Saving.

Having just collected your first paycheck after graduating from college, you decide to be more deliberate in saving for your future. Your annual income is now $32,000, and this is expected to increase at about 3% per year. Your bank balance is practically zero and the plan is to start growing it by saving 10% of your income. Bank interest is now 1% per annum, but after five years, you should have enough money and knowledge to want to invest your money into bonds and stocks, to get return rates of at least 3.5%. Large expenses expected along the way, namely cars, an apartment, a wedding, babies, vacation trips, children's education and college, should give you a lot to think about but you intend to just focus on the savings and watch first how their balances grow.

a. Without factoring the large expenses, construct a spreadsheet model of your savings for the next 20 years. Sketch the Influence diagram of your model.

b. What if your income grows at 2% and savings at 8% of income?

c. What if the interest rate drops to 0.5% and the investment return rate is only 2.5%?

d. You intend to bring the year-end saving balances to at least $45,000 at year 10, $80,000 at year 15 and $150,000 at year 20. Work out three combinations of saving, interest and return rates, one for each goal, that you can realistically apply.