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notebook October04,2017
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CH2Applied1220162017.notebook October04,2017
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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