1) Create an Excel spreadsheet comparing simple and interest compounded yearly for an investment of $18,000 over 18 years with an APR of 3.75%.
a. Create a column in Excel listing the years 0-18.
b. Determine the equation that would model simple interest. Hints: How much simple interest would the account earn each year? What type of equation is appropriate for simple interest? Create a column of values that represents the accounts balance for each year if only simple interest is earned.
c. Determine the equation that would model compound interest. Hints: What type of equation is appropriate for compound interest? Create a column of values that represents the accounts balance for each year if the interest is compounding each year.
d. Use the data from the spreadsheet to create a single graphic (scatterplot) comparing the two types of interest.
e. Write a paragraph which includes a compare and contrast of simple and compound interest, based upon your graphic.
Please see the Excel file.
The equation is I=Prt
I = 18000 * 0.0375 * 1 = 675
The account would earn $675 simple interest per year.
The Excel file contains the computations and graph. The Word file contains the solutions to the questions.