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5.3 Installment Purchases

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**1. **5.3 Installment Purchases 1 Cue applet on 29Cue applet on 29

**2. **5.3 Installment Purchases 2 I see how paying off a car loan is an example of recursion Absolutely
Sort of
Not a clue

**3. **5.3 Installment Purchases 3 Educated Guess ** How long it will take for Butch to pay-off his debt? (He borrows $12,000 for “new wheels” at 18% annual interest. He pays $225 monthly) 3 – 4 years
5 – 6 years
7 – 8 years
9 – 10 years
More 44

**4. **5.3 Installment Purchases 4 Another Educated Guess ** Eventually, how much will Butch have to pay back to the bank? The $12,000 he currently owes
The $12,000 + $216
The $12,000 + $2,160
The $12,000 + $12,160 44

**5. **5.3 Installment Purchases 5 Definition and Facts Your balance is .
Interest rates are always for the year, but installment purchase accounts are compounded .
Monthly interest rate = (Annual rate) / .
How much you owe.
5-18%
12
monthlyHow much you owe.
5-18%
12
monthly

**6. **5.3 Installment Purchases 6 The bank’s annual interest rate is 18% (= 0.18). What is its monthly rate? 0.015
0.15
0.12
0.18 44

**7. **5.3 Installment Purchases 7 All by handAll by hand

**8. **5.3 Installment Purchases 8 Which of these recursion formulas would you use to compute Butch’s balance? (1.5% = .015) Ans + .015*Ans - 225
Ans + .015*Ans + 225
Ans - .015*Ans - 225
Ans - .015*Ans + 225 11

**9. **5.3 Installment Purchases 9 Use “Ans” to find Butch’s balance after 12 payments $7,591.62
$9,319.39
$11,413.15
$11,955.00 33

**10. **5.3 Installment Purchases 10 Complete this “Amortization Schedule” Monthly Payment = $225 Month Balance Balance Bank
(nearest cent) drops gets
Jan $12,000 --- ---
Feb $11,955 .
Mar . .
Apr . . .
June
New idea. Called an “amortization schedule”
Students continue work from last slide to “see” Rule 1New idea. Called an “amortization schedule”
Students continue work from last slide to “see” Rule 1

**11. **5.3 Installment Purchases 11 Rule 1 Initially most of your monthly payment goes to the as interest
goes to reduce your balance Bank / a much smaller amount
From “Cabaret”Bank / a much smaller amount
From “Cabaret”

**12. **5.3 Installment Purchases 12 Which graph best describes Butch’s balance? 1
2
3 55

**13. **5.3 Installment Purchases 13 Remind how to get into APPSRemind how to get into APPS

**14. **5.3 Installment Purchases 14 “Butch Revisited” Verify balance = $11,413.15 after 1 year Owes $12,000 at 18% - Monthly payment = $225

**15. **5.3 Installment Purchases 15 Under the same conditions ($12,000 at 18% paying $225 monthly) how long will it take Butch to pay off his loan? (Checking an earlier “guestimate”) 6 years
7 years
8 years
9 years
More

**16. **5.3 Installment Purchases 16 How much will Butch have to pay back to the bank? $12,000 + $123
$12,000 + $1,230
$12,000 + $12,300
$12,000 + $23,000 New technique required. APPS doesn’t helpNew technique required. APPS doesn’t help

**17. **5.3 Installment Purchases 17 30 months
38 months
38 years
40 years 44

**18. **5.3 Installment Purchases 18 Under these conditions ($12,000 at 18% paying $400 monthly), how much total interest will Butch pay over the life of the loan? $2,400
$4,000
$5,400
$6,840
$12,300 2
Real QED (400*#payments - 12000)2
Real QED (400*#payments - 12000)

**19. **5.3 Installment Purchases 19 Rule 2 The your monthly payment,
the you will pay off the loan, and
the interest you will pay

**20. **5.3 Installment Purchases 20 66 months
276 months
276 years
He never will 3 = 23 years
3 = 23 years

**21. **5.3 Installment Purchases 21 131 months
66 years
276 years
He never will

**22. **5.3 Installment Purchases 22 Why did you get an message in the last problem? QED discussionQED discussion

**23. **5.3 Installment Purchases 23 Butch’s Summary Years To Total Interest Payment Pay Off Loan Paid
$175 . .
$183 23 years $50,508
$225 9 years $12,300
$400 40 months $4,000
$500 30 months $3,000

**24. **5.3 Installment Purchases 24 Rule 3 Make a payment each month, and
Make (A LOT) more than the minimum payment “Don’t You Mess with My Money” - Sterling Harrison“Don’t You Mess with My Money” - Sterling Harrison

**25. **5.3 Installment Purchases 25 Credit Card Statement

**26. **5.3 Installment Purchases 26 Good old Butch is at it again. He borrows $20,000 at 5% interest and has payments of $212.13. To find what his balance will be in three years he types in HOMESCREEN and presses ENTER 3 times. How many errors did he make? 0
1
2
3

**27. **5.3 Installment Purchases 27 Butch keeps trying. He again borrows $20,000 at 5% interest and has payments of $212.13. To find his balance in 3 years he types these numbers in APPS. How many errors did he make this time?

