Deck 12: Business and Consumer Loans

Question 1

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the amount and interest earned of each of the following ordinary annuities.

Answer 1

This is a problem of finding the amount of an annuity.
The following table is given, There are payment periods.
The interest rate per payment period is .
Look across the top of the Amount of an Annuity Table for and down the side for periods to find .
Recall the formula, Finding Amount of an Annuity,
" , or "
Use , and in the formula above, Therefore, the amount of annuity is .
Recall the formula, Finding Interest of an Annuity,
" , or "
Use , , and in the formula above, Therefore, the interest earned is .

Question 2

Find the monthly payments on each of the following purchases and the total monthly payment.

Answer 2

For Honda Accord:
Use per month and 4 years X 12 = 48 months in the table to find 0.02633.
Monthly payment: For Ford Truck:
Use per month and 4 years X 12 = 48 months in the table to find 0.02938.
Monthly payment: For Home:
The amount to be financed in thousands = Thus, interest for 15 years: Complete the table:

Question 3

UNDERWATER ON A HOME
www.citigroup.com
Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 2008: Lost $27.7 billion; Took funds from government during financial crisis
• 2010: First annual profit since 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, bath home with a down payment of only $8500.
They financed the loan balance of $306,500 using an adjustable rate mortgage (ARM). The monthly payment of $1100 did not include taxes and insurance. In fact, the monthly payment was all interest, meaning that nothing was applied against the debt each month. Find the monthly payment given taxes of $6400 per year and insurance of $980 per year. __________

Answer 3

NO ANSWER

Question 4

To help you review, the numbers in brackets show the section in which the topic was discussed.
Solve for following problems.
A cruise line needs to update some sonar equipment on one of its luxury ships that sails the 1. Caribbean. The cost of the equipment is $214,500. The company makes a down payment of $20,000 and agrees to 24 monthly payments of $8975 per month. Find the total finance charge. __________

Question 5

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the amount and interest earned of each of the following ordinary annuities.

Question 6

These monthly expenses do not include car insurance ($215 per month), health insurance ($290 per month), or real estate taxes and insurance on their home ($3350 per year), among other expenses. Find their total monthly outlay for all of these expenses.

Question 7

UNDERWATER ON A HOME
www.citigroup.com
Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 2008: Lost $27.7 billion; Took funds from government during financial crisis
• 2010: First annual profit since 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, bath home with a down payment of only $8500.
At the time of the purchase in 2008, the Dustons were told that the interest rate on their ARM loan would reset in 2011, so they knew the payments might increase. However, they were not worried since they assumed that their incomes and also the value of the house would be higher by then. But home prices fell across much of the country as did the value of their home. By 2011, an appraiser estimated that it was worth only 75% of the original loan balance of $306,500, which they still owed. They were underwater on their home! Find out what the house was worth in 2011 and the amount by which they were underwater. __________

Question 8

To help you review, the numbers in brackets show the section in which the topic was discussed.
Solve for following problems.
The balance on John Baker's MasterCard on November 1 is $680.45. In November, he charges an additional $337.32, has returns of $45.42, and makes a payment of $50. If the finance charges are calculated at 1.5% per month on the unpaid balance, find his balance on December 1. __________

Question 9

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the amount of each annuity due and the interest earned.

Question 10

After discussing things with Jackie Waterton at Citibank, the Hernandez's have learned that they can (1) refinance the remaining $14,900 amount on the Honda Accord at 12% over 4 years, (2) refinance the remaining $8600 loan amount on the Ford truck at 12% over 3 years, (3) refinance the remaining $121,850 loan amount on their home at 5% over 30 years, and (4) reduce their car insurance payments by $28 per month. Complete the following table.

Question 11

UNDERWATER ON A HOME
www.citigroup.com
Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 2008: Lost $27.7 billion; Took funds from government during financial crisis
• 2010: First annual profit since 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, bath home with a down payment of only $8500.
The Dustons were shocked to find out that they would have to come up with $76,625 to pay off the bank loan to sell their home. They were further shocked to find out they would also need to come up with an additional $23,000 to pay various expenses, such as the real estate commission related to the sale of their home. Estimate the total amount they would have to pay to sell their home, rounded to the nearest thousand. __________

Question 12

Find the annual percentage rate, using the annual percentage rate table.

Question 13

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the amount of each annuity due and the interest earned.

Question 14

Find the reduction in their monthly payments.__________
Part of the savings in the monthly payment came from reducing the interest rates. The remainder of the savings came from extending the loans further into the future, meaning that the Hernandez Family will, in the long run, pay more interest. But at least their current bills are reduced by $715.11 per month.

