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Math Data #9

The document provides essential information about loans, including the significance of the promissory note, types of lending institutions, and how to calculate monthly payments based on loan amounts and interest rates. It includes examples of problems related to loan calculations, such as determining monthly payments, total payments, and finance charges for various loan scenarios. Additionally, it outlines the importance of comparing loan terms and understanding the implications of interest accrual during nonpayment periods.

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14 views4 pages

Math Data #9

The document provides essential information about loans, including the significance of the promissory note, types of lending institutions, and how to calculate monthly payments based on loan amounts and interest rates. It includes examples of problems related to loan calculations, such as determining monthly payments, total payments, and finance charges for various loan scenarios. Additionally, it outlines the importance of comparing loan terms and understanding the implications of interest accrual during nonpayment periods.

Uploaded by

igotdemapples68
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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MATH DATA #9 – Chapter 3 - Loans

What information do you need to know before taking out a loan?


Whenever you borrow money, you must sign an agreement called a promissory note, which states the
conditions of the loan. Your signature is your promise to pay back the loan as outlined in the agreement.
Always read an entire promissory note carefully before signing it.

The loan amount you borrow is the principal. The interest rate you pay is the annual percentage rate
(APR). The promissory note contains information such as the principal, APR, monthly payment, number
of payments that must be paid, interest due dates for each payment, and fees for late payments.

There are many types of lending institutions that offer loans: banks, credit unions, consumer finance
companies, life insurance companies, pawn shops, and payday loan stores. Always compare terms of the
loan and the APR when shopping for a loan.

Monthly loan payments are computed using a formula. Payment information is often arranged in tables
to make it easy for customers.

Payment per $1,000 of Loan


Interest Rate 2-Year Loan 3-Year Loan 4-Year Loan 5-Year Loan
(APR)
1% $42.10 $28.21 $21.26 $17.00
2% $42.54 $28.64 $21.70 $17.53
3% $42.98 $29.08 $22.13 $17.97
4% $43.42 $29.52 $22.58 $18.42
5% $43.87 $29.97 $23.03 $18.87
6% $44.32 $30.42 $23.49 $19.33
7% $44.77 $30.88 $23.95 $19.80

PROBLEM 1 – Show your work, include units and formulas as needed!


What is the monthly payment for a $4,000, 2-year loan with an APR of 4%? Using the table
above, find the monthly payment. 43.42/1000X4000= $173.68

PROBLEM 2 –
Juan is borrowing $41,000 for 5 years at an APR of 3%. Using the table above, find the
monthly payment. 173.68X24= $734.77
PROBLEM 3 –
How many more monthly payments are made for a 5 year loan than for a 2 year loan?
36 more monthly payments.

PROBLEM 4 -
How many monthly payments must be paid for a 2 ½ year loan?
30 monthly payments.

PROBLEM 5 –
Bart needs to borrow $7,000 from a local bank. He uses the table of monthly payments (above)
for a 3% loan for 3 different periods of time.
a. What is the monthly payment for a 2 year loan? $42.10

b. What is the monthly payment for a 3 year loan? $28.61

c. What is the monthly payment for a 5 year loan? $18.80

PROBLEM 6 –
What is the total of monthly payments for a $5,300, 4 year loan with an APR of 3%? (Use the
table above to calculate). Round to two places for currency. $5,439.50

PROBLEM 7 -
Danielle has a $10,000 3 year loan with an APR of 5%. She uses the table to compute
information on the loan.
a. What is her monthly payment? $225.80

b. What is the total of all her monthly payments? $8128.80

c. What is the finance charge? $1871.20


PROBLEM 8 –
Find the finance charge for a $4,000, 2-year loan with a 4% APR. (Use the table).
4168.32-4000= $168.32

PROBLEM 9 –
As an incoming college freshman, Ariana received a 10-year, $9,100 Federal Direct
Unsubsidized Loan with an interest rate of 4.29%. She knows that she can begin making loan
payments 6 months after graduation, but interest will accrue from the moment the funds are
credited to her account. How much interest will accrue while she is still in school (4 years) and
over the 6-month grace period for this freshman-year loan? (Use I=Prt formula). $1,755.71

IP x R x T (4years + 6 months)
I $9,100 (0.0429) = 390.39 x 4.5 =
I = $1756.76

PROBLEM 10 –
Rich is attending a 4 year college. As a freshman, he was approved for a 10 year, federal
unsubsidized student loan in the amount of $7,900 at 4.29%. He knows he has the option of
beginning repayment of the loan in 4.5 years. He also knows that during this nonpayment time,
interest will accrue at 4.29%. How much interest will Rich accrue during the 4.5 year
nonpayment period? $1,525.10

PROBLEM 11 -
The total of the monthly payments for a 5-year loan is $10,692. The APR is 7%. How much
money was originally borrowed? $9,526.52
CHALLENGE -
Mark bought a new car. The total amount he needs to borrow is $28,716. He plans on taking
out a 4-year loan at an APR of 3.12%. What is the monthly payment?
Since the 3 ½% APR is not on the table, Mark must use the monthly payment formula:

M = P( r/12 ) (1 + r/12 ) 12t


( 1 + r/12 ) 12t – 1

$647.06

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