Loans

1
Chapter 4

• Loans Credit Cards

2
4.1 Promissory Notes
3
Interest-Bearing Promissory Notes

• Promissory Note I.O.U promise to repay
• Interest - you pay for borrowing
• Principal amt borrowed (also called face)
• Time length of loan
• Rate of Interest - youll pay

4
Example

• On May 8, 2007, Jawad Sharon Borrowed 6500 from
  his bank to buy a boat, which he used as
  collateral for the loan. Jawad signed a 2-year
  promissory note at a 10 interest rate. Find the
  amount of interest Jawad must pay. Then find the
  total amount he must repay when the note is due

5
Exact Interest Method - used when time of note
is in days- show time as a fraction(ex 83 days
83/365)

• Example
• Rosa Chavez borrows 1000 at 6 exact interest
  for 85 days. Find how much interest she earns

6
Ordinary Interest Method uses a bankers year
(360 days 12 mo 30 days)

• Example
• Rosa Chavez borrows 1000 at 6 interest for 85
  days. Find how much interest she earns using the
  ordinary interest method

Which method was better for Rosa?
7
Rate of Interest
Example Ella Stein paid 30 interest on a loan of
1000 for 3 months. Find the rate of interest
she paid
8
Wrap It Up