Question 15

UNDERWATER ON A HOME
www.citigroup.com
Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 2008: Lost $27.7 billion; Took funds from government during financial crisis
• 2010: First annual profit since 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, bath home with a down payment of only $8500.
The Dustons did not have the funds needed, so they asked about refinancing the loan balance of $306,500. At first, the bank wanted them to pay off the loan, but it finally agreed to try to work to refinance it. The Dustons felt trapped! It was difficult to understand that they were underwater by so much given that they had made every payment on time for 3 years. With the help of a government program designed to help underwater homeowners current on their mortgage payments, the bank agreed to refinance $285,000 on the home on a 30-year fixed mortgage at 5%. The difference between the debt of $306,500 and $285,000 was essentially forgiven due to the government program. Find the new home payment not including taxes and insurance. __________

Question 16

Find the annual percentage rate, using the annual percentage rate table.

Question 17

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the present value of the following annuities.

Question 18

UNDERWATER ON A HOME
www.citigroup.com
Facts:
• 1812: Founded in New York City
• 1914: Opened first international branch, in Argentina
• 2008: Lost $27.7 billion; Took funds from government during financial crisis
• 2010: First annual profit since 2007
Citigroup Inc. (Citi) provides various banking, lending, insurance, and investment services to individual and corporate customers worldwide. It operates more than 7200 branches and 7000 ATMs. Citi had more than $150 billion in credit-card loans outstanding in 2010 in addition to huge volumes of home loans and business loans.
The financial crisis of 2008-10 created very serious problems for Citigroup. To illustrate the nature of some of the problems, we use the example of one family: Tom and Marie Duston purchased their first home in 2008 when home loans were still very easy to get. They bought a beautiful new 4-bedroom, bath home with a down payment of only $8500.
So the Dustons' monthly payment, not including taxes and insurance, increased from $1100 per month up to the figure found for #4 above. Find the increase in the monthly payment. __________

Question 19

Solve the following application problems.
Barton Springs Landscaping buys a used truck for $18,700 and agrees to make 36 payments of $612.25 each. Find the annual percentage rate on the loan. __________

Question 20

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the present value of the following annuities.

Question 21

Solve the following application problems.
A note with a face value of $7000 is made on June 21. The note is for 90 days and carries interest of 13%. A partial payment of $2800 is made on July 17. Find the amount due on the maturity date of the note. __________ [12.3]

Question 22

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the required payment into a sinking fund.

Question 23

Solve the following application problems.
Mock Construction bought a truck and financed $7400 with 48 monthly payments of $228.14 each. Suppose the firm pays the loan off with 12 payments left. Use the Rule of 78 to find (a) the amount of unearned interest and (b) the amount necessary to pay off the loan. __________

Question 24

Round money amounts to the nearest cent and rates to the nearest tenth of a percent.
Find the required payment into a sinking fund.

Question 25

Find the amount of each payment necessary to amortize the following loans.
Jenson SawLogs borrows $34,500 to buy a new electric generator. The company agrees to make quarterly payments for 2 years at 10% per year. Find the amount of the quarterly payment. ___________

Question 26

Solve the following application problem using 360-day years where applicable.
At 58, Thomas Jones knows that he needs to save more. He decides to invest $300 per quarter in a mutual fund he hopes will earn 10% compounded quarterly. Find the accumulated amount at age 65. __________

Question 27

Find the amount of each payment necessary to amortize the following loans.
Scented Candles remodeled its lobby at a cost of $36,000. It pays $6000 down and pays off the balance in payments made at the end of each quarter for 5 years. Interest is 10% compounded quarterly. Find the amount of each payment so that the loan is fully amortized. ___________

Question 28

Solve the following application problem using 360-day years where applicable.
A public utility needs $60 million in 5 years for a major capital expansion. What annual payment must the firm place into a sinking fund earning 5% per year in order to accumulate the required funds? ____________

Question 29

Find the monthly payment necessary to amortize the following home mortgages.
$236,000, , 15 years __________

Question 30

Solve the following application problem using 360-day years where applicable.
Jerry Walker purchased 100 shares of stock at $23.45 per share. The company had earnings of $1.56 and a yearly dividend of $.35. Find (a) the cost of the purchase ignoring commissions, __________ (b) the price-earnings ratio to the nearest whole number, __________ and (c) the dividend yield. __________ [11.4]

Question 31

Find the monthly payment necessary to amortize the following home mortgages.
$134,560, 7%, 15 years __________

