Personal Finance
June 24, 2013
Bennie Waller
wallerbd@longwood.edu
434-395-2046
Longwood University
201 High Street
Farmville, VA 23901
Bennie D Waller, Longwood University
Personal Finance
 The development of this course was partially funded by an
education grant from Dominion
Bennie D Waller, Longwood University
DISCIPLINE: The ability to forego
today what many can have to have
tomorrow what so few can.
Bennie D Waller, Longwood University
Course deadlines
Topic
Economics
Financial planning, choice of career and earning potential
The impact of taxes on income/tax planning
Financial statements and budgeting
Understanding the role of financial institutions and cash management
Assignment Due
7/9/2013
6/23/2013
6/23/2013
6/23/2013
6/23/2013
Exam 1
6/23/2013
Time Value of Money
Consumer Loans
Understanding credit - credit card, problems, reports and scores
Buying a home or automobile
Insurance
Exam 2
6/30/2013
6/30/2013
6/30/2013
6/30/2013
6/30/2013
6/30/2013
Saving/Investing
Stocks
Bonds
Comparison shopping /consumer protection/contracts
Retirement and estate planning
Final Exam
Projects due
7/9/2013
7/9/2013
7/9/2013
7/9/2013
7/9/2013
7/10/2013
7/11/2013
Bennie D Waller, Longwood University
Personal Finance
 Student evaluation - Students will be evaluated on his/her
performance on quizzes, examinations and projects.
Project
10%
Quizzes
10%
Exam 1
20%
Exam 2
20%
Final Exam
40%
Numerical Grade
90 and above
80-90
70-80
Letter Grade
A
B
C
60-70
Below 60
D
F
Bennie D Waller, Longwood University
Personal Finance
 Ms. Cherry Hedges, VACU
 Financial planning exercise
Bennie D Waller, Longwood University
Personal Finance
BREAK
Bennie D Waller, Longwood University
Personal Finance
 Remaining material






TVM
Loans, Credit Cards, Mortgages, Auto
Insurance
Investments, Stocks, Bonds, Mutual Funds
Consumer Decision making, Consumer protection
Retirement
Bennie D Waller, Longwood University
Personal Finance
Time Value of Money
TVM Spreadsheet
TMV Magic
Bennie D Waller, Longwood University
Personal Finance
Bennie D Waller, Longwood University
Personal Finance
 Overview of Calculator
Bennie D Waller, Longwood University
Calculator
ENTER key
Compute
(CPT) Key
Payment key
Present Value key
Future Value key
I/Y = interest rate
N =number of periods
CE/C Clear key
Bennie D Waller, Longwood University
Source: wikipedia.com
Time Value of Money
HINT on organizing results
FV =
PV =
N =
I =
PMT=
Bennie D Waller, Longwood University
Time Value of Money
Calculator Solution
Financial Formula Solution
𝑃𝑉 =
𝐹𝑉𝑛
1000
=
= 840
𝑛
3
(1 + 𝑖)
(1 + .06)
Bennie D Waller, Longwood University
Time Value of Money
Present Value of an Annuity –
Bennie D Waller, Longwood University
Time Value of Money
Example: If you were to win the lottery worth
$1 million to be paid out over the next 20 years
at $50,000 per year. Assuming that your
opportunity costs is 15%, how much is the $1
million worth today?
PV = 312,967
FV = 0
N = 20
I = 15
PMT= 50,000
Bennie D Waller, Longwood University
Personal Finance
Financial Trivia
Financial Trivia
Spending Trivia
Paycheck Trivia
Etiquette Trivia
Financial Football
Financial Soccer
Bennie D Waller, Longwood University
Time Value of Money
Time Value of Money - The idea that money available at the present
time is worth more than the same amount in the future due to its
potential earning capacity. This core principle of finance holds that,
provided money can earn interest, any amount of money is worth
more the sooner it is received.
Money received sooner rather than later allows one to use the funds
for investment or consumption purposes.
Which would you rather have -- $100 today or $100 in 1 year?
