Using the information we discussed concerning compound interest, work by yourself to choose an answer to the question below. (Your calculations may not be exact. You may be estimating.) John Anderson deposited $10,000 in a certificate of deposit (CD) for 3 years at 5%. At maturity, it will be worth: a. $10,500. b. $10,725. c. $11,400. d. $11,580. e. $12,400. $11,576.25

$10,000 CD for 3 years compounded yearly at 5% interest. $10,000 x .05 x 1= $500 Interest for 1st year $10,000 + 500 = $10,500 New Balance $10,500 x .05 x 1 =$525 Interest for 2nd year $10,500 + 525 = $11,025 New Balance $11,025 x .05 x 1= $551.25 Interest for 3rd year $11,025 + $551.25= $11,576.25 New Balance **How much interest will you get if you take this 3 year CD out after the 2nd year? None! You’ll also be charged a fee for early withdrawal!

The Rule of 72 -Used to calculate how long it will take your invested money to double. -72 divided by the interest rate=number of years to double. Ex. $5,000 deposited in an account with 8% interest. 72 9 years to double money 8 =

Age Amount $5,000 $10,000 $20,000 45 $40,000 54 $80,000 63 $160,000 72 $320,000 81 $640,000 Age Amount 18 $10,000 27 $20,000 36 $40,000 45 $80,000 54 $160,000 63 $320,000 72 $640,000 81 $1,280,000

Rule of 72 (continued) -Also used to calculate the rate of return needed to make your money double. -72 divided by the number of years you would like to see money double will give you the interest rate needed to achieve that goal. 72 7.2% interest rate to double 10 yrs. =

Investing: Taking Risks with Savings **To earn a higher rate of return, people must be willing to take a risk w/ their money. *Stocks -Buying into a corporation -Entitles holder to future profit -Stock certificate shows ownership.

Making Money in Stocks Dividends--money paid to stockholders on profits. (Income gained by owning the stock) Speculation--selling stock for more than you paid for it. (Income gained by selling the stock)

Selling price today Profit per share

Capital Gains--profit made on stock Ex. Buy Stock at $10 per share Sell Stock at $30 per share Profit-- $20 per share Capital Loss--money lost on stock Ex. Buy Stock at $30 per share Sell Stock at $10 per share Loss--$20 per share

Bonds -like loaning money to a corp. -pays interest over a certain amount of time. -promises to repay loan at maturity -not an owner, but a creditor

Stocks! Owners are the last to be paid. **Which investment is a bigger risk to your money- -stocks or bonds? Stocks! **Why are stocks riskier than bonds? Owners are the last to be paid. Bond holders are bills that must be paid for company to stay in business.

Highest and lowest price the stock has been in the last year. Amount of profit paid per share to stockholders. Current Stock Price Per Share Number of shares bought and sold today. Difference in stock price from yesterday to today.

Current price Highest for the year Lowest for the year Number traded so far today Profits per share