Module 2-3 Finance, Credit Cards, and Mortgages

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Module 2-3 Finance, Credit Cards, and Mortgages

 

Show all work to receive credit. Any written questions should be at least 3 sentences long.

 

Finance

 

1. Jim opens a savings account with $22,500. His account pays 3.5% simple interest. At the end of 5.5 years, Jim closes the account. How much interest does he earn? What is the total value of his account when he closes it?

2. Jim opens a savings account with $22,500. His account pays 3.5% interest compounded yearly. At the end of 5.5 years, Jim closes the account. How much interest does he earn? What is the total value of his account when he closes it?

 

 

3. Jim opens a savings account with $22,500. His account pays 3.5% interest compounded daily. At the end of 5.5 years, Jim closes the account. How much interest does he earn? What is the total value of his account when he closes it?

 

4. If you were Jim, which scenario would you prefer: simple interest, interest compounded yearly, or interest compounded monthly? Explain your answer choice. Which scenario would you prefer if you were the banker paying the interest?

 

Credit Cards

 

You have a credit card with a current balance of $1500. The interest rate is 15.99%.

 

Reminders:

· You will use the Amortization Worksheet Excel Workbook to complete this assignment.

· If your minimum payment is a percent, be sure to change cell C3 to “Percent of Balance”

· If your minimum payment a dollar amount, be sure to change cell C3 to “Dollars”

 

Use Excel to answer the following questions:

5. If your minimum payment is 15% of your new balance, what is the balance of your card month 24?

6. If your minimum payment is $75, what is the balance of your card month 24?

7. What do you think is a better idea: Paying a percentage of your monthly balance or paying a fixed amount each month? Why?

 

 

 

 

 

 

 

Mortgages

 

You decide to buy a house! The home is priced at $279,000 and the bank has agreed to finance your home at 5.1% for 30 years.

(Note: Excel approximations do not include property taxes or insurance.)

 

Use the Amortization Worksheet and Module 2 Formula Sheet to answer the following questions:

8. What is the monthly payment?

9. How much of the first payment is interest? How much of that first payment actually goes to reducing the principal?

10. At which month did you pay approximately half of the mortgage? Is this halfway through your mortgage?

Let’s explore making extra payments on your mortgage. Change the payment value in cell B3 to be $100 more than it is now.

11. If you pay just $100 more each month, when will you make your last payment?

12. How much time does that cut off of your mortgage (how many months do you not have to make a mortgage payment)?

13. If you make the payments which are $100 larger, how much do you pay over the life of the loan?

14. If you made the originally payments, without paying an extra $100 per month, how much do you pay over the life of the loan?

 

15. Therefore, by paying an additional $100 per month, you will save ________ over the life of the mortgage.

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