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Worksheet 3.3.1 Preview Activity for Section 3.2 and Due at the beginning of class. 3.1
A4US

Personal Reflections.

1.
Do you use a budget? Why or why not?
2.
List some places in your finances where you might be able to save a few dollars or more per week or per month.

Simple Interest.

Definition: Interest is only earned (or paid) on the original amount.

Example: You invest $500 and you earn 6% interest every year for 5 years.

Table 3.3.1.
Year Interest Balance
Start $500
1
2
3
4
5

Compound Interest.

Definition: Interest is earned on the original amount and any interest added to the account.

Example: You invest $500 at a rate of 6% interest compounded yearly for 5 years.

Table 3.3.2.
Year Interest Balance
Start $500
1
2
3
4
5

3.

[Optional] If you are doing this worksheet online, do the tables from the previous page in a spreadsheet, and then copy and paste them below.

Using Spreadsheet Formulas for Compound Interest.

You will need to use Microsoft Excel or Google Sheets while work on this worksheet. You can use a computer, tablet or smart phone with the Google Sheets App.

Future Value Formula: =FV(rate, nper, pmt, [pv], [type])

Present Value Formula =PV(rate, nper, pmt, [fv], [type])

Inputs:

4.
rate=
5.
nper=
6.
pmt=
7.
[pv]=
8.
[fv]=
9.
[type]=

Example 1..

If you invest $500 at 6% interest, calculate the balance after 5 years for each compounding interval. Write the formula used and inputs in proper syntax.
10.
Simple Interest
11.
Compounded Yearly
12.
Compounded Quarterly
13.
Compounded Monthly
14.
Compounded Daily (365)
15.
Compounded Continuously

Compounding Continuously.

If we let the number of compounding periods go to infinity we get a base of e in our function.
\begin{equation*} A=Pe^{rt} \end{equation*}
=P*exp(rate*years)

Effective Rate.

The corresponding rate if compounded yearly. Used to compare different compounding options.

=effect(nominal rate, periods per year)

Example 2..

Write the formula used and the inputs in proper syntax. Answer each question with a complete sentence, including units.
16.
How much would you need to deposit in an account that pays 5.25% compounded monthly to have $20,000 in 20 years?
17.
You get an inheritance of $15,000 and you decide to put it in an account that pays 7.1% interest compounded continuously. How much would it be worth in 25 years?
18.
You decide to save your tax refund of $1000 in an account that pays 6.5% compounded quarterly. How much would you have in 15 years?
19.
You are shopping for savings accounts and you find one with a rate of 3.25% compounded monthly and one with a rate of 3.15% compounded daily. Find the effective rates to determine which account has a better rate.

.

This box will be given on the quiz and tests. The inputs are also given when you start typing in a spreadsheet. You do not need to memorize the formulas, just know how to use them.
Financial Formulas.

=P + P*rate*years

=FV(rate, nper, pmt, [pv], [type])

=PV(rate, nper, pmt, [fv], [type])

=P*exp(rate*years)

=effect(nominal rate, periods per year)

=PMT(rate, nper, pv, [fv], [type])