Purpose:

The purpose of this assignment is to create a savings plan for a down payment and to use a compound interest calculator.

Some time in the future, you will likely want to make a large purchase that will require a down payment. A down payment is a percent of the purchase price that is used to reduce the loan amount. For example, if you want to purchase a $200,000 house with a down payment of 10%, you will need a $20,000 down payment ($200,000 x 10% = $20,000).

Tasks(s):

Describe a major purchase that you would like to make in the future. Include in the discussion the expected purchase price and the down payment amount you need to save before the purchase.

Using the Nerdwallet.com compound interest calculator, create a monthly saving plan to achieve your down payment amount. Consider your income and budget when creating your savings plan. You will need the following information to use the compound interest calculator

• Initial deposit. This is the amount of savings you already have that can be used toward the purchase. If you do not have any savings, the initial deposit amount will be zero.
• Contributions. This is the amount you plan to save each month. When selecting an amount, consider your income and expenses so that the contribution fits your budget.
• Investment Time Span. This is the number of years you plan to save for the down payment.
• Estimated Rate of Return. This is the rate you expect to earn on your savings. There are many different savings options and depend upon your risk tolerance. Read Risk Tolerance to assess your level of risk tolerance and then decide which of the two investment options you would consider when saving for your down payment.
  • Opening a savings account at a bank. A benefit of a bank savings account is a low risk of losing your investment. A negative is a low rate of return. Explore online bank savings ratesfor a rate to use in your calculation. Experts recommend lower risk savings when the savings may be needed soon.
  • Investing in the stock market. A benefit of investing in the stock market is a higher expected rate of return. A negative is a potential loss of your savings. Explore What is the Average Stock Market Return? for a rate to use in your calculation. Experts recommend investing in stocks, if the savings horizon is a longer time frame.

Using Microsoft Word, create a response paper that addresses

1. What you plan to purchase
2. The size of the down payment
3. Your savings plan to reach the down payment goal, including your monthly amount saved, the investment option selected, the rate earned, investment time span, principal saved, and interest earned.