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Part 4:Saving for a car, vacation or home... If an account is designated as a 401(k), then early withdrawals will be met with a penalty.Therefore

Part 4:Saving for a car, vacation or home...

If an account is designated as a 401(k), then early withdrawals will be met with a penalty.Therefore savings for a car, home, vacation, or your child's college education are better off in an account with a fixed interest rate making regular deposits.

To determine how much you need to deposit every month so that you have the savings you want to have after a certain period time, use the Excel formula = pmt(rate,nper,pv,[fv],[type]),

where rate is the rate within the compounding period, nper is the number of periods, pv is present value, fv is future value, and type is the type of savings or loan.(The brackets indicate that it is not necessary to put values in for those items.)

Present value, pv, is the value of an account today.Therefore, if you were going to make regular payments, the present value would be zero but if you were looking for payments for a loan the present value would be the amount of the loan you are interested in taking.

Future value, fv, is the value of an account at the end of the period.So, if you were calculating for a loan, the value of the loan at the end would be zero.If you were determining payments on a savings account, the future value would be the amount of money you wanted to end with.

20. Practice by typing = pmt(.05/12,12*5,0,2000) into a blank cell.What answer does it give? What is a sentence that explains what you have just calculated.

21. Type each of the following into an empty cell.What is a sentence to explain the resulting calculation.

= pmt(.05/12,12*5,2000)

= pmt(0.07/12,12*60,0,1000000)

22. How much would you need to deposit each month, if you were saving for a down payment on a car that you planned on buying in a year and a half, and if the interest rate was 6.2% and you determined you needed to have $2500?

23. How much did you end up depositing all together?

24. Consider setting a goal with a longer term.You have decided to save for your newborn's college education and have determined that by the time the child reaches 18, you would like them to have $10,000.You will make monthly deposits into an account that compounds monthly at an APR of 5.8%.How much will you need to deposit every month to make your goal?What is your total investment?

25. At the time you retire, you would like to have enough money in an annuity to last for 20 years. What is a Excel formula to determine how much the annuity would pay you every month at an APR of 5.2% if you will retire with $100,000?What is the monthly payment?

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