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Section 2 : Calculations. Unit 5: Saving and Investing. I CAN:. Define principle Apply the rate of return Calculate Simple interest, compound interest and the rule of 72. Principle. This is the amount of money YOU put in. - PowerPoint PPT Presentation
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UNIT 5: SAVING AND INVESTING
Section 2: Calculations
I CAN:
Define principle Apply the rate of return Calculate Simple interest, compound
interest and the rule of 72
Principle
This is the amount of money YOU put in. If I put $100 into a savings account at
1% interest, $100 is my PRINCIPLE 1% is my APY or rate of return
Always make APY a decimal. EX .01
Instructor: See flipchart
Simple Interest
This is the easiest type of interest to calculate Multiply Principle X Interest Rate X years
invested $100 X .01 X 2 years= $2
Instructor: See flipchart; When complete use 5.3 Simple interest worksheet
Compound Interest Compound means you will earn interest on your
previously earned interest. So, if you have $100 in a savings account earning 1% for 2 years and it compounds annually, you will:
Year 1: 100 X .o1= $1 100 + 1= 101 Year 2: 101 X.01= 1.01 101 + 1.01= 102.01 After 2 years, you have earned $2.01 (simple
interest would have earned only $2) Usually interest is compounded quarterly (4X per
year), semi-annually (2X per year), or annually (1 X per year)Instructor: See flipchart; When complete use 5.4
compound interest
The Rule of 72
72/%rate of return= how many years until your money doubles.
DO NOT CHANGE % TO DECIMAL
If I invest $100 at 1%, I will have $200 in 72 years
72/1=72
Instructor: See flipchart; When complete use 5.5 rule of 72
CAN I?
Define principle Apply the rate of return Calculate Simple interest, compound
interest and the rule of 72
I can prove this by completing: 5.3: simple interest 5.4: compound interest 5.5: Rule of 72