The Power of Compound Interest Suppose that you give your child $1 on her 5th birthday. To encourage her to save her money, you offer to pay interest of 10% per month on any money that she has saved at the end of each month. How large will that one dollar have grown by her 18th birthday? (Assume she turned 18 on the last day of the month and collected her last interest payment on that day, so that she received interest for 13 years * 12 months = 156 times. Hint: In the formula at the top of the assignment, n=156 months, and r=10% per month.) (Round to the nearest dollar.) Takeaway: Be careful what you promise your kids. Another takeaway: As your money grows, the return on your investment (i.e., interest in this example), gets larger and larger. If you keep Step 2: Use the Loan Calculator spreadsheet to answer the following questions (the answers you need will be in the yellow shaded cells after you enter the required information): Assume you purchase a home for $370,000. You have saved $20,000 to use as a down payment (so you will need a $350,000 loan) and you can get an interest rate of 3.8%. If you get a 30-year loan (for all answers, round to the nearest dollar and don't use dollar signs): How much will your monthly payments be? How much interest will you pay over the life of the loan? How much will you pay in total (principal and interest) to pay back the loan? If you get a 15-year loan (for all answers, round to the cast dollar and don't use If you get a 15-year loan (for all answers, round to the nearest dollar and don't use dollar signs): How much will your monthly payments be? How much interest will you pay over the life of the loan? How much will you pay in total (principal and interest) to pay back the loan? Takeaways: The longer the loan duration, the more interest you will pay over the life of the loan. Notice the pie chart at the top right of the Loan Calculator spreadsheet -it shows how much interest you will pay compared to the total value of your loan, given the assumptions you entered in the gray cells. Play around with the assumptions and see how the pie chart