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Please…. Please log into Moodle and complete today’s Bell Ringer. Simple Interest vs Compound Interest. Simple interest Simple interest is called simple because it ignores the effects of compounding . 

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  1. Please… Please log into Moodle and complete today’s Bell Ringer

  2. Simple Interest vs Compound Interest • Simple interest • Simple interest is called simple because it ignores the effects of compounding.  • The interest charge is always based on the original principal (amount deposited), so interest on interest is not included.  • Compound Interest • The idea of earning interest on interest • One of the most powerful tools in personal finance A = P (1+i)n A = Amount in the account; P = principal; i = interest rate; n = number of years compounded

  3. Compounding Interest • How much money you save have depends on: • The amount of money you save or invest • The interest rate • The amount of time your money has to make new money • One of the most important elements! • Exercise 3B (page 30)

  4. Answers to Exercise 3B Interest Rate 1 Year 2 Years 4 Years 6 Years 4% $10.40 $10.82 $11.70 $12.65 ? ? 8% $10.80 $11.66 $13.60 $15.87 ? ? ? ? 3-G 1 2 3 4 5 6

  5. The cost of Procrastinating • You may not have a lot of money right now, but you do have time! • Therefore, the most important thing is to get into the saving and investing habit NOW! • The cost of procrastinating could be a lot of money!

  6. Amount Saved Per Week Value After 10 Years Investing Weekly at 5% Interest $ 7.00 $ 4,720 $ 14.00 $ 9,440 $ 21.00 $ 14,160 $ 28.00 $ 18,880 $ 35.00 $ 23,600 3-B 1

  7. Investing Annually to Achieve a Goal Value of $20 1 Year 2 Years 4 Years 6 Years $20.80 $21.63 $23.40 $25.31 4% $21.00 $22.05 $24.31 $26.80 5% $21.20 $22.47 $25.25 $28.37 6% $21.60 $23.33 $27.21 $31.74 8% $22.00 $24.20 $29.28 $35.43 10% 3-C 1 2 3 4 5

  8. To Have $50,000 at 8% Interest Number of Years Saving Monthly Amount Daily Amount* 6 $543.33 $17.79 4 $887.31 $29.06 2 $1,928.03 $63.17 * Assumes a 365-day year for daily amounts 3-D 1 2 3

  9. Investing a $10,000 Lump Sum Interest Rate 5 Years 10 Years 15 Years 20 Years 5% $12,763 $16,289 $20,789 $26,533 6% $13,382 $17,908 $23,966 $32.071 7% $14,026 $19,672 $27,590 $38,697 8% $14,693 $21,589 $31,722 $46,610 9% $15,386 $23,674 $36,425 $56,044 10% $16,105 $25,937 $41,772 $67,275 11% $16,851 $28,394 $47,846 $80,623 12% $17,623 $31,058 $54,736 $96,463 3-E 1

  10. Investing $1,000 Annually Interest Rate 5 Years 10 Years 15 Years 20 Years 5% $5,526 $12,578 $21,579 $33,066 6% $5,637 $13,181 $23,276 $36,786 7% $5,751 $13,816 $25,129 $40,995 8% $5,867 $14,487 $27,152 $45,762 9% $5,985 $15,193 $29,361 $51,160 10% $6,105 $15,937 $31,772 $57,275 11% $6,228 $16,722 $34,405 $64,203 12% $6,353 $17,549 $37,280 $72,052 3-F 1 1

  11. Compound Interest • Please look at page 29 in your book • Look at the Did you Know Section • You don’t have to use the equation to figure out what your investment is! • There are online investment calculators! • Please go to Moodle and click on the “Time Value of Money Calculator” • Turn in your book to page 31

  12. Homework • Read pages 32-34 • Write 5 sentences of things you learned • Complete Try It! Exercise 3C • Complete Try It! Exercise 3D

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