October 3 Cash advance $50.00
October 7 Payment $75.00
October 10 Purchase $26.69
October 16 Credit $40.00
October 25 Purchase $122.70
15. Calculate the average daily balance for February for a revolving credit account with a previous
month’s balance of $69.50 and the following activity.
Date Activity Amount
February 6 Payment $58.00
February 9 Purchase $95.88
February 15 Purchase $129.60
February 24 Credit $21.15
February 27 Cash advance $100.00
16. Carolyn Salkind has a Bank of America revolving credit account with a 15% annual percentage
rate. The finance charge is calculated by using the average daily balance method. The billing
date is the first day of each month, and the billing cycle is the number of days in that month.
During March, Carolyn’s account showed the following activity.
a. What is the finance charge for March?
b. What is Carolyn’s new balance?
gap Inc. operates as a specialty retailer.
The company offers clothing, accessories,
and Athleta brand names.
The company offers its products
franchises agreements with unaffiliated
franchisees to operate Gap and Banana
Justin Kase zninez/Alamy
NAME
CAROLYN SALKIND
ACCOUNT NUMBER
2967-39460
BILLING CYCLE
MARCH 1–31
Statement of Account
03/01 Previous month’s balance $324.45
03/05 Crate and Barre
l1
56.79
03/11Payment 150.00
03/15 Starbuck
s4
5.60
03/17 Gap 344.50
DESCRIPTION OF TRANSACTIONSDATE CHARGES
85461_ch13_hr_406-450_1.indd 419 9/23/15 4:57 PM
18. The Jewelry Exchange has a $30,000 line of credit with Nations Bank. The annual percentage
rate is the current prime rate plus 4.7%. The balance on March 1 was $8,400. On March 6, the
company borrowed $6,900 to pay for a shipment of supplies, and on March 17, it borrowed
another $4,500 for equipment repairs. On March 24, a $10,000 payment was made on the
account. The billing cycle for March has 31 days. The current prime rate is 9%.
a. What is the finance charge on the account?
b. What is the company’s new balance?
c. On April 1, how much credit does the Jewelry Exchange have left on the account?
BusinEss DECision: PiCk thE Right PlastiC
19. On October 22, you plan to purchase a $3,000 computer by using one of your two credit cards.
The Silver Card charges 18% interest and calculates interest based on the balance on the first
day of the previous month. The Gold Card charges 18% interest and calculates interest based on
the average daily balance. Both cards have a $0 balance as of October 1. The closing date is the
end of the month for each card.
Your plan is to make a $1,000 payment in November, make a $1,000 payment in December,
and pay off the remaining balance in January. All your payments will be received and posted on
the 10th of each month. No other charges will be made on the account.
a. Based on this information, calculate the interest charged by each card for this purchase.
b. Which card is the better deal and by how much?
17. The Freemont Bank offers a business line of credit that has an annual percentage rate of
primerate plus 5.4%, with a minimum of 11%. What is the APR if the prime rate is
Top 6 Credit Card Issuers in the U.S.
incamerastock/Alamy
85461_ch13_hr_406-450_1.indd 420 9/23/15 4:58 PM
432 CHAPTER 13 • CONSUMER AND BUSINESS CREDIT
CLASSROOM ACTIVITy
In groups, have students bring to
class newspaper advertisements for
installment purchase merchandise
such as cars, boats, and furniture that
display the Regulation Z requirements.
From this information, have each
group calculate the following:
• amount financed
• finance charge
• total deferred payments
ExamplE9
CALCULATINg EARLy
LOAN PAyOFF FIgURES
Suzie Starr financed a $1,500 health club membership with an installment loan for
12 months. The payments were $145 per month, and the total finance charge was $240.
After 8 months, she decided to pay off the loan. What is the finance charge rebate, and
what is her loan payoff?
SolutionStrategy
Step 1. Rebate fraction:
Set up the rebate fraction by using the sum-of-the-digits formula. Because Suzie already made
eight payments, she has four payments remaining (12 − 8 = 4).
78
Step 2. Finance charge rebate:
Finance charge rebate =Rebate fraction ×Total finance charge
Step 3. Loan payoff:
Loan payoff =(Payments remaining ×Payment amount) −Finance charge rebate
tryitexerciSe 9
Mark Sanchez financed a $4,000 piano with an installment loan for 36 months. The payments were
$141 per month, and the total finance charge was $1,076. After 20 months, Mark decided to pay
off the loan. What is the finance charge rebate, and what is his loan payoff?
