- Budgeting
- Cash Management
- Consumer and Mortgage Loans
- Introduction
- Understand How Consumer Loans Can Keep You from Achieving Your Goals
- Explain the Characteristics and Costs of Consumer Loans
- Explain the Characteristics and Costs of Mortgage Loans
- Understand How to Select the Least Expensive Sources for Consumer Loans and How to Reduce the Costs of Borrowing
- Summary
- Assignments
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #1 Answers
Matt’s interest cost is calculated as principal x interest rate x time.
A. The APR for the one-year loan is:
Interest = $1,000 * .12 * 1 year = $120
Fees are $20 + $20 + $60 = $100
His APR is (120 + 100) / 1,000 = 22.0%
B. The APR for the two-year loan is:
Interest = $1,000 * .12 * 2 years = $240
Fees are $20 + $20 + $60 = $100
His APR is
[(240 + 100) / 2] / 1,000 = 17.0%.
Since this is a single-payment loan, the average amount borrowed is the same over both years. Note that Matt’s APR is significantly higher than his stated interest rate. He should be very careful if taking out this loan.
