Chapter 2 - Financial Mathematics: Borrowing Money
Prescribed Learning Outcomes:
A2 – Analyze costs and benefits of renting, leasing and buying.
A2 – Analyze costs and benefits of renting, leasing and buying.
2.1 - Analyzing Loans
Most loans or mortgages available today will use compound interest but a few will use simple interest
For loans and mortgages, compound interest is calculated on the remaining principal after you make payments. So your "principal" is decreasing as you pay back your loan and the amount of interest you pay is less.
The cost of borrowing money is the amount of interest that you pay and there are steps that you can take to lower your loan cost.
Please watch the video on Loans.
After you have watched the video, please do 2.1 page 92 #2-5, 7, 13.
For loans and mortgages, compound interest is calculated on the remaining principal after you make payments. So your "principal" is decreasing as you pay back your loan and the amount of interest you pay is less.
The cost of borrowing money is the amount of interest that you pay and there are steps that you can take to lower your loan cost.
Please watch the video on Loans.
After you have watched the video, please do 2.1 page 92 #2-5, 7, 13.
2.2 - Exploring Credit Card Use
Credit cards offer a loan without requiring you to provide collateral. Because you do not require collateral, you can use a credit card to purchase items that a financial institution will not lend you money for, such as a stereo or a vacation.
There are several reasons why you should be careful when using credit cards:
There a number of items to consider when selecting a credit card:
Please do 2.2 page 100 #1-4.
There are several reasons why you should be careful when using credit cards:
- they often have higher interest rates than loans from financial institutions
- they require a minimum monthly payment but you should always try to pay more than that and it is best to attempt to pay the balance in full each month
There a number of items to consider when selecting a credit card:
- is the interest rate reasonable - if you are going to carry a balance you will want a low interest rate
- are there cash-back rewards - if you use your credit card a great deal these rewards can add up quickly
- can you collect points - this is useful if the points will get you items that you want
- are there annual fees
Please do 2.2 page 100 #1-4.
2.3 - Solving Problems Involving Credit
A line of credit is a pre-approved loan by a financial institution. It has a set limit that you can borrow. It usually has a lower interest rate than a credit card or personal loan because it requires collateral such as your home.
The Bank of Canada interest rate is a rate set by Canada's central bank. It is used by other financial institutions to determine their interest rates.
There are a number of methods of obtaining credit:
It is important to be careful when using credit because a failure to repay a loan on time can affect your credit rating and a poor credit rating can affect future applications for credit.
Please do 2.3 page 115 #2-5,8,11.
The Bank of Canada interest rate is a rate set by Canada's central bank. It is used by other financial institutions to determine their interest rates.
There are a number of methods of obtaining credit:
- personal loans
- lines of credit
- credit cards
- payday loans
- dealership or in-store financing
It is important to be careful when using credit because a failure to repay a loan on time can affect your credit rating and a poor credit rating can affect future applications for credit.
Please do 2.3 page 115 #2-5,8,11.
2.4 - Buy, Rent, or Lease?
At some point, some people need to make the decision to buy, rent, or lease a home, vehicle or piece of equipment. Remember each situation is unique and the decision should be made based on the information for the particular question. There is no answer that works for all situations.
It is best to calculate the cost of buying, renting or leasing for the situation that you are faced with before making a decision.
Please watch the video on Buy, Rent, or Lease.
After you have watched the video, please do 2.4 page 129 #1, 3-5, 7, 11, 12.
It is best to calculate the cost of buying, renting or leasing for the situation that you are faced with before making a decision.
Please watch the video on Buy, Rent, or Lease.
After you have watched the video, please do 2.4 page 129 #1, 3-5, 7, 11, 12.