1. 18 Investment and Savings
Planning
18a compare the impact of simple interest vs.
compound interest on savings
18b compare and contrast investment and
savings options
18c explain costs and income sources for
investments

2. To maximize the return on savings, consumers must compare methods
of interest calculation and payment.
To analyze investment strategies, it is necessary to compare simple and
compound interest, use the rule of 72, and understand the time value of
money.
18a compare the impact of simple
interest vs. compound interest on
savings

3. What is principal, and what is
interest?
 Principal -original capital deposited or
invested
 interest -amount earned on the principal
over time.

4. What is the difference between
simple and compound interest?
 Simple interest is paid annually on the principal.
 Compound interest is paid periodically and is
paid on the principal plus interest earned.

5. How is the rule of 72 used?
The rule of 72 reveals how long it takes
for an investment to double in value:
72 ÷ interest rate = number of years it
will take for the money to double.

6. What is the time value of money?
 The value of money today is greater than the value of
the same amount of money in the future.
 The time value of money is the amount of money one
would need to receive today to equal a certain sum in
the future. For example, a lottery winner who wins $1
million has a choice of (1) receiving a certain amount
of money every year until the total is $1 million or (2)
receiving a sum today (present value), which when
invested at current interest rates would yield $1
million (future value) over the same period of time.

7. 18b compare and contrast
investment and savings options
Consumers have many savings and investment options.

8. What are some savings options?
 savings accounts
 certificates of deposit
 money market funds.

9. What are some investment options?
 stocks
 bonds
 government savings bonds
 treasury securities
 mutual funds
 real estate
 retirement plans.

10. How do these options compare based on
factors such as rick, reward, convenience,
and liquidity?
Factors used to compare savings and/or investment
options include
 risk
 reward
 convenience
 liquidity.

11. 18c explain costs and income
sources for investments
Money for investment can come from a variety of
sources.
Each type of investment has costs to consider

12. What are some income sources for
investing?
 savings
 gifts
 inheritances
 market gains.

13. What are some of the costs to
consider when investing?
Costs to consider when investing include
 finance charges and fees
 opportunity costs.
Risks to consider when investing include
 market losses
 interest rate risk.