Utility Bills

Telephone, Gas  and  Electricity bills usually have a standing charge, plus
a cost for each unit used. VAT is payable on top of this.

 

meter

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

 

Loans

   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 ?

 

loan1

loan2

fred

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

1

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

Hire Purchase (HP)

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 ?

2

3

It is £27 cheaper to pay by cash.

 

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

 

Insurance

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  ?

4

 

Bank Interest

Simple Interest

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.

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Compound Interest

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.

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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.

7

If the calculation is based  over years, the mnemonic CRy can be used:-

8

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

9

The mnemonic CRy 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.

10

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?

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Foreign Exchange

Exchange rates

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 ?

15

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

 

Using the rule of 3

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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 ?

16

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

Using the rule of 3

14

 

When Joe converts  $150 into Euros, he receives € 108.09
There was  no commission.  What was the exchange rate ?

17

or

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© Alexander Forrest