## Chapter 1 - Financial Mathematics: Investing Money

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**escribed Learning Outcomes:**

A1 – Solve problems that involve compound interest in financial decision making.

**A3 – Analyze an investment portfolio in terms of: interest rate, rate of return, total return.**

## 1.1 - Simple Interest

Simple interest is not widely used by banks or credit companies anymore. However, if you borrow money from your Mom, and she charges you interest, it is likely that she will use simple interest because it is easy to calculate!

Simple interest is calculated on the principle (amount you have in the bank or amount you have borrowed) only.

Please watch the video on Simple Interest.

After you have watched the video, please do 1.1 page 14 #1, 4-7, 10, 13

Simple interest is calculated on the principle (amount you have in the bank or amount you have borrowed) only.

Please watch the video on Simple Interest.

After you have watched the video, please do 1.1 page 14 #1, 4-7, 10, 13

## 1.2/1.3 - Compound Interest: Future Value

Most accounts available today will use compound interest.

For savings accounts, compound interest is calculated on the principal (amount you have in the bank) plus any interest that has been added to your account. So your "principal" is increasing and your interest is increasing, even if you are not adding savings to your account.

Please watch the video on Compound Interest Future Value.

After you have watched the video, please do 1.3 page 30 #1, 2, 4, 6, 7

For savings accounts, compound interest is calculated on the principal (amount you have in the bank) plus any interest that has been added to your account. So your "principal" is increasing and your interest is increasing, even if you are not adding savings to your account.

Please watch the video on Compound Interest Future Value.

After you have watched the video, please do 1.3 page 30 #1, 2, 4, 6, 7

## 1.4 - Compound Interest: Present Value

Please watch the video on Compound Interest Present Value and Interest Rate.

For an example of Finding the Interest Rate with Multiple Compound Periods

After you have watched the video, please do 1.4 page 40 #3, 4, 5a, 6, 10, 11a

For an example of Finding the Interest Rate with Multiple Compound Periods

After you have watched the video, please do 1.4 page 40 #3, 4, 5a, 6, 10, 11a

## 1.5 - Investments Involving Regular Payments

No matter how much money we make, we should all attempt to create savings. This savings can be for emergencies (like you need to take your dog to the vet) or retirement. The best way to save is to chose an amount that you can afford to put away from each pay cheque and have that automatically transferred to a savings account. The amount you save can be as little as $10 or $25 per pay cheque but could be as high as 10% of your income (for a mill worker this could be $200 per pay cheque.

The key is to save a little bit at a time, over a long period of time. It will add up. Use your graphing calculator to calculate how much you have to save a month to have $500,000 in savings by the time you are 55 years old! That is not a lot of money each month when you are working full time!

Please watch the video on Investments Involving Regular Payments.

After you have watched the video, please do 1.5 page 55 #1-6, 8-10

The key is to save a little bit at a time, over a long period of time. It will add up. Use your graphing calculator to calculate how much you have to save a month to have $500,000 in savings by the time you are 55 years old! That is not a lot of money each month when you are working full time!

Please watch the video on Investments Involving Regular Payments.

After you have watched the video, please do 1.5 page 55 #1-6, 8-10

## 1.6 - Solving Investment Portfolio Problems

An investment portfolio is a group of investments for one individual. People choose more than one investment type within their portfolio because some types of investments have higher risk of losing value while others have lower or no risk of losing value. By having a variety of investment types there is less chance that the investor will lose a lot of money if one investment does poorly.

Different investments also have different interest rates. Usually the higher the possible interest rate, the higher the risk of losing money. That is another reason to have an investment portfolio - you can choose some high risk and some low risk investments.

Please read examples 1-3 starting on 1.6 page 59 of your text book.

Use the graphing calculator to calculate the portfolio values in the assignment. Please do page 64 #1-4

Different investments also have different interest rates. Usually the higher the possible interest rate, the higher the risk of losing money. That is another reason to have an investment portfolio - you can choose some high risk and some low risk investments.

Please read examples 1-3 starting on 1.6 page 59 of your text book.

Use the graphing calculator to calculate the portfolio values in the assignment. Please do page 64 #1-4