Sandra religiously spends $20 a weeks on Starbucks coffee, every week of the yea

Question

Sandra religiously spends $20 a weeks on Starbucks coffee, every week of the year. She uses her credit card for such expenses, and although she makes timely payments on her card, she always has a balance on the card that is more than $100. If she made her own starbucks coffee at home, she could save about $15 a week on her coffee-drinking habit, and enjoy even more coffee. She wants to save about $5,000 for a new car in the next 2 years but is struggling to find the money to save. Using and applying Time Value of Money concepts, explain to Sandra why you believe making her own starbucks coffee at home could help her achieve her saving objective for her new car.

Explanation / Answer

Time value of money is a concept which means the amount available at present time is always worth more than the same amount in future due to its earning potential.

if sandra palns to make coffee at home she could save $15 a week and if she invest that amount as a deposit with weekly compounding.she could have save enough money for her car.

Also she is not required to maintain minimum balance for credit card , so she can also invest that amount to get money for her car.

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