Lesson: Compounded Vs. Simple Interest

 

Name: Marcia Sands

 

Title of lesson:  Compounded Vs. Simple Interest

 

Date of lesson:  3/3/05

 

Length of lesson:

          two 50 minute period

Description of the class:

                     Course Title: How to Survive on Your Own

                     Grade level: 11th to 12th Grade

 

Source of the lesson:

Me & http://jwilson.coe.uga.edu/emt669/student.folders/callinan.michael/Essays/Finance/Finance.html

 

TEKS addressed:

            111.36 Applied Math

2)  The student uses graphical and numerical techniques to study patterns and analyze data. The student is expected to:

(A)  interpret information from various graphs, including line graphs, bar graphs, circle graphs, histograms, and scatterplots to draw conclusions from the data;

(B)  analyze numerical data using measures of central tendency, variability, and correlation in order to make inferences

3)  The student develops and implements a plan for collecting and analyzing data in order to make decisions. The student is expected to:

(A)  formulate a meaningful question, determine the data needed to answer the question, gather the appropriate data, analyze the data, and draw reasonable conclusions;

5)  The student uses functional relationships to solve problems related to personal income. The student is expected to:

(A)  use rates, linear functions, and direct variation to solve problems involving personal finance and budgeting, including compensations and deductions

(C)  analyze data to make decisions about banking.

7)  The student uses algebraic formulas, numerical techniques, and graphs to solve problems related to financial planning. The student is expected to:

(A)  analyze types of savings options involving simple and compound interest and compare relative advantages of these options;

(B)  analyze and compare coverage options and rates in insurance

The Lesson:

I.    Overview

The students will investigate compounded interest vs. simple interest and determine which is more beneficial in a given situation.

 

II.  Performance or learner outcomes

              Students will be able to determine when simple or compounded interest is a better option depending on the circumstances for the given scenario.  They will see the importance in shopping around and comparing banks before deciding on one.   

             

III. Resources, materials and supplies needed

              Computers with Internet.

              Calculators

             

 

IV. Supplementary materials, handouts.

              Pencil

              Bank Worksheet

              Graph paper       


Five-E Organization

 

Teacher Does                                               Student Does

Engage:

Learning Experience

 

Students will reveal misconceptions and prior knowledge pertaining to the topic. 

 

Student Activity

 

Ask the students what they know about interest.

 

Ask probing questions like: Do all banks have the same interest rate? 

 

Inform them that in their pretend journey of life after high school they have a job as a high school teacher.

 

Give each student a fake $2000 dollars to put into the bank in savings. 

 

                                                                

 

 

Explore:

Learning Experience(s)

 

Compute the future value’s of a lump sum at a bank using a simple interest and at a bank using a compounded interest.

 

 

Student Activity

 

In pairs have the students complete the worksheet (Which Bank Would Be Better For You?)

    

 

Explain:

Learning Experience(s)

 

Apply their graphing skills to the given scenario.

 

 

Student Activity

 

Ask students to create a graph for each bank on their blank graph paper.  Require that they plot a point at 5, 10, and 15 years

 

 

Extend / Elaborate:

Learning Experience(s)

 

Experiencing some of the technology available for financial calculations. 

 

Student Activity

 

Have the students experiment with a compounding calculator online (http://www.moneychimp.com/calculator/compound_interest_calculator.htm).  If need be, (if they are getting off task), write a few situations on the board and ask that they use the calc. online to find the answers.  (An example would be putting $3,000 in a bank that compounds quarterly at a rate of 7% and leaving it for 16 years to grow).

 

     Evaluate

 

Play “Malarkey” to assess the students understanding of important terms from today’s financial lesson.  (Malarkey is a definition game in which a few possible definitions for a term are given.  The teams want to pick the correct definition.)  Students often seem eager to participate in competitions between them and their peers.

Example:

Interest a) The fee paid for the use of someone else's money.  

               b) The annual fee charged by one’s bank.

c) The same thing as principal, which is the amount of money borrowed or deposited.

              


Name _________________________

 

Date ____________________________

 

Which Bank Would Be Better For You?

 

You recently got a great job as a high school teacher paying $40,000 a year.  You have decided that you want to put $2000 of your money into savings and leave it there for ten years.  Which Bank should you use:  Bank A uses simple interest at a rate of 8%.  Bank B has a compounded interest rate of 8% (and they compound annually).   (You need to compute the amount that your money would grow to in 10 years at each bank).   

 

For simple interest: The future value or maturity value, A, of P dollars for t years at a rate of interest of r per year

A = P(1 + rt)

 

 

 

 

 

 

For compounded interest: If P dollars are deposited for m compounding periods per year for n years at a rate of interest r per period, the compound amount A is

A = P(1 + r/m)