the impact of compounding interest.
Time Value of Money / Compounding Interest
- Use this Bankrate’s Simple Savings calculator to complete Scenario 2: http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx. You will enter the Initial Amount of Savings (Present Value), Annual Interest Rate (Rate of Return), Interest Compounded, and Number of Periods/Years into the calculator. The calculator will compute the Future Values.
In this scenario you will start with a big deposit and see how interest, compounding, and time will change the balance over time. Suppose that you inherit $10,000 from your late uncle. You save this money and do not deposit any more money to the account. Determine how much money you would have at the end of each of the periods for each of the scenarios in the table below, assuming that you don’t make any withdrawals from the account over the period.
Enter your answers in the indicated cells of the table below:
| Annual Interest Rate | Interest Compounded | FV at the end of Year 5 | FV at the end of Year 10 | FV at the end of Year 30 |
| 2.00% | Annually | Answer: | Answer: | Answer: |
| 2.00% | Quarterly | Answer: | Answer: | Answer: |
| 8.00% | Annually | Answer: | Answer: | Answer: |
| 8.00% | Quarterly | Answer: | Answer: | Answer: |
- Based on your calculations above, explain in your own words the impact of compounding interest.
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