or fade away Watching It Grow ... Foreign Currency and Coins by flickr user bradipo
or fade away
Watching It Grow ...
Foreign Currency and Coins by flickr user bradipo
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
48
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
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?
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?
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?
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
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
Investing Frequently ...A financial institution offers an annual interest rate of 6%, compounded monthly.Compare $1200 invested at the end of each year to $100 invested at the end of each month.
Option 1: $1200/year Option 2: $100/month
Here's a handy way to figure out how long your investment will take to double in value. It is called the Rule of 72.
(Interest Rate %) x (Years to Double) = 72
To find the number of years given a percentage:
To find the percentage required to double given the years:
The Rule of 72
Years = 72(Interest Rate %)
Rate = 72Years
Numbers 72 by flickr user szczel
Scenario 2: You are shopping for an investment that will double in 6 years. What interest rate are you looking for?
Scenario 1: You have an investment that compounds annually at 7%. How long will it take to double?
Use the Rule of 72 to estimate the doubling time for these interest rates:
(a) 4% per annum, compounded annually
(b) 8% per annum, compounded annually
(c) 24% per annum, compounded annually
Use the TVM solver in your calculator to calculate the the compound amount of a $100 investment for the doubling times estimated above.
How accurate does the Rule of 72 seem to be?
N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN
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
Shaina wishes to invest $2000 given by her grandfather. She has an option of a guaranteed investment certificate earning 8.75%, compounded quarterly, or a savings bond of 9%, compounded semi-annually.
Which investment should she choose?
If each investment term is 5 years, what will be the difference in their values at the end of the term?
HOMEWORK
Suppose an uncle has left you $100 000 to invest, on condition that you give one-half of all interest earned to the SPCA. You decide to invest it in a savings account that pays 5% interest compounded quarterly. How much will you have given to the animal shelter after:
one month? 3 months?N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN
N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN
N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN
N=I%=PV=PMT=FV=P/Y=C/Y=PMT: END BEGIN
10 years?2 months?
HOMEWORK