Question

Instructions: Show all work for each section. Any paragraphs should be typed and written in complete sentences. Use Times New Roman, 12-point font and double space. Cite any resource that you use. Attach any additional paperwork to the back of your project.

Part 1: Planning Ahead with Compound Interest

Scenario: Suppose you have a new baby. You estimate that you need $ 100,000 for their college education when they are ready to go to college in 18 years.

1. Assume you invest $10,000 in a mutual fund (e.g. money market fund) at an APR of 7% compounded quarterly. How long, to the nearest tenth of a year, will it take the $10,000 to grow to $100,000? [Solve using both methods below.]

Solve using Logarithmic Equations Number of Years (nearest tenth):   _________________

Solve using the TI-84 TVM Solver N = _______________     I % = ______________ PV = ______________ (use a negative sign at the front of the number) PMT = _____________ FV = ______________ P/Y = _____________ C/Y = _____________ PMT (set at End) Number of Years (nearest tenth) (5 pts.):   _________________

2. At the end of 18 years, will your investment have grown to the $100,000 needed for your child’s college fund? Explain you’re your answer means, in terms of the stated goal, using the answer in #1 above.

3. Explain (show your work), how you might use one of the two methods above, to determine exactly how much money needs to be invested at 7%, compounded monthly, so your child has a college fund of $125,000 in 18 years.

Part 2: Career & Investments

Go to https://www.salaryexpert.com/salary/browse/jobs/   (for career information)

·      Under Salary Info you will see: List of Average Job Salaries & Salary Comparisons by selected Careers; OR

·      Type in the Search bar to locate a career choice you are interested in, using the program of study you are pursuing

          (PRINT the screen (or use the “snipping tool”) of the Career Choice you have chosen & attach it to your project.)

1.      Find the annual median salary from the website.

·      Median annual salary: _________________________

2.   In a one-page typed summary include the follow: (attach the summary to the back of your project)

·      Is the amount of money needed, calculated in #3, something your future position can support, based on your expected median salary in your future position? Explain.

·      Identify other factors and explain how they may prevent you from investing, the money you would like to be able to invest, in your child’s college fund.

·      If you cannot accumulate the $100,000 you have estimated that will be needed to fund their education, what alternative strategy/plan is there to make up the shortfall of funds?

Answer 1

PART A.

1. Solving using logarithmic equation:

Principal amount, P=$10,000

Accumulative amount (at the age of 18 year), A=$100,000

Interest rate, r=7%=7/100=0.07

For quarterly, n=4,

Time, t=?

The relation between A, P, r, n and t is

------------------------------------------ (1)

So, substituting all the values into eqn 1

taking logarithm on both sides

So, t=33.2 years.

2. No. At the age of 18 years the investment will not reach upto $100,000 goal. Because, the time taken for the envestment to reach upto 100,000 is approx. 33.2 years which is much longer time than the age 18 years.

3. Let the money, P=$P

Accumulative amount (at the age of 18 year), A=$125,000

Interest rate, r=7%=7/100=0.07

For monthly, n=12,

time, t=18 years

So, $35587 money will be needed at a rate of 7% compounded monthly in order to get $125000 in 18 years.