HELP WITH FINANCIAL LIT--WILL MARK BRANLIEST--1. Net Worth is equal to assets minus liabilities. Which event will have the greatest impact (positive or negative) on one's net worth?Pay off $4,000 of school loans with cashFinance a used car at market value for $16,000Buy a new car at market value for $15,000. Car depreciates 20% upon transfer of ownership from the dealer to the buyer.Go on a vacation that costs $3,500Inherit $2,000 from a relative2. Subprime lending rates are 1) __________ than prime lending rates and are commonly offered to people with 2)__________ credit scores.1) higher 2) higher1) higher 2) lower1) lower 2) lower1) lower 2) higher3. Assume a home buyer puts 20% down on a $250,000 house and uses a mortgage to borrow the rest. What will the amount of the mortgage be (excluding any closing costs)?$200,000$160,000$180,000$240,0004. Variable rate loans typically have a 1)________ interest rate than fixed rate loans because with variable rate loans, the borrower assumes the risk that the interest rate might 2)_________.Higher, IncreaseLower, IncreaseLower, DecreaseHigher, Decrease5. Assume that Jocelyn is comparing two fixed-rate loan options, a 15 year and a 30 year mortgage. Both options have the same interest rate and amount borrowed. The 30 year, when compared to the 15 year loan will have a 1)_____________ monthly payment and a 2)___________ total cost when repayment is completed.Lower, HigherHigher, HigherLower, LowerHigher, Lower6. Megan has $500 in short-term savings, $5,000 in her retirement savings account, $1,500 in credit card debt, and student loan debt of $7,500. Assuming that these are all of Megan's assets and liabilities, what is Megan's net worth?Negative $1,500$0Positive $5,500Positive $4,000Negative $3,500

Accepted Solution

1. Go on a vacation that costs $3,500 
Paying off money for buying a car will not decrease your net worth as you get the car as assets for the money you use. But the depreciates 20% will cause you to lose $3,000 assets. Assuming you are not buying assets at all, go on a vacation that costs $3,500 will increase liability without any effect on assets. Paying up bills will decrease your asset but it also decreases your liability so the net worth wouldn't change. 

2. 1) higher 2) lower
Subprime lending is lending money to people with a low credit score that was not really fit for the credit. This means the risk of getting the money back would be higher than prime lending. Since the risk of losing the money is higher, the interest should be higher than prime lending.

3. $200,000
The house price is $250k and the buyer put 20% down which is; 20%*$250k= $50k
Then the rest of the money that needs to be paid by the mortgage would be: $250k-$50k=$200k

4. Lower, Increase
In variable rate loans, the interest will be adjusted by the market. That means the rates will be unpredictable since it was based on the condition of the market. It will be safer for the creditor since he/she will absolutely get the revenue no matter how the market goes. This change is a bit dangerous for the borrower because the number of rates can increase dramatically. 

5. Higher, lower
When you pay 30 years mortgage, the total loan is divided by 30 years which was 2 times more than 15 years. Excluding the rates, you can estimate that the 15 years mortgage payment will be twice than 30years mortgage. The total cost would also be lower since the interest rate is applied for 15 years, about half than 30 years.

6. Negative $3,500
Net worth is assets minus liability.
The list of the assets would be: 
$500 in short-term savings
$5,000 in her retirement savings account
Total assets= $500+$5,000= $5,500

The list of liability would be:
$1,500 in credit card debt
student loan debt of $7,500

Total liability= $1,500+ $7,500= $9,000Net worth= $5,500- $9,000= - $3,500