You are considering different investment strategies to save for your retirement.
ID: 2455023 • Letter: Y
Question
You are considering different investment strategies to save for your retirement.
Option 1: You invest $25/ month at a rate of 3.25% APR compounded monthly for 30 years.
Option 2: You invest $75/ quarter at a rate of 4.00% APR compounded monthly for 30 years.
Option 3: You invest $1,000 at a rate of 6.25% APR compounded monthly for 30 years.
Complete the table below and answer the questions below it.
You may use this calculator http://www.mycalculators.com/ca/savecalcm.html to help you. (Hint: The “Present Value” for options 1 and 2 is 0 while for option 3 it is $1,000.00. Also, the top radio button in the Contributions box should be selected so that contributions are made at the beginning of the period.)
Option #
Contributions
Total Interest Earned
Final Balance
1
$25/ month
2
$75/ quarter
3
$1,000
Which option was the least amount invested and what was the investment plan?
Which option yielded the highest amount at the end of the 30 years and what was the basis of the plan?
What is the difference in the principal invested for the highest and lowest final balances? What is the difference in the interest earned?
Is it better to invest more money in the beginning or the end of the 30 years?
Be sure to include in your response:
The answer to the original question and any details that support your answer
The plan you would recommend for the largest return on investment (this means the most interest for the least amount invested)
A general observation about the different ways to invest and the effect on the final totals
Option #
Contributions
Total Interest Earned
Final Balance
1
$25/ month
2
$75/ quarter
3
$1,000
Which option was the least amount invested and what was the investment plan?
Which option yielded the highest amount at the end of the 30 years and what was the basis of the plan?
What is the difference in the principal invested for the highest and lowest final balances? What is the difference in the interest earned?
Is it better to invest more money in the beginning or the end of the 30 years?
Be sure to include in your response:
The answer to the original question and any details that support your answer
The plan you would recommend for the largest return on investment (this means the most interest for the least amount invested)
A general observation about the different ways to invest and the effect on the final totals
Explanation / Answer
Which option was the least amount invested and what was the investment plan?
Option 3 was the least amount invested and The investment plan was single amount
Which option yielded the highest amount at the end of the 30 years and what was the basis of the plan?
option 2 yielded the highest amount at the end of the 30 years, The basis of the plan is contributions are made at the beginningof the period and $75/ quarter at a rate of 4.00%
What is the difference in the principal invested for the highest and lowest final balances? What is the difference in the interest earned?
Principal invested for the highest final balances = $ 17425.43
Principal invested for the lowest final balances = $ 6489.17
Difference = $ 10,936.26
Difference in the interest earned = Interest earned in 2nd option - Interest earned on 3rd option
Difference in the interest earned = 8425.43 - 5489.17
Difference in the interest earned = $ 2936.26
Is it better to invest more money in the beginning or the end of the 30 years?
It is better to invest more money in the beginning as it yield more
The plan you would recommend for the largest return on investment (this means the most interest for the least amount invested)
Option 3 as it yield higher percentage
Option 1
Amount Invested = 25*12*30 = 9000
if contributions are made at the beginningof the period
Amount at the end of 30 Year = fv(rate,nper,pmt,pv,1)
rate = 3.25% compounded monthly = 3.25%/12
nper = 30 year = 30*12 = 360
pmt = 25
pv = 0
Amount at the end of 30 Year = fv(3.25%/12,360,25,0,1)
Amount at the end of 30 Year = $ 15,250.50
Total Interest earned = Amount at the end of 30 Year - Amount invested
Total Interest earned = 15250.50 - 9000
Total Interest earned = 6250.50
if contributions are made at the end of the period
Amount at the end of 30 Year = fv(rate,nper,pmt,pv,0)
rate = 3.25% compounded monthly = 3.25%/12
nper = 30 year = 30*12 = 360
pmt = 25
pv = 0
Amount at the end of 30 Year = fv(3.25%/12,360,25,0,0)
Amount at the end of 30 Year = $ 15,209.31
Total Interest earned = Amount at the end of 30 Year - Amount invested
Total Interest earned = 15209.31 - 9000
Total Interest earned = 6209.31
Option 2
Amount Invested = 75*4*30 = 9000
if contributions are made at the beginningof the period
Amount at the end of 30 Year = fv(rate,nper,pmt,pv,1)
rate = 4% compounded quarterly = 4%/4 = 1%
nper = 30 year = 30*4 = 120
pmt = 75
pv = 0
Amount at the end of 30 Year = fv(1%,120,75,0,1)
Amount at the end of 30 Year = $ 17425.43
Total Interest earned = Amount at the end of 30 Year - Amount invested
Total Interest earned = 17425.43 - 9000
Total Interest earned = 8425.43
if contributions are made at the end of the period
Amount at the end of 30 Year = fv(rate,nper,pmt,pv,0)
rate = 4% compounded quarterly = 4%/4 = 1%
nper = 30 year = 30*4 = 120
pmt = 75
pv = 0
Amount at the end of 30 Year = fv(1%,120,75,0,0)
Amount at the end of 30 Year = $ 17,252.90
Total Interest earned = Amount at the end of 30 Year - Amount invested
Total Interest earned = 17252.90 - 9000
Total Interest earned = 8252.90
Option 3
Amount Invested = 1000
Amount at the end of 30 Year = fv(rate,nper,pmt,pv,1)
rate = 6.25% compounded monthlyy = 6.25%/12
nper = 30 year = 30*12 = 360
pmt = 0
pv = 1000
Amount at the end of 30 Year = fv(6.25%/12,360,0,1000)
Amount at the end of 30 Year = $ 6489.17
Total Interest earned = Amount at the end of 30 Year - Amount invested
Total Interest earned = 6489.17-1000
Total Interest earned = 5489.17
Option # Contributions Total Interest Earned Final Balance 1 $25/ month 6,250.50 15,250.50 2 $75/ quarter 8,425.43 17,425.43 3 $ 1000 5,489.17 6,489.17Related Questions
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