Financial Algebra © Cengage Learning/South-Western Slide 1 10/1/201410/1/2014 WARM-UP What large purchases do you see in your future? How does one determine.

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Presentation transcript:

Financial Algebra © Cengage Learning/South-Western Slide 1 10/1/201410/1/2014 WARM-UP What large purchases do you see in your future? How does one determine how much money they may need for retirement? How does one determine how much money they must be saving in order to have enough saved to reach their goals?

Financial Algebra © Cengage/South-Western Slide PRESENT VALUE OF INVESTMENTS Calculate the present value of a single deposit investment. Calculate the present value of a periodic deposit investment. OBJECTIVES

Financial Algebra © Cengage Learning/South-Western Present Value To determine how much money one must save now in order to reach a desired goal in the future, we “tweak” either the compound interest formula or the future value formula from yesterday Slide 3

Financial Algebra © Cengage Learning/South-Western Present Value If one is making only one deposit, they “tweak” the compound interest formula to determine how much they must save now Slide 4

Financial Algebra © Cengage Learning/South-Western If one plans to make multiple, periodic deposits in order to reach their goal, they must “tweak” to future value formula we learned yesterday Slide 5

Financial Algebra © Cengage Learning/South-Western Slide 6 Example 2 Ritika just graduated from college. She wants $100,000 in her savings account after 10 years. How much must she deposit in that account now at a 3.8% interest rate, compounded daily, in order to meet that goal? Round up to the nearest dollar.

Financial Algebra © Cengage Learning/South-Western Slide 7 EXAMPLE 3 Nick wants to install central air conditioning in his home in 3 years. He estimates the total cost to be $15,000. How much must he deposit monthly into an account that pays 4% interest, compounded monthly, in order to have enough money? Round up to the nearest hundred dollars.