Unit F: Finance

Practice

Instructions: Click the Download File button to download a printable PDF of the questions. Answer each of the following practice questions on a separate piece of paper. Step by step solutions are provided under the Solutions tab. You will learn the material more thoroughly if you complete the questions before checking the answers.

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Practice
Solutions

If Jules has a monthly payment of $300.00, how long in years would it take to pay off the start-up loan of $7 700.00 at an interest rate of 6.2%?
Jules decides to pay the $7 700.00 loan over 4 years.
1. Determine her monthly payment if the interest rate is 6.9%.
2. Calculate the total amount that Jules pays back to the bank for the loan.
3. Calculate the amount of interest that Jules pays to the bank.

Question 1

If Jules has a monthly payment of $300.00, how long in years would it take to pay off the start-up loan of $7 700.00 at an interest rate of 6.2%?

Solution

Use the Number of Monthly Payment Calculator to find the number of payments. Record the information in a chart.

principal	7 700.00
annual interest rate	6.2%
monthly payment	300
number of monthly payments	28

Jules would have 28 monthly payments.

To find the length of time to pay off the loan, convert 28 months to years.

28 months \times \frac{1 year}{12 months} = 2.33 years

It would take Jules 2.33 years to pay off the loan.

Question 2

Jules decides to pay the $7 700.00 loan over 4 years.

Determine her monthly payment if the interest rate is 6.9%.
Calculate the total amount that Jules pays back to the bank for the loan.
Calculate the amount of interest that Jules pays to the bank.

Solutions

Convert 4 years to months.

4 years \times \frac{12 months}{1 year} = 48 months

Use the Monthly Payment Calculator to find the monthly payment. Record the information in a chart.

principal	7 700.00
annual interest rate	6.9%
number of monthly payments	48
monthly payment amount	184.03

The monthly payment is $184.03.

To find the total amount Jules pays for the loan, multiply the monthly payment by the number of monthly payments. The total amount that Jules pays is

$\begin{array}{rcl} total cost of loan & = & monthly payment \times number of monthly payments \\ = & $ 184.03 / month \times 48 months \\ = & $ 8 833.44 \end{array}$

Jules pays a total of $8 833.44 back to the bank for her loan.
In a loan, the interest is the amount of money paid above the original amount of the loan.

$\begin{array}{rcl} interest & = & total amount paid to bank - initial amount of loan \\ = & $ 8 833.44 - $ 7 700.00 \\ = & $ 1 133.44 \end{array}$

Jules paid $1 133.44 in interest.