What is the difference between simple and compound interest? Visually we can see that simple interest is linear and compound is non-linear. These visuals can be used to improve student understanding of what a significant difference this can make over time. Dynamic representations illustrate how increasing the number of compounding periods and interest rates dramatically effect the contribution compounding interest has to the overall balance. Recursive techniques, including spreadsheets and formulas help reinforce the concepts numerically. See how you can retire with a million dollars on just $60.00 per week.
This activity aims to create a greater understanding of the differences between simple and compound interest by providing powerful, interactive visuals, challenging questions and an engaging context: "Would you like to retire a millionaire?" Students also learn how to use spreadsheet formulas for recursion and modelling and compare these outcomes to basic formulas and the Finance Solver wizard.
- Simple Interest
- Compound Interest
- Future Value
- Linear and non-Linear
About the Lesson
This activity starts with a stimulus question, "How would you like to retire a millionaire?" The activity then proceeds to show how this can happen by saving as little as $60.00 per week, thanks to the cumulative effect of compounding interest. Linear simple interest calculations fall way short of the long term compounding interest. Initially students rely on the visuals and sliders to explore the differences in simple and compound interest, then they work with spreadsheets, formulas and finally the finance solver before pocketing their million dollar savings.