You put \$1000 in a savings account that gives you 8% interest per year.

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You put \$1000 in a savings account that gives you 8% interest per year.

1. How much money is in the account after 1 year?

2. After 2,3,5 years?

3. Find a general formula for how much money you will have after n years.

4. Now, say you put A dollars into your account, and you get r interest. What does your formula look like now?

5. Use that formula to determine how much money you will have 20 years after depositing \$500 at a 10% interest rate.

6. Some banks add the interest on more often than once a year. Assume that instead of adding on 8% interest at the end of each year, a bank decides to add 2% interest on every three months. Is that better or worse for you? Which should you choose?

If you wanted to save up a large sum of money, for example, a down payment on a house, you may want to put away a certain amount of money per month. Find a house online that you might want to buy. How much do you think you would need for a down payment for this house? How much do you think you need to save each month, and for how many months?  Research what interest rates are right now, and then use an online savings calculator ( For example, http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx ) to see how much you would save. How does the amount compare with what you thought?

Now let’s consider debt. How are debt and savings different, how are they similar?

Say you have \$3000 in credit card debt, and the credit card charges 13% interest per year, with no minimum payment. If you want to pay off the entire amount in one year, how much would you end up spending?

If you can afford to pay \$100 per month, estimate how long it will take you to pay off your debt, and estimate how much interest you will pay in the process.

There are many online calculators that can calculate credit card dept. One is

http://money.cnn.com/calculator/pf/debt-free/

Use this calculator to find out exactly how long it would take you. How good was your estimate?

Now, consider mortgage loans. How large will the mortgage be for the house you are buying J? Research interest rates for mortgages. The use an online mortgage calculator to calculate how much your monthly payments would be if you pay off your mortgage over 30 years? How does the amount you spend compare to the price of the mortgage, i.e how much interest did you pay over the years?

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