Interest and Credit Booklet

Interest & Credit
Unit 1
EMA 30S
NAME: _____________________
Page |1
1.1 SIMPLE INTEREST
What is interest?
Interest is money earned on an investment or a fee paid for borrowing money.
When is interest good ? When is interest bad ?

When you get it (investment) When you pay it (borrowing)
SIMPLE INTEREST FORMULA

I - Interest =

I = PRT
P - Principal (Initial $)
=

R Rate (as a decimal)

=
T Time (years)
Example 1: You deposit $5000 into a bank account for 3 years collecting simple
interest at 7%.
a) How much interest would you earn?
First, fill in the values for the variables (letters) required in the equation.
I= P= R= T=
Second, place those values in the corresponding spot in the equation. Finally,
solve for the unknown variable.
I = PRT
I=
I=
b) How much money would you have at the end of 3 years?
Page |2
Example 2: You borrow $3000 from a bank that charges simple interest at 8% per
year. If it takes 6 months to repay the loan, how much interest will you be
charged?
I= P= R= T=
I = PRT
I=
I=
Calculating P, R, & T.
Remember:
1 year = 12 months
1 year = 52 weeks
1 year = 365 days
Using the regular formula for simple interest, we can rearrange the formula so we
can calculate:
I I I
P R T
RT PT PR
Example 3: a) Nicole deposited $3000 into a savings account with a simple interest
at 7% per annum (year). Calculate the number of years the money was in the
account if it earned $1050 in interest.
I= P= R= T=
I
T
PR
b) Convert your answer into days
Page |3
Example 4: John borrowed $5000 from his grandma. At the end of 3 years he
owed her $675 in simple interest. What rate did his grandma give him for the
loan?
I= P= R= T=
I
R
PT
Since rate is usually given as a percentage, change the above answer from a
decimal to a percent.
______ x 100 = ______ %
Page |4
Exercise 1.1 Simple Interest
Show all work where possible

(formula, substituted values and answers).
Round your answers to two decimal places.
1) State each as a decimal of a year.
a) 8 months b) 200 days
c) 13 weeks d) 60 weeks
e) 3 months f) 730 days
2) Find the simple interest in each case. Remember, TIME is always in YEARS.
Round your answer to the nearest cent.
Principal Rate Time Interest (I = PRT)

a) $1278 9% 2 years I=( )( )( )
I = ___________
b) $1400 16% 6 months I=( )( )( )

I = ___________
c) $920 8% 26 weeks I=( )( )( )

I = ___________
d) $2200 7% 200 days I=( )( )( )

I = ___________
Page |5
3) Howie Doing has a savings account at Mon-E Credit Union in Winnipeg. Howie
deposits $2000 into a savings account that pays 3% simple interest per annum.
a) Calculate the interest that Howie will earn on his savings after 2 years.
I= P= R= T=
b) How much money will Howie have in his account after 2 years if he doesnt
make any withdrawals?
4) Solve the following problems using the simple interest formula.
a) If the interest earned on a deposit is $50, and the interest rate is 3.5% per
annum invested for 4 years, what is the principal?
(Remember to round to the nearest cent)
I= P= R= T=
b) How many months does it take to earn $175 interest on an investment if the
principal is $5000 and the interest rate is 2% per annum?
I= P= R= T=
Page |6
c) Calculate the annual interest rate on an investment if the principal is $1000
and the interest is $120 earned over three years. Answer as a decimal and
a percent.
I= P= R= T=
Answers
1. See below
a. 0.67
b. 0.55
c. 0.25
d. 1.15
e. 0.25
f. 2
2. See below
a. $230.04
b. $112.00
c. $39.10
d. $87.40
3. See below
a. $120.00
b. $2120.00
4. See below
a. $357.14
b. 1.75 years = 21 months
c. 0.04 =4%
Page |7
1.2 COMPOUND INTEREST
Simple Interest interest is only calculated ONCE over the TERM.
Compound Interest interest is calculated SEVERAL times over the TERM.
For Example:
$4,000 is deposited at 6% for 4 years at simple interest. Here interest is
found only once, at the end using I = PRT.
I=
I=
Total Amount =
$4,000 can also be put into a bank that pays interest at 6% over two years
that is COMPOUNDED one of several ways.
1. Semi-annually 2 2. Quarterly 4
3. Monthly 12 4. Weekly 52
5. Daily 365
We will calculate $4,000 compounded annually for 4 years at 6% using a table to

