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Objectives
A. Understand the importance compound interest and time B. Pass an un-graded assessment test
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Answer #2
Growth Strategies for Investments
Payments are at the beginning of the Year Years to 0% Interest 8% Interest 8% Interest Year # Invest on Principal on Prin & Interest 1 40 2,000 8,400 $43,449 2 39 2,000 8,240 $40,231 3 38 2,000 8,080 $37,251 4 37 2,000 7,920 $34,491 5 36 2,000 7,760 $31,936 6 35 2,000 7,600 $29,571 7 34 2,000 7,440 $27,380 8 33 2,000 7,280 $25,352 9 32 2,000 7,120 $23,474 10 31 2,000 6,960 $21,735 11 30 2,000 6,800 $20,125 12 29 2,000 6,640 $18,635 13 28 2,000 6,480 $17,254 14 27 2,000 6,320 $15,976 15 26 2,000 6,160 $14,793 16 25 2,000 6,000 $13,697 17 24 2,000 5,840 $12,682 18 23 2,000 5,680 $11,743 19 22 2,000 5,520 $10,873 20 21 2,000 5,360 $10,068
Answer #2 (continued)
21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 $80,000 5,200 5,040 4,880 4,720 4,560 4,400 4,240 4,080 3,920 3,760 3,600 3,440 3,280 3,120 2,960 2,800 2,640 2,480 2,320 2,160 $211,200 $9,322 $8,631 $7,992 $7,400 $6,852 $6,344 $5,874 $5,439 $5,036 $4,663 $4,318 $3,998 $3,702 $3,428 $3,174 $2,939 $2,721 $2,519 $2,333 $2,160 $559,562 $348,362
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4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 $63,750
$165,350
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Bob will have $83,096 more than Bill Begin Investing Now!!
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(continued)
While some have argued that it is OK to subtract inflation () from your nominal return (rnom), this overstates your real return (rreal).
The linking formula is: (1+rreal) * (1+) = (1 + rnom) Multiplied out and simplified: rreal+ + [rreal ] = rnom Assuming the cross term [rreal ] is small, the formula condenses to: rreal+ = rnom or the Fisher Equation
The correct method is to divide both sides by (1+) and subtract 1 to give: rreal = [(1 + rnom)/ (1+)] - 1
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Return
12.0% 11.9% 11.8% 11.7%
Compounding
annually semi-annually quarterly daily
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Minimum payments are not to be nice, but to keep you paying them interest for as long as they can!
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Assessment Review
How did you do?
If you missed any problems, go back and understand why you missed them. This foundation is critical for the remainder of the work we will be doing in class.
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Review of Objectives
A. Do you understand the importance compound interest and time? B. Did you pass the un-graded assessment test?
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