cost of money test prep. interest rates going down no information rates will increase lock up...

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COST OF MONEY TEST PREP

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Page 1: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

COST OF MONEY

TEST PREP

Page 2: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

INTEREST RATES GOING DOWN

• NO INFORMATION RATES WILL INCREASE

• LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

Page 3: 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 ???

Page 4: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

TRUTH IN LENDING ACT

• FEDERAL LAW

• COST OF CREDIT BE DISCLOSED

• TO CONSUMERS

• BOLD PRINT

• LOAN CONTRACT

Page 5: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

USURY

• VERY HIGH RATES ON HIGH INTEREST

Page 6: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

INFLATION

• WHO BENEFITS?

• LONG TERM FIXED RATE BORROWERS

• WHY ?????

Page 7: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

CREDIT UNIONS

• PAY HIGHER INTEREST RATES ON

• SAVING ACCOUNTS

• NOT FOR PROFIT

• GOAL—CONSUMER

• NO SHARE HOLDERS

Page 8: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

RULE OF 72

• 72 DIVIDED BY INTEREST RATE

• YEARS TO 2X CASH

• 12% INTEREST

• 6 YRS 2X CASH

Page 9: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

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

Page 10: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

WHY MIGHT INTEREST RATES DEPRESS STOCK PRICES

• HIGH

• INTEREST RATES

• RESULT IN LOWER BUSINESS PROFITS

• HIGHER COST ON LOANS

Page 11: COST OF MONEY TEST PREP. INTEREST RATES GOING DOWN NO INFORMATION RATES WILL INCREASE LOCK UP CURRENT RATE FOR A LONG PERIOD OF TIME

FINANCE CHARGE

• THE INTEREST RATE A LENDER CHARGES TO BORROW MONEY

Page 12: 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

• WHAT IS NEEDED???

• INTEREST RATE- CURRENT

• RATE OF INFLATION