1. Section 7.6 Day 2 Exponential Growth & Decay
Algebra 1

2. Communicate the power of compound interest
Learning Targets
Communicate the power of compound interest
Communicate the basic difference between a Traditional IRA and ROTH IRA
Solve exponential growth word problems
Solve exponential decay word problems

3. Group Activity
In your groups, come up with a list of all the expenses you would have to pay for once you decide to live completely on your own

4. Expenses Miscellaneous Clothes Car Repairs Credit Card Payments Gifts
Doctors Appointments
Pets
Children
Fun Activities
Rent/House Payments
Water
Electric
Gas
Cable
Internet
Car Insurance
Car Gas
Food
Cell Phone
Loans (Student, Car)

5. Group Activity
Choose what you want for each of your monthly payments to make a budget
Keep in mind that the average household gross income is roughly around $60,000 but after taxes it turns into roughly around $42,000

6. Apartment in Oswego per month: $1,200
Group Activity
Choose 1:
Apartment in Oswego per month: $1,200
Apartment in Chicago per month: $1,650

7. Group Activity Water Bill per month: $40
Electricity/ Gas Bill per month: $90
Car Insurance: $150
Car Gas: $160
Food: $400
Cell Phone: $50
Student Loans: $200

8. Choose 1: Cable Only: $60 Internet Only: $35 Cable & Internet: $70
Group Activity
Choose 1:
Cable Only: $60
Internet Only: $35
Cable & Internet: $70

9. IRA: Individual Retirement Account
A savings account for retirement
Full access to the account, without penalty, at age 59.5
The power of IRA’s lies within the power of compounding interest

10. A savings account for retirement
Type 1: Traditional IrA
A savings account for retirement
Full access to the account, without penalty, at age 59.5
Pay taxes on money when withdrawing it for retirement

11. A savings account for retirement
Type 2: RoTH IrA
A savings account for retirement
Full access to the account, without penalty, at age 59.5
Pay taxes on money when depositing

12. Interest accrued on principal amount and previously earned interest
Compound Interest
Interest accrued on principal amount and previously earned interest
Formula: 𝑦=𝑎 1+𝑟 𝑡
A: Initial Amount
R: Return Rate (as a decimal)
T: Time

13. Ex: Invest $5,500 and have a 7% interest return at age 25.
Compound Interest
Ex: Invest $5,500 and have a 7% interest return at age 25.
By age 50, you’ll have = $29,850.88

14. Calculate Compound Interest
Invest $2,400 and have a 7% interest return rate at age 23. Calculate the amount you’ll have in your account after 10 years
Step 1: 2,400∙1.07
Step 2: (2,400+𝑎𝑛𝑠)∙1.07
Step 3: Click enter 8 more times
Answer: $35,480

15. Calculate Compound Interest
Invest $5,500 and have a 7% interest return rate at age 23. Calculate the amount you’ll have in your account after 10 years
Step 1: 5,500∙1.07
Step 2: (5,500+𝑎𝑛𝑠)∙1.07
Step 3: Click enter 8 more times
Answer: $81,310

16. Calculate Compound Interest
Invest $2,400 and have a 7% interest return rate at age 23. Calculate the amount you’ll have in your account when you are 62 years old
Step 1: 2,400∙1.07
Step 2: (2,400+𝑎𝑛𝑠)∙1.07
Step 3: Click enter 37 more times
Answer: $476,724

17. Calculate Compound Interest
Invest $5,500 and have a 7% interest return rate at age 23. Calculate the amount you’ll have in your account when you are 62 years old
Step 1: 5,500∙1.07
Step 2: (5,500+𝑎𝑛𝑠)∙1.07
Step 3: Click enter 37 more times
Answer: $1,092,493

18. Compare Investing Early vs Later
Let’s say you invest $2400 each year at age 23 until age 65. How would that compare to investing $2400 each year at age 33 until age 65?
Age 23: $592,264
Age 33: $283,040

19. Compare Investing Early vs Later
Let’s say you invest $5500 each year at age 23 until age 65. How would that compare to investing $5500 each year at age 33 until age 65?
Age 23: $1,357,271
Age 33: $648,634

20. Would you rather invest in a Traditional IRA or a ROTH IRA?
Reflection
Would you rather invest in a Traditional IRA or a ROTH IRA?
What is the importance of budgeting? How do you plan to implement what you learned today in your future?