CHECK YOUR ANSWERS WITH THE SOLUTIONS ON PAGES 443–444.
ReVIeW eXeRCISeS
Note: Round all answers to the nearest cent when necessary.
Calculate the amount financed, the finance charge, and the total deferred payment price for
the following installment loans.
13
SECTION II
Purchase
(Cash)
Price
Down
Payment
Amount
Financed
Monthly
Payment
Number of
Payments
Finance
Charge
Total
Deferred
Payment
Price
1. $1,400 $350 $1,050.00 $68.00 24 $582.00 $1,982.00
85461_ch13_hr_406-450_2.indd 432 9/23/15 4:58 PM
Calculate the amount financed, the finance charge, and the monthly payments for the
following add-on interest loans.
Calculate the finance charge, the finance charge per $100, and the annual percentage rate for
the following installment loans by using the APR table, Table 13-1.
Calculate the finance charge and the annual percentage rate for the following installment
loans by using the APR formula.
Purchase
(Cash)
Price
Down
Payment
Amount
Financed
Add-on
Interest
Number of
Payments
Finance
Charge
Monthly
Payment
8. $788 10% $709.20 8% 12 $56.74 $63.83
Amount
Financed
Number of
Payments
Monthly
Payment
Finance
Charge
Finance Charge
per $100 APR
15. $2,300 24 $109.25 $322.00 $14.00 13%
Amount
Financed
Number of
Payments
Monthly
Payment
Finance
Charge APR
21. $500 12 $44.25 $31.00 11.25%
85461_ch13_hr_406-450_2.indd 433 9/23/15 4:58 PM
434 CHAPTER 13 • CONSUMER AND BUSINESS CREDIT
Calculate the finance charge and the monthly payment for the following loans by using the
APR table, Table 13-1.
Calculate the missing information for the following installment loans that are being paid
offearly.
You are the loan department supervisor for the Pacific National bank. The following install-
ment loans are being paid off early, and it is your task to calculate the rebate fraction, the
finance charge rebate, and the payoff for each loan.
45. Belinda Raven is interested in buying a solar energy system for her home. At Sun-Catchers Inc.,
she picks out a system for a total cash price of $1,899. The salesperson informs her that if she
qualifies for an installment loan, she may pay 10% now as a down payment and finance the
balance with payments of $88.35 per month for 24 months.
a. What is the finance charge on this loan?
b. What is the total deferred payment price of the system?
46. Meghan Pease purchased a small sailboat for $8,350. She made a down payment of $1,400 and
financed the balance with monthly payments of $239.38 for 36 months.
a. What is the finance charge on the loan?
Amount
Financed
Number of
Payments
Monthly
Payment
Payments
Made
Rebate
Fraction
Finance
Charge
Rebate
Loan
Payoff
39. $3,000 24 $162.50 9 120/300 $360.00 $2,077.50
Amount
Financed
Number of
Payments APR
Table
Factor
Finance
Charge
Monthly
Payment
27. $5,000 48 13.5% $29.97 $1,498.50 $135.39
Number of
Payments
Payments
Made
Payments
Remaining
Sum-of-the-
Digits Payments
Remaining
Sum-of-the-
Digits Number
of Payments
Rebate
Fraction
33. 12 4 8 36 78 36/78
34. 36 22 14 105 666 105/666
Solar Energy Although solar energy
isa relatively new energy source, it
solar power systems. Some of the
is nonpolluting, does not emit
greenhouse gases, and provides free
energy and heat from the sun.
According to www.sunworkssolar.com,
© Lisa F. Young/Shutterstock.com
85461_ch13_hr_406-450_2.indd 434 9/23/15 4:58 PM
SECTION II • CLOSED-END CREDIT—INSTALLMENT LOANS 435
b. Use Table 13-1 to find what annual percentage rate was charged on Meghan’s loan.
47. Valerie Ross financed a cruise to the Bahamas with a 5% add-on interest installment loan from
her bank. The total price of the trip was $1,500. The bank required equal monthly payments for
2 years. What are Valerie’s monthly payments?
