2.0 Why It Matters

Use finance formulas to analyze investments and loans

Introduction

You sit down to buy your first home. Your realtor is excited to sell you a home, the owner is thrilled to have their home sell, and the bank is eager to lend you the money to buy the house. You want to purchase the home for $250,000 and put 20% down. The bank will give you a loan for the remaining $200,000 at a rate of 4.5% APR. While you are ready to move and get settled, you wonder in the back of your mind, "How much is this home really going to cost me?” Neglecting insurance and taxes, how much will you pay for this $250,000 home after you make the last payment on a 30-year mortgage?

Learning Outcomes

  • Distinguish between simple and compound interest by computing future and present value for simple and compound interest problems
  • Determine present and future value and deposit/withdrawal/payment amount of an annuity and a loan
  • Construct an amortization schedule
  • Determine which financial formulas are appropriate for a given problem


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