Simple Interest Problems Simple interest is easier to
Simple Interest Problems Simple interest is easier to figure out compared to compound interest. Simple interest loans are actually not as common anymore, but on our exam, this math is required for your exam. When you borrow money, you borrow a certain amount, the principal. The lender, the bank probably, sets the interest “rate” or the percentage of the loan you must pay back in addition to the principal. This is the bank’s PROFIT, and they are legally allowed to charge certain amounts, but can’t demand crazy high rates. You agree to this, or you won’t get the loan. The rate is NOT a surprise, it’s expected.
Simple Interest Problems The time it takes to pay back the loan is also set when you borrow the money. The bank expects to be paid back in a certain amount of time. The time is also set at the loan, it’s not a surprise. You can pay back less per month for more months, or pay back more per month for less months. This is also set at the loan and it’s not a surprise. The total interest you pay the bank is determined by this formula I = p xr xt Total interest paid = principal x the rate x the years you pay the loan back
Example You decide to buy a used car for $5000. 00, and are able to put down a $500. 00 down payment. The interest rate on this loan is 8. 1%. You have to pay off the loan in 3 years exactly. How much money do you have to pay the bank all together? There is a LOT to get to before the math starts. What is the PRINCIPAL (how much are you borrowing? ) $5000 minus the $500 down payment = $4500. 00 The interest rate must be turned into a decimal: 3 years = the loan time 8. 1% = 0. 081
Example You decide to buy a used car for $5000. 00, and are able to put down a $500. 00 down payment. The interest rate on this loan is 8. 1%. You have to pay off the loan in 3 years exactly. How much money do you have to pay the bank all together? I=pxrxt I = ($4500. 00) x (0. 081) x (3) = $1093. 50 That is the interest you pay back, plus the principal. The total you pay back is Principal + Interest. Total = $4500. 00 + $1093. 50 = $5593. 50
1. You decide to buy a new stove from Olum’s. The stove costs $649. 99 which includes sales tax, plus a $50 delivery charge. With “no money down”, they’ll finance this deal at just 5. 99% for one year. How much do you pay them in total for this?
1. You decide to buy a new stove from Olum’s. The stove costs $649. 99 which includes sales tax, plus a $50 delivery charge. With “no money down”, they’ll finance this deal at just 5. 99% for one year. How much do you pay them in total for this? I=pxrxt I = ($699. 99) x (0. 0599) x (1) I = $41. 929401 = $41. 93 Figure this first Principal is $649. 99 PLUS $50. 00 = $699. 99 5. 99% = 0. 0599 for the rate One year is just 1 year Total = $699. 99 + $41. 93 = $741. 92
2. You decide to buy a car from Justin Time Auto in Endicott. The car you want is a red convertible selling for $9, 160. 00 and it’s perfect! You can afford to put down $1000. 00 and will finance the rest at just 3. 0% over 5 years. What is you total payback to the finance office? Figure this first Principal is __________________ 3% = _______ for the rate five years is just 5 years
2. You decide to buy a car from Justin Time Auto in Endicott. The car you want is a red convertible selling for $9, 160. 00 and it’s perfect! You can afford to put down $1000. 00 and will finance the rest at just 3. 0% over 5 years. What is you total payback to the finance office? I=pxrxt I = ($8, 160. 00) x (0. 03) x (5) I = $1224. 00 Total payments = $8, 160. 00 + $1224. 00 = $9384. 00
3. If you have to pay back a total of $9, 384. 00 What will be your monthly payment for this car each month? (hint, how many total months do you pay? )
3. If you have to pay back a total of $9, 384. 00 What will be your monthly payment for this car each month? (hint, how many total months do you pay? ) 5 years is 60 months (each year is 12 months, 5 x 12 = 60) The total money paid divided by 60 payments = your monthly payment $9, 384. 00 = $156. 40 60 months An important questions to ask BEFORE you borrow money is HOW MUCH will you pay back per month. That is a REAL number, not the total, or 60 months, but how many REAL DOLLARS per month does it cost? (plus insurance, gas, repairs, etc. )
4. You are going to buy house on Mc. Kinley Ave in Endicott, and find a small two bedroom house in your budget for $39, 000. You have to finance this over 15 years, and have just $2000. 00 for a down payment and enough for all the other fees. You will finance $37, 000. 00 exactly. The bank says the interest rate is going to be 2. 7%. How much do you pay the bank in total? Figure this first Principal is ____________ 2. 7% = _______ for the rate fifteen years is just 15 years
4. You are going to buy house on Mc. Kinley Ave in Endicott, and find a small two bedroom house in your budget for $39, 000. You have to finance this over 15 years, and have just $2000. 00 for a down payment and enough for all the other fees. You will finance $37, 000. 00 exactly. The bank says the interest rate is going to be 2. 7%. How much do you pay the bank in total? I=pxrxt I = ($37, 000. 00) x (0. 027) x (15) I = $14, 985. 00 Figure this first Principal is $37, 000. 00 Total = P + I = $37, 000. 00 + $14, 985. 00 Total = $51, 985. 00 2. 7% = 0. 027 for the rate fifteen years is just 15 years
5. How much do you pay for the house loan each month? (this doesn’t include taxes or other bills, just the loan) 15 years is 180 months (15 x 12 = 180) The total money paid divided by 60 payments = your monthly payment Total = $51, 985. 00 = $288. 8055556 180 months = $288. 81 per month
6. A family trip to Disney in Florida costs about $1250. 00 person for a week (unless you eat a lot!). Airfare is about $350. 00 round trip, so four people can fly and stay for a total of $6400. assuming you have no money and will put this on your credit card, and your interest rate is 19. 88% because you have a “good” but not perfect credit score. What does this vacation cost you in total if you pay it off in a year?
6. A family trip to Disney in Florida costs about $1250. 00 person for a week (unless you eat a lot!). Airfare is about $350. 00 round trip, so four people can fly and stay for a total of $6400. assuming you have no money and will put this on your credit card, and your interest rate is 19. 88% because you have a “good” but not perfect credit score. What does this vacation cost you in total if you pay it off in a year? I=pxrxt I = ($6400. 00) x (0. 1988) x (1) I = $1272. 32 Total = P + I = $6400. 00 + $1272. 32 = $7672. 32 Who’s counting? $7672. 32 ÷ 12 = $639. 36 per month!
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