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Plan Ahead Exponentially Portfolio Worksheet: Part 1: Dream Big!

Pre cal many questions with solutions

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Ritesh Singh
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1K views

Plan Ahead Exponentially Portfolio Worksheet: Part 1: Dream Big!

Pre cal many questions with solutions

Uploaded by

Ritesh Singh
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Name Date

Plan Ahead Exponentially Portfolio


Worksheet
PRECALCULUS

Part 1: Dream Big!


It’s never too early to plan for your future. Even though you are just starting out in
life, it is valuable to learn something about planning for your retirement now.
There are a variety of accounts you can use to save for retirement. Once you are
working full time, your employer may offer a program of contributions to a
retirement account of your choice. Individual retirement accounts (IRAs) and
401(k) accounts have become very popular. There are several factors that help you
choose the right account for you, including the taxability of the account and
whether you can use some of the money if you need to at any time.
At this point in your life, certificates of deposit (CDs) may be more practical. You
may save for several years and then decide to use some or all of your money for
something before retirement, possibly a house.
You, the depositor, agree to leave your money, the principal, in the account for a
specific length of time, the term. In return, the bank pays you a percentage of your
principal, the rate, in interest. When the term is over, you can most often keep the
account open and continue growing your money.
Very rarely will you see interest calculated annually (once a year). In today’s
banking world, interest is calculated more frequently. Interest may be added to
accounts quarterly (four times a year), monthly (twelve times a year), or even daily
(365 times a year). The amount of interest you receive each time compounds
because the rate is calculated on the total in the account, the sum of your principal
and all interest payments you have received to date.
In this portfolio, you will explore the growth of a savings account through time and
come to appreciate how long it takes to reach your goal.

How much money do you want to have available when you retire? $120000

At what age would you like to retire? 55

Keep these amounts in mind as you go through the next parts of this project.

© 2016 Connections Education LLC. All rights reserved. 1


Name Date

Part 2: Research Certificates of Deposit


Inquire at a local bank or conduct an online search for “certificate of deposit
interest rates.” Gather the basic details for an actual CD account in today’s
economy. There will be many different accounts available. Choose one that you
think will grow quickly through time or that will suit your planning needs.

Research Topics for CDs Notes

minimum balance $10,000

rate of interest 7%

compound period monthly

required term to keep account open 1 year

fees, if any No

other notes

information source https://www.nerdwallet.com/best/banking/cd


-rates
(bank or website)

Compound interest is calculated with an exponential calculation. Since interest is


deposited directly back into the account so the total account value grows, the value
nt
 r
of the account can be found with this formula:=
A P 1 + 
 n
The following are the variables in the exponential function:
• A, the amount in the account after interest is added
• P, the principal originally deposited in the account
• r, the annual rate of interest
• n, the number of times, or frequency, that interest is compounded during the
year
• t, the term (number of years) the account is open

For the account you chose, record the values of r and n.

Variables Values

rate of interest (r) 7%

compound period (n) 12

© 2016 Connections Education LLC. All rights reserved. 2


Name Date

Part 3: Your Investment Over the Years


Suppose you are able to open a certificate of deposit account with an initial
principal of $1,000.00. Complete the table to see the value of the CD account you
chose for various terms. Use the rate of interest in its decimal form, not as a
percentage. Show all work.

CD Account Calculations CD Account


Term nt Value
 r
=
A P 1 + 
(t)  n (A)

0 years $1,000.00
1000(1 + 7/12)^12(0)

5 years
1000(1+0.07/12)^(12(5)) $1,417.63

10 years
1000(1+0.07/12)^(12(10)) $2,009.66

15 years
1000(1+0.07/12)^(12(15)) $2,848.95

20 years
1000(1+0.07/12)^(12(20)) $4,038.74

25 years
1000(1+0.07/12)^(12(25)) $5,725.42

30 years
1000(1+0.07/12)^(12(30)) $8,116.50

40 years
1000(1+0.07/12)^(12(40)) $16,311.41

50 years
1000(1+0.07/12)^(12(50)) $32,780.41

© 2016 Connections Education LLC. All rights reserved. 3


Name Date

Part 4: Will You Be Able to Retire When You Want?


Will your CD rate enable you to meet your goals for retirement with an initial
principal of $1,000.00? Write a paragraph with your conclusions.

No, it wont meet my goals for the saving of $120000 at the age of 55.I should increase the
principal value to achieve my goals for retirement.The goal is $120000 , I should have higher
pricipal , rate of interest and frequency of compounding.

Which variable has the most impact on growing your money? If you could increase
one of the variables in the compound interest formula, which would have the most
impact on growing your money? Before you complete the next set of calculations,
predict whether an increase in the principal, the rate, or the frequency of
compounding will increase your account balance more.

I think increasing the initial principal will give higher values of amount at end. As per the
formula principal multiplies to (1 + r/nt)^nt so higher the prnicipal more we have amount.
If we have more time then also our amount increases.

© 2016 Connections Education LLC. All rights reserved. 4


Name Date

Using a term of 50 years in all cases, calculate the account balance in each case to
see which variable has the most impact on the amount.

50 n
 r
You should use your calculator for these calculations.=
A P 1 + 
 n

Increase Principal (P)


Interest Compound Account Balance
Principal
Rate Frequency

P = $1,000.00 r = 1% n=4 A = $1,647.69

P = $2,000.00 r = 1% n=4 A = $3,295.39

P = $3,000.00 r = 1% n=4 A = $4,943.08

Increase Rate (r)


Interest Compound Account Balance
Principal
Rate Frequency

P = $1,000.00 r = 1% n=4 A = $1,647.69

P = $1,000.00 r = 2% n=4 A = $2,711.52

P = $1,000.00 r = 3% n=4 A = $4,456.67

Increase Compound Frequency (n)


Interest Compound Account Balance
Principal
Rate Frequency

P = $1,000.00 r = 1% n=4 A = $1,647.69

P = $1,000.00 r = 1% n = 12 A = $1,644.63

P = $1,000.00 r = 1% n = 365 A = $1,648.71

© 2016 Connections Education LLC. All rights reserved. 5


Name Date

Was your prediction accurate? What surprised you about the results?

yes it was right

What initial principal would you need to invest in the CD account in order to meet
your retirement goals?

For 55 years of retirement i would invest $2905 as principal to get $120000

© 2016 Connections Education LLC. All rights reserved. 6

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