MTH 105 Chapter 4: Managing Money 4B: The Power of …
MTH 105
Chapter 4: Managing Money 4B: The Power of Compounding
Group Activity
Use a spreadsheet on a Chromebook, smartphone, laptop or tablet to work on these problems. Write down the spreadsheet syntax to show your work. For example: =FV(.05/12, 2*12, 0, 1000).
Answer each question in a complete sentence.
1. Your uncle is giving you a simple interest loan of $500 for one year at 4% interest. What is the total amount you will owe him?
2. You borrowed $1500 from another relative. She charged you 5% APR, compounded monthly. If you paid her back 2 years later, how much money did you give her?
3. You got a bonus of $7,500 and you want to start a college fund for your child. You find an account paying 9.75% APR compounded quarterly. If your child just turned two years old, how much will you have when they turn 18?
Cara Lee
Page 1
MTH 105
Chapter 4: Managing Money
4. Calculate how much you would have in problem 3 above if it was compounded continuously instead of quarterly.
5. If you are considering a credit card with an APR of 27.49%, compounded daily, what annual rate are you effectively paying?
6. How much would you need to deposit today to have one million dollars if you can find an account that pays 10% interest compounded daily for 50 years?
Cara Lee
Page 2
MTH 105
Chapter 4: Managing Money
Round-Robin Problems. Choose two people from your group to travel together and two to stay. Use the space below to write your formula for each problem.
1.
2.
3.
4.
5.
Cara Lee
Page 3
MTH 105
Chapter 4: Managing Money 4A: Taking Control of Your Finances
Open the Mth 105 4A Monthly Budget Spreadsheet Template from D2L, and make a copy of the file so you can edit it. Choose one of the family scenarios below. You may choose the names and/or genders of the family members to be relevant to you.
Enter the given amounts for the family scenario chosen. The formulas are already set up in the Budget Template. Use your spreadsheet to answer the questions.
Questions: 1. What is their net income before expenses (also called take-home pay)?
2. What is their net monthly cash flow? (Income minus expenses) Is it positive or negative?
3. Make a plan for the family to put at least $100 in their savings account per month and break even. Try reducing different expenditures until their net monthly cash flow is $0.00. Describe your plan here:
Cara Lee
Page 4
MTH 105
Chapter 4: Managing Money
Family Scenario 1 ? Two parents with one child and two dogs
The Garcia Family A) Background for the Garcia Family
? Azul and Desi Garcia both work, and have a 14-year old child Jules. They also have two dogs: Samson and Goliath. Azul is a psychologist, with an annual salary of $75,618. Desi works part time as a school counselor, with an annual salary of $37,386. Desi also speaks at a monthly training conference, which generates additional income of $225 per month.
? They have discovered that their spending exceeds the net income each month and their credit card debt is accumulating. Currently, the balance on their Visa card is $12,450. Both parents agree that serious changes need to be made regarding their budget. They do not currently have a savings account.
B) Current Financial Information
Payroll Deductions (monthly):
Azul
Federal Tax withholding
$756.04
State Tax withholding
$492.10
FICA (SS& Medicare)
$482.06
Retirement contribution
$300.00
Child-related Expenses:
Monthly--martial arts ($120), drum lessons ($100)
Yearly--soccer fees and equipment ($810), summer camp ($300)
Desi $298.18 $252.31 $238.34 $175.00
Food-related Expenses: Monthly--groceries ($700), dog food ($120), eating out ($400)
Health-related Expenses: Monthly--family health insurance above employer paid cap ($235), family gym fees ($99), life insurance ($40 for each parent) Yearly--medical copays and medicine ($900), dental copays ($60), veterinary visits/shots/flea treatments ($330)
House-related Expenses: Monthly--mortgage payment ($1,845), satellite TV ($140), electric bill ($205), garbage ($25), natural gas bill ($185), household supplies (cleaning, laundry, etc.: $200), lawn maintenance service ($100), water/sewer ($50), internet ($49.99) Yearly--property taxes ($3,315), homeowner's insurance ($462)
Personal and Miscellaneous Expenses: Monthly--cell phones (family plan: $215), movies/entertainment ($100), Visa minimum payment ($249), charitable donations ($50) Yearly--clothing (Azul: $600, Desi: $700, Jules: $500), gifts ($1200)
Transportation Expenses: Monthly--Azul's car payment ($372) (Desi's car is paid off), fuel ($300), vehicle insurance ($180) Yearly--maintenance and repairs ($720)
Cara Lee
Page 5
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