Paying Off Simple Interest Installment Loans pp. 297-299 8-5 SECTION.
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Transcript of Paying Off Simple Interest Installment Loans pp. 297-299 8-5 SECTION.
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Paying Off Simple Interest Installment Loans
pp. 297-2998-5SECTIONSECTION
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 2 of 20
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Section ObjectiveSection ObjectiveCompute:
• final payment when paying off a simple interest installment loan
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 3 of 20
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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 KnowKey Words to Know
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 4 of 20
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Interest = Principal × Rate × Time
Formula 1Formula 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 5 of 20
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Final Payment = Previous Balance + Current Month’s Interest
Formula 2Formula 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 6 of 20
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Interest Saved =
Total Payback – (Sum of Previous Payments + Final Payment)
Formula 3Formula 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 7 of 20
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A Picture Perfect Loan p. 297A Picture Perfect Loan p. 297
Why might a bank not encourage you to pay off a loan early?
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 8 of 20
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The first 3 months of the repayment schedule for Doug and Donna Collins’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 1Example 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 9 of 20
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Figure 8.2Figure 8.2
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 10 of 20
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Find the previous balance.
$913.70
Example 1 Answer: Example 1 Answer: Step 1Step 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 11 of 20
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Find the interest for the fourth month.
Principal × Rate × Time
$913.70 × 12% × 1/12 = $9.137 or $9.14
Example 1 Answer: Example 1 Answer: Step 2Step 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 12 of 20
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Find the final payment.
Previous Balance + Current Month’s Interest
$913.70 + $9.14 = $922.84
Example 1 Answer: Example 1 Answer: Step 3Step 3
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 13 of 20
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How much would the Collins in Example 1 save by paying off the loan early?
Example 2Example 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 14 of 20
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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 AnswerExample 2 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 15 of 20
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Chanelle Thompson took out a simple interest loan of $2,200 at 15 percent for 6 months. Her monthly payment on the loan is $382.80. After 3 payments the balance is $1,120.72. She pays off the loan with the fourth payment.
Practice 1Practice 1
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 16 of 20
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a. What is the interest?
b. What is the final payment?
c. How much is saved by paying off the loan early?
Practice 1 (cont.)Practice 1 (cont.)
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 17 of 20
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a. Interest: $14.01
b. Final payment: $1,134.73
c. Amount saved by paying off the loan early: $13.67
Practice 1 AnswerPractice 1 Answer
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 18 of 20
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Alicia Fleming took out a simple interest installment loan of $8,300 at 8 percent for 18 months. The monthly payment is $490.53. After 5 payments, the balance is $6,094.80.
If she pays off the loan when the next payment is due, what is the final payment?
How much is saved by paying off the loan early?
Practice 2Practice 2
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Copyright © Glencoe/McGraw-Hill MBA, Section 8-5, Slide 19 of 20
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Amount due if she pays off the loan with the next payment: $6,135.43
Amount saved by paying off the loan early: $241.46
Practice 2 AnswerPractice 2 Answer
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Paying Off Simple Interest Installment Loans
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