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COMPOUND INTEREST

Concept: Understand what compound interest is, how it is calculated, and appreciate the impact it makes on loans and investments.

Compound interest is a way of life in our society. Understanding how it works and how it can be used effectively to grow your investments is a critical lesson. Investing early and accumulating compound interest over the long term is an excellent and safe way to make your money work for you.

Objectives:

• Know and use compound interest terminology
• Understand when interest is paid
• Understand when interest is earned
• Know and use the formula for calculating simple interest
• Know and use the formula for calculating the total amount of a loan or total value of an investment at the end of a specified term
• Understand how to algebraically manipulate the interest formulas to solve for different variables

Suggested Grades:

Ninth Grade – Tenth Grade – Eleventh Grade – Twelfth Grade – Adult Education – Business Education

CALCULATING COMPOUND INTEREST LESSON PLAN

Teaching Materials

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Lesson - Compound Interest  (see below for printable lesson)

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Overhead

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Many pre-calculated interest examples

Lesson Activity

1. Discuss what compound interest is.

2. Explain the term compounding period.

3. Give everyday examples of compound interest:  annuities, car loans, mortgages, etc.

4. Present simple compound interest and use a table to show how it works.

5. Provide the formula and calculate examples.

6. Relay the importance of investing money over time and how the longer the term the greater the rewards.

7. Work through examples together.

8. Discuss interest that compounds more than once per year.

9. Provide the revised formula.

10. Work through a few examples.

11. Demonstrate the effect of compounding periods over long term investments or loans.

12. Demonstrate how to algebraically rearrange the formula.

13. Work through examples that solve for unknowns other than the total interest earned or total amount of the principle plus the interest.

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