UNIT 3 Study Guide

# UNIT 3 Study Guide - UNIT 3 1. Calculate simple interest on...

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1. Calculate simple interest on a single period loan - Beginning balance + Interest = Ending Balance Ex: Hanover Corporation takes out a loan of \$300,000 for 1 year. Simple interest is charged at a rate of 7.5% APR Since this is a simple loan, interest is calculated only once, at the end of the loan term. What is the amount which Hanover must repay at the end of the year? 300,000 x .075= 22,500 300,000 + 22,500= 322,500 2. Calculate compound interest on a multi-period loan - Beginning balance + Interest =Ending Balance Ending balance + Interest = Ending Balance - Initial Principal: \$2000 - Term: 3- years - Interest Rate: 5% compounded annually •What is the balance at end of 1 st year? 2000 + 100=( 2000 x .05) = 2100 •What is the balance at end of 2 nd year? 2100 + 105= 2205 •What is the balance at end of 3 rd year? 2205 + 110.25 = 2315.25 Monthly - Initial Principal: \$2000 - Term: 3- years - Interest Rate: 5% compounded MONTHLY .05/12 3. When provided with original loan beginning balance, term, interest rate, and the compounding periods, calculate the interest and ending balance for any specified period of a compound loan. 4. Differentiate between APR and APY. - Annual % Rate

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## This note was uploaded on 01/11/2012 for the course ACTG 241 taught by Professor Staff during the Fall '11 term at James Madison University.

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UNIT 3 Study Guide - UNIT 3 1. Calculate simple interest on...

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