financial algebra © cengage/south-western slide 1 4-2 loans read monthly payments from a table....

Financial Algebra© Cengage/South-Western Slide 11

4-2

LOANS

Read monthly payments from a table.

Compute monthly payments using a formula.

Compute finance charges on loans.

OBJECTIVES

Financial Algebra© Cengage Learning/South-Western Slide 22

promissory note principal annual percentage rate cosigner life insurance prepayment privilege

prepayment penalty wage assignment wage garnishment balloon payment lending institution collateral

Key Terms

Financial Algebra© Cengage Learning/South-Western Slide 33

Example 1Example 1

What is the monthly payment for a $4,000 two-year loan with an APR of 8.50%?

Financial Algebra© Cengage Learning/South-Western Slide 44

Example 2Example 2

What is the total amount of the monthly payments for a $4,000, two-year loan with an APR of 8.50%?

Financial Algebra© Cengage Learning/South-Western Slide 55

EXAMPLE 3EXAMPLE 3

Find the finance charge for a $4,000, two-year loan with an 8.5% APR?

Financial Algebra© Cengage Learning/South-Western Slide 66

Karl is borrowing x dollars over a three-year period. The monthly payment is y dollars. Express his finance charge algebraically.

CHECK YOUR UNDERSTANDING

Financial Algebra© Cengage Learning/South-Western Slide 77

Monthly Payment FormulaMonthly Payment FormulaMonthly Payment FormulaMonthly Payment Formula

M = monthly paymentp = principalr = interest ratet = number of years

112

1

121

1212

12

t

t

r

rrp

M

Financial Algebra© Cengage Learning/South-Western Slide 88

EXAMPLE 4EXAMPLE 4

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 5.12%. What is the monthly payment?

Financial Algebra© Cengage Learning/South-Western Slide 99

Find the monthly payment for a $1,000, one-year loan at an APR of 7.5%.

CHECK YOUR UNDERSTANDING