1. HOW TO MAKE MONEY WITHOUT DOING ANY WORK
INTEREST
HOW TO MAKE MONEY WITHOUT DOING ANY WORK

2. TERMS TO KNOW: Principal – the amount of money you deposit
Interest – the amount of money the bank pays you for use of your principal
Interest rate – the percent rate the bank pays per year
Simple interest – interest paid only on the principal

3. SIMPLE INTEREST

4. SIMPLE INTEREST Where I = is the interest P = is the principal
R = is the interest rate per year
T = is the time in years

5. EXAMPLE 1
Suppose you deposit $1000 in an account that pays 8.5% per year. How much simple interest will you have after:
4 years
10 years

6. EXAMPLE 2
Suppose that you deposit $500 into an account with a simple interest rate of 7.25% per year. How much total money will you have in the account after 7 years?

7. COMPOUND INTEREST
When a bank pays interest on both the principal, and the interest earned.
Balance – the principal plus any interest earned. This is used to determine the amount for the next interest period.

8. TERMS YOU MUST KNOW: Annual – 1 time per year
Semiannual – 2 times per year
Quarterly – 4 times per year
Monthly – 12 per year
Daily – 360 per year (NOT 365)

9. Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?

10. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
Year 2:
Year 3:
Year 4:

11. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
Year 2:
Year 3:
Year 4:

12. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
= 1050
Year 2:
Year 3:
Year 4:

13. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
= 1050
Year 2:
Year 3:
Year 4:

14. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
= 1050
Year 2: 1050
1050 X 0.05 = 52.50 =
Year 3:
Year 4:

15. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
= 1050
Year 2: 1050
1050 X 0.05 = 52.50 =
Year 3:
X 0.05 = 55.13 =
Year 4:

16. Principal at beginning of year
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?
Principal at beginning of year
Interest
Balance
Year 1: 1000
1000 X 0.05 =
50.00
= 1050
Year 2: 1050
1050 X 0.05 = 52.50 =
Year 3:
X 0.05 = 55.13 =
Year 4:
X 0.05 = 57.88 =

17. COMPOUND INTEREST FORMULA
where B is the final balance, p is the principal, r is the interest rate for EACH interest period, and n is the number of interest periods

18. EXAMPLE 1
Suppose you deposit $1000 into an account that earns 5% compounded annually. What is the balance in the account after 4 years?

19. YOUR RETIREMENT
Suppose you deposit $1200 into an account that pays 4% compounded quarterly. How much will you have in the account after 50 years?
Because the interest is compounded quarterly, you need to take the interest rate and divide by 4.
Interest rate: 1%
Also, the interest is given 4 times per year or 200 times

20. YOUR RETIREMENT
Suppose you deposit $1200 into an account that pays 4% compounded quarterly. How much will you have in the account after 50 years?

21. THINGS TO REALLY THINK ABOUT:
Right now you have the greatest asset: TIME
How hard is it to save $1000 now???
How much will it be worth when you are 65??

22. YOUR RETIREMENT
Suppose you invest $1000 into an account that pays 5% compounded annually. What will the balance be 40 years from now?

23. This is a percent of change of 604%!!!
YOUR RETIREMENT
Suppose you invest $1000 into an account that pays 5% compounded annually. What will the balance be 40 years from now?
This is a percent of change of 604%!!!

24. ACCOUNT COMPARISONS
Suppose you are given the option of investing $1500 in an account that pays 8% compounded annually, or an account that pays 8% per year compounded quarterly. In which account would you have the larger balance after 30 years?

25. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
8% quarterly

26. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08
8% quarterly

27. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08
8% quarterly
0.08/4 =
0.02

28. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08 30
8% quarterly
0.08/4 =
0.02

29. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08 30
8% quarterly
0.08/4 =
0.02
30 X 4 = 120

30. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08 30
15,093.99
8% quarterly
0.08/4 =
0.02
30 X 4 = 120

31. Number of times interest is applied
ACCOUNT COMPARISONS
Account
Interest Rate
Number of times interest is applied
Final Balance
8% annually
0.08 30
15,093.99
8% quarterly
0.08/4 =
0.02
30 X 4 = 120
16,147.74

32. ASSIGNMENT
7-8: 1 – 17, 20
QUIZ TOMORROW!!!