Ch. 11.2: Installment Buying

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Ch. 11.2: Installment Buying"

Transcription

1 Ch. 11.2: Installment Buying When people take out a loan to make a big purchase, they don t often pay it back all at once in one lump-sum. Instead, they usually pay it back back gradually over time, in what are called installments. Installment Loans with add-on Interest The traditional installment loan is a loan agreement in which the borrower agrees to repay in a fixed number of equal installments at regular time intervals. The simplest method for calculating interest is called add-on interest: the total amount repaid in interest is calculated by a simple interest formula applied to the initial amount borrowed (the principle, or amount financed). We ll assume that installment payments are made monthly: Installment Loan Formulas: TOTAL INTEREST REPAID: TOTAL AMOUNT REPAID: NUMBER OF PAYMENTS: AMOUNT OF EACH PAYMENT: I = P rt A = P + I N = 12t m = A N P = AMOUNT TO BE FINANCED r = ADD-ON INTEREST RATE (per year) t = TIME TO REPAY THE LOAN (in years) Car financing is often done this way. Example 1: Say you re interested in buying a new car, and need to come up with $21,000 in financing. The dealership offers you an installment plan with an add-on interest rate of 3.5% over 5 years. What, then, will be the size of your monthly payments? 1

2 ANSWER: Comparing the quantities given in the question to our list of formulas, we see we are given: P = $21, 000 r = year 1 t = 5 years The total number of payment periods is: N = (12 per year) (5 years) = 60 The total amount to be paid back to the dealer will be: A = P + I = P (1 + rt) = ($21, 000)( ) = $24, 675 Thus, the amount of each monthly payment is: m = A N = $24, = $ Annual Percentage Rate (APR) You don t often here the term add-on interest unless you ask for it. You re more likely to be quoted the APR when buying a loan. Legally (in the US), this is the true interest rate, and lenders are required by law to give this to you. It is a very general term, and it s calculation depends on how payments are made and how interest is calculated. For add-on installments, it is given by: APR Formula for Add-On Installments: APR = Nr ( ) 1 (exact) 2 3 N APR 2Nr N + 1 (approximate, when N > 5) Notice the APR is always larger than the add-on interest rate, r. 2

3 Example 2: What is the APR of the installment plan offered in Example 1? ANSWER: We still have r = year 1 and N = 60. Since N is large enough, we can use the approximate formula... APR = 6.89% APR. This is almost twice as much as the add-on rate! Example 3: Suppose you re ready to buy the car of your dreams, and you are faced with 2 financing options (both monthly add-on installment plans): (a) pay the sticker-price of $60,000 at 0% APR over 60 months, (b) pay the sticker-price of $60,000 minus a rebate of $5,000, for 3% APR over 60 months (perhaps offered by your local credit union). What would be the better choice, and how much money would you save? ANSWER: Lets look at each option separately, and calculate how much we ll pay in total for each (the future value, A). But first, notice that we have N = 60 payment periods in either case, so t = N/12 = 5 years for the loan to mature. (a) We want to finance P = $60, 000. By the APR formula, we see that 0% APR necessarily means an that r = 0, so we will ultimately pay back... A = P (1 + rt) = P (1 + 0) = P = $60, 000. In other words, we pay no interest. 3

4 (b) Here, we want to finance P = $60, 000 $5, 000 = $55, 000. We use the APR formula to determine r... APR 2 60 r = ( ) 120 r = r = ( ) = So, we will pay back... A = P (1 + rt) = ($55, 000)( ) = $59, Thus, we ll save over $800 if we choose to to pay the APR interest we should choose the second option, (b). 4

5 Credit Cards Credit Cards are another example of installment buying: the account balance at any given time is the amount owed, and the monthly interest is called a finance charge. Unlike installment loans, however, there is no fixed monthly payment (only a minimum), and no agreed-upon final payment date (the maturity date). For that reason, we say credit cards are a form of revolving credit, while installment loans are closed-end. Credit Card rates are often given as a % monthly or % daily. These are just fractions of the APR: Credit Card APR Formulas: % DAILY = APR 365 % MONTHLY = APR 12 (Note that we use the convention of 365 days/year here.) The finance charge at the end of each month is usually calculated using the simple interest formula. However, the details vary widely between cards, so we won t worry about such questions. 5

Round your answers to two decimal places because it s money.

Round your answers to two decimal places because it s money. Consumer Credit NAME: There are two types of consumer credit we will study, closed-end credit and open-end credit. Closed-end credit refers to when you purchase an item and you pay monthly payments until

More information

$496. 80. Example If you can earn 6% interest, what lump sum must be deposited now so that its value will be $3500 after 9 months?

