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For example, say you want to determine how many years it will take for you to accumulate $1,000,000 by saving $500 per month at 10% E. growth per annum.

P/Y = 12 I/Y= 10 PMT= -500 FV = 1000000 Solve N= 345.0922 MONTHS DIVIDE BY 12 =28.758 YEARS

If you stand to inherit $100,000 in 10 years, what is it worth now at a 10% discount rate? P/Y = 1 N = 10 I/Y= 10 FV=100000 Solve PV = 35174.82

1. You want to lease a new Taurus. The sticker is $20,000. Tax and title is $1250. The lease term is 3 years. The loan APR interest rate is 6%. The depreciation is 18% in year 1, 12% in year 2 and 10% in year 3. The cap cost reduction (increase in cost) is $500. CALCULATE LEASE PAYMENT

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SOLVE FOR PMT. PV = -16300 FV = 13735 N = 36 SOLVE FOR PMT = $170.81

6. You need retirement income of $2500 per month. You plan to retire at age 55. Your actuarial life expectancy is 85. HOW MUCH MONEY WILL YOU NEED AT AGE 55 TO FUND THIS RETIREMENT ANNUITY ASSUMING AN 8% INVESTMENT RETURN DURING RETIREMENT. SET END. P/Y = 12 I/Y = 8 PMT = $2500 N = 30 X 12 = 360 FV = 0 SOLVE FOR PV = -$344,236

7. How much will you need to save EACH MONTH in problem 6 above assuming an investment return BEFORE RETIREMENT from age 25 to age 55 (30 YEARS) ASSUMING A 10% INVESTMENT RETURN PRIOR TO RETIREMENT. SET END. P/Y = 12 N = 360 I/Y = 10 FV = $344,236 (do not enter this as negative) SOLVE FOR PMT = -$151.03

8. You have a child age 4. You need to save for college. The cost of college in a public university if $9000 per year in current dollars. Your estimated investment return is 8%. College costs are rising at 6%. CALCULATE.THE TOTAL COST OF A COLLEGE EDUCATION IN A PUBLIC UNIVERSITY FOR THIS CHILD BEGINNING AT AGE 18 FOR 4 YEARS. STEP ONE: Calculate annual cost in YEAR 14 AT 6% inflation. SET BGN:N=14 P/Y = 1 I/Y = 6 PV = -9000 SOLVE FOR FV. This is college cost in year 14. FV =20348.13 STEP TWO: Calculate annual cost of college (year 14-17) FRESHMAN YR 14 $20348.13 SOPHOMORE YR 15 $21569.02 (YR 1 x 1.06)

JUNIOR YR 16 $22863.17 (YR 2 x 1.06) SENIOR YR 17 $24234.96 (YR 3 x 1.06 TOTAL COST – 4 YEARS $89015.28

STEP THREE: Calculate how much you need to save each month to accumulate enough funds to meet total dollar need in step two. Use I/Y of 8%. P/Y = 12 N = 168 I/Y = 8 PV = 0 FV =$ 89015.28 SOLVE FOR PMT PMT = -$ 287.07 SAVINGS / MONTH --1 CHILD Save for 14 years (168 months) at assumed return of 8%

9. You want to buy a home costing $200,000. You plan to put 20% down. The loan cost includes 2 POINTS which ar added to principal at closing. The rate is 7.25% for a 30 year mortgage and 6.85% for a 15 year mortgage. CALCULATE PAYMENT FOR A 30 AND 15 YEAR LOAN.

HOME PRICE=$200,000 [COST = PRICE (1- DN PMT) + POINTS AND CLOSING COSTS] = MORTGAGE LOAN = $160,000 (this is an outflow)

DOWN PAYMENT = 20% POINTS = 2 = 2% 0F LOAN P/Y = 12 ( 1 Point is 1% of LOAN) 2 points = $3200.

PV = INITIAL MORTGAGE BALANCE: -$163,200 30 YEAR MORTGAGE N = 360 I/Y = 7.25%

15 YEAR MORTGAGE N = 180 I/Y = 6.85% SET BGN solve for PMT: 30 year $1106.62 15 year $1444.99 ($338.37 / mo more)

31% higher payment paid off 50% faster A simple strategy is to pay an additional $338 per month (applied to principal) when you can to amortize the loan.

10. YUPPIE MORTGAGE. Use the facts of the problem 9 above for a 30 year mortgage. Assume payments are made every 2 weeks (26 times per year – 52/2 = 26). Solve for N and divide by 26 to determine the years to pay off this “30 year” mortgage. PMT = 1106.62/2 OR $553.31 BI-WEEKLY

Set P/Y to 26 (52/2) Most people will not notice the difference...

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