Instruction: Answer in a Word file and submit. Show the formula and all corresponding numbers you use in the formula. Do NOT use spreadsheet and submit.

1. (3 points) You deposit your $10,000 in a new savings account that earn 4 % annually. You dont take the interest out and keep it in the savings account so that you can earn interest on interest (compounding!). What would be the value of the $10,000 after 40 years? (Show your calculation)

2. (3 Points) Your deposit $10,000 in a mutual fund earning 7 % on average. You dont take the interest out and keep it in the savings account so that you can earn interest on interest. What would be the value of the $10,000 after 40 years? (Show your calculation)

3. (4 Points) If you have only $10,000 and have to pick only one, what would you pick? Savings account or mutual fund? Write pros and cons of your choice.