$496. 80. Example If you can earn 6% interest, what lump sum must be deposited now so that its value will be $3500 after 9 months? Simple Interest, Compound Interest, and Effective Yield Simple Interest The formula that gives the amount of simple interest (also known as add-on interest) owed on a Principal P (also known as present

More information

NEFE High School Financial Planning Program Unit 4 Good Debt, Bad Debt: Using Credit Wisely. Unit 4 - Good Debt, Bad Debt: Using Credit Wisely

NEFE High School Financial Planning Program Unit 4 Good Debt, Bad Debt: Using Credit Wisely. Unit 4 - Good Debt, Bad Debt: Using Credit Wisely Unit 4 - Good Debt, Bad Debt: Using Credit Wisely Credit Facts Nearly 33% of teens owe money to either a person or company, with an average debt of $230. About 26% of teens ages 16-18 already have more

More information

Group Project Worksheet

Group Project Worksheet Group Project Worksheet Financing a Car Group Members: This worksheet must be turned in with the summary paper. Complete each question, and if you are asked to make a computation, show all of your work.

More information

Slide 11-1. Copyright 2005 Pearson Education, Inc. SEVENTH EDITION and EXPANDED SEVENTH EDITION. Chapter 11. Consumer Mathematics 11.1.

Slide 11-1. Copyright 2005 Pearson Education, Inc. SEVENTH EDITION and EXPANDED SEVENTH EDITION. Chapter 11. Consumer Mathematics 11.1. SEVENTH EDITION and EXPANDED SEVENTH EDITION Slide 11-1 Chapter 11 Consumer Mathematics 11.1 Percent 1 Percent The word percent comes from the Latin per centum, meaning per hundred. A percent is simply

More information

With compound interest you earn an additional $128.89 ($1628.89 - $1500).

With compound interest you earn an additional $128.89 ($1628.89 - $1500). Compound Interest Interest is the amount you receive for lending money (making an investment) or the fee you pay for borrowing money. Compound interest is interest that is calculated using both the principle

More information

5.1 Simple and Compound Interest

5.1 Simple and Compound Interest 5.1 Simple and Compound Interest Question 1: What is simple interest? Question 2: What is compound interest? Question 3: What is an effective interest rate? Question 4: What is continuous compound interest?

More information

It Is In Your Interest

It Is In Your Interest STUDENT MODULE 7.2 BORROWING MONEY PAGE 1 Standard 7: The student will identify the procedures and analyze the responsibilities of borrowing money. It Is In Your Interest Jason did not understand how it

More information

3. Time value of money. We will review some tools for discounting cash flows.

3. Time value of money. We will review some tools for discounting cash flows. 1 3. Time value of money We will review some tools for discounting cash flows. Simple interest 2 With simple interest, the amount earned each period is always the same: i = rp o where i = interest earned

More information

Home Equity Loans and Credit Lines HELOC

Home Equity Loans and Credit Lines HELOC Home Equity Loans and Credit Lines HELOC If you re thinking about making some home improvements or looking at ways to pay for your child s college education, you may be thinking about tapping into your

More information

3. Time value of money

3. Time value of money 1 Simple interest 2 3. Time value of money With simple interest, the amount earned each period is always the same: i = rp o We will review some tools for discounting cash flows. where i = interest earned

More information

Overview of Lecture 4

Overview of Lecture 4 Overview of Lecture 4 Examples of Quoted vs. True Interest Rates Banks Auto Loan Forward rates, spot rates and bond prices How do things change when interest rates vary over different periods? Present

More information

Grade 7 & 8 Math Circles. Finance

Grade 7 & 8 Math Circles. Finance Faculty of Mathematics Waterloo, Ontario N2L 3G1 Introduction Grade 7 & 8 Math Circles October 22/23, 2013 Finance A key point in finance is the time value of money, a concept which states that a dollar

More information

Understanding Credit Personal Management Merit Badge

Understanding Credit Personal Management Merit Badge Understanding Credit Personal Management Merit Badge Kelsey Balcaitis Youth Financial Education Coordinator Class Rules Leave No Trace Wear your uniform to class A Scout is Trustworthy, Loyal, Helpful,

More information

Ch 3 Understanding money management

Ch 3 Understanding money management Ch 3 Understanding money management 1. nominal & effective interest rates 2. equivalence calculations using effective interest rates 3. debt management If payments occur more frequently than annual, how

More information

5/1/2014. Section 8.4 Installment Buying. Installment Buying. Fixed Installment Loans. Objectives

5/1/2014. Section 8.4 Installment Buying. Installment Buying. Fixed Installment Loans. Objectives Section 8.4 Installment Buying Objectives 1. Determine the amount financed, the installment price, and the finance charge for a fixed loan. 2. Determine the APR. 3. Compute unearned interest and the payoff

More information

Financial Mathematics

Financial Mathematics Financial Mathematics 1 Introduction In this section we will examine a number of techniques that relate to the world of financial mathematics. Calculations that revolve around interest calculations and

More information

11.1 What You Will Learn

11.1 What You Will Learn 11.1 What You Will Learn Percent, Fractions, and Decimal Numbers (skip, assume that you known) Percent Change Percent Markup and Markdown 11.1-1 Percent Change Formula: Percent change = amount in latest

