1. Chapter 9 sec 6

2.  How many of you have bought a car?, House?, furniture?, RV?, boat?,…  What made you decide to buy these things?  Did you look for anything special? For example, any special deals, bargains?

3.  Lets say you bought a couch for $3000(don’t forget the interest) in 3 yearly payments using an add-on interest rate of 10%. What is your true interest rate?

4.  What is the “true” interest rate? And what does it mean?  The “true” interest rate is the called the annual percentage rate, or APR, which we will denote by a.

5.  Using the add-on from sec 9.2 we can compute the I = Prt = (3000)(.10)(3) = $900. Therefore the amount to be repaid in 3 equal installments is 3000 + 900 = 3900. Divide by 3, $1300 of which $1000 is being paid by the principle and $300 is the interest. Solving the equation;  300 = (3000)(r)(1)= for r and r =.10. Therefore your interest is 10%.

6.  At the end of the second year, you make another payment of $1300, of which $1000 goes to reduce the principle and $300 is interest. For the 2 nd year you have paid $300 interest for $2000 loan. Solving the equation 300 = (2000)(r)(1) =.15.  Therefore in reality, the interest rate on your loan for the second year is 15%.

7.  Sorry, it gets worst for you!!  You make a final payment of $1300. Paid $1000 on the remaining principle and $300 for the interest. Solving the equation 300 = (1000)(r)(1) =.30  Now the interest rate is 30%

8.  You got robbed!!!!!!  You better be pissed!!!!

9.  BUT HOLD ON!!!!

10.  The interest for the first year + interest for the second year + interest for the third year = $900.  Using I = Prt, the equation will look like;  (3000)(a)(1) + (2000)(a)(1) + (1000)(a)(1) = 900

11.  Solve for a,  6000a = 900  a = 0.15.  Therefore the APR is 15%. You can check it if you borrow $3000 for 1 year at 15% and then $2000 for 1 year at 15% and then $1000 or 1 year at 15%, the total interest for the 3 years is $900.

12. # of payments Finance charge per $100 (APR)  Finding the APR 10%11%12%13%14%15%16% 62.943.233.533.834.124.424.72 125.506.066.627.187.748.318.88 2410.7511.8612.9814.1015.2316.3717.51 3616.1617.8619.5721.3023.0424.8026.57 4821.7424.0626.4028.7731.1733.5936.03

13.  1. Find the finance charge on the loan if it is not already given to you.  2. Determine the finance charge per $100 on the loan.  3. use the line of Table that corresponds to the number of payments to find the number closest to the amount found in step 2.  4. The top of the column containing the number found is step 3 is the APR.

14.  In order to use the table, you must first know the finance charge on the loan. If you borrow $780 and pay a finance charge of $148.20, then the finance charge per $100 of the amount is given by  FC is the finance charge.

15.  Ann has agreed to pay off a $5000 loan by making 12 monthly payments. If the total finance charge on his loan is $410, what is the APR she is being charged?

16.  Ann is making 12 monthly payments. Using the table. The closest amount is $8.31, therefore it is approximate APR for her loan is 15%.

17.  Nate is considering buying a car costing $18,580. The terms of the sale require a down payment of $3200 and the rest to be paid off by making 36 monthly payments of $310 each. What is the APR will she be paying on the car financing?

18.  Amount being finance is the purchase price minus the down payment, which is $18,580 - $3200 = $ 15,380. Because her payment amount is 36 x 310 = $11,160, this makes the finance charge equal to  $15,380 - $11,160 = $4220. Using the table the finance charge is per $100.

19.  Now look at the row of 36 payments. The APR for this car is approximately a little over 16%.

20.  Therefore knowing your APR is important.