see what the total amount will be.
Period Principal Rate Time Interest (PRT) Balance
0 $4000.00
1 $4000 0.06 1 (4000)(0.06)(1) = $240.00 $4240.00
2 $4240.00
Total Amount of Interest =
Page |8
Exercise 1.2 Compound Interest
Use the compound interest tables provided to calculate the total amount at the
end of each term:
1) $10 000 invested at 8% for 2 years, compounded SEMI - ANNUALLY.

0 $10 000
0.5
1.0
1.5
2.0
2) $7500 invested at 9% for 1 year, compounded QUARTERLY.

0 $7500
0.25
0.5
0.75
Page |9
3) $12 000 invested at 5% for 6 months, compounded MONTHLY

0 $12 000
1/12 1/12
2/12 1/12
3/12
4/12
5/12
6/12
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Answers
1. Total interest: $1698.59
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1.3 COMPOUND INTEREST 2
Compound interest can be found by using a table (as in the last lesson) or using a
formula.
Here is the formula for compound interest:
nt
r
A P 1
n
A = Amount at the end (Principal + Interest) n = number of times compounded per year
P = Principal t = time in years
R = rate (decimal) per year
Example: Hugh invests $2000 at 3.5% over 5 years compounded monthly.

Determine the value of the investment.
I= P= r= n= t=
nt
r
A P1
n
Typing on your calculator:
20 00 x ( 1 + 0.035 12 ) ^ ( 12 x 5 )
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Example: Fed invests $5000 at 7% over 10 years compounded annually. Determine
the value of the investment.
I= P= r= n= t=
nt
r
A P1
n
Typing on your calculator:
5000 x ( 1 + 0.07 1 ) ^ ( 10 x 1 )
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Exercise 1.3 Compound Interest 2
Calculate the amount at the end of the given time period for each of the following
investments. Show your work on the space following the table:
Annual
Principal Interest Compounded Time Amount
Rate
a) $500 8% annually 2 yrs
b) $1000 10% semi-annually 3 yrs
c) $4000 12% monthly 7 months
d) $600 10% annually 10 yrs
e) $400 12% semi-annually 2 yrs
f) $800 10% quarterly 2 yrs
g) $800 10% annually 2 yrs
h) $2000 9% semi-annually 18 months
i) $5000 12% monthly 3 months
a) P= n= r= t=
nt
r
A P 1
n
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b) P= n= r= t=
nt
r
A P 1
n
c) P= n= r= t=
nt
r
A P 1
n
d) P= n= r= t=
nt
r
A P 1
n
e) P= n= r= t=
nt
r
A P 1
n
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f) P= n= r= t=
nt
r
A P 1
n
g) P= n= r= t=
nt
r
A P 1
n
h) P= n= r= t=
nt
r
A P 1
n
i) P= n= r= t=
nt
r
A P 1
n
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Answers
1. See below
a. $583.20
b. $1340.10
c. $4288.54
d. $1556.25
e. $504.99
f. $974.72
g. $968.00
h. $2282.33
i. $5151.51
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1.4 RULE OF 72
RULE OF 72 This is a quick way to estimate the time it takes for an investment
to double when compounded annually.
FORMULA
[Interest Rate (%)] [# of years] 72
Written in terms of the # of years:

72
# of years for an investment to double
Interest Rate (%)
Ex. 1 If you invest $100 at 1% interest, it would take years

for it to double (i.e. you would have $200)
72 72
# of years 72 years
Interest Rate (%) 1

72
# of years
Interest Rate (%)

