Interest rates given are annual interests rates, but we will be assuming that in
ID: 3603331 • Letter: I
Question
Interest rates given are annual interests rates, but we will be assuming that interest is compounded monthly, so the real rates to use will be 1/12 of what we are given. We will assume that interest is compounded on our accounts before any payments or contributions are made to them. If the user has not finished paying off all of their loans before they retire a warning message should be printed.
Write a program in C for this scenario.
Sample output:
Enter how much money you will be putting towards loans/retirement each month: 500
Enter how much you owe in loans: 40000
Enter the annual interest rate of the loans: 0.03
Enter your minimum monthly loan payment: 405.32
Enter your current age: 22
Enter the age you plan to retire at: 65
Enter the annual rate of return you predict for your investments: .05
You should only make the minimum payments on your loan and apply the rest towards retirement.
If you do you will have $592888.96 when you retire as opposed to $587281.54 if you paid off your loan before
investing.
Explanation / Answer
In the simplest of worlds, $1,000 at 1% interest per year would yield, at the end of a year, $1,010. But that is simple interest, paid only on the principal. Money earns compound interest when the interest earned is added to the original deposit each time it is calculated. So in the case of a savings account, the interest is compounded, either daily (best) or monthly or quarterly, and you earn interest on the interest. The more frequently the interest is added to your balance, the faster your savings will grow. So with daily compounding, every day the amount that earns interest grows by another 1/365ths of 1%. At the end of the year, the deposit has grown to $1,010.05.
Okay, it’s a lousy nickel more. But at the end of 10 years, your $1,000 would grow to $1,105.17 with compound interest. Your 1% interest rate, compounded daily for 10 years, has added more than 10% to the value of your investment.
Yes, this is still depressing. But now consider what would happen if you were able to save $100 a month, and add it to that original deposit of $1,000. After one year, you would have earned $16.57 in interest, for a balance of $2,216.57. After 10 years, still adding just $100 a month, you would have earned $730.93, for a total of $13,730.93.
Read more: How Interest Rates Work on Savings Accounts | Investopedia http://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp#ixzz4wks6uKXp
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