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Transcript of In your notebook: What do banks do? Make a list. When is the last time you visited a bank? What...
In your notebook:
What do banks do? Make a list. When is the last time you visited a
bank? What did you do there?
Bankan institution for receiving, lending,
exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business.
Banking
the business carried on by a bank or a banker.
Reading and Activity
The Federal Reserve is the US Central Bank
Read the article and answer the questions about the Federal Reserve
If you have a penny that doubles everyday for 30 days, how much
will you have?
Working with a partner, calculate how much this amounts to!
Formula: .01 x 2 = #, # x 2, and so on 5.4 million
In return for keeping your money at the bank, the bank pays you money, also known as interest.
Interest: the amount earned on an investment
Simple interest – is calculated on the principal amount only
Compound interest – is calculated each period on the original principal amount AND all of the interest accumulated during the past periods
Compound interest gives you interest on your interest.
The variables: p = principal (the original amount)i = interest rate for one yearn = the number of periodsa = amountt = time
I = prtExample 1:
STEP 1: Calculate the interestInterest = Principal x Rate x TimeI = prtI =$4000 x 6% x 4I = $960
STEP 2: Calculate the new amountAmount = Principal + InterestA = P + IA = $4000 + $960A = $4960
Practice: Complete #1 on Simple InterestWorksheet
EXAMPLE 2:
Principal $4,000 at 6% annual interest for 4 months
STEP 1: I = prt
I =$4000 x 6% x 4/12
I = $80
STEP 2: A = P + I
A = $4000 + $80
A = $4080
EXAMPLE 3:
Principal $4,000 at 6% annual interest for 4 days
STEP 1: I = prt
I = $4000 x 6% x 4/365
I = $2.63
STEP 2: A = P + I
A = $4000 + $2.63
A = $4,002.63
Practice: Complete #2 on Simple InterestWorksheet
Practice: Complete #3 on Simple InterestWorksheet
How Compound Interest Works
Interest can be compounded:
– Continuously – Daily – Weekly – Monthly – Quarterly (Every 3 months)- Semi Annually (2x a year)– Annually (Yearly)
*The more often it is compounded, the better off you will be.
They are getting harder and harder to find, but look for banks that are compound interest daily or continuously.
YEAR PRINCIPAL INTEREST EARNED
5%
NEW AMOUNT
1 100
2
3
4
5
$100 Principal, 5% interest rate compoundedannually for 5 years.
A = P (1.00 + r)n
A = Amount (The new amount)P = Principal (The originial amount)R = Interest rate per periodN = Number of periods
A = P (1.00 + r)n
Example: Principal $100, 5% interest compounded annually (yearly) for 5 years
A = Amount (The new amount) AP = Principal (The originial amount) $100 R = Interest rate per period 5%N = Number of periods 5
A = Amount (The new amount) AP = Principal (The originial amount) $100 R = Interest rate per period 5%N = Number of periods 5
$127.63
A = 100 (1.05)5
Remember, it’smoney, so round to the nearest cent.
Practice: #1 and #2 on Compound Interest worksheet
Practice: #1 and #2 on Compound Interest worksheet
A = P (1 +r/n) nt
A represents the final amount in the account after t years compounded 'n' times at interest rate 'r' with starting amount 'p'.
EXAMPLE: Principal is $1000, and your bank compounds the interest twice a year at an interest rate of 5%, how much money do you have in
your account at the end of one year?
Optional: #5– 10 on Compound Interest worksheet
Optional: #5– 10 on Compound Interest worksheet
A = $1000 (1 + .05/2) 2*1
1050.63