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

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

Chapter 5 Loans 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

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 TimeDue Date Feb. 12 th 1 month March 5 th 6 months March 31 6 months September 5 th March 12 th September 30 th

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 28 th. –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 27 th.

Examples…  Find the maturity date of the following promissory notes.. Date Issued TimeDue Date March 5 th 30 days January 30 45 days December 28 th 80 days March 16 th April 4 th March 18 th

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 5 th to March 12 th 66 days May 6 th 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

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 PriceInstallment 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 = \$2,750.40 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? \$1,916.23 *.18 * 1/12 = 28.74 + 1,916.23 = \$1,944.97 3. 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 = \$ 2,632.57 4. 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 5 Loans 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 TimeDue Date Feb. 12 th 1 month March 5 th 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 28 th. –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 TimeDue Date March 5 th 30 days January 30 45 days December 28 th 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 5 th to March 12 th _____________ May 6 th 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 PriceInstallment 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