1. “The greatest invention of the 20th Century is compound interest!”

2. What is Compound Interest?
As we saw last class, simple interest can make our savings pay us.
Compound interest can make our savings grow even faster.
Compound interest takes simple interest and adds it to the total and then takes the interest again. Over and over.
The result is more money for you!

3. How can you learn to use compound interest to become a millionaire?
We will build a spreadsheet and try several savings programs to see which will make us a millionaire one day.
The key to using compound interest to your advantage is to commit to a savings plan for a long period of time.

4. Spreadsheet Basics

5. How will we use a spreadsheet?

6. Open a spreadsheet in Excel.

7. Building Your Spreadsheet.
We will use row 1 and column A for labels.
Type “year” in cell A1
Type “1” in cell A2
Type “ = a2+1” in cell A3
Highlight cell A3 and down to cell A51, Pull down Edit menu. Choose Fill, down.

8. More Building. Type “mattress” in cell B1.
Type “1200” in cell B2. This represents saving $100 a month and putting it in a mattress. You can use format menu and choose cell to make your 1200 look like money. Do not type “$” in.
Type “=b2+1200” in cell B3.
From Edit menu, fill down to cell B51

9. More Building. Type “Savings 1” in cell C1.
Type “1200” in cell C2. This represents saving $100 a month and putting it in a bank savings account that compounds interest once a year.
In cell c3, type “=c2* ”. This represents adding 1200 a year and earning 4% interest.
Fill down to cell C51.

10. More building and experimenting.
Look at your totals. What savings plan is better? Let the spreadsheet calculate the difference for you. How?
Build a new savings plan in column D. Save the same amount each year, 1200, but give yourself more interest. Use “=d2* ” as your formula in cell d3. Notice that we only changed one variable.

11. Poor Ms. Cobb’s savings
Now build a savings plan for me. I am older than you so I only have 14 years left until I retire. I save more than your plan. I save about $450 a month. I am only getting about 8% interest on my saving.
Your job is to see how much money my savings plan will have in it when I retire at age 66.

12. Will I make it to the Millionaire Club?
What makes more difference; time, amount of savings, or interest rate?
Do you need to create another plan to test this?

13. Your Journal Entry
After this lab you will need to write a journal entry to tell me what you have learned from this lab exercise.
You will need to turn this journal in for a grade. The more complete it is, the better your grade.
I will be looking for what you know about spreadsheets and compound interest.