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FOUNDATIONS OF MATH 12 NAME:_____________

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There are 2 types of loan payments:

Single Loan Payment Regular Loan Payments

- pay the loan with a single payment at the - use the Finance program
END of the term.
- let PV = loan amount (must be +)

- use the formula: A = P(1 + r/n)tn PMT = regular payment (must be negative)

1. You borrowed a loan of $30,000 payable 2. You borrowed a loan of $30,000 and you
only after 7 years. Interest rate is 7% want to make a monthly payment over 7
compounded monthly. years. Interest rate is 7% compounded
monthly.
How much is your single payment after 7
years? How much is your monthly payment?

A = P(1 + r/n)tn N= FV =

I% = PY =

PV = CY =

PMT =

You need to pay $________________

after 7 years. Your monthly payment is $_________________

Interest = Future Value – Principal of Loan Total Payments = PMT * N

Interest = Total Payments – Principal of Loan

Which is better: Waiting after 7 years to pay

the loan in full or paying a small amount
regularly?
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SINGLE PAYMENTS
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REGULAR PAYMENTS
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COMPARE AN ONLINE CALCULATOR TO YOUR TI-83+ FINANCE PROGRAM:

Go to www.rbcroyalbank.com . Under the LOANS tab, click on Loan Payment Calculator.

Or go straight to: http://www.rbcroyalbank.com/personalloans/payment/index.html?topnavclick=true

Watch the screen cast video on loans.

Read the details about Leah’s

plan to get a student loan.

How much is Leah’s monthly

payments?

1. Now use your TI 83+ to get Leah’s monthly payments.

Note: PV (the loan) must be positive while PMT is negative.

FV = 0 because you want to finish paying your loan.
N= FV =
I= PY =
PV = CY =
PMT =

2. What is the total of Leah’s monthly payments?

Total Payments = Regular Payments x Number of Payments

3. How much interest (or borrowing cost) will Leah pay?

Interest = Total Payments - Loan Amount
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In groups of four, discuss the pros and cons of borrowing money from
friends. How about from relatives?

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a. How long will it take Lars to pay the loan?

b. How much interest will Lars have paid by the time he has paid the loan?
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AMORTIZATION TABLE
This amortization table was
created with Excel. Payment Payment ($) Interest Paid ($) Principal Paid = Balance ($)
Period =Prncpl *(.05/12) (Pmt - Interest)
It shows how Lar’s loan of (month)
$12,000 decreases per 0 -12000.00
period. 1 $350 50.00 $300.00 -11700.00
2 $350 48.75 $301.25 -11398.75
Lars pays $350 monthly and 3 $350 47.49 $302.51 -11096.24
the interest of 5% is 4 $350 46.23 $303.77 -10792.48
compounded monthly. 5 $350 44.97 $305.03 -10487.45
6 $350 43.70 $306.30 -10181.15
7 $350 42.42 $307.58 -9873.57
8 $350 41.14 $308.86 -9564.71
9 $350 39.85 $310.15 -9254.56
10 $350 38.56 $311.44 -8943.12
11 $350 37.26 $312.74 -8630.38
12 $350 35.96 $314.04 -8316.34
13 $350 34.65 $315.35 -8000.99
14 $350 33.34 $316.66 -7684.33
15 $350 32.02 $317.98 -7366.35
16 $350 30.69 $319.31 -7047.04
17 $350 29.36 $320.64 -6726.41
18 $350 28.03 $321.97 -6404.43
19 $350 26.69 $323.31 -6081.12
20 $350 25.34 $324.66 -5756.46
21 $350 23.99 $326.01 -5430.44
22 $350 22.63 $327.37 -5103.07
23 $350 21.26 $328.74 -4774.33
24 $350 19.89 $330.11 -4444.22
25 $350 18.52 $331.48 -4112.74
26 $350 17.14 $332.86 -3779.88
27 $350 15.75 $334.25 -3445.63
28 $350 14.36 $335.64 -3109.98
29 $350 12.96 $337.04 -2772.94
30 $350 11.55 $338.45 -2434.50
31 $350 10.14 $339.86 -2094.64
32 $350 8.73 $341.27 -1753.37
33 $350 7.31 $342.69 -1410.67
34 $350 5.88 $344.12 -1066.55
35 $350 4.44 $345.56 -721.00
36 $350 3.00 $347.00 -374.00
37 $350 1.5583306 $348.44 -25.56
38 $26 0.106490311 $25.55 -0.004

TOTAL $12,975.66 975.66

Using the TVM program, it will take 37.073 months to finish the loan.

The total interest paid is $975.66

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Practice Problems. Use the TI-83/84 to find payment. Show your work. Also show the screen
output of the Finance program.

In all questions, assume that the interest rate is compounded monthly and that the payments
are done monthly.

1. Jeff Jones purchased a new condominium for $159,000.00.

The bank required a $10,000 down payment.

