02-14-2011 PowerPoints

02-14-2011 PowerPoints - Important Course Activities...

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1 Complete Personal Finance Guidebook (pages 77 pages 77-102) 102) The Four Pillars of Investing Important Course Activities Chapter 2 Draft of Spending Plan February 16, 2011 Quiz: February 21, 2011 Mean and Median Mean = Average Median: is the number in the middle Ex. 1, 4, 5, 8, 50 Median = 5 Ex. 1, 4, 5, 8, 50, 51 Median = (5+8)/2 = 6.5 Compounding Equations 1 100 n r FA IA ⎛⎞ =+ ⎜⎟ ⎝⎠ 1 100 n FA IA r = + 1 1 n r IA ⎡⎤ ⎢⎥ =− ⎣⎦ log log 1 IA n r = + Future Value Formula FA = IA(1+r) n

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2 Problem 1 FA = 5000(1+.14) 10 =\$18,536 Future Value Formula Solving for r (interest rate) r = 100(FA/IA) 1/n -1) 1) Problem 2 r = 100((10,000/5,000) 1/10 -1)) 1)) = 7.17% Remember the rule of 72? The rule of 72 is the time it takes for your money to double.
3 Future Value Formula Solving for IA (Initial Amount) IA = FA / (1+r) n Problem 3 IA = 5,000 / (1+.04) 4 = \$4,274 Final Amount - Ordinary Annuity FA = PPMT {[(1+r) n – 1] /r} FA = Final Amount PPMT = Periodic Payment Amount r = Interest rate (decimal) n = Number of periods (usually years) Problem 4 a. 2,000/45,000 = 4.44% b. 2,000((1 +.10) 20 – 1)/.10) = \$114,550 19 c. 2,000((1 +.10) – 1)/.10) = \$102,318 d. 2,000((1 +.10) 18 – 1)/.10) = \$91,198 \$308,066

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02-14-2011 PowerPoints - Important Course Activities...

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