Internet Insider -- Chapter 4a
Present and Future Values
There are dozens of websites that provide calculators to help with personal finance
decisions. Two good examples are www.quicken.com and www.smartmoney.com . We
will use both. Log in first to the Quicken site and click on Bills and Banking to find a
nice savings calculator. Suppose that you invest $1000 today. How much will you have
after 30 years if the interest rate is 6 percent and you don’t save a dime? Check your answer with the savings calculator. Now try the same question assuming that you also
save $200 a month.
You can buy a car for $20,000 or you can lease it for 36 monthly payments of $350 each,
with the first payment due immediately. At the end of the 36 months the car will be
worth $10,000. Which alternative should you prefer if the interest rate is 10 percent?
You can check your answer by logging in to the personal finance page of
www.smartmoney.com and using the auto buy/lease calculator.
In example 4.11 we showed you how to work out mortgage payments. Log in to the
personal finance page of www.smartmoney.com and find the mortgage payment
calculator. Assume a 20-year mortgage loan of $100,000 and an interest rate of 10
percent. What is the amount of the payment? Check that you get the same answer using
the annuity formula. Now look at how much of the first month’s payment goes to reduce the size of the mortgage. How much of the payment by the tenth year? Can you explain
why the figure changes? If the interest rate doubles, would you expect the mortgage
payment to double? Check whether you are right.