1. LSP 120 Financial Matters

2. Loans  When you take out a loan (borrow money), you agree to repay the loan over a given period and often at a fixed interest rate  Many lending institutions also require some form of collateral (for example, if you take out a car loan, the car is the collateral)

3. Loans  If you borrow X amount of money at Y interest rate, to be paid back over Z months, how much is the monthly payment?  Use the Excel function PMT Rate is yearly interest rate divided by 12 Nper is the number of months Pv is the amount borrowed

4. Loans  How much interest (or finance charges) do you end up paying over the life of the loan? Take your monthly payment, multiply by number of months, subtract original loan amount

5. Loans  Let’s buy a condo or a house!

6. Credit Cards  A very dangerous form of loan  Interest rates (finance charges) are often very high and are usually not “simple interest” but some complex algorithm that calculates an “average daily balance”  Even worse, most credit cards offer a minimum monthly payment and substantial late fees

7. Credit Cards  Best Rule: Don’t use the credit card unless you can pay it off each month  Don’t carry too many credit cards  Don’t use your credit card to get cash  Don’t make a late payment  Pay more than the minimum payment  Use a debit card instead

8. Investments  If you save money in an account, they usually pay you interest (based on some interest rate)  The amount in your account is multiplied by the interest rate and added to your account

9. Investments  We have already seen this is exponential growth. In banking, it is called compounding  Recall the basic formula is A + r*A, where A is the current amount and r is the interest rate, or growth rate

10. Investments  What if we open a savings account and some money each month?  Set up a spreadsheet: Month BegBal Int Addl EndBal 1 1000.04/12 50 sum  Let’s now tackle our last set of Activities!