Class Needs… Please get out: –Calculator –Pen/Pencil –Notebook –Whiteboard, Marker and...

Class Needs…

Please get out:–Calculator

–Pen/Pencil

–Notebook

–Whiteboard, Marker and Rag

Chapter 5Loans

Promissory Notes Similar to an IOU, however, it is a

written document that states you will repay the money to the lender on a certain date.

Interest Bearing Promissory Notes:

It should contain the following written information:– Principal…the amount borrowed– Time of Loan…days, weeks, months, years…

etc.– Today’s date and due/maturity date– Lender’s name– Stated Interest– Signature of the person borrowing the money

$ 6,500.00 Buffalo, NY May 8 2012

Two years after date __I__ promise to pay to the order of HSBC Bank

Six thousand five hundred and 00/100 dollars

Payable at HSBC Bank

Value received with interest at 10%

NO. _____ Due May 8 20 12 ____________________

How does a lender make sure he will get his money back?

Collateral – property that are often used to secure a loan such as a car, stocks, bonds, life insurance, house….

How do we figure out what we owe in return for borrowing the

money?

I = P x R x T Amount Due = Interest + Principal Ex. Jack Jones borrowed $6,500 from his bank to

buy a boat. He signed a 2 year promissory note at 10% interest. How much interest must he pay and what is the amount he must repay when the note is due?

I = $ 6,500 x .10 x 2 = $1,300 (Interest)

Amount Due = $6,500 + $1,300 = $7,800

What if our time is not a yearly amount, but in days?

There are 2 methods to calculate Interest…– Exact Interest Method – you use 365

days as the basis for time.– Banker’s Interest Method - you use 360

days as the basis for time…(it is easier to calculate)

Examples… Trish Smith signed a promissory note

for $5,900 at 12% exact interest for 180 days. Find the interest and amount due.– $5,900 x 12% x 180/365 = $349.15– $5,900 + $349.15 = $6,249.15

What is the interest and amount due using banker’s days?– $5,900 x 12% x 180/360 = $354.00– $5,900 + $354.00 = $6,254.00

Please get white boards, markers and rags out.

Using your white boards solve the following problems and show your answer when asked.

Examples…

Find the exact interest AND the banker’s interest for the following:

$360 @ 14% for 210 days

Exact Bankers

$29.00 $29.40

$1,500 @ 15% for 36 days

$1,200 @ 6% for 240 days

$2,400 @ 9% for 60 days

$47.34 $48.00

$22.19 $22.50

$35.51 $36.00

Food for thought…why are the bankers days always more?

Let’s put our information into words…

Randy borrowed $2,000 to replace his furnace. The promissory note he signed was for 120 days (exact days) at 15 ¼% interest. How much did Randy have to pay when the note came due?

$100.27 (interest) + $2,000 = $2,100.27

Practice for home….

Please do pages 57 and 58 in your workbook for homework.

Challenge… Lynn Wassel borrowed $2,500 for 18

months. The total interest she paid was $315. What rate of interest did Lynn pay?

$2,500 x R% x 1.5 = $315 3,750 x R% = 315 315/3750 = .084 = 8.4%

Finding the Interest Rate… To find the interest rate when other

variables are given, plug in the known facts…and solve for the variable not known

I = P x R x T Lynn borrowed $12,500 for 18 months. The

total interest she paid was $890.63. What rate of interest did Lynn pay?

890.63 = 12,500 x R% x 18/12 890.63 = 18,750R 890.63/18750 = R .04750= R…..Interest Rate is 4.75%

5-2 When is your loan due? Finding the due date when the time is

in months…– Count that number of months forward

from the date of the note…the due date is the same day in the month, however, if the due date is the last day of the month and the month it is due in doesn’t have that same date, then it is due on the last day of the counted month also…

Examples…

Example:Find the maturity date of the following promissory notes..

Date Issued Time Due Date

Feb. 12th 1 month

March 5th 6 months

March 31 6 months

September 5th

March 12th

September 30th

5-2 When is your loan due? Finding the due date when the time is in

days.…– You must count the days starting with the loan

date and forward…– Example : Find the maturity date of a 60 day

note dated May 28th.– 1. How many days are left in May?

