Extending Chapter 1: The Time Value of Money

What You'll Do and Learn

• You'll extend the information about the time value of money by calculating the value of interest earned on an investment.
• You'll learn how to use Standard & Poor's online calculators to help you define your financial goals.

Introduction

In this activity you will learn about using an online calculator to figure the future value of an investment.

Chapter Notes

In Chapter 1 you learned that personal financial planning involves making choices about how you spend money. You begin to develop a financial plan by defining your financial goals. These goals may include having money to buy an expensive item such as a car, or saving for a down payment on a house. Your financial goals also include choosing a career that will provide you with enough income to support your chosen lifestyle.

Once you've identified your financial goals, then you can plan how to go about meeting them. You will need to create a budget showing your income and expenses, and how much you can save or invest toward long-term financial goals. Finally, you'll gather information about different types of investments and make decisions about which ones are appropriate for your goals.

One factor that is important in deciding which investments are right for you is the rate of interest or return that you will earn on your investment over time. The higher the rate of interest on your savings, the faster your savings will grow. Compounding is the ability of your earnings to earn additional earnings. During the first few years, your investment value may grow slowly. As time passes, however, your investment will grow more quickly due to compounding.

Site Notes

Standard & Poor's offers many tools that you can use to gather information about investments. Among these is an online calculator that you can use to help you plan how long it might take you to reach a financial goal based on the interest rate that you earn on your savings.

Let Me Try

Go to the S&P site at and then print the Worksheet activity.

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