Chapter 5_part2_student

Chapter 5_part2_student

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Unformatted text preview: ments at regular intervals for some specific period time. Open‐end or a credit card loan. This type of loan allows for purchases or cash advances up to specified maximum line of credit and has a flexible payment schedule. Add‐on interest It is called “add‐on interest” because the interest is added to the amount borrowed so that both interest and the amount of borrowed are paid for over the length of the loan. …Installment Loan Formula… Amount of interest: Amount to be repaid: I = Prt A = P + I or A = P(1 + rt) Number of payment: N = 12t Amount of each payment: m = A/N When: P = amount to be financed (present value) r = add‐on interest t = time (years) to repay the loan I = amount of interest A = amount to be repaid (future value) m = amount of the monthly payment N = number of payments Example: You want to purchase a computer that has a price of Example: Suppose that you have decided to purchase a Honda $1399, and you decide to pay for it with installments over 3 years. The store tell you that the interest rate is 15%. What is the amount of each monthly payment? Civic and want to determine the monthly payment if you pay for the car in 4 years. Solution You ask the clerk how the interest is calculated, and Also, you are told that the store uses add‐on interest. Thus, P= 1,399 r = 0.15 t = 3 N = 36 I = Prt = 1,399(0.15)(3) = 629.55 A = P + I = 1,399 + 629.55 = 2,028.55 or in one step: A = P(1 + rt) = 1,399[1 + (0.15)3] = 2,028.55 Sticker price of the car: 800,000 baht Tax: 7% Interest Rate: 3.5% Less trade‐in: 250,000 baht For monthly payment, divide A by the number of payments: m= 2,028.55 ≈ 56.35 36 The amount of each monthly payment is $56.35. Solution Annual Percentage Rate (APR) $400 10% interest Amount borrowed $2,000 for 2 years Amt. Suppose you borrow $2,000 for 2 years with...
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This note was uploaded on 01/25/2014 for the course MATH ma 116 taught by Professor - during the Fall '11 term at Montgomery.

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