Opportunity Costs DATE: 10/6/2014 OBJECTIVE: SWBAT evaluate different opportunity costs and how they affect your financial planning process DO NOW: How are personal opportunity costs different from financial opportunity costs?

Financial Opportunity Costs Opportunity Cost, also known as trade-off, is what you give up when you make one choice instead of another. Time Value of Money is the increase of an amount of money as a result of interest or dividends earned.

Interest is the price that is paid for the use of another’s money Principle is the original amount of money on deposit or the amount that you borrow Future Value is the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time Present Value is the amount of money you would need to deposit now in order to have a desired amount in the future Annuity is a series of equal regular deposits into savings

Calculating Interest

The Power of Compound Interest Future Value

Rule of 72 This shortcut allows a saver to use the annual rate of return (whether it is an interest rate or a rate of growth in value) to estimate the length of time required For savings to double in value: At 4%, the savings will double in approximately 18 years. (72 ÷ 4 = 18) At 6%, the savings will double in approximately 12 years. (72 ÷ 6 = 12) At 9%, the savings will double in approximately 8 years. (72 ÷ 9 = 8) At 12%, the savings will double in approximately 6 years. (72 ÷ 12 = 6)

TEST REVIEW Opportunity Cost Inflation Principle Interest Know the following terms… Personal Financial Planning Values Goals Liquidity Economics Federal Reserve System Supply Demand Opportunity Cost Inflation Principle Interest Present Value Future Value Annuity

TEST REVIEW (cont.) What are the steps in developing personal financial plan? While planning your financial goal, you should make it ….. What kind of factors influence your decisions about finance? Why should you “pay yourself first”? What are the difference between consumable goods, durable goods, and intangible items?

TEST REVIEW (cont.) What are the differences between short-term, intermediate, and long-term goals? What is trade-off? A person who purchases and uses goods or services is a ….