Topic Overview

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Resources for the TEKLA curriculum at Junior Secondary Topic 6 Simple & Compound Interests and TVM Strategies and Management – Extension Learning Element

Module E4 Resources Management

Topic Overview

Topic Strategies and Management

E4: Resources Management – Simple interest, Compound Interests & Time Value of Money

Level S3

Duration 3 lessons (40 minutes per lesson)

Learning Objectives:

1. Understand the concept of simple and compound interests,

2. Understand the concept of time value of money, present value and future value, and 3. Apply the concept of time value of money and calculate present value and future value.

Overview of Contents:

Lesson 1 Simple Interest

Lesson 2 Compound Interest

Lesson 3 Time Value of Money

Resources:

 Topic Overview and Teaching Plan

 PowerPoint Presentation

Suggested Activities:

 Class Discussion

 In-class exercise

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Lesson 1

Theme Simple Interest

Duration 40 minutes

Expected Learning Outcomes:

Upon completion of this lesson, students will be able to:

1. explain the concept of interest,

2. calculate interest by using simple interest formula, 3. explain and apply the concept of discount, and 4. name the financial products using simple interest.

Teaching Sequence and Time Allocation:

Activities Reference Time

Allocation Part I: Introduction

 Teacher introduces the concept of interest PPT #2 3 minutes Part II: Content

 Teacher explains how to calculate simple interest with example

PPT #3 – 5 8 minutes

 Activity 1: In-class exercise

 Students are required to calculate the principal by using simple interest formula.

 Teacher goes through the answers with students and makes conclusion.

PPT #6

PPT #7

3 minutes

2 minutes

 Teacher introduces the concept of borrowing and discount.

 Teacher provides further example of simple interest calculation for bank deposit.

PPT #8 – 11 PPT #12 – 13

8 minutes 4 minutes

 Teacher describes financial products using simple interest. PPT #14 5 minutes

 Activity 2: In-class Exercise

 Revision for simple interest calculation.

PPT #15

PPT #16

3 minutes

2 minutes Part III: Conclusion

 Teacher concludes the lesson by reviewing the key points covered.

2 minutes

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Lesson 2

Theme Compound Interest Duration 40 minutes

1. explain the concept of compound interest,

2. calculate interest by using compound interest formula, and 3. describe the concept of present value.

 Teacher introduces the concept of compound interest and compare it with simple interest.

PPT #2 – 3 3 minutes

Part II: Content

 Teacher explains how to calculate compound interest with examples.

PPT #4 5 minutes

 Students are required to calculate compound interest.

PPT #5

PPT #6

5 minutes

 Teacher demonstrates the use of formula for calculating compound interest with an example.

 Teacher explains daily and continuous compound interest calculation.

 Teacher introduces the concept of present value and its calculation.

PPT #7 – 9

PPT #10 – 12

PPT #13 – 16

5 minutes

10 minutes Part III: Conclusion

2 minutes

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Lesson 3

Theme Time Value of Money Duration 40 minutes

1. apply the concept of time value of money; and 2. calculate present value and future value.

 Teacher recaps the nature of present value and discusses with students why one dollar today is worth more than one dollar in the future say 1 year later.

PPT #2 - 3 8 minutes

Part II: Content

 Teacher introduces the concept of future value and its calculation.

 Teacher explains the application of present value and discounting cash flows calculations.

 Teacher introduces time value terminology denoted on a timeline.

 Teacher continues the discussion of the application of present value and discounting cash flows calculations.

PPT #4 – 7

PPT #8 – 9

PPT #10

PPT #11 – 12

9 minutes

4 minutes

2 minutes

4 minutes

 Students are required to make decision by using the concept of time value of money.

PPT #13

PPT #14

6 minutes

5 minutes

Part III: Conclusion

2 minutes

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5 6

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7 8

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9

Teacher discuss the relationship between interest and discount. It is important as the discount rate to calculate present value is in fact the interest rate.

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21

This question is the same as the exercise in previous lesson except for the use of compound interest instead of simple interest. Teacher can compare these two exercises with students and explain the difference and the impact of compound interest.

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Teacher can mention the interest of our bank deposit is calculated on daily basis.

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Teacher explains the reason for larger value in future is because of interest not inflation.

Otherwise the value will be lower in future when there is a period of deflation. Interest is always true because this is the cost of borrowing. Borrower must pay more when he repays to the lender!

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Teacher can demonstrate how to use scientific calculator and future value table.

Financial calculator will not be used in Secondary schools but in universities.

Excel is suggested to be used in senior secondary stage.

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Answer: ‘by instalment’ because the cost is lower than full payment.

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Classwork/Home Assignment P.1

Section A: Multiple Choice Questions (@1, total 10 marks)

1. You have $22,000 in a savings account that pays 3% simple interest per annum. How much interest will you earn in 2 years?

A. $660.

B. $679.80.

C. $1,320.

D. $1,339.80.

Level of difficulty: *

2. You have $27,000 in a savings account that pays 4% simple interest per annum. How much interest will you earn if you withdraw the money after 8 months?

A. $720.

B. $810.

C. $1,080.

D. $1,620.

Level of difficulty: **

3. What is the principal that gives an interest of $6,000 over 3 years at 5% simple interest per annum?

A. $18,000.

B. $40,000.

C. $80,000 D. $120,000.

4. The face value of a bond is $10,000 with a simple interest rate of 4% per annum and is paid every six months. How much is the interest for each payment?

A. $100.

B. $200.

C. $400.

D. $800.

Level of difficulty: ***

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5. Your deposit of $25,000 is currently paying a compound interest rate of 6% per year. What will be the interest earned (to the nearest dollar) 4 years later?

A. $6,562.

B. $9,600.

C. $10,499 D. $49,600.

6. Find the compound interest (to the nearest dollar) for a bond with face value $10,000 at 3%

interest for 6 years if interest is compounded biannually.

A. $10,900.

B. $11,800.

C. $11,941.

D. $11,956.

7. What is the present value (to the nearest dollar) of the principal that gives $50,000 at a compound interest rate of 4% in 4 years?

A. $42,467.

B. $42,740.

C. $43,122.

D. $44,740.

8. What is the reason for one dollar today which is worth more than that in future?

A. Appreciation.

B. Foreign exchange.

C. Deflation.

D. Interest.

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9. What is the future value (to the nearest dollar) of a principal of $18,000 at an interest rate of 6% p.a. after 5 years?

A. $23,400.

B. $24,400.

C. $24,088.

D. $26,024.

10. The larger the discount rate, the _________ the present value is.

A. lower.

B. higher.

C. same.

D. unknown.

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Section B: Short Questions (20 marks)

** 1. An item is on sale with 25% off the regular price. After discount the price is $2,820.

a) What is the regular price?

b) What is the amount of the discount?

(3 marks) (3 marks)

*** 2. A term deposit of $36,000 is deposited in bank at 4% interest rate for 5 years and the interest is compounded daily. What is the total amount (to the nearest dollar) in the bank after 5 years later?

(4 marks)

*** 3. You want to buy a smartphone and the seller offers you either to pay

$5,000 by cash now or make three payments: $3,000 now, $1,100 at the end of year 1 and $1,150 at the end of year 2. If the interest rate is 4%, which method do you prefer? Why?

(10 marks)

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Topic Overview

Topic Overview

Lesson 1

Lesson 2

Lesson 3

Suggested Solutions