Value of Annuity

Assignment Details

Two friends, Sally and Debbie, decide to make Saturday special and plan a fun family dinner twice a month.

• Sally packs a picnic lunch and spends every other Saturday in the park; that night, she deposits $100 in an online mutual fund savings account which pays 8% interest.
• Debbie takes her family out to eat every other Saturday and puts the charge of $100 on her credit card. Her credit card interest is 20% based on her credit score rating of “Prime”.

Part A: Based on the first scenario:

Answer the following question utilizing the Future Value of Annuity calculator:

If Sally’s account compounds monthly, calculate how much Sally will have in her savings account:

1. In 10 years?
2. In 20 years
3. In 30 years?
4. In 40 years?

Part B: Based on the second scenario:

Answer the following question utilizing the Credit Card Interest Calculator:

1. For just one year of spending $100 on dinner every other Saturday, how much would Debbie pay in interest for her credit card balance of $2,400 if she pays the minimum payment of $48 per month? How long would it take for Debbie to pay off the debt?  
2. If she had the better credit score rating of “Superprime”, her interest rate would be lowered to 18%. With this change, how much interest would she pay and how long would it take to pay off this debt?  

For more information about interest rates, please review this article regarding credit score ratings.

Part C: For the conclusion of this assignment, answer the following questions.

1. Were you surprised at the results?
2. What lessons did you learn from these calculations?
3. What changes may you make in your personal finances based on the knowledge of time value of money principles?

Use the following template to complete the Unit 3 Individual Project (IP): Unit 3 IP template.

Submitting your assignment in APA format means, at a minimum, you will need the following:

• Title page: Remember the running head. The title should be in all capitals.
• Length: 5 pages minimum
• Body: This begins on the page following the title page and must be double-spaced (be careful not to triple- or quadruple-space between paragraphs). The typeface should be 12-pt. Times Roman or 12-pt. Courier in regular black type. Do not use color, bold type, or italics, except as required for APA-level headings and references. The deliverable length of the body of your paper for this assignment is 5 pages. In-body academic citations to support your decisions and analysis are required. A variety of academic sources is encouraged.
• Reference page: References that align with your in-body academic sources are listed on the final page of your paper. The references must be in APA format using appropriate spacing, hanging indent, italics, and uppercase and lowercase usage as appropriate for the type of resource used. Remember, the Reference page is not a bibliography but a further listing of the abbreviated in-body citations used in the paper. Every referenced item must have a corresponding in-body citation.