Question 32

Solve the following application problem using 360-day years where applicable.
Martin Wicker buys 9000 GM bonds due in 2020 at 104.38 for the pension fund he manages. The coupon rate is 6.4%. Find (a) the cost to purchase the bonds if the commission is $1 per bond, __________ (b) the annual interest from all of the bonds, __________ and (c) the effective interest rate. __________ [11.5]

Question 33

Work the following application problems.
Mr. and Mrs. Zagorin plan to buy a one-room cabin for $90,000, paying 20% down and financing the balance at , for 30 years. The taxes are $960 per year, with fire insurance costing $352 per year. Find the monthly payment (including taxes and insurance). ___________

Question 34

Solve the following application problem using 360-day years where applicable.
James Thompson purchased a large riding lawnmower costing $2800 with $500 down and payments of $108.27 per month for 24 months. Find (a) the total installment cost, __________ (b) the finance charge, __________ and (c) the amount financed. __________ (d) Then use the table to find the annual percentage rate to the nearest quarter of a percent. __________

Question 35

Work the following application problems.
Billiards Galore purchases a commercial building for $680,000, pays 20% down, and finances the balance at 7% for 15 years. Taxes and insurance are $14,500 and $3200 per year, respectively. (a) Find the monthly payment. ___________ (b) Assume that insurance and taxes do not increase, and find the total cost of owning the building for 15 years, including the down payment. ___________

Question 36

Solve the following application problem using 360-day years where applicable.
Abbie Spring's unpaid balance on her Visa card on July 8 was $204.37. She made a payment of $100 on July 14 and had charges of $34.95 on July 16 and $95.12 on July 30. Assume an interest rate of 1.6% per month and find the balance on August 8 using (a) the unpaid balance method __________ and (b) the average daily balance method. __________

Question 37

Work the following application problems.
Jerome Watson, owner of Watson Welding, purchases a storage building for his business and makes a $25,000 down payment. He finances the balance of $122,500 for 20 years at 8%. (a) Find the total monthly payment given taxes of $3200 per year and insurance of $1275 per year. ___________ (b) Assume that insurance and taxes do not increase, and find the total cost owning the building for 20 years (including the down payment). ___________

Question 38

Solve the following application problem using 360-day years where applicable.
Mayberry Pets borrows to purchase a van to transport animals and supplies. They agree to make quarterly payments on the $22,400 debt for 3 years at a rate of 8% compounded quarterly. Find (a) the quarterly payment __________ and (b) the total amount of interest paid. __________

Question 39

Solve the following application problem using 360-day years where applicable.
The Hodges purchase an older 4-bedroom home for $195,000 with 5% down. They finance the balance at 5% per year for 30 years. If insurance is $720 per year and taxes are $4140 per year, find the monthly payment. __________

Question 40

Solve the following application problem using 360-day years where applicable.
On January 10, Bob Jones signed a 200-day note for $24,000 to finance some work on a roof. The note was at 9% per year simple interest. Due to an unexpected income tax refund, he was able to repay $10,000 on April 15. Use the United States Rule and (a) find the balance owed on the principal after the partial payment. __________ (b) Then find the amount due at maturity of the loan. __________

Question 41

Solve the following application problem using 360-day years where applicable.
Karoline Jacobs borrowed $2200 for new kitchen appliances. She agreed to pay the loan back with 8 payments of $290.69 each. After 3 payments, she decides to go ahead and pay off the loan in full. Use the Rule of 78 to find (a) the amount of unearned interest __________ and (b) the amount needed to repay the loan in full. __________ [12.3]

Question 42

Solve the following application problem using 360-day years where applicable.
County Squire Electrical lost a lawsuit and must pay the injured party $35,000 at the end of each semiannual period for 2 years. If the funds earn 4% per year compounded semiannually, find the amount that needs to be set aside today to fulfill this obligation. __________

Question 43

Solve the following application problem using 360-day years where applicable.
James Booker signs an employment contract that guarantees him $35,000 at the end of each year for 3 years when he retires in 4 years. If funds earn 8% per year, find the present value needed today to meet the eventual payment stream. __________

Question 44

Explain the terms present value, future value , and annuity.

Question 45

Describe stocks and bonds, explaining similarities and differences.

