1. Financial Algebra
2 April 2018

2. announcements This week is PERT testing (Wednesday/Thursday)
It shouldn’t affect you unless you need to take the PERT, or I have to give it at the start of the day
Please remember: the first quiz of the quarter is due by April 5th
If you’ve lost your copy, or need another copy please see me tomorrow
Tomorrow is the last day to pick up a copy

3. agenda
At the very least, I want to cover 10 minutes of the next section – Savings
After that 10 minutes, you can work on your quiz if you’d like

4. Some of the Vocabulary for this section
401(k)/403(a) plans
Annuity
Certificate of deposit (CDs)
Interest
Compound interest
Annuity/fixed annuity
Individual retirement account (IRA)
Traditional IRA
Roth IRA
SEP-IRA
Money market deposit account
Pension plan
Vesting

5. Last class We covered the basics of Savings accounts
How they are assets with significant liquidity
They still have less liquidity than a Checking account because you are not able to write checks from them
But they are liquid enough for you to withdraw and move money from them at whatever time is convenient
So here’s a question: What happens when you are not allowed to move your Savings as often as you’d like?
Well, then you have a certificate of deposit (CD)

6. Certificates of deposit (CDs)
Certificates of Deposit (CDs): “An agreement” in contract form between an individual and the financial institution that specifies some length of time that the individual will leave a certain amount of money deposited at the particular bank
Now these agreements have certain requirements:
Minimum amount to be held in the CD (lowest I found: $1,000)
The interest rate of the CD
The maturity date and final amount that will result from the CD
Maturity time periods can vary (3 months, 6 months, 1 year, 3 years, 5 years are most common)
So, what’s the point?
These give higher rates of interest than Savings (maximum found: 2.5%)

7. Certificates of deposit (CDs)
But there is a catch…
You can access the money before the maturity date is up…
You have to pay a penalty for taking money out early, sometimes up to a percentage of what was deposited
Consider CDs only when you know that you will not need the money until after the CD matures

8. Real-world problem
Brooke bought a one year $5,000 CD that pays 4 percent interest annually. How much will she have at the end of the year (assuming all the interest earned is added at year’s end)?
Answer: $5,000 x 1.04 = $5,200
Question: How much money would she have at the end of 3 years?
Answer: $5,000 x 1.04 = $5,200 (Year #1)
Answer: $5,200 x 1.04 = $5,408 (Year #2)
Answer: $5,408 x 1.04 = $5, (Year #3)