Ben Franklin's Will - Part 1
From the class highlights page, click on this lab (it is under today's date).
For homework you read the web reading for lab.
Click on this Excel file link
You will either see the data come up automatically or you must open it
yourself from Excel.
You will see a chart that is partly filled in.
"...I wish to be useful even after my Death, if possible, in forming and
advancing other young men that may
be serviceable to their Country both in Boston and Philadelphia.
To this end I devote Two thousand Pounds
Sterling, which I give, one thousand thereof to the Inhabitants of the Town of Boston in Massachusetts, and
the other thousand to the Inhabitants of the City of Philadelphia, in Trust and for the Uses, Interests and
Purposes herinafter mentioned and declared....."
The Fund in Boston
Even though the fund charged borrowers 5% interest (as Franklin
had planned on
earning), it was not always possible to find as many borrowers as
Franklin had planned and there were other problems as well since
some of the borrowers did not pay back their loans.
If the fund lent out half of its money at 5% to borrowers who
all paid back their loans plus interest, but if the fund could not find any
borrowers for the other half of the money, what would the average earned
rate of the fund be?
Question 2 If the fund lent some of its money to borrowers who
didn't repay anything,
how would that contribute in the calculation of the average earned rate?
Relate your answer to the definition of average.
In January 1894, at the end of 100 years from the
inception of the Franklin gift, because of these problems, the Boston
fund had grown from $4444.44 dollars
(the equivalent of $1000 pounds) to
(Note that this is less than the
$582,221.64 (the equivalent of 131,000 pounds) that Franklin had imagined.)
To solve for the average earned rate of the fund
(the answer is not 5% because of the problems that the fund faced)
guess what average earned rate
compounding yearly would give a balance of 391,000 dollars
different rates, but instead we'll use Excel to solve the
equation for the unknown rate:
In the C2 box of your downloaded Excel file,
type (and don't forget the equals sign that always
comes before Excel equations!):
391,000 = 4444.44(1+average earned rate)100
Question 3 Before we do that though, if the borrowers are paying
back money each year (so that the fund can earn interest), why is the
lump sum formula appropriate to use here? Think about how often Ben put
money into the account and relate this to the choice of the formula. Also
address why the interest coming back every year is already accounted for in
the lump sum formula by relating your answer to our discussion of the
philosophy of the derivation of the formula in class.
and then hit return. This now reads 4444.44.
Click back on C2. We want Excel
to solve for the average earned interest rate that will result in 391000.
Under Tools, scroll down to Goal Seek... and release.
Set cell: should already read C2.
Type 391000 in the To value: slot.
Type D2 in the By changing cell: slot.
Goal Seek will find a solution, so then click on OK. Notice that
the average earned interest rate solution is in box D2.
Question 4 Does your work match with the first row of this table?
(to remind yourself of the
formulas that you used, click on the corresponding box in
Excel, and look at the top next to the equal sign in the formula bar - if
this is not visible, under View, release on Formula Bar):
Make sure that you understand the Excel commands and the related lump sum formula before you move on. Notice that the Excel process is that we set up the
right hand side of the lump sum formula in the C box, while referring to the
unknown rate in the D box,
and then we used Goal Seek back on the C box to have it equal the savings and
solve for the average earned interest rate.
||Average Earned Rate
||Lump Sum Formula
||Goal Seek Amount
||391,000 = 4444.44(1+average earned rate)100
As per Ben Franklin's wishes, a portion of the earnings from the first
hundred years went back into the fund to be loaned out, while the remainder
was given to the cities. In Boston,
$100,000 of the $391,000
was reinvested at the end of the first hundred years.
By lending money to borrowers at 5% interest, the fund
grew to 5 million dollars ($5,000,000)
at the end of the second hundred years.
Here is both sides of the lump sum formula with the
numbers filled in for the second 100 year period:
5,000,000 = 100,000(1+average earned rate)100
Use Excel to solve for the average earned rate of the fund
(the answer is not 5% since the fund faced similar problems as were faced
during the first hundred years)
Be careful that you
set up the lump sum formula in the correct box
(C3), refer to (D3) for the unknown rate,
and that you use goal seek on the correct box (C3).
When you are finished, compare your answer with a neighbor and then fill
in the relevant row of the table above.
The Fund in Philly
At the end of first 100 years the Philly fund had grown from
$4444.44 dollars to only $172,350 dollars.
In the above table,
fill in both the left and right hand sides of the lump sum formula with the
numbers filled in (but leave the earned rate of the fund as a variable).
Next, solve for the
average earned interest rate responsible for this Philly growth
in your Excel sheet in boxes
C4 and D4, and fill in the above table.
In Philly, $39,274
was reinvested at the end of the first hundred
years. By lending money to borrowers at 5% interest,
the fund grew
to $2,256,952.05 by the end of the second hundred years.
In the above table, fill in both the left and right hand sides of the lump sum formula with the
numbers filled in (but leave the earned rate
of the fund as a variable).
Next, solve for the average earned rate of the fund in your Excel sheet in
boxes C5 and D5, and then fill in the relevant row of the above table.
We'll see what happened to the these earnings in Ben Franklin Part 2.
Show me your filled in chart and table. If it is correct then
you may quit Excel.
Next answer the following questions.
What were Ben Franklin's goals and wishes for the money at
the end of the second
hundred years? Review
the web reading for lab to find his
After 200 years, Boston and Philly ended up with a lot of money using
Ben's loan method, but they ended up with a lot less money than he had
So, at the end of the second hundred years, Boston and Philly
had to decide what to do with their respective earnings.
What would you do with these funds for the cities of Philadelphia and Boston -
be sure to relate your answer to Ben Franklin's goals and wishes.
Question 10 Search the web for information related to
Ben Franklin. Write down something you found interesting.