Week 2 DQ1 Choice 1
What is the difference between present and future values? How would you use present and future value techniques in preparing a financial retirement plan? How would various required rates of return affect the decisions? Explain you answer.
Present value and future value measures the value at a specific period of time. Present value represents the value of an investment at the beginning of the investment period. For example, what the worth is currently would represent what the value would be today. Future value represents the value of an investment at the end of the investment period. For example, what the worth is in the future would represent what the value would be in specific amount of time. These values each provide techniques in preparing a financial retirement plan. The future value technique of a series of deposits consists of determining future values of regular deposit amount multiplied by the future value of retirement equals the future value amount of regular retirement deposits. For example, the amount of current savings will increase based on a certain interest rate and time period that is also referred to compounding. The present value technique of a series of deposits consists of determining a regular amount to be withdrawn multiplied by the present value of retirement equals present value amount. For example, the current value for a future amount is based on certain interest rate and time period that is also referred to as discounting. The rate of return is the amount of money earned based on the amount of money invested to track all different types of investments. The average rate for short term investments and compound rate for long term investments are two ways the rate of return can be calculated. Based on the risk of the investment, a higher project rate of return relates to riskier investments and a lower projected rate of return relates to safer investments.

Week 2 DQ2 Choice 2
What is a loan amortization schedule? How would you use it to determine your loan interest rate? What factors would affect your choice between two loans? An amortization schedule is a record of a loan showing the number of payments, payment due dates, payment amounts with principal and interest, and the balance owing after the payment. Based on the term of the loan, the interest payment from the amortization schedule divided by the remaining balance of the loan equals the monthly interest rate and then multiplied by twelve to find the annual interest rate. With loans, there are two interest rate options of a variable rate or a fixed rate with advantages and disadvantages. The variable interest rate can fluctuate based on the current market rate, whereas the fixed interest rate maintain the same through the length of the loan. A variable rate loan can result in a lower payment for short term period but the rate could rise during a long term period with significantly higher payments. A fixed rate loan provides the borrower with equal payments through the lengths of the loan but the rate does not change when interest rates drop resulting in paying a higher rate than the current market rate. Depending on the needs for the loan, a variable rate may be a selection for short term loans and a fixed rate may be a selection for long term loans but there are still risks associated with either of the choices.