Question 46

Find the finance charge on each of the following revolving charge accounts. Assume interest is calculated on the unpaid balance of the account. Round to the nearest cent.(See Example.)
Finding Finance Charge Using the Unpaid Balance Method
(a) Peter Brinkman's MasterCard account had an unpaid balance of $870.40 on November 1. During November, he made a payment of $100 and used the card to purchase a puppy costing $150 for his son. Find the finance charge and the unpaid balance on December 1 if the bank charges 1.5% per month on the unpaid balance.
A finance charge of 1.5% per month on the unpaid balance would be
Find the unpaid balance on December 1 as follows.
(b) During December, Brinkman made a payment of $50, charged $240.56 for Christmas presents, returned $35.45 worth of items, and took his family to dinner with charges of $92.45. Find his unpaid balance on January 1.
The finance charge calculated on the unpaid balance is $933.46 ×.015 = $14.00. The unpaid balance on January 1 follows.
The total finance charge during the 2-month period was $13.06 + $14.00 = $27.06.
(c) Brinkman knows that his debt is increasing. He moves the balance to another charge card that charges only.8% per month. Find his savings in finance charges for January.

Question 47

Find the finance charge on each of the following revolving charge accounts. Assume interest is calculated on the unpaid balance of the account. Round to the nearest cent.(See Example.)
Finding Finance Charge Using the Unpaid Balance Method
(a) Peter Brinkman's MasterCard account had an unpaid balance of $870.40 on November 1. During November, he made a payment of $100 and used the card to purchase a puppy costing $150 for his son. Find the finance charge and the unpaid balance on December 1 if the bank charges 1.5% per month on the unpaid balance.
A finance charge of 1.5% per month on the unpaid balance would be
Find the unpaid balance on December 1 as follows.
(b) During December, Brinkman made a payment of $50, charged $240.56 for Christmas presents, returned $35.45 worth of items, and took his family to dinner with charges of $92.45. Find his unpaid balance on January 1.
The finance charge calculated on the unpaid balance is $933.46 ×.015 = $14.00. The unpaid balance on January 1 follows.
The total finance charge during the 2-month period was $13.06 + $14.00 = $27.06.
(c) Brinkman knows that his debt is increasing. He moves the balance to another charge card that charges only.8% per month. Find his savings in finance charges for January.

Question 48

Find the finance charge on each of the following revolving charge accounts. Assume interest is calculated on the unpaid balance of the account. Round to the nearest cent.(See Example.)
Finding Finance Charge Using the Unpaid Balance Method
(a) Peter Brinkman's MasterCard account had an unpaid balance of $870.40 on November 1. During November, he made a payment of $100 and used the card to purchase a puppy costing $150 for his son. Find the finance charge and the unpaid balance on December 1 if the bank charges 1.5% per month on the unpaid balance.
A finance charge of 1.5% per month on the unpaid balance would be
Find the unpaid balance on December 1 as follows.
(b) During December, Brinkman made a payment of $50, charged $240.56 for Christmas presents, returned $35.45 worth of items, and took his family to dinner with charges of $92.45. Find his unpaid balance on January 1.
The finance charge calculated on the unpaid balance is $933.46 ×.015 = $14.00. The unpaid balance on January 1 follows.
The total finance charge during the 2-month period was $13.06 + $14.00 = $27.06.
(c) Brinkman knows that his debt is increasing. He moves the balance to another charge card that charges only.8% per month. Find his savings in finance charges for January.

Question 49

Complete the following tables, showing the unpaid balance at the end of each month. Assume an interest rate of 1.4 % on the unpaid balance.(See Example.)
Finding Finance Charge Using the Unpaid Balance Method
(a) Peter Brinkman's MasterCard account had an unpaid balance of $870.40 on November 1. During November, he made a payment of $100 and used the card to purchase a puppy costing $150 for his son. Find the finance charge and the unpaid balance on December 1 if the bank charges 1.5% per month on the unpaid balance.
A finance charge of 1.5% per month on the unpaid balance would be
Find the unpaid balance on December 1 as follows.
(b) During December, Brinkman made a payment of $50, charged $240.56 for Christmas presents, returned $35.45 worth of items, and took his family to dinner with charges of $92.45. Find his unpaid balance on January 1.
The finance charge calculated on the unpaid balance is $933.46 ×.015 = $14.00. The unpaid balance on January 1 follows.
The total finance charge during the 2-month period was $13.06 + $14.00 = $27.06.
(c) Brinkman knows that his debt is increasing. He moves the balance to another charge card that charges only.8% per month. Find his savings in finance charges for January.

