# Chapter 7 exercise | Financial markets homework help

6.Kim would like to purchase a new vehicle. Currently, she pays rent of \$600 a month, credit card charges of \$120 a month, and a student loan payment of \$230 a month. Her gross monthly income is \$4,000. Assume she wants to finance the vehicle for 3 years at 4 percent interest. What is the most she can afford as a car loan payment? Apply the standard 28/36 rule.

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7.You should expect a new vehicle to lose how much of its value within the first three years?

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 [removed] 35 – 40% 20 – 25% [removed] 25 – 30% [removed] 15 – 20% [removed] 10 – 15%

New vehicles generally depreciate 35% to 40% within the first three years.

8.Which of these statements is correct?

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 Auto leases tend to be better than purchases for individuals who drive more miles per year than the average person.

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Lease payments tend to be lower than auto loan payments with the same duration.

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Loan rates are generally lower for a used vehicle as compared to a new vehicle.

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Individuals who lease vehicles tend to keep them longer than individuals who purchase vehicles.

You can usually terminate a vehicle lease early without incurring any penalty.

 Lease payments tend to be lower than purchase payments because you are only paying for the depreciation during the lease period.

9.Which one of the following is a disadvantage of renting versus buying a house?

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 [removed] increased free time [removed] lower initial costs [removed] potential annual payment increases [removed] unexpected repair costs capital gain if property values rise

10.Luis purchased a home costing \$350,000 three years ago. He paid 20 percent down in cash and borrowed the remainder. Since that time, home values in his neighborhood have declined by 10 percent. Over the past three years, Luis has paid \$4,900 on the principal balance of his mortgage. How much equity does he currently have in his home? Has his equity increased or decreased since he purchased the home?

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11.Private mortgage insurance is generally required if your down payment on a house is less than what percentage of the purchase price?

12.Theresa is concerned about lowering her monthly costs. Which of the following should she do when considering a home purchase to help address her concern regarding costs?

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 [removed] avoid homes in high-risk insurance areas [removed] look for a low-maintenance, small yard [removed] locate a home close to her place of employment [removed] compare property taxes from one area to another

13. An adjustable-rate mortgage has a 3-year adjustment period, an introductory rate of 5%, an adjustable rate equal to the LIBOR plus 4%, an adjustment period cap of 3%, a lifetime rate cap of 10%, and a floor of 4%. Assume this is the end of year 3 and the LIBOR is currently 5%. What interest rate will be charged in year 4?

14. Which one of the following fees that must be paid at closing, is stated correctly?

15. Home equity lines of credit:

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 [removed] are fixed-rate, fixed-term loans. [removed] charge interest that is non-deductible for tax purposes. [removed] generally charge higher rates than typical credit cards. are adjustable-rate loans. are unsecured debts.

16.You had a \$2,300 balance last month after your payment on your credit card. You charged one pair of shoes on the 10th for \$230. Your card has a minimum finance charge fee of \$5 per month and an APR of 12%. What is your total balance due this period if the card’s fees are calculated via the adjusted balance method?

17.You have a credit card balance of \$44. You have made no charges this past month. Your card has a minimum finance charge fee of \$5 per month and an APR of 9%. What is your total balance due this period if the card’s fees are calculated via the average daily balance method? (Do not round intermediate calculations.)

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