Personal Finance Concepts Unit 1 Ip
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Personal Finance Concepts Unit 1 Ip

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Organizing and Managing your Financial Resources

Organizing and Managing your Financial Resources

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Personal Finance Concepts Unit 1 Ip Personal Finance Concepts Unit 1 Ip Document Transcript

  • Running Head: ORGANIZING AND MANAGING YOUR FINANCIAL RESOURCES<br />Organizing and Managing your Financial Resources<br />Carla J. McCoy<br />Unit 1 Individual Project<br />American InterContinental University<br />October 6th, 2008<br />Lottery Jackpot<br />With Joe winning the lottery jackpot which will pay him $12,000 per year over a time period of ten years and with the market interest rates currently at 12%, the lottery has to invest $37,270.18 today to pay out this prize to Joe over the next ten years. The solution is simple in showing the work to solve this problem. First using Excel you take and put the 12% interest in cell A1. Then you go below that to cell A2 and type in the number of years which would be 10 in this case. You skip a cell and go down to cell A4 and type in $12000 but you need to make this a negative number because the lottery commission is taking money out of their pockets to invest in Joe’s winnings, so basically they are decreasing cash flow. This also avoids getting a negative return. In cell A5 you type in =FV( then click on cell A1, then add a comma, you click on cell A2, then add another comma, after this you add an extra comma since Joe would not have a payment, but would be receiving them instead. After this you would click on cell A4 and then press enter which will give you the Amount of money the lottery would have to invest today to pay out Joe’s prize money over the next ten years. <br />Mary’s Account<br />If Mary deposited $33,000 in an account that pays 10% Interest and leaves the money in the account for seven years without touching it, then Mary would have $64,307.66 at the end of the seventh year. The solution is simple in showing the work to solve this problem. First using Excel you take and put the 10% interest in cell A1. Then you go below that to cell A2 and type in the number of years which would be 7 in this case. You skip a cell and go down to cell A4 and type in $33000 but you need to make this a negative number because we are looking at Future Value here when Mary decided to deposit so much money over the next seven years. Mary is taking money out of her own pocket to invest so she is decreasing cash flow. This also avoids getting a negative return. In cell A5 you type in =FV( then click on cell A1, then add a comma, you click on cell A2, then add another comma, after this you add an extra comma and then click on cell A4 and press enter. This will give you the Amount of money that Mary will have in her account at the end of the Seventh year. <br />Mary and Joe<br />Since Mary and Joe currently have $2500 in a savings account set aside for the furniture and they are wanting to save up $10,000 by the end of the next three years from now and with an interest rate of 8%, Mary and Joe’s year end payments would have to be $3,149.28 to end up with $10,000 by the end of the next three years from now. The solution is simple in showing the work to solve this problem. First using Excel you take and put the 8% interest in cell A1. Then you go below that to cell A2 and type in the number of years which would be 3 in this case. You skip a cell and go down to cell A4 and type in $2500 which is already what Mary and Joe have, but you need to make this a negative number because we are looking at Future Value and what will be needed to obtain $10,000 over the next three years. Mary and Joe are taking money out of their own pockets to invest so they are decreasing cash flow. This also avoids getting a negative return. In cell A5 you type in =FV( then click on cell A1, then add a comma, you click on cell A2, then add another comma, after this you add an extra comma and then click on cell A4 and press enter. This will give you the Amount of money that Mary and Joe will have to pay in their year end payments in order to obtain a savings of $10,000 dollars by the end of year three. <br />Citations<br />I have no Citations for this Assignment<br />References<br />I also have no References for this Assignment<br />Joe won a lottery jackpot that will pay him $12,000 each year for the next ten years. If the market interest rates are currently 12%, how much does the lottery have to invest today to pay out this prize to Joe over the next ten years?<br />Cash flow or PMT = 12,000; N = 10 years; rate i= 12%; PV =?<br />Present value of cash flows PV = Cash flows x PVIFA 12%; 10 years<br />= 12,000 x 5.6502<br />= $ 67,802.40<br />If Joe invests today $67,402.40 it will pay him 12,000 per year for 10 years at an interest rate of 12%.<br /> <br />Mary just deposited $33,000 in an account paying 10% interest. She plans to leave the money in this account for seven years. How much will she have in the account at the end of the seventh year?<br /> <br />PV = 33,000; i= 10%; n = 7 years; FV =?<br />Future value FV = Present value of cash flow x FVIF 10%, 7 years<br />= 33,000 x 1.949<br />= $64,317<br />If Mary deposited 33,000 in account today it will accumulate at the rate of 10% for 7 years an amount of $64,317.<br /> <br />Mary and Joe would like to save up $10,000 by the end of three years from now to buy new furniture for their home. They currently have $2500 in a savings account set aside for the furniture. They would like to make equal year end deposits to this savings account to pay for the furniture when they purchase it three years from now. Assuming that this account pays 8% interest, how much should the year end payments be?<br /> <br />Future value at the end of 3 years required = 10,000<br />Currently they have 2,500 in a savings account.<br />Future value of current savings @8% for 3 years = 2,500 x FVIF8%, 3 years<br />= 2,500 x 1.260<br />= 3,150<br />Balance amount required = 10,000 - 3,150<br />= 6,850<br />FV = 6,850; n = 3 years; i= 8%, PMT =?<br />PMT = FV/ FVIFA 8%, 3 years<br />= 6,850/3.246<br />= $2,110.29<br />If Mary and Joe invest 2,110.29 each year for 3 years at a rate of 8% for 3 years and the amount they have in savings account will total up to $10,000 with which they can purchase new furniture for their home.<br />