Question 50

Complete the following tables, showing the unpaid balance at the end of each month. Assume an interest rate of 1.4 % on the unpaid balance.(See Example.)
Finding Finance Charge Using the Unpaid Balance Method
(a) Peter Brinkman's MasterCard account had an unpaid balance of $870.40 on November 1. During November, he made a payment of $100 and used the card to purchase a puppy costing $150 for his son. Find the finance charge and the unpaid balance on December 1 if the bank charges 1.5% per month on the unpaid balance.
A finance charge of 1.5% per month on the unpaid balance would be
Find the unpaid balance on December 1 as follows.
(b) During December, Brinkman made a payment of $50, charged $240.56 for Christmas presents, returned $35.45 worth of items, and took his family to dinner with charges of $92.45. Find his unpaid balance on January 1.
The finance charge calculated on the unpaid balance is $933.46 ×.015 = $14.00. The unpaid balance on January 1 follows.
The total finance charge during the 2-month period was $13.06 + $14.00 = $27.06.
(c) Brinkman knows that his debt is increasing. He moves the balance to another charge card that charges only.8% per month. Find his savings in finance charges for January.

Question 51

Compare the unpaid balance method and the average daily balance method for calculating interest on open-end credit accounts.

Question 52

Explain how consolidating loans may be of some advantage to the borrower. What disadvantages can you think of?

Question 53

Find the finance charge for the following revolving charge accounts. Assume that interest is calculated on the average daily balance of the account. (See Example.)
Finding the Average Daily Balance
Beth Hogan's balance on a Visa card was $209.46 on March 3. Her activity for the next 30 days is shown in the table. (a) Find the average daily balance on April 3. Given finance charges based on 1 1 2 % on the average daily balance, find (b) the finance charge for the month and (c) the balance owed on April 3. SOLUTION
(a)
Quick TIP
The billing period in Example is 31 days. Some billing periods are 30 days (or 28 or 29 days in February). Be sure to use the correct number of days for the month of the billing period.
There are 31 days in the billing period (March has 31 days). Find the average daily balance as follows:
Step 1 Multiply each unpaid balance by the number of days for that balance.
Step 2 Total these amounts.
Step 3 Divide by the number of days in that particular billing cycle (month).
Hogan will pay a finance charge based on the average daily balance of $207.50.
(b) The finance charge is.015 × $207.50 = $3.11 (rounded).
(c) The amount owed on April 3 is the beginning unpaid balance less any returns or payments, plus new charges and the finance charge.

Question 54

Find the finance charge for the following revolving charge accounts. Assume that interest is calculated on the average daily balance of the account. (See Example.)
Finding the Average Daily Balance
Beth Hogan's balance on a Visa card was $209.46 on March 3. Her activity for the next 30 days is shown in the table. (a) Find the average daily balance on April 3. Given finance charges based on 1 1 2 % on the average daily balance, find (b) the finance charge for the month and (c) the balance owed on April 3. SOLUTION
(a)
Quick TIP
The billing period in Example is 31 days. Some billing periods are 30 days (or 28 or 29 days in February). Be sure to use the correct number of days for the month of the billing period.
There are 31 days in the billing period (March has 31 days). Find the average daily balance as follows:
Step 1 Multiply each unpaid balance by the number of days for that balance.
Step 2 Total these amounts.
Step 3 Divide by the number of days in that particular billing cycle (month).
Hogan will pay a finance charge based on the average daily balance of $207.50.
(b) The finance charge is.015 × $207.50 = $3.11 (rounded).
(c) The amount owed on April 3 is the beginning unpaid balance less any returns or payments, plus new charges and the finance charge.

Question 55

Find the finance charge for the following revolving charge accounts. Assume that interest is calculated on the average daily balance of the account. (See Example.)
Finding the Average Daily Balance
Beth Hogan's balance on a Visa card was $209.46 on March 3. Her activity for the next 30 days is shown in the table. (a) Find the average daily balance on April 3. Given finance charges based on 1 1 2 % on the average daily balance, find (b) the finance charge for the month and (c) the balance owed on April 3. SOLUTION
(a)
Quick TIP
The billing period in Example is 31 days. Some billing periods are 30 days (or 28 or 29 days in February). Be sure to use the correct number of days for the month of the billing period.
There are 31 days in the billing period (March has 31 days). Find the average daily balance as follows:
Step 1 Multiply each unpaid balance by the number of days for that balance.
Step 2 Total these amounts.
Step 3 Divide by the number of days in that particular billing cycle (month).
Hogan will pay a finance charge based on the average daily balance of $207.50.
(b) The finance charge is.015 × $207.50 = $3.11 (rounded).
(c) The amount owed on April 3 is the beginning unpaid balance less any returns or payments, plus new charges and the finance charge.

