• The Power of Compound Interest Assignment

To see how much money can be saved for retirement during the time you work answer the following questions using the compound interest calculator or a pocket calculator, depending on the question.

What you need:

1. This handout
2. A calculator
3. Compound Interest Calculator at https://www.calculatestuff.com/financial/compound-interest-calculator

Note: For each question that requires this assume \$0 initial investment and compounding monthly.

The Power of Compound Interest Infographic from Visual Capitalist and NextGen Personal Finance

http://wealth.visualcapitalist.com/visualizing-power-compound-interest/

1. If you save \$120 per month at 8% annual yield beginning at age 30, how much savings will you have accumulated (saved up) by age 65? Now look at the bar chart on the right of the calculator result. Will this money be primarily principal (the amount invested/ saved) or interest?

1. If you start saving \$120 per month at 8% annual yield at age 20 rather than 30, how much savings will you have accumulated by age

1. Use a calculator to answer this question but show your work. Look at your data and answers for numbers 1 and 2 and compare them. Notice in #1 you started at age 30 and for #2 you started at age 20. How much more would you accumulate by starting at age 20 rather than age 30? How can this be?

1. If you start saving \$200 rather than \$120 per month at 8% annual yield at age 20, how much savings will you have at age 65?

1. Use a calculator to answer this question but show your work. Look at your data and answers for numbers 2 and 4 and compare them. Notice in #2 you were saving \$120 per month and for #4 you were saving \$200 per month. How much more would you accumulate by saving \$200 per month rather than saving \$120 per month? How can this be?

1. If you start saving \$100 per month at 8% annual yield at age 20, how much savings will you have at age 65?

1.  If you start saving \$100 per month at 10% annual yield at age 20, how much savings will you have at age 65?

1. Use a calculator to answer this question but show your work. Look at your data and answers for numbers 6 and 7 and compare them. Notice in #6 you were earning 8% and for #7 you were earning 10%. How much more would you accumulate by earning 10% rather than earning 8%? How can this be?

1. On average, over the last 80 years, the stock market has returned a 10% rate of return? Do you think you should always assume you can make this much? Why?

1. Circle which of the following would be better for an investor:
 Begin saving at age: 20 40 60 Interest rate/ rate of return 6% 8% 10% Amount/ principal invested each month \$50/ month \$100/ month \$200/ month

1. Look at your answer in #10. How could a person of moderate income become a millionaire before retirement by investing?

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