Free Mm255-01-Unit4-Assignment Creative Writing Sample

Question 1

a) The total payment (TP) due at the time of loan paying-off at the annual rate of 7% (R) will constitute the principal amount (P) and accrued interest (I) for the term (T) from March 1, 2015 to December 31, 2015, and will equal to:
TP=P+I=P*(1+R*T/365)=$5,000*(1+ 0.07*(31+30+31+30+31+31+30+31+30+30)/365)=$5,292.47
The answer is $5,292.47.
b) The amount of the paid interest (I) will be as follows:
I=TP-P=$5,292.47-$5,000=$292.47
The answer is $292.47.

Question 2

a) At the time of taking out the loan at the annual rate of 4% (R), the principal amount (P1) was equaled to the amount of the loan, i.e. $20,000. When the first installment (PAYM1) of $8,000 was paid in 45 days (T1) after the loan receipt, the new principal (P2) amounted to:
P2=P1-PAYM1=$20,000-$8,000=$12,000

The answer is $12,000.

b) The new principal amount (P3) should be calculated in the same way as previously mentioned, taking into account that the second installment (PAYM2) of $6,000 was paid in 30 days afterwards (T2). Thus:
P3=P2-PAYM2=$12,000-$6,000=$6,000

The answer is $6,000.

c) In order to obtain the amount of the final installment (PAYM3) due at the loan settlement date in 45 days (T3) after the second installment (PAYM2), it is necessary to calculate the interest due (I) for the term of the loan. It is important to mention that the interest due (I) includes several amounts of interest calculated for different terms of the loan use, as the principal amount of the loan changed several times during the loan repayment period. Thus, the interest due (I) at the loan settlement date was equaled to:
I=P1*R*T1365+P2*R*T2365+ P3*R*T3365=$20,000*0.04*45365+$12,000*0.04*30365+$6,000*0.04*45365=$167.67
After obtaining the amount of the interest due (I), it is possible to determine the final installment (PAYM3) due at the loan settlement date, which was equaled to:
PAYM3=P3+I=$6,000+$167.67=$6,167.67
The answer is $6,167.67.

Question 3

At first, let’s determine the amount of interest paid (I) for the receipt of $400 (M) in exchange for the check of $500 (CH) that was cashed in 2 weeks (T):
I=CH-M=$500-$400=$100

The interest rate (R) for this transaction may be determined by solving the following equation:

I=M*R*T/52,
100=400*R*2/52,
100*52=400*R*2,
R=5200/800=6.5 or 650%

The answer is 650%.

Essay
As same as cash deals are becoming extremely popular nowadays, I compared main terms and conditions of the deals available within the following schemes: (i) Barclaycard US Deferred Interest according to Barclays Bank Delaware (Barclaycard), Member FDIC (2013), and (ii) Amazon.com Store Card according to Amazon.com, Inc. or its affiliates (n.d.).
The above-mentioned same as cash deals provide potential clients with such an advantage as an opportunity to receive goods in the first place and pay for them afterwards. Thus, the client may afford himself some good, whose price exceeds his available funds, and pay off the received loan in the future, provided that his expected income will allow him to pay off the loan. Furthermore, no interest (except for the minimum interest of 1.5% as provided by Amazon.com, Inc. or its affiliates (n.d.)) should be charged if the client pays off all installments on time before expiration of a promotion period.
Nevertheless, the deferred interest for the period from the date of acquiring goods will be billed to the client if he does not pay all necessary installments before the expiration of the promotion period and/or some installments are not paid on time. This specified disadvantage is extremely unfavorable for the client, as the interest rate is too high comparing to standard loan rates and is variable. Another disadvantage of the same as cash deals is that the client still needs to pay the minimum interest, which makes the same as cash deals not so free-of-charge.
I am strongly convinced that both analyzed same as cash deals are favorable for people, who have stable income and are very attentive to details from the financial standpoint. Such people may afford to buy goods on credit and will not pay any interest (except for the minimum amount), as they are able to control the loan settlement process. In the meantime, those people, who do not pay much attention to the loan settlement process and may, for instance, miss the deadline for paying an installment, should not use such a service, as they may get in trouble afterwards and will be obliged to pay high interest. The same as cash deals are also unfavorable for people with unstable income and poor financial planning skills.

References

Amazon.com, Inc. or its affiliates (n.d.). Amazon.com store card. Retrieved from https://www.amazon.com/gp/cobrandcard/marketing.html/ref=storecard_van?pr=conplcc
Barclays Bank Delaware (Barclaycard), Member FDIC (2013). What you need to know about deferred interest financing. Retrieved from http://www.aboutbarclaycardus.com/financingeducation/