Chapter 1 – Credit & Borrowing (FM4) – HSC COURSE!!!
Flat Rate Loans
 There are two main types of loans that exist:
 Flat rate loans – where interest is calculated on the Principal (original amount) over the full term
of the loan.
Flat Rate Loans

Flat rate loans use simple interest which is calculated using the formula: I = Prn
where P = the Principal (amount borrowed), r = the percentage interest rate, n = time in years.
ANSWERS:
(a)
I = Prn = 5000 x 6.7% x 4
= $1340
(b)
I = Prn = 2300 x 1.56% x 19
= $681.72
(c)
I = Prn = 980 x 0.03% x 23
= $6.76
ANSWERS:
(a)
I = Prn = 3000 x 15% x 17/12
= $637.50
(b)
= $13.46
I = Prn = 1800 x 13% 21/365
ANSWER: Using I = Prn
_2940 = 6000  r  3.5
(hint: 6000  3.5 = 21000)
2940 = 21000 r
( both sides by 21000)
 r = ___0.14_____ = __14___%
ANSWER: Using I = Prn
____ = ______ ___  n
____ = ________n
 n = ________ = _____%
ANSWERS:
(a)
I = Prn = 8900 x 11% x 5
(b)
(multiply the decimal by 100 to get a percentage)
(hint:
 ___ = ______)
( both sides by _____________)
(cross out this hint bracket)
= $4895 (this is just the Interest)
Total to be repaid = P + I = 8900 + 4895 = $13 795.
FM4 – Credit & Borrowing
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ANSWERS:
(a)
I = Prn =
=$
(b)
Total = P + I =
=$
.
(c)
Repayments = $
=$
per month
 36
(note: 3yrs = 36mths)
CORE – Exercise 1A q1-6 (a, c), 8; BAND 5/6 q10.
FM4 – Credit & Borrowing
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Credit Cards
 Read through page 6 of the text book.

Daily Interest Rate = 21.5%  365 =
I = Prn =
Cash Advance fee = 1.5% of
Total amount to be repaid =
.
=
CORE – Exercise 1B q5-7; BAND 5/6 Do the extra two questions listed.
Do q6-7 on page 8. (Below)
Extra Q1
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Extra Q2
Extra questions from HSC papers… on next page.
FM4 – Credit & Borrowing
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FM4 – Credit & Borrowing
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Lesson 2 – Reducing Balance Loans
 A home loan is an example of a reducing balance loam. The interest is calculated on the amount
owing (not the original Principal borrowed) at the start of each time period. Most home loans are
paid monthly or fortnightly. Because calculations can be complicated, most lending institutions
publish table of values that can be used to find the monthly payment. These can be given as
spreadsheets.
ANSWERS:
(a)
per month
(b)
per month
(c)
per month
Worked Example 2
A home loan for $240 000 is taken out at an interest rate of 8.4% pa with monthly repayments of $2000.
(a)
Calculate the monthly interest rate.
(b)
Use the table to calculate the amount owing at the end of 6 months.
Months (N)
1
2
Principal (P)
$240 000
Interest (I)
P+IR
P+I
3
4
5
6
This is called an amortization table.
ANSWERS:
(a)
______% pa = ______% per month
FM4 – Credit & Borrowing
(b)
See TABLE
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Example 3
The table on p14 also below shows the payment due per $1000 on a monthly reducible loan.
Find the monthly payment due on a loan of $230 000 over:
(a)
20 years at 7.75%
(b)
25 years at 8.25%
ANSWERS:
(a)
Align the grid for 20 yrs and 7.75% $


=$
per $1000 borrowed.
/mth
(b)
Align the grid for 25 yrs and 8.25% $


=$
per $1000 borrowed.
/mth
CORE - Exercise 1C q1-3, 7(a-d), 9(all) BAND 5/6 q13.
FM4 – Credit & Borrowing
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FM4 – Credit & Borrowing
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CORE - Do Ex 1E Q1-3 below
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CORE - Do all Ex 1E below q1-3.
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36 =
A = P(1 + r)n = 1000 ( 1 + 18
12 %)
The formula below is a re-wording of the Compound Interest
FV = PV(1 + r)n = 5000 (1 + 94 %)8 =
FV = 20 000
PV = ?????
r = 8.4%12
n = 5 yrs = 5  12 = 60.
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CORE – Ex 1F Q1 (a, b, c), 2(all); BAND 5/6 Q3, 4.
HINTS: Use A = P(1 + r)n for Q1;
Use rearranged version of FV formula i.e. PV=
FV
for Q2.
(1 + r)n
END OF CHAPTER 1
FM4 – Credit & Borrowing
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FM4 – Credit & Borrowing
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