Math 1030 Name: Sami Alanazi

Activity 2: Savings Plan

In a savings plan, you periodically deposit a regular amount into a savings account. In this activity, you
will simulate the first few months of a savings plan over 30 years. The hypothetical savings account will
have an annual interest rate of 2.4%, compounded monthly, and you will make monthly deposits.

1. First, pick a savings goal: an amount of money you would like to have saved up in 30 years. (Maybe
it’s a retirement fund or a college fund for your child, etc.) Use F to represent this future goal amount.

F=¿ $100,000

2. In this step, you will calculate the monthly deposit necessary to reach your 30-year goal. Use the
( 1+ p )T −1
formula F=M . In this formula, M stands for the monthly deposit and F is the future goal
p
amount you picked in #1. Also, p is the monthly interest rate, and T is the total number of months.
Begin by finding these two quantities, then plug everything in to the formula and solve for M .

p=¿ 2.4%/12 = 0.2%

T =¿ 30 Year X 12 Months each year = 360 Months

M =¿ F / (1+p)T-1/p
M = $100,000 ((1.05295) / .002)
M = $100,000 / 526.4783
M = $189.941

3. Fill in the following table, which will show your account balance for the first several months.

Monthly
Month Starting Balance Interest New Balance
Payment
1 $0.00 $0.00 $189.94 $189.94
2 $189.94 $0.38 $189.94 $380.26
3 $380.26 $0.76 $189.94 $570.96
4 $570.96 $1.14 $189.94 $762.05
5 $762.05 $1.52 $189.94 $953.51
6 $953.51 $1.91 $189.94 $1,145.36
7 $1,145.36 $2.29 $189.94 $1,337.59
8 $1,337.59 $2.68 $189.94 $1,530.21
9 $1,530.21 $3.06 $189.94 $1,723.21
10 $1,723.21 $3.45 $189.94 $1,916.60
11 $1,916.60 $3.83 $189.94 $2,110.37
12 $2,110.37 $4.22 $189.94 $2,304.53
Hints: Interest=Starting Balance × p
New Balance=Previous Balance+Interest +Monthly Deposit
4. To complete the table for all 30 years, we would need to repeat this for 360 months (let’s not do
that!). This is why we’re thankful that we have a formula that allows us to make these calculations
without a table! We already know how much money you will have after one year (from the table) and
we already know how much money you will have after 30 years (the goal amount you picked in #1). But
let’s find out how much money you will have halfway through the 30 years. Use the savings plan
formula to find what your balance would be after 15 years.

Answer:
( 1+ p )T −1
F=M
p
F = $189.941 (1+.002)(12*15=180) -1/.002
F = 189.941 (216.4071)
F = $41,104.58

Amount in saving account after elapse of 15 year would be $41,104.58.

5. After the full 30 years, of the final balance in your account, how much of that money came from your
own pockets (your monthly deposits)? How much did you gain purely in interest?

Amount Paid through own Pockets = Per Month Payment x No. of Months
= 189.941 x 360
= $68,378.76

Amount Gained through interest =Total maturity amount of the saving account – Principal
paid
=$100,000 – $68,378.76
=$31,624.24

6. Is the regular monthly deposit that you’ve calculated an amount that you could currently realistically
set aside each month? If not, what does this mean? What would be a realistic monthly deposit for you?
Answer in thoughtful, complete sentences.

Answer:

To start saving for my future goals is necessary this time. But currently such amount is not possible for
me to set aside or deposit in saving account. I am currently dependent on my family. However, I am
planning to get the job soon after completing my studies at SUU. After that it would be easy for me
deposit the extra funds into my saving account for my meeting my future goals.
I started this calculation by setting a goal of $100,000 very pessimistically, it may after getting job in near
future which I have planned to and started working on it I will increase my savings goal to higher
amount so that I could manage a World Trip after 20 years.