Download Financial Algebra - Hubbard High School

Introduction
Credit Cards
Plastico… Fantastico!
Credit Cards
Plastico… Fantastico!
 There are almost a billion MasterCard and Visa
credit/debit cards in use in the US
Credit Cards
Plastico… Fantastico!
 There are almost a billion MasterCard and Visa
credit/debit cards in use in the US
 In 2006, Visa cardholders made more than
$1,000,000,000,000 in purchases
Credit Cards
Plastico… Fantastico!
 There are almost a billion MasterCard and Visa
credit/debit cards in use in the US
 In 2006, Visa cardholders made more than
$1,000,000,000,000 in purchases
 Today’s consumer owes money, on average, to 13
different lending institutions, including credit cards
and loans
Credit Cards
Plastico… Fantastico!
 There are almost a billion MasterCard and Visa
credit/debit cards in use in the US
 In 2006, Visa cardholders made more than
$1,000,000,000,000 in purchases
 Today’s consumer owes money, on average, to 13
different lending institutions, including credit cards
and loans
 There are over 1 billion Visa cards used internationally
Credit Cards
Plastico… Fantastico!
 There are almost a billion MasterCard and Visa




credit/debit cards in use in the US
In 2006, Visa cardholders made more than
$1,000,000,000,000 in purchases
Today’s consumer owes money, on average, to 13
different lending institutions, including credit cards
and loans
There are over 1 billion Visa cards used internationally
More than half of the US population has at least 2
credit cards!
Consumer Credit
 “Live within your income, even if you have to borrow
money to do so.” – Josh Billings
 What do you think it means?
Consumer Credit
 “Live within your income, even if you have to borrow
money to do so.” – Josh Billings
 What do you think it means?
 Traditionally, living within your income means that if
you need to borrow money to buy something, you can’t
afford it. Living within your income does not mean not
ever borrowing money. It means you should borrow
what you can afford to repay.
Definitions
 If you purchase something that you do not pay for
immediately, you are using CREDIT.
 People who use credit are called DEBTORS.
 Organizations or people that extend credit to
consumers are called CREDITORS.
Definitions
 If you purchase something that you do not pay for
immediately, you are using CREDIT.
 People who use credit are called DEBTORS.
 Organizations or people that extend credit to
consumers are called CREDITORS.
 Creditors extend credit to consumers by checking your
financial history. Among the items that they check is
Assets, Earning Power and Credit Rating
Definitions
 ASSETS – Assets are everything you own – your home,
car, bank accounts, and other personal possessions.
 EARNING POWER – Earning power is your ability to
earn money now and in the future. Creditors want to
make sure you have enough income to repay the debt.
 CREDIT RATING – A credit rating is your credit
“report card”. Every time you use credit, the creditor
reports how well you met your financial obligations to
a credit reporting agency.
Definitions
 A CREDIT REPORTING AGENCY compiles records on
all users of credit.
 Consumers are given credit scores based on these three
criteria. The most popular is the FICO SCORE. FICO
scores range from 300 to 850, with a higher score
representing less risk for creditors.
Definitions
 INSTALLMENT PLAN –
Definitions
 INSTALLMENT PLAN – Some stores offer
creditworthy customers the convenience of paying for
merchandise or services over a period of time.
Definitions
 INSTALLMENT PLAN – Some stores offer
creditworthy customers the convenience of paying for
merchandise or services over a period of time.
 DOWN PAYMENT –
Definitions
 INSTALLMENT PLAN – Some stores offer
creditworthy customers the convenience of paying for
merchandise or services over a period of time.
 DOWN PAYMENT – Part of the selling price that a
customer pays at the time of purchase.
Definitions
 INSTALLMENT PLAN – Some stores offer
creditworthy customers the convenience of paying for
merchandise or services over a period of time.
 DOWN PAYMENT – Part of the selling price that a
customer pays at the time of purchase.
 INTEREST/FINANCE CHARGE –
Definitions
 INSTALLMENT PLAN – Some stores offer
creditworthy customers the convenience of paying for
merchandise or services over a period of time.
 DOWN PAYMENT – Part of the selling price that a
customer pays at the time of purchase.
 INTEREST/FINANCE CHARGE – Scheduled payments
are made on a monthly basis plus a fee, the fee is called
interest/finance charge.
Example 1
 Your friend wants to purchase an electric guitar. The
price of the guitar with tax is $2,240. If your friend can
save $90 per month, how long will it take to save up for
the guitar?
Example 1
 Your friend wants to purchase an electric guitar. The
price of the guitar with tax is $2,240. If your friend can
save $90 per month, how long will it take to save up for
the guitar?

$2240
$90
≈ 24.9 = 25 𝑚𝑜𝑛𝑡ℎ𝑠
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment -
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment - $2,240(0.15)=$336
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments –
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments – 24($88.75)=$2,130
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments – 24($88.75)=$2,130
 Total Cost -
Example 2
 Suppose your friend from the previous example is
offered the following financing: 15% down payment,
with the remainder, plus finance charge, paid back on
a monthly basis for the next 2 years. The monthly
payment is $88.75. What is the finance charge? (Guitar
price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments – 24($88.75)=$2,130
 Total Cost - $336+$2,130=$2,466
Example 2
 Suppose your friend from the previous example is offered
the following financing: 15% down payment, with the
remainder, plus finance charge, paid back on a monthly
basis for the next 2 years. The monthly payment is $88.75.
What is the finance charge? (Guitar price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments – 24($88.75)=$2,130
 Total Cost - $336+$2,130=$2,466
 Finance Charge -
Example 2
 Suppose your friend from the previous example is offered
the following financing: 15% down payment, with the
remainder, plus finance charge, paid back on a monthly
basis for the next 2 years. The monthly payment is $88.75.
What is the finance charge? (Guitar price - $2,240)
 Down Payment - $2,240(0.15)=$336
 Sum of Monthly Payments – 24($88.75)=$2,130
 Total Cost - $336+$2,130=$2,466
 Finance Charge - $2,466 - $2,240 = $226
Example 3
 Carpet King is trying to increase sales, and it has
instituted a new promotion. All purchases can be paid
on the installment plan with no interest, as long as the
total is paid in full within six months. There is a $20
minimum monthly payment required. If the Schuster
family buys carpeting for $2,134 and makes the
minimum payment for five months, how much will
they have to pay in the sixth month?
Example 3
 Carpet King is trying to increase sales, and it has
instituted a new promotion. All purchases can be paid
on the installment plan with no interest, as long as the
total is paid in full within six months. There is a $20
minimum monthly payment required. If the Schuster
family buys carpeting for $2,134 and makes the
minimum payment for five months, how much will
they have to pay in the sixth month?
 Purchase Price – Amount Paid: $2,134 - $100 = $2,034
Assignment
 Monique buys a $4,700 air conditioning system using an installment
plan that requires 15% down. How much is the down payment?
 Craig wants to purchase a boat that costs $1,420. He signs an
installment agreement requiring 20% down payment. He currently
has $250 saved. Does he have enough for the down payment? If not,
how much is he short?
 Jean bought a $1,980 snow thrower on the installment plan. The
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


installment agreement included a 10% down payment and 18
monthly payments of $116 each.
(A) How much is the down payment?
(B) What is the total amount of the monthly payments?
(C) How much did Jean pay for the snow thrower on the installment
plan?
(D) What is the finance charge?