Telephone, Gas and Electricity bills usually have a standing charge, plus

a cost for each unit used. VAT is payable on top of this.

Number of units used = Present reading – Previous reading

Total charge for units = Number of units used x Cost per * Unit*

*VAT is payable on the whole bill*

Secured Loans – If you default on payments, your house is at risk.

Unsecured Loans – The goods bought are yours. Your house is safe.

Hire Purchase – The goods bought are not yours until the last payment has been made.

Mortgages – Secured loans for Houses, Ships, etc.

Example

Joe Bloggs wishes to borrow £10,000.

Which of the following options is the cheapest way to borrow ?

The cheapest way with EasyLoan costs £17,343 for 15 years .

The cheapest way with Loans R us costs £11,122.56 for 3 years (unprotected.)

Fred’s Finance costs

Cheapest method is with Loans R us for 3 years (unprotected.)

With Hire Purchase, a deposit is paid and is then followed by a set amount of monthly repayments. Sometimes, a final payment is also made.

The goods are not yours until the final payment is made.

Example

A television costs £600 cash.

It is available on HP for a 10% deposit

followed by 36 monthly instalments of £ 15.75

How much cheaper is to pay cash ?

It is £27 cheaper to pay by cash.

Car finance plans are a form of HP, with the options of

- paying the final payment and keeping the car
- using the final payment as a deposit on a new vehicle (subject to the mileage and condition of the car)
- not paying the final payment and walking away.

All insurance policies are based on the probability that a certain event will not happen.

The higher the probability is that an event will happen , the higher the insurance premium.

Example

Bodgit Insurance offer house cover at a premium of £3.50 per £1000.

How much does it cost to cover a £189,000 house ?

Simple interest gives you a percentage return based purely on your original capital.

Example

Calculate the simple interest on £500 for 3 years at 6% per annum.

Compound interest uses the interest earned to increase the capital,

thus increasing interest.

Example

Calculate the compound interest on £500 for 3 years at 6% per annum.

If the interest rate per annum doesn't change, a formula can be used

which is based on the starting value (capital),the increased or reduced interest rate
and the term of the calculation.

If the calculation is based over years, the mnemonic CR^{y } can be used:-

Example

Calculate the compound interest on £500 for 3 years at 6% per annum.

The mnemonic CR^{y} can still be used for monthly payments, but remember to convert the term to months:-

Example

Calculate the compound interest on £500 for 1 year at 0.3% per month.

This can also be used to work out a rough APR:-

Example

What is the APR for a credit card which charges 1.5% interest per month?

Converting currency is a form of applied ratio.

Converting into another currency

Examples

Fred wishes to convert £150 into US dollars.

The exchange rate is £1 = $1.67, with no commission.

How many dollars does he get ?

No. of dollars =£150 x $ 1.67 = $250.50

Using the rule of 3

Converting back

Fred wishes to convert $75 back into pounds sterling.

The exchange rate is still £1 = $1.67, with no commission.

How much does he get ?

Amount of pounds sterling =$ 75 รท $150 = £ 44.91

Using the rule of 3

When Joe converts $150 into Euros, he receives € 108.09

There was no commission. What was the exchange rate ?

or