1. Installment Loans― Allocation of Monthly Payment pp. 294-296 8-4 SECTION

2. Click to edit Master text styles Second level Third level Fourth level Fifth level 2 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 2 of 24 8-4 Section Objective Work out: payment to interest payment to principal new balance

3. Click to edit Master text styles Second level Third level Fourth level Fifth level 3 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 3 of 24 8-4 repayment schedule (p. 294) A schedule showing the distribution of interest and principal payments on a loan over the life of the loan. Key Words to Know

4. Click to edit Master text styles Second level Third level Fourth level Fifth level 4 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 4 of 24 8-4 Interest = Principal × Rate × Time Formula 1

5. Click to edit Master text styles Second level Third level Fourth level Fifth level 5 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 5 of 24 8-4 Payment to Principal = Monthly Payment – Interest Formula 2

6. Click to edit Master text styles Second level Third level Fourth level Fifth level 6 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 6 of 24 8-4 New Principal = Previous Principal – Payment to Principal Formula 3

7. Click to edit Master text styles Second level Third level Fourth level Fifth level 7 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 7 of 24 8-4 Why is it important to get a copy of your repayment schedule? A Picture Perfect Loan p. 294

8. Click to edit Master text styles Second level Third level Fourth level Fifth level 8 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 8 of 24 8-4 The Coles obtained the loan of $1,800 at 8 percent for 6 months shown in Figure 8.1 on page 294. Show the calculation for the first payment. What is the interest? What is the payment to principal? What is the new principal? Example 1

9. Click to edit Master text styles Second level Third level Fourth level Fifth level 9 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 9 of 24 8-4 Find the interest. Principal × Rate × Time $1,800.00 × 8% × 1/12 = $12.00 Example 1 Answer: Step 1

10. Click to edit Master text styles Second level Third level Fourth level Fifth level 10 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 10 of 24 8-4 Find the payment to principal. Monthly Payment – Interest $307.08 – $12.00 = $295.08 Example 1 Answer: Step 2

11. Click to edit Master text styles Second level Third level Fourth level Fifth level 11 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 11 of 24 8-4 Find the new principal. Previous Principal – Payment to Principal $1,800.00 – $295.08 = $1,504.92 Example 1 Answer: Step 3

12. Click to edit Master text styles Second level Third level Fourth level Fifth level 12 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 12 of 24 8-4 Carol Blanco obtained a loan of $6,000 at 8 percent for 36 months. The monthly payment is $187.80. The balance of the loan after 20 payments is $2,849.08. What is the interest for the first payment? What is the interest for the 21 st payment? Why is the interest so different for the two payments? Example 2

13. Click to edit Master text styles Second level Third level Fourth level Fifth level 13 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 13 of 24 8-4 Find the interest for the first payment. Principal × Rate × Time $6,000.00 × 8% × 1/12 = $40.00 Example 2 Answer: Step 1

14. Click to edit Master text styles Second level Third level Fourth level Fifth level 14 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 14 of 24 8-4 Find the interest for the 21 st payment. Principal × Rate × Time $2,849.08 × 8% × 1/12 = $18.99 Example 2 Answer: Step 2

15. Click to edit Master text styles Second level Third level Fourth level Fifth level 15 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 15 of 24 8-4 The interest is much greater for the first payment the 21 st payment because the principal is much greater. Example 2 Answer

16. Click to edit Master text styles Second level Third level Fourth level Fifth level 16 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 16 of 24 8-4 Cathleen Brooks obtained an 18-month loan for $3,200. The interest rate is 15 percent. Her monthly payment is $199.68. The balance of the loan after 6 payments is $2,341.45. Practice 1

17. Click to edit Master text styles Second level Third level Fourth level Fifth level 17 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 17 of 24 8-4 a. What is the interest for the first payment? b. What is the interest after the seventh payment? c. How much more goes toward the principal on the seventh payment compared to the first payment? Practice 1 (cont.)

18. Click to edit Master text styles Second level Third level Fourth level Fifth level 18 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 18 of 24 8-4 a. Interest for the first payment: $40.00 b. Interest after the seventh payment: $29.27 c. Amount more that goes toward the principal on the seventh payment compared to the first payment: $10.73 Practice 1 Answer

19. Click to edit Master text styles Second level Third level Fourth level Fifth level 19 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 19 of 24 8-4 Sam Billings obtained a personal loan for $1,500 at 12 percent for 12 months. The monthly payments on the loan are $133.20. Find the interest, payment to principal, and balance for the first three payments. Practice 2

20. Click to edit Master text styles Second level Third level Fourth level Fifth level 20 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 20 of 24 8-4 a. Interest on first payment? b. Payment to principal? c. New principal? d. Interest after second payment? e. Payment to principal? Practice 2 (cont.)

21. Click to edit Master text styles Second level Third level Fourth level Fifth level 21 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 21 of 24 8-4 f. New principal? g. Interest on third payment? h. Payment to principal? i. New principal? Practice 2 (cont.)

22. Click to edit Master text styles Second level Third level Fourth level Fifth level 22 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 22 of 24 8-4 a. Interest on first payment: $15.00 b. Payment to principal: $118.20 c. New principal: $1,381.80 d. Interest after second payment: $13.82 e. Payment to principal: $119.38 Practice 2 Answer

23. Click to edit Master text styles Second level Third level Fourth level Fifth level 23 SECTION Copyright © Glencoe/McGraw-Hill MBA, Section 8-4, Slide 23 of 24 8-4 f. New principal: $1,262.42 g. Interest on third payment: $12.62 h. Payment to principal: $120.58 i. New principal: $1,141.84 Practice 2 Answer (cont.)

24. Installment Loans― Allocation of Monthly Payments 8-4 END OF SECTION