72
# of years
Interest Rate (%)

for it to quadruple (i.e. you would have $400)
72
# of years
Interest Rate (%)
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Written in terms of the interest rate:
72
Interest Rate (as a %)
# of years
Ex 5 If you invest $100 for 8 years, the interest rate would need to be
approximately for you to double your money?
Interest Rate (as a %)
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Exercise 1.4 Rule of 72
1) Using the rule of 72, how many years would it take your investment to double at
the following rates which are compounded annually?
a) 10% e) 8%
b) 9% f) 2%
c) 4% g) 12%
d) 6% h) 3%
2) Using the rule of 72, how many years would it take your investment to quadruple
at the following rates which are compounded annually?
a) 8% c) 12%
b) 9% d) 1%
3) What percent interest, compounded annually, would cause the following to

occur?
Interest Number of
Initial Investment Final Amount
Rate Years
$1000 12 $2000
$4000 9 $8000
$500 24 $1000
$2000 8 $8000
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Answers
1. See below
a. 7.2
b. 8
c. 18
d. 12
e. 9
f. 36
g. 6
h. 24
2. See below
a. 18
b. 16
c. 12
d. 144
3. See below
a. 6
b. 8
c. 3
d. 18
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1.5 CREDIT CARDS
Credit the ability to borrow money
When you use a credit card, you borrow money. Each month, you receive a balance
statement.
You need to pay the balance by a certain date. The date is named on the
balance statement.
This period of time is called a grace period. If you do not pay within the
grace period, the company charges interest.
Revolving Balance a balance that goes up and down.
Some credit cards have a revolving balance. That means you can make a minimum
payment instead of the entire balance. But if you pay less than the entire balance,
you pay a finance charge.
Finance Charge the cost of using credit.
This chart shows information about different types of credit cards
Card Balance Limit Accepted at Fees Rewards Examples

standard revolving yes most stores none Decent rewards VISA
Almost all
standard revolving yes none Decent rewards MasterCard
stores
limited In store Sears Card
revolving yes certain stores low fees
purpose rewards Canadian Tire Card
security deposit Secured VISA
secured revolving yes most stores Decent rewards
and high fees Secured MasterCard
A bank or company is more likely to give you a credit card if you have an income and
a good credit rating. You earn a good credit rating by using credit wisely.
Example 1: Rita works as a medical office assistant in Hay River

She has a good credit rating and a job.
She would like a no-fee credit card.
She plans to pay the entire balance monthly. She may need longer to pay off
larger purchases.
Which type of credit card should Rita apply for?
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Example 2: Bob received this credit card statement.
CREDIT CARD STATEMENT

Statement Date: August 20
New Balance: $944.95
Minimum Payment: $19.00
Annual Percent Rate (APR): 20.00 %

(compounded daily and charged on unpaid balance)
Bob makes only the minimum payment. He makes no other purchases.

a) How much will Bob owe for the next statement in 31 days?
b) How much interest will Bob be charged?
Solution:
a) What will be the unpaid balance?
$944.95 - $19 = $925.95
b) How much interest will Bob be charged on the next statement?
31
nt 365 31
365
nt 31
r 0.20
A P1 $925.951 $949.81
n 365
Interest Amount Principal

$949.81 - $925.95
$23.86
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Exercise 1.5 Credit Cards
1) Jack is a sales manager in Brandon. He wants to give each sales agent a credit
card. He researched this information.
Card APR Grace Period Rewards

VISA 20% 21 days yes
American Express 30.00% 28 31 day, depending on number of days in month yes
MasterCard 19% 21 days yes
a) What other information could Jack collect?
b) On a MasterCard, interest is compounded daily. What interest is owed on a