More information

Good Debt, Bad Debt U S I N G C R E D I T W I S E L Y

Good Debt, Bad Debt U S I N G C R E D I T W I S E L Y Good Debt, Bad Debt U S I N G C R E D I T W I S E L Y What is Credit? Someone is willing to lend you money (principal) in exchange for your promise to repay it, usually with interest. Interest amount you

More information

Chapter 3 Understanding Money Management. Nominal and Effective Interest Rates Equivalence Calculations Changing Interest Rates Debt Management

Chapter 3 Understanding Money Management. Nominal and Effective Interest Rates Equivalence Calculations Changing Interest Rates Debt Management Chapter 3 Understanding Money Management Nominal and Effective Interest Rates Equivalence Calculations Changing Interest Rates Debt Management 1 Understanding Money Management Financial institutions often

More information

Using Credit. SSEPF4.a, SSEPF4.b, SSEPF4.c

Using Credit. SSEPF4.a, SSEPF4.b, SSEPF4.c Using Credit SSEPF4.a, SSEPF4.b, SSEPF4.c Loans and Credit Cards: Buy Now, Pay Later The U.S. economy runs on credit. Credit The ability to obtain goods now, based on an agreement to pay for them later.

More information

Personal Financial Literacy

Personal Financial Literacy Personal Financial Literacy 6 Unit Overview Many Americans both teenagers and adults do not make responsible financial decisions. Learning to be responsible with money means looking at what you earn compared

More information

Your Name: UVa Id:

Your Name: UVa  Id: University of Virginia - math1140: Financial Mathematics Fall 2011 Exam 1 7:00-9:00 pm, 26 Sep 2011 Honor Policy. For this exam, you must work alone. No resources may be used during the quiz. The only

More information

1. Math richard/math101. M = monthly payment P = principal r = i/12 = monthly interest rate n = number of months

1. Math richard/math101. M = monthly payment P = principal r = i/12 = monthly interest rate n = number of months 1. Math 101 Mortgages and Annuities Professor Richard Blecksmith richard@math.niu.edu Dept. of Mathematical Sciences Northern Illinois University http://math.niu.edu/ richard/math101 M = where 2. Monthly

More information

Math 122 Fall 2008. Handout 12: Calculating a Monthly Mortgage Payment

Math 122 Fall 2008. Handout 12: Calculating a Monthly Mortgage Payment Math 122 Fall 2008 Handout 12: Calculating a Monthly Mortgage Payment The learning goals of this handout are for you to: Learn a straightforward strategy for estimating the size of a monthly mortgage payment.

More information

TIME VALUE OF MONEY PROBLEM #7: MORTGAGE AMORTIZATION

TIME VALUE OF MONEY PROBLEM #7: MORTGAGE AMORTIZATION TIME VALUE OF MONEY PROBLEM #7: MORTGAGE AMORTIZATION Professor Peter Harris Mathematics by Sharon Petrushka Introduction This problem will focus on calculating mortgage payments. Knowledge of Time Value

More information

Chapter 3: Credit Cards and Consumer Loans

Chapter 3: Credit Cards and Consumer Loans Chapter 3: Credit Cards and Consumer Loans In these tough economic times, credit card debt has escalated to a new high. Lenders like American Express, Citigroup, Discover, Capital One etc. are tightening

More information

2. How many months will it take to pay off a $9,000 loan with monthly payments of $225? The APR is 18%.

2. How many months will it take to pay off a $9,000 loan with monthly payments of $225? The APR is 18%. Lesson 1: The Time Value of Money Study Questions 1. Your mother, who gave you life (and therefore everything), has encouraged you to borrow $65,000 in student loans. The interest rate is a record-low

More information

Notes for Lecture 3 (February 14)

Notes for Lecture 3 (February 14) INTEREST RATES: The analysis of interest rates over time is complicated because rates are different for different maturities. Interest rate for borrowing money for the next 5 years is ambiguous, because

More information

Compound Interest. Invest 500 that earns 10% interest each year for 3 years, where each interest payment is reinvested at the same rate:

Compound Interest. Invest 500 that earns 10% interest each year for 3 years, where each interest payment is reinvested at the same rate: Compound Interest Invest 500 that earns 10% interest each year for 3 years, where each interest payment is reinvested at the same rate: Table 1 Development of Nominal Payments and the Terminal Value, S.

More information

Lesson 12 Take Control of Debt: Not All Loans Are the Same

Lesson 12 Take Control of Debt: Not All Loans Are the Same Lesson 12 Take Control of Debt: Not All Loans Are the Same Lesson Description This lesson examines the features of a loan with a fixed period of repayment (term loan). After distinguishing these loans

More information

Time Value of Money. MATH 100 Survey of Mathematical Ideas. J. Robert Buchanan. Department of Mathematics. Fall 2014

Time Value of Money. MATH 100 Survey of Mathematical Ideas. J. Robert Buchanan. Department of Mathematics. Fall 2014 Time Value of Money MATH 100 Survey of Mathematical Ideas J. Robert Buchanan Department of Mathematics Fall 2014 Terminology Money borrowed or saved increases in value over time. principal: the amount

