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Earning Interest “Interesting Information about Earning Interest”

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In This Lesson: 1. Understand the difference between simple and compound interest. 2. Practice calculating both simple and compound interest.

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8 th Wonder of the World

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Would You Rather… …get a penny doubled every day for 30 days, or $10,000 every day? Day 1 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10 Day 11 Day 12 Day 13 Day 14 Day 18 Day 17 Day 20 Day 19 Day 21 Day 22 Day 23 Day 24 Day 25 Day 26 Day 27 Day 28 Day 29 Day 2 Day 16 Day 15Day 30 $10,000Penny $10,000 $160,000$327.68 $655.36$170,000 $180,000$1,311 $190,000$2,621 $5,242$200,000 $210,000$10,485 $220,000$20,971 $230,000$41,943 $240,000$83,886 $250,000$167,772 $260,000$335,544 $270,000$671,088 $280,000$1,342,177 $290,000$2,684,354 $300,000$5,368,709 $10,000$.01 $20,000$.02 $30,000$.04 $40,000$.08 $50,000$.16 $60,000$.32 $70,000$.64 $1.28$80,000 $90,000$2.56 $100,000$5.12 $110,000$10.24 $120,000$20.48 $130,000$40.96 $140,000$81.92 $163.84$150,000

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Simple Interest- the extra money that you earn that is paid out in cash. Compound Interest- the extra money that you earn from your bank or credit union when you leave all the money in your account. Some Interest-ing Definitions Interest- the money you earn from a bank or credit union. Principal- the money that you put in (or deposit) to your account. Interest Rate- the extra money you earn expressed as a percentage.

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C OMPOUND I NTEREST Compound interest- is earning interest on interest. Water and Rocks Activity: Simple Interest Compound Interest

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Another View of Simple and Compound Interest $1000 deposited and left alone for 30 years at 5% interest. The Blue line represents monthly compound interest, the pink line represents simple interest.

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SIMPLE INTEREST Charlie is trying to save for 6 months to buy a new iPod that costs $110. He is going to deposit $10 every month into his credit union account, which will pay him 20% interest on what he deposits. He will withdraw the interest each month to pay for fun things that he likes to do with his friends—going to movies, renting video games, and eating pizza.

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A: Deposit Cycle B. Beginn ing balanc e for this month C. Money Charlie Deposit s D. New Balan ce (B)+(C ) E. Intere st Rate F. Interest earned and paid out (D)x(E) G. Month Ending Balanc e Same as (D) 1010 20%210 2 20 20% 4 20 3 10 30 20% 6 30 4 10 40 20% 8 40 5 10 50 20% 10 50 6 10 60 20% 12 60 Total 42 60

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A CTIVITY #2 S AVING FOR AN I P HONE Jessica is saving for a IPhone that costs $110. She is going to invest $10 every month for 6 months at her local credit union at 20%. Since she is not withdrawing the interest she will earn money on her interest.

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Deposit Cycle Beginnin g Balance for this month G Money Jessica Deposits New Balance B+C Rate of Interest Interest Earned and left in account DxE Ending Balance (D) + (F) 10$101020%212 2 $10 22 20% 4.40 26.40 3 $10 36.40 20% 7.28 43.68 4 $10 53.68 20% 10.74 64.42 5 $10 74.42 20% 14.88 89.30 6 $10 99.30 20% 19.86 119.16 Total 59.16 119.16

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What You’ve Learned: 1. Understand the difference between simple and compound interest. 2. Practice calculating both simple and compound interest.

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