Analyzing Credit.

Slides:

Advertisements

Similar presentations

Do Now 1) What does APR stand for? 2) What is the cost of credit?

Advertisements

Financial Algebra © Cengage/South-Western Slide CREDIT CARD STATEMENT To identify and use the various entries in a credit card statement. OBJECTIVES.

Section 1.1, Slide 1 Copyright © 2014, 2010, 2007 Pearson Education, Inc. Section 8.3, Slide 1 Consumer Mathematics The Mathematics of Everyday Life 8.

CHAPTER 9 SEC 3 Consumer Loans. What is a consumer loan? Def.  a loan that establishes consumer credit that is granted for personal use; usually unsecured.

Simple Interest Section 5.1. Introduction When you deposit money into a savings at a bank you expect the bank to pay you for the privilege of saving your.

HOW CREDIT CARDS WORK What you need to know about credit cards- including what credit cards companies can and can’t do, and what information they have.

Simple Interest And Methods of Payment. * Whenever money is borrowed, the borrower (an individual, organisation or community) pays the lender (a bank.

Credit Cards Did you know that 183 million Americans are using credit cards? Average credit card debt is ~ $7,100 per household in 1012.

Interest on Loans Section 6.8. Objectives Calculate simple interest Calculate compound interest Solve applications related to credit card payments.

Installment Buying and Credit Cards. Simple Finance Charges The finance charge is the amount of the purchase in excess of the selling price. Barry wants.

Reading a Credit Card Statement

Credit Cards and Credit Reports Personal Finance Mrs. Brewer.

Consumer Loans © 2010 Pearson Education, Inc. All rights reserved.Section 9.3, Slide Determine payments for an add- on loan. Compute finance charges.

(The Nightmare Continues…).  Open-Ended Installment Loans differ from Fixed Installment Loans in a number of ways: ◦ They are often referred to as “revolving.

Compound Interest Making Money!!!. Compound Interest Solving by Hand A=P(1+r/n) nt P - Initial principal r – annual rate expressed as a decimal n – compounded.

Chapter 4, Section 2 Credit Card Finance Charges.

Responsibilities and Costs of Credit

Analyzing Credit. Objective: You will use the Daily average method to determine the balance of a credit card, and will calculate the Effective Annual.

Section 13.2 Loans. Example 8 Find the future value of each account at the end of 100 years if the initial balance is $1000 and the account earns: a)

6.00 Sources of Credit Unit C Basic Business Law Objective 6.02.

Exponential Functions – Personal Finance Basic Formula for Compound Interest: A = P(1 + r/n) nt » A = Final Amount » P = Beginning Amount » r = rate –

Credit Cards Know what you’re getting into…. Pros  Convenient  Easy to Track  Consumer Protection  Special Services  Rewards (Points/Miles/Credits.

Lesson 1 – Simple and Compound Interest Learning Goal I can calculate simple and compound interest.

Future & Present Value of an Annuity UNIT 6 FINANCE.

Managing My Credit Cards Use credit cards presentation slides 04/09.

Personal Financial Management

Using Credit Responsibility

Compound Interest Making Money!!!.

Home and Car Leasing and Buying

Installment Buying, Rule of 78, and Revolving Charge Credit Cards

Financing Unit 6.

LSP 120: Quantitative Reasoning and Technological Literacy

Chapter 11 Consumer Mathematics Active Learning Lecture Slides

Chapter 7 Charge Accounts and Credit Cards

4.5A Credit card statements

Credit Card Statements

Test Drive – Credit Cards

Chapter 3 Mathematics of Finance

Test Drive – Credit Cards

4.4B Credit Cards.

LSP 120: Quantitative Reasoning and Technological Literacy

Chapter 18 Responsibilities and Costs of Credit

Teens lesson eight credit cards.

Entry Task There are 20 vocabulary words on p. 200 and 201

Section 13-2 Consumer Credit.

Compound Interest Making Money!!!.

Section 11.4 Installment Buying

Budget Simulation : Finance Refresher

More on Installment Loans

Warmup John’s billing cycle started on Aug 4th. His beginning balance was $ He had the following transcations: Aug 10 spent $54.96 Aug.

Exponential Functions – Personal Finance

SECTION 7-3 Finance Charge: Average-Daily-Balance pp

Introduction to Credit Cards

Finance Basics Dr. Nargundkar PERS 2002.

What is a Credit Card Statement?

NEFE’s High School Financial Planning Program Lesson 2-2: Credit Costs

3-6 Credit Card Statements

Business and Consumer Loans

Problems Involving Percents

Simple Interest (MAT 142) Simple Interest.

SECTION 7-4 Finance Charge: Average-Daily-Balance

SECTION 7-4 Finance Charge: Average-Daily-Balance

SECTION 7-3 Finance Charge: Average-Daily-Balance pp

Section 10.4 Installment Buying.

Statements & Finance Charge

Chapter 7 Credit Cards.

Analyzing a Credit-Card Statement

Calculating Credit Card Interest

© 2008 Pearson Addison-Wesley. All rights reserved

Presentation transcript:

Analyzing Credit

Objective: You will use the Daily average method to determine the balance of a credit card, and will calculate the Effective Annual Rate, and the Daily Periodic Rate that will be used to help calculate the balance of the credit card.

Average Daily Balance Method A credit card statement usually contains information like minimum payment, billing period, APR, and a list of transactions, and the last payment. But, how is the new balance calculated each month? How is the minimum payment calculated? How much interest do we really pay? If we make the minimum payment how long will it take to completely pay the credit card?

Example: Given the following credit card statement information; answer the questions. Billing cycle: 03/Oct/2014 – 03/Nov/2014 Previous Balance: $ 4,500.00 Last payment: $500.00 APR 16.5% (compounded monthly)

Transactions: Date: Description: Amount: 05/Oct/2014 Walmart $150.00 11/Oct/2014 Gas $ 40.00 17/Oct/2014 Payment $ 100.00 19/Oct/2014 Chocolates $ 50.00 Find the average daily balance.

To find the average daily balance complete the following table: Transaction Date Balance Due $ Number of days with same balance Sum Daily Balances 10/3 4500 2 4500 * 2 = 9000 10/5 4500 + 150 6 4650 * 6 = 27900 10/11 4650 + 40 4690 * 6 = 28140 10/17 4690 – 100 4590 * 2 = 9180 10/19 4590 + 50 15 4640 * 15 = 69600 31 143520.00 sum of daily balance Average daily balance = -------------------------- = 143520 / 31 = = 4639.35 # days in billing cycle

Find the new balance. (to find the new balance, find the finance charge first using the daily periodic rate) I = P∙r∙t I = Interest P = Principal (In this case it means the average daily balance) r = Interest rate (daily periodic rate) t = is the time (Usually one month) I = (4639.35)(r)(1) R = .1781/12 = .0148 I = (4639.35)(.0148)(1) I = 68.66

EAR = (1 + (apr/n))n – 1 We can finally find the new balance: Find the minimum payment, assuming the minimum payment is 3.5% of the new balance. 4708.66 ∙ .035 = 164.80 Find the EAR. (The actual interest rate you pay is called the EAR) EAR = (1 + (apr/n))n – 1 EAR = (1 + (.165/12))12 – 1 = .17806

How long would it take to fully pay the credit card is no more charges are added to the card, and paying just the minimum payment?(Hint: use the TVM Solver) 36.54/12 = 3.045 Approximately three years.