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Date Created: 11/14/15
MM255 Business Math and Statistical Measures Unit 6: Instructor Graded Assignment 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 a) How much money (total) do you have after the 5 years pass? 15,000*(1+.01)^5 15,000*(1.01) $15,765.15 b) How much do you earn in interest over the 5 years? $765.15 Question 2 (10 points) 2. 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.) MM255 Business Math and Statistical Measures a) How much do you need to invest today to have $500,000 30 years in the future? Future value = $500,000 Number of compounding periods = 30*4 =120 Interest rate for one compounding period = 0.015 Present value = Future value (1+.015) 120 = $500,000 / (1.015) 120 = $83,761.59 b) How much of that total is interest? Interest earned = $500,000 $83,761.59 = $416,238.41 Question 3 (10 points) 3. You borrow $50,000 at 5% interest (compounded daily). a) After 1 year passes, you pay off $25000 of the loan. How much do you still owe on the loan? 50,000*(1+.05/365)^365 50,000(1.051267496) $52,563.3725,000 = $27,563.37 b) After another year passes, you wish to pay off the loan. How much do you need to pay to pay it off? 27,563.37*(1+.05/365)^365 27,563.37(1.051267496) $28,976.48 Essay (15 points) MM255 Business Math and Statistical Measures 4. 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. There are several advantages as well as disadvantages. Everyone wants to make out like a bandit when investing but we all know there are risks. Some advantages are the possibility of high returns on your investment, higher capital inflow and a risk that the interest rate might come down. Some disadvantages are high borrowing rate, high inflation leading to problems in the economy and low demand of funds. Requirements for essay Write your essay in this document – do not save it in a separate file. You must clearly state your position with wellstructured paragraphs using proper grammar, spelling, and sentence structure. This is not an “opinion” question – you must offer evidence to support your position, using properlycited sources. Your answer must be between ¾1 page in length. You must cite and reference at least one source (book, website, periodical) using APA format. The required website counts as one source. You may submit your Assignments to the Math Center for review. Tutors will not grade or correct the Assignment, but they will provide guidance for improvement. Tutors will not, however, help you find web sites for the Assignment. Be sure to submit Assignments early enough to receive feedback and make corrections before the Assignment due date (24 hour turnaround times MondayThursday and 48 hour turn around times on weekends are typical). Email Assignments to: firstname.lastname@example.org. Please put “MM255 Assignment Review” in the subject line of the message.
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