Snowball Effect: Imagine your money as a snowball rolling down a hill, gathering more snow. In finance, this snowball effect is akin to compound interest. As your initial investment earns interest, that interest is added to the principal, and subsequent interest is calculated on the more significant sum. This compounding cycle accelerates your wealth accumulation over time. Time is Your Ally: The real magic of compound interest lies in the extended period over which it operates. The longer your money is allowed to compound, the more substantial the impact. Even small, regular contributions can lead to significant wealth accumulation when given enough time to grow.

2. SIMPLE vs
COMPOUND
INTEREST

3. Learning objective of the day: Understanding the difference
between Simple and Compound interest and why it is crucial to know
so.
G

4. To begin, suppose someone, in this case Wonder Woman, deposits $9,000 in
a bank account that pays 5% annual interest.
$ 9,000
5%
L

5. The bank she chose pays interest once per year at the end of the year. Each year
that person places the interest in a cookie jar for safekeeping.
L

6. Another person, in this case Captain Marvel, deposits $6000 in a bank account that pays 5%
annual interest. K

7. Captain Marvels bank pays interest once per year at the end of the year
and that each year the interest is automatically deposited in her
account. K

8. WONDER WOMAN IS AN
EXAMPLE OF SIMPLE INTEREST
BECAUSE SHE KEPT HER
MONEY IN A JAR
(a) Write an equation for each situation which
tells you how much money the person has in total
after t years.
SIMPLE INTEREST
G

9. Solution
Wonder woman
An amount of $9,000 is deposited into a savings
account at an annual interest rate of 5%, value of
the investment after (T) years can be calculated as
follows...
Principal = $9000.
Rate = 5/100 = 0.05 (decimal).
t = time
A is our equation, which = 9000(1+0.05(t)
A =9000+50(t)
G

10. (5%)
(a) Write an equation for each situation which tells you how much money the person
has in total after t years.
SIMPLE INTEREST
($9,000)
G

11. SIMPLE INTEREST
- In this graph, it clearly indicates that over a period of
time, the amount of money will increase exponentially.
- X=over period of time, i= simple interest of 450, P=$9000
K

12. COMPOUND INTEREST
CAPTAIN MARVEL IS
AN EXAMPLE OF
COMPOUND
INTEREST BECAUSE
SHE AUTOMATICALLY
DEPOSITED HER
INTEREST BACK INTO
HER ACCOUNT, VERY
SMART DECISION,
WE’LL EXPLAIN WHY.
L

13. Solution
If an amount of $6,000 is deposited into a savings
account at an annual interest rate of 5%,
compounded yearly, the value of the investment
after (T) years can be calculated as follows...
P = $6000.
r = 5/100 = 0.05 (decimal).
n = 1.
t = time
A=6000(1+0.05)^t
L

14. In this graph, at first the
growth rate is very slow but
overtime it increases rapidly.
When comparing this to the
simple interest graph, we are
able to see the difference.
But, this individual will have
the most money overtime.
COMPOUND INTEREST
K

15. - Here the first person (purple) makes more
during the first 20 years than the second
person (orange)
- Overtime simple interest (purple) stays
the same and won’t grow past that amount
- Whereas compound (orange) increases
dramatically over time
G

16. what time period does the second person have more money?
- Here the second person (orange)
surpassed the amount of the first
person (purple) after 25 years. This is
known as compound interest
- In this graph, the curve indicates the
amount of money they are getting. It
grows at a much faster rate after 25
years.
L

17. what time will both people have the same amount of money?
- Here we see that the year they both have the same amount of
money is in 25 years. This is seen when two lines are crossing
each other
- They make approximately $20,000 at this point
K

18. Summary
- When looking at “Simple” & “Compound” Interest, in this
situation, both individuals will make a lot of money. But, the
important question remains about who would make the most
money overtime? In this situation, Captain Marvel will have the
most money because her account would have the highest at the
ending year. For example, at 100 years, she would have the
amount of 789,007.55. Whereas, Wonder Woman would only
have 54,000 at 100 years.
- In the long run, Captain Marvel will be the richest! (She had
compound interest by the way 😊)
Brief recap:
- Simple Interest is good for the first few years however it can’t
grow past that certain cap.
- Compound interest is interest on top of interest. It’s slow at first
but in the end, the amount is much much greater. With
compound interest, the amount continues to grow indefinitely.
K

19. Thank you :)