3…therefore 60 – 3 = 57

– 2. How many days are in June?…30 57-30=27

– 3. How many days are there in July?…31 …then the due date is July 27th.

Examples…

Find the maturity date of the following promissory notes..

Date Issued Time Due Date

March 5th 30 days

January 30 45 days

December 28th 80 days

March 16th

April 4th

March 18th

5-2 When is your loan due? Finding the Number of Days between

two dates Find the number of days from June 14

to August 23.– June 14 to June 30…30 – 14 = 16– July 1 to July 31 31 – August 1 to August 23 23– Total Days 70 days

Examples…

Find the number of days from

January 5th to March 12th 66 days

May 6th to August 22

February 23 to May 5 71 days

108 days

Practice for home….

Please do pages 59-61 in your workbook for homework.

Class Needs…

Please get out:–Calculator,Pen/Pencil

–Textbook, Notebook

–Whiteboard, Marker and Rag

Installment Loans??

Billy Fucillo

https://www.youtube.com/watch?v=qwfio81j4uQ

5-3 Installment Loans When you buy something on an installment

plan, you are borrowing money and paying it back in part payments.

You may have a down payment – where some or part of the money due is made on the purchase price.

The installment price is higher than the cash price because the seller adds a finance charge to the cash price.

The finance charge is the difference between the installment price and the cash price.

A new TV costs $400 cash or a person can pay $10 down and 10 monthly installments of $42.00 What is the

finance charge?

Cash Price Installment Plan

$400

Total Cash Price = $400 Installments = 10 x $42 = $420.00

Down Payment = $10

Total Installment Price = $430

Difference between both prices = $30,

this is the finance charge

Monthly Installment Payments To calculate a monthly installment

payment…– take the purchase price and subtract the down

payment– divide what is left to be paid by the number of

monthly payments

EX: the installment price of a set of water skis is $190. You must pay $50 down and make payments for 16 months. What will your monthly payment be?

$190 - $ 50 = $140$140/16 = $8.75

Installment Loans You can obtain an installment loan from a

bank or credit union. You repay the principal and interest in

installments, usually monthly. Many lenders calculate payments to that

each payment is the same amount. The payment method is called the level payment plan. From each payment, the interest due for that month is deducted. The payment amount remain after deducting the interest is applied to the principal.

Class Needs…

Please get out:–Calculator, Pen/Pencil

–Textbook- open to page186

– Notebook

–Whiteboard, Marker and Rag

SWAT..

Students will be able to…–Be able to calculate the finance

charge on an installment loan.–Be able to calculate how much

money from each installment payment goes to interest and principal.

Finding the percent that the installment price is greater than

the cash price.

You can buy a watch for $125 cash or pay $25 down and the balance in 12 monthly payments of $9. – What is the installment price?

12 x $9 = $108 + $25 = $133

– By what percent would your installment price be greater than the cash price?

$133 - $125 = $8 $8 / $125 = 6.4%

Monthly Installment Payments Installment loans – you repay the principal

and interest in installments, usually monthly.

Many lenders calculate payments so each payment is the same amount…this is called the level payment plan. From each payment, the interest due for that month is deducted. The payment amount remain after deducting the interest is applied to the principal.

Monthly Installment Payments The Winston’s borrowed $500 on a one-

year simple interest installment loan at 18% interest. The monthly payments were $45.84. Find the amount of interest, amount applied to the principal, and the new balance for the first monthly payment.1. Calculate Interest = $500 x 18% x 1/12 = $7.50

2. Subtract interest from payment..$45.84 - $7.50

3. Subtract amount applied to principal from previous balance.. $500 - $38.34 = $461.66

5-4 Early Loan Repayments Sometimes a person may decide to pay off a loan

early…if this happens, you simply pay the unpaid balance plus the current month’s interest as the final payment.

EX: Marla took out a $5,000 simple interest loan at 6% interest for 24 months. Her monthly payment is $221.60. After making payments for 12 months, her balance is $2,574.79. She decides to pay the loan off with her next payment. How much will her final payment be?

