There are many practical applications for the concepts and formulas discussed in Chapter 8, Consumer Math, your assigned reading for this week.

The concepts include the following:

• Calculating the monthly payment of a loan or credit card
• Total amount of money paid for a loan
• Monthly payment of a mortgage
• The amount of interest paid for a loan.

Pick one of the concepts discussed in this chapter and give a real-world example of when it would be useful.

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For example: 

Due to the fact that I work in the banking industry, I am around these scenarios every day. One thing that I find interesting is that my employees are not responsible for calculating payments any longer. Rather, there are tools, resources and calculators that do it for them.  It has become more of an "input information into the appropriate field" type of calculation rather than an actual use of math. With that being said, I think it is still important to understand how to manually calculate information such as this because technology isn't perfect and there's always a possibility that the computer program was set up incorrectly. Knowing how to perform these calculations on your own can provide you with a way to double check the information the bank is providing you with. 

The example I chose to explore surrounds an automobile loan.  There are a few things we must know before determining the monthly payment amount.  We will need to know the term, interest rate, amount of the loan and starting date of the loan. This type of loan is calculated based on a fixed term and fixed interest rate. The most common auto loan term in my organization is 60 months, which is what we will use for this example.  Our rate for A+ credit is 2.99%.  Let's assume that the car we want to purchase is $15,000. I need a little bit of time to locate a car I want to purchase, so we'll say the starting date of the loan will be September 1, 2016. 

This is an amortized loan so we will use the following formula: 

where

• A = payment Amount per period
• P = initial Principal (loan amount)
• r = interest rate per period
• n = total number of payments or periods (Wittwer, 2008, para. 3). 

When looking at the formula, it is easy to understand why there are so many calculators available for calculating interest.  I know that I have several employees that would not be able to determine the payment amount using only the formula above. Therefore, the automated process is faster and likely more accurate. 

Based off of the scenario, the monthly payment provided by the calculator on Bankrate.com would be $269.46.  With a starting date of September 1, 2016, the last payment would be made on September 1, 2021. This is assuming that no early payments or principle only payments are made on the loan. 

References

Wittwer, J. (2008). Amoritization calculation formula. Retrieved from http://www.vertex42.com/ExcelArticles/amortization-calculation.html

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