rough notes on interest rates, loans, etc

If you teach math, perhaps your students ask this: When will I ever need this in "real life?"*
We have been studying exponential growth and decay, and I was just waiting for this question. The past few days we have looked at car depreciation and why that is a big deal in "real life," but I wanted to take it up a notch.

Here are the rough notes for a project I am going to do with my advanced math students. I worked with my brother who is in the financial industry to help me design it. I still don't know how I am going to have the kids present what they learned to me. Perhaps I will do interviews, have them make a recording, or write a paper.

Project:

You need to take enough notes so that you'll be able to tell me what you learned. Take notes, screen shots, etc. so that you can reference them.

Read http://www.bankrate.com/finance/auto/the-price-of-long-auto-loans.aspx. What does it mean to be "upside down" in a loan?

Find a new car and use http://www.money-zine.com/Calculators/Auto-Loan-Calculators/Car-Depreciation-Calculator/ to figure out what value of car will be in 2 years. (I think we underestimated using 15% in class.) [Remember that you put in 0 for current age.]

Go to loan amortization sheet.
http://financialsoft.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=financialsoft&cdn=compute&tm=32&f=10&su=p284.9.336.ip_p504.1.336.ip_&tt=11&bt=1&bts=1&zu=http%3A//www.mdmproofing.com/iym/products/loan-amortization/
Use 5.25% as the APR and 1/1/12 as the start date.
Compare total payment of loans for 3, 4, 5, 6, and 7 years. What happens to the total amount you have to pay? Why?


Compare your car value at 2 years to each of these loan values. What do you notice?

Read http://www.lendingtree.com/auto-loans/advice/buying-a-new-car/how-much-to-put-down-on-a-car/.
Now go back to the loan amortization sheet and put $5,000 down in the first payment. Now what do you notice? According to this article, can you be "upside down" in a loan even if you take out a 3-year loan?

Reflection questions
Why do most financial experts advise consumers to take car loans of 4 years or less?
Why do people take out loans for longer than 5 years and what can happen?
About what % of a car's value should you put down and why?
At my first job, I brought home approximately $23,000. Suppose my typical month of bills was $900, what advice would you give me if I wanted to buy a new car?










*I do acknowledge this is a valid and important question. I just wanted to set the tone of the blog. :)