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Two friends, Savvy Sally and Debtie Debbie, decide to make Saturday special and plan a family day twice a month due to busy schedules. Sally
Two friends, Savvy Sally and Debtie Debbie, decide to make Saturday special and plan a family day twice a month due to busy schedules.
- Sally packs a picnic lunch and spends every other Saturday in the park; that night, she deposits $100 in an online mutual fund savings account which pays 8% interest.
- Debbie takes her family out to eat every other Saturday and puts the charge of $100 on her credit card. Her credit card interest is 20% based on her credit score rating of Prime.
Based on the first scenario:
Answer the following question utilizing the Future Value of an Annuity calculator:
If Sallys account compounds monthly, calculate how much Sally will have in her savings account:
- In 10 years?
- In 20 years
- In 30 years?
- In 40 years?
Based on the second scenario:
Answer the following question utilizing the Credit Card Interest Calculator:
- For just one year of spending $100 on dinner every other Saturday, how much would Debbie pay in interest for her credit card balance of $2,400?
- How long would it take for Debbie to payoff this debt with a minimum payment of $48 per month?
- How would her interest rate change if she had a better credit score rating?
For more information about interest rates, please review this article regarding credit score ratings.
- Were you surprised at the results?
- What lessons did you learn from these calculations?
- What changes may you make in your personal finances based on the knowledge of time value of money principles?
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