LSP 120LoansSlide 3Slide 4Slide 5Credit CardsSlide 7InvestmentsSlide 9Slide 10LSP 120Financial MattersLoansWhen you take out a loan (borrow money), you agree to repay the loan over a given period and often at a fixed interest rateMany lending institutions also require some form of collateral (for example, if you take out a car loan, the car is the collateral)LoansIf you borrow X amount of money at Y interest rate, to be paid back over Z months, how much is the monthly payment?Use the Excel function PMTRate is yearly interest rate divided by 12Nper is the number of monthsPv is the amount borrowedLoansHow much interest (or finance charges) do you end up paying over the life of the loan?Take your monthly payment, multiply by number of months, subtract original loan amountLoansLet’s buy a condo or a house!Credit CardsA very dangerous form of loanInterest rates (finance charges) are often very high and are usually not “simple interest” but some complex algorithm that calculates an “average daily balance”Even worse, most credit cards offer a minimum monthly payment and substantial late feesCredit CardsBest Rule: Don’t use the credit card unless you can pay it off each monthDon’t carry too many credit cardsDon’t use your credit card to get cashDon’t make a late paymentPay more than the minimum paymentUse a debit card insteadInvestmentsIf you save money in an account, they usually pay you interest (based on some interest rate)The amount in your account is multiplied by the interest rate and added to your accountInvestmentsWe have already seen this is exponential growth. In banking, it is called compoundingRecall the basic formula is A + r*A, where A is the current amount and r is the interest rate, or growth rateInvestmentsWhat if we open a savings account and some money each month?Set up a spreadsheet:Month BegBal Int Addl EndBal 1 1000 .04/12 50 sumLet’s now tackle our last set of
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