FIN 2100 - MIDTERM 2 (Gregg UCF) with Answers Graded A+
1. Pre-shopping - Information gathering/sources
2. Evaluation of Alternatives - Attribute assessment, Price
analysis
Consumer Purchasing Phases 3. Selection and Purchase - Negotiation, cash or credit,
Buyer beware (subliminal sales pitches)
4. Postpurchase Activities - Maintenance, instructions, ser-
vicing.
Generally a bad deal for consumers - Instead invest the
Service Contracts / extended warranties premiums in savings account and buy high quality prod-
ucts
- Return to place of purchase
- Contact manufacturer
Resolving consumer complaints - Obtain assistance from a consumer agency: Better Busi-
ness Bureau, State consumer protection agency, and fed-
eral (Bureau of Consumer Financial Protection)
To see if you should take it, calculate the interest rate
implicit in the deal.
Prepay Present Value should be the actual cost - Percentage of
discount
Future Value is 0
End mode
Pmt/yr =12
Prepay Example: PV = negative 324 (being 360 times 90%)
Pest contract $360 annual; $30/month (end of month) or Pmt = 30
10% discount if paid today N = 12
FV = 0
Solve for I = 19.9%
- Mediation is voluntary
- Arbitration is binding
- Avoid binding arbitration if possible
,FIN 2100 - MIDTERM 2 (Gregg UCF) with Answers Graded A+
With mandatory arbitration, a borrower or consumer must
Mediation vs. Arbitration agree to use an arbitrator, rather than the courts, to resolve
any issues.
Take legal action
- Small claims court
- Class action suits
- Use a lawyer
Steps in Resolving Consumer Complaints
- Other legal alternatives:
Legal aid society
Prepaid legal services
Research legal questions at www.nolo.com
End mode
Pmt/yr = 12
PV = -22,000
Cash Rebate or 0% Financing?
Pmt = $520.83
$25,000 car with choice of
N = 48
$3,000 rebate or
FV = 0
0% financing for 48 months
I = ??? = 6.41%
$25,000/48 = $520.83
This example shows the real interest rate in the 0% loan is
6.41% which is HIGHER than the bank
No ownership interests
Must meet requirements
Lease payment reflects initial 3 years of depreciation
Why are leases bad?
(highest during life of car) + interest (You pay for depre-
ciation plus interest)
May have additional costs (e.g. mileage)
Advantages: Mobility, Fewer maintenance responsibilities,
Home Renting Advantages and Disadvantages lower costs
Disadvantages: Few financial benefits, restricted lifestyles,
, FIN 2100 - MIDTERM 2 (Gregg UCF) with Answers Graded A+
costs including security deposit, utilities and renter's in-
surance.
Advantages: Pride of ownership, reduced income taxes,
build equity
Home Buying Advantages and Disadvantages
Disadvantages: Financial uncertainty, limited mobility,
higher living costs.
Under Air: 3000
Patio: 500
Garage: 500
House valued $390,000
Cost per Square Foot
Where is the cost per square foot?
390,000/3000 = 130
Only the air conditioned footage counts.
1. Determine Homeownership Needs
2. Finding and Evaluating a Property to Purchase
3. Pricing the Property
Steps for buying a house 4. Obtaining Financing
Mortgage payments consist of PITI
Principal, Interest, Taxes, Insurance
5. Closing
Lower initial interest rates vs fixed
Teaser rate mortgages are latest trend
Rates will move up or down when interest rates change
Adjustable Rate Mortgage after a set period - subject to caps
If rates go up later, could refinance another ARM (If home
value falls, unable to refinance)
Buyer assumes risk of rising interest rates
Fixed Rate Mortgage
1. Pre-shopping - Information gathering/sources
2. Evaluation of Alternatives - Attribute assessment, Price
analysis
Consumer Purchasing Phases 3. Selection and Purchase - Negotiation, cash or credit,
Buyer beware (subliminal sales pitches)
4. Postpurchase Activities - Maintenance, instructions, ser-
vicing.
Generally a bad deal for consumers - Instead invest the
Service Contracts / extended warranties premiums in savings account and buy high quality prod-
ucts
- Return to place of purchase
- Contact manufacturer
Resolving consumer complaints - Obtain assistance from a consumer agency: Better Busi-
ness Bureau, State consumer protection agency, and fed-
eral (Bureau of Consumer Financial Protection)
To see if you should take it, calculate the interest rate
implicit in the deal.
Prepay Present Value should be the actual cost - Percentage of
discount
Future Value is 0
End mode
Pmt/yr =12
Prepay Example: PV = negative 324 (being 360 times 90%)
Pest contract $360 annual; $30/month (end of month) or Pmt = 30
10% discount if paid today N = 12
FV = 0
Solve for I = 19.9%
- Mediation is voluntary
- Arbitration is binding
- Avoid binding arbitration if possible
,FIN 2100 - MIDTERM 2 (Gregg UCF) with Answers Graded A+
With mandatory arbitration, a borrower or consumer must
Mediation vs. Arbitration agree to use an arbitrator, rather than the courts, to resolve
any issues.
Take legal action
- Small claims court
- Class action suits
- Use a lawyer
Steps in Resolving Consumer Complaints
- Other legal alternatives:
Legal aid society
Prepaid legal services
Research legal questions at www.nolo.com
End mode
Pmt/yr = 12
PV = -22,000
Cash Rebate or 0% Financing?
Pmt = $520.83
$25,000 car with choice of
N = 48
$3,000 rebate or
FV = 0
0% financing for 48 months
I = ??? = 6.41%
$25,000/48 = $520.83
This example shows the real interest rate in the 0% loan is
6.41% which is HIGHER than the bank
No ownership interests
Must meet requirements
Lease payment reflects initial 3 years of depreciation
Why are leases bad?
(highest during life of car) + interest (You pay for depre-
ciation plus interest)
May have additional costs (e.g. mileage)
Advantages: Mobility, Fewer maintenance responsibilities,
Home Renting Advantages and Disadvantages lower costs
Disadvantages: Few financial benefits, restricted lifestyles,
, FIN 2100 - MIDTERM 2 (Gregg UCF) with Answers Graded A+
costs including security deposit, utilities and renter's in-
surance.
Advantages: Pride of ownership, reduced income taxes,
build equity
Home Buying Advantages and Disadvantages
Disadvantages: Financial uncertainty, limited mobility,
higher living costs.
Under Air: 3000
Patio: 500
Garage: 500
House valued $390,000
Cost per Square Foot
Where is the cost per square foot?
390,000/3000 = 130
Only the air conditioned footage counts.
1. Determine Homeownership Needs
2. Finding and Evaluating a Property to Purchase
3. Pricing the Property
Steps for buying a house 4. Obtaining Financing
Mortgage payments consist of PITI
Principal, Interest, Taxes, Insurance
5. Closing
Lower initial interest rates vs fixed
Teaser rate mortgages are latest trend
Rates will move up or down when interest rates change
Adjustable Rate Mortgage after a set period - subject to caps
If rates go up later, could refinance another ARM (If home
value falls, unable to refinance)
Buyer assumes risk of rising interest rates
Fixed Rate Mortgage
