Compound Interest Homework 2 3.docx - Compound Interest...

Compound Interest Homework
Name of Student
Course Code
Instructor Name
Due Date

Answers
1. a) $ 166.93
b) $ 417,333.12
c) $ 1,669,332.47
d) Part a (the effective yield of the account) could be directly multiplied by the amounts in parts
b and c to determine them.
2. a) $ 19,143.20
b) $ 245,998.86
c) 41.32 years
3. a) I will use $ 100 for P, 10% for r, and 1 for n
b) I will use the compound interest formula shown below to calculate the amount saved for
retirement:
Amount saved = P (1 + r/n)
n
[1- (1 +r/n)
nt
] / [1- (1 + r/n)
n
]
Still, I will use $100 for P, 10% for r, and 1 for n
Upon plugging into the equation, it’s simplified as such:
Amount saved = $100 (1 + 0.1/1)
1
[1- (1 +0.1/1)
1*t
] / [1- (1 + 0.1/1)
1
]
Amount saved = $ 110 [1 - 1.1
t
] / -0.1
Amount saved = $ -1100 [1 - 1.1 t ]
c) From calculation:
t Amount saved ($)
1 110
2 231
3 364.1
4 510.51
5 671.56
6 848.72
7 1043.58

8 1257.95
9 1493.74
10 1753.12
11 2038.43
12 2352.27
13 2697.50
14 3077.25
15 3494.97
16 3954.47
17 4459.92
19 5627.50
20 6300.25
21 7040.27
22 7854.30
23 8749.73
24 9734.70
25 10818.18
26 12009.99
27 13,320.99
28 14763.09
29 16349.40
30 18094.34
31 20013.78
32 22125.15
33 24447.67
34 27002.44
35 29812.68
36 32903.95
37 36304.34
38 40044.78
39 44159.26
40 48685.18
41 53663.70
42 59140.07
43 65164.08
44 71790.48
45 79079.53
46 87097.49
47 95917.23
48 105,618.96
49 116,290.85
50 128,029.94
The graph obtained is thus:

0 10 20 30 40 50 60
0
20000
40000
60000
80000
100000
120000
140000
Amount saved ($) against t (years)
t (years)
Amount saved ($)
d) I want to retire when I am 65 years old.
I am currently 25 years old, or 40 years till I retire thus.