- Budgeting
- Cash Management
- Consumer and Mortgage Loans
- Introduction
- Understand How Consumer Loans Can Keep You from Achieving Your Goals
- Explain the Characteristics and Costs of Consumer Loans
- Explain the Characteristics and Costs of Mortgage Loans
- Understand How to Select the Least Expensive Sources for Consumer Loans and How to Reduce the Costs of Borrowing
- Summary
- Assignments
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #4 Answers
A. The APR is the amount paid on an annual basis divided by the average amount you borrow.
APR = ($25 * 26 two-week periods)/$100 = $650/$100 = 650%
B. To solve for your effective annual interest rate, put it into the equation for determining the impact of compounding.
The effective annual interest rate is
(1 + [ 6.5 / 26 periods])^26 periods – 1 = 32,987%. (Yes, that is right!)
This is a very expensive loan.
C. No. It is just too expensive.
