College Algebra Project Saving for the Future Investing Questions Discussion

Need your help in completing this short project. All steps need to be shown (typed preferably) to show how you arrived at the final answer. I need an A grade in this project.

Thanks

College Algebra Project
Saving for the Future
This project is to be completed individually! If the plagiarism software pings your assignment as
being turned in by another student, you will receive a 0 and possibly an XF for the course. It is
very important that you work on the assignment by yourself. I am willing to check your work for 1a
– c and 2a – c to ensure you are using the formula correctly. Use the Inbox tab in the course to
send me your work and I will let you know if you are on the right track before you finish out #3.
You will need to type up your answers and submit them to the Vericite submission as part of your
final grade. You can handwrite and scan your work or type it to turn it in for a chance to receive
partial credit but make sure you turn in a typed version of your final answers as well. Failure to do
so will result in a 0 on the project.
In this project you will investigate compound interest, specifically how it applies to the typical retirement
plan.
For instance, many retirement plans deduct a set amount out of an employee’s paycheck. Thus, each
year you would invest an additional amount on top of all previous investments including all previously
earned interest.
If you invest P dollars every year for t years in an account with an interest rate of r (expressed as a
decimal) compounded n times per year, then you will have accumulated C dollars as a function of time,
given by the following formula.
Compound Interest Formula, with Annual Investmentsr
𝑟 𝑛
𝑟 𝑛𝑡
𝑃(1 + ) [1 − (1 + ) ]
𝑛
𝑛
𝐶 (𝑡 ) =
𝑟
1 − (1 + )𝑛
𝑛
If you would like the derivation of this formula, please send me an email and I will send you the
information.
EXAMPLE:
If you invest $1200 every year (P = 1200) for 3 years (t=3) at an interest rate of 5% (r = 0.05)
compounded weekly (n = 52), then the first year’s investment of $1200 would earn interest for 3 years,
but then the next year, the next investment of $1200 would only earn interest for 2 years, and then the
final investment of $1200 would only earn interest for 1 year. This lends itself to the following:
You have to be sure not to round until the very end where you round to the nearest cent. (So be sure
to keep as many decimal places as possible until the end, as you will be taken off for rounding before
then.) For more information about round-off errors click on the link:
http://mathworld.wolfram.com/RoundoffError.html
Your answers should be typed and in a single document. If you would like to attach your work, scan it
and add it to the end of your typed document. You can either attach a Word file or a pdf file. Many word
processing programs will save a document as a pdf file if you select Save as and look for file types.
1) How much will you have accumulated over a period of 35 years if, in an IRA which has a 10%
interest rate compounded monthly, you annually invest:
a. $1
b. $5000
c. $8,000
d. Part (a) is called the effective yield of an account. How could Part (a) be used to determine
Parts (b) and (c)? (Your answer should be in complete sentences free of grammar, spelling,
and punctuation mistakes.) (Total of 15 points)
2) How much will you have accumulated, if you annually invest $3000 into an IRA at 12% interest
compounded bi-annually for:
a. 10 year
b. 20 years
c. 50 years
d. How long will it take to earn your first million dollars? Your answer should be exact
rounded within 2 decimal places. Please use logarithms to solve. (Total of 15 points)
3) Now you will plan for your retirement. To do this we need to first determine a couple of values.
a. How much will you invest each year? Even $25 a month is a start ($300 a year), you’ll be
surprised at how much it will earn. You can choose a number you think you can afford on
your life circumstances or you can dream big. State what you will use for P, r, and n to earn
credit. (3 points)
The typical example of a retirement investment is an I.R.A., an Individual Retirement
Account, although other options are available. However, for this example, we will assume
that you are investing in an I.R.A. (for more information see:
http://en.wikipedia.org/wiki/Individual_Retirement_Account ) earning 8% interest
compounded annually. (This is a good estimate, basically, hope for 10%, but expect 8%. But
again this is just one example; I would see a financial advisor before investing, as there is
some risk involved, which explains the higher interest rates.) List your P, r, and n to earn
points for this question.
b. Determine the formula for the accumulated amount that you will have saved for retirement
as a function of time and be sure to simplify it as much as possible. You need to be able to
show me what you used for r, n, and P so that I can calculate your answers. Plug in those
values into the formula and simplify the equation. (5 points)
c. Graph this function from t = 0 to t = 50. (6 points)
Ways to show graphs:
 Excel
 Hand draw, take a pic with phone and import it into your document as a picture.
 Online graphing calculator program (try googling free graphing calculators or use
desmos.com)
d. When do you want to retire? Use this to determine how many years you will be investing.
(65 years old is a good retirement-age estimate). You need to say how old you are if you are
retiring when you are 65 or tell me how long until you retire. State what you will use for t.
(2 points)
e. Determine how much you will have at retirement using the values you decided upon
above. (5 points)
f. How much of that is interest? (4 points)
g. Now let’s say you wait just 5 years before you start saving for retirement, how much will
that cost you in interest? How about 10 years? How about just 1 year? (10 points)
Now you need to consider if that is enough. If you live to be 90 years old, well above
average, then from the time you retire, to the time you are 90, you will have to live on what
you have in retirement (not including social security). So if you retired at 65, you will have
another 25 years where your retirement funds have to last.
h. Determine how much you will have to live on each year. Note, we are neither taking into
account taxes nor inflation (which is about 2% a year). (5 points)
Let’s look at this from the other direction then, supposing that you wanted to have $35,000 a
year after retirement.
i. How much would you need to have accumulated before retirement? (5 points)
j. How much would you need to start investing each year, beginning right now, to accumulate
this amount? A “short-cut” to doing this is to first compute the effective yield at your
retirement age, then divide this amount into Part (i). This is the amount you well need to
invest each year. (5 points)
k. That was just using $35,000, how much would you want to have each year to live on?
Dream big or reasonable depending on your occupation! Now using that value, repeat parts
(i) and (j) again. You need to state what you would want to live on and it needs to be
something besides $35,000. (10 points)
Your answer to (k) would work, if you withdrew all of your retirement funds at once and
divided it up. However, if you left the money in the account and let it draw interest, it is
possible that the interest itself would be enough to live on, or at the very least if you had to
withdraw some of the principle, the remaining portion would still continue to earn interest.
Essentially, what you have found is the upper bound for the amount of money that you will
need to invest each year to attain your financial goals.
l. Finish by summarizing what you have learned in the entire project and consider setting a
goal towards saving for retirement. (Your answer should be in complete sentences free of
grammar, spelling, and punctuation mistakes.) This should be a paragraph not just one
sentence. (10 points)