IntroductionOut of the cars presented, a closer analysis reveals that the best car to purchase would be the 1019B.1967. This follows the all exclusive features which the car has ranging from the maroon colour with either white or black interior combo to the original factory body (Pro Team; Covette Sales , 1967). The value additions in the car including the tinted windows and the FM radios makes a person give this car the closer consideration with a view of immediate purchase. More over, the price of the car is also quiet fair of 100, 000 dollars. The provision of the owners’ manual would mean that the many important features of the car will not prove to be hard for the owner to navigate through.
SavingsNormally, the total value of 100,000 dollars when distributed equally among the sixty moths to be saved, it would translate into 20, 000 dollars per annum. However, this would only be successful venture if the rates of inflation were kept constant. In the real situations, the aggregate market conditions will always avail the non stable markets as far the rates of inflation are concerned (US department of Treasury, 2011). This calls for the consideration and the inclusion of projected changes and the variations which would be observed after the five year period. The average rates of interest for the given for the five year projects are given as 1.60. This influences the rate of inflation which affects the money kept for the future as well as the rate of interest earned to the invested money. However, when the savings are made annually, the rates of interest would apply to the annual savings. They would demand that the yearly savings be varied as per the following plan. Year1, 0.18 x 20000= 3600 Year2, 0.42 x 20000 = 8400 Year3, 0.73 x 20000 = 14600 Year4, 0.73 x 20000 = 14600 Year5, 1.60 x 20000 = 32000 Total variations due to inflation = 3600+8400+14600+14600+32000 = 73, 200 dollars. This means that a total of 73200 excess of money would be set aside to take care of the inflation and the depreciation of the money values. The value of fixed amount of money changes with time. This means that the value of money is likely to depreciate when the money is just kept in the safes. This is due to the increase in the level of inflation experienced in the economy. Money therefore will tend to lose its purchasing power when it is just kept for future use though the face value remains the same (Brigham & Houston, 2009). The moment the purchasing power of money is reduced, it can therefore not be used to purchase the same value of the commodity it was meant to be used to purchase some years a go. In saving the money for future uses, it would therefore be important to take into consideration the value of the money which would depreciate with time. Money saved for a specific project should thus be subjected to the inflation rates which would translate into higher values of money saved for the given purpose.
InvestmentsOn the other hand, money kept in the regenerating agencies which earn interest would see the value of money increasing with time. Investing and keeping money in interest generating agencies would mean that money being kept and saved for future projects will not only surpass the value targeted through the accumulated interest, but also not subjected to the depreciative inflation (Brigham & Houston, 2009). In this case therefore, it is possible to observe that if the amount of money, 100, 000 dollars were to be invested in the interest generating agencies, and subjected to compound rates, and then both the principal amounts as well as the accumulated interests would earn further interests. This can either be calculated using the compound interest rates or the simple interest rates. The amounts can be invested so that it generates interest for the five years instead of depreciating in value. When invested in the fixed deposit account for example, the compound interest rates can be used to calculate the total amount generated for the five years. Therefore, the following formula for the compound interest rate would be applied (Brigham & Houston, 2009). A= P (1+r/100) n where: A= accumulated amount P= principal amount r= interest rates applied n= number of years Thus, the amount which would accrues after five years would be calculated as: A= 100,000(1+ 1.60/100)5 = 108, 260. This clearly shows that the amount have accumulates a total interest of 108260- 100000= 8, 260. This entire amount would be saved as it has already taken into the consideration all the rates of inflation which would have occurred during the same period. The act of saving money for future use is not a good idea. This is because of the likely hood of larger depreciations the money kept and not saved is likely to experience with time. Money kept for future use would mean that a large sum of money in the form of interest rates earned if the money was invested is missed as the opportunity cost.
ConclusionIn making the financial decisions, sound understanding of the concepts of money is very important. It would prove to be more logical if one invests their money for a given time duration rather than just keeping off the money in the safes.