DB123 TMA02
Part A (50 per cent of the marks)
Question 1
Panna wants to buy a new suite of furniture for her flat. The furniture costs £3000 from a furniture store in her local town. The saleswoman suggests that Panna takes out a loan from the store’s finance company to fund the purchase of the furniture. The repayment loan from the finance company would be at a fixed APR of 9 per cent for a repayment term of between one and four years, which Panna can select herself. The loan would take the form of a secured loan.
Panna has £3000 in a variable rate online instant access account with her building society, currently earning 3 per cent p.a. after tax. She has no other savings.
She also has the possibility of taking an unsecured loan from her own bank of £3000 where the variable APR charged is currently 12 per cent.
Panna has also just received a letter from a different bank to apply for a credit card on which the variable interest rate on new purchases for the first four months would be 0 per cent p.a. and would then rise to the normal variable rate (currently the normal rate is 18 per cent p.a.).
1.Panna could use all her savings to fund the purchase of the furniture outright. State one advantage and one disadvantage of this course of action. (5 marks)
2.Using the ‘Saving and Borrowing Calculator’ (on the DVD-ROM or online), calculate the monthly repayments required and the total amount of interest paid if Panna used a loan from the store’s finance company, at an APR of 9 per cent, to fully fund the purchase over both (a) one year, and (b) three years.
What factors would Panna need to consider in deciding between the one-year or three-year payment period? (8 marks)
3.What would be the advantages and disadvantages of using each of the three forms of debt available to Panna to purchase the furniture? (12 marks)
(Total: 25 marks)
Question 2
Adan (26) and Jane (25) are a young couple living together and expecting their first child. Both are currently in
Question 1
Panna wants to buy a new suite of furniture for her flat. The furniture costs £3000 from a furniture store in her local town. The saleswoman suggests that Panna takes out a loan from the store’s finance company to fund the purchase of the furniture. The repayment loan from the finance company would be at a fixed APR of 9 per cent for a repayment term of between one and four years, which Panna can select herself. The loan would take the form of a secured loan.
Panna has £3000 in a variable rate online instant access account with her building society, currently earning 3 per cent p.a. after tax. She has no other savings.
She also has the possibility of taking an unsecured loan from her own bank of £3000 where the variable APR charged is currently 12 per cent.
Panna has also just received a letter from a different bank to apply for a credit card on which the variable interest rate on new purchases for the first four months would be 0 per cent p.a. and would then rise to the normal variable rate (currently the normal rate is 18 per cent p.a.).
1.Panna could use all her savings to fund the purchase of the furniture outright. State one advantage and one disadvantage of this course of action. (5 marks)
2.Using the ‘Saving and Borrowing Calculator’ (on the DVD-ROM or online), calculate the monthly repayments required and the total amount of interest paid if Panna used a loan from the store’s finance company, at an APR of 9 per cent, to fully fund the purchase over both (a) one year, and (b) three years.
What factors would Panna need to consider in deciding between the one-year or three-year payment period? (8 marks)
3.What would be the advantages and disadvantages of using each of the three forms of debt available to Panna to purchase the furniture? (12 marks)
(Total: 25 marks)
Question 2
Adan (26) and Jane (25) are a young couple living together and expecting their first child. Both are currently in