More information

Introduction. Purpose. Student Introductions. Objectives (Continued) Objectives

Introduction. Purpose. Student Introductions. Objectives (Continued) Objectives Introduction Instructor and student introductions Module overview 1 2 Your name Student Introductions Your expectations, questions, and concerns about loans Purpose Loan to Own provides general information

More information

Chapter 4 Discounted Cash Flow Valuation

Chapter 4 Discounted Cash Flow Valuation University of Science and Technology Beijing Dongling School of Economics and management Chapter 4 Discounted Cash Flow Valuation Sep. 2012 Dr. Xiao Ming USTB 1 Key Concepts and Skills Be able to compute

More information

Personal Financial Literacy

Personal Financial Literacy Personal Financial Literacy 7 Unit Overview Being financially literate means taking responsibility for learning how to manage your money. In this unit, you will learn about banking services that can help

More information

FINANCE m e p STRAND: FINANCE Unit 2 Simple and Compound Interest TEXT Section

FINANCE m e p STRAND: FINANCE Unit 2 Simple and Compound Interest TEXT Section CMM Subject Support Strand: FINANCE Unit 2 Simple and Compound Interest: Text m e p STRAND: FINANCE Unit 2 Simple and Compound Interest TEXT Contents Section 2.1 Simple Interest 2.2 Compound Interest 2.3

More information

Concept 5. Inflation What is inflation? Inflation means prices are rising and the purchasing power of the dollar is declining.

Concept 5. Inflation What is inflation? Inflation means prices are rising and the purchasing power of the dollar is declining. Concept 5. Inflation What is inflation? Inflation means prices are rising and the purchasing power of the dollar is declining. What is inflation rate? The inflation rate is the percentage increase in prices

More information

Check off these skills when you feel that you have mastered them.

Check off these skills when you feel that you have mastered them. Chapter Objectives Check off these skills when you feel that you have mastered them. Know the basic loan terms principal and interest. Be able to solve the simple interest formula to find the amount of

More information

Everything you need to know about FirstBuy

Everything you need to know about FirstBuy Everything you need to know about FirstBuy Your own home within reach at last www.dwh.co.uk 2 We re making it easier for you to buy your first home Moving into your own home for the first time is one of

More information

Chapter Review Problems

Chapter Review Problems Chapter Review Problems Use 2 decimal places for all answers. Unit 13.1 Home ownership and mortgage payments 1. Your personal residence is considered personal property rather than real estate because you

More information

Math 21 Earning and Spending Money. Book 3: Interest. Teacher Version Assessments and Answers Included

Math 21 Earning and Spending Money. Book 3: Interest. Teacher Version Assessments and Answers Included Math 21 Earning and Spending Money Book 3: Interest Teacher Version Assessments and Answers Included Year Overview: Earning and Spending Money 1. Budget 2. Personal Banking 3. Interest 4. Consumer Credit

More information

Savings Accounts, Term Deposits, and Guaranteed Investment Certificates

Savings Accounts, Term Deposits, and Guaranteed Investment Certificates 280 Chapter 8 Simple Interest and Applications 13. $1800 due two months ago and $700 due in three months are to be repaid by a payment of $1500 today and the balance payment in four months. Find the balance

More information

Chapter 28 Time Value of Money

Chapter 28 Time Value of Money Chapter 28 Time Value of Money Lump sum cash flows 1. For example, how much would I get if I deposit $100 in a bank account for 5 years at an annual interest rate of 10%? Let s try using our calculator:

More information

Chapter Objectives. Chapter 6. Short Term Credit Management. Major Topics. Reasons for Using Credit. How to Get Credit. Disadvantages of Using Credit

Chapter Objectives. Chapter 6. Short Term Credit Management. Major Topics. Reasons for Using Credit. How to Get Credit. Disadvantages of Using Credit Chapter Objectives Chapter 6. Short Term Credit Management To evaluate reasons for and against using credit and decide whether or not credit is appropriate for you. To be able to take the necessary steps

More information

Accounting & Finance Foundations Math Skills A Review. Place Value Percentages Calculating Interest Discounts Compounding

Accounting & Finance Foundations Math Skills A Review. Place Value Percentages Calculating Interest Discounts Compounding Accounting & Finance Foundations Math Skills A Review Place Value Percentages Calculating Interest Discounts Compounding Place Value Ten Thousands Thousands Hundredths Tenths Ones Tens Hundreds Thousands

More information

Section 8.3 Notes- Compound Interest

Section 8.3 Notes- Compound Interest Section 8.3 Notes- Compound The Difference between Simple and Compound : Simple is paid on your investment or principal and NOT on any interest added Compound paid on BOTH on the principal and on all interest

More information

Change. Kevin James. MTHSC 102 Section 2.1 Change, Percentage change, Averag

Change. Kevin James. MTHSC 102 Section 2.1 Change, Percentage change, Averag MTHSC 102 Section 2.1 Change, Percentage change, Average Rate of Change Definition Suppose that an quantity (typically the output of a function) changes from m to n over an (input) interval from a to b.

