Applied 40S May 6, 2009

17
Personal Finance Money grew on trees Late Payment Reminder by flickr user wsssst or managing your money

description

Introduction to Personal Finance: Compound interest and working with the TVM Solver.

Transcript of Applied 40S May 6, 2009

Page 1: Applied 40S May 6, 2009

Personal Finance

Money grew on trees Late Payment Reminder by flickr user wsssst

or managing your money

Page 2: Applied 40S May 6, 2009

A = AMOUNT of money at the end of the termP = PRINCIPLE amount, the amount originally invested or borrowedr = RATE of interest as a decimal numbern = NUMBER of times the principle is compounded per yeart = TIME in years

Time Principle Rate Interest Balance

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You invest $4500.00 at 5.75% interest compounded monthly. How much money will you have at the end of three years?

A = AMOUNT of money at the end of the termP = PRINCIPLE amount, the amount originally invested or borrowedr = RATE of interest as a decimal numbern = NUMBER of times the principle is compounded per yeart = TIME in years

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Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

You invest $4500.00 at 5.75% interest compounded monthly. How much money will you have at the end of three years?

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Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

Annual Interest rate as a percent

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

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Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

Annual Interest rate as a percent Present Value

of the account

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

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Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

Annual Interest rate as a percent Present Value

of the accountPayMenTs made to the account Future Value

of the account

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

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Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

Annual Interest rate as a percent Present Value

of the accountPayMenTs made to the account Future Value

of the accountNumber of Payments made per Year Number of Compounding

periods per Year

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

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PMT: Depends on when payments are made each compounding period, we usually use END

Using the TVM (Time Value Money) Solver ...

Total Number of payments to the account (#years in account)(#times payments/year)

Annual Interest rate as a percent Present Value

of the accountPayMenTs made to the account Future Value

of the accountNumber of Payments made per Year Number of Compounding

periods per Year

N=36I%=5.75PV=-4500PMT=0FV=5345.02P/Y=12C/Y=12PMT: END BEGIN

[ALPHA] [SOLVE]

You invest $4500.00 at 5.75% interest compounded monthly. How much money will you have at the end of three years?

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What's the difference?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

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Solve for N (the number of payments) ...

To buy a new car you must take out a loan of $10 593.30. You can afford a payment of $238 per month. The dealership offers you an annual interest rate of 3.75% compounded monthly. How many payments must you make?

How much interest have you paid?N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

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Solve for I (the rate of interest) ...A certain university program will cost $20 000. What annual interest rate, compounded monthly, must you obtain if you can save $288.50 per month for the next five years and hope to have all the money saved by that time?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

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Solve for PV (the value now) ...

You plan to buy a car. You can make monthly payments of $525 and the interest rate advertised for car loans is 6.25%, compounded monthly. If the dealership is offering you financing for two years how much car can you afford?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

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Solve for FV (the future value) ...

You decide to invest $6500. The bank offers an interest rate of 8.25% compounded annually. What will your money be worth in 7 years if the interest rate remains unchanged?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

HOMEWORK

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Watching Money Grow ...

Calculate the final balance if $7500 were invested at 8% per year, compounded semi-annually for 6 years.

How long will it take $12 000 invested at 7.2% per year, compounded quarterly, to grow to $15 000?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

HOMEWORK

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Investing Regularly ...Calculate the final balance if $1500 were invested at 8% per year, compounded semi-annually, with additional investments of $1 000 at the end of every six months for five years.

How long will it take to save $35 000, if $2 500 were invested at 7.2% per year, compounded quarterly, followed by an additional $400 at the end of each 3-month period?

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN

HOMEWORK