Download Compound Interest Project

Compound Interest Project
Algebra 2 Honors
Goal:
The goal is to use compound interest formulas to investigate and compare savings situations
while using your writing skills to clearly communicate the solution.
Role:
You are the financial consultant for a young couple who would like to invest some money and
are in need of financial advice from a trusted professional such as yourself.
Situation:
In this tough economy, everyone is looking to earn the most they can on their savings. You have
been hired as a financial consultant to help this couple determine the best options for their
savings plans. Utilizing your compound interest skills, you need to convince the young couple
of the best option for their savings.
Scenario:
Joe and Josephina Eagleson wish to invest in a no-risk savings account. They currently have
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$25,000 in an account bearing 5 % annual interest, compounded continuously. The following
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options are available to them:
i.
ii.
iii.
Keep the money in the account they currently have
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Invest the money in an account bearing 5 % annual interest, compounded
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annually
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Invest the money in an account bearing 5 % annual interest, compounded
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quarterly
Your Task:
a. Determine the equation for the value for the investment as a function of time for each of the
three options.
b. Using an appropriate viewing window, graph all three function on the same coordinate plane
so each is distinguishable. Be sure to label all information.
c. The couple is hoping to have $35,000 saved for a down payment on a house within six years.
Write a brief summary to the couple that describes the implications of these options.
d. The effective yield of a savings plan is the percent increase in the balance after 1 year. Find
the effective yields for the three options listed above. How can the effective yield be used to
decide which option is best?
e. Your presentation should be in booklet form including but not limited to:
1. a letter of proposal referencing each option (research potential formats for this)
2. calculations for each situation (spreadsheets, Nspire document, etc.)
3. graphs of the three situation
Critical Thinking Questions for Extension:
1) Are the interest rates for the savings accounts listed above realistic, in your opinion?
Support your claim with evidence.
a) If they are not realistic, describe the parameters of a more realistic situation
the Eaglesons may face with their investment plan. Provide specific evidence
to support your stance.
2) Given any new information you have discovered in your research from question 1,
what is a more realistic outlook for the Eaglesons in their attempt to save that $35,000
for a down payment? Show calculations and evidence to support your claim(s).
3) Describe any additional strategies or advice you might share with the Eaglesons that
would help them achieve their current financial goals.
4) What other financial milestones or goals might the Eaglesons want to start planning
for in the years ahead?
Must be typed (except calculations and graphs). This project is due Monday, January 20th
and will not be taken late.