More information

Chapter 21. Savings Model

Chapter 21. Savings Model Chapter 21. Savings Model Arithmetic Growth and Simple Interest What s important Bring your calculator. Practice the correct way to use the calculator. Remember the formula and terminology. Write your

More information

Annuities, Sinking Funds, and Amortization Math Analysis and Discrete Math Sections 5.3 and 5.4

Annuities, Sinking Funds, and Amortization Math Analysis and Discrete Math Sections 5.3 and 5.4 Annuities, Sinking Funds, and Amortization Math Analysis and Discrete Math Sections 5.3 and 5.4 I. Warm-Up Problem Previously, we have computed the future value of an investment when a fixed amount of

More information

7: Compounding Frequency

7: Compounding Frequency 7.1 Compounding Frequency Nominal and Effective Interest 1 7: Compounding Frequency The factors developed in the preceding chapters all use the interest rate per compounding period as a parameter. This

More information

MGF 1107 Spring 11 Ref: 606977 Review for Exam 2. Write as a percent. 1) 3.1 1) Write as a decimal. 4) 60% 4) 5) 0.085% 5)

MGF 1107 Spring 11 Ref: 606977 Review for Exam 2. Write as a percent. 1) 3.1 1) Write as a decimal. 4) 60% 4) 5) 0.085% 5) MGF 1107 Spring 11 Ref: 606977 Review for Exam 2 Mr. Guillen Exam 2 will be on 03/02/11 and covers the following sections: 8.1, 8.2, 8.3, 8.4, 8.5, 8.6. Write as a percent. 1) 3.1 1) 2) 1 8 2) 3) 7 4 3)

More information

PRACTICE EXAMINATION NO. 5 May 2005 Course FM Examination. 1. Which of the following expressions does NOT represent a definition for a n

PRACTICE EXAMINATION NO. 5 May 2005 Course FM Examination. 1. Which of the following expressions does NOT represent a definition for a n PRACTICE EXAMINATION NO. 5 May 2005 Course FM Examination 1. Which of the following expressions does NOT represent a definition for a n? A. v n ( 1 + i)n 1 i B. 1 vn i C. v + v 2 + + v n 1 vn D. v 1 v

More information

THINGS TO KNOW WHEN SHOPPING FOR STUDENT LOANS BROUGHT TO YOU BY

THINGS TO KNOW WHEN SHOPPING FOR STUDENT LOANS BROUGHT TO YOU BY 10 THINGS TO KNOW WHEN SHOPPING FOR STUDENT LOANS BROUGHT TO YOU BY The College Ave Team WHAT S INSIDE 4 UNDERSTAND HOW LENDING (AND BORROWING) WORKS 5 THERE ARE TWO TYPES OF STUDENT LOANS: FEDERAL AND

More information

Topics Covered. Compounding and Discounting Single Sums. Ch. 4 - The Time Value of Money. The Time Value of Money

Topics Covered. Compounding and Discounting Single Sums. Ch. 4 - The Time Value of Money. The Time Value of Money Ch. 4 - The Time Value of Money Topics Covered Future Values Present Values Multiple Cash Flows Perpetuities and Annuities Effective Annual Interest Rate For now, we will omit the section 4.5 on inflation

More information

MA 12 F - UNIT 2 - REVIEW EXERCISES

MA 12 F - UNIT 2 - REVIEW EXERCISES Name: Class: Date: MA 12 F - UNIT 2 - REVIEW EXERCISES 1. Gila took out a loan from the bank to buy a new car that costs $22 500. The bank offered her a simple interest rate of 4.3%. The loan is to be

More information

Chapter. Discounted Cash Flow Valuation. CORPRATE FINANCE FUNDAMENTALS by Ross, Westerfield & Jordan CIG.

Chapter. Discounted Cash Flow Valuation. CORPRATE FINANCE FUNDAMENTALS by Ross, Westerfield & Jordan CIG. Chapter 6 Discounted Cash Flow Valuation CORPRATE FINANCE FUNDAMENTALS by Ross, Westerfield & Jordan CIG. Key Concepts and Skills Be able to compute the future value of multiple cash flows Be able to compute

More information

Chapter 22: Borrowings Models

Chapter 22: Borrowings Models October 21, 2013 Last Time The Consumer Price Index Real Growth The Consumer Price index The official measure of inflation is the Consumer Price Index (CPI) which is the determined by the Bureau of Labor

More information

Borrowing Money Standard 7 Assessment

Borrowing Money Standard 7 Assessment 1 Name: Class Period: Borrowing Money Directions: Match each description in the column below with the CORRECT term from the list. Write the letter of the term in the space provided. A. Interest B. Interest

More information

What is important to understand about Compounded Interest?

What is important to understand about Compounded Interest? Use your COMPINT program. Interest Worksheet: COMPINT: Stands for compounded interest. You simply put money in an account in one lump sum and it accrues interest over a period of time. The interest could

More information

If P = principal, r = annual interest rate, and t = time (in years), then the simple interest I is given by I = P rt.

