Kapoor_PF_14e_PPT_Ch001_Accessible-6.pdf

Because learning changes everything.® Chapter 1 Personal Finance Basics and the Time Value of Money © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill,...

Because learning changes everything.® Chapter 1 Personal Finance Basics and the Time Value of Money © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC. Learning Objectives LO1-1 Analyze the process for making personal financial decisions. LO1-2 Assess personal and economic factors that influence personal financial planning. LO1-3 Develop personal financial goals. LO1-4 Calculate time value of money to analyze personal financial decisions. LO1-5 Identify strategies for achieving personal financial goals for different life situations. © McGraw Hill, LLC 2 Personal Financial Planning Goals before spending . LO 1-1: Analyze the process for making personal financial decisions. What is Personal Financial Planning? …. The process of managing your money to achieve personal economic satisfaction. © McGraw Hill, LLC 3 Advantages of Personal Financial Planning Financial from resources salary comes . ↑ • Increased effectiveness in obtaining, using, and protecting financial resources. -> control spending , prevent overspending . • Expanded control of financial activities to avoid excessive debt, bankruptcy, and dependence on others. • Improved personal relationships. • Enhanced freedom from financial worries by looking to the future, anticipating expenses, and achieving personal ↓ economic goals. Dah © McGraw Hill, LLC simpan duit extra for future bills . 4 The Financial Planning Process Exhibit 1-1 The Financial Planning Process kenalpasti keadaan kewangan selectang A Mascl assignment banyal free financial planning app . Access the text alternative for these images © McGraw Hill, LLC 5 Step 1 in the Financial Planning Process DETERMINE YOUR CURRENT FINANCIAL SITUATION. • Evaluate income, savings, living expenses, and debts. • Maintain records of daily spending, prepare a list of asset and debt balances. • Consider using a daily spending diary to match goals with current and future monetary resources. © McGraw Hill, LLC 6 Step 2 in the Financial Planning Process DEVELOP FINANCIAL GOALS. • Identify feelings about money and the reasons for those feelings. • Determine the source of your feelings about money (facts or influence of others). • Determine the basis of your financial priorities (social pressures, household needs, or desires). • Decide on specific financial goals to pursue for your situation. • Differentiate needs and wants to align with goals and priorities. expenses Priorities /needs © McGraw Hill, LLC on over wants to achieve goals . 7 Step 3 in the Financial Planning Process IDENTIFY ALTERNATIVE COURSES OF ACTION. Common courses of action include: • Continue the same course of action. • Expand the current situation. • Change the current situation. • Take a new course of action. Creativity in decision making is vital for effective choices. Electing to “do nothing” can be a dangerous alternative. © McGraw Hill, LLC 8 Step 4 in the Financial Planning Process EVALUATE YOUR ALTERNATIVES. CONSEQUENCES OF CHOICES. -> KOS lepas : pilihan 1 hedna • Opportunity cost: What you give up by making a choice. • The cost, or trade-off of a decision, cannot always be measured in dollars. • May refer to the value of money or time that you give up. • Decision-making will be an ongoing part of one’s life. • Consider the lost opportunities that will result from each decision. © McGraw Hill, LLC 9 Step 4 in the Financial Planning Process 2 EVALUATE YOUR ALTERNATIVES. EVALUATING RISK. • Uncertainty is a part of every decision. • Consider inflation risk, interest rate risk, income risk, personal risk, and liquidity risk. FINANCIAL PLANNING INFORMATION SOURCES. • To minimize risk, gather relevant information from print media sources, financial institutions, and financial specialists. • Changes in personal, social, and economic conditions require updates to financial planning. © McGraw Hill, LLC 10 Exhibit 1-2: Types of Risk Access the text alternative for these images © McGraw Hill, LLC 11 Step 5 in the Financial Planning Process CREATE AND IMPLEMENT YOUR FINANCIAL ACTION PLAN. Develop an action plan that identifies ways to achieve financial goals. Possible action plans can be increasing savings, reducing spending, increasing income by working extra hours, or making provisions for taxes. To implement action plans you may need assistance from others. • Contact insurance agent or online