Assume a rate of 6.5 % on a 30-year mortgage.

a. What is the amount financed? (amount financed or loan = condo price – down payment)

N=

I%=

b. What is Jeff’s monthly payment? PV=

PMT=

c. What is Jeff’s total payback (or total of all payments)? FV=

P/Y=

d. What is Jeff’s total interest cost (or cost of borrowing)? C/Y=

2. Bill Stedman bought a home for $108,000.00. He put a down payment of 25% and obtained a
mortgage for 30 years at 11 %.

a. What is the amount financed?

b. What is Bill’s monthly payment?

c. What is Bill’s total payback (or the total of all monthly payments)?

d. What is the total interest cost (or cost of borrowing)?

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3. Robin Mullins purchased a new condominium for $96,500.00. The bank required a $22,000

down payment. Assume a rate of 8.45 % on a 20-year mortgage.

a. What is the amount financed?

b. What is Robin’s monthly payment?

c. What is Robin’s total payback (or total of all payments)?

d. What is Robin’s total interest cost (or cost of borrowing)?

4. Ruth Price bought a home for $118,000.00.

He put down 30% and obtained a mortgage

for 35 years at 6 %.

a. What is the amount financed?

b. What is Ruth’s monthly payment?

c. What is Ruth’s total payback (or the total of all monthly payments)?

d. What is the total interest cost (or cost of borrowing)?

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Read on these different ways to form credit (or borrow money). What are the pros and
cons of each method?

 bank loans
 lines of credit
 credit cards
 payday loans
 dealership or in store financing
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Appreciation versus Depreciation

Depreciation on a car can be determined by the formula

t
V = C(1 - r) ,
where V is the value of the car after t years, C is the original
cost, and r the rate of depreciation.

The accepted average car depreciation rate is roughly 15% per year. This rate will vary depending on
the make and model of the vehicle. New cars depreciate about 20% the moment you drive them off the
parking lot.

The second and third year the vehicle will probably depreciate roughly 15% a year. After year five,
depreciation rates slow down.

There are various factors that go into calculating the

depreciation for your car. The make and model of your car are
extremely important.

If you have a popular car that many people do like to buy used,
like a Honda, or a luxury car, chances are the depreciation will
be less (meaning that they hold their value better). Cars that are
not popular for resale (ones with bad ratings) will depreciate
quicker, and they will be worth less in the future. It truly matters what type of car it is. For example, the
BMW 3 series is a very popular car and won't depreciate that much over the first few years.

Ex.1) You bought a Honda CR-V for $35,000. Suppose that the depreciation rate is 15% annually. How
much will your Honda be worth after 5 years?

Ex 2) You bought a 2006 BMW M5 for $30,995. What was

the original price when brand new if the depreciation rate is
10% ?
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LEASE OR BUY A CAR?

Why You Want To Lease Why You Want To Buy

1. Equity City
1. Lower Monthly Payments
When you make loan payments, you are gaining
You are not paying for the whole car—just a portion.
equity. Equity is ownership. At the end of your loan,
Monthly lease payments can be up to 60% less than
you will own your car.
purchase payments per month.

2. You Will Always Have a Car

2. Always in Style
Not only will your purchased car become an asset, but
Evolve with the cars. Instead of driving the same car
the bottom line is that you will still have a car after the
for 10+ years, you will be driving a new car every 3-5
loan has been paid off.
years. If you look forward to new makes, models and
features, or if you like that new car smell, leasing is 3. Financial Freedom
your ticket. When you are done paying for a car — there are no
more payments. If you buy your car, then there is a
3. Are You Down with the Payment?
light at the end of the payment tunnel. If it takes four
Because the total amount that you are paying over the
years of paying $500 per month to purchase a car, but
course of your lease is significantly lower than if you
keep the car for an additional six years, you
were to purchase the vehicle, you aren't required to
essentially paid $200 a month for 10 years. In addition
fork over as large a down payment (if any) when you
to paying such a low fee over a long period of time,
sign.
the car still has re-sale value.
4. Say Goodbye to the Shop
4. Mileage Penalties
If you are leasing the car for 3-4 years, the odds of
When you lease, you are usually allowed between
major maintenance issues are unlikely. If something
10,000-15,000 annual mile. If each mile over the limit
were to occur, you should still be under warranty.
is $0.25 and you end up going 6,000 miles over your
5. Save Money on Taxes allotted amount, you will owe $1,500.
When you lease a car, you are paying the depreciated
5. Wear and Tear Penalties
amount of the vehicle over the lease period.
Most lease contracts define 'normal wear and tear' to
Therefore, you are only being taxed on that amount.
mean that if you have any significant interior/exterior
Plus, you are not paying that tax in one lump sum —
blemishes, you will be penalized.
it's spread out over the course of your lease payments
— similar to your insurance. 6. Early Termination Penalties
If you wish to get out of your lease early, it will cost
you. If you lock yourself into a lease, be sure that you
honor it—for money's sake.
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Chapter Self-Test: Borrowing Money

Source: Nelson’s FOM 12 book, page 134

Always show clear work. Answer in complete sentences.