NOT having the opportunity to earn interest on money is called
OPPORTUNITY COST.
Bennie D Waller, Longwood University
Time Value of Money
Present Value of a lump sum
𝐹𝑉
100
100
𝑃𝑉 =
=
=
= 90.91
𝑁
1
1
(1 + 𝑖)
(1 + .10)
(1.1)
Bennie D Waller, Longwood University
Time Value of Money
Future value of a lump sum
𝐹𝑉 = 𝑃𝑉(1 + 𝑖)𝑁 = 90.91(1 + .10)1 = 100
Bennie D Waller, Longwood University
Time Value of Money
Present value of an annuity
𝑃𝑉 =
𝐹𝑉
100
100
100
100
=
+
=
+
= 90.91 + 82.64 = 173.55
(1 + 𝑖)𝑁 (1 + .10)1 (1 + .10)2 (1.1)1 (1.1)2
Bennie D Waller, Longwood University
The 5 “Cs” of creditworthiness
The “five Cs” of credit to determine creditworthiness include:
 Character: reflects stability in your lifestyle.
 Capacity: reflects the relationship between earnings and debt.
 Capital: reflects the level of savings and investments held.

 Collateral: reflects the availability of assets for security, should
you default on the loan.
 Conditions: reflect the possible impact the current economic
situation.
Bennie D Waller, Longwood University
Big Ticket Purchases
Bennie D Waller, Longwood University
Factors to consider
Before making your purchase;
 Maintenance costs – more for used cars
 Operating costs  Insurance - much higher for a sports car
 Warranties
 Rebates and interest rate promotions
 Test drive the car
 Reconsider extended warranties and other add-ons
 Sources for information include
 Nada.com
 Kbb.com
 Consumerreports.org
Bennie D Waller, Longwood University
How much can you afford?
Alternatively, assume that you
can obtain a $23,000, 4 year loan
from an auto company running a
promotion at 3% for customers
with excellent credit. What
would your monthly payment?
PMT= 509.09
PV = -23000
FV = 0
N = 4x12=48
I = 3/12 = .25
Monthly Payment = 509.09
Total Payments = $24,436.30
Interest Payments = 1,436.30
Bennie D Waller, Longwood University
Housing costs
 If purchasing a home, you are likely to incur significant onetime costs such as
 Down payment
 Loan points
 Application/credit/origination fee
 Application fee
 Appraisal, title, attorney, home inspection fee
 Title insurance
 Recurring costs
 PITI
 Maintenance
 Repairs
Bennie D Waller, Longwood University
Borrowing ratio example
Maximum loan amount
6% FRM with monthly amortization, 30 years
28% ratio
36% ratio
36,000
3,000
Annual Income
Monthly Income
36,000
3,000
Annual Income
Monthly Income
840
100
PITI (28%)
Monthly taxes
1,080
250
PITI and other debts (36%)
Monthly car payment
100
640
Monthly insurance
Income for PI
100
100
630
100
100
430
Monthly credit card payment
Monthly student loan payment
Income for PITI
Monthly taxes
Monthly insurance
Gross income for PI
$106,746.63 Maximum amount of loan
$71,720.39 Maximum amount of loan
Bennie D Waller, Longwood University
Down payment is a prohibitive factor
Maximum home value
Based on 80% LTV mortgage lending guidelines
28% ratio
36% ratio
$106,746.63
$71,720.39
80% LTV
$133,433.29
$89,650.49
20% PMT
$26,686.66
$17,930.10
 With 20% you will have to pay private mortgage insurance
Bennie D Waller, Longwood University
Terms of mortgage
 Factors to consider
 Interest rate
 Size of monthly payment
 Term of mortgage
Loan Amount
Interest
Years
100,000
6.00%
30
100,000
6.00%
15
Monthly Payments
Total Payments
599.55
215,838.19
843.86
303,788.46
Interest
115,838.19
203,788.46
Bennie D Waller, Longwood University
Thank You
Bennie D Waller, Longwood University