Wednesday BMath Review (5/5/21)

Wednesday BMath Review (5/5/21)

This will help you with finding interest on installment loans.

EXAMPLE: Joe borrowed $2,500 from a bank with an interest rate of 16.2%, for 45 days. How much interest will he have to pay?

• 1) Interest ( I ) = Principle (P) x Rate (R) x Time (T)

• 2) I = 2,500 x 0.162 x (45/365) <-- Time must be expressed as years. Since there are 365 days in a year, 45 days would be represented as 45/365 years.

• 3) I = $49.93

Multiple Choice

Gene's bank granted him a singe-payment loan of $5,000 for 90 days at 9% interest. What is the amount of interest owned?

• $110.96

• $150.00

• $132.50

• $156.20

EXAMPLE: Finding total amount owed

From the previous example, Joe borrowed $2,500 from a bank with 16.2% interest, but would rather pay it back in 4 months. How much will he owe?

• Interest = Principle x Rate x Time

• I = 2,500 x 0.162 x (4/12) <-- since we are talking about months, 4 months represents 4/12 of a year

• I = $135

• When you borrow from a bank, you have to pay back principle plus any interest. So Joe would owe $2,500 + $135 = $2,635

Multiple Choice

Scott's bank granted him a single-payment loan of $3,250 to repair bill. HE agreed to repay the loan in 8 months at an exact interest rate of 11.75%. What is the maturity value of the loan?

• $3,211.09

• $3,282.43

• $3300.90

• $3,504.58

FUN FACT

Maturity Value is the same as total amount owed

Multiple Choice

Vanessa borrowed $21,000 for new lawn care equipment for her design business. The bank granted her a single-payment loan of $21,000 for 144 days at an interest rate of 9%. What is the maturity value of her loan?

• $21,262.50

• $21,745.64

• $745.64

• $21,000

Multiple Choice

Ethan obtained a loan of $2,400 to install a new roof on his home. The interest rate is 12% and the monthly payment is $113.04. What is the interest on the first monthly payment?

• $24.00

• $25.04

• $29.90

• $32.01

Interest = P x R x T

I = 2,400 x 0.12 x (1/12) <-- Looking at first month so one month represents 1/12 of a year

I = $24

• If this question ask how much will go towards principle, then you would subtract $24 from the monthly payment. In this case, the monthly payment is $113.04.

• $113.04 - $24 = $89.04 <-- This would be used towards principle. New balance would be $2,400 - $89.04 = $2,310.96