**28. **5.3 Installment Purchases 28 “Here Comes the Sun” - The Beatles“Here Comes the Sun” - The Beatles

**29. **5.3 Installment Purchases 29 9% - payment = $175 - 1 year Cost of cruise? $166
$1,253
$1,611
$2,001 1. Solve for PV
1. Solve for PV

**30. **5.3 Installment Purchases 30 Dealership
Credit Union
Same 2
“Shift Shifts and Safety Belts” - Cake2
“Shift Shifts and Safety Belts” - Cake

**31. **5.3 Installment Purchases 31 “2/28 A. R. M.” (Adjustable Rate Mortgage) #1: You borrow $350,000 for 30 years to buy a home. Annual interest rate is 4%. Your monthly payment is? $107.61
$1,031.83
$1,670.95
$14,000.01 Subprime mortgage - 2 years fixed, 28 years variable
Answer = $1,670.95
Subprime mortgage - 2 years fixed, 28 years variable
Answer = $1,670.95

**32. **5.3 Installment Purchases 32 “2/28 A. R. M.” #2: You borrow $350,000 at 4% interest for 30 years to buy a home. What is your balance after one month? $348,330
$348,557
$349,212
$349,496 $349,495.71$349,495.71

**33. **5.3 Installment Purchases 33 2/28 A. R. M. #3: After two years the interest rate jumps to 10%. Your payments now are ? $2,916.81
$2,996.17
$3,071.50 Nice Problem: answer is $2,996.17 !!!!
Careful: 10% mortgage is for 28 years
Find FV for n = 24 ($337,421.63). Use this as PV. Make N = 28*12, and I = 10 and FV= 0. solve for PMT.
Nice Problem: answer is $2,996.17 !!!!
Careful: 10% mortgage is for 28 years
Find FV for n = 24 ($337,421.63). Use this as PV. Make N = 28*12, and I = 10 and FV= 0. solve for PMT.

**34. **5.3 Installment Purchases 34 Tuition for a 4-year university is now $22,218. It will increase by 5% annually. Your baby will enter college in 18 years. On that day you will put her first-year tuition bill on a credit card that charges 10% interest. You intend to pay it off monthly in 4 years. How much will each payment be? $1,136
$1,231
$1,356 Combo problem.
Compound interest : tuition = $53,470
PMT = $1,346.14
Combo problem.
Compound interest : tuition = $53,470
PMT = $1,346.14

**35. **5.3 Installment Purchases 35 End of 5.4

**36. **5.3 Installment Purchases 36 What do these five graphics have in common?What do these five graphics have in common?

**37. **5.3 Installment Purchases 37 How many credit cards and debit cards do you own? 0
1 - 3
4 - 6
7 or more “Bills, Bills, Bills” - Beyonce“Bills, Bills, Bills” - Beyonce

**38. **5.3 Installment Purchases 38 What is your average monthly credit card bill total for all your cards? (It’s the number at the bottom right-hand corner of your bill) $0 (I pay it off each month)
Less than $200
Between $200 and $400
Between $400 and $600
Over $600

**39. **5.3 Installment Purchases 39 Of those who carry a balance on their credit card each month, more than one-half have a balance above $500
$1,000
$1,500
$2,000
$2,500 Answer is 4. Actual answer is $1,800Answer is 4. Actual answer is $1,800

**40. **5.3 Installment Purchases 40 Who pays your bill each month? I do
Dad
Mom
Other

**41. **5.3 Installment Purchases 41 What is the interest rate on your credit card? 0 - 7%
8 - 15%
16 - 23%
Higher
Who knows?

**42. **5.3 Installment Purchases 42 Reasons why credit cards are helpful Emergencies
Foreign travel
Build a good credit ratingEmergencies
Foreign travel
Build a good credit rating

**43. **5.3 Installment Purchases 43 Reasons why credit cards are dangerous Emergencies
Foreign travel
Build a good credit ratingEmergencies
Foreign travel
Build a good credit rating

**44. **5.3 Installment Purchases 44

**45. **5.3 Installment Purchases 45 ‘Satisfaction” – Rolling Stones‘Satisfaction” – Rolling Stones

**46. **5.3 Installment Purchases 46

**47. **5.3 Installment Purchases 47

**48. **5.3 Installment Purchases 48

**49. **5.3 Installment Purchases 49 A - “Darth Vader Death March”“Darth Vader Death March”

**50. **5.3 Installment Purchases 50 Not to fear. It’s your bill that’s dying, not you

**51. **5.3 Installment Purchases 51 Answers Monthly Payment = $225 Month Balance Balance Bank drops gets
Jan $12,000 --- ---
Feb $11,955 $45 $180
Mar $11,909.33 $45.67 $179.33
Apr $11,862.96 $46.37 $178.63
June $11,815.91 $47.05 $177.95 New idea. Called an “amortization schedule”
Students continue work from last slide to “see” Rule 1New idea. Called an “amortization schedule”
Students continue work from last slide to “see” Rule 1

**52. **5.3 Installment Purchases 52 Consequences of making minimum payment In applet, choose “credit card” and then “credit card payoff”
Can give term and payment. It will calculate payment for term you select and graph schedule.
Then calculate time for payment you can make and graph this schedule
Careful to zero “new charges” and “annual fee”In applet, choose “credit card” and then “credit card payoff”
Can give term and payment. It will calculate payment for term you select and graph schedule.
Then calculate time for payment you can make and graph this schedule
Careful to zero “new charges” and “annual fee”

**53. **5.3 Installment Purchases 53 Meta-Material