Tarek has been watching money-guru YouTube videos. Some of these gurus have been forecasting a major...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Tarek has been watching money-guru YouTube videos. Some of these gurus have been forecasting a major decline in the econo which might lead to job insecurity. As a result, they're recommending that people should avoid debt at all costs and instead use buy what they need. Tarek would like to follow this approach when managing his own financial affairs, but there are a few problems. First, Tarek's car recently broke down, and the repairs will cost much more than the car is worth. He now needs a new vehicle. Unfortunately, Tarek's emergency fund is not fully established, and he doesn't have the cash to buy anything that would be both safe and reliable. He has another problem: When he was in college, he had a credit card and sometimes made late payments. Although he eventually paid off the credit card and cancelled it, his credit score is still on the low end of the FICO score range. Instructions Tarek has come back to you with a few more personal finance questions. Help Tarek work through his questions and issues by providing advice that will help set him on the right financial path. a. When thinking about purchasing a car, Tarek came up with the following estimates. First, he's confident that he can dedicate $410 per month for the purchase and maintenance of a car. Tarek also estimated the following monthly expenses: gas $50, insurance $80, maintenance $40, and repairs $15 (assuming he buys a new car). Based on these estimates, how much can Tarek spend each month on a loan payment and what is the maximum loan amount he will receive, assuming a 4-year, 3% APR loan? b. Assuming that Tarek can obtain a car loan, how will making timely payments influence his credit score? What other things can Tarek do to reestablish his credit score? c. Not surprisingly, Tarek still has several thousand dollars in student loans outstanding. When he graduated from college, he had federal loans of $45,000, with an average APR of 6.80%. Six months after graduation, he started making payments using the standard repayment plan. How much is his monthly payment? If all his student loans were subsidized and if he wants to minimize his monthly payment to increase his financial flexibility, what repayment schedule would be best for Tarek? What will be his new maximum monthly payment if his federally calculated discretionary income is $4,500 per month? d. Because housing prices in his area have recently dropped, Tarek is convinced that he should buy a home. Given his projected monthly income of $4,500 and other monthly debt repayment expenses of $225 for a car and estimated student loan payments of $500 per month [use this number rather than the number calculated for part (c)], what is the maximum monthly principal plus interest payment he can afford if insurance is $80 per month and property taxes on the home are an additional $200 per month (use HUD guidelines)? What size mortgage can Tarek afford based on your answer, assuming that he can obtain a 5.50% loan for 30 years? e. Now that you've helped Tarek, do you think that he should follow the money gurus' advice and avoid debt at all costs, or should he incorporate credit and debt into his financial management strategy? Why or why not? What other factors might be considered when he makes his final decision? Tarek has been watching money-guru YouTube videos. Some of these gurus have been forecasting a major decline in the econo which might lead to job insecurity. As a result, they're recommending that people should avoid debt at all costs and instead use buy what they need. Tarek would like to follow this approach when managing his own financial affairs, but there are a few problems. First, Tarek's car recently broke down, and the repairs will cost much more than the car is worth. He now needs a new vehicle. Unfortunately, Tarek's emergency fund is not fully established, and he doesn't have the cash to buy anything that would be both safe and reliable. He has another problem: When he was in college, he had a credit card and sometimes made late payments. Although he eventually paid off the credit card and cancelled it, his credit score is still on the low end of the FICO score range. Instructions Tarek has come back to you with a few more personal finance questions. Help Tarek work through his questions and issues by providing advice that will help set him on the right financial path. a. When thinking about purchasing a car, Tarek came up with the following estimates. First, he's confident that he can dedicate $410 per month for the purchase and maintenance of a car. Tarek also estimated the following monthly expenses: gas $50, insurance $80, maintenance $40, and repairs $15 (assuming he buys a new car). Based on these estimates, how much can Tarek spend each month on a loan payment and what is the maximum loan amount he will receive, assuming a 4-year, 3% APR loan? b. Assuming that Tarek can obtain a car loan, how will making timely payments influence his credit score? What other things can Tarek do to reestablish his credit score? c. Not surprisingly, Tarek still has several thousand dollars in student loans outstanding. When he graduated from college, he had federal loans of $45,000, with an average APR of 6.80%. Six months after graduation, he started making payments using the standard repayment plan. How much is his monthly payment? If all his student loans were subsidized and if he wants to minimize his monthly payment to increase his financial flexibility, what repayment schedule would be best for Tarek? What will be his new maximum monthly payment if his federally calculated discretionary income is $4,500 per month? d. Because housing prices in his area have recently dropped, Tarek is convinced that he should buy a home. Given his projected monthly income of $4,500 and other monthly debt repayment expenses of $225 for a car and estimated student loan payments of $500 per month [use this number rather than the number calculated for part (c)], what is the maximum monthly principal plus interest payment he can afford if insurance is $80 per month and property taxes on the home are an additional $200 per month (use HUD guidelines)? What size mortgage can Tarek afford based on your answer, assuming that he can obtain a 5.50% loan for 30 years? e. Now that you've helped Tarek, do you think that he should follow the money gurus' advice and avoid debt at all costs, or should he incorporate credit and debt into his financial management strategy? Why or why not? What other factors might be considered when he makes his final decision?
