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# Unit 1 Interest & Credit

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### Unit 1 Interest & Credit

1. 1. Essential Math 30S Unit 1 – Interest & CreditSimpleInterest
2. 2. Unit 1 – Interest & CreditPaying Interest Charges and EarningInterest Income Financial institutions borrow and lend money. When you deposit money in a financial institution, you are lending the financial institution money for a period of time. The financial institution pays interest to you for borrowing your money. In turn, the financial institution lends your money to individuals who need it. These individuals are charged interest for the money they borrow.
3. 3. Unit 1 – Interest & CreditPaying Interest Charges and EarningInterest Income The interest rate investors receive when they deposit their money with a financial institution is less than the interest rate they must pay when they borrow from the same financial. In this way, the financial institution makes a profit on these transactions.
4. 4. Unit 1 – Interest & Credit
5. 5. Unit 1 – Interest & CreditSimple InterestWhat is interest? A fee paid for borrowing money or earned for lending money.What is simple interest? The amount of money paid or earned as calculated as a percentage of the principal using the formula I = Prt
6. 6. Unit 1 – Interest & CreditSimple Interest I = Prt I amount of interest earned or payed P amount of principal or loan or deposit r rate per year – expressed as a decimal t time in yearsWhat affect will there be on the interest if . . . . . . . the amount of time is increased? . . . the principal was doubled? . . . the interest rate was halved?
7. 7. Unit 1 – Interest & CreditSimple Interest TriangleI = PrtP=I rtR=I Ptt=I Pr
8. 8. Unit 1 – Interest & CreditExample Problem:Ross deposited\$400, earningsimple interestof %4 per year.Calculate thesimple interestat the end ofone year and atthe end of 5months.
9. 9. Unit 1 – Interest & CreditExample Problem:What interestrate doesPhoebe have toget from a bankif she has \$5000to invest andshe wants to get\$5500 backafter five years?
10. 10. Unit 1 – Interest & Credit Simple Interest Online mental math activityhttp://www.aaamath.com/B/g84_six1.htm
11. 11. Unit 1 – Interest & CreditEssential of Mathematics 11 Textbook Assignment: Page 32 – 33 Questions 1 - 7
12. 12. Unit 1 – Interest & CreditSimple Interest Review Worksheet Questions 1 - 8
13. 13. Essential Math 30S Unit 1 – Interest & CreditCompoundInterest
14. 14. Unit 1 – Interest & CreditCompound InterestAn investment earns compound interestwhen the interest from each time period isadded to the principal and earns interest insubsequent time periods.Because the principal grows, the interestearned grows as well. Compounding makesa significant difference in the final amount aninvestment is worth. Although compoundinginterest earns you more money when youare investing, compounding interest costsyou more when you borrow.
15. 15. Unit 1 – Interest & CreditCompound Interest
16. 16. Unit 1 – Interest & CreditCompound Interest What is compound interest? Interest which is calculated not only on the initial principal but also theaccumulated interest of prior periods. A = P(1 + r ) nt n
17. 17. Unit 1 – Interest & CreditCompound Interest r nt A = P(1 + n )A total amount, including principal and interestP the amount of principal, loan, or depositr rate expressed as a decimaln the number of compounding periods peryeart time in yearsWhat affect will there be on the total amount (A)if . . . . . . the amount of time is increased? . . . the number of compounding periods doubled?
18. 18. Unit 1 – Income & DebtExample Problem:Monica wants to invest \$1000 at 7½% for 3years compounded quarterly. What will be thetotal value of her investment at the end.
19. 19. Unit 1 – Interest & CreditRule of 72 The rule of 72 states that to find theapproximate time that an amount of moneywill take to double, divide 72 by the rate (r).To find the rate needed for money todouble in a specific time frame, you divide 72by the number of years. For example, \$100 invested at 6%compounded annually would double to \$200in approximately 12 years (72 ÷ 6 = 12).
20. 20. Unit 1 – Interest & CreditExample Problem: How long does it take for an investment to double if the rate is 12%?
21. 21. Unit 1 – Interest & CreditCompound Interest ActivityStep 1 Each student roles a die 4 times and records the numbers rolled.Step 2 Repeat Step 1 three more times to have a total of 4 trials.Step 3 Determine the compound interest formula for each trial as outlined below.
22. 22. Unit 1 – Interest & CreditCompound Interest Activity - continuedStep 4 Write down your 4 formulas on the board.Step 5 Look at all formulas and predict which one will result in the most amount of money (A).Step 6 Determine the total amount A for your own 4 formulas.
