Borrowing Money VS Saving
You have found the car of your dreams. 94 Chevy S-10 Pick up!
The price is $3,500.
You have no money but the bank will be happy to give you a loan for 6 years at 9.9% interest.
How much is your payment (PMT function)?
When the loan is over how much money will you have given the bank?
How much did you pay in interest?
Create a Spreadsheet to answer the questions
- Starting Your SpreadSheet
- Lay out your Column and Row Headings
- Enter the Information you know
- Loan Amount = $3500
- Time = 6
- Interest = 9.9%
- Convert the time and Interest into Months
- =Time * 12
- =% / 12
- Search for the Payment function
- Calculate the total amount you have paid for your loan (PMT * # or Payments)
- Calculate your interest paid
Part 2:
Video with Audio - How Does Compound Interest
Now lets say instead of getting a loan for your car. You save your monthly payment in CP Federal’s Auto savings account. (1.24%)You are not going to get rich off the interest but you will get rich by not paying to borrow money.
- Calculate how long it will take you to save for your $3,500 car by saving your payment?
- This time your PV or Present Value is going to be 0 and you FV or Future Value will be $3500
- Why? You have no money in the bank Present Value.
- You would like to save $3,500 for a purchase in the future.
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