Do not write on this paper, please.

Ch. 10 - Banking – Choosing Loan candidates and assessing risk. Do not write on this paper, please.
Interest is usually compounded annually. That means if you borrow 10,000 for 3 years at a 5% interest rate (.05), it is
this: P = principal, I= interest, t= time, or length, payback of loan
A. Interest Calculation 10,000 x .05 x 3 = $1,500 (or P x I x T)
So then to figure out how much they pay per month, it’s the amount borrowed (P)+ the interest (I) , divided by the # of
months for the loan.
B. Example: 10,000 (amount borrowed (principle) + 1,500 (interest) = $11,500/36 months = 319.44 per month. The
bank gives you 10,000, and next month you give the bank 319.44, and do that every month for 3 years. Youuse the
total interest calculated in A for the interest in this formula.
Your Assignment: Write the answers on your own paper. Do not write on this paper. You must show your work.
Your bank has Money to loan to customers. For each potential customer, calculate the total amount of interest (profit)
your bank would make from each. This is question A. Then calculate how much each customer would pay per month to
pay the loan back. This is question B. You must show your work on how you calculated the interest.
# 1 An 18 year-old college high school graduate wants to take out a student loan to go to Columbia University to study
biology. Her parents make a combined income of 85,000 a year, their rent is $2,000/month, and she needs a loan of
$160,000 a to obtain a 4 year degree., Interest Rate that the federal government sets for student loans is 6%. She gets
10 years to repay the loan. Will you lend it to her?
Loan amount = $160,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan _______________________________________________________________
#2 A 46 year-old car dealership owner wants to buy a 1953 Chevrolet Bel Air. It costs $33,000. His business is called
Murrieta Chevrolet, and it makes a profit of $108,000 each year. His costs of running the business are $65,000, and he
pays himself the rest of the money, $42,000 a year. He already has a mortgage for a house and he pays $3,000 each
month. Your bank decides that an interest rate for a car loan to him would be 4.3%. He gets 4 years to repay the loan.
Do you take the loan?
Loan amount = $33,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan ______________________________________________________________________
#3 A Native American Casino is 50 miles away from Los Angeles. It wants to borrow $800,000 for a parking lot and
outdoor plaza to be constructed. The Casino had profits of $150,000 for the first year it was open, but then for ten years
it had profits for only four of the years and losses for the other six. In total, the Casino has made $330,000 in total profits
over eleven years. Last year the casino lost $20,000. The parking lot will be used for busses to park that come from the
city. Your bank determines the loan to be set at 7.8% for 20 years. Do you make the loan?
Loan amount = $800,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan = ____________________________________________________________________
More on back. Turn paper over.
#4 A 25 year-old guy wants to fulfill his dream of opening a bowling alley. He comes to your bank saying that there are
no bowling alleys for 100 miles in every direction. He also wants there to be an arcade and a restaurant attached. He is
asking for a $300,000 loan. He recently graduated from Community College with an associate’s degree in businesses
management. He owns a 2002 Honda Accord, which is valued at $8,000, and he has a title to a boat, worth $32,000 that
he inherited from his father, who recently passed away. You determine that a loan for him would be for 10 years at 9%
interest. Do you make the loan?
Loan amount = $300,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan ______________________________________________________________________
#5 A newly-wed couple wants to buy a house in Perris.. The woman is 19 years old and the man is 25 years old. They
have one child who is 4 years old. The man has just graduated from CSU San Marcos with a degree in Electrical
Engineering. They decided to buy a house because he just was hired by a construction company at a salary of $60,000
per year. His wife works at her mom’s corner store and gets paid $20,000 per year. The house costs $230,000 and the
Federal Government sets mortgage rates at 4.3% for a 30 year loan. Her mom gives the couple $23,000 as down
payment for the house, so he only needs to borrow $207,000 Do you give him the loan?
Loan amount = $207,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan __________________________________________________________________
#6 A graduate student has just graduated from medical school and wants to apply for a 2-year program in neuroscience.
Her tuition at the school will cost 36,000 each year, but she earned a 10,000 per year scholarship for having such good
grades in medical school. The Federal government sets student loans at a rate of 6%. She gets 6 years to repay. Do you
make the loan?
Loan amount = $52,000 A. Interest earned on loan (profit for bank) __________________________
B. Monthly Payment for Loan _____________________________________________________________________
#7. Write down the numbers of the customers of who you will select to give loans to. Ex. 3,4, 6.
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