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 $5,000. Because of moving costs, Finn is a bit short of cash right now, so he's decided to take out an installment loan for $5,000 to pay for the furniture. The furniture store offers to lend him the money for 48 months at an add-on interest rate of 9 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 12.5 percent, but only for a term of 24 months.

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. Compute the monthly payments for the loan from the furniture store. Round the answer to the nearest cent. $ per month
2. Determine the APR for the loan from the furniture store. Round the answer to 2 decimal places. %
3. Which is more important: low payments or a low APR? -Select-low paymentslow APRItem 5