Download presentation

Presentation is loading. Please wait.

Published byYazmin Gunn Modified over 3 years ago

1
Saving and Interest February 2014

2
Saving and Interest An Equation to define Savings: – SAVING = Disposable Income – Consumption. Interest: – Simple Interest = The annual interest paid on the initial amount saved. – Compound Interest = The interest paid on both the initial principal amount AND the interest added to the principal.

3
Interest earned on an initial $100 saved at 8% interest YearSimple interest adds Total saving using simple interest Compound interest adds Total Savings using compound interest 1$8.00$108.00$8.00$108.00 2$8.00$116.00$9.00$117.00 3$8.00$124.00$9.00$126.00 4$8.00$132.00$10.00$136.00 5$8.00$140.00$11.00$147.00 6$8.00$148.00$12.00$159.00 7$8.00$156.00$12.00$171.00 8$8.00$164.00$14.00$185.00 9$8.00$172.00$15.00$200.00

4
Compound Interest Example Simple interest: Is interest paid on the initial principal amount at a given rate for a specified time. – I = P x R x T Compound interest: Is interest that is paid on both the principal and also on any interest from past years. For example, if you received 15% interest on a $1000 investment, the first year and reinvested the money back into the original investment, then in the second year, you would get 15% interest on $1000 and the $150 I reinvested. Over time, compound interest will make much more money than simple interest. The formula used to calculate compound interest is: – M = P( 1 + i ) n M is the final amount including the principal. P is the principal amount. i is the rate of interest per year. n is the number of years invested. – Applying the Formula Let's say that you have $1000.00 to invest for 3 years at rate of 5% compound interest. M = 1000 (1 + 0.05) 3 = $1157.62. You can see that the $1000.00 is worth $1157.62.

5
The Rule of 72 The rule of 72 is a simple way to illustrate the magic of compound interest Rule of 72 – 72 divided by the rate of interest = the number of years it will take for a saved amount to double when interest is allowed to compound. – Example: Compound interest at 8% for 9 years 72/8 = 9 At the end of 9 years the initial amount saved of $100 has doubled to $200. (see table).

Similar presentations

OK

THE TIME VALUE OF MONEY “A Dollar Today is Worth More than a Dollar Tomorrow”

THE TIME VALUE OF MONEY “A Dollar Today is Worth More than a Dollar Tomorrow”

© 2018 SlidePlayer.com Inc.

All rights reserved.

To ensure the functioning of the site, we use **cookies**. We share information about your activities on the site with our partners and Google partners: social networks and companies engaged in advertising and web analytics. For more information, see the Privacy Policy and Google Privacy & Terms.
Your consent to our cookies if you continue to use this website.

Ads by Google

Ppt on types of research methods and designs Ppt on dot net framework Ppt on land resources and development Ppt on automobile related topics for peace Ppt on bluetooth communication Ppt on microsoft excel 2010 Ppt on 2nd world war countries Ppt on polynomials and coordinate geometry pdf Convert pdf to ppt online nitro Ppt on site search engine