ANALYZE: Understanding Amortization

[Pages:12]Transitioning to Ms. Overly Online class Email: Overlys@ Vocations Transitions 1st and 2nd period

Directions: Welcome back everyone!! I miss everyone one of you and hope you all are doing well!! 1.You will complete the following list of assignments (Credit 5.5 and 5.6 listed below ) using resources as outlined on The Google Class we started in January. Class Code: ivvjjgi If you haven't turned in other assignments before break, I will not mark them late..they just will be marked missing until you turn them in. Look at the video I linked for instructions on how to turn in. Communication: You may email me with any questions or clarification you may need. We will attempt to use Zoom to talk and support each other. I will send the code in your Remind.

Please join Remind!! Period 1 text 81010 @vocation Period 2 text 81010 @2c7ha8 Please note** If you are enrolled in my Voc Trans and Personal Management I am only asking you to do work in Vocation Transitions (JoJo, Natalie, Nichole and AJ ). You can Remind me individually and if you would like a Zoom meeting we can plan that as well. Please feel free to contact me with any questions or help you may need. Pick up and turn in of work: Hardcopies to be picked up and returned to the student store by Friday afternoon. You can take pictures of your work and send me a picture if needed. See my email or turn in to Googleclass

Lesson: Week of April 20-28

Due Date: The entire work packet should be emailed to me by 11:59 pm Friday, April 10th Essential Question: *What is credit and how can credit decisions impact me? *Learning Objective:

Students will be able to explain why a person may need to or want credit Identify the major types of credit and their characteristics and understand the three basic components of lines of credit.

Assignments: *Credit 5 5 different types of loans and if they are positive or negative And Fin Cap Friday Tappity Tap Kahoot Review

NGPF Activity Bank Types of Credit

ANALYZE: Understanding Amortization

Janet just graduated from college, has a job she's scheduled to begin in 3 months, and has decided to treat herself to 6 weeks of travel across South America before she buckles down and starts working full-time. To do the trip, she's thinking of applying for a personal loan of $3500, and the bank she uses for her checking and savings account has offered her an interest rate of 24%. She has a goal of paying off the trip within two years, so she uses a loan calculator and gets the following amortization schedule:



Last updated: 4/4/18

1

Part I: Amortization Basics Answer the following questions using the amortization schedule above.

1. How much is Janet going to pay every month?

2. On Jan 1, 2021, how much of Janet's payment goes toward: a. interest?

b. principal?

3. Look at Janet's repayment on 2/1/2021. a. How do the interest and principal compare to what she paid in the previous month?

b. Explain why this happened.

4. By the time Janet pays off her entire loan, a. how much interest will she have paid?

b. how much will the trip have cost her in total?

5. Let's suppose Janet received a year-end bonus and can afford to pay $285.05 during January 2022. a. Rewrite the line of the amortization schedule for 1/1/2022 using her new payment.

DATE 1/1/2022

PAYMENT $285.05

PRINCIPAL

INTEREST

TOTAL INTEREST

BALANCE

b. What will be the general impact on Janet's amortization schedule by making this single larger payment?



Last updated: 4/4/18

2

Part II: Change Janet's Schedule In question 5 above, you calculated what the schedule would look like if Janet had made one $285.05 payment in January 2022. You did it by hand, but the Bankrate calculator has a feature that allows you to adjust the entire schedule.

6. Using the loan calculator, enter in the original loan amount, loan term, and interest rate. 7. Then, click on "Calculate" to get the monthly loan payment of $185.05. 8. Click "Show Amortization Schedule" and scroll down to the table. Make sure that the "Start Date" of the

payment in the table is 12/01/2020. 9. Add an extra one-time payment of $100 in January 2022 by clicking "Add Extra Payment". Click "Apply Extra

Payments". If you scroll down to January 2022 in the table, you should see that there is now a one-time payment of $285.05 for that month.

a. How did the extra, one-time payment of $100 affect the total interest Janet pays on the loan?

b. What was the impact on the number of months it will take Janet to pay off her loan?

