Question

As of this writing, Apple's most expensive iPhone model (iPhone 11 Pro Max) costs $1,099, before sales tax is applied. The company's less expensive model, iPhone 11, costs $699. Consider the scenario of a person who needs a new phone. After carefully considering the two models, the phone buyer in our scenario decides to purchase the less expensive model. She reasons that even the less expensive model contains the latest generation technology, and plus, she could use the difference in price in other areas of her budget. What would happen if the consumer in our scenario took the money she saved by purchasing the less expensive phone and invested it, at a modest rate of return of 5%, over a period of 30 years? How much money will she have saved, in the end?

Answer 1

The person has two options to buy the phone.

1) I phone 11 pro at the price of $1099

2) I phone 11 at the cost of $699

The person bough the less expennsive phone and saved the rest of money for investment.

Money saved from investment = Price of 11 pro - Price of 11

= $1099 - $699

= $400

$400 are saved because of the fact of buying low price phone and saving the additional money by not buying high end phone model.

Saved Amount to be invested: $400

Rate of return: 5%

Time period of investment: 30 Years

ANSWER:

END BALANCE: $1728.78 (iS A TOTAL OF PRINCIPAL AND INTEREST)

STARTING AMOUNT: $400

TOTAL INTEREST: $1328.78

INTEREST= P(1+I)t-P

=400(1+0.05)-400

=1328.78

At the end of 30 years period she could save an amount of $1728.78 with a principal amount of only $400 with an interest of $1328.78.

ALTERNATIVE WAY:

SIMPLE INTEREST= P*R*T

= 400*0.05*30

=600

TOTAL AMOUNT AT THE END IN SIMPLE INTEREST FORMULA= PRINCIPAL + INTEREST

= 400+600

= $1000