balance of $1500 that is 60 days overdue?
c) Do you think it is useful to know the grace period? Explain.
2) What is an important credit card feature to you? Why?
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3) Sonja is a hair stylist. She wants to take a $500 January
course on hair styling. She needs to pay when she S M T W T F S
1 2 3
enrols. 4 5 6 7 8 9 10
She would like to pay for the course before 11 12 13 14 15 16 17
February 3. 18 19 20 21 22 23 24
She is paid on the 24th of every month. 25 26 27 28 29 30 31
Today is January 29. Her credit card issues a
February
statement on the 2nd of each month. It has a 22- S M T W T F S
day grace period. 1 2 3 4 5 6 7
8 9 10 11 12 13 14
a) Suppose Sonja pays for the course today on her 15 16 17 18 19 20 21
credit card. When would be the last day she 22 23 24 25 26 27 28
could pay without paying interest?
March
S M T W T F S
1 2 3 4 5 6 7
b) Suppose Sonja pays for the course on February 8 9 10 11 12 13 14
2. When would be the last day she could pay the 15 16 17 18 19 20 21
balance without paying interest? 22 23 24 25 26 27 28
29 30 31
c) Should Sonja pay for the course on January 29 or wait until February 2?
Explain.
4) Jackson just started his first job a welder in Langley. He wants to apply for a
credit card. Circle the advantages of a credit card. Cross out the
disadvantages.
build credit earn rewards
Can use in case of emergency lose track of money owing
easy to spend more than you have easy to make unplanned purchases
keep track of expenses interest can grow large
5) Why might you choose a card with a higher interest rate?
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6) Why might you choose a card with an annual fee?
7) Why is it wise to pay the full balance on a credit card?
Answers
1. See below
a. Answers will vary
b. $47.58
c. Answers will vary
2. Answers will vary
3. See below
a. Feb 20
b. Feb 24
c. Wait, so she has more time to pay off her credit card
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1.6 CREDIT CARDS 2
Many of the purchases people make today are charged on a credit card.
Credit cards are popular because they are so convenient. You can buy almost
anything you want without having the cash on hand. But it can be easy to forget
that credit card purchases still have to be paid for at some time in the future.
Those charges come due when the credit card company issues a monthly statement.
If you cant pay the full amount you owe, you should at least make the
minimum payment shown on the statement. Any charges that you do not pay will
carry over to the next months statement. You will then have to pay interest on
them in the form of a finance charge.
Anyone who uses credit cards should be sure that he or she understands all of
the information on the credit card statement. The exercises that follow provide
you with an opportunity to review charges the Franks have made on their credit
cards. Use these monthly credit statements to calculate the information that goes
at the bottom of each page:
1) Find the account balance from the last statement.
2) Total the new purchases listed on the current statement.
3) Total payments listed on the current statement.
4) Figure the finance charge, if any: Monthly Periodic Rate = APR% 12

Finance Charge = Monthly Periodic Rate x (Last Balance Payments)
5) Figure the new balance:

Previous Balance + New Purchases + Finance Charge Payments
6) Figure the minimum payment due: (the % depends on the credit card)
Minimum Payment = 5% x New Balance
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Example:
The Account Number: Statement Date:

8322-156-00938 February 1
SUPER CHARGE
CARD
Roscoe and Vivien Frank The Super Charge Card

2331 Grapevine Lane Happy Valley State Bank
1425 W. Woodrow Wildson Blvd.
Grand View, MB R1P 4P4 Montrose, ON V4X 1T8
Transaction Posting Date Merchant Name or Transaction Description New Purchases, Payments &
Date Fees, Advances & Credit
Debits
1/03 4/06 Town Paint and Supply $42.55
1/05 1/10 Zippo Gasoline Company $8.92
1/15 Payment, Thank You $50.00
1/15 1/20 Hardestax Lumber Company $89.96
1/21 1/25 Kitchen DeeLight Restaurant $33.89
1/28 1/31 Bardelow`s Department Store $25.67
Previous Balance New Purchases, Finance Charge Payments & Credits New Balance Minimum Payment
Fees, Advances, & (Due to Periodic Rate) Due
Debits
$324.80
Monthly Periodic Corresponding FOR OFFICE
Rate Annual Percentage USE ONLY
Rate
1.5% 18.00%
New Purchases =
Finance Charge = Monthly Periodic Rate x (Last Balance Payment)
=
Payments & Credit =
New Balance = Previous Balance + New Purchase + Finance Charge Payments