– Interest = $2,574.79 x 6% x 1/12 = $12.87– Interest + amount owed = final payment…$12.87

+ $2,574.79 = $2,587.66 (final payment)

Review Questions…Mario had a 12-month, $2,000 simple interest

loan at 9% interest. He repaid the loan in full with the sixth payment when his balance was $1,188.40. How much was his final payment?

$1,197.31

Emily repaid 9-month, $3,000 installment loan at the end of 6 months. Her interest rate was 15%, and her balance was $1,374.82. How much was her final payment?

$1,392.01

Class Needs…

Please get out:–Calculator

–Pen/Pencil

–Notesheet off front table

–Textbook…(one per student)

Vern took out a $5,000 simple interest loan at 6% interest for 24 months to buy a car. His monthly payment is $221.60 After making payments for 12 months, his balance is $2,574.79. He decides to pay the loan off with his next payment.

How much will his final payment be?

1. Find interest for one month…$ 2,574.79 * .06 * 1/12 = $12.87

2. Add interest to amount still owed… $2,574.79 + $12.87 = $2,587.66

Vern took out a $5,000 simple interest loan at 6% interest for 24 months to buy a car. His monthly payment is $221.60 After making payments for 12 months, his balance is $2,574.79. He decides to pay the loan off with his next payment.

How much interest did Vern Goode save by paying off his loan early? (You need to figure out how much Vern would have paid and then subtract the interest he did pay)

1. Calculate how much Vern would have paid if he had paid it on the payment schedule for all 24 months.

$ 221.60 * 24 = $5,318.40 (total paid after 24 months)

2. Multiply the monthly payment by the number of payments Vern made.

$ 221.60 * 12 = $2,659.20 (amt paid to date before final payment)

3. Add the amount already paid to the final payment .

$2,659.20 + $2,587.66 = $5,246.86 (total amt paid with early payoff)

4. Subtract the amount Vern paid from the amount of scheduled payments.

$ $5,318.40 - $5,246.86 = $71.54 (amt of interest saved)

Lucy borrowed $2,500 at 18% for 12 months. Her monthly payment is $229.20.

1. If Lucy makes the monthly payment for 12 months, how much will she pay back to the lender?

$ 229.20 * 12 = $2,750.402. Lucy has the opportunity to pay off the loan with her

fourth payment. Her current balance is $1,916.23. How much will she have to pay to pay off the loan?

$1,916.23 * .18 * 1/12 = 28.74 + 1,916.23 = $1,944.973. How much did Lucy pay in total for the loan if she pays

off the loan with her fourth payment?

$ 229.20 * 3 = $687.60 + $1,944.97 = $ 2,632.574. How much will Lucy save in interest if she pays it off

early?

$2,750.40 - $2,632.57 = $117.83

Prepayment Penalty??? In some cases there may be a prepayment

penalty, which is a fee charged if you pay the loan off early, however this must be disclosed in the original terms of the loan.

IE: an additional 1% of the amount owed OR and additional months interest.

Lets work on workbook page 64 together

(If you just sit there waiting for the rest of the class

to do it, I will assign it for homework

Review Questions… Open textbook to page 200 One a separate piece of paper,

please do all of the following questions…

#11 –16 and #22-28

This is to be done independently and you MUST show ALL work…

Review Questions…

Find a partner… This is a shared grade…

do questions 5-10, 13-14, 17-28 on pages 200 - 201

Chapter 5Loans

Promissory Notes Similar to an _____, however, it is a

written document that states you will repay the money to the lender on a certain date.

Interest Bearing Promissory Notes:

It should contain the following written information:

– _____________________________

– _____________________________

– _____________________________

– _____________________________

– _____________________________

– _____________________________

$ 6,500.00 Buffalo, NY May 8 2012

Two years after date __I__ promise to pay to the order of HSBC Bank

Six thousand five hundred and 00/100 dollars

Payable at HSBC Bank

Value received with interest at 10%

NO. _____ Due May 8 20 12 ____________________

How does a lender make sure he will get his money back?

