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Question #1
If you owe $12,000 on a loan and you pay $1,020 interest, your interest rate is?
a. .85%
b. .085%
c. 8.5%
d. 13%
Can you figure this out on your own?
Remember: You must divide the interest by the amount of the loan to get the correct answer. If you use the % key in your calculator for this problem, and almost every problem, you will not have to convert from decimals to percentages.
For example, $1,020 divided by $12,000 and hit your % key. You will get the answer to the problem. (BTW, some calculators you also have to hit the = key after the % key.)
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Question #1 Solution
If you owe $12,000 on a loan and you pay $1,020 interest, your interest rate is?
a. .85%
b. .085%
c. 8.5%
d. 13%
Correct Answer: C Divide the interest by the amount of the loan. $1,020 divided by $12,000 (Use your % key) = 8.5% interest rate.
Remember: You must divide the interest by the amount of the loan to get the correct answer. If you use the % key in your calculator for this problem, and almost every problem, you will not have to convert from decimals to percentages.
For example, $1,020 divided by $12,000 and hit your % key. You will get the answer to the problem. (BTW, some calculators you also have to hit the = key after the % key.)
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Question #2
If the interest on a loan at 9% for 8 months was $5,400, then wh at was the amount of the loan?
In this type of problem you must first establish how much the interest is a year. Then divide that amount by the interest rate to find the loan amount.
a. $67,500 b. $72,900 c. $81,000 d. $90,000
Solve this on your own before proceeding to the next page.
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Question #2 Solution
If the interest on a loan at 9% for 8 months was $5,400, then what was the amount of the loan?
In this type of problem you must first establish how much the interest is a year. Then divide that amount by the interest rate to find the loan amount.
a. $67,500 b. $72,900 c. $81,000 d. $90,000
Correct Answer: D Establish the amount of interest paid a year first.
• Step 1 $5,400 ÷ 8 months $675 a month × 12 = $8,100 a year.
• Step 2 $8,100 ÷ 9% = $90,000 loan amount.
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Question #3
The interest on Elvis' loan was $675 per month at an interest rate of 10 .5%. If the loan amount was 80%
of the value of the home, how much is Graceland worth?
a. $ 77,143 b. $ 96,429 c. $ 110,642 d. $ 115,839
Can you solve this problem without peeking ahead to the next page? Go ahead; give it a try!
Remember: You must first establish the annual interest and then divide by the interest rate. Watch out for the detractor in this question! The question is asking you for the total value, not just the loan amount; so be sure to finish the problem!
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Question #3 Solution
The interest on Elvis' loan was $675 per month at an interest rate of 10 .5%. If the loan amount was 80%
of the value of the home, how much is Graceland worth?
a. $ 77,143 b. $ 96,429 c. $ 110,642 d. $ 115,839
Correct Answer: B Again establish the annual interest first.
• Step 1 $675 month × 12 = $8,100 interest a year.
• Step 2 $8,100 divided by 10.5% = $77,142.86 loan amount.
• Step 3 $77,142.86 divided by 80% = $96,428.57 or $96,429 value of Graceland.
llowing page for our fourth sample question.
Remember: You must first establish the annual interest and then divide by the interest rate. Watch out for the detractor in this question! The question is asking you for the total value, not just the loan amount; so be sure to finish the problem!
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Question #4
A purchaser financed a property with a five-year straight note (which means interest only) at 7% interest.
She has paid $17,836 of interest over the last two years. The property was financed a t 70% of its market value. What was the market value of the property?
a. $112,000 b. $127,400 c. $182,000 d. $128,000
Remember: All loans are figured with annual (one year) interest, so first find out how much interest was paid per year. Then divide by the interest rate to find the original loan amount. But be careful again because you must take the extra step to find the market value of the property.
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Question #4 Solution
A purchaser financed a property with a five-year straight note (which means interest only) at 7% interest.
