 In your notebook:  What do banks do? Make a list.  When is the last time you visited a bank? What did you do there?

 Bank  an 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.

The History of BankingThe History of Banking: An Allegory  Start at 3:35 COMPLETE THE WORKSHEET WHILE WATCHING THE CLIP

 Reading and Activity  The Federal Reserve is the US Central Bank Read the article and answer the questions about the Federal Reserve

Which would you rather have— a $100 bill or a penny that doubles everyday for 30 days?

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

SAVING

 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 year n = the number of periods a = amount t = time

I = prt Example 1: STEP 1: Calculate the interest Interest = Principal x Rate x Time I = prt I =$4000 x 6% x 4 I = $960 STEP 2: Calculate the new amount Amount = Principal + Interest A = P + I A = $ $960 A = $4960 Practice: Complete #1 on Simple Interest Worksheet

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 = $ $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 = $ $2.63 A = $4, Practice: Complete #2 on Simple Interest Worksheet Practice: Complete #3 on Simple Interest Worksheet

 How Compound Interest Works 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.

Chart of Compounded Interest

YEARPRINCIPALINTEREST EARNED 5% NEW AMOUNT $100 Principal, 5% interest rate compounded annually for 5 years.

A = P ( r) n A = Amount (The new amount) P = Principal (The originial amount) R = Interest rate per period N = Number of periods

A = P ( r) n Example: Principal $100, 5% interest compounded annually (yearly) for 5 years A = Amount (The new amount) A P = Principal (The originial amount) $100 R = Interest rate per period 5% N = Number of periods 5 A = Amount (The new amount) A P = Principal (The originial amount) $100 R = Interest rate per period 5% N = Number of periods 5 $ A = 100 (1.05) 5 Remember, it’s money, 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*

ONLINE CALCULATOR