Sharon has been offered credit cards from three different providers. One card has an interest rate of 10% per annum but no interest-free period. The second card has an interest rate of 14% per annum and a 40-day interest-free period. The third card has an introductory interest rate of 2.5% per annum for the first six months, which then rises to 15% per annum. It has a 55-day interest-free period. The first two cards each have a $50 annual fee, and the third card has a $70 annual fee but also an attractive rewards program and other privileges. How can Sharon assess which card will suit her best?

Problem 5

Scott has $40,000 of his own money to invest. He approached his bank for a margin loan to add to his money. He intends on purchasing Australian shares. The bank's loan-to-value ratio (LVR) is 70%. Scott borrows $110,000. After six months, Scott's portfolio value has dropped from $150,000 to $100,000.

a. Calculate the LVR using the reduced portfolio value.

b. Assume the bank issues a margin call. Suggest at least two different ways that he could return his portfolio to a 70% LVR.

c. What are some of the risks involved with this type of gearing?

Question 7

Bruce has found himself in a difficult situation as his rent has risen to $460 per week. He owes $22,000 on his credit card (5% of the balance to be paid each month), has a study debt of $20,000 and makes monthly repayments of $350 on a personal car loan (principal balance of $25,000). His basic living expenses are currently about $14,000 per annum, but he often exceeds this amount by overspending on luxury items. Bruce is finding it hard to pay his bills. In addition, there has been an interest-rate increase, meaning that the rate on the credit card is increasing to 22% per annum (interest calculated daily). Bruce has only $600 in his bank account. His only assets are his car, furniture, jewellery and clothes. Bruce is 32 years old and earns around $75,000 before tax. Bruce has come to you for financial advice. What recommendations can you make?

Answer rating: 100% (QA)

Choosing the best credit card for Sharon Heres how Sharon can assess which card suits her best 1 Consider her spending habits If Sharon typically pays her balance in full each month the interest rate ... View the full answer