Reference no: EM132585264

CONSUMER CREDIT

For big purchases, many stores offer a deferred billing option (buy now, pay later) that allows shoppers to buy things now without paying the bill at checkout.

1. Assume you bought new appliances for your newly renovated home. Using the table range values below, choose one total value for the appliances that you have purchased based on the first letter of your last name. Denote this by P.It does not necessarily have to be a whole number.

First letter of your last name	Possible range values for P
A-F	$4,000-$4,999
G-L	$5,000-$5,999
M-R	$6,000-$6,999
S-Z	$7,000-$7,999

Type your chosen value here:

Total value of the appliances, P

2. The store where you bought these appliances offered you a provision that if you pay the bill within3 years, you will not be charged any interest for your purchases. However, if you are even a day late in paying the bill, the store will charge you interest for the 3 years.

Choose an interest rate between 12% and 16%. Denote this by r,and convert your answer into decimal form. (4 points)

Annual interest rate in decimal form, r

3. Suppose you forget about the bill and pay it 1 day late. How much interest do you pay if the store charges you simple interest?Because this is a dollar value, round your answer to the nearest cent.(Assume t=3 years.)

4. How much is your total bill-the total value of the appliances plus the interest? Round your answer to the nearest cent.

5. How much is your total bill if, instead, the store charges you interest that is compounded daily? Use 6 digits on your intermediate calculations, and round your final answer to the nearest cent. (Assume t=3 years.)

6 . How much interest do you pay if it is compounded daily? Round your answer to the nearest cent.

7. Based on the result of your calculations, write a summary about the difference between simple and compound interest. Explain your answer.

8. Do you think a deferred billing option is helpful for shoppers? Explain your answer.

SAVING FOR RETIREMENT

Suppose your goal is to have a lump sum that you can withdraw when you retire. To accomplish this, you decided to contribute a portion of your paycheck to an annuity.

1. Using the AIU Library or the Internet, readabout what kind of expenses you will be faced withwhen you retire. Write a brief summary of your research here:

2. Based on your research, state the lump sum, in $U.S., that you want to have when you retire. This is the future value of your investment;denote it byF

3. State the time, in years, that you plan to contribute to your retirement account. Denote this by t.

4. Based on the first letter of your last name, choose the annual interest rate for your retirement account from the chart below. It does not necessarily have to be a whole number. Denote this by r,and convert this to its decimal form.

First letter of your last name Possible values for r
A-F 5.00%-6.99%
G-L 7.00%-8.99%
M-R 9.00%-10.99%
S-Z 11.00%-12.99%

Type your chosen value here:

5. From the table below, choose how many times per year you want to contribute to your retirement fund. Denote this by n, and this will also be your compounding period.
Compounding Period n
Yearly 1
Semi-Annually 2
Quarterly 4
Monthly 12
Weekly 52

Type your chosen value here:

6. Calculate the interest rate per compounding period, which you will denote by i, by dividing the annual interest rate from #4by the compounding period from #5:
i=r/(n )
Round your answer to 6 decimal places.

7. Your contribution per period, which you will denote by C, to this retirement account is calculated using the following formula:
C=(F*i)/(((1+i)^((n*t))-1) ).
Using the values that you have chosen for F, i, n, and t, calculate your contribution per period. Use 6 decimal places for your intermediate calculations, and round your final answer to the nearest cent.

8. Calculate your total contribution to this retirement account, which you will denote by TC, by using the formula TC = C x n xt.

9. What can you say about the difference in value between your total contribution (TC) and the lump sum (F) that you will receive? Based on what you have learned in this unit, is there a term that is usedfor this difference?

10. Summarize the results of your calculations, and explain why it is important to prepare for your retirement.