=
Minimum Payment = 5 % x New Balance

=
P a g e | 28
Exercise 1.6 Credit Cards 2
1) Complete the following Credit Card Statements for the Marks:

8322-156-00938 March 1
SUPER CHARGE
CARD
Roscoe and Vivien Mark The Super Charge Card

Grand View, MN 55551 Montrose, TX 78712
Debits
2/06 2/09 Custom-eeze $35.69
2/14 2/17 The Old Shoppe $55.90
2/19 2/24 Speedmobile Repairs $139.95
2/20 2/24 Cromwell Books $18.75
2/20 2/25 Dandy Candy $12.69
2/24 2/27 Dr. Carlton $69.00
2/26 2/29 Dr. Carlton $22.50
Debits
$479.91
Rate
1.5% 18.00%
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2) Complete the following Credit Card Statement:

8322-156-00938 April 1
SUPER CHARGE
CARD
Roscoe and Vivien Van Dusen The Super Charge Card

Debits
3/04 3/13 The Trap $163.44
3/14 3/18 Mullers $193.47
3/14 3/21 The Daily Plant $38.83
Debits
501.97
Rate
1.5% 18.00%
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3) Complete the following Credit Card Statement:

8322-156-00938 May 1
SUPER CHARGE
CARD
Roscoe and Vivien Van Dusen The Super Charge Card

Debits
4/01 4/10 Scripps Bookstore $15.68
4/01 4/14 Hammer and Nale Hardware $22.40
4/14 4/16 Save-More Gasoline $8.52
4/20 4/23 Tastee Time Restaurant $18.95
4/20 4/27 The Bent Toe Shoe Shoppe $26.78
4/25 4/28 HoneyDo Bakery $15.50
Debits
1853.00
Rate
2.0% 24.00%
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4) Marcus has a credit card with a monthly limit of $2000 and an annual interest
rate charge 24%. He had a previous balance of $200, and made purchases
totalling $380. He made a payment of only $110. His minimum monthly payment
must be $50 or 10% whichever is greater. Determine:
a) The monthly interest rate.
b) The new interest charge, if any. (finance charge)
c) The new balance.
d) The minimum payment required.
e) The remaining credit available.
5) Alanna has a credit card with a monthly limit of $3000 and an annual interest
rate charge of 30%. She had a previous balance of $500, and made purchases
totalling $480. She made a payment of only $230. Her minimum monthly
payment must be $15 or 10% whichever is greater. Determine
c) The new balance.
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6) Brendan has a credit card with a monthly limit of $5000 and an annual interest
rate charge of 25.8%. He had a previous balance of $1200, and made purchases
totalling $990. He made a payment of $1200. His minimum monthly payment
must be $40 or 10% whichever is greater. Determine:
c) The new balance.
7) Melanie has a credit card with a monthly limit of $10,000 and an annual interest
rate charge of 19.9%. She had a previous balance of $4890, and made
purchases totalling $2200. She made a payment of only $3800. Her minimum
monthly payment must be $40 or 10% whichever is greater. Determine:
c) The new balance.
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Answers
1. See below
a. New balance: $714.71
b. Min payment: $35.74
2. See below
3. See below
4. See below
a. 2%
b. $1.80
c. $471.80
d. $50
e. $1528.20
5. See below
a. 2.5%
b. $6.75
c. $756.75
d. $75.68
e. $2243.25
6. See below
a. 2.15%
b. $0
c. $990
d. $99
e. $4010
7. See below
a. 1.66%
b. $18.09
c. $3308.09
d. $330.81
e. $6691.91
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1.7 LOANS
One way to borrow money is to get a loan. With most loans, interest is calculated
daily and paid monthly. Loans are either secured or unsecured. A secured loan
requires collateral.
Collateral an asset, such as a car or property that the lender may take if the
borrower cannot repay the loan.
Interest
Loan Secured by Intended for Interest Paid Features
Rate
personal unsecured no restrictions monthly high
personal collateral no restrictions monthly low
payday/
Items needed
fast cash collateral monthly very high minimum requirements
before payday
advance
student borrower must be
loan unsecured Tuition None None enrolled in a post-
secondary school
auto loan loan period is often
the vehicle a vehicle monthly low the life of vehicle
7 yr or less
Example 1: Ryan wants to buy a 60 inch T.V. for $3000 plus taxes. He doesn't have
the money right now so he decides to take out a personal fixed rate loan.
a) How much will he pay per month if he takes out the loan for 2 years?
Steps:
1) Calculate the amount of loan (add taxes) GST= 5% PST = 8%
2) Use tables 1 and 2 to find the monthly payment per $1000

