# Precalculus Finance Project

### Kara Galbraith Scenario 3

## Jenny's Situation

Jenny went to college for two years, and then dropped out. Unfortunately, by the time she dropped out of college, she had $20,000 in student loans. She has been working as a bank teller for the last three years. Her salary is $40,000. She also has a car payment of $230 per month. She is excited to buy her first home.

## Net Income After Taxes

Jenny makes $40,000 per year as her gross income. However, with 30% of her income going to taxes, she makes $28,000 per year or $2,333.33 per month.

## Net Income After Car Payment

Jenny's monthly payment for her car is $230. This leaves her with $25,240 per year or $2,103.33 per month as her income.

## Net Income After Student Loans

Jenny must pay back her $20,000 ooan in 10 years at a rate of 6.8%. By using the present value of an annuity formula, her yearly income of $22,478.08 or monthly of $1,873.17, is calculated. PV = 20,000,

*i*= (.068/12), n = 120## Net Income After Living Expenses/the Maximum Monthly Payment She Can Afford

Jenny must have reasonable living expenses while she saves for, and pays, her monthly house payment. After subtracting the expenses from the previous income, Jenny has $12,518.18 per year or $1,043.17 per month to spend on her house payments.

## Monthly Payment/Down Payment

Since Jenny can afford to spend $9,960 per year on house payments and has been working for 3 years, by multiplying these numbers, she can afford a down payment on a home of $37,554.24. Since down payments are usually about 20% or more of the total cost of the house, Jenny should be looking for houses between $150,000 and $160,000, to make sure she has some financial security to make payments every month.

## Jenny's House

Jenny can afford this $150,000 home at 48 Holly Drive, Olathe, KS, 66062.

## 30 Year Fixed-Rate Loan Interest Rate

According to Bank of America, Jenny can get an interest rate of 4.625% for the address of the house.

## Minimum Monthly Payment

If the home is $150,000 and Jenny had a down payment of $37,554, the mortgage Jenny will have to pay is $112,446. When put into the present value of an annuity, her minimum monthly payment is $578.13. PV = $112,446,

*i*= (.04625/12), n = 360## Time and Money Saved by Increasing Monthly Payment by 15%

When the minimum monthly payment is increased by 15%, Jenny will pay $664.85. When this number is plugged into the present value of an annuity formula as r with the

*i*= (.04625/12), it is calculated that Jenny will finish paying off the mortgage in about 23 years, therefore saving 7 years and $24,628.20.