1. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved1 Introduction It has been described as “simple interest on steroids” Compound interest is used in most financial transactions According to some very smart people, it is essential for you to understand compound interest Albert Einstein 1879 - 1955 “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth ”

2. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved2 Objectives Define compound interest and compounding period You should be able to do the following after completing this lesson Summarize why compound interest is so important Identify the type of interest used in financial transactions Explain why the principal for compound interest is dynamic Review what the Truth in Lending Act requires Describe the different interest rates used today Demonstrate how you would use the Rule of 72 Describe how to use compound interest to increase wealth

3. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved3 3.3.1 – Compound Interest What is unique about compound interest In this section, you will learn: The components necessary to calculate compound interest How to calculate compound interest using this formula What compound interest is

4. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved4 Principal Growth Example Why everyone either loves or hates compound interest 3.3.2 – Compound Interest’s Power How simple and compound interest are different In this section, you will learn: What dynamic principal means to you You will run the following Interactive Example: What a Growth Factor is How to calculate a Growth Factor using this formula

5. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved5 3.3.3 – The Compounding Period In this section, you will learn: What the time between interest calculations is called What happens when the interest is calculated more frequently The different compounding periods used with compound interest How many times a year the compound interest is calculated for different compounding periods What the actual annual interest rate for compound interest depends on

6. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved6 3.3.4 – Effective Interest Rate In this section, you will learn: What financial institutions are required by law to show you Effective Interest Rate Example What the effective interest rate is and what it is based on What the APR is and why it is important When the effective interest rate is equal to the APR You will run the following Interactive Example: How the effective interest rate is calculated using this formula What the Truth in Lending Act is designed to do

7. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved7 3.3.5 – Calculating Compound Interest In this section, you will learn: Why just reading about compound interest doesn’t do it justice When compound interest is working for you When compound interest is working against you Whether compound interest is more powerful when it is working for or against you

8. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved8 3.3.6 – Benefits of Compound Interest In this section, you will learn: What the only proven way of becoming wealthy is How compound interest can help you become wealthy Compound Interest Exercise What ingredients are necessary to increase personal wealth You will run the following Interactive Exercise: What compound interest can do if given enough time What happens to the power of compound interest when the interest rates are low

9. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved9 3.3.7 – Rule of 72 In this section, you will learn: What the Rule of 72 is How to calculate the Rule of 72 using this formula Why you might want to use the Rule of 72

10. Lesson 3.3 Compound Interest February 15, 2011Copyright © 2007-2011 … REMTECH, inc … All Rights Reserved10 Discussion Questions Do you believe you can use the power of compound interest to become wealthy? Why did Congress pass the Truth in Lending Act?