Table 1: less than $5000 and 2 years 12.75 %
Table 2: 12.75% and 2 years $47.42 (monthly payment for every $1000)
3) Multiply the monthly payment by the Amount 1000
Loan Amount
Monthly Payment Monthly Payment per $1000
1000

P a g e | 35
b) How much interest will he pay?
Steps:
1) Total Amount = monthly payment # of years 12 months
Total Amount monthly payment # of years 12 months

2) Total Interest = Total Amount Paid - Cost of Item (including taxes)
Total Interest Total Amount Paid - Cost of Item (including taxes)

Table 1:
Range 1 year 2 years 3 years 4 years 5 years
Less than $5000 12.75% 12.75% - - -
$5000 - $15 000 9.75% 10.00% 10.25% 10.50% 11.00%
$15 000 - $30 000 9.25% 9.75% 9.75% 10.00% 10.25%
Over $30 000 8.50% 8.75 9.25% 9.50% 9.75%
P a g e | 36
Table 2:
Personal Loan Payment
Monthly Payment per $1000
Annual Interest 1 year 2 years 3 years 4 years 5 years

Rate
6.00% 86.07 44.33 30.43 23.49 19.34
6.25% 86.18 44.44 30.54 23.61 19.46

6.50% 86.30 44.56 30.66 23.72 19.57
6.75% 86.41 44.67 30.77 23.84 19.69
7.00% 86.53 44.78 30.88 23.95 19.81
7.25% 86.64 44.89 31.00 24.07 19.93
7.50% 86.76 45.01 31.11 24.19 20.05
7.75% 86.87 45.12 31.23 24.30 20.16
8.00% 86.99 45.24 31.34 24.42 20.28
8.25% 87.10 45.34 31.45 24.53 20.40
8.50% 87.22 45.46 31.57 24.65 20.52
8.75% 87.34 45.57 31.68 24.71 20.64
9.00% 87.45 45.68 31.80 24.89 20.76
9.25% 87.57 45.80 31.92 25.00 20.88
9.50% 87.68 45.91 32.03 25.12 21.00
9.75% 87.80 46.03 32.15 25.24 21.12
10.00% 87.92 46.14 32.27 25.36 21.25
10.25% 88.03 46.26 32.38 25.48 21.37
10.50% 88.15 46.38 32.50 25.60 21.49
10.75% 88.27 46.49 32.62 25.72 21.62
11.00% 88.38 46.61 32.74 25.85 21.74
11.25% 88.50 46.72 32.86 25.97 21.87
11.50% 88.62 46.84 32.98 26.09 21.99
11.75% 88.73 46.96 33.10 26.21 22.12
12.00% 88.85 47.07 33.21 26.33 22.24
12.25% 88.97 47.19 33.33 26.46 22.37
12.50% 89.08 47.31 33.45 26.58 22.50
12.75% 89.20 47.42 33.57 26.70 22.63
13.00% 89.32 47.54 33.69 26.83 22.75
13.25% 89.43 47.66 33.81 26.95 22.88
13.50% 89.55 47.78 33.94 27.08 23.01
13.75% 89.67 47.89 34.06 27.20 23.14
14.00% 89.79 48.01 34.18 27.33 23.27
P a g e | 37
Example 2: Shantel wants to buy a new set of living room furniture. She takes out
a personal fixed rate loan for $6600 plus taxes to be paid over the next 3 years.
a) What will she pay per month?
Total amount of loan:
Monthly Payment per $1000:
Monthly Payment:
b) What will she pay in interest at the end of 3 years?
Total Amount monthly payment # of years 12 months

