Loans and CreditIn this openresponse, you are going to pretend to be buying a high priced item using creditof different kinds. We are going tocompare the cost of each and come to a conclusion.I. Find Your Item (5 pts)Using the links below, or one of yourchoosing, find an item you would like to buy in the $300 to $700 range. List the item in the table provided. Even though you would normally include tax,shipping and handling, we will ignore these in this exercise.Name of ItemSpecial detailsSite where you founditPriceLINKS:http://www.circuitcity.com/ccd/home.dohttp://www.sony.com/http://www.tiffany.com/http://www.zales.com/II. Option 1: Use Your Credit Card (15 pts)You have a Maxi Card with a $700 limit forthis exercise. The card has a monthlyfinance charge of 1.67%. Fill out thefollowing table. Your payment each monthis $50. You are finished when you havepaid it off.Each month, except the first:Balance = last month’s new balance – paymentMonthly Finance Charge = balance (0.0167)New balance = balance + monthly financechargeMonth12345678BalanceInterestNew BalancePaymentMonth910111213141516TotalBalanceInterest$New BalancePayment$Option 2: Get a Bank Loan(10 pts)You visited a local bank. Because of your good credit, they agreed togive you a personal loan, simple interest, at the current interest rate of12.5% APR.You will pay this back in 1 year.Interest= pr t =__________________Total Payment = Principal + Interest= ______________Payment per month = Total Payment / 12 =______________III. Option 3: Installment Plan (10 pts)The store you are buying the item down offersyou an installment plan.The terms of the contract for the plan are:· $50 down· 12 payments · Finance charge of $100Interest = Finance Charge = ________________Total Payment = Cost ofitem + Finance charge = _____________Monthly Payment = (Total Payment –Down payment / 12 = __________IV. Time to Choose! (10 pts) Compare the three options.a. Which is the most convenient?b. Which has the shortest payment time?c. Which has the lowest total payment andinterest?d. Which has the lowest monthly payment?e. Make a choice. Assuming that you could not pay for your itemany other way, which would you choose and why? Your reasons why may incorporate a, b, c, andd, but may also include other reason
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