CH2Applied1220162017.

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Examplep.36

Borrow$14,000at6%

BankA: Simpleinterest,3yrterm,oneendoftermpayment

BankB: Compoundedmonthly,regularmonthlypaymentof$400

BankC: Compoundedannually,regularannualpaymentof$4800

Whichloanwillcosttheleast(leastinterest)?
Whichloanwillbepaidoffmorequickly?

BankA:
Theloanwillpaidoffin3yrs.
I=Prt=(14000)(0.06)(3)=$2520

BankB:
Theloanwillbepaidoffin38.57paymentsor(38.57/12=3yrs3mos)

Totalpaid: $400x38.57=$15428
Interest: $15428$14000=$1428

BankC:
Theloanwillbepaidoffin3.30145paymentsor3yrs4mos(4years)

Totalpaid: $4800x3.30145=$15846.96
Interest: $15846.96$14000=$1846.96

TheloanfromBankBwillcosttheleast,buttheloanfromBankAispaidoff
quicker.

Assignmentp.37
#16

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2.2ExploringCreditCardUse

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Assignment:p.45#17

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BorrowingDefinitions

Loan:
Aspecificamountofmoneythat'sborrowedforaspecificamountoftime,
andpaidbackwithinterest.Themonthlyorbiweeklypaymentissetbythelender
sothattheloangetspaidoffwithinthespecifiedtime.

LineofCredit:
Arevolvingloanwherethereisamaximumcreditlimitsetbythelender.Thiscredit
isalwaysavailabletobeusedwheneverneeded.Thereisnospecifiedtimeover
whichthemoneymustbepaidback,butthereisaminimumpaymentthatmustbe
madeeverymonth.Interestischargedontheoutstandingbalanceforaslongas
abalanceremainsonthelineofcredit.Interestratesaregenerallylowerforalineof
creditthanforaloan,butifyouonlymaketheminimumpaymentyoumaytakelonger
topayoffthelineofcreditmakingitmoreexpensiveinthelongrun(canbecheaper,
though,ifpaidoffquickly).

CreditCards:
Anotherrevolvingtypeofcreditthatinvolvesamaximumcreditlimitsetbythelender.
Thereisnospecifiedtimeoverwhichthemoneymustbepaidback,butyoumust
makeaminimummonthlypaymenteverymonth.Interestgetschargedifyouhavea
balanceonthecreditcardandtheinterestratesaregenerallymuchhigherthanthose
foralineofcredit.Theadvantagetocreditcardsisthattheyaremorewidelyaccepted
atbusinessesworldwideandtheyallowformakingonlinepurchases.

Promotions:
Manystores,cardealerships,etc...,offerpromotionsorincentivesthatallowyouto
payforyourpurchaseatalaterdate,ormakepaymentsatlowerinterestrates.
Thesepromotionsmustbeexaminedcarefullyasthereisoftena"catch"ifyoudon't
paytheitemoffinthespecifiedtime(usuallyamuchhigherinterestrategetsapplied).

Paydayloan:
Asmall,shorttermloanwithahighinterestrateintendedtocoveremergency
expensesuntiltheborrower's nextpayday.Thecostofborrowingisgenerally
quitehighcomparedtoothermethodsofborrowing,andthesetypesofloans
shouldbeavoidedifatallpossible(again,onlyinemergencysituations).

AmortizationTable:
Acompletescheduleofperiodicblendedloanpayments,showingtheamountof
principalandtheamountofinterestthatcompriseeachpaymentsothattheloan
willbepaidoffattheendofitsterm.Earlyintheschedule,themajorityofeach
periodicpaymentisinterest.Laterintheschedule,themajorityofeachperiodic
paymentisputtowardtheprincipal.

Default:
Failuretorepayaloan.

Collateral:
Anitemofvaluepledgedbytheborrowertosecurealoan(whenpurchasinga
carthecarcanbeusedascollateraltosecuretheloan). Iftheborrowerdefaults
thefinancialinstitutioncanclaimandsellthecollateralitemtorecoupsomeof
theirmoney.

Asset:
Anitemownedbyanindividualthatcanbeconvertedintocash(car,home,stereo,
investments,etc...).

Liability:
Moneyowedbyindividual(loan,mortgage).

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$118.67

$113.53

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2.4Buy,RentorLease?

Whendecidingtorent,buyorleaseeachsituationisunique.Acost/benefitanalysis
shouldtakeeverythingintoaccount:

Costsincludeinitialcostsandfees,shorttermcosts,longtermcosts,
disposableincome,costoffinancing,depreciation,appreciation,penaltiesfor
breakingcontracts,andequity.

Benefitsincludeconvenience,commitments,flexibility,personalneedsor
wants,suchashowoftenyouwanttobuyanewcar.

Whenrenting,leasing,orbuyingyouoftenneedtomakepaymentsupfront.Some
paymentsgotowardtheoverallcost,suchasdownpaymentonahouseoralease
depositandthefirstandlastmonth'srent.Otherdeposits,suchasrentaldamage
deposit,mayberefundedatalaterdateifthereisnodamagetotheproperty.

Appreciationanddepreciationaffectthevalueofaproperty.Theyareusually
expressedasarateperyear.

Equitythatbuildsupovertimecanmakebuyingahouseaformofinvestment.

EXAMPLEP.46

OPTIONA: rentaroom$400/wkfor16weeks

OPTIONB: Leaseapartmentfor$1200/mo
payfirstandlastmonth'srentupfront
refundabledamagedepositof$2000
$200/moforutilities

OPTIONC: Buy$12000usedcarwithpmtof$1000/moat3.2%interest
compoundedmonthly
liveathomeandcommute(freeroomandboard)
$250perweekdrivingcost
vehicledepreciates20%eachyear

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AppliedMath12TestCH1andCH2Finances(InvestmentsandLoans)

Wednesday,October22nd

YouwillbeprovidedtheApplied12ExamFormulaSheet
Youmustpreparean8.5x11singlesidedstudysheet.Onthestudysheetyoumay
includeformulas,fullyworkedoutexamples,stepbystepinstructions,TVMsolver
tipsandhintsorreminders(anythinggoesforthestudysheet,BUTthestudysheet
mustbeinyourhandwritingsonophotocopiedcutandpastestuff,andnotwritten
byanyoneelse).

StudyyourassignmentsfromCH1andCH2,aswellasyournotes.

Allquestionswillcomefrompreviousprovincialexams.

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