Final answer:
The question involves Mathematics, specifically installment prices, down payments, and interest rates related to major purchases like homes and autos, crucial for making informed financial decisions. Calculating monthly payments, understanding the implications of payments covering only interest, and differentiating between bonds and bank loans are some of the key concepts included.
Step-by-step explanation:
Understanding Installment Prices, Down Payments, and Interest Rates
When considering major purchases such as a house or a car, understanding the principles of loans and interest is crucial. For example, if someone purchases a $200,000 house with a 10% down payment, they are initially putting down $20,000 and borrowing the remaining $180,000. To determine the monthly payment of a $1,000,000 house loan over 30 years with a nominal interest rate of 6% convertible monthly, one would use the loan amortization formula, which takes into account the principal, interest rate, and loan period.
An important aspect is also knowing what you can afford to pay monthly. For instance, trying to pay off a $20,000 car loan with a 6% annual interest rate in monthly installments of $500 would result in a certain payoff time. However, with monthly installments of $100, the payment would only cover the interest, and the debt would never decrease.
From a firm's perspective, a bond and a bank loan are both ways to raise capital. The main difference lies in that bonds are securities that can be traded, while bank loans are typically held and paid back directly to the lender.
Equity calculation is straightforward. For example, if Eva buys a house worth $200,000 with a 10% down payment, her initial equity is the down payment amount, which is $20,000. As she pays off the mortgage, her equity increases.
Finally, practicing with a simple interest formula can be illustrative. If you deposit $100 at a simple interest rate of 5% for one year, the interest earned would be $5.