Example 2: Business Applications

Laura Dickerson

The next example is a great problem to use for "when will we ever use this?" This problem will also connect mathematics to business and personal finance.

The problem: Two men graduate from college at the same time. The first man decides to save $1,000 a year from starting at that time. The second man decides that he should celebrate graduation and chooses not to start a savings plan at that time. Ten years go by and the first man saves a thousand dollars a year (and earns interest) while the second man saves nothing. At the eleventh year, the second man decides to start saving $1,000 a year and the first man decides to stop saving and take time to play. How many years will it take for the second man to "catch up" to the first man if they both earn 6% interest?

The spreadsheet should look as follows:

At year eleven then twelve, the rows should look like this:

Your final answer should be 37 years. Try it for yourself and see if you get the same answer. This problem can easily be adapted for whatever data the class may have. I think that this problem would be excellent to use when discussing compounding interest. Also it would be very beneficial for high school seniors when they have graduation, jobs, and their future on their mind.

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