Total Interest Total Amount Paid - Cost of Item (including taxes)

P a g e | 38
Exercise 1.7 Loans
Use the tables in the lesson.
1) Homer wants to buy the super dooper donut maker (mmmmdonuts) for
$14 000 (no tax). He takes out a personal fixed rate loan for 5 years.
a) How much is he borrowing?
b) What will he pay per month?
c) How much will he pay in total over the 5 years?
d) How much interest will he pay?
2) George wants to buy a used car for $16 000 plus taxes. He takes out a personal
fixed rate loan for 5 years.
a) How much is he borrowing?
b) What will he pay per month?
d) How much interest will he pay?
P a g e | 39
3) Sarah wants to buy a new furnace for her home for $4250 plus taxes. She
takes out a personal fixed rate loan for 2 years.
a) How much is she borrowing?
b) What will she pay per month?
c) How much will she pay in total over the 2 years?
d) How much interest will she pay?
4) Lizzy wants to renovate her kitchen for a total of $32 000. She takes out a
personal fixed rate loan for 4 years.
a) How much is she borrowing?
b) What will she pay per month?
d) How much interest will she pay?
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Answers
1. See below
a. $14000.00
b. $304.36
c. $18261.60
d. $4261.30
2. See below
a. $18080.00
b. $386.37
c. $23182.20
d. $5102.20
3. See below
a. $4802.50
b. $227.73
c. $5465.63
d. $663.13
4. See below
a. $32000.00
b. $803.84
c. $38584.32
d. $6584.32
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1.8 PROMOTIONS
The credit industry earns billions of dollars. To keep this cycle going, banks and
credit card companies offer promotions. These are some promotions they use:
a gift for applying for, and using, a credit card
bonus frequent-flyer points with each credit card transaction
low introductory interest rates
reductions on prices
cash back on purchases
a points program
You can save money using promotions when you use them wisely.
Example: Leons Dont Pay For a Year Event
Howie has two options for purchasing the surround sound system of his dreams.
Option 1: Pay Now

$1299.00 plus GST, PST, and delivery charge of $25 (including taxes)
Option 2: Pay 1 Year from Now

Pay taxes, delivery charge and a $49.99 administration fee (plus taxes) now
pay $1299.00 one year from now.
a) Calculate Howies pay-now price.
Total Price with Taxes: $ 1299 1.13 = $ 1467.87
Total Cost with Delivery: $ 1467.87 + $ 25.00 = $ 1492.87.
b) Calculate Howies total pay later price.
Total Price with Taxes: $ 1299 1.13 = $ 1467.87
Administration Fee with Taxes: 13% of $49.99 = 1.13 $ 49.99 = $ 56.49
Total Cost: $ 1467.87 + $ 56.49 + $25.00 = $ 1549.36.
c) How much more would he pay if he chooses the pay later price?
$ 1549.36 $ 1492.87 = $ 56.49
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Exercise 1.8 Promotions
1) Eileen Dover has two options for purchasing the washer and dryer of her
dreams from Future Shop.
Option 1: Pay Now

$999.00 plus GST, PST, and delivery charge of $50.
Option 2: Pay 1 Year from now

$999.00 plus GST, PST, a $29.99 administration fee (plus taxes), and a
delivery charge of $50.
a) Calculate Eileens pay now price.
b) Calculate Eileens total pay later price.
c) How much more would she pay if she chooses the pay-later price?
2) Charlies Save-A-Lot is offering a chance to save money. If you buy a bedroom

