Task 1 – Purchase of a new TV set

We want to purchase a new TV set in the amount of CZK 10,000.00. The bank grants us a credit and its interest rate amounts to 11%. Let us suppose that we borrow for one year and we pay off money in one instalment at the year end. In addition, let us suppose that the bank takes commission for granting a credit in the amount of CZK 400.00 and for the account administration and operation in the amount of CZK 200.00 a year. What is the rate of return of the bank?

Task 2 – Purchase of a new model of hi-fi system

A young married couple wants to purchase a new model of hi-fi system. Both people hesitate for a long time about purchasing as they do not have a sufficiently high amount of money at their disposal. On their way to work they pass a billboard of a hire-purchase company offering a loan with interest rate 9.5%, which seems to them very advantageous. However, they do not notice, that next to the date 9.5% there is a tiny asterisk referring to RPSN amounting to 15.93%. This reference is naturally located in such part of the billboard that you cannot notice at a glimpse of the whole advertisement space. The amount necessary for purchase is CZK 25,000.00. They decide to borrow this money from the above hire-purchase company for 3 years. Determine the amount of financial impact for the married couple in confusion of interest rate and RPSN (annual percentage of cost)

Task 3 – Financing of building conversions

We decided for building conversions in the flat. After costing of these conversions we detected that the amount of CZK 30,000.00 was still lacking. We can borrow this amount under the following conditions: Either we will pay off CZK 1,077.00 each month for the period of three years, i.e. 36 monthly instalments, or we will pay off CZK 660.00 each month for the period of 6 years, i.e. 72 monthly instalments.

The bank charges for operation of the account CZK 50.00 a month and for approval of the application 0.8% of a borrowed amount; the minimum amount of the charge for credit approval is CZK 400.00. What amount will be paid in both cases and what is more advantageous to us?

Task 4 – Purchase of DVD recorder

A young family wants to procure DVD recorder in the amount of CZK 9,900.00. It can select one of three hire-purchase companies under the following conditions

1. The first hire-purchase company offers to the client the alternative called a tenth, i.e. the client will only pay 10% of the price for the goods. Subsequently from the following month in 10 identical monthly instalments (the amount of each of these instalments equals to 10% of the price for the goods) the client will pay off the whole credit amount.
2. The second hire-purchase company offers the alternative consisting in the deferment of instalments by 3 months without an increase in the amount. This alternative is based on the fact that the family will pay direct payment 10% of the amount of the goods. The family can pay off the rest of credit without an increase in the amount within 3 months from conclusion of the contract excluding interest and charges. The young family does not have enough money for payment of the three instalments so that it selects the other possibility of paying-off in case of this alternative when the client will pay immediately 10% of the price for the goods and the first instalment is deferred by 3 months from conclusion of the contract (during the 3 months the client does not pay any interest). After expiration of 3 months, the young family will pay 12 instalments in the amount of 10.43% of residual value of the goods.
3. The third hire-purchase company offers the alternative called a tenth+. Within this alternative, the young family will pay 10% of the price for the goods and then 22 instalments in the amount of 5% of the price for the goods.

What is interest rate of particular hire-purchase companies? What alternative is the most advantageous to the family?