Collateral – _______________________

________________________________

________________________________

How do we figure out what we owe in return for borrowing the

money?

I = P x R x T Amount Due = Interest + Principal Ex. Jack Jones borrowed $6,500 from his bank to

buy a boat. He signed a 2 year promissory note at 10% interest. How much interest must he pay and what is the amount he must repay when the note is due?

I = __________ x__________ x__________= ________

Amount Due = ________+ ___________= ____________

What if our time is not a yearly amount, but in days?

There are 2 methods to calculate Interest…– Exact Interest Method –

_________________________________– Banker’s Interest Method -

_________________________________

Examples… Trish Smith signed a promissory note

for $5,900 at 12% exact interest for 180 days. Find the interest and amount due.– _____ x _____ x _____ = _____ – _____ + _____ = _____

What is the interest and amount due using banker’s days?– _____ x _____ x _____ = _____ – _____ + _____ = _____

Please pair up with your partner..

Using your white boards solve the following problems and show your partner your answer when you are ready.

If one or both of you get it wrong, assist the other in solving it correctly.

Examples…

Find the exact interest AND the banker’s interest for the following:

$360 @ 14% for 210 days

Exact Bankers

_____ _____

$1,500 @ 15% for 36 days

$1,200 @ 6% for 240 days

$2,400 @ 9% for 60 days

_____ _____

_____ _____

_____ _____

Food for thought…why are the bankers days always more?

Let’s put our information into words…

Randy borrowed $2,000 to replace his furnace. The promissory note he signed was for 120 days (exact days) at 15 ¼% interest. How much did Randy have to pay when the note came due?

$_____ (interest) + $____ = $______

Practice for home….

Please do pages 57 and 58 in your workbook for homework.

Challenge… Lynn Wassel borrowed $2,500 for 18

months. The total interest she paid was $315. What rate of interest did Lynn pay?

______ x _____% x ____ = $____ ______ R = $____ R = ________%

Finding the Interest Rate… To find the interest rate when other

variables are given, plug in the known facts…and solve for the variable not known

I = P x R x T Lynn borrowed $12,500 for 18 months. The

total interest she paid was $890.63. What rate of interest did Lynn pay?

__________________________________ __________________________________

__________________________________ R…..Interest Rate = _____%

5-2 When is your loan due? Finding the due date when the time is

in months…– Count that number of months forward

from the date of the note…the due date is the same day in the month, however, if the due date is the last day of the month and the month it is due in doesn’t have that same date, then it is due on the last day of the counted month also…

Examples…

Example:Find the maturity date of the following promissory notes..

Date Issued Time Due Date

Feb. 12th 1 month

March 5th 6 months

March 31 6 months

______________

______________

______________

5-2 When is your loan due? Finding the due date when the time is in days.…

– You must count the days starting with the loan date and forward…

– Example : Find the maturity date of a 60 day note dated May 28th.

– 1. How many days are left in May? _______________________________

– 2. How many days are in June?…30 _______________________________

– 3. How many days are there in July?…31 …then the due date is _____________.

Examples…

Find the maturity date of the following promissory notes..

Date Issued Time Due Date

March 5th 30 days

January 30 45 days

December 28th 80 days

_________________

_________________

_________________

5-2 When is your loan due? Finding the Number of Days between

two dates Find the number of days from June 14

to August 23.– _____________________________– _____________________________

_____________________________ Total Days _______days

Examples…

Find the number of days from

January 5th to March 12th _____________

May 6th to August 22

February 23 to May 5 _____________

_____________

5-3 Installment Loans When you buy something on an installment

plan, you are _________________ and paying it back in ____________________.

You may have a _____________ – where some or part of the ________ ________ is made on the purchase price.

The installment price is higher than the cash price because the seller adds a _______ ___________ to the cash price.

The finance charge is the _____________ between the installment price and the cash price.

A new TV costs $400 cash or a person can pay $10 down and 10 monthly installments of $42.00 What is the

finance charge?

