Consumer Mathematics - Paper Example

Discount refers to a decrease in the price of goods and services offered by the seller, in exchange for early payment by the customer. Discount can be offered by the seller when he or she is short on cash or he/she want to reduce the recorded number of receivables outstanding. Discounts are an effective tool to increase sales in your business and to draw new customers to your store or business enterprise (Campa et al.,2002).

Simple interest is a basic method of determining how much interest to apply to the amount borrowed or invested (principal) for the entire loan duration, without putting into consideration other factors, for instance, past paid or charge interests. A simple interest in generally used in variable rate consumer lending and mortgage loans (Berger, 1981).

Compound interest refers to interest calculated on loans or an investment to which principal earned to date is included in the computation of future interest. Generally, compounding involves the addition of interest to the sum of the principal and preceding interest for you calculate the interest in the subsequent period. In compound interest calculation investment grows exponentially (Quigley, 1987).

An annuity refers to long-term investment issued by insurance companies designed to safeguard you against the risks of outliving your income. Basically, your contribution or purchase payments are converted regular payments over your lifetime (Quigley, 1987).

A mortgage refers to a loan given by financial institutions in which the property or real estate it is used to build, or purchase is used as the security or collateral for the loan. Mortgages are used to borrow loans from financial institutions for a project. Furthermore, mortgages make possible for people with inadequate cash to purchase assets like houses (Quigley, 1987).

Given;

Principal,P=$4,500Time,t=9 yearsRate,r=7%=0.07A=P1+rnntWhere;

A= Amount

P= Principal

r=interest rate in decimals

t= time in years

n= number of time interest is compounded per year.

A=$ 4,5001+0.07229A=$ 8,358.70138Interest earned,I=Amount,A-Principal,PI=$ 8,358.70138-$ 4,500I=$ 3858.70138Money in the account after 9 years =$ 8,358.70 and interest earned =$ 3858.70.

Assuming the price of the chair=$ 125New price after discount=100-30100$ 125=$ 87.5New price after the first discount=100-20100$ 87.5=$ 70Percentage of new price on original price of the chair=$ 70$ 125100=56%The salesperson is not correct to say the chair is 50% off.

% reduction from regular price =100%-56%=44%True percentage reduction from the regular price = 44%

Down payment=10100$ 250,000Down payment=$ 25,000

Monthly Mortgage Payment

M=PR1-1+R-NM=Monthly paymentP=principal=$ 250,000-$ 25,000=$ 225,000R=interest rate12R=0.05512N=12 multiply by number of yearsN=1230=360M=$ 225,0000.055121-1+0.05512-360M=$ 1,277.525253Monthly payment= $ 1,277.53

The total interest paid over 30 years.

Total payment=number of year 12Monthly paymentTotal payment=3012$ 1,277.525253Total payment=$ 459,909.0911Total interest=total payment-principalTotal interest=$ 459,909.0911-$ 225,000Total interest=$ 234,909.09Conclusion

The interest earned by Warren is $ 3858.70 and the total amount of money in his account after 9 years is $ 8,358.70 The discount for the chair is 44 percent of the original price. The interest earned on the mortgage is $ 234,909.09, the monthly payment for the mortgage is $ 1,277.53. From mortgage calculation, it can be concluded that the mortgage is expensive since the interest paid is almost the same as the principal amount of the mortgage.

References

Accounting for sales discounts. (n.d.). Retrieved January 31, 2018, from https://www.accountingtools.com/articles/what-is-the-accounting-for-sales-discounts.html.

Berger, C. J. (1981). Simple Interest and Complex Taxes. Columbia Law Review, 81(2), 217-260.

Campa, J. M., & Kedia, S. (2002). Explaining the diversification discount. The journal of finance, 57(4), 1731-1762.

Quigley, J. M. (1987). Interest rate variations, mortgage prepayments and household mobility. The Review of Economics and Statistics, 636-643.