# Compound interest

March 17, 2020
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March 17, 2020

Compound Interest

In this and future Instructor Graded Assignments you will be asked to use the answers you found in the Unit 1 Assignment.

Note: For these questions you need to cite a reliable source for information, which means you cannot use sites like Wikipedia, Ask.com®, and Yahoo® answers. If you do use those sites the instructor may award 0 points for your response.

The Assignment problems must have the work shown at all times. The steps for solving the problems must be explained. Failure to do so could result in your submission being given a 0. If you have any questions about how much work to show, please contact your instructor.

Assignments must be submitted as a Microsoft Word® document and uploaded to the Dropbox for Unit 6. Please type all answers directly in this Assignment below the question it applies to
All Assignments are due by Tuesday at 11:59 PM ET of the assigned Unit.

Note: All interest rates are to be assumed to be yearly interest rates.

Question 1
(10 points)

1. You decide to invest \$15000 into a bank account that that is compounding its interest monthly. Assuming the bank is paying out an interest rate of the current prime rate – 1% (In the event that prime – 1% is less than 1%, use 1%), and the investment is for 5 years
1. a) How much money (total) do you have after the 5 years pass?
1. b) How much do you earn in interest over the 5 years?

Question 2
(10 points)

1. You wish to have \$500,000 saved up in 30 years. Assuming that you can get an interest rate of prime + 5% on your investment (compounded quarterly.)
1. a) How much do you need to invest today to have \$500,000 30 years in the future?
1. b) How much of that total is interest?

Question 3
(10 points)

1. You borrow \$50,000 at 5% interest (compounded daily).
1. a) After 1 year passes, you pay off \$25000 of the loan. How much do you still owe on the loan?
1. b) After another year passes, you wish to pay off the loan. How much do you need to pay to pay it off?

Essay

(15 points)

1. While everyone dreams of high interest rates for investments, usually high interest rates come with other disadvantages. Using the interest or other sources, research and write an essay on the advantages and disadvantages of higher interest rates on investments. Look at factors like risk, reward, and possible other things that would change to balance out the higher interest rates.

Requirements for essay

• Write your essay in this document – do not save it in a separate file.
• You must clearly state your position with well-structured paragraphs using proper grammar, spelling, and sentence structure.
• This is not an “opinion” question – you must offer evidence to support your position, using properly-cited sources.
• You must cite and reference at least one source (book, website, periodical) using APA format. The required website counts as one source.

Compound Interest

Question 1
(10 points)

1. You decide to invest \$15000 into a bank account that that is compounding its interest monthly. Assuming the bank is paying out an interest rate of the current prime rate – 1% (In the event that prime – 1% is less than 1%, use 1%), and the investment is for 5 years
1. a) How much money (total) do you have after the 5 years pass?

A = P(1 + r/n)^nt

P = Principal amount (initial amount) = \$15,000.00
r = annual rate of interest (as a decimal) = 0.01
t = number of years the account deposited or borrowed for = 5
n = number of times the interest is compounded per year = 12

=15000(1+ ()^60

=75,753.45
A = amount of money accumulated after n years, including interest = \$75,753.45 Answer

b) How much do you earn in interest over the 5 years?
\$75,753.45 – \$15,000.00 = \$60,753.45
Interest earned = ….

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