Expert Answer:
Answer rating: 100% (QA)
a Given Tareks estimated monthly expenses and budget for a car we can calculate how much he can spend each month on a car loan payment and the maximum loan amount he will receive The loan term is 4 ye... View the full answer
Related Book For
Auditing and Assurance services an integrated approach
ISBN: 978-0132575959
14th Edition
Authors: Alvin a. arens, Randal j. elder, Mark s. Beasley
Posted Date:
Students also viewed these finance questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
Two different compounds have the formulation CoBr(SO4) 5NH3. Compound A is dark violet, and compound B is red-violet. When compound A is treated with AgNO3 (aq), no reaction occurs, whereas compound...
-
Identify which of the following manufacturing overhead costs are value-added and which are non-value-added. 1. Chef cooks dinner for customer. 2. Food shipment received is recounted to make sure that...
-
Add the following IEEE 754 single-precision floating-point numbers. (a) C0123456 + 81C564B7 (b) D0B10301 + D1B43203 (c) 5EF10324 + 5E039020
-
The consistent mass matrix of a bar element is given by a. \(\frac{ho A l}{6}\left[\begin{array}{ll}2 & 1 \\ 1 & 2\end{array} ight]\) b. \(\frac{ho A l}{6}\left[\begin{array}{rr}2 & -1 \\ -1 &...
-
The following transactions of Kelsey, Inc., occurred within the same accounting period: (a) Purchased $55,000 U.S. Treasury 6% bonds, paying 102 plus accrued interest of $1,400. In addition, Kelsey...
-
Crane Company, a machinery dealer, leased a machine to Turtle Corporation on January 1, 2025. The lease is for an 8-year period and requires equal annual payments of $64,240 at the beginning of each...
-
Describe and evaluate Fjallraven corporate social responsibility and sustainable business practices. How well do they communicate them?
-
The figure shows a bolted lap joint that uses SAE grade 5 bolts. The members are made of cold-drawn AISI 1020 steel. Assume the bolt threads do not extend into the joint. The bolt diameter is 0.25...
-
Given the following beam with the following cross-section and with the moment (M) shear (S) and axial (N) diagram. F = P Ma = 1 000 P mm F1 = 2P d = 500 mm L= 1000 mm N [P] -2 S [P] -1 M [P mm] -500...
-
You launch a projectile toward a tall building, from a position on the ground 2 5 . 3 m away from the base of the building. The projectile s initial velocity is 3 3 . 5 m / / s at an angle of 5 4 . 5...
-
4. A student was doing a project of studying the dependence of resistance (R) of Nichrome wire on length with different diameters (D). The results are shown in the given figure. a) Use the values to...
-
3. . The drawing below shows the intensity of magnetization for a ZnO compound inlaid with 5% of Mn in the presence of a magnetic field. Calculate the effect, if you know that the magnetic flux...
-
According to the Equipartition of Energy principle, the average kinetic energy of each degree of freedom in a system is considered as equal once the system has reached thermal equilibrium. Describe...
-
X-1 Find the domain of the function f(x) : x 1 2 - O (-00, -1) U (-1, ) O (-00, 1) U (1, ) O -00, -1) U (-1, 1) U (1, 0) O (- 1, 1)
-
What are the major differences between the audit of prepaid expenses and other asset accounts such as accounts receivable or property, plant, and equipment?
-
List the factors that should affect the auditors decision whether to analyze an account balance. Considering these factors, list four expense accounts that are commonly analyzed in audits.
-
What two conditions must be present for the auditor to issue an unqualified opinion on internal control over financial reporting? What type of condition will cause the auditor to issue a qualified or...
-
All public charities are nonprofits, but not all nonprofits are public charities. How do you explain that?
-
Nonprofit organizations are defined as private organizations that must use any profits for future operations. Is nonprofit organization a good name for this group of organizations? Can you think of...
-
How do you account for the varying perceptions of the human service subsector from colonial days to the present?
Study smarter with the SolutionInn App