Chapter 06: Borrowing Money


In this chapter, simple interest is calculated for loans using exact and approximate time with exact and ordinary interest. Monthly payments for add-on loans are calculated, and the annual percentage rate (APR) is estimated by the constant-ratio formula. Discount loans are introduced and the proceeds calculated. Amortized loans are presented with amortization tables, and formulas are developed for finding the amount a person can borrow for a particular monthly payment and the payment required to borrow a specific amount. The workings of credit cards are explored. The process of bank underwriting is also explored with a look into the five areas that lenders review before issuing a loan.

What you can expect to learn

After this chapter you should be able to
1. understand the terms of a promissory note or contract.
2. calculate simple interest and future value for promissory notes.
3. determine the monthly payments for add-on loans.
4. discount a loan.
5. find the payment required to borrow a particular amount of money.
6. find the amount that you can borrow for a given payment.
7. calculate the minimum payment, finance charge, and new balance for credit card accounts.
8. understand the five areas a lending institution will review prior to issuing a loan.

Activity List