Time Value of money
Practice problem:
1. Use the rule of 72 (not your financial calculator) to determine approximately how much you would have after 30 years if you put $15,000 in an account earning 7% interest. Please draw a timeline to show your answer.
2. If you put $75 per month in a saving account how much will you have after ten years assuming you can earn 7% on your investment?
3. If you put $12,000 in an account earning 8% interest, how much will you have in 15 years? Use the rule of 72 to check your answer.
4. You purchase a piece of equipment for $100,000. You can borrow the money from a bank for ten years at 6% interest. How much will your monthly payments be? (HINT: do not forget the down payment of 20% or the fact that you will you MONTHLY). Show your calculator keystrokes.
5. How much will you pay in total finance charges for the loan in #4?