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

Introduction

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:

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.

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The Tasks

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