investment tools © McGraw Hill, LLC 12 Step 6 in the Financial Planning Process REVIEW AND REVISE YOUR PLAN. • Financial planning decisions need to be assessed regularly. • A complete review should be done at least once a year. • More frequent reviews may be required for changing personal, social, and economic factors. • Regular reviews of decision-making process can help in making priority adjustments to achieve financial goals. © McGraw Hill, LLC 13 Influences on Personal Financial Planning LO 1-2: Assess personal and economic factors that influence personal financial planning. LIFE SITUATION AND PERSONAL VALUES. Adult life cycle is the stages in the family and financial needs of an adult that influence financial activities and decisions. • Marital status, household size, employment, major events such as graduation, engagement, career change, children, retirement, etc. Values are ideas and principles that one considers correct, desirable, and important. © McGraw Hill, LLC 14 The Financial System and Economic Factors 1 Money in an economy flows from providers of funds to users of funds through intermediaries and financial markets. EXHIBIT 1-4 The financial system Access the text alternative for these images © McGraw Hill, LLC 15 The Financial System and Economic Factors 2 Economics is the study of how wealth is created and distributed. • Forces of supply and demand on setting prices. • The economic environment includes various institutions. • Federal Reserve Bank has significant economic responsibility. • Maintain adequate money supply. • Influence borrowing and interest rates. • Buying and selling of government securities. © McGraw Hill, LLC 16 Global Influences • Global economy influences personal finance. • American companies compete against foreign companies for US dollars. • Balance of exports and imports. • Foreign investments and their role in the US money supply. • A trade deficit also affects the value of a nation’s money and the cost of items being purchased by consumers. © McGraw Hill, LLC 17 Exhibit 1-5: Changing Economic Conditions and Financial Decisions 1 Economic Factor What It Measures How It Influences Financial Planning Consumer prices The buying power of a dollar; inflation. If consumer prices increase faster than income, you are not able to purchase the same amount of goods and services; higher consumer prices often cause higher interest rates. Consumer spending The demand for goods and services by individuals and households. Increased consumer spending usually creates more jobs and higher wages; high levels of consumer spending and borrowing may push up consumer prices and interest rates. Interest rates The cost of money; the cost of credit when you borrow; the return on your money when you save or invest. Higher interest rates make buying on credit more expensive; higher interest rates make saving and investing more attractive and may discourage borrowing. Money supply The dollars available for spending in our economy. Interest rates tend to decline as more people save and invest, but higher saving (and lower spending) may also reduce job opportunities. Unemployment The number of people without jobs who are willing and able to work. Unemployed people should reduce spending and may need to access their emergency fund; high unemployment reduces consumer spending and future job opportunities. © McGraw Hill, LLC 18 Exhibit 1-5: Changing Economic Conditions and Financial Decisions 2 Economic Factor What It Measures How It Influences Financial Planning Housing starts The number of new homes being built. Increased home building creates jobs, higher wages, more consumer spending, and overall economic expansion. Gross domestic product (GDP) The total value of goods and services produced within a country’s borders, including items produced with foreign resources. GDP is an indication of a nation’s economic viability, resulting in jobs and opportunities for increased personal wealth. Trade balance The difference between a country’s exports and its imports. If a country has more exports than imports, the balance of trade deficit can result in price changes for foreign goods. Dow Jones Average, S&P 500, other stock market indexes The relative value of stocks represented by the index. These indexes provide an indication of the general movement of stock prices. © McGraw Hill, LLC 19 Economic Conditions 1 Just no need understand calculation - Consumer Prices Inflation is a rise in the general level of prices. Rule of 72. • Divide 72 by the annual inflation (or interest) rate. • Example: An annual inflation rate of 4% means prices (or your savings) will double in 18 years (72/4 = 18). Consumer Price Index (CPI) measure of average change in prices consumers pay for basket of goods and services. Deflation, a decline in prices, can also have damaging economic effects. © McGraw Hill, LLC 20 Economic Conditions 2 Consumer Spending • Total demand for goods and services in the economy. • Influences employment opportunities and the potential for income. Interest Rates • Represent the cost of money. • Forces of supply and demand influence interest rates. © McGraw Hill, LLC 21 Select a Path to Financial Security Do something • Save each month. • Reduce credit card use. Avoid excuses Rate your current situation • Spender versus saver. Set your mission • Develop a personal finance mission statement. © McGraw Hill, LLC 22 Developing Personal Financial Goals LO 1-3: Develop personal financial goals. FINANCIAL GOALS. • Can be influenced by the time frame in which you want to achieve your goals. • Can be influenced by the type of financial need that drives your goals. © McGraw Hill, LLC 23 Types of Financial Goals TIMING OF GOALS Short-term (within the next year). Intermediate (one to five years). Long-term (more than five years). • Long-term goals should be planned in coordination with short-term and intermediate goals. GOALS FOR DIFFERENT FINANCIAL NEEDS • Consumable-product goals. • Durable-product goals. • Intangible-purchase goals. © McGraw Hill, LLC 24 Goal-Setting Guidelines Goals should be S-M-A-R-T: Nale apa Specific: know exactly what your goals are to create a plan. Measurable: with a specific amount. Ada amount Action-oriented: identify the personal financial activities you will undertake. Nale buat apa Realistic: utilizing your income and life situation. Logit Time-based: identify the time frame to achieve the goal. Berapa © McGraw Hill, LLC lama nat capai 25 Opportunity Costs and the Time Value of Money LO1-4: Calculate time value of money to analyze personal financial decisions. Access the text alternative for these images © McGraw Hill, LLC 26 Personal Opportunity Costs Every financial decision involves giving up something to obtain something you consider more desirable. Personal resources, like financial resources, require careful management. • Example health, abilities, knowledge. • Time sued for working or studying. © McGraw Hill, LLC 27 Financial Opportunity Costs Financial choices depend on current needs, future uncertainty, and current interest rates. Time Value of Money: Increases in an amount of money as might a result of interest earned. Simpan dim Simpan buh bank-bertambah bantal + kekal tapi value decrease • Saving (or investing) today means more money tomorrow. Spending means lost interest. • Saving and spending decisions involve considering the trade-offs. Current needs can make spending worthwhile. • Opportunity costs are present in retirement contributions, large purchases, and low risk savings. © McGraw Hill, LLC 28 Time Value of Money 1 INTEREST CALCULATIONS Three amounts are required to calculate the time value of money: • Principal (the amount of savings). • Interest rate (annual). berapa nak Simpan balik berapa dapat • Time period (length of time money is on deposit) © McGraw Hill, LLC berapa lama simpan 29 Time Value of Money 2 COMPUTING SIMPLE INTEREST Amount in savings × annual interest rate × time period = interest amount. For Example: In six months, a $500 deposit (principal) will earn $15.00 interest. Therefore, you will have a total of $515 at the end of six months. © McGraw Hill, LLC 30 Methods for Calculating Time Value of Money 1. Formula calculation. 2. Time value of money tables. 3. Financial calculator. 4. Spreadsheet software. 5. Websites and apps. © McGraw Hill, LLC 31 Future Value of a Single Amount Abertambah pada masa datang . Future value is the amount to which current savings will increase based on a certain interest rate and a certain time period. • Also called compounding — earning interest on previously earned interest. • Compounding allows for the future value of a deposit to grow faster than it would if interest were paid only on the original deposit. • For example: $100 deposited in a 4 percent account for one year will grow to $104. This amount is computed as follows: © McGraw Hill, LLC 32 Future Value of a Series of Deposits Future value can be computed for a single amount or for a series of deposits (or payments) called an annuity. • For example: $50 deposited a year at 7 percent for six years. • Starting at the end of the first year, you will have © McGraw Hill, LLC 33 Present Value • Present value is the current value of a future amount based on a certain interest rate and a certain time period. • Present value calculations are also called discounting. • The present value of the amount you want in the future will always be less than the future value. • Present value can be computed for a single amount or for a series of deposits. Simpan © McGraw Hill, LLC 9000 sekarang , dapat 10000 in future . 