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Integrate relevant sources to support assertions, correctly formatting citations and references using APA style. 2022 latest answers

Did you use 3–5 sources?

Are they cited in APA format throughout the plan?

Have you included an attached reference list?

1 Charging 5% on £10,000 at the end of the year would mean an

interest charge of £500 (0.05×£10,000).

2 Although the same initial sum of £10,000 is borrowed, total interest

on the reducing-balance loan is lower (£266.79) than interest on the

loan in Question 1 (£500). This is because, in Question 1, £10,000

is borrowed for the full year: in other words, the average amount

owed during the year is always £10,000. By contrast, with the

reducing-balance loan, part of the principal is being paid back each

month. This means only £852.09 of the loan (the amount

outstanding at the start of month 12) is borrowed for the whole

year: £1700.73 of the loan is borrowed for 11 months; £2545.93

for 10 months, and so on. The full £10,000 is borrowed only for

one month. Taking the year as a whole, the average amount owed is

around £5400 (the amount outstanding halfway through the year,

between months 6 and 7). Since the average sum borrowed is lower,

the total interest charged is also lower.

1 Mark pays 10% × £10,000 = £1000 interest each year. This is a

nominal value – it’s the cash sum he pays each year.

2 If prices have risen by 63% over the last ten years, the real value of

the interest payments today is lower. One way of thinking about

this is that ten years ago, Mark had to give up £1000 of goods and

services in order to pay the interest on this loan, which was 5% of

his pay (£1000/£20,000). Today, he has to give up fewer goods

and services in order to pay the interest: only 3% of his pay

(£1000/£33,000).

3 You can use the simplifified formula in Section 5.2 of this chapter to

work out that the annual interest rate is 10% − 5% = 5% a year.

Interest is adding 10% a year to the cost of the loan, but in real

terms, inflflation is reducing the cost by 5% a year.