suite consisting of a bed, a dresser, and two night tables you do not have to pay
for one full year. All you have to pay will be the administration fee of $45 per
item (plus GST/PST) bought. The suite costs $1500 plus tax.
a) What is the total cash price of the bedroom suite with tax?
b) What is the total Administration Fee (including taxes)?
c) How much more would you pay if you choose the pay-later price?
P a g e | 43
3) TV City has announced that if you buy any television in stock, you will not have
to pay for six months. If you take them up on this deal the cost to you will only
be $980 plus taxes. If you decide to pay immediately you will pay $920 plus
taxes.
a) How much more would you pay if you choose the pay-later price?
4) DaBeatz Furniture Store is having a sale. There will be no down payment, and
no interest for six months. Annual interest of 19.9% is billed from the date of
purchase unless you pay in full within the first six months. The minimum
purchase is $299.99.
a) If you buy a kitchen set for $975 plus taxes and pay the entire bill in five
months, how much will you pay?
b) If you buy this kitchen set for $975 plus taxes and pay the full price at the
end of a year, how much will you pay?
i. Using simple interest I = PRT
nt
r
ii. Compounded monthly A P 1
n
iii. Compounded daily
P a g e | 44
Answers
1. See below
a. $1178.87
b. $1212.76
c. $33.89
2. See below
a. $1695.00
b. $1745.85
c. $50.85
3. See below
a. $67.80
4. See below
a. $1101.75
b. See below
i. $1321.00
ii. $1342.14
iii. $1344.26
P a g e | 45

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Interest & Credit

When is interest good ? When is interest bad ?

SIMPLE INTEREST FORMULA

b) How much money would you have at the end of 3 years?

b) Convert your answer into days

______ x 100 = ______ %

Show all work where possible

1) State each as a decimal of a year.

a) 8 months b) 200 days

e) 3 months f) 730 days

Principal Rate Time Interest (I = PRT)

b) $1400 16% 6 months I=( )( )( )

c) $920 8% 26 weeks I=( )( )( )

d) $2200 7% 200 days I=( )( )( )

4) Solve the following problems using the simple interest formula.

Compound Interest interest is calculated SEVERAL times over the TERM.

We will calculate $4,000 compounded annually for 4 years at 6% using a table to

Period Principal Rate Time Interest (PRT) Balance

1 $4000 0.06 1 (4000)(0.06)(1) = $240.00 $4240.00

Total Amount of Interest =

1) $10 000 invested at 8% for 2 years, compounded SEMI - ANNUALLY.

Period Principal Rate Time Interest (PRT) Balance

Total Amount of Interest =

2) $7500 invested at 9% for 1 year, compounded QUARTERLY.

Period Principal Rate Time Interest (PRT) Balance

Total Amount of Interest =

Period Principal Rate Time Interest (PRT) Balance

Total Amount of Interest =

Here is the formula for compound interest:

P = Principal t = time in years

R = rate (decimal) per year

Example: Hugh invests $2000 at 3.5% over 5 years compounded monthly.

Typing on your calculator:

Typing on your calculator:

b) $1000 10% semi-annually 3 yrs

c) $4000 12% monthly 7 months

d) $600 10% annually 10 yrs

e) $400 12% semi-annually 2 yrs

f) $800 10% quarterly 2 yrs

g) $800 10% annually 2 yrs

h) $2000 9% semi-annually 18 months

i) $5000 12% monthly 3 months

Written in terms of the # of years:

Ex. 1 If you invest $100 at 1% interest, it would take years

Ex. 2 If you invest $100 at 2% interest, it would take years

Ex. 3 If you invest $100 at 3% interest, it would take years

Ex. 4 If you invest $100 at 3% interest, it would take years

Interest Rate (as a %)

3) What percent interest, compounded annually, would cause the following to

Revolving Balance a balance that goes up and down.

Finance Charge the cost of using credit.

This chart shows information about different types of credit cards

Card Balance Limit Accepted at Fees Rewards Examples

Example 1: Rita works as a medical office assistant in Hay River

Which type of credit card should Rita apply for?

CREDIT CARD STATEMENT

Annual Percent Rate (APR): 20.00 %

Bob makes only the minimum payment. He makes no other purchases.

a) What will be the unpaid balance?

x 100 = %