Chapter 7

Financial Planning Exercise 10

Comparing payments and APRs of financing alternatives

Because of a job change, Finn McBryde has just relocated to the southeastern United States. He sold his furniture before he moved, so he's now shopping for new furnishings. At a local furniture store, he's found an assortment of couches, chairs, tables, and beds that he thinks would look great in his new, two-bedroom apartment; the total cost for everything is $5,800. Because of moving costs, Finn is a bit short of cash right now, so he's decided to take out an installment loan for $5,800 to pay for the furniture. The furniture store offers to lend him the money for 36 months at an add-on interest rate of 10 percent. The credit union at Finn's firm offers to lend him the money - they'll give him the loan at a simple interest rate of 10.5 percent, but only for a term of 24 months.

Compute the monthly payments for the loan from the furniture store. Round the answer to the nearest cent. $ _____________ per month

Compute the monthly payments for the loan from the credit union. Round the answer to the nearest cent. $ _____________ per month

Determine the APR for the loan from the credit union. Round the answer to 2 decimal places. _______________ %

1. Determine the APR for the loan from the furniture store. Round the answer to 2 decimal places. _____________ %
2. Which is more important: (SELECT:) Low payments or a low APR?