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6.1 Introduction to Lending

6.1 Introduction to Lending
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  • 7. Lobstering

    A fisherman makes purchases for a lobster trapping business. Find the cost of credit for the loan. (See Example 3.)

    The fisherman purchases lobster buoys and paint online for $500. The website offers an installment loan that allows him to pay by making 3 equal monthly payments of $172.25.

    • Worked-Out Solution

      The total amount paid by the fisherman is

      Because the principal of the loan was $500, the cost of credit is $16.75.

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       \__ ||   \___//     \__ || |_||  |_|| \_____|| 
        -|_||   `---`       -|_|| `-`   `-`   `----`  
         `-`                 `-`                      
    
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  • 8. Lobstering

    A fisherman makes purchases for a lobster trapping business. Find the cost of credit for the loan. (See Example 3.)

    The fisherman purchases lobster traps online for $1440. The website offers an installment loan that allows him to pay by making 12 equal monthly payments of $127.94.

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     __   __     ___      ______     ___      ____    
     \ \\/ //   / _ \\   /_____//   / _ \\   |  _ \\  
      \   //   | / \ ||  `____ `   / //\ \\  | |_| || 
      / . \\   | \_/ ||  /___//   |  ___  || | .  //  
     /_//\_\\   \___//   `__ `    |_||  |_|| |_|\_\\  
     `-`  --`   `---`    /_//     `-`   `-`  `-` --`  
                         `-`                          
    
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  • 9. Lobstering

    A fisherman makes purchases for a lobster trapping business. Find the cost of credit for the loan. (See Example 3.)

    The fisherman purchases a lobster boat for $250,000 plus 5% sales tax. The seller offers an installment loan that allows him to pay by making 60 equal monthly payments of $4988.75.

    • Worked-Out Solution

      The total principal for the loan is

      The total amount paid by the fisherman is

      So, the cost of credit is

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      _____      ___      ______    ______    ______  
     /  ___||   / _ \\   /_   _//  /_   _//  /_   _// 
    | // __    / //\ \\    | ||     -| ||-     | ||   
    | \\_\ || |  ___  ||  _| ||     _| ||_    _| ||   
     \____//  |_||  |_|| /__//     /_____//  /__//    
      `---`   `-`   `-`  `--`      `-----`   `--`     
                                                      
    
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  • 10. Cost of Credit

    Can you find the cost of credit for the loan in Exercise 1? Exercise 2 ? Explain. (See Example 3 .)

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      _____      ___     __   __   _    _     _____   
     / ____||   / _ \\   \ \\/ // | || | ||  / ____|| 
    / //---`'  | / \ ||   \   //  | || | || / //---`' 
    \ \\___    | \_/ ||   / . \\  | \\_/ || \ \\___   
     \_____||   \___//   /_//\_\\  \____//   \_____|| 
      `----`    `---`    `-`  --`   `---`     `----`  
                                                      
    
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  • 11. Infrastructure Improvements

    A fisherman pays a contractor to repair his dock. The charges are $1200 for lumber, $60 for sales tax, and $750 for labor. The fisherman pays $260 down and finances the remainder. There is a finance charge of $41.06. Complete the Truth in Lending disclosure for the loan. (See Example 4.)

    • Worked-Out Solution

      The completed disclosure is shown below.

      Note that the total amount due agrees with the 6 payments.

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      ____      _____    __   _      ___     __   __  
     |  _ \\   |  ___|| | || | ||   / _ \\   \ \\/ // 
     | |_| ||  | ||__   | '--' ||  / //\ \\   \   //  
     | .  //   | ||__   | .--. || |  ___  ||  / . \\  
     |_|\_\\   |_____|| |_|| |_|| |_||  |_|| /_//\_\\ 
     `-` --`   `-----`  `-`  `-`  `-`   `-`  `-`  --` 
                                                      
    
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  • 12. Infrastructure Improvements

    A fisherman borrows $4500 to put a new roof on his shop. The other charges are $160. The annual percentage rate is 6%. Complete the Truth in Lending disclosure for the loan. (See Example 4.)

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      _  _     ______    _  __   __   __   _    _   
     | \| ||  /_   _//  | |/ //  \ \\/ // | || | || 
     |  ' ||   -| ||-   | ' //    \ ` //  | || | || 
     | .  ||   _| ||_   | . \\     | ||   | \\_/ || 
     |_|\_||  /_____//  |_|\_\\    |_||    \____//  
     `-` -`   `-----`   `-` --`    `-`'     `---`   
                                                    
    
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