Topic 5 DQ 2 Solved

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In Chapter 1 of the text we looked at calculating a monthly payment for a loan.  A related formula is to calculate the amount accruing when regular payments are made into an interest bearing account – often called the Savings Plan formula.

(A is the accrued amount after t years of making regular payments, PMT, into an account at interest rate, r%, compounded ntimes each year.)

 

A(t) =  PMT·((1 + r/N)N·t – 1)/(r/N)

= PMT*((1 + r/N)^(N*t) – 1)/(r/N)

 

The second version is essentially in the form used in Excel

 

Suppose you want to buy a car and have decided that you can save $100 a month.  Using information from an internet source, determine the current interest rate on savings accounts and use the information to answer the following:

  1. How much money will you have saved in a year’s time?
  2. How much will be interest?
  3. Why wouldn’t a linear model work here?