Simple vs. Compound Interest: Power of Compounding

(305 Students)

Price per Classroom

$2.00

Topics

Saving,Investment

Duration

20 Minutes

Auto-Graded?

Yes

Activity Description

The main goal of this worksheet is to help students understand the impact of compounding. Through a graphical method, they will learn the difference between simple and compound interest. Students are given a scenario where they can invest the $10,000 they have in hand in either a bank with 10% simple interest or a bank with 8% compound interest. They are also given the option to adjust the duration of the deposit. As the investment duration increases, they will grasp the effect of compounding. Students need to comprehend these concepts since they play a significant role in personal finance decisions.

Students will utilize interactive controls, such as sliders, to interact with the worksheet. By adjusting the "Years" slider, they can observe the simple and compound interest graphs updating, along with the interest values changing.

Additionally, students will be required to record interest values for various specified years, as illustrated in the table below.

Moreover, students will address several questions designed to reinforce their comprehension.

Learning Objective

In this worksheet activity, students are investing $10,000. They're given two options - a bank offering a 10% interest rate (Simple Interest), and another offering an 8% interest rate but computed using a compounding method. Students will find the interest earned using both schemes for different years deposited. They will understand that the interest that can be earned from the compounding method is much higher when the investment duration is longer. Here is how the interactive worksheet looks like -

Teacher Tips

Included with the activity, you can view the tips to clarify student's doubts or to evaluate answers (for a teacher scored worksheet).

Investing 8-7

Econ Ed -

Investing

Students will know that The benefits of compounding for building wealth are greatest for people who invest regularly over longer periods of time .. Students will use this knowledge to 8-7a . Explain the concept of compounding . 8-7b . Estimate the future value of a lump sum invested today for a specified period of time and rate of return . 8-7c . Estimate the future value of a regular series of equal annual investments for a specified period of time and rate of return . 8-7d . Demonstrate the difference in wealth accumulation for a person who begins to invest regularly at age 30 versus someone who starts at age 40 .

Saving 8-6

Econ Ed -

Saving

Students will know that Checking and saving deposit accounts in many financial institutions are insured up to certain limits by the federal government .. Students will use this knowledge to 8-6a . Explain the importance of federal deposit insurance . 8-6b . Compare Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance coverage limits for checking and savings accounts offered at financial institutions . 8-6c . Identify types of accounts that do not offer deposit insurance .

Saving 8-5

Econ Ed -

Saving

Students will know that Compound interest is interest on both the original principal and previously earned interest, as compared to simple interest which is only interest on the original principal .. Students will use this knowledge to 8-5a . Explain the benefit of compound interest as compared with simple interest . 8-5b . Demonstrate how annual interest earned increases over time when both the original principal and earned interest are left in a savings account .