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Unformatted text preview: year) Example: Fill in the blanks
a.
b.
c.
d. Interest (I)
…………
$225
$112
$150 Principal (P)
$1,000
…………
$800
$500 Rate (R)
12%
9%
…………
6% Time (t)
2 yr
1 yr
2 yr
………… Example: Suppose you see a car with a price of 350,000 BHT …Future Value…
The future amount is the amount you will have after the interest is added to the principal, or present value. Let A = Future Value. that is advertised at 7,291.67 BHT per month for 5 years. What is the amount of interest paid? A = P + I Example: If business borrows 180,000 BHT and repays 261,000 BHT in 3 years, what is the simple interest rate? Solution I = Prt
P = 180,000; t = 3; we can find I by using
81,000 = 180,000(r)(3)
I = A – P = 261,000 – 180,000 81
81,000 = 540,000r
= 81,000
81,000
=r
540,000
0.15 = r The rate is 15%. …Ordinary Interest…
There are two ways to convert a number of days to a portion of a year
Exact interest: 365 days per year
Ordinary interest: 360 days per year
Most applications and businesses use ordinary interest. t = Actual Number of Days
360 Example: Suppose that you borrow $1,200 on March 25 at 21% simple interest. How much interest accrues to September 15 (174 days later)? What is the total amount that must be repaid? Solution We are given P = 1,200, r = 0.21, and t = 174/360.
I = Prt
= 1,200(0.21)( 174
)
360 = 121.8
The amount of interest is $121.80. To find the amount that must be repaid, find the future value: A = P + I = 1,200 + 121.80 = 1,321.80
The amount that must be repaid is $1,321.80. Future
Future Value = Present Value + Interest
A = P + I
= P + Prt
= P(1 + rt) Example: If $10,000 is deposited in an account earning 5¾% simple interest, what is the future value in 5 years? Solution Distributive property …Future Value Formula…
(Simple Interest) A = P(1 + rt) 8.3 Buying on Credit
Two types of consumer credit allow you to make installment purchase.
Closed‐end is the traditional installment loan. An installment loan is an agreement to pay off a load or a purchase by making equal pay...
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 Fall '11
 
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