If P = principal, r = annual interest rate, and t = time (in years), then the simple interest I is given by I = P rt. 13 Consumer Mathematics 13.1 The Time Value of Money Start with some Definitions: Definition 1. The amount of a loan or a deposit is called the principal. Definition 2. The amount a loan or a deposit increases

More information

6 Rational Inequalities, (In)equalities with Absolute value; Exponents and Logarithms

6 Rational Inequalities, (In)equalities with Absolute value; Exponents and Logarithms AAU - Business Mathematics I Lecture #6, March 16, 2009 6 Rational Inequalities, (In)equalities with Absolute value; Exponents and Logarithms 6.1 Rational Inequalities: x + 1 x 3 > 1, x + 1 x 2 3x + 5

More information

BUILD A SOLID CREDIT HISTORY

BUILD A SOLID CREDIT HISTORY BUILD A SOLID CREDIT HISTORY WHAT IS CREDIT? Credit is money that you borrow, usually in the form of a credit card or loan, with the promise to pay it back. Why is it important to have good credit? There

More information

NORTHWEST WRAP UP A GREAT DEAL ON MODEL YEAR-END CLOSEOUTS WHAT S INSIDE: www.nwfcu.org. Car Loan Rates as Low as 1.49% APR*

NORTHWEST WRAP UP A GREAT DEAL ON MODEL YEAR-END CLOSEOUTS WHAT S INSIDE: www.nwfcu.org. Car Loan Rates as Low as 1.49% APR* NORTHWEST FALL 2015 WRAP UP A GREAT DEAL ON MODEL YEAR-END CLOSEOUTS Car Loan Rates as Low as 1.49% APR* It s the time of year when car dealerships are trying to clear their inventory to make way for 2016

More information

A GUIDE TO USED CAR FINANCE.

A GUIDE TO USED CAR FINANCE. A GUIDE TO USED CAR FINANCE www.fla.org.uk A GUIDE TO USED CAR FINANCE About this guide This guide has been developed by the Finance & Leasing Association (FLA) to help you learn more about the numerous

More information

Untangling F9 terminology

Untangling F9 terminology Untangling F9 terminology Welcome! This is not a textbook and we are certainly not trying to replace yours! However, we do know that some students find some of the terminology used in F9 difficult to understand.

More information

UNDERSTANDING THE FINANCE CHARGES ON YOUR SIMPLE INTEREST MOTOR VEHICLE INSTALLMENT SALES CONTRACT offered by LEXUS FINANCIAL SERVICES

UNDERSTANDING THE FINANCE CHARGES ON YOUR SIMPLE INTEREST MOTOR VEHICLE INSTALLMENT SALES CONTRACT offered by LEXUS FINANCIAL SERVICES UNDERSTANDING THE FINANCE CHARGES ON YOUR SIMPLE INTEREST MOTOR VEHICLE INSTALLMENT SALES CONTRACT offered by LEXUS FINANCIAL SERVICES THINGS TO KNOW ABOUT SIMPLE INTEREST FINANCE CONTRACTS For this ebrochure

More information

Lecture 4: Amortization and Bond

Lecture 4: Amortization and Bond Lecture 4: Amortization and Bond Goals: Study Amortization with non-level interests and non-level payments. Generate formulas for amortization. Study Sinking-fund method of loan repayment. Introduce bond.

More information

Compound Interest Formula

Compound Interest Formula Mathematics of Finance Interest is the rental fee charged by a lender to a business or individual for the use of money. charged is determined by Principle, rate and time Interest Formula I = Prt $100 At

More information

sp rations Finding Home Improvement Funds Pre-Presidents Day Loan Event Saturday, February 11th 2012 8:00 a.m. - Noon EST

sp rations Finding Home Improvement Funds Pre-Presidents Day Loan Event Saturday, February 11th 2012 8:00 a.m. - Noon EST A Publication for Members of Aspire Federal Credit Union sp rations 1st Quarter 2012 Finding Home Improvement Funds You have numerous options, from paying with a credit card to refinancing your first mortgage.

More information

Module 1: Corporate Finance and the Role of Venture Capital Financing TABLE OF CONTENTS

Module 1: Corporate Finance and the Role of Venture Capital Financing TABLE OF CONTENTS Module 1: Corporate Finance and the Role of Venture Capital Financing Time Value of Money 1.0 INTEREST THE COST OF MONEY 1.01 Introduction to Interest 1.02 Time Value of Money Taxonomy 1.03 Cash Flow Diagrams

More information

Future Value or Accumulated Amount: F = P + I = P + P rt = P (1 + rt)

Future Value or Accumulated Amount: F = P + I = P + P rt = P (1 + rt) F.1 Simple Interest If P dollars (called the principal or present value) earns interest at a simple interest rate of r per year (as a decimal) for t years, then: Interest: I = P rt Examples: Future Value

More information

4 Annuities and Loans

4 Annuities and Loans 4 Annuities and Loans 4.1 Introduction In previous section, we discussed different methods for crediting interest, and we claimed that compound interest is the correct way to credit interest. This section

More information

Example 1 - Solution. Since the problém is of the form "find F when given P" the formula to use is F = P(F/P, 8%, 5) = $10,000(1.4693) = $14,693.

