12/12/22, 10:19 AM 10.

2 Banking and Loans: Connect and Reflect

10.2 BANKING AND LOANS

Connect and Reflect

Show 10.2 Roadmap

10.2 Banking and Loans

Minds On

Explore and Analyze 1

Explore and Analyze 2

Example

Connect and Reflect

Key Ideas
When you borrow money, you will likely have to pay interest
for the privilege of borrowing.

The total amount that you have to pay for a loan will likely be
greater than the amount you borrowed.

There are a number of variables (parameters) for a loan, such

as the amount of the loan (principal), the length of the loan
(term), the interest rate, and the monthly payment. You
studied the effects of these variables. Two other variables, the
compounding frequency and payment frequency, also affect
the loan, but you did not study the effects of these variables.
You may or may not have any control over the value of each
of the variables.

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

Practice
1. Jelena borrows $10 000. They will pay off the loan with a monthly
payment of $202.76 over 5 years.

a. What is the total amount that Jelena must repay over the length
of the loan?

b. How much interest will they pay?

2. A new car has an after-tax cost of $34 509. The dealership is offering
0% interest for 6 years.

a. Why can you use your calculator to determine the monthly

payment instead of using a loan calculator?

b. Calculate the monthly payment. Round to the nearest cent.

c. Represent the loan amount remaining to pay each month using

a table or graph. You may use a spreadsheet program or
Desmos.

Get hint

Because the payment is rounded, the final payment

needs to be $479.41 rather than $479.29. You will see
this if you create a table, but it will be harder to see on
the graph.

3. State whether each change would make your monthly payment go

up or down. Explain why.

a. Your bank changes the interest rate on your loan from 10% to
9%.

b. Before borrowing, you pay $500 cash toward your purchase.

c. You choose a 3-year loan over a 4-year loan.

4. The payments for a loan are made monthly over 3 years. The
payment amount is $45.83.

a. Predict. If the loan term is changed from 3 years to 2 years, will

the monthly payment increase or decrease? Why?

b. The graph shows the amount remaining to pay on the loan over
time. Predict—do not manipulate the graph. How would the

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

graph change if the loan term changed to 2 years?

Get hint

The initial amount remaining to be paid does not

change.

Notice that the graph shows the number of months, not

years.

     
1

 y = 1 650 − px 

2 

 p = 45.83

 45.83 75

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powered by
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c. On the graph, the slider for p represents the amount of the
monthly payment. Use the slider. Approximately how much
would the monthly payment, p, be for a 2-year term?

Apply
5. After graduating from her postsecondary studies, Sofia has $40 000
in student loans.

student loan: A loan that is offered to students by the

government for postsecondary studies. This loan accumulates
no interest and requires no payments until several months
after the student has graduated.

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

a. For a 7-year loan at 6% interest compounded monthly, her

monthly payment is $584.34. Use a loan calculator to confirm
the amount of the monthly payment.

Monthly Payment Calculator

Loan Amount $ 40000

Interest Rate 0 %

Loan Term 0 years

0 months

Compound Monthly

Monthly payment $

Calculate Clear

b. How much interest will Sofia pay over the length of the loan?

c. On average, how much does Sofia pay in interest each month?

Round to the nearest cent.

6. An electronics store is selling a computer for $799 + HST. The store

offers two payment options. The first option is $79 each month for
the next 12 months. The second option is $49 per month for 2 years.

a. Calculate the price of the computer, including taxes.

b. Calculate the total amount repaid for each option.

c. How much more interest is paid with the 2-year option?

d. Why do you think someone would choose the 2-year option?

7. A washer and dryer combo costs $2950. Kalev's bank offers him a
loan with a 3-year repayment at 8% annual interest, with interest
compounded monthly.

a. Use a loan calculator to determine the monthly payment.

Monthly Payment Calculator

Loan Amount $0

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

Interest Rate 0 %

Loan Term 0 years

0 months

Compound Monthly

Monthly payment $

Calculate Clear

b. Suppose Kalev could afford a greater monthly payment and that

he wants to repay less overall. Which variable would you
suggest he change?

8. Rhea needs to purchase a new computer before starting a

postsecondary software engineering program. The computer, with
tax, costs $2032.87. The store offers a payment plan of $99 each
month for the next 2 years. How much more will Rhea pay for the
computer if she accepts the payment plan?

9. A mortgage is a long-term loan, often 25 years or more, used to buy

a home.

a. Use a loan calculator to determine the monthly payment on a

$400 000 loan for 25 years with an interest rate of 3%,
compounded semi-annually.
Note that the compounding frequency is semi-annual, not
monthly.

Monthly Payment Calculator

Loan Amount $0

Interest Rate 0 %

Loan Term 0 years

0 months

Compound Semi-Annually

Monthly payment $

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

Calculate Clear

b. How much would be paid to the bank in the first year?

c. Change the interest rate from 3% to 4%. Recalculate the

monthly payment.

d. By how much did the monthly payment increase?

e. How much would now be paid to the bank in the first year?

Extend
10. Research a purchase between $500 and $10 000 that interests you,
such as a phone, a gaming console, a musical instrument, or a
vehicle.

a. What is the price of the purchase, including taxes?

b. Use a loan calculator. Use an 8% interest rate and a monthly

compounding frequency. Choose a term between 1 and 5 years.
What is the monthly payment?

Monthly Payment Calculator

Loan Amount $0

Interest Rate 0 %

Loan Term 0 years

0 months

Compound Monthly

Monthly payment $

Calculate Clear

c. How much interest will you pay over the length of the loan?

11. Research a model of vehicle that interests you. Research the price for
a new vehicle and research the price for a 5-year-old model of the
vehicle.

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12/12/22, 10:19 AM 10.2 Banking and Loans: Connect and Reflect

a. What is the price of the new vehicle, including taxes?

b. What is the price of the used vehicle, including taxes?

c. Approximately how much does this model of vehicle depreciate

over 5 years?

d. Suppose you choose to buy the used vehicle and that you get a
5-year loan at 8% interest compounded monthly. Use a loan
calculator to determine the monthly payment.

Monthly Payment Calculator

Loan Amount $0

Interest Rate 0 %

Loan Term 0 years

0 months

Compound Monthly

Monthly payment $

Calculate Clear

e. How much interest will you pay over the length of the loan?

12. State one financial advantage of buying a new vehicle and one
financial advantage of buying a used vehicle.

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