1. Chapter 1.2 Opportunity Costs Financial Strategies
Personal Finance
Chapter 1.2
Opportunity Costs
Financial Strategies

2. Objectives Determine how opportunity costs impact decisions
Calculate interest

3. Opening Question
You just won $2,000,000!!!!!!!!!! What would you do with the money?

4. Opportunity Cost
The cost or value of what you give up.

5. Time Value of Money
Increase of an amount of money as a result of interest or dividends earned

6. Calculating Interest
Principal: Amount of money you deposit on which interest is paid
You deposit $1,000 a year in a savings account that gives you 3% interest. How much interest do you make?
Principal x Annual Int. Rate = Int.
$1,000 X .03= $30 per year

7. Future Value
The amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time

8. Future Value Equation
(Principal + Previous INT earned) X Annual Interest Rate
How much will that deposit earn in 2 years?
($1,000+$30) X 3% = $30.90
S0, $1,000 earns $60.90 of interest in 2 years

9. Future Value of a Single Deposit Math Problem
Grandma just gave you $2,750. You decide to put it into a savings account where you will earn 5% interest. How much will you have at the end of 6 years? Answer: $2,750 x = $3,685

10. Future Value of a Single Deposit Math Problem
Grandma just gave you $2,750. You decide to put it into a savings account where you will earn 5% interest. How much will you have at the end of 6 years? Answer: $2,750 x = $3,685

11. Annuity
A series of equal regular deposits

12. Future Value of a Series of Deposits Math Problem
If you deposit $75 a year at 5% for 9 years, how much will you have at the end of the nine years?

13. Future Value of a Series of Deposits Math Problem
If you deposit $75 a year at 5% for 9 years, how much will you have at the end of the nine years? Answer: $75 x = $827.03

14. Present Value
The amount of money a person would need to deposit now in order to attain a desired amount in the future

15. Present Value of a Single Deposit Math Problem
If you want to have $1,000 in five years for a down payment on a car, and your savings account pays 5% annual interest, how much money will you need to deposit now in order to earn enough interest to accumulate $1,000?

16. Present Value of a Single Deposit Math Problem
If you want to have $1,000 in five years for a down payment on a car, and your savings account pays 5% annual interest, how much money will you need to deposit now in order to earn enough interest to accumulate $1,000? Answer: $1000 x .784 = $784

17. Present Value of a Series of Deposits Math Problem
Next year when you are in college, you plan to take $1,000 out of your savings each year for 5 years. Your money will earn 9% interest. How much money will you & your parents need to deposit to make this plan successful?

18. Present Value of a Series of Deposits Math Problem
Next year when you are in college, you plan to take $1,000 out of your savings each year for 5 years. Your money will earn 9% interest. How much money will you & your parents need to deposit to make this plan successful? Answer: $1,000 x = $3,890

19. RECAP Future Value Tables: Present Value Tables:
Save time and reduce errors when computing interest over long time periods
Present Value Tables:
Help determine how much to deposit now in order to have a certain amount of money in the future

20. Eight Strategies to Achieve Your Financial Goals (p.25)
Obtain
Plan
Spend
Save
Borrow
Invest
Manage Risk
Retire

21. Class work/Group Work In Groups: Discuss your personal financial goals
Come up with opportunity costs for each
Discuss the decision you would make and why

22. Closing Question
Complete the following statement: “By learning to use my money wisely now, I’ll be able to…”
Example: “…achieve many of my financial goals.”

23. Block Period Work Chapter 1 Study Guide (Quiz Friday) Page 28-29
Review Key Concepts #1-5
Apply Key Concepts #1-4
Problem Solving Today
Real World Application