Example 1 - Solution. Since the problém is of the form find F when given P the formula to use is F = P(F/P, 8%, 5) = $10,000(1.4693) = $14,693. Example 1 Ms. Smith loans Mr. Brown $10,000 with interest compounded at a rate of 8% per year. How much will Mr. Brown owe Ms. Smith if he repays the loan at the end of 5 years? Example 1 - Solution Since

More information

Section 5.1 Simple Interest and Discount

Section 5.1 Simple Interest and Discount Section 5.1 Simple Interest and Discount DEFINITION: Interest is the fee paid to use someone else s money. Interest on loans of a year or less is frequently calculated as simple interest, which is paid

More information

Private Loan Guide. Private loan basics. Private student loans are non-federal loans.

Private Loan Guide. Private loan basics. Private student loans are non-federal loans. Private loan basics Private student loans are non-federal loans. Private Loan Guide You should only borrow private loans to fund your education as a last resort. Do all of the following before you consider

More information

Statement of Information ECOA Credit Authorization Mortgage Interest Rate Lock Form

Statement of Information ECOA Credit Authorization Mortgage Interest Rate Lock Form Please print and complete and/or sign the following documents and return them with the rest of your loan application package to your local Point Loma Credit Union branch for processing. Statement of Information

More information

South Carolina Legal Services Consumer Law Unit

South Carolina Legal Services Consumer Law Unit South Carolina Legal Services Consumer Law Unit Mortgage Loans Auto Loans Education Loans Credit Cards, payday loans, finance company loans and such Predatory Lending A term for a variety of lending practices

More information

PERPETUITIES NARRATIVE SCRIPT 2004 SOUTH-WESTERN, A THOMSON BUSINESS

PERPETUITIES NARRATIVE SCRIPT 2004 SOUTH-WESTERN, A THOMSON BUSINESS NARRATIVE SCRIPT 2004 SOUTH-WESTERN, A THOMSON BUSINESS NARRATIVE SCRIPT: SLIDE 2 A good understanding of the time value of money is crucial for anybody who wants to deal in financial markets. It does

More information

INFORMATION ABOUT THE PREPAYMENT PENALTY WHEN REIMBURSING A MORTGAGE/HYPOTHECARY LOAN IN ADVANCE

INFORMATION ABOUT THE PREPAYMENT PENALTY WHEN REIMBURSING A MORTGAGE/HYPOTHECARY LOAN IN ADVANCE In this document, you and your mean the borrower and we, us and our mean B2B Bank (hereinafter referred to as the Bank ). Also, the word loan means the mortgage/hypothecary loan or the loan facilities.

More information

Helpful Information for a First Time Mortgage

Helpful Information for a First Time Mortgage Helpful Information for a First Time Mortgage Getting Started Many people buying their first home are afraid lenders don't really want to work with them. But that's simply not true. Without you, there

More information

Understanding. What you need to know about the most widely used credit scores

Understanding. What you need to know about the most widely used credit scores Understanding What you need to know about the most widely used credit scores 300 850 2 The score lenders use. FICO Scores are the most widely used credit scores according to a recent CEB TowerGroup analyst

More information

APPENDIX. Interest Concepts of Future and Present Value. Concept of Interest TIME VALUE OF MONEY BASIC INTEREST CONCEPTS

APPENDIX. Interest Concepts of Future and Present Value. Concept of Interest TIME VALUE OF MONEY BASIC INTEREST CONCEPTS CHAPTER 8 Current Monetary Balances 395 APPENDIX Interest Concepts of Future and Present Value TIME VALUE OF MONEY In general business terms, interest is defined as the cost of using money over time. Economists

More information

Which home loan is for me?

Which home loan is for me? Which home loan is for me? Home loans made easy Home Loans About this booklet At ING DIRECT, we try to make finding the right home loan as easy as possible. That s what this booklet is all about. All our

More information

A better way your parents can help you into your first home.

A better way your parents can help you into your first home. A better way your parents can help you into your first home. exclusively from You ll never need to ask your parents to guarantee your home loan. Almost half of first home owners get financial help from

More information

Ending a hire purchase agreement

Ending a hire purchase agreement Ending a hire purchase agreement Useful information from the National Consumer Agency Helpline lo-call 1890 432 432 If you have a car finance agreement, it could be a hire purchase agreement rather than

More information

Borrowing Solutions. 5 Principles for Better Borrowing

Borrowing Solutions. 5 Principles for Better Borrowing Borrowing Solutions 5 Principles for Better Borrowing Better borrowing lets you get more from your money Most people end up borrowing money at some point in their lives. But we know life isn t about borrowing

More information

What is a Credit Score and Why Do I Care What It Is?

