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Economics

The document outlines various financial scenarios involving simple and compound interest calculations, including saving for vacations, loans, investments, and retirement. It presents specific examples with different interest rates and time frames to illustrate how interest affects savings and debts. Additionally, it includes advanced scenarios addressing inflation, variable interest rates, and retirement planning.

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Nikko Aronales
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8 views2 pages

Economics

The document outlines various financial scenarios involving simple and compound interest calculations, including saving for vacations, loans, investments, and retirement. It presents specific examples with different interest rates and time frames to illustrate how interest affects savings and debts. Additionally, it includes advanced scenarios addressing inflation, variable interest rates, and retirement planning.

Uploaded by

Nikko Aronales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Simple Interest:

1. Saving for a Vacation: You deposit $500 into a savings account with a simple interest rate of
3% per year. How much interest will you earn after 5 years?
2. Loan for a Car: You borrow $10,000 for a car with a simple interest rate of 6% per year. How
much interest will you pay after 3 years?
3. Investing in Bonds: You invest $2,000 in bonds that pay a simple interest rate of 4.5% per
year. How much will your investment be worth after 10 years?
4. Saving for a Down Payment: You need to save $20,000 for a down payment on a house. You
can save $500 per month and earn a simple interest rate of 2% per year. How long will it take
you to reach your goal?
5. Borrowing Money from a Friend: You borrow $100 from a friend and agree to pay it back
with a simple interest rate of 1% per month. How much will you owe after 6 months?

Compound Interest:

6. Investing in a High-Yield Savings Account: You deposit $1,000 into a high-yield savings
account with an annual interest rate of 2.5% compounded monthly. How much will your account be
worth after 3 years?
7. Retirement Savings: You start saving for retirement at age 25. You contribute $5,000 per year
to a retirement account that earns a compound interest rate of 7% per year. How much will
you have saved by age 65?
8. Credit Card Debt: You have a credit card balance of $5,000 with an annual interest rate of 18%
compounded daily. How much will your balance be after 1 year if you don't make any
payments?
9. Investing in a Mutual Fund: You invest $10,000 in a mutual fund that has an average annual
return of 10% compounded quarterly. How much will your investment be worth after 5 years?
10. Saving for College: You want to save $50,000 for your child's college education. You have 10
years to save and can invest in a college savings plan that earns a compound interest rate of
6% per year. How much do you need to save each year to reach your goal?

Combined Scenarios:

11. Comparing Simple and Compound Interest: You have $1,000 to invest for 5 years. You can
choose between an account that pays simple interest at 5% per year or an account that pays
compound interest at 4% per year compounded annually. Which account will result in a higher
balance after 5 years?
12. Investing in a CD: You invest $5,000 in a Certificate of Deposit (CD) with a 3% annual interest
rate compounded quarterly. After 2 years, the CD matures and you reinvest the principal and
interest in a new CD with a 4% annual interest rate compounded monthly. How much will you
have after 5 years?
13. Borrowing Money from a Bank: You take out a loan of $20,000 with an annual interest rate of
8% compounded monthly. You plan to make monthly payments of $500. How long will it take
you to pay off the loan?
14. Saving for a House Down Payment with a Bonus: You have $10,000 saved for a house down
payment. You earn a 5% bonus on your annual salary of $50,000, which you can invest in a
savings account with a 3% annual interest rate compounded quarterly. How much will you have
saved after 3 years?
15. Investing in Stocks: You invest $5,000 in a stock that has an average annual return of 12%
compounded monthly. After 2 years, the stock splits 2-for-1. How much will your investment
be worth after 5 years?

Advanced Scenarios:

16. Inflation and Interest Rates: You invest $10,000 in a savings account with a 2% annual
interest rate compounded annually. However, inflation is currently 3% per year. How much will your
investment be worth in real terms (adjusted for inflation) after 10 years?
17. Variable Interest Rates: You take out a loan with a variable interest rate that starts at 5% per
year compounded monthly. The interest rate can fluctuate up or down by 0.5% per year. How
much will you owe after 5 years if the interest rate increases by 0.5% in year 3 and year 5?
18. Compounding Frequency: You have $1,000 to invest for 5 years. You can choose between an
account that compounds interest annually, semi-annually, quarterly, or monthly. Assuming the
same annual interest rate, which compounding frequency will result in the highest balance
after 5 years?
19. Early Retirement: You want to retire early at age 50. You currently have $50,000 saved and
plan to continue saving $10,000 per year. You estimate you will need $1 million to retire
comfortably. Assuming a compound interest rate of 6% per year, will you reach your goal by
age 50?
20. Investing in a Roth IRA: You contribute $5,500 per year to a Roth IRA that earns a compound
interest rate of 7% per year. You plan to retire in 30 years. How much will your Roth IRA be
worth at retirement, assuming you withdraw all of the money tax-free?

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