# Bell Ringer: pg. 28 True/False

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Bell Ringer: pg. 28 True/False
Adam started saving \$50 per month when he turned 18, while Beth started saving \$100 per month when she turned 24. They both earn 6% on their money. Beth will have more money by the time they both turn 30. A dollar today is worth less than a dollar in the future. The higher the interest rate, the less time it takes to reach a savings goal.

Unit 3 - Investing: Making Money Work for You

Saving vs Investing Saving: short term goals money very safe
Earns a small amount of interest Easy to get money when you need it Investing: longer term goals No guarantee money will grow Normal for investments to rise and fall in value over time Long-run can earn more than savings

Savings and Investments
Unique Savings Features Unique Investment Features Common Features What are some features common to both investments and savings? 3-A

“You” invest \$2,000 every year in an account that earns 7% each year for 10 years You let your money sit – still earning 7% - until age 65 Total Investment = \$20,000 “Your Sister” waits until she is 31 – did the same thing you did - 7% for 35 years until age 65 Total Investment = \$70,000 Who has more money? You = \$361,418 Your Sister = \$276,474

Time Value of Money The more money you have to save ore invest, the more money you are likely to earn The higher the rate of interest you earn, the more money you are likely to have The sooner you invest your money, the more time it has to make new money

Investing Weekly at 5% Interest
Amount Saved Per Week Value After 10 Years \$ 7.00 \$ 4,720 \$ 14.00 \$ 9,440 \$ 21.00 \$ 14,160 \$ 28.00 \$ 18,880 \$ 35.00 \$ 23,600 3-B 1

Interest = Principal x interest rate x time
Earned Interest – payment you receive for allowing a financial institution to use your money Simple Interest – a “simple” fee paid to you on your principal Interest = Principal x interest rate x time Example: You open a savings account with \$1,000 at a 3% simple APR. What will you earn in interest in the first year? \$1,000 x .03 x 1 = \$30 interest earned every year

Compound Interest ***One of the MOST POWERFUL principals in personal finance! *** Earning interest on interest Each time your interest compounds, it gets added back to your account and becomes part of your principal Example: \$1,000 x .05 x 1 = \$50 interest in year one \$1,050 x .05 x 1 = \$52.50 interest earned in year two What will you start with in year 3?

Compounding You can use this formula to calculate compound interest: A = P (1 + i) A = amount in the account P = principal I = interest rate N = number of years compounded How much will you have after 5 years if you put \$100 principal in account earning 10% n

Answers to Exercise 3B ? ? ? ? ? ? 4% \$10.40 \$10.82 \$11.70 \$12.65 8%
Interest Rate 1 Year 2 Years 4 Years 6 Years 4% \$10.40 \$10.82 \$11.70 \$12.65 ? ? 8% \$10.80 \$11.66 \$13.60 \$15.87 ? ? ? ? 3-G 1 2 3 4 5 6

Rule of 72 72 = 72 = Years Needed to Double Investment Interest Rate
Required = Years Needed to Double Investment 3-H

Bell Ringer: pg. 28 1. Adam started saving \$50 per month when he turned 18, while Beth started saving \$100 per month when she turned 24. They both earn 6% on their money. Beth will have more money by the time they both turn 30. FALSE – Although they both invested \$7,200 over the years, the power of compound interest was working longer for Adam, so he will have more money when they turn 30.

Bell Ringer: pg. 28 2. A dollar today is worth less than a dollar in the future. FALSE. A dollar is worth more today than a dollar in the future because of inflation.

Bell Ringer: pg. 28 The higher the interest rate, the less time it takes to reach a savings goal. TRUE. The higher the rate, the faster the money will grow, and the sooner you will reach a savings goal.

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