Question 56

Find the finance charge for the following revolving charge accounts. Assume that interest is calculated on the average daily balance of the account. (See Example.)
Finding the Average Daily Balance
Beth Hogan's balance on a Visa card was $209.46 on March 3. Her activity for the next 30 days is shown in the table. (a) Find the average daily balance on April 3. Given finance charges based on 1 1 2 % on the average daily balance, find (b) the finance charge for the month and (c) the balance owed on April 3. SOLUTION
(a)
Quick TIP
The billing period in Example is 31 days. Some billing periods are 30 days (or 28 or 29 days in February). Be sure to use the correct number of days for the month of the billing period.
There are 31 days in the billing period (March has 31 days). Find the average daily balance as follows:
Step 1 Multiply each unpaid balance by the number of days for that balance.
Step 2 Total these amounts.
Step 3 Divide by the number of days in that particular billing cycle (month).
Hogan will pay a finance charge based on the average daily balance of $207.50.
(b) The finance charge is.015 × $207.50 = $3.11 (rounded).
(c) The amount owed on April 3 is the beginning unpaid balance less any returns or payments, plus new charges and the finance charge.

Question 57

Solve the following application problems.
HOT TUB PURCHASE Betty Thomas borrowed $6500 on her Visa card to install a hot tub with landscaping around it. The interest charges are 1.6% per month on the unpaid balance. (a) Find the interest charges. __________ (b) Find the interest charges if she moves the debt to a credit card charging 1% per month on the unpaid balance. __________ (c) Find the monthly savings.__________

Question 58

CREDIT CARD BALANCE Alphy Jurarim used a credit card from Citibank Direct to help pay for tuition expenses while in college and now owes $5232.25. The interest charges are 1.75% per month. (a) Find the interest charges. __________ (b) Find the interest charges if he moves the debt to a credit card charging.8% per month on the unpaid balance. __________ (c) Find the savings.__________

Question 59

Find the average daily balance for the following credit card accounts. Assume one month between billing dates using the proper number of days in the month. __________ (b) Then find the finance charge if interest is 1.5 % per month on the average daily balance. __________ (c) Finally, find the new balance.
Previous balance $228.95

Question 60

Find the average daily balance for the following credit card accounts. Assume one month between billing dates using the proper number of days in the month. __________ (b) Then find the finance charge if interest is 1.5 % per month on the average daily balance. __________ (c) Finally, find the new balance.
Previous balance $312.78

Question 61

Find the average daily balance for the following credit card accounts. Assume one month between billing dates using the proper number of days in the month. __________ (b) Then find the finance charge if interest is 1.5 % per month on the average daily balance. __________ (c) Finally, find the new balance.
Previous balance $714.58

Question 62

Find the average daily balance for the following credit card accounts. Assume one month between billing dates using the proper number of days in the month. __________ (b) Then find the finance charge if interest is 1.5 % per month on the average daily balance. __________ (c) Finally, find the new balance.
Previous balance $355.72

Question 63

Find the finance charge (FC) and the total installment cost (TIC) for the following. (See Example.)
Finding the Total Installment Cost
Frank Kimlicko recently received his master's degree and began work at a large community college as a music professor specializing in classical guitar. He purchased an exquisite-sounding classical guitar costing $3800 with $500 down and 36 monthly payments of $109.61 each. Find (a) the total installment cost, (b) the finance charge, and (c) the amount financed.
Quick TIP
To find the total installment cost, add the down payment to the sum of all monthly payments.
SOLUTION
(a) The total installment cost is the down payment plus the total of all monthly payments.
Total installment cost = $500 + 1$109.61 × 362 = $4445.96
(b) The finance charge is the total installment cost less the cash price.
Finance charge = $4445.96 ? $ 3800 = $645.96
(c) The amount financed is $3800 ? $500 = $3300.

Question 64

Find the finance charge (FC) and the total installment cost (TIC) for the following. (See Example.)
Finding the Total Installment Cost
Frank Kimlicko recently received his master's degree and began work at a large community college as a music professor specializing in classical guitar. He purchased an exquisite-sounding classical guitar costing $3800 with $500 down and 36 monthly payments of $109.61 each. Find (a) the total installment cost, (b) the finance charge, and (c) the amount financed.
Quick TIP
To find the total installment cost, add the down payment to the sum of all monthly payments.
SOLUTION
(a) The total installment cost is the down payment plus the total of all monthly payments.
Total installment cost = $500 + 1$109.61 × 362 = $4445.96
(b) The finance charge is the total installment cost less the cash price.
Finance charge = $4445.96 ? $ 3800 = $645.96
(c) The amount financed is $3800 ? $500 = $3300.

