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Teacher instructions: Print the lesson, Display slide 2 with Procedure step 2 in the lesson.

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Teacher instructions: Print the lesson, Display slide 2 with Procedure step 2 in the lesson. - PowerPoint PPT Presentation


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Teacher instructions: Print the lesson, Display slide 2 with Procedure step 2 in the lesson. Display slides 3 through 6 with Procedure step 3. Display slides 7 through 12 with Procedure step 4. Display slides 13 through 15 with Procedure step 5.

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Presentation Transcript
slide1

Teacher instructions:

Print the lesson,

Display slide 2 with Procedure step 2 in the lesson.

Display slides 3 through 6 with Procedure step 3.

Display slides 7 through 12 with Procedure step 4.

Display slides 13 through 15 with Procedure step 5.

Display slides 16 through 24 with Procedure step 6.

Display slide 25 with Procedure step 9.

Display slide 26 with Procedure step 10.

Savvy Savers.

slide2

saving

the part of a person’s income that is not spent or used to pay taxes

slide3

non-interest-bearing account

an account in which no interest is paid on the principal –

also called a zero-interest account

slide4

principal

the original amount of money deposited or invested, excluding any interest or dividends

slide5

interest

the price of using someone else’s money

slide6

compound interest

Interest computed on the sum of the original principal and accrued (accumulated) interest

slide7

Maria’s Savings Decision Problem 1

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

slide8

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

Step 1: Convert annual interest rate (5%) to decimal (.05)

slide9

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

Step 2: Divide annual interest rate (stated as decimal) by two to change it to semiannual. (.05/2=.025)

slide10

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

Step 3: Multiply the principal by the interest rate to get the interest paid in dollars.

($1,000 x .025=$25.00)

slide11

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

Step 4: Add principal and interest to get new amount of principal.

($1,000 + $25.00=$1,025)

slide12

Principal = $1,000

Interest Rate = 5%

Interest paid semiannually

Step 5: Record new level of principal and repeat the process from Step 3.

slide19

What is a non-interest bearing account?

an account or deposit that does not pay interest on the principal

What could Maria have bought with the $50.62 of interest she might have earned on her savings?

slide20

Would you classify Maria as a saver or a savvy saver?

saver

Why?

She didn’t save her money in a way that would giver her a return on her investment, i.e. an account that pays interest on the principal.

slide21

Why would anyone leave the $1,000 in a non-interest bearing account rather than putting it in an interest-bearing account?

He or she may not understand the importance of compound interest or may be financially lazy.

slide22

Imagine that instead of $1,000, Maria’s grandmother had given her $10,000. After three years, how much interest would $10,000 have earned on a 5 percent compounded semiannually account?

$1,597.10

slide23

Why is time, i.e., the number of months you have your money in an interest-bearing account, a very important factor in accumulating savings?

The sooner you start saving, the sooner you start earning interest not only on your principal but also on accrued interest. Money works for you over time.

slide25

36 years

4% (72 4)

18 years

12 years

9 years

6 years

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