1. Paying Off Simple Interest Installment Loans pp. 297-299 8-5 SECTION

2. Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 2 of 20 8-5 final payment (p. 297) Payment on a simple interest loan that consists of the remaining balance plus the current month’s interest. Key Words to Know

3. Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 3 of 20 8-5 Interest = Principal × Rate × Time Formula 1

4. Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 4 of 20 8-5 Final Payment = Previous Balance + Current Month’s Interest Formula 2

5. Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 5 of 20 8-5 Interest Saved = Total Payback – (Sum of Previous Payments + Final Payment) Formula 3

6. Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 6 of 20 8-5 The first 3 months of the repayment schedule for Doug and Donna Davis’s loan of $1,800 at 12 percent interest for 6 months is shown in Figure 8.2 below. What is the final payment if they pay the loan off with the fourth payment? Example 1

7. Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 7 of 20 8-5 Figure 8.2

8. Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 8 of 20 8-5 Find the previous balance. $913.70 Example 1 Answer: Step 1

9. Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 9 of 20 8-5 Find the interest for the fourth month. Principal × Rate × Time $913.70 × 12% × 1/12 = $9.137 or $9.14 Example 1 Answer: Step 2

10. Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 10 of 20 8-5 Find the final payment. Previous Balance + Current Month’s Interest $913.70 + $9.14 = $922.84 Example 1 Answer: Step 3

11. Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 11 of 20 8-5 How much would the Davis’s in Example 1 save by paying off the loan early? Example 2

12. Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 12 of 20 8-5 Step: Find the interest saved. Total Payback – (Sum of Previous Payments + Final Payment) (6 × $310.50) – [(3 × $310.50) + $922.84] = $1,863.00 – [$931.50 + $922.84] = $1,863.00 – $1,854.34 = $8.66 Example 2 Answer

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