Financing a Mortgage
People under 25: 90% rent, 10% own
People 55-85: 15% rent, 85% own
o Buying advantages:
Appreciation of value over time
Tradition of ownership
Buying a car
Key is calculating the monthly payment (M)
o M = P(1-D)(1+APR) / N
P is price
D is down payment in % format
APR is annual percentage rate of interest in % format
N is term in months
Major Reasons for Credit Rejections
o Unfavorable credit history
o Insufficient income
o Irregular / Temporary employment
o Too short period of employment
o Lack of credit reference
o Lack of previous credit
Steps that may reverse reje
Net Gain (NG): The difference between income and expenses (NG = I E)
o Financial Ratios: Objective measures designed to help in making judgmental assessment on financial
o We Focus on three categories of ratios:
The continuous method:
o This is a ballpark method stating that if 4-5 years are not enough to repay ones debt (except
mortgage), then this consumer is considered too dependent on debt and unlikely to clear it.
Therefore, his affor
Steps to calculate taxes
o Identifying taxable income
Taxable income = Gross Income (Exemptions + Deductions)
o Exemptions: Filed at the employers office (on form W4) based on the number of dependents
o Deductions: are eit
For personal property inside the dwelling:
o Insurance would pay the actual cash value up to 50% of the due coverage
Standard Types of Homeowner Insurance
o HO-1 (Basic): Covers eleven typical perils including fire, lighting, winds
n: the time estimated for the needs of the survivors.
OT: the sum of whatever expenses are outstanding such as F + R + D + E
F: final expenses
R: Readjustment expenses
E: Educational expenses
G: the annual government benefit
A Small business owner wants to buy equipment for $60,000. He can save $500 at the end of each week.
How long will it take him if his account is paying 7.75% interest compounded quarterly?
o The quarterly rate = 0.0775/4 = 0.019375
Compounding: Is the process of accumulating interests as time goes forward, but the accumulation rate
would depend on a certain conversion period.
Conversion Period: Basic time limit between successive interest calculations. Common valu
FV = CV + I
FV = CV + (CV * r * n)
FV = CV (1 + r n)
Finding CV if FV is known (simple discount)
o CV = 1+ ( r n )
o Example: What would be the simple discount of $5,500 which is due in 8 months at a time the
interest rate is 6.5%
Causes of Inflation
o Large money supply
o Fiscal policy
o Strategic shortages (oil, crops)
o Decline in the value of local currency
Business Cycle (also called trade cycle):
o Recurrent cour
o An Annuity is any set of periodic equal payments made at equal interval of time. It could be cash
inflow or cash outflow such as deposits of savings or payments of obligations such as for mortgages,
purchases on installment
o Maximizing satisfaction out of financial behavior, and the best possible utilization of ones
Life-time financial objectives:
o Maximizing earnings
o Practicing efficient consumption
o Utilizing financi
Note: If we have a gap between two given years, then the inflation rate would be for the entire interval, and
we can average out the rate for each year in that interval.
o Example: If CPI in 1993 was 115.6 and in 1997 was 122.8, what w
Finance: the conduct and transaction of money or any money-related matters.
o Micro: funds from any source to undertake any kind of expenditures for private consumption.
o Macro: capital in monetary form and funds lent or
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Material for Exam 1 (Exam 1 is through Mondays topic.)
Lectures 1-8 and the following text material:
Chapter 8, pages 294-316:
Sampling distributions; confidence intervals for one mean
Chapter 9, pages 340-364:
One-sample hypothesis tests
Executing Minitab on BigSam
In class, we did the experiment using n = 2. Your tasks: Repeat for n = 2 to get the feel. Then, apply to
n = 10 and then n = 30. Directions are presented after the data description below.
Get familiar with the items on the Min
Motivation Behind Hypothesis Testing.
Chapter 9 (9.1, 9.2)
Hypothesis Testing - Motivation
Apple iPhone stress test.
Apple claims that the iPhone 6 can stand up to 150
Chapter 9 (9.1, 9.2, 9.3, 9.4, 9.5)
Hypothesis Testing Definition
A hypothesis is a claim about a characteristic of a
Where We Are and Where We Are Going.
Chapter 9 (9.1, 9.2)
So Far in This Course We.
Explored different types of data, and described them using
visual displays and numer