Savings 02: Exponential Growth

Name: Date:

To begin your journey, ask yourself, “Why save money?” Is there anything you need to buy in the future that you do not have enough money for today? How will you save this money? How long will it take until you make the purchase? Think about the answers to these questions as you design a scenario.

Here is a link to s video to help:

Part I: Scenario

You are saving up for a major purchase. The purchase could be college tuition, an entertainment system, a car, or any other purchase you desire.Now it's time to show off your creativity! Create, and submit to your instructor, a fantasy purchase scenario. You must include the responses to each of the following questions about your purchase in complete sentences.

  • What will you buy? (Provide a detailed description of the major purchase.)
  • Why do you want to make this purchase?
  • What is the purchase price? (Choose an amount between $10,000 and $15,000.)

Part II: Research

Now it's time to find out how much interest you can earn as you save for this big purchase. You will research a compound interest savings account at a local bank or credit union. You may visit the bank and interview a bank teller or pick up a pamphlet. You could also research the bank on the internet. Be sure to follow theguidelines and safety precautionsfor completing internet searches.

Submit the following information about your savings account to your instructor – be sure to include the labels:

  • Name of Bank
  • Name/Type of Account
  • Interest Rate
  • Compounding Frequency
  • Source (e.g., website, teller's name, etc.)

Imagine your parent(s)/guardian(s) have offered you a similar savings deal with simple interest. They will pay you the same interest rate as the bank, but they will pay simple interest instead of compound interest.

Part III: Calculations and Graphs

Compare your options by performing some calculations and creating some graphs. You must show your work on all calculations. For your report, please number your questions - you must show your work on all calculations.

  1. Calculate the amount of your compound interest investment after 10 years. Remember that you are starting with $7,500.

Formula:

Show Work:

Answer:

  1. Calculate the amount of your simple interest investment after 10 years. Remember to use the same rate and compounding as in #1.

Formula:

Show Work:

Answer:

  1. Create a graph that shows the growth of your compound interest and simple interest investment over time.

Hint: Write both formulas above in terms of x & y to graph. Then use to graph the functions and find the intersection of the simple interest and compound interest graph with the line (y = price of item). You will need to change the window settings using the wrench so that your graph appears on the screen.

Compound: Simple:

Window:

______< time (x) < ______< Balance (y) < ______

PLACE picture of Graph here:

Part IV: Analysis

Now you will compare the two investments. Which is more beneficial and why? Respond to each of the following questions using complete sentences.

  1. What is the difference between the graph of a simple interest investment and the graph of a compound interest investment?
  1. What is the difference between a simple interest investment and a compound interest investment?
  1. About how long will it take for you to save enough money to make your purchase based on the compound interest graph? (Hint: What value for time does the curve cross the value of your item?)
  1. About how long will it take for you to save enough money to make your purchase based on the simple interest graph? (Hint: What value for time does the line cross the value of the item?)
  1. Which investment (simple or compound) is more beneficial and why?
  1. In your research, did you find any accounts that offered simple interest?
  2. If so, provide a description of where you found them.
  3. If not, why do you think were unable to find them?
  1. What is one way you could adjust your investment to make your purchase sooner?