Ch1 Credit and BorrowingAt some stage in your life you will need to borrow money. This may be for a home, a car, a holiday or simply when you use your credit card.
Simple Interest is charged on an amount for the entire term of the loan. It doesn't matter if you pay it off early. Simple interest is sometimes known as flat interest. I=PRN Total Repayment = Principal + Interest OR Total Repayments = Repayment x number of time periods Each repayment (or instalment) = Total Amount Repaid / number of repayments Examples Tasks to Complete Ex 1A P5 Q2 ,3, 6, 8, 10, 11,12, 14, Extn: Q17, Q18, Q19 Comments and Questions??? Reducible Interest
Home Loans over long periods of time are usually reducible loans. This means that the interest is calculated on the balance owing rather than the initial amount owing. In order to do these questions, you should set up a table.
You will often be asked to track these loans over the first few months. You will need to do this in a table as shown below. |
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Comparing Loans
The most accurate way to compare loans is to calculate the total repayments made in each loan.
Effective Rate of Interest - Cost of a Loan
The effective rate of interest formula is used for the conversion of a compounding interest
rate to a simple or flat interest rate.
This formula does not appear on the formula sheet.However, you will be given it in the question. You need to know how to use it.
rate to a simple or flat interest rate.
This formula does not appear on the formula sheet.However, you will be given it in the question. You need to know how to use it.
Credit Cards
Interest is calculated depending on your daily balance so the interest rate must be converted from an annual interest rate to a daily interest rate (divide by 365)
The simple interest formula is used to calculate interest.
Interest is charged each month and a minimum repayment must be made each month. The minimum repayment is usually $25 or 1.5% of the closing balance, whichever is higher.
Some cards will attract an annual fee.Some cards will waive the fee, if a certain amount is spent on the card.
Some credit cards have an interest free period. Generally, credit cards with an interest free period will have a higher interest rate.
The simple interest formula is used to calculate interest.
Interest is charged each month and a minimum repayment must be made each month. The minimum repayment is usually $25 or 1.5% of the closing balance, whichever is higher.
Some cards will attract an annual fee.Some cards will waive the fee, if a certain amount is spent on the card.
Some credit cards have an interest free period. Generally, credit cards with an interest free period will have a higher interest rate.
Repayment Tables
Students are often required to use a repayment table to make calculations. In these, the
repayment for loans at varying interest rates and for varying terms is shown. Sometimes the
figures given are “per $1,000” of borrowings meaning multiplication of the figure in the table
may be required.
repayment for loans at varying interest rates and for varying terms is shown. Sometimes the
figures given are “per $1,000” of borrowings meaning multiplication of the figure in the table
may be required.