Web Application Chapter 9 page 351

Would you like to have a million dollars saved by the time you reach retirement? Point your browser to www.bankamerica.com and click on Spare Change. Now select For a $1,000,000, then on the green currency. This Web site www.bankamerica.com/tools/sp-million.html contains an interactive tool for you to use. See how much money you need to save each year in order to have a million dollars when you retire.

Experiment by entering different ages. Do some what-if scenarios: for example, what if saving started at age ten, fifteen, or even five and retirement age was 60, 67, or 70? The interest rate shown is used for purposes of illustration. Investment rates vary and may be higher or lower than the rate shown. Notice that the interest is compounded yearly.

To answer the following questions, use information from one of your experimental scenarios.

1. The interactive tool provided a yearly amount based on a certain number of years. The years represent the difference between the yearly age at which savings begins and the age of retirement. Using that yearly amount and the number of years until retirement, calculate the simple interest using the formula (I = PRT) for all payments combined. What is the difference between the compounded amount that the interactive tool suggested and the simple interest amount that was calculated?

2. Using the same yearly dollar amount and interest rate, recalculate using compound interest. Manually calculate out to three periods. Set up the problem according to example found in Objective 1 page 353 of your textbook

Show your work and include the date of the information used in your answer.

© Copyright 2000 Addison Wesley Longman, Inc.