Earning Interest “Interesting Information about Earning Interest”

In This Lesson: Understand the difference between simple and compound interest. Practice calculating both simple and compound interest. Understand the difference between simple and compound interest Practice calculating both simple and compound interest  

8th Wonder of the World

Would You Rather… …get a penny doubled every day for 30 days, or $10,000 every day? Penny $10,000 Penny $10,000 Day 1 Day 16 $.01 $10,000 $327.68 $160,000 Day 2 $.02 $20,000 Day 17 $655.36 $170,000 Day 3 $.04 $30,000 Day 18 $1,311 $180,000 Day 4 $.08 $40,000 Day 19 $2,621 $190,000 Day 5 $.16 $50,000 Day 20 $5,242 $200,000 Day 6 $.32 $60,000 Day 21 $10,485 $210,000 Day 7 $.64 $70,000 Day 22 $20,971 $220,000 Day 8 $1.28 $80,000 Day 23 $41,943 $230,000 Day 9 $2.56 $90,000 Day 24 $83,886 $240,000 Day 10 $5.12 $100,000 Day 25 $167,772 $250,000 Day 11 $10.24 $110,000 Day 26 $335,544 $260,000 Day 12 $20.48 $120,000 Day 27 $671,088 $270,000 Day 13 $40.96 $130,000 Day 28 $1,342,177 $280,000 Day 14 $81.92 $140,000 Day 29 $2,684,354 $290,000 Day 15 $163.84 $150,000 Day 30 $5,368,709 $300,000

Some Interest-ing Definitions Interest- the money you earn from a bank or credit union. Simple Interest- the extra money that you earn that is paid out in cash. Interest Rate- the extra money you earn expressed as a percentage. Compound Interest- the extra money that you earn from your bank or credit union when you leave all the money in your account. Principal- the money that you put in (or deposit) to your account.

Compound Interest Compound interest- is earning interest on interest. Water and Rocks Activity: Compound interest is earning interest on interest. This sand activity will illustrate earning interest on interest.- Get colored sand. The interest represents the colored sand. The plain sand is the principle. Pour in Regular Sand. Pour in a small amount of colored sand. This is the interest we earn in one month. For the second month we will add our plain sand to show we earn money on the principle + interest. Now add more colored sand- (more than previous). Then repeat. For 6 months. What would this look like if we had been illustrating simple interest and wit drawled the interest we earned every month.??- No colored sand and less full. Compound Interest Simple Interest

Another View of Simple and Compound Interest $1000 deposited and left alone for 30 years at 5% interest. The Blue line represents monthly compound interest, the pink line represents simple interest.

SIMPLE INTEREST Charlie is trying to save for 6 months to buy a new iPod that costs $110. He is going to deposit $10 every month into his credit union account, which will pay him 20% interest on what he deposits. He will withdraw the interest each month to pay for fun things that he likes to do with his friends—going to movies, renting video games, and eating pizza. $1000(1+.0555)^3=

B. Beginning balance for this month C. Money Charlie Deposits A: Deposit Cycle B. Beginning balance for this month C. Money Charlie Deposits D. New Balance (B)+(C) E. Interest Rate F. Interest earned and paid out (D)x(E) G. Month Ending Balance Same as (D) 1 10 20% 2 20 4 3 30 6 40 8 5 50 60 12 Total 42

Activity #2 Saving for an iPhone Jessica is saving for a IPhone that costs $110. She is going to invest $10 every month for 6 months at her local credit union at 20%. Since she is not withdrawing the interest she will earn money on her interest. Look at the header for hints.

Deposit Cycle Beginning Balance for this month G Money Jessica Deposits New Balance B+C Rate of Interest Interest Earned and left in account DxE Ending Balance (D) + (F) 1 $10 10 20% 2 12 22 4.40 26.40 3 36.40 7.28 43.68 4 53.68 10.74 64.42 5 74.42 14.88 89.30 6 99.30 19.86 119.16 Total 59.16 Add this to the flip cart so students can come up and write this down. Cover line 1 together and line 2 if you can.

What You’ve Learned: Understand the difference between simple and compound interest. Practice calculating both simple and compound interest.