Philippa M. Rhodes
Final Project
Part II.
Explore problems of growth.
Have you ever wondered why the tallest buildings downtown of any city are
usually owned by banks? Well, I have, and that is what inspired this write-up.
I have designed a spreadsheet that will allow a consumer to invest their
money into a CD or a Savings Account, and at the same time, show how the
bank uses that money to profit from a consumer who charges the same amount
on a credit card.
Here is a copy of the spreadsheet when $20,000 is invested/ charged for
one year.
Explanations
The investor is not allowed to use any of the $20,000 invested into
the CD until it has "matured" (in this case, one year). The 6.5%
interest is only added to the principle once per year.
The final amount in the savings account is based on the investor not making
any withdrawals during the one year and the 3.48% interest rate is compounded
daily.
Meanwhile, the bank charges the debtor 1.9 % interest monthly. There is
no grace period. Thus, the interest accrues the first month before a payment
is made. The minumum monthly payment is 5% of the balance remaining each
month.
We see that the after one year, the debtor has paid $9,623.59, but still
owes $14,413.38. So, the bank has gained $3,656.96, and gives either $1,300
(CD) or $708.22 (Savings) of that to the investor.
If the
debtor continues to pay only the minimum monthly payment, it will take over
8 years to pay off the credit card.
Click here for the Microsoft Excel file
to change the investment or interest rates.
Return to Philippa's EMT Homepage