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Borrowing VS Saving
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Borrowing Money VS Saving

Video Link on Borrowing Money

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

  1. Starting Your SpreadSheet
  1. Lay out your Column and Row Headings
  2. Enter the Information you know
  3. Loan Amount = $3500
  4. Time = 6
  5. Interest = 9.9%
  1. Convert the time and Interest into Months
  1. =Time * 12
  2. =% / 12
  1. Search for the Payment function
  2. Calculate the total amount you have paid for your loan (PMT * # or Payments)
  3. 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.

  1. Calculate how long it will take you to save for your $3,500 car by saving your payment?
  2. This time your PV or Present Value is going to be 0 and you FV or Future Value will be $3500 
  1. Why? You have no money in the bank Present Value.
  2. You would like to save $3,500 for a purchase in the future.

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