34 Achieving Financial Goals LO1-5: Identify strategies for achieving personal financial goals for different life situations. Syllabus According . Chapter 9 not here yet e Fintech Access the text alternative for these images © McGraw Hill, LLC 35 Components of Personal Financial Planning Obtaining (Chapter 2). Planning (Chapters 3, 4). Saving (Chapter 5). Borrowing (Chapters 6, 7). Spending (Chapters 8, 9). Managing risk (Chapters 10 to 12). Investing (Chapters 13 to 17). Retirement and estate planning (Chapters 18, 19). © McGraw Hill, LLC 36 Developing a Flexible Financial Plan A financial plan is a formalized report that: • Summarizes your current financial situation. • Analyzes your financial needs. • Recommends future financial activities. Your financial plan can be created by you, with assistance from a financial planner, or made using a money management software package. © McGraw Hill, LLC 37 Implementing Your Financial Plan Develop good financial habits. 1. Track spending to create a spending plan to live within your income as well as save and invest for the future. 2. Have appropriate insurance protection to prevent financial disasters. 3. Become informed about taxes and investments to expand your financial resources. © McGraw Hill, LLC 38 Exhibit 1-9 Financial Planning in Action for Different Life Situations Access the text alternative for these images © McGraw Hill, LLC 39 Studying Personal Finance Resources • Personal Financial Planner sheets. • This book’s library resource site in Connect. • Practice quizzes and end-of-chapter activities. • Talk to others, experts, and friends. • Online sources and apps for current personal finance information. Achieving your financial objectives requires a willingness to learn and appropriate information sources. © McGraw Hill, LLC 40 Exhibit 1-A Future Value 1 Exhibit 1-A Future Value (compounded sum) of $1 after a given number of time periods. Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 1 1.010 1.020 1.030 1.040 1.050 1.060 1.070 1.080 1.090 1.100 1.110 2 1.020 1.040 1.061 1.082 1.103 1.124 1.148 1.166 1.188 1.210 1.232 3 1.030 1.061 1.093 1.125 1.158 1.191 1.225 1.260 1.295 1.331 1.368 4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.518 5 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.685 6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.870 7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.076 8 1.083 1.172 1.267 1.369 1.477 1.594 1.718 1.851 1.993 2.144 2.305 9 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.558 10 1.105 1.219 1.344 1.480 1.629 1.791 1.967 2.159 2.367 2.594 2.839 11 1.116 1.243 1.384 1.539 1.710 1.898 2.105 2.332 2.580 2.853 3.152 12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.498 13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 3.883 14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.797 4.310 15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 4.785 © McGraw Hill, LLC 41 Exhibit 1-A Future Value 2 Exhibit 1-A Future Value (compounded sum) of $1 after a given number of time periods. Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 5.311 17 1.184 1.400 1.653 1.948 2.292 2.693 3.159 3.700 4.328 5.054 5.895 18 1.196 1.428 1.702 2.026 2.407 2.854 3.382 3.996 4.717 5.560 6.544 19 1.208 1.457 1.754 2.107 2.527 3.026 3.617 4.316 5.142 6.116 7.263 20 1.220 1.486 1.806 2.191 2.653 3.207 3.870 4.661 5.604 6.727 8.062 25 1.282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 8.623 10.835 13.585 30 1.348 1.811 2.427 3.243 4.322 5.743 7.612 10.063 13.268 17.449 22.892 40 1.489 2.208 3.262 4.801 7.040 10.286 14.974 21.725 31.409 45.259 65,001 50 1.645 2.692 4.384 7.107 11.467 18.420 29.457 46.902 74.385 117.391 184.565 © McGraw Hill, LLC 42 Exhibit 1-A Future Value 3 Exhibit 1-A Future Value (compounded sum) of $1 after a given number of time periods. Period 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 1.120 1.130 1.140 1.150 1.160 1.170 1.180 1.190 1.200 1.250 1.300 2 1.254 1.277 1.300 1.323 1.346 