Banking and Taxes

• By: Alex LupinskiNext

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out the introductory video, click on the Lesson button to review the

material, or if your feeling bold, click on the Quiz button to take the quiz

Video Lesson Quiz

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In this program you will learn:• To calculate interest and compound interest• To calculate and be familiar with taxes• An understanding of how to save money alittle

better

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Banking

It is very important to understand how to properly put your money into the bank

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• Did you know you can actually make money by putting your money into the back?

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When you put your money into the bank, you receive a small amount back.

This amount is called interest

Interest is an amount of money you receive for depositing money in the bank

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• There are two ways the bank calculates interest:1. Compounding on a TIME BASIS2. Compound CONTIOUSLY

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Compounding on a time basis

• This is done by calculating the new total every set number of months or years.

• The equation is:FV = CV(1+r/n)nt

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FV = CV(1+r/n)nt • FV stands for future value• CV stands for current value• r stands for interest rate, which the banks tells

you• n stands for the number of times compounded

a year• t stands for the total time the money is in the

bank

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Example 1• Here is an example of how it looksFV = ?CV = 1000r = .05 n = 2t = 6Note: for the n, this would mean that we compounded the total twice in one year

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• By recalling the equation: FV = CV(1+r/n) nt we can now plug the numbers from the last slide onto the equation so;

FV = 1000(1+.05/2)2(6)

Now if we put these numbers into our calculator we get an answer of 1344.89. So you made a total of $344.89 by letting your money sit in the bank for 6 years!

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Compounding Continously

• Compounding continuously means that your money is increasing a small amount every second

• This equation is: FV = CV*ert

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• FV = CV*ert

• FV stands for future value• CV stands for current value• r stands for rate given by the bank• t stands for amount of time in the bank• e is a constant value

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What is e?

• e is an exponential function that is used in many mathematical functions

• It is sort of like the pi function that is the circumference equations for a circle

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Example

• Suppose that you have $1000 dollars and are looking to deposit it into the bank. They will give you an interest of 5% for 6 years. What will the total be after 6 years of compounding continously?

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• So from the problem we can gather that:• FV = ?• CV = 1000• r = 5% or 0.05• t = 6

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• So putting the correct values into the equation: FV = CV*ert

• We get FV = 1000*e.05(6)

• Putting this into a calculator will get us the answer of $1349.86

• So we put $1000 into the bank and received an interest of $349.86

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Comparison

• So for a time based interest we got 1344.89 and for compounding continously we got a total of $1349.86

• So we made more money from compounding continously

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• There are many types of taxes, but there are two main types will we go over

• These are SALES and FEDERAL

Taxes

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Sales Tax

• Sales tax is a tax that is added to almost anything that you buy

• It is on everything from a candy bar, to a car.

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Sales tax

• The sales tax in Indiana is 7 percent. So that amount is added to each item you buy

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• So let’s say we buy a Snickers candy bar for 99 cents. Since sales tax is 7 percent we would multiple 99 cents by .07 because we convert it to a number.

• It would look like this:$.99 x .07 = .069Since we cannot have .069 cents, we round up to .07 and add this to $.99 giving us a total of $1.06 for the Snickers

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• Now we want to buy a car for $23,674 dollars, but need to find out the total end cost.

• Remember that sales tax is 7% or .07

23674 x .07 = 1657.18Add this back into the original amount and the total is $25,331.18

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Federal Tax

• Federal tax is the money the government takes off from your paycheck form your job.

• They take off a certain percentage according to how much money you make

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• The percentages are:

25% for $43,000 - $112,00030% for $112,000 - $182,00035% for $182,000 - $357,000

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You are now ready to take the quiz. Click the quiz button if you think you are ready or you can go back and review the material again

Quiz Back to beginning of lesson

Quiz Question #1

• You won $5000 in a contest and are looking to put the money in the bank. The bank teller tells you that they will give a continuously compounded rate of 7% over 8 years. How much is your total after the 8 years? (Click the answer you think is correct)

$8753.36 $9324.79

$1352132.04 $9500.00

Correct!

Great Job!

Next Question

Incorrect

• Nice try, but check your numbers again, remember the equation is FV = CV*ert

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Quiz Question #2

• You have saved $100 in your piggy bank and your mother says you should you put that money into the bank. She says the bank is having a special today where you get a rate of 11% for 6 years if you compound your money quarterly. How much money do you make after 6 years?

$155.75 $190.12

$191.76 $361.46

Correct!!

Spectacular!!

Next Question

Incorrect

• Almost, remember that the equation is CV(1+r/n)nt and that quarterly means four times a year

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Quiz Question #3

• If you are looking to make more money, would you compound on a time basis or continuously?

Time based Continously

Incorrect

• Try to think about what was mentioned in the slides about this very topic

Back To Question

Correct!!!

Amazing!!!

Next Question

Quiz Question #4

• How much sales tax is on an item worth $154.95?

$7.77 $10.85

$165.80 $108.47

Correct!!!!

Fantastic!!!!

To Final Question

Incorrect

• Make sure to read the question correctly. Remember sales tax is 7%

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Final Question

• How much money would you pay to the government if you were making $183,000 for your job?

$33,635 $45,750

$54,900 $64,050

Incorrect

• Remember the percentages:25% for $43,000 - $112,000

30% for $112,000 - $182,00035% for $182,000 - $357,000

Back To Question

Correct!!!!!

Incredible!!!!!

To Final Slide

• Know go out and show everyone you know how much you have learned.(Push escape to end)