What is a Credit Score and Why Do I Care What It Is? What is a Credit Score and Why Do I Care What It Is? Your Credit Score is a lot like the score you get on a test. You get points for good credit decisions and behavior and you get points taken away for

More information

Understanding Options: Calls and Puts

Understanding Options: Calls and Puts 2 Understanding Options: Calls and Puts Important: in their simplest forms, options trades sound like, and are, very high risk investments. If reading about options makes you think they are too risky for

More information

Wondering how to borrow using the equity in your home? Ask a Citizen. The Citizens Guide to Home Equity Financing

Wondering how to borrow using the equity in your home? Ask a Citizen. The Citizens Guide to Home Equity Financing Wondering how to borrow using the equity in your home? Ask a Citizen. The Citizens Guide to Home Equity Financing We understand you have questions about home borrowing. We can help. At Citizens Bank, we

More information

The Money Market and the Interest Rate. 2003 South-Western/Thomson Learning

The Money Market and the Interest Rate. 2003 South-Western/Thomson Learning The Money Market and the Interest Rate 2003 South-Western/Thomson Learning Individuals Demand for Money An individual s quantity of money demanded is the amount of wealth that the individual chooses to

More information

Remortgaging guide 1. Remortgaging guide. We re with you every step of the way

Remortgaging guide 1. Remortgaging guide. We re with you every step of the way Remortgaging guide 1 Remortgaging guide We re with you every step of the way Remortgaging guide 2 With so many different mortgages out there to choose from, deciding which one is best for you can be a

More information

Study Questions for Actuarial Exam 2/FM By: Aaron Hardiek June 2010

Study Questions for Actuarial Exam 2/FM By: Aaron Hardiek June 2010 P a g e 1 Study Questions for Actuarial Exam 2/FM By: Aaron Hardiek June 2010 P a g e 2 Background The purpose of my senior project is to prepare myself, as well as other students who may read my senior

More information

Finite Mathematics. CHAPTER 6 Finance. Helene Payne. 6.1. Interest. savings account. bond. mortgage loan. auto loan

Finite Mathematics. CHAPTER 6 Finance. Helene Payne. 6.1. Interest. savings account. bond. mortgage loan. auto loan Finite Mathematics Helene Payne CHAPTER 6 Finance 6.1. Interest savings account bond mortgage loan auto loan Lender Borrower Interest: Fee charged by the lender to the borrower. Principal or Present Value:

More information

The Time Value of Money Part 2B Present Value of Annuities

The Time Value of Money Part 2B Present Value of Annuities Management 3 Quantitative Methods The Time Value of Money Part 2B Present Value of Annuities Revised 2/18/15 New Scenario We can trade a single sum of money today, a (PV) in return for a series of periodic

More information

Chapter 8: Promissory Notes, Treasury Bills, & Demand Loans

Chapter 8: Promissory Notes, Treasury Bills, & Demand Loans HOSP 1107 (Business Math) Learning Centre Chapter 8: Promissory Notes, Treasury Bills, & Demand Loans Issued by Face Value Term Interest Rate Promissory Note Treasury Bill/T-bill Demand Loan Banks, companies,

More information

Know Your Score A Clear Guide

Know Your Score A Clear Guide Know Your Score A Clear Guide Contents Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Understanding Credit What is a Credit Report? What is a Credit Score? About ClearScore Examples 1 Chapter 1 Understanding

More information

The following is an article from a Marlboro, Massachusetts newspaper.

The following is an article from a Marlboro, Massachusetts newspaper. 319 CHAPTER 4 Personal Finance The following is an article from a Marlboro, Massachusetts newspaper. NEWSPAPER ARTICLE 4.1: LET S TEACH FINANCIAL LITERACY STEPHEN LEDUC WED JAN 16, 2008 Boston - Last week

More information

Multifamily MBS Update: Yield Maintenance Using the Constant Maturity Treasury Rate

Multifamily MBS Update: Yield Maintenance Using the Constant Maturity Treasury Rate Multifamily Mortgage-Backed Securities Multifamily MBS Update: Yield Maintenance Using the Constant Maturity Treasury Rate Each Fannie Mae multifamily loan may have a voluntary prepayment protection provision.

More information

PRIVATE BANKING. Bank of Scotland Private Banking. General information about our lending and financing

PRIVATE BANKING. Bank of Scotland Private Banking. General information about our lending and financing PRIVATE BANKING Bank of Scotland Private Banking General information about our lending and financing Bank of Scotland Private Banking General information about our lending and financing. Lending and finance

More information

Exercise 6 Find the annual interest rate if the amount after 6 years is 3 times bigger than the initial investment (3 cases).

Exercise 6 Find the annual interest rate if the amount after 6 years is 3 times bigger than the initial investment (3 cases). Exercise 1 At what rate of simple interest will $500 accumulate to $615 in 2.5 years? In how many years will $500 accumulate to $630 at 7.8% simple interest? (9,2%,3 1 3 years) Exercise 2 It is known that

More information