Question 1: Investor's Perspective (10 pts)

Let's assume that, now that you have neared the end of this unit, you are agreeable to investing some of your money in an account that will earn interest for you. Describe at least three ways that you can maximize the growth of your investment over time. Do the following calculations to help you determine what factors will help your money to grow, and use your results from these calculations in your response to this question.

• invest $5000 at 4.5% simple interest versus 4.5% compound interest (quarterly), and compare the results after 5 years
• invest $2500 at 4.5% compound interest versus $5000 at 4.5% compound interest, and compare results after 5 years with quarterly compounding
• invest $5000 at 4.5% compounded monthly versus 8% compounded monthly, and compare results after 5 years
• invest $5000 at 4.5% compounded monthly for 5 years versus 10 years, and compare results

Again, the purpose of this question is NOT for you to simply do calculations, but to analyze your results, and explain what you can do as an investor to help your money grow. Your response should be a paragraph with numbers in it, not simply numbers.

Question 2: Borrower's Perspective (10 pts)

When you take out a loan, you must pay interest rather than earning it. So, as a borrower, our goal is to pay as little interest as possible. In Question 1, you saw what will cause interest to be maximized. Now, reverse that, and think about what you would need to do as a borrower to minimize the amount of interest accruing on your loan. In your reply, explain how your choices in the following three areas could lower the amount of interest owed on the loan: 1) your loan principal (amount borrowed), 2) the loan's interest rate, and 3) the time required to pay back the loan.