1.369 1.392 1.416 1.440 1.563 1.690 3 1.405 1.443 1.482 1.521 1.561 1.602 1.643 1.685 1.728 1.953 2.191 4 1.574 1.630 1.689 1.749 1.811 1.874 1.939 2.005 2.074 2.441 2.856 5 1.762 1.842 1.925 2.011 2.100 2.192 2.288 2.386 2.488 3.052 3.713 6 1.974 2.082 2.195 2.313 2.436 2.565 2.700 2.840 2.986 3.815 4.827 7 2.211 2.353 2.502 2.660 2.826 3.001 3.185 3.379 3.583 4.768 6.275 8 2.476 2.658 2.853 3.059 3.278 3.511 3.759 4.021 4.300 5.960 8.157 9 2.773 3.004 3.252 3.518 3.803 4.108 4.435 4.785 5.160 7.451 10.604 10 3.106 3.395 3.707 4.046 4.411 4.807 5.234 5.695 6.192 9.313 13.786 11 3.479 3.836 4.226 4.652 5.117 5.624 6.176 6.777 7.430 11.642 17.972 12 3.896 4.335 4.818 5.350 5.936 6.580 7.288 8.064 8.916 14.552 23.298 13 4.363 4.898 5.492 6.153 6.886 7.699 8.599 9.596 10.699 18.190 30.288 14 4.887 5.535 6.261 7.076 7.988 9.007 10.147 11.427 12.839 22.737 39.374 15 5.474 6.254 7.138 8.137 9.266 10.748 11.974 13.590 15.407 28.422 51.186 © McGraw Hill, LLC 25% 30% 43 Exhibit 1-A Future Value 4 Exhibit 1-A Future Value (compounded sum) of $1 after a given number of time periods. Period 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 16 6.130 7.067 8.137 9.385 10.748 12.330 14.129 16.172 18.488 35.527 66.542 17 6.866 7.986 9.276 10.761 12.468 14.426 16.672 19.244 22.186 44.409 86.504 18 7.690 9.024 10.576 12.375 14.463 16.879 19.673 22.901 26.623 55.511 112.455 19 8.613 10.197 12.056 14.232 16.777 19.748 23.214 27.252 31.948 69.389 146.192 20 9.646 11.523 13.743 16.367 19.461 23.106 27.393 32.429 38.338 86.736 190.050 25 17.000 21.231 26.462 32.919 40.874 50.658 62.669 77.388 95.396 264.698 705.641 30 29.960 39.116 50.950 66.212 85.850 111.065 143.371 184.675 237.376 807.794 2,619.641 40 93.051 138.782 188.884 267.864 378.721 533.869 750.375 1,021.688 1,469.772 7,523.164 36,118.865 50 289.002 450.736 700.233 1,083.657 1,670.704 2,566.215 3,927.357 5,988.914 5,988.914 70,064.923 497,929.223 © McGraw Hill, LLC 44 Exhibit 1-B Future Value (annuity) 1 Exhibit 1-B Future Value (compounded sum) of $1 paid in the end of each period for a given number of time periods (an annuity). Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.101 2.020 2.030 2.040 2.050 2.060 2.070 2.080 2.090 2.100 2.110 3 3.030 3.060 3.091 3.122 3.153 3.184 3.215 3.246 3.278 3.310 3.342 4 4.060 4.122 4.184 4.246 4.310 4.375 4.440 4.506 4.537 4.641 4.710 5 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.105 6.228 6 6.152 6.308 6.648 6.633 6.802 6.975 7.153 7.336 7.523 7.716 7.913 7 7.214 7.434 7.662 7.898 8.142 8.394 8.654 8.923 9.200 9.487 9.783 8 8.286 8.583 8.892 9.214 9.549 9.897 10.260 10.637 11.028 11.436 11.859 9 9.369 9.755 10.159 10.583 11.491 11.491 11.978 12.488 13.021 13.579 14.164 10 10.462 10.950 11.464 12.006 12.578 13.181 13.816 14.487 15.193 15.937 16.722 11 11.567 12.169 12.808 13.486 14.207 14.972 15.784 16.645 17.560 18.531 19.561 12 12.683 13.412 14.192 15.026 15.917 16.870 17.888 18.977 20.141 21.384 22.713 13 13.809 14.680 15.618 16.627 17.713 18.882 20.414 21.495 22.953 24.523 26.212 14 14.647 15.947 17.086 18.292 19.599 21.015 22.550 24.215 26.019 27.975 30.095 15 16.097 17.293 18.599 20.024 21.579 23.276 25.129 27.152 29.361 31.772 34.405 © McGraw Hill, LLC 45 Exhibit 1-B Future Value (annuity) 2 Exhibit 1-B Future Value (compounded sum) of $1 paid in the end of each period for a given number of time periods (an annuity). Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 16 17.258 18.639 20.157 21.825 23.657 25.673 27.888 30.324 17 18.430 20.012 27.762 23.698 25.840 28.213 30.840 18 19.615 21.412 23.414 25.645 28.132 30.906 19 20.811 22.841 25.117 27.671 30.539 20 22.091 24.297 26.870 29.778 25 28.243 32.030 36.459 30 34.785 40.568 40 48.886 50 64.463 © McGraw Hill, LLC 10% 11% 33.003 35.950 39.190 33.750 36.974 40.545 44.501 33.999 37.450 41.301 45.599 50.396 33.760 37.379 41.446 46.018 51.159 56.939 33.066 36.786 40.995 45.762 51.160 57.275 64.203 41.646 47.727 54.865 63.249 73.106 84.701 98.347 114.413 47.575 56.085 66.439 79.058 94.461 113.283 136.308 164.494 199.021 60.402 75.401 95.026 120.800 154,762 199.635 259.057 337.882 442.593 581.826 84.579 112.797 152.667 209.348 290.336 406,529 573.770 815.084 1,163.909 1,668.771 46 Exhibit 1-B Future Value (annuity) 3 Exhibit 1-B Future Value (compounded sum) of $1 paid in the end of each period for a given number of time periods (an annuity). Period 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 1 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2 2.120 2.130 2.140 2.150 2.160 2.170 2.180 2.190 2.200 