Options in Banking(pp. 1 of 4)

Bank Loans
Options in Banking (pp. 2 of 4)
Mathematical Models with Applications
HS Mathematics
Unit: 09 Lesson: 01
Acting as a provider of loans is one of the principal tasks for banks. A bank loan is a type of _____.
The ___________ receives an amount of money from the bank or lender, which they pay back in
regular _______________ to the bank or lender. This service is generally provided at a cost, referred
to as ____________ on the debt.
Two types of loans are possible
• ____________________ – Collateral (borrower’s asset) is used to back the loan, such as the
lien on the title to a house until the mortgage is paid in full.
• ____________________ – No borrower’s asset is used to secure the loan such as credit cards,
bank overdrafts, and personal loans.
One type of loan is based on _______________________.
Simple Interest
I = Prt
Maturity Value
M = P + I
I = interest, P = principal, t = time in
years, r = % rate written in decimal form
Sample:
1. A loan for $4,500 is made by Bangkok Bankers. The loan is taken out for 2 years at a simple
interest rate of 8.75%.
a. Calculate the total interest for the period of the loan.
b. Calculate the maturity value at the end of the loan period.
Some loans are paid in full at the end of the loan period. Most loans, however, require that the
borrower pay off the loan in regular installments.
2. If the loan above were to be paid off monthly, what would be the loan payment per month?
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