Overall, what impact on the present value does each variable have? REFLECTION: Of all the variables, which seems to have the greatest effect on lowering the present value of Ronnie’s investment? Explain your reasoning. EXTENSION: Prepare a short presentation of your findings for one of the following scenarios to share with the class. Sarah wants to save for a car. She has $4,250 in a savings account earning 1.49% compounded quarterly. If Sarah has four years until she gets her driver’s license, will she have enough to buy a car? If not, what do you recommend that she do to reach her goal? Find the median of a home in your area and the current annual rate of growth for home values. If you buy a home at the median price and expect it to increase in value at the current growth rate, what will the future value of your home be in 30 years? Would you buy the house knowing that the interest rate on the mortgage (that is, the loan needed to buy the house) is 6% and you must invest an additional 2% of the home’s value in upkeep per year? Why or why not? Students often take out large loans to go to college. Currently, these loans have a payoff time of 25 years at an interest rate of about 7.5% compounded monthly. Suppose the remaining principal of Dexter’s student loans is $33,760 and the remaining payoff time is 15 years at the 7.5% rate. Dexter recently inherited $40,000 and wants to know if he should pay off his student loans or invest the money. What do you recommend? Why? The state lottery offers to pay winnings in 25 annual payments or one lump sum, sometimes called a cash-out option. This week’s lottery has a jackpot of $30 million and a cash-out value of $18.2 million. Granted that the odds are highly unlikely one would win, which option should a winner take—annual payments or a lump sum? Why? Pick an expensive item you want to buy within the next five years. Using current interest rates, find out how much you would have to save today. List the possible roadblocks to reaching the goal.
Overall, what impact on the present value does each variable have? REFLECTION: Of all the variables, which seems to have the greatest effect on lowering the present value of Ronnie’s investment? Explain your reasoning. EXTENSION: Prepare a short presentation of your findings for one of the following scenarios to share with the class. Sarah wants to save for a car. She has $4,250 in a savings account earning 1.49% compounded quarterly. If Sarah has four years until she gets her driver’s license, will she have enough to buy a car? If not, what do you recommend that she do to reach her goal? Find the median of a home in your area and the current annual rate of growth for home values. If you buy a home at the median price and expect it to increase in value at the current growth rate, what will the future value of your home be in 30 years? Would you buy the house knowing that the interest rate on the mortgage (that is, the loan needed to buy the house) is 6% and you must invest an additional 2% of the home’s value in upkeep per year? Why or why not? Students often take out large loans to go to college. Currently, these loans have a payoff time of 25 years at an interest rate of about 7.5% compounded monthly. Suppose the remaining principal of Dexter’s student loans is $33,760 and the remaining payoff time is 15 years at the 7.5% rate. Dexter recently inherited $40,000 and wants to know if he should pay off his student loans or invest the money. What do you recommend? Why? The state lottery offers to pay winnings in 25 annual payments or one lump sum, sometimes called a cash-out option. This week’s lottery has a jackpot of $30 million and a cash-out value of $18.2 million. Granted that the odds are highly unlikely one would win, which option should a winner take—annual payments or a lump sum? Why? Pick an expensive item you want to buy within the next five years. Using current interest rates, find out how much you would have to save today. List the possible roadblocks to reaching the goal.
AMDM%20SAS%20VI.B.5.docx