Starter… What is the point of learning about Interest Rates?

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Presentation transcript:

Starter… What is the point of learning about Interest Rates?

Can you identify the definition of an Interest Rate from the list below? A – Where the demand of a product outweighs the supply of it. B – Where the supply of a product outweighs the demand of it. C – The amount customers are willing and able to buy at any given price.

Is this the correct definition then? The amount sellers are willing to offer for sale at any given price.

How about this then? The percentage reward or payment over a period of time that is given to savers or paid by borrowers on savings or loans.

Which type of Interest Rate is this? Year:Interest Rate: 12% 24% 31% 45% 52%

Which type of Interest Rate is this? Year:Interest Rate: 12% 24% 31% 45% 52% Variable Interest Rate – Interests Rates that can change over the lifetime of a loan depending on what is happening to other interests rates in the economy.

Which type of Interest Rate is this? Year:Interest Rate: 12%

Which type of Interest Rate is this? Year:Interest Rate: 12% Fixed Interest Rate – Interests Rates that stay the same over an agreed period of a loan.

Harry H (Managing Director), Lewis D (Finance Director), Jack B (Human Resources) & Connor D (Production Manager) come to the front please. You have just formed your own small business. To start up, you have taken out a loan of £100,000 with an interest rate of 5% per year. In year one, how much interest have they paid?

In year two, interest rates rocket up to 15% per year. How much interest are they paying on their £100,000 now?

What impact might having to pay that extra £10,000 in interest have on Harry’s business?

In year three, interest rates collapse down to 1% per year. How much interest are they paying on their £100,000 now?

What impact might having that extra £14,000 to spend (compared to year 2) have on Harrys business?

Lets consider the impact on consumer spending. If I need to borrow some money to buy a car, am I more likely to be able to afford it if interest rates are high or interest rates are low?

Lets consider the impact on consumer spending. If I need to borrow some money to buy a car, am I more likely to be able to afford it if interest rates are high or interest rates are low? So if interests rates are high, what do you think will happen to the number of car sales?

Finally, What About Savers? Charlee has saved up £5,000. Will it be better for her savings if the bank offers her a high rate of interest or a low rate of interest?