10. This new calculation has Janet curious -- if she'd been making $285.05 payments for the entire duration of the loan*, a. what would be the impact on the total interest Janet would have paid?

b. what would be the impact on the number of months to pay off the loan?

*When using the calculator for question 7, be sure to take off the extra $100 payment in Jan 2022; otherwise, she'd be paying $385.05 that month.

11. Reset Janet's loan back to $3500, 24% interest, but pretend she decided from the start that her pay-off goal was 4 years instead of 2. a. What is Janet's new monthly payment?

b. What's the impact on the total interest she'll pay?



Last updated: 4/4/18

3

c. Look at the very first payment month. What do you notice about the principal and the interest?

d. Explain how your answer in part c created the change in interest you noticed in part b.

12. What would be the benefit of taking a longer time to pay back your loan (ex: 4 years instead of 2)?

Part III: In Summary 13. What advice would you give Janet as she tries to decide how to structure this loan to finance her trip to South America?

14. If a friend who'd never heard of amortization before asked you to explain how loan payments work, what would you say?

15. Challenge question: Home mortgages use amortization schedules, but the principal balance might be 10 or 100 times larger than Janet's $3500 trip. They're typically paid back over a period of 30 years at a much lower interest rate (~4%). Explain what you think that amortization schedule might look like.



Last updated: 4/4/18

4

4/17/2020

Preparing Kids to Make Decisions About Borrowing Money

Bank of America Coronavirus Resource Center See details

Preparing your child to make borrowing decisions

Taking out loans or credit cards can be an important learning experience for your children, but it is important to teach them to avoid costly and impulsive buying decisions. Here are some key questions teens can ask themselves before borrowing money.

Transcript



1/4

4/17/2020

Preparing Kids to Make Decisions About Borrowing Money

The material provided on this website is for informational use only and is not intended for financial, tax or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.

Preparing your child to make borrowing decisions

Most teens probably know that debt is money owed by a borrower to a lender, but they might not understand that a loan isn't free money--it actually costs money too.

And knowing when it might be a good idea to borrow money and when it might not be can be a little complicated.

When your teen is considering borrowing money to make a purchase, he can ask himself a few questions:

Is what he's buying truly necessary?

Does he have room in his budget to cover the monthly payments?

Could he save money for a few months to pay for it instead of borrowing for it?

And, aster totaling the additional amount of money he'll pay in interest over time--will the purchase still be worth it?

With these questions in mind, you can explore some borrowing decisions with your teen.

For example, taking out student loans to pay for college could be a good reason to borrow money if she graduates, if the education leads to a job with a good salary, and if her loan payments are manageable.

On the other hand, if the amount taken out in loans is overwhelming, or if the student never graduates, repaying these loans could become a significant burden.

Another example would be taking on large amounts of debt to go on a big vacation or a shopping spree. These might not be the best things to go into debt for because they're



2/4

4/17/2020

Preparing Kids to Make Decisions About Borrowing Money

examples of things that aren't really necessary? these are things your teen might want, but

not necessarily need. Not only can the repayments stress your teen's future budget?? but,

with the added interest, those purchases will end up costing him a lot more than if he had

saved up for them in advance.

Another example to explore could be payday loans. These are basically short-term cash loans that a borrower is expected to pay back with her next paycheck. But these loans tend to have very high interest rates and fees and the result of taking out one of these loans is that the borrower ends up taking home a lot less of her pay. And, unfortunately, many payday borrowers get stuck in a cycle of debt that causes them to take out loan aster loan. A better idea would be keeping some money saved for emergencies so your teen never has to resort to a payday loan for unexpected expenses.

In the next few years your teen might encounter offers for different types of debt. Things like credit card offers, student loans, or auto loans.

By teaching teens to stop and ask themselves a few questions about:

whether the loan is necessary, do they have room in their budget to cover future payments, could they save instead of borrow, and if borrowing for a purchase is worth it aster paying the extra interest and fees, you can help them avoid borrowing money impulsively.

And ultimately, if your kids are good at managing debt, they'll be in a much better position when the stakes are higher.



3/4

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download