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

In your notebook:

What do banks do? Make a list. When is the last time you visited a

bank? What did you do there?

Bankan 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 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 yearn = the number of periodsa = amountt = time

I = prtExample 1:

STEP 1: Calculate the interestInterest = Principal x Rate x TimeI = prtI =$4000 x 6% x 4I = $960

STEP 2: Calculate the new amountAmount = Principal + InterestA = P + IA = $4000 + $960A = $4960

Practice: Complete #1 on Simple InterestWorksheet

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 = $4000 + $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 = $4000 + $2.63

A = $4,002.63

Practice: Complete #2 on Simple InterestWorksheet

Practice: Complete #3 on Simple InterestWorksheet

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

YEAR PRINCIPAL INTEREST EARNED

5%

NEW AMOUNT

1 100

2

3

4

5

$100 Principal, 5% interest rate compoundedannually for 5 years.

A = P (1.00 + r)n

A = Amount (The new amount)P = Principal (The originial amount)R = Interest rate per periodN = Number of periods

A = P (1.00 + r)n

Example: Principal $100, 5% interest compounded annually (yearly) for 5 years

A = Amount (The new amount) AP = Principal (The originial amount) $100 R = Interest rate per period 5%N = Number of periods 5

A = Amount (The new amount) AP = Principal (The originial amount) $100 R = Interest rate per period 5%N = Number of periods 5

$127.63

A = 100 (1.05)5

Remember, it’smoney, 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*1

1050.63

ONLINE CALCULATOR