Answer to the question in EXCEL provided template
Thomas Financial ToolBoxes
| Mini Financial Calculators | ||||||||
| (Shaded boxes are the outputs based on the given inputs above the box. Do not type in the shaded boxes.) | ||||||||
| APR | APR | APR | ||||||
| Compounds | Compounds | Compounds | ||||||
| Present Value | Present Value | Payment | ||||||
| Payment | Payment | Present Value | ||||||
| Years | Future Value | Years | ||||||
| Future Value: | $0.00 | Years: | 0.0 | Investment Interest: | $0.00 | |||
| APR | APR | Compounds | ||||||
| Compounds | Compounds | Payment | ||||||
| Present Value | Future Value | Present Value | ||||||
| Future Value | Payment | Years | ||||||
| Years | Years | Debt Interest: | $0.00 | |||||
| Payment: | $0.00 | Present Value: | $0.00 | |||||
| APR | APY | |||||||
| Compounds | Compounds | |||||||
| Effective Yield: | 0.00% | Nominal Yield: | 0.00% | |||||
| The formulas in the gray boxes are not cell-protected. Should you accidentally lose their information, refer to the items below. | ||||||||
| You can copy and paste any of the formulas back into the gray boxes. Don't forget to drop the quote mark in front of the = sign. | ||||||||
| Future Value: | =FV(C5/C6,C6*C9,C8,C7) | |||||||
| Years: | =(NPER(F5/F6,F8,F7,F9))/12 | |||||||
| Debt Interest: | =I6*I5*I8+I7 | |||||||
| Payment: | =PMT(C13/C14,C17*C14,C15,C16) | |||||||
| Present Value: | =PV(F13/F14,F17*F14,F16,F15) | |||||||
| Investment Interest: | =FV(I13/I14,I17*I14,I15,I16)+I15*I14*I17+I16 | |||||||
| Effective Yield: | =F22*((1+F21)^(1/F22)-1) | |||||||
| Nominal Yield: | =F22*((1+F21)^(1/F22)-1) |
Jefferson Financial ToolBoxes
| Mini Financial Calculators | ||||||||||
| (Shaded boxes are the outputs based on the given inputs above the box. Do not type in the shaded boxes.) | ||||||||||
| APR | APR | APR | Extra payment: | |||||||
| Compounds | Compounds | Compounds | New Monthly Payment: | |||||||
| Present Value | Present Value | Payment | ||||||||
| Payment | Payment | Present Value | ||||||||
| Years | Future Value | Years | ||||||||
| Future Value: | $0.00 | Years: | 0.0 | Investment Interest: | $0.00 | |||||
| APR | APR | Compounds | ||||||||
| Compounds | Compounds | Payment | ||||||||
| Present Value | Future Value | Present Value | ||||||||
| Future Value | Payment | Years | ||||||||
| Years | Years | Debt Interest: | $0.00 | |||||||
| Payment: | $0.00 | Present Value: | $0.00 | |||||||
| APR | APY | |||||||||
| Compounds | Compounds | |||||||||
| Effective Yield: | 0.00% | Nominal Yield: | 0.00% | |||||||
| The formulas in the gray boxes are not cell-protected. Should you accidentally lose their information, refer to the items below. | ||||||||||
| You can copy and paste any of the formulas back into the gray boxes. Don't forget to drop the quote mark in front of the = sign. | ||||||||||
| Future Value: | =FV(C5/C6,C6*C9,C8,C7) | |||||||||
| Years: | =(NPER(F5/F6,F8,F7,F9))/12 | |||||||||
| Debt Interest: | =I6*I5*I8+I7 | |||||||||
| Payment: | =PMT(C13/C14,C17*C14,C15,C16) | |||||||||
| Present Value: | =PV(F13/F14,F17*F14,F16,F15) | |||||||||
| Investment Interest: | =FV(I13/I14,I17*I14,I15,I16)+I15*I14*I17+I16 | |||||||||
| Effective Yield: | =F22*((1+F21)^(1/F22)-1) | |||||||||
| Nominal Yield: | =F22*((1+F21)^(1/F22)-1) |
Analysis
| Thomas Family | Jefferson Family | |||
| Rates | 1/12th of monthly payment annuity amount in 360 months | Rates | 1/12th of monthly payment + monthly payment annuity amount AFTER mortgage is paid | |
| 0% | 0% | |||
| 1% | 1% | |||
| 2% | 2% | |||
| 3% | 3% | |||
| 4% | 4% | |||
| 5% | 5% | |||
| 6% | 6% | |||
| 7% | 7% | |||
| 8% | 8% |
Questions
| SCROLL DOWN TO SEE ALL QUESTIONS |
Question 1: What generalizations can you make from the annuity amounts reflected in the analysis table above with regards to the different strategies taken by the families? That is, from a purely financial aspect of the calculations in your table what generalizations could you make regarding the two different strategies?
Question 2: What assumptions may not necessarily be valid for a typical family regarding both the loan rate and savings plan rate?
Question 3: Discuss some basic pros and cons to these two very different approaches the Thomas and Jefferson families made with their extra monthly payment. Consider various ideas such as possible changes in the family’s employment situation, market performance, tax deductions, etc.
Question 4: Now that you have completed your analysis, comment on the merits of the advice you read from the two financial columnists. Note the dates of the advice columns. How might market performance figure in to their advice they gave at that time? Why do you think Sharon Epperson’s advice at the end specifically calls attention to an assumption of whether you are “debt-free and maxing out your 401(k) and IRAs?”
Question 5: If you were to pay extra principal on a mortgage, when is the best time to do it (early or later in the loan process) and why?
Why the Negative
| Rules of Thumb: | |
| 1. Notice that present value and future value are typically opposite in sign. | |
| 2. Use the "Inflow-Outflow" way of thinking: Inflow is money coming in and outflow is money "out-the-door". | |
| 3. If all else fails, try changing the sign of any of the inputs to see how it affects the result and act accordingly. | |
| 4. Don't get "burned" by the negative or lack of a negative in the financial formulas. Always consider its role. |