COST OF MONEY

TEST PREP

INTEREST RATES GOING DOWN

• NO INFORMATION RATES WILL INCREASE

• LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

TIME VALUE OF MONEY

• MONEY RECEIVED TODAY IS WORTH THAN MONEY RECEIVED IN THE FUTURE

• WHY ???

TRUTH IN LENDING ACT

• FEDERAL LAW

• COST OF CREDIT BE DISCLOSED

• TO CONSUMERS

• BOLD PRINT

• LOAN CONTRACT

USURY

• VERY HIGH RATES ON HIGH INTEREST

INFLATION

• WHO BENEFITS?

• LONG TERM FIXED RATE BORROWERS

• WHY ?????

CREDIT UNIONS

• PAY HIGHER INTEREST RATES ON

• SAVING ACCOUNTS

• NOT FOR PROFIT

• GOAL—CONSUMER

• NO SHARE HOLDERS

RULE OF 72

• 72 DIVIDED BY INTEREST RATE

• YEARS TO 2X CASH

• 12% INTEREST

• 6 YRS 2X CASH

RULE OF 72

• I WANT TO 2X MY CASH $10K IN

• 12 YEARS

• WHAT INTEREST RATE DO I NEED TO EARN?

• 72 DIVIDE BY 12

• 6% INTEREST

WHY MIGHT INTEREST RATES DEPRESS STOCK PRICES

• HIGH

• INTEREST RATES

• RESULT IN LOWER BUSINESS PROFITS

• HIGHER COST ON LOANS

FINANCE CHARGE

• THE INTEREST RATE A LENDER CHARGES TO BORROW MONEY

TIME VALUE OF MONEY

• WHAT IS NEEDED???

• INTEREST RATE- CURRENT

• RATE OF INFLATION