Section 2: Calculations

I CAN:  Define principle  Apply the rate of return  Calculate Simple interest, compound interest and the rule of 72

Principle  This is the amount of money YOU put in.  If I put $100 into a savings account at 1% interest, $100 is my PRINCIPLE  1% is my APY or rate of return  Always make APY a decimal. EX.01 Instructor: See flipchart

Simple Interest  This is the easiest type of interest to calculate  Multiply Principle X Interest Rate X years invested  $100 X.01 X 2 years= $2 Instructor: See flipchart; When complete use 5.3 Simple interest worksheet

Compound Interest  Compound means you will earn interest on your previously earned interest. So, if you have $100 in a savings account earning 1% for 2 years and it compounds annually, you will:  Year 1: 100 X.o1= $1  = 101  Year 2: 101 X.01= 1.01  =  After 2 years, you have earned $2.01 (simple interest would have earned only $2)  Usually interest is compounded quarterly (4X per year), semi-annually (2X per year), or annually (1 X per year) Instructor: See flipchart; When complete use 5.4 compound interest

The Rule of 72 72/%rate of return= how many years until your money doubles. DO NOT CHANGE % TO DECIMAL If I invest $100 at 1%, I will have $200 in 72 years 72/1=72 Instructor: See flipchart; When complete use 5.5 rule of 72

CAN I?  Define principle  Apply the rate of return  Calculate Simple interest, compound interest and the rule of 72  I can prove this by completing:  5.3: simple interest  5.4: compound interest  5.5: Rule of 72