She has paid $17,836 of interest over the last two years. The property was financed at 70% of its market value. What was the market value of the property?
a. $112,000 b. $127,400 c. $182,000 d. $128,000
Correct Answer: C Remember that a straight loan is an interest only loan wherein the principal is paid at the end as a balloon payment.
• Step 1 Interest must always be figured on an annual basis; so you must take the interest given in this problem for two years and divide by two. ($17,836 divided by 2 = $8,918 interest a year)
• Step 2 Divide the annual interest by the interest rate. ($8,918 divided by 7% = $127,400 which is the loan amount)
• Step 3 Divide the loan amount by the % difference given between the loan and the market value.
$127,400 divided by 70% = $182,000 market value.
On the next page, we will read the fifth sample problem in this set.
Remember: All loans are figured with annual (one year) interest, so first find out how much interest was paid per year. Then divide by the interest rate to find the original loan amount. But be careful again because you must take the extra step to find the market value of the property.
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Question #5
A seller was paying $562 a month interest on a $125,000 straight loan. What was his interest rate?
Don't forget to find the annual interest first and then divide it by the amount of the straight (interest only) loan to find the interest rate. (You could use the % key in the calculator here.)
a. 4.2%
b. 5.4%
c. 6.1%
d. 8.0%
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Question #5 Solution
A seller was paying $562 a month interest on a $125,000 straight loan. What was his interest rate?
Don't forget to find the annual interest first and then divide it by the amount of the straight (interest only) loan to find the interest rate. (You could use the % key in the calculator here.)
a. 4.2%
b. 5.4%
c. 6.1%
d. 8.0%
Correct Answer: B
• Step 1 Determine the annual interest paid. ($562 interest a month × 12 = $6,744 interest a year)
• Step 2 Place the $6,744 on the top of a T, and divide by the amount of the straight loan.
($6,744 ÷ $125,000 = 5.4%)
BTW, it you use your % key when dividing the interest by the loan amount, you will get the answer of 5.4%
without having to change a decimal to a %.
sixth sample problem in this set.
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Question #6
How would the seller's loan payoff appear on the settlement statement?
You shouldn't have a problem with this one! But what if it said the buyer was assuming the seller's loan and how would that appear on a full settlement statement? Answer: Debit the seller and credit the buyer.
a. As a credit to the seller b. As a debit to the seller
c. As a credit to the seller and a debit to the buyer d. As a debit to the buyer
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Question #6 Solution
How would the seller's loan payoff appear on the settlement statement?
You shouldn't have a problem with this one! But what if it said the buyer was assuming the seller's loan and how would that appear on a full settlement statement? Answer: Debit the seller and credit the buyer.
a. As a credit to the seller b. As a debit to the seller
c. As a credit to the seller and a debit to the buyer d. As a debit to the buyer
Correct Answer B Debit the seller. If the loan is assumed than the same amount is also a credit to the buyer.
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Question #7
Rich and Merle purchase a property for $275,000. They obtain a new 75% loan from the ABC Lending Company. How much was their loan and how would it appear on their settlement statement?
a. $206,250 - Credit the buyer.
b. $206,250 - Debit the buyer.
c. $206,250 - Debit the buyer and credit the seller.
d. $206,250 - Credit the buyer and debit the seller.
Can you solve this before seeing our answer? Give it a try, and then move on to read the next page.
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Question #7 Solution
Rich and Merle purchase a property for $275,000. They obtain a new 75% loan from the ABC Lending Company. How much was their loan and how would it appear on their settlement statement?
a. $206,250 - Credit the buyer.
b. $206,250 - Debit the buyer.
c. $206,250 - Debit the buyer and credit the seller.
d. $206,250 - Credit the buyer and debit the seller.
Correct Answer: A Using a T formula, the sale price goes on the left side, and the 75% on the right side.
Side by side, remember that you must multiply; $275,000 × 75% = $206,250 loan amount which is a credit to the buyer because the lender is bringing that money to the closing table for the buyer to pay off over the term of the loan.
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