1. Money 101 | finance-lectures.com1 Money, time, and interest Daniel Folkinshteyn, PhD http://finance-lectures.com/ personal@finance-lectures.com

2. Money 101 | finance-lectures.com2 Learning objectives Explain the meaning of interest rate Calculate basic interest amounts Describe the nature of compound interest Calculate interest over multiple compounding periods Describe how interest works for you (against you) in investments (loans)

3. Money 101 | finance-lectures.com3 Prerequisites Percentages Exponents Basic algebra For refresher: https://www.khanacademy.org/math/algebra- basics

4. Money 101 | finance-lectures.com4 Time value of money Alice Bob

5. Money 101 | finance-lectures.com5 Rate of return Arrangements: Debt – fixed amount promised back Equity (ownership stake) – fraction of future profits Return: cost of using other people's money Expressed as percentage of amount invested Usually expressed as annualized percentage

6. Money 101 | finance-lectures.com6 Interest rate calculation Invest $100, at 5% annual rate At the end of the year, you have: 100 + 5% of 100 = 100 + 0.05*100 = 105 100 + 0.05*100 = 100 * (1 + 0.05) = 105 P * (1 + r) = F

7. Money 101 | finance-lectures.com7 Rates over time Time Amount 0 100 1 100*1.05 = 105 2 105*1.05 = 110.25 = 100*1.05 + 5*1.05 = (100*1.05)*1.05 = 100*1.05^2 = 110.25 3 110.25*1.05 = 100*1.05^3 = 115.7625 P * (1 + r)^t = F

8. Money 101 | finance-lectures.com8 Quiz 1 How much money do you have if you start with 100, get 5% rate of return, and wait for 5 years? 100 * 1.05^5 = 127.628

9. Money 101 | finance-lectures.com9 Testing it out

10. Money 101 | finance-lectures.com10 Additional reading A History of Interest Rates by Sidney Homer and Richard Sylla

11. Money 101 | finance-lectures.com11 Attributions All images, unless otherwise noted, are sourced from pixabay.com or Wikimedia Commons, and are licensed under CC0, public domain.