Question 65

Find the finance charge (FC) and the total installment cost (TIC) for the following. (See Example.)
Finding the Total Installment Cost
Frank Kimlicko recently received his master's degree and began work at a large community college as a music professor specializing in classical guitar. He purchased an exquisite-sounding classical guitar costing $3800 with $500 down and 36 monthly payments of $109.61 each. Find (a) the total installment cost, (b) the finance charge, and (c) the amount financed.
Quick TIP
To find the total installment cost, add the down payment to the sum of all monthly payments.
SOLUTION
(a) The total installment cost is the down payment plus the total of all monthly payments.
Total installment cost = $500 + 1$109.61 × 362 = $4445.96
(b) The finance charge is the total installment cost less the cash price.
Finance charge = $4445.96 ? $ 3800 = $645.96
(c) The amount financed is $3800 ? $500 = $3300.

Question 66

Find the finance charge (FC) and the total installment cost (TIC) for the following. (See Example.)
Finding the Total Installment Cost
Frank Kimlicko recently received his master's degree and began work at a large community college as a music professor specializing in classical guitar. He purchased an exquisite-sounding classical guitar costing $3800 with $500 down and 36 monthly payments of $109.61 each. Find (a) the total installment cost, (b) the finance charge, and (c) the amount financed.
Quick TIP
To find the total installment cost, add the down payment to the sum of all monthly payments.
SOLUTION
(a) The total installment cost is the down payment plus the total of all monthly payments.
Total installment cost = $500 + 1$109.61 × 362 = $4445.96
(b) The finance charge is the total installment cost less the cash price.
Finance charge = $4445.96 ? $ 3800 = $645.96
(c) The amount financed is $3800 ? $500 = $3300.

Question 67

Find the approximate annual percentage rate using the approximate annual percentage rate formula. Round to the nearest tenth of a percent. (See Example.)
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.

Question 68

Find the approximate annual percentage rate using the approximate annual percentage rate formula. Round to the nearest tenth of a percent. (See Example.)
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.

Question 69

Find the approximate annual percentage rate using the approximate annual percentage rate formula. Round to the nearest tenth of a percent. (See Example.)
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.

Question 70

Find the approximate annual percentage rate using the approximate annual percentage rate formula. Round to the nearest tenth of a percent. (See Example.)
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.

Question 71

Find the approximate annual percentage rate using the approximate annual percentage rate formula. Round to the nearest tenth of a percent. (See Example.)
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.

Question 72

Find the annual percentage rate using the annual percentage rate table. (See Example.)
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.

Question 73

Find the annual percentage rate using the annual percentage rate table. (See Example.)
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.

Question 74

Find the annual percentage rate using the annual percentage rate table. (See Example.)
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.

Question 75

Find the annual percentage rate using the annual percentage rate table. (See Example.)
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.

Question 76

Find the annual percentage rate using the annual percentage rate table. (See Example.)
Finding the Annual Percentage Rate
In Example, a used car costing $6400 was financed at $169 per month for 36 months after a down payment of $1200. The total finance charge was $884, and the amount financed was $5200. Find the annual percentage rate.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.
SOLUTION
Step 1 Multiply the finance charge by $100, and divide by the amount financed.
Quick TIP
When using the annual percentage rate table, select the column with the table number that is closest to the finance charge per $100 of amount financed.
This gives the finance charge per $100 financed.
Step 2 Read down the left column of the annual percentage rate table to the line for 36 months (the actual number of monthly payments). Follow across to the right to find the number closest to $17.00. Here, find 17.01. Read the number at the top of this column of figures to find the annual percentage rate, 10.50%.
In this example, 10.50% is the annual percentage rate that must be disclosed to the buyer of the car. In Example, the formula for the approximate annual percentage rate gave an answer of 11%, which is not accurate enough to meet the requirements of the law.
Finding the Annual Percentage Rate
Ed Chamski decides to buy a used car for $6400. He makes a down payment of $1200 and monthly payments of $169 for 36 months. Find the approximate annual percentage rate rounded to the nearest tenth of a percent.
SOLUTION
Use the steps outlined above.
Quick TIP
The precise APR can be found using a financial calculator as shown in examples in Appendix C.
Use the formula for approximate APR. Replace the finance charge with $884, the amount financed with $5200, and the number of payments with 36.
The approximate annual percentage rate on this loan is 11%. Example shows how to find the actual APR for this loan.

