Simple and Compound Interest

Interest that earns interest.

12 problems · about 22 minutes · TEKS M.M.3.A

What this lesson teaches

The student computes simple and compound interest and explains the difference.

Straightforward practice. Get the method working first.

5 problems

$3000 at 5% simple for 2 years. Interest in dollars?
Answer 300
Why $300.
What makes compound interest different?
Answer It is computed on the balance, so interest earns interest.
Why Interest is added to the balance and then earns more.
$1000 at 6% simple for 2 years. Interest in dollars?
Answer 120
Why 1000 × 0.06 × 2.
$5000 at 4% simple for 3 years. Interest in dollars?
Answer 600
Why 5000 × 0.04 × 3.
$1000 at 10% compounded annually for 3 years. Balance in dollars?
Answer 1331
Why 1000 × 1.1 three times.

The same ideas with more to keep track of.

3 problems

$2000 at 50% compounded annually for 2 years. Balance in dollars?
Answer 4500
Why 2000 × 1.5 × 1.5.
$1000 at 10% simple for 3 years. Balance in dollars?
Answer 1300
Why 1000 + 300.
Which grows faster over 30 years? 1 simple, 2 compound.
Answer 2
Why Interest earning interest.

Mixed problems. Work out what kind of question it is before you start.

4 problems

Sort each statement by which kind of interest it describes.
Answer Simple interest: Computed on the original amount only, The same interest every year · Compound interest: Computed on the growing balance, Interest earns interest
Why One of them never changes year to year.
$4000 at 5% simple for 4 years. Interest in dollars?
Answer 800
Why 4000 × 0.05 × 4.
The Simple Case: $2000 at 5% simple interest for 3 years. Interest earned, in dollars?
Answer 300 dollars
Why $300.
The Compound Case: $1000 at 10% compounded annually for 2 years. Final balance in dollars?
Answer 1210 dollars
Why $1210.