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# Interest and Loan Calculations

Unit 4: Instructor Graded Assignment – Version 3.1

## Interest and Loan Calculations

Unit 4 focus on interest and loan concepts, which is covered in your reading of Chapter 12: “Consumer Credit.”

For this Assignment you will write an essay to address the requirements described below. Your essay must be carefully planned and written using well-constructed sentences and paragraphs. Make sure that your grammar and spelling are correct. Points will be awarded for content as well as composition.

Your essay must be a minimum of 1 page in length with standard 1 inch margins and is required to have at least one reference from a reliable source. This means that you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers and that only references from reliable sources will earn points. All resources should be cited both as an in-text citation as well as being listed on a reference page in APA format.

Assignments must be submitted as a Microsoft® Word® document and uploaded to the Dropbox for Unit 4. Include your essay directly in this document following the instructions.

All Assignments are due by Tuesday at 11:59 p.m. ET of the assigned unit.

### Essay Assignment (40 points)

Your Assignment is to write an essay discussing the financing of a new car for your business.

The price of the used car is \$28,700. Sales tax on this car is 7% of the price of the vehicle. You intend to finance the entire cost of the car and sales tax, less a down payment of \$2,900. You intend to finance the car for 48 months and your car payment will be \$732.29 per month.

Your essay should in include the following information

1. Calculate and discuss the amount financed, the installment price of the new car, and the finance charges you will pay over the life of the loan.

1. Compare and contrast the advantage of paying cash and financing the vehicle over a shorter period of time, as well as, the impact of finding lower interest rates.

1. Research and discuss the advantages of having good credit versus poor credit when qualifying for a loan. Discuss the implications of your credit score on the interest rates you may qualify for.

Your essay should be complete and cover each point as outlined above. Be sure to include at least one text citation.

You may submit your Assignment to the Math Center for review. Tutors will not grade or correct the Assignment, but they will provide guidance for improvement. In addition, tutors will not help you find websites for the Assignment. Be sure to submit Assignments early enough to receive feedback and make corrections before the Assignment due date (24 hour turn-around times Monday-Thursday and 48 hour turn-around times on weekends are typical). Email Assignments to: mathtutor@purdueglobal.edu.  Please put “MM255 Assignment Review” in the subject line of the message.

#### Explanation of mid-point method of computing Price Elasticity of Demand (Dpe)

Assume that you are selling homemade pies in your bakery.  When the price was \$10.00 each, you sold 500 pies in a month, when you raised the price to \$13.00 each, you sold only 425 pies in a month, and when you raised the price to \$16.00 each, you sold only 150 pies in a month.

 Price = P Quantity = Q Revenue 1 \$10.00 500.00 \$5,000.00 2 \$13.00 425.00 \$5,525.00

and

 Price = P Quantity = Q Revenue 1 \$13.00 425.00 \$5,525.00 2 \$16.00 150.00 \$2,400.00

1. Using the midpoint method, what is the price elasticity of demand between \$10.00 and \$13.00?
2. Using the midpoint method, what is the price elasticity of demand between \$13.00 and \$16.00?

The basic computation is to divide the % change in price into the % change in quantity sold for each problem.

The midpoint method creates a double division calculation (quantity on the top division calculation and price on the bottom division calculation).

Remember that in math, do what is inside the parentheses first.

Step 1 inserts the values from the problem (and in the table at the top) into the formula.

Step 2 first adds the values inside the parentheses for the bottom (denominator) of the quantity calculation on the top. Then it adds the values inside the parentheses for the denominator of the price calculation on the bottom. It then subtracts the values in the top (numerator) of the quantity calculations on the top. Finally it subtracts the values in the numerator of the price calculation on the bottom.

Step 3 divides the denominatorof the quantity calculation by 2 and divides the denominator of the price calculation by 2 (to get the midpoint of the quantity and of the price).

Step 4 divides the denominator of the quantity calculation into the quantity numerator and then divides the price denominator into the price numerator.

Step 5 does the final division by dividing the price calculation into the quantity calculation.

Step 6 drops the minus sign, leaving just the number

Hints for Unit4 Assignment marginal utility and satisfaction maximization

Think of the marginal utility as a SCORE that you give the last ONE of that thing, based on how much satisfaction it gives you.

In the parts of problem 1, make up a score (marginal utility) for the last one of each item, according to what the problem says.

In a., the 2nd pair of sneakers AND the 5th sweater get the SAME SCORE, so make up a number.   Maybe you give the 2nd pair of sneakers a score of 50 AND you also give the 5th sweater a score of 50.

Next, divide that score you gave for the 2nd pair of sneakers by the price of sneakers to get the 2nd pair of sneakers’ marginal utility PER DOLLAR.  Next, divide the score you gave the 5th sweater by the price of sweaters to get the 5th sweater’s marginal utility per dollar.  Are those answers the same?   If not, which item should more be purchased and which item should less be purchased to make those answers as close to the same as is possible.

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Remember that a person MAXIMIZES their utility when the marginal utility PER DOLLAR of the last one of each item purchased IS THE SAME.

Remember that the law of diminishing marginal utility says that one MORE of an item will give LESS marginal utility (satisfaction score), and conversely, one LESS of that item will have MORE marginal utility (satisfaction score).

Remember that ANY combination of items that does NOT produce the equal marginal utility per dollar will yield LESS total utility than the ideal combination.

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In part b., the 20th pencil gets a score (you make up the number) and the 6th pen gets a score that is FIVE times as large as the score you made up for the 20th pencil.   Now do the division by the price of each to see if the answers are the same

In part c.,  the 2nd soccer ticket gets a score (you make up the number) and the 3rd football ticket gets a score that is TWICE as much as the score you made up for the 2nd soccer ticket.  Now do the division by the price of each to see if the answers are the same, or not.

If the answers in a, b, or c are not the same, using the law of diminishing marginal utility, which item should you purchase more of (if you have enough budget left) or which item should you purchase less of.

Last Updated on February 11, 2019

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