1. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 1 3-3 SAVINGS ACCOUNTS Learn the basic vocabulary of savings accounts. Compute simple interest using the simple interest formula. OBJECTIVES

2. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Warm-UpWarm-Up Show that the two equations are the same. Algebraically transform one equation into the other. 1. A = (3B – C)/D 2. C = 3B - DA Slide 2

3. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 3 savings account – an account in which the bank pays interest for the use of interest – money you get or pay interest rate - percentage principal - balance simple interest – calculated on principal only simple interest formula – I = prt Key Terms

4. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 4 statement savings – receive monthly statement minimum balance – must keep a set amount in money market account – higher interest rate, greater initial amount and min. balance certificate of deposit (CD) – certificate that states you have a specific sum on deposit and guarantees a fixed interest upon maturity maturity – specific date in the future Key Terms

5. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 5 Grace wants to deposit $5,000 in a certificate of deposit for a period of two years. She is comparing interest rates quoted by three local banks and one online bank. Write the interest rates in ascending order. Which bank pays the highest interest for this two-year CD? First State Bank: 4 % E-Save Bank: 4 % Johnson City Trust: 4.22% Land Savings Bank: 4.3% Example 1

6. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 6 Write the following five interest rates in descending order (greatest to least): 5.51%, 5 %, 5 %, 5.099%, 5.6% CHECK YOUR UNDERSTANDING

7. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 7 Example 2 Raoul’s savings account must have at least $500, or he is charged a $4 fee. His balance was $716.23, when he withdrew $225. What was his balance?

8. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 8 Mae has $891 in her account. A $7 fee is charged each month the balance is below $750. She withdraws $315. If she makes no deposits or withdrawals for the next x months, express her balance algebraically. CHECK YOUR UNDERSTANDING

9. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 9 EXAMPLE 3 Mitchell deposits $1,200 in an account that pays 4.5% simple interest. He keeps the money in the account for three years without any deposits or withdrawals. How much is in the account after three years?

10. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 10 How much simple interest is earned on $4,000 in 3½ years at an interest rate of 5.2%? CHECK YOUR UNDERSTANDING

11. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 11 EXAMPLE 4 How much simple interest does $2,000 earn in 7 months at an interest rate of 5%?

12. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 12 How much simple interest would $800 earn in 300 days in a non-leap year at an interest rate of 5.71%? Round to the nearest cent. CHECK YOUR UNDERSTANDING

13. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 13 EXAMPLE 5 How much principal must be deposited to earn $1,000 simple interest in 2 years at a rate of 5%?

14. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 14 How much principal must be deposited in a two-year simple interest account that pays 3¼% interest to earn $300 in interest? CHECK YOUR UNDERSTANDING

15. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 15 EXAMPLE 6 Derek has a bank account that pays 4.1% simple interest. The balance is $910. When will the account grow to $1,000?

16. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 16 How long will it take $10,000 to double at 11% simple interest? CHECK YOUR UNDERSTANDING

17. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 17 EXAMPLE 7 Kerry invests $5,000 in a simple interest account for 5 years. What interest rate must the account pay so there is $6,000 at the end of 5 years?

18. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. Slide 18 Marcos deposited $500 into a 2.5-year simple interest account. He wants to earn $200 interest. What interest rate must the account pay? CHECK YOUR UNDERSTANDING

19. Financial Algebra © 2011 Cengage Learning. All Rights Reserved. AssignmentAssignment Pages 135 – 136, #2 – 16 even Slide 19