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Saving and Investing B asics 4.03

Saving and Investing B asics 4.03. Saving and Investing Basics. Why borrow money? Individuals- to purchase large items such as homes and cars Businesses- to operate or expand their business (purchase a building, replace old equipment, offer new products)

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Saving and Investing B asics 4.03

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  1. Saving and Investing Basics4.03

  2. Saving and Investing Basics • Why borrow money? Individuals- to purchase large items such as homes and cars Businesses- to operate or expand their business (purchase a building, replace old equipment, offer new products) Government- expand transportation, schools or other public services

  3. Saving and Investing Basics • What is saving? • Putting away money for future use • What is investing? • Using savings to earn more money for the future

  4. Saving and Investing Basics continued • Saving influences on economic activity • Makes more money available to individuals, businesses and the government • When borrowed money is spent > demand for goods and services increase > more jobs > creates spending for workers

  5. Saving and Investing Basics continued • Two main goals of savers and investors: • Immediate income • Long-term growth (money for the future) • Growth of savings- Interest is money you receive while others borrow your money • Simple interest is interest paid on the amount of money deposited for a period of time

  6. Saving and Investing Basics continued • How is simple interest calculated?** I = P * R * T P= principal R= rate T= time I= Interest • Example: P= $1000 R= 5% T= 1 yr • $1000 * 5% * 1 yr = $50.00

  7. Saving and Investing Basics continued • Compound interest is computed on amount saved plus the interest previously earned • How is compound interest calculated?

  8. Savings Growth Simple interest $2,000 at 10% Year 1: $2,000 * .10 = $200 $2,000 + $200 = $2,200 Year 2: $2,000 * .10 = $200 $2,200 + $200 = $2,400 What would the value be at the end of year 3? Compound interest $2,000 at 10% Year 1: $2,000 * .10 = $200 $2,000 + $200 = $2,200 Year 2: $2,200 * .10 = $220 $2,200 + $220 = $2,420 What would the value be at the end of year 3?

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