Question 77

Explain the difference between open-end credit and installment loans. (See Section and OBJECTIVE of this section.)
Define installment loan. A loan is amortized if both principal and interest are paid off by a sequence of equal periodic payments. This type of loan is called an installment loan. People use installment loans for cars, boats, home improvements, and even for consolidating several loans into one affordable loan. Firms use installment loans to purchase equipment, computers, vehicles, mining equipment, etc. The graphic shows the total interest that must be paid when financing a new Ford Escape over 3, 4, and 5 years. Notice that financing the SUV over 5 years results in interest costs of $2600, thereby increasing the total cost of the $25,000 loan to $27,600 or by 10.4%.
Quick TIP
The interest rates on installments loans can be very high.
Notice that the total interest paid is much higher the longer the term of the loan. It may be difficult to make the higher payments of a short-term loan, but it results in less total interest!
The federal Truth in Lending Act (Regulation Z) of 1969 requires lenders to disclose their finance charge (the charge for credit) and annual percentage rate (APR) on installment loans. The federal government does not regulate rates. Each individual state sets the maximum allowable rates and charges.
The interest rate that is stated (in the newspaper, a marketing brochure, or a problem in a textbook) is also called the nominal rate. The nominal or stated rate can differ from the annual percentage rate or APR, which is based on the actual amount received by the borrower. The APR is the true effective annual interest rate for a loan. Information on two loans of $1000 each is shown below. An advertisement indicates a rate of 10, for each loan, and the actual interest is $100 for each. However, the terms differ as do the APRs.
The interest rates on these two loans are very different. In fact, interest rate charges vary a surprising amount from one lender to another, so it pays to shop around for the lowest APR. Furthermore, institutions usually charge a much higher interest rate for individuals with poor credit history. Thus, it is worth it to maintain a good credit history by paying all bills on time.

Question 78

Make a list of all of the items that you have bought on an installment loan. Make another list of things you plan to buy in the next 2 years on an installment loan. (See Objective.)
Define installment loan. A loan is amortized if both principal and interest are paid off by a sequence of equal periodic payments. This type of loan is called an installment loan. People use installment loans for cars, boats, home improvements, and even for consolidating several loans into one affordable loan. Firms use installment loans to purchase equipment, computers, vehicles, mining equipment, etc. The graphic shows the total interest that must be paid when financing a new Ford Escape over 3, 4, and 5 years. Notice that financing the SUV over 5 years results in interest costs of $2600, thereby increasing the total cost of the $25,000 loan to $27,600 or by 10.4%.
Quick TIP
The interest rates on installments loans can be very high.
Notice that the total interest paid is much higher the longer the term of the loan. It may be difficult to make the higher payments of a short-term loan, but it results in less total interest!
The federal Truth in Lending Act (Regulation Z) of 1969 requires lenders to disclose their finance charge (the charge for credit) and annual percentage rate (APR) on installment loans. The federal government does not regulate rates. Each individual state sets the maximum allowable rates and charges.
The interest rate that is stated (in the newspaper, a marketing brochure, or a problem in a textbook) is also called the nominal rate. The nominal or stated rate can differ from the annual percentage rate or APR, which is based on the actual amount received by the borrower. The APR is the true effective annual interest rate for a loan. Information on two loans of $1000 each is shown below. An advertisement indicates a rate of 10, for each loan, and the actual interest is $100 for each. However, the terms differ as do the APRs.
The interest rates on these two loans are very different. In fact, interest rate charges vary a surprising amount from one lender to another, so it pays to shop around for the lowest APR. Furthermore, institutions usually charge a much higher interest rate for individuals with poor credit history. Thus, it is worth it to maintain a good credit history by paying all bills on time.

Question 79

Solve the following application problem. Use formula to estimate the APR, and round rates to the nearest tenth of a percent.
PLAYSET Tom and Jane Franklin bought a backyard playset with a trampoline for their grandchildren for $9400. They paid 10% down and financed the balance with 24 monthly payments of $398.24. Find (a) the amount financed,___________ (b) the total installment cost,___________ and (c) the finance charge. ___________ (d) Then estimate the APR.___________

Question 80

Solve the following application problem. Use formula to estimate the APR, and round rates to the nearest tenth of a percent.
ELECTRIC GUITAR Yanni Benjamin purchased a good-quality electric guitar with amplifier and financed $3600 over 12 months. The finance charge was $260. (a) Estimate the APR,___________ then (b) find the exact APR using the table.___________