48. Doug Black bought a jet ski with a 9% add-on interest installment loan from his credit union.
The purchase price was $1,450. The credit union required a 15% down payment and equal
49. Olivia Fast found a timeshare offer entitling her to 3 weeks per year in a Rocky Mountain
townhouse. She had the option of paying $7,600 in cash or financing the timeshare with a
2-year installment loan. The loan required a 20% down payment and equal monthly payments
of $283.73.
a. What is the finance charge on Olivia’s loan?
b. What is the total deferred payment price of the timeshare contract?
50. Tim Houston purchased a wall unit for $2,400. He made a $700 down payment and financed
the balance with an installment loan for 48 months. If Tim’s payments are $42.50 per month,
use the APR formula to calculate what annual percentage rate he is paying on the loan.
Timeshare is a form of ownership
that provides the right to the use of
a property either directly or through
a “points club.” Each time sharer is
allotted a period of time, typically
a week or longer, for a great many
years or in perpetuity. The timeshare
industry is more than 30 years old and
generates revenues of over $9.4 billion
per annum. Today there are 6.7 million
timeshare owners worldwide.
436 CHAPTER 13 • CONSUMER AND BUSINESS CREDIT
51. First National Bank offers a 36-month installment loan with an APR of 10.5%. Liz and Julio
wish to use the loan to finance a home theater system for $2,600. Use the APR tables to
calculate their finance charge and monthly payment.
52. At a recent boat show, Nautica Bank was offering boat loans for up to 5 years with an APR of
13.5%. On new boats, a 20% down payment was required. Scott Vaughn wanted to finance a
$55,000 boat for 5 years.
a. What would be the finance charge on the loan?
b. What would be the monthly payment?
53. Find the sum of the digits of
54. a. What is the rebate fraction of a 36-month loan paid off after the 14th payment?
b. What is the rebate fraction of a 42-month loan paid off after the 19th payment?
55. Charlie Allen financed a $3,500 Nautilus home gym with an 8% add-on interest installment
loan for 24 months. The loan required a 10% down payment.
a. What is the finance charge on the loan?
b. What are Charlie’s monthly payments?
Washington. Its principal business
activities include designing, developing,
sourcing, and marketing high-quality
Universal, and Schwinn Fitness.
Products offered include home gyms,
85461_ch13_hr_406-450_2.indd 436 9/23/15 4:58 PM
SECTION II • CLOSED-END CREDIT—INSTALLMENT LOANS 437
c. What annual percentage rate is being charged on the loan?
d. If Charlie decides to pay off the loan after 16 months, what is his loan payoff?
56. Chuck Wells is planning to buy a Winnebago motor home.
Thelisted price is $165,000. Chuck can get a secured loan from
his bank at 7.25% for as long as 60 months if he pays 15% down.
Chuck’s goal is to keep his payments below $3,800 per month and
amortize the loan in 42months.
a. Can he pay off the loan in 42 months and keep his payments
under $3,800?
Amount financed =165,000 (100% −15%) =$140,250
c. What are Chuck’s options to get his payments closer to his goal?
d. Chuck spoke with his bank’s loan officer, who has agreed to finance the deal with a 6.95%
loan if Chuck can pay 20% down. Will these conditions meet Chuck’s goal?
e. Chuck tells the seller he cannot buy the motor home at the listed price. If the seller agrees
to reduce the listed price by $4,600 and Chuck pays the 20% down, will Chuck meet his
goal?
Winnebago Industries, Inc., founded
in 1958 and headquartered in Forest
and outdoor recreation activities.
The company markets its motor
homes through independent dealers
85461_ch13_hr_406-450_2.indd 437 9/23/15 4:58 PM
438 CHAPTER 13 • CONSUMER AND BUSINESS CREDIT
bUSINeSS DeCISION: ReaDING THe FINe PRINT
The advertisement for the 3-D TV at the Electronic Boutique shown below appeared in your local
newspaper this morning. Answer the questions that follow based on the information in the ad.
57. a. If you purchased the TV on January 24 of this year and the billing date of the installment
loan is the 15th of each month, when would your first payment be due?
c. If that payment is late or less than required, what happens
and how much does that amount to?
d. If that payment is more than 30 days late, what happens
and how much does that amount to?
e. Explain the advantages and disadvantages of this offer.
*Offer is subject to credit approval. No finance charges assessed
and no monthly payment required on the promotional purchase if
Electronic Boutique
From 2000 to 2009 bank revenue gener-
number of new regulations which were
enacted in 2010.
85461_ch13_hr_406-450_2.indd 438 9/23/15 4:58 PM