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LSP 120LoansSlide 3Slide 4Slide 5Credit CardsSlide 7InvestmentsSlide 9Slide 10LSP 120Financial MattersLoansWhen you take out a loan (borrow money), you agree to repay the loan over a given period and often at a fixed interest rateMany lending institutions also require some form of collateral (for example, if you take out a car loan, the car is the collateral)LoansIf 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 PMTRate is yearly interest rate divided by 12Nper is the number of monthsPv is the amount borrowedLoansHow 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 amountLoansLet’s buy a condo or a house!Credit CardsA very dangerous form of loanInterest 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 CardsBest Rule: Don’t use the credit card unless you can pay it off each monthDon’t carry too many credit cardsDon’t use your credit card to get cashDon’t make a late paymentPay more than the minimum paymentUse a debit card insteadInvestmentsIf 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 accountInvestmentsWe have already seen this is exponential growth. In banking, it is called compoundingRecall the basic formula is A + r*A, where A is the current amount and r is the interest rate, or growth rateInvestmentsWhat 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 sumLet’s now tackle our last set of


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DePaul LSP 120 - Financial Matters

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