23. 23. Unit 1 – Interest & Credit
24. 24. Unit 1 – Interest & CreditEssential of Mathematics 30S Textbook Assignment: Page 38 - 39 Questions 1 - 10
25. 25. Unit 1 – Interest & CreditCompound Interest Review Worksheet Questions 1 - 9
26. 26. Consumer Math 30S Unit 1 – Interest & CreditCreditCards
27. 27. Unit 1 – Interest & CreditCredit Cards
28. 28. Unit 1 – Interest & CreditCredit Cards
29. 29. Unit 1 – Interest & CreditCredit Cards A credit card is a system of payment named after the small plastic card issued to users of the system. In the case of credit cards, the issuer lends money to the consumer (or the user). A credit card allows the consumer to revolve their balance, at the cost of having interest charged.
30. 30. Unit 1 – Interest & CreditCredit Cards
31. 31. Unit 1 – Interest & CreditVideo – Credit & Credit Cards
32. 32. Credit CardStatements
33. 33. Unit 1 – Interest & CreditCredit Cards Interest Rates • per annum • daily rate, yearly rateWhat is the daily What is the yearlyinterest rate if the rate if the dailyannual interest rate is interest rate is19%? 0.049315%?
34. 34. Unit 1 – Interest & CreditCredit Cards Calculating Interest Charges If a credit card statement is not paid in full by the date given, the customer will be charged interest. The interest charge is determined by calculating the number of days since the purchase and multiplying it by the daily interest rate.On Jan. 5, Monica made \$400 in purchases onher credit card. Her monthly statement issuedJan 20 was received and Monica did not pay it.Her next monthly statement issued on Feb. 20was received. What will be her interest charges?
35. 35. Unit 1 – Interest & CreditCredit Cards Calculating Minimum Payments When a statement is received, a minimum payment will be shown on the statement. Generally it is 5% of the closing balance or \$10, whichever is greater.Alex’s monthly statement Calculate Alex’sshows a previous balance of minimum payment for\$963.45. During the month his new balance.Alex made a payment of \$500and purchases goods totaling\$626.95. Assume the interestcharges for the month are\$17.50. Calculate his newbalance.
36. 36. Unit 1 – Interest & CreditTextbook Assignment: Page 44 - 46 Questions 1 - 7
37. 37. Unit 1 – Interest & CreditVideo Credit Cards: Living With Plastic
38. 38. Unit 1 – Interest & CreditCredit Cards Newscast AssignmentMany actual news stories in recent years havedescribed the growth in credit card use amongyoung people. They have noted that there havebeen large increases in:• The number of credit cards the typical youngperson has.• The dollar balance carried on these cards.• The interest paid on these cards.• The number of credit problems (e.g.bankruptcies) young people experience.Your task is to develop and videotape a mocknewscast on the subject. Each group must submit ascript before any newscasts are video taped.
39. 39. Consumer Math 30S Unit 1 – Income & Debt Loans
40. 40. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Loans
41. 41. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.LoansThere are many different types of loans;car loans, personal loans, mortgages toname a few. Loans allow a consumerto borrow money from a financialinstitution with the understanding thatthe money will have to be paid backover time with interest.
42. 42. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Terms: •Principal: the amount of money borrowed •Term: the amount of time during which the conditions of the loan are in effect •Amortization Period: the length of time required to pay the loan in full •Finance Charges: the interest charged by the lender •APR: the annual percent rate interest charge by the lender
43. 43. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Loan Terminology
44. 44. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.LoansThe cost of borrowing (finance charges) from afinancial institution depends on many factors: •the interest rate •the term •the conditions (the way the loan is to be repaid)
45. 45. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.LoansThe interest rate charged also depends on manyfactors: •the amount of money you borrow (generally, the greater the amount of money borrowed, the lower the interest rate) •the borrower’s past financial record, present financial situation, and the amount of security they can offer
46. 46. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.LoansA financial institution usually requires that theproduct purchased by the loan be used ascollateral or security. In the event that the loan isnot repaid, the lending institution can seize theproduct and resell it to recoup the borrowedmoney.Shopping for a loan is no different from shoppingfor other products. A consumer should approachmore than one lending institution. One institutionmay offer a better rate and/or better terms than theother.
47. 47. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Calculating Loan PaymentsIn order to calculate your monthly payment, aloan payment calculator or set of tables is used.Your text, on page 59 includes such a table(amortization table). Knowing the rate and theterm, you can calculate how much has to berepaid each month per \$1000 borrowed.
48. 48. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Jesse requires a personalloan of \$10 000 for homerenovations. He takes athree year loan at a fixedrate of 10.25%. How muchmust Jesse pay eachmonth? How much will hepay for the loan? Howmuch interest will Jessehave paid at the end ofthree years?
49. 49. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Amy, from Hamiota, want anew computer which costs\$2400 plus taxes. Shedecides to take a personalloan for a term of 2 years ata fixed rate of 11.75%. Howmuch must Amy pay eachmonth? How much will shepay for the loan? Howmuch interest will Amy havepaid at the end of twoyears?
50. 50. Unit 1 – Income & DebtOutcome 1-4: Solve problems involving personal loans.
51. 51. Unit 1 – Income & Debt Outcome 1-4: Solve problems involving personal loans.Textbook Assignment: Page 62 - 63 Questions 1 - 5