According to one study, the average monthly cell phone bill in the U.S. is $70.

Question

According to one study, the average monthly cell phone bill in the U.S. is $70. If a 20-year old student with an average bill gives up her cell phone and each month invests the $70 she would have spent on her phone bill in a savings plan that averages a 4% annual return, how much will she have saved by the time she is 65?

Answer 1

Total amount will equal the principal amount invested ($70) plus the amount of interest accrued over the the time invested. The time invested is 65 (final age) minus 20 (current age). The interest rate is 4 percent, which equals 0.04 as a decimal.

The formula for simple (versus compound) interest is: Prt, where P is the principal amount invested, r is the interest rate as a decimal, and t is the time (years in this case since we are talking about an ANNUAl interest rate).

A: amount student has at age 65 ($)

P: principal invested (4)

r: annual interest rate (expressed as decimal)

t: number of years invested

Prt: interest at end of time period ($)

A = P + Prt

A = 70 + 70(0.04)(45)

I'll let you crank out the value for A. Good luck! I hope that you learned something!!