Simple Interest
Unit 4: Instructor Graded Assignment

In these questions, you will need to use the date that unit 4 starts for your class.
List the date that Unit 4 started for your class:

* Unit 4 start date: May 7, 2014

Question 1
1. You decide to take out a simple interest loan for $5000, at 7% yearly interest on the date that unit 4 starts for you. If you repay the loan on December 31st (at the end of the current year)...

a) How much do you pay total when you pay off the loan?

R= 7% =0.07
T= 238/365 = 0.65

A= P (1 + rt)
A = 5,000 (1 + (0.07 X 0.65) )
A= 5,000 X 1.0455
A= $5,227.50

b) How much interest do you pay?

Amount Accured – Principal = Interest
5,227.50 – 5,000 = $227.50 or I = PRT
I = 5,000 X 0.07 X 0.65
I = $227.50

Question 2
2. You decide to take out a $20,000 simple interest loan at 4%, on the date unit 4 started for you.

a) In 45 days you decide to pay off $8000 of the loan. What is your new principal? Explain how you got the answer.

I = PRT
I = 20,000 X 0.04 X (45/365)
I = 20,000 X 0.00493
I = $98.63

Payment = Principal – Interest
$ 7,901.37 = 8,000 – 98.63

New Balance = Previous Balance – Principal payment
$12, 098.63 = 20,000 – 7,901.37

To get the new principal, I need to go get the interest and the payment to get the new balance.

b) 30 days after the first payment, you pay another $6000. What is your new principal? Explain how you got the answer you did.
I=PRT
I= 12,098.63 X 0.04 X 0.08219
I= 12,098.63 X 0.00329
I= 39.78

Payment = Principal – Interest
$12,058.85 = 12,098.63 – 39.78

New Balance = Previous Balance – Principal payment
$6,058.85 = 12,058.85 – 6,000

Like in letter A, I went to find the interest first to come up with the new principal.

c) 45 days after the 2nd payment, your loan comes due. How much do you need to pay then? Explain your reasoning.
A= P (1 + rt)
A= 6,058.85 (1 + (0.07 X 45/365))
A= 6,058.85 X 1.0086
A= $6,111.14

Question 3
3. You need $400 badly, and decide to write a check at a check cashing place to get that money. Assuming you much write the check for $500 to get the $400 in cash, and the check will be cashed in 2 weeks, what simple interest rate did you just pay? Assume 52 weeks in a year for this problem

A= P ( 1 + rt)
$500 = $400 (1+ ? 1/26)

R= (A/P- 1 ) /t
R= (500/400 -1) /(1/26)
R= 6.5 or 650%

Essay
4. Same as cash deals are becoming very popular these days. Research a couple same as cash deals and write an essay explaining the advantages and disadvantages of each. When would one of these deals be a good deal for a person? When would using a same as cash deal be a poor idea?

Same as cash deals seems very attractive for buyers because of its benefits and, the no interest it offers for a certain period. It is usually offered in retail store, like Best Buy. Customer is attractive to it because of 0 APR and one can make a minumun payment without paying any penalties as long it’s in its promotional period. But the catch is if the customer don’t pay the whole balance within the promotional period, a high interest rate will be added to the prinicipal balance. To avoid such interest, the customer should pay its balance before the offers end.

Offers can be within 90 days, 6 months, a year or two years. It all depends on the price and product you’ve purchase. I remember purchasing something from Best Buy and they offered me the six month period to pay it all off without interest. But after six month they did add up a high interest rate. Lucky I paid it all off before it accumulate such interest.

The advantages is it does give you a leeway to pay for the product you’ve purchased. The disadvantages the high interest after the promotional period.