2.250 2.300 3 3.374 3.407 3.440 3.473 3.506 3.539 3.572 3.606 3.640 3.813 3.990 4 4.779 4.850 4.921 4.993 5.066 5.141 5.215 5.291 5.368 5.766 6.187 5 6.353 6.480 6.610 6.742 6.877 7.014 7.154 7.297 7.442 8.207 9.043 6 8.115 8.323 8.536 8.754 8.977 9.207 9.442 9.683 9.930 11.259 12.756 7 10.089 10.405 10.730 11.067 11.141 11.772 12.142 12.523 12.916 15.073 17.583 8 12.300 12.757 13.233 13.727 14.240 14.773 15.327 15.902 16.499 19.842 23.858 9 14.776 15.416 16.085 16.786 17.519 18.285 19.086 19.923 20.799 25.802 32.015 10 17.549 18.420 19.337 20.304 21.321 22.393 23.521 24.709 25.959 33.253 42.619 11 20.655 21.814 23.045 24.349 25.733 27.200 28.755 30.404 32.150 42.566 56.405 12 24.133 25.650 27.271 29.002 30.850 32.824 34.931 37.180 39.581 54.208 74.327 13 28.029 29.985 32.089 34.352 36.786 39.404 42.219 45.244 48.497 68.760 97.625 14 32.393 34.883 37.581 40.505 43.672 47.103 50.818 54.841 59.196 86.949 127.913 15 37.280 40.417 43.842 47.580 51.660 56.110 60.965 66.261 72.035 109.687 167.286 © McGraw Hill, LLC 47 Exhibit 1-B Future Value (annuity) 4 Exhibit 1-B Future Value (compounded sum) of $1 paid in the end of each period for a given number of time periods (an annuity). Period 12% 13% 14% 15% 16% 17% 18% 19% 16 42.753 46.672 50.980 55.727 60.925 66.649 72.939 79.850 87.442 138.109 218.472 17 48.884 53.739 59.118 65.075 71.673 78.979 87.068 96.022 105.931 173.636 285.014 18 55.750 61.725 68.394 75.836 84.141 93.406 103.740 115.266 128.117 218.045 371.518 19 63.440 70.749 78.969 88.212 98.603 110.285 123.141 138.166 154.740 273.556 483.973 20 72.052 80.947 91.025 102.444 115.380 130.033 146.628 165.418 186.688 342.945 630.165 25 133.334 155.620 181.871 212.739 249.214 292.105 342.603 402.042 471.981 1,054.791 2,348.803 30 241.333 293.199 356.787 434.745 530.312 647.439 790.948 966.712 1,181.882 3,227.174 8,729.985 40 767.091 1,013.704 1,342.025 1,779.090 2,360.757 3,134,522 4,163.213 5,529.828 7,343.858 30,088.655 120,392.883 50 2,400.018 3,549,507 4,994,521 7,217.716 10,435.649 15,089,502 21,813.094 31,515.340 45,497.191 280,255.693 1,659,760.743 © McGraw Hill, LLC 20% 25% 30% 48 Exhibit 1-C Present Value 1 Exhibit 1-C Present Value of $1 to be received at the end of a given number of time periods. © McGraw Hill, LLC Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 4 0.961 0.924 0.885 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.502 0.467 0.434 0.404 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 18 0.836 0.700 0.587 0.494 0.416 0.35 0.296 0.250 0.212 0.18 0.153 0.13 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 0.003 49 Exhibit 1-C Present Value 2 Exhibit 1-C Present Value of $1 to be received at the end of a given number of time periods. © McGraw Hill, LLC Period 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 1 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 0.667 2 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549 0.510 0.444 3 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.512 0.455 0.406 0.364 0.296 4 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.410 0.350 0.301 0.260 0.198 5 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.328 0.269 0.223 0.186 0.132 6 0.48 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165 0.133 0.088 7 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.159 0.122 0.095 0.059 8 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.168 0.123 0.091 0.068 0.039 9 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.134 0.094 0.067 0.048 0.026 10 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.107 0.073 0.050 0.035 0.017 11 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.086 0.056 0.037 0.025 0.012 12 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.069 0.043 0.027 0.018 0.008 13 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.055 0.033 0.02 0.013 0.005 14 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.044 0.025 0.015 0.009 0.003 15 0.16 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.035 0.020 0.011 0.006 0.002 16 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.028 0.015 0.008 0.005 0.002 17 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.023 0.012 0.006 0.003 0.001 18 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.018 0.009 0.005 0.002 0.001 19 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.014 0.007 0.003 0.002 0 20 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.012 0.005 0.002 0.001 0 25 0.047 0.038 0.03 0.024 0.020 0.016 0.013 0.01 0.004 0.001 0.001 0 0 30 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.001 