For Homework #4 we will do a deeper dive into compound interest and future values. The homework is worth 10 points and is due February 11th at 11:59pm. Make sure to including an appropriate heading on your spreadsheet. This will be a graded element on this and all future homework and assignments. All rules of academic integrity apply to this and all work done in this course. 1) In Homework number three we discussed if it is better to have interest compounded annually, quarterly, or monthly. Most of you responded appropriately that monthly would earn the most interest. For the first question we are going to quantify how much that difference really is. The year is 1980. Inflation is out of control and interest rates are incredible high. Assume you deposit $10,000 into three different banks named Bank A, Bank B, and Bank C. Bank A pays 12% interest compounded annually, Bank B pays 12% interest compounded quarterly, and Banks C pays 12% interest compounded monthly. Calculate the balance you will have in each bank at the end of 5 years. How much more interest did you earn by having interest compounded monthly? Hint: Solving problems with compounding other than annually requires modifications to your formula inputs. Specifically, 12% compounded quarterly needs to be input as 3% (12%/4). You also need to adjust the number of periods (NPER) as compounding quarterly means you have four periods per year paying 3% interest. 2) Your cousin has just graduated from college with an engineering degree. They have landed a nice job with excellent pay. Your cousin tells you they plan to retire earning so they are going to start saving now. Given your cousin has an engineering degree they know nothing about investing. A financial advisor they will manage your cousin's retirement account for just 0.25% of the balance of the retirement account each year. Your cousin plans to invest $18,000 a year for 35 years to fund their retirement. The financial advisor says the investments will earn on average 8% per year. Over the 35 year period how much will the financial advisor be paid if they charge 0.25%? Hint: To solve this you need to run two calculations - one at the 8% and a second at 7.75%. The difference between the two is what the advisor is paid. 3) Jedd just graduated from college and knows saving for the future is important. Jedd plans to save $10,000 a year for retirement for the next 40 years. But being fearful of the stock market and risk Jedd puts his money into certificates of deposit that pay 2.5% interest per year. Alice also just graduated from college and saves $8,000 per year for the next 38 years. Alice is a much more aggressive investor. Knowing that retirement is a long way off she puts all her money into a diversified stock portfolio that will earn 8.5% per year. Calculate the future values of Jedd's and Alice's retirement accounts. How has more money? Why? For Homework #4 we will do a deeper dive into compound interest and future values. The homework is worth 10 points and is due February 11th at 11:59pm. Make sure to including an appropriate heading on your spreadsheet. This will be a graded element on this and all future homework and assignments. All rules of academic integrity apply to this and all work done in this course. 1) In Homework number three we discussed if it is better to have interest compounded annually, quarterly, or monthly. Most of you responded appropriately that monthly would earn the most interest. For the first question we are going to quantify how much that difference really is. The year is 1980. Inflation is out of control and interest rates are incredible high. Assume you deposit $10,000 into three different banks named Bank A, Bank B, and Bank C. Bank A pays 12% interest compounded annually, Bank B pays 12% interest compounded quarterly, and Banks C pays 12% interest compounded monthly. Calculate the balance you will have in each bank at the end of 5 years. How much more interest did you earn by having interest compounded monthly? Hint: Solving problems with compounding other than annually requires modifications to your formula inputs. Specifically, 12% compounded quarterly needs to be input as 3% (12%/4). You also need to adjust the number of periods (NPER) as compounding quarterly means you have four periods per year paying 3% interest. 2) Your cousin has just graduated from college with an engineering degree. They have landed a nice job with excellent pay. Your cousin tells you they plan to retire earning so they are going to start saving now. Given your cousin has an engineering degree they know nothing about investing. A financial advisor they will manage your cousin's retirement account for just 0.25% of the balance of the retirement account each year. Your cousin plans to invest $18,000 a year for 35 years to fund their retirement. The financial advisor says the investments will earn on average 8% per year. Over the 35 year period how much will the financial advisor be paid if they charge 0.25%? Hint: To solve this you need to run two calculations - one at the 8% and a second at 7.75%. The difference between the two is what the advisor is paid. 3) Jedd just graduated from college and knows saving for the future is important. Jedd plans to save $10,000 a year for retirement for the next 40 years. But being fearful of the stock market and risk Jedd puts his money into certificates of deposit that pay 2.5% interest per year. Alice also just graduated from college and saves $8,000 per year for the next 38 years. Alice is a much more aggressive investor. Knowing that retirement is a long way off she puts all her money into a diversified stock portfolio that will earn 8.5% per year. Calculate the future values of Jedd's and Alice's retirement accounts. How has more money? Why