Stacy Williams

Major: BBA Finance
Graduation:

Student

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Famous Finance Books

 

“Learn to Earn” & “Beating the Street” by Peter Lynch

“The Intelligent Investor” by Benjamin Graham

“Creating Wealth” by Robert Allen

“How to Make Money in Stocks” by William J. O’Neil

 

 

Solution to questions from “How the Numbers Add Up”

Here are some quick tips to arrive at the answer:

1st. Find the monthly rate of interest (r) at which your cash flow (monthly payments) will grow.

How to calculate monthly interest rate when given EAR:

(1 + 0.04) ^ 1/12 – 1 = 0.00327374

If you are using a financial calculator or Excel, plug in .327374% for monthly interest. Otherwise plug in .00327374.

2nd. Calculate the number of months (n) in the period.

 

Notes!

FV represents the amount of money you want to accumulate in the future.

C represents the cash flows or monthly payments you need to make to arrive at FV.

 

Now, put it all together and you will arrive at the monthly payment required to accumulate $120000 in 20 years.

FV = $120,000

n = 12 * 20 = 240

r = .327374% (in decimals .00327374)

 

C = FV / [1 / r] * [(1 + r) ^ n – 1]

C = 120000 / [1/.00327374] * [(1.00327374) ^ 240 – 1]

C = $120,000 / $363.84 = $329.81

 

Answer:  $329.81 monthly savings at .327374% monthly interest

Awesome, right?

You may use this formula to do similar calculations for bank accounts or solve for other variables.

 

 

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