0 0 0 0 40 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0 0 0 0 0 50 0.002 0.001 0.001 0.001 0 0 0 0 0 0 0 0 0 50 Exhibit 1-D Present Value (annuity) 1 Exhibit 1-D Present Value of $1 to be received at the end of a given number of time periods (an annuity). © McGraw Hill, LLC Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 4 3.902 3.808 3.717 3.63 3.546 3.465 3.387 3.312 3.240 3.17 3.102 3.037 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.65 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 18 16.398 14.992 13.754 12.659 11.69 10.828 10.059 9.372 8.756 8.201 7.702 7.250 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.95 8.365 7.839 7.366 20 18.046 16.351 14.877 13.590 12.462 11.47 10.594 9.818 9.129 8.514 7.963 7.469 25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 8.055 40 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 51 Exhibit 1-D Present Value (annuity) 2 Exhibit 1-D Present Value of $1 to be received at the end of a given number of time periods (an annuity). © McGraw Hill, LLC Period 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 1 0.885 0.877 0.870 0.862 0.855 0.847 0.84 0.833 0.8 0.769 0.741 0.714 0.667 2 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.44 1.361 1.289 1.224 1.111 3 2.361 2.322 2.283 2.246 2.21 2.174 2.14 2.106 1.952 1.816 1.696 1.589 1.407 4 2.974 2.914 2.855 2.798 2.743 2.69 2.639 2.589 2.362 2.166 1.997 1.849 1.605 5 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.689 2.436 2.22 2.035 1.737 6 3.998 3.889 3.784 3.685 3.589 3.498 3.41 3.326 2.951 2.643 2.385 2.168 1.824 7 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.161 2.802 2.508 2.263 1.883 8 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.329 2.925 2.598 2.331 1.922 9 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.665 2.379 1.948 10 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 2.715 2.414 1.965 11 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 2.438 1.977 12 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 3.725 3.19 2.779 2.456 1.985 13 6.122 5.842 5.583 5.342 5.118 4.91 4.715 4.533 3.78 3.223 2.799 2.469 1.99 14 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 1.993 15 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 1.995 16 6.604 6.265 4.954 5.668 5.405 5.162 4.938 4.73 3.887 3.283 2.834 2.489 1.997 17 6.729 6.373 6.047 5.749 5.475 5.222 4.99 4.775 3.91 3.295 2.84 2.492 1.998 18 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 1.999 19 6.938 6.550 6.198 5.877 5.584 5.316 5.07 4.843 3.942 3.311 2.848 2.496 1.999 20 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.87 3.954 3.316 2.85 2.497 1.999 25 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 2.000 30 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 2.000 40 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 2.000 50 7.675 7.133 6.661 6.246 5.88 5.554 5.262 4.999 4.000 3.333 2.857 2.500 2.000 52 Because learning changes everything. ® www.mheducation.com © 2023 McGraw Hill, LLC. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw Hill, LLC. Accessibility Content: Text Alternatives for Images © McGraw Hill, LLC 54 The Financial Planning Process – Text Alternative Return to parent-slide containing images. First, determine your current financial situation; second, develop your financial goals; and third, identify alternative courses of action. Fourth, evaluate your alternatives, such as considering your life situation, personal values, economic factors, and assessing risk and the time value of money (that is, opportunity costs). The fifth step involves creating and implementing your financial action plan. The sixth step involves reviewing and revising the financial plan. Return to parent-slide containing images. © McGraw Hill, LLC 55 Exhibit 1-2: Types of Risk – Text Alternative Return to parent-slide containing images. The figure shows the 5 types of risks. Inflation risk - Rising or falling (deflation) prices cause changes in buying power. Decide whether to buy something now or later. If you buy later, you may have to pay more. Interest rate risk - Changing interest rates affect your costs (when you borrow) and your benefits (when you save or invest). Borrowing at a low interest rate when interest rates are rising can be to your advantage. Variable-rates on loans may increase, resulting in higher payments. If you save when interest rates are dropping, you will earn a lower return with a six-month savings certificate than with a certificate having a longer maturity. Income