Cash Price Installment Plan

____________

Total Cash Price = _____ Installments = ____________

Down Payment = ____

Total Installment Price = $____

Difference between both prices = $_______,

this is the finance charge

Monthly Installment Payments To calculate a monthly installment

payment…– take the purchase price and subtract the down

payment– divide what is left to be paid by the number of

monthly payments

EX: the installment price of a set of water skis is $190. You must pay $50 down and make payments for 16 months. What will your monthly payment be?

________________________________________________

Installment Loans You can obtain an installment loan from a

_____________________________ You repay the ________and __________in

_______________, usually __________. Many lenders calculate payments to that

each payment is the same amount. The payment method is called the level payment plan. From each payment, the interest due for that month is deducted. The payment amount remain after deducting the interest is applied to the principal.

Finding the percent that the installment price is greater than

the cash price.

You can buy a watch for $125 cash or pay $25 down and the balance in 12 monthly payments of $9. – What is the installment price?

____________________________________

– By what percent would your installment price be greater than the cash price?

____________________________________ ____________________________________

Monthly Installment Payments Installment loans – you repay the principal

and interest in installments, usually monthly.

Many lenders calculate payments so each payment is the same amount…this is called the ___________________. From each payment, the interest due for that month is deducted. The payment amount remain after deducting the interest is applied to the principal.

Monthly Installment Payments The Winston’s borrowed $500 on a one-

year simple interest installment loan at 18% interest. The monthly payments were $45.84. Find the amount of interest, amount applied to the principal, and the new balance for the first monthly payment.1. Calculate Interest = _____________________

2. Subtract interest from payment_____________

3. Subtract amount applied to principal from previous balance.. ______________________

5-4 Early Loan Repayments Sometimes a person may decide to pay off a loan

early…if this happens, you simply pay the unpaid balance plus the current month’s interest as the final payment.

EX: Marla took out a $5,000 simple interest loan at 6% interest for 24 months. Her monthly payment is $221.60. After making payments for 12 months, her balance is $2,574.79. She decides to pay the loan off with her next payment. How much will her final payment be?

– Interest = ____________________________– Interest + amount owed =– ______________________________________

Review Questions… Textbook Page 192

A. ____________

B. ____________

C.

Vern took out a $5,000 simple interest loan at 6% interest for 24 months to buy a car. His monthly payment is $221.60 After making payments for 12 months, his balance is $2,574.79. He decides to pay the loan off with his next payment.

How much will his final payment be?

1. Find interest for one month…______________________________

2. Add interest to amount still owed… ______________________________

Vern took out a $5,000 simple interest loan at 6% interest for 24 months to buy a car. His monthly payment is $221.60 After making payments for 12 months, his balance is $2,574.79. He decides to pay the loan off with his next payment.

How much interest did Vern Goode save by paying off his loan early? (You need to figure out how much Vern would have paid and then subtract the interest he did pay)

1. Calculate how much Vern would have paid if he had paid in on the payment schedule for all 24 months.

______________________________

2. Multiply the monthly payment by the number of payments Vern made.

______________________________

3. Add the amount already paid to the final payment .

______________________________

4. Subtract the amount Vern paid from the amount of scheduled payments.

______________________________

Lucy borrowed $2,500 at 18% for 12 months. Her monthly payment is $229.20.

1. If Lucy makes the monthly payment for 12 months, how much will she pay back to the lender?

___________________________________________

2. Lucy has the opportunity to pay off the loan with her fourth payment. Her current balance is $1,916.23. How much will she have to pay to pay off the loan?

___________________________________________

3. How much did Lucy pay in total for the loan if she pays off the loan with her fourthpayment?___________________________________________

4. How much will Lucy save in interest if she pays it off early?

___________________________________________

Prepayment Penalty??? In some cases there may be a prepayment

penalty, which is a fee charged if you pay the loan off early, however this must be disclosed in the original terms of the loan.

Review Questions… Textbook Page 200 #11 –16 and #22-28 Please put all answers on a

separate piece of paper.

Work on workbook page 64…finish for homework.

Review Questions…

Find a partner… This is a shared grade…

do questions 5-10, 13-14, 17-28 on pages 200 - 201