Originally created for a University of Canberra "Information Technology & Education" Project in October 2004

# A Webquest on Compound Interest

by Paul Myers & Brendan Sullivan

## Compound Interest - Module I

You can use the Excel worksheet "Compound Interest" to run simulations to solve many of these
money problems. Click on the hyperlink below to access this worksheet.

In this module you will consider the following questions:

- How do people make decisions about investments?
- Should I save more money or just spend it now?
- How do investment fees affect the money I earn?

Below are two scenarios that people have asked for your expert mathematical advice on. Use
the Compound Interest worksheet and print off some graphs which
show what each person should do. You should also write advice to explain the graphs to your
client.

Return to Top of Module I or Return to Top of Webquest

**Scenario 1**: John has $10,000 in a savings account at an interest rate of 5% per annum.
He has advice which says if he puts the money in the share market he should earn an average return
of 6% per annum. He doesn't really think it is worth the bother of moving his money. How much
will the difference between the investments be if he invests for 15 years?

How will the difference change over 10 or 20 years?

What other factors should John take into account?

Remember to write up your answers as a single page report with graphs attached.

**Scenario 2**: Karla's accountant has offered to manage her money for her. All he requires
is an upfront fee of 10% of the amount invested. How much will this 10% fee affect the amount of
money Karla has after the investment period?

a) If Karla invests $14,000 for 20 years at 8% interest?

b) If Karla invests $14,000 for 5 years at 8% interest?

c) If Karla invests $14,000 for 20 years at 3% interest?

d) If Karla invests $14,000 for 5 years at 3% interest?

**Hint**: Remember that the fee is taken out right at the start of the investment

What general advice can you give Karla about investment fees?

Write up your answers to Karla's four options remembering to attach the graphs produced. You also
need to include your general advice about investment fees for Karla.

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Modifications to this page © 2004, Paul Myers & Brendan Sullivan