risk - The loss of a job may result from changes in consumer spending or expanded use of technology. Individuals who face the risk of unemployment need to save while employed or acquire skills they can use to obtain a different type of work. Personal risk - Many factors can create a less than desirable situation. Purchasing a certain brand or from a certain store may create the risk of having to obtain repairs at an inconvenient location. Personal risk may also take the form of health risks, safety risks, or additional costs associated with various purchases or financial decisions. Liquidity risk Some savings and investments have the potential for higher earnings. However, they may be more difficult to convert to cash or to sell without significant loss in value. Return to parent-slide containing images. © McGraw Hill, LLC 56 The Financial System and Economic Factors – Text Alternative 1 Return to parent-slide containing images. In the financial system, providers (i.e., savers, investors) of funds include individuals, businesses, governments, and foreign entities. Funds flow from them to either financial intermediaries or financial markets, between which funds also move in both directions. Financial intermediaries include banks, credit unions, insurance companies, investment companies, and other financial institutions. Funds then move on from financial intermediaries and financial markets to users (i.e., borrowers and spenders) of funds, which include individuals, businesses, governments, and foreign entities. The financial system is regulated by the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, Securities and Exchange Commission, state banking agencies, and state insurance agencies. Return to parent-slide containing images. © McGraw Hill, LLC 57 Opportunity Costs and the Time Value of Money – Text Alternative Return to parent-slide containing images. Personal opportunity costs (i.e., time, effort, health) and financial opportunity costs (i.e., interest, liquidity, safety) should be assessed before making financial acquisitions (e.g., automobile, home, college education, investments, insurance coverage, or retirement fund). Return to parent-slide containing images. © McGraw Hill, LLC 58 Achieving Financial Goals – Text Alternative Return to parent-slide containing images. Part 1 covers planning your personal finances with obtaining (chapter 2) and planning (chapters 3 and 4); part 2 covers saving (chapter 5) and borrowing (chapters 6, 7); part 3 covers making your purchasing decisions by spending (chapters 8 and 9); part 4 covers insuring your resources by managing risk (chapters 10 through 12); part 5 covers investing your financial resources through investing (chapters 13 - 17) and part 6 covers controlling your financial future with retirement and estate planning (chapters 18 and 19). Return to parent-slide containing images. © McGraw Hill, LLC 59 Exhibit 1-9 Financial Planning in Action for Different Life Situations – Text Alternative Return to parent-slide containing images. For financial planning now, you should (1) assess your current situation, (2) develop financial goals, and (3) select appropriate plans of action. Within a year you should follow short-term financial strategies, which include create and implement a budget; pay off credit card debts; obtain adequate insurance; establish a regular savings program; invest in safe, income-producing financial instruments; use rental housing; and save for home purchase. More than a year from now, you should Invest in financial instruments for long-term growth; select tax-deferred investments, and pay off consumer debts and home mortgage. Examples: Life situation 1: single parent; goal: provide $20,000 college fund in 10 years; within a year: make regular deposits to a savings plan such as certificates of deposit; more than one year from now: obtain life insurance for dependent care in case of premature death. Life situation 2: young couple; goal: save for down payment for home purchase; within a year: create and implement budget to allow regular deposits to savings or investment program; more than one year from now: continue investment program to provide for expanded housing needs or emergencies. Life situation 3: middle-aged person or couple; goal: provide for financial needs of parents; within a year: purchase life insurance with parents as beneficiaries; more than one year from now: make monthly payments to mutual funds investment program. Return to parent-slide containing images. © McGraw Hill, LLC 60