Ch. 8 Homework-1 CM

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School

Conroe H S *

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2305

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Finance

Date

Jun 23, 2024

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docx

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Loan Discussion Homework # 1 4 1. List 3 financial goals you have yourself in the future - Pay off my student loans within the first 7-10 years out of school (both undergrad and post-grad) - Being 100% financially stable to where I can invest with each paycheck (not living month-to- month) - Save for a downpayment on a house within the first few years out of school 2. Do you consider yourself a saver or a spender? Why? - I consider myself a saver. I have never been known to buy unnecessary things such as clothes, makeup, and objects. Most of the time, I only spend money on groceries, my dog, and weekend activities. I have always been a saver because I grew up in a home that knew what it was to struggle and dug themselves out of difficult situations. Although my family is no longer in a financial situation where being frugal is a necessity, I learned how to spend my money responsibly and how to save. 3. Will you handle your finances the same way that your parents handle theirs or do you plan to steward those resources differently? List one specific example of a similarity you would like to have or something you would like to do differently. - I hope to handle my finances in slightly different ways than my parents. As I previously stated, my parents did face financial struggle. As my dad was starting up his own business, it was either feast or famine and I believe hiring a financial advisor or accountant to manage the financial aspect of the business would have been very beneficial to the process. I, too, plan on owning my own company and plan on having someone specifically dedicated to making sure my company is running as efficiently as possible. One thing I would like to do similar to my parents would be to invest in rental homes. In times when the business was not generating as many earnings, it was very beneficial that there was a passive income also coming into the household.

Loan Discussion Homework # 2 5 (You will need to search the Internet for a loan amortization schedule and a compound interest calculator. You may use bankrate.com and investor.gov like we used in class or you may use other websites of your choosing.) 1. Upload to canvas with this homework an amortization schedule showing monthly payments for a loan with the following characteristics: a. Loan amount: $160,000 b. Interest rate: 7.5% c. Number of years: 20 d. Pmts per year: 12 *amortization was uploaded as another PDF on Canvas entitled Loan HW 1&2 Amortization* 2. Show how you would manually calculate the interest for the first two payments. No need to show how to manually calculate the payment, just the interest. You can get the payment from the loan amortization schedule. You can use the amortization schedule from #1 as a way to check your manual calculations. a. Month 1: $1,000.00 b. Month 2: $998.19 3. How much sooner could the loan be paid off if an additional $350 in principal was paid each month? (It would be helpful if you are using an amortization calculator that allows you to input additional monthly payments, such as bankrate.com.) How much would you be saving in interest by paying an additional $350 in principal per month (show the numbers you used to get your answer)? a. Originally, the loan was set to be paid off in March of 2044. However, with the additional $350 being paid on the principal monthly, the loan could be paid off as soon as November of 2036. By adding the $350 to the monthly payment, the loan duration would be cut by approximately 8 years. The original total interest cost was $149,348 and the shorted time decreased the interest cost to $87,791. This is a $61,557 difference.

Loan Discussion Homework # 3 5 4. Assume that instead of paying an additional $350 per month on the loan, the money was invested each month and earned a projected return of 9%. Using investor.gov or another online compound interest calculator, how much money would you have at the end of 10 years? 20 years? Upload your support from whatever website you used. - After 10 years, I would have $67,730.00 - After 20 years, the savings would equate to $233,760.40 5. Based on your findings in #3 and #4, would you rather invest an additional $350 per month or pay an additional $350 per month in principal on your mortgage? Or, would you like to split the $350 and do a combination of both? There is no right answer, just explain what you would prefer. - Based on my findings, I would do a combination of the two. The additional $350 each month to the principal would greatly reduce the amount I would end up spending on interest. Therefore, I would probably pay on the principal for the first few years and then invest for the last 10-15 years. I am one of those individuals who would like to be as close to debt free as possible and I know it would give me more peace of mind to know that I am making great progress on paying off the loan at a quicker rate for the first few years. However, I know the importance of investing and would eventually want to invest to make money on the $350 that would otherwise go to the loan payment. As seen in #4, I could still make a substantial amount of money by just investing the $350 for 10 years, while also decreasing the length of the loan to give myself that peace of mind.

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