Unit 5: Saving and Investing

1. Section 2: Calculations Unit 5: Saving and Investing

2. I CAN: • Define principle • Apply the rate of return • Calculate Simple interest, compound interest and the rule of 72

3. Principle • This is the amount of money YOU put in. • If I put $100 into a savings account at 1% interest, $100 is my PRINCIPLE • 1% is my APY or rate of return • Always make APY a decimal. EX .01 Instructor: See flipchart

4. Simple Interest • This is the easiest type of interest to calculate • Multiply Principle X Interest Rate X years invested • $100 X .01 X 2 years= $2 Instructor: See flipchart; When complete use 5.3 Simple interest worksheet

5. Compound Interest • Compound means you will earn interest on your previously earned interest. So, if you have $100 in a savings account earning 1% for 2 years and it compounds annually, you will: • Year 1: 100 X .o1= $1 • 100 + 1= 101 • Year 2: 101 X.01= 1.01 • 101 + 1.01= 102.01 • After 2 years, you have earned $2.01 (simple interest would have earned only $2) • Usually interest is compounded quarterly (4X per year), semi-annually (2X per year), or annually (1 X per year) Instructor: See flipchart; When complete use 5.4 compound interest

6. The Rule of 72 72/%rate of return= how many years until your money doubles. DO NOT CHANGE % TO DECIMAL If I invest $100 at 1%, I will have $200 in 72 years 72/1=72 Instructor: See flipchart; When complete use 5.5 rule of 72

7. CAN I? • Define principle • Apply the rate of return • Calculate Simple interest, compound interest and the rule of 72 • I can prove this by completing: • 5.3: simple interest • 5.4: compound interest • 5.5: Rule of 72