Discussion of interest rates and compound interest:
Given the current interest rates charged on loans and credit cards, it might be much better to try to save money for large purchases or expenses. Study the examples in your text (Sections 3.1 and 3.4) regarding compound interest with attention to the following formulas:
A = P(1+ r/n)nt
and
A = Pert
Not too long ago, it was possible to find a one-year Certificate of Deposit (CD) that would pay 5.50% interest compounded daily. The CD interest rates available today have changed.
Create a new discussion thread, including the following information:
- Assume that you have x dollars saved (you choose a specific dollar amount) and would like to purchase a used car in two years.
- Calculate the interest earned over the two-year span on your chosen dollar amount at the 5.50% interest rate, compounded daily, for a one year CD. Show your work.
- Calculate how much you will have saved with this account in two years. Show your work.
- Investigate bank interest rates available in your area for a one year CD.
- Calculate how much money you will have in two years if the interest is compounded monthly or continuously. Show your work.
- How did the change in rates affect your purchasing power?
Thoroughly complete the directions listed above. You can do any of the following:
- Give me a random example with a calculation, use the scenario and then propose the required calculations. For example, you can assume a final dollar amount they will spend on the purchase of a car, and then compute how many years it will take to accrue that amount with monthly compounding. Or, you could calculate what interest rate they would need to get on the CD in order to accrue a specific amount of money (you make up an amount to spend on the car) in just two years, assuming continuously compounded interest.