What is interest? What do we use it for? How is it relevant to us????
Basically interest is a fee you pay to use someone else’s money.
What sort of things might mean you pay (or earn) interest?
Will you ever have one of these? do you know if they have interest?
- After pay
- Zip pay
- Credit card
- Car loan
- Home loan
- Unpaid income tax
- Bank account
- Investments
- Term deposit
- paypal
- superannuation
Do you know how interest works? or the different types??
2 main types of interest
- simple interest: interest calculated based on the original amount (the principal) only.
- compound interest: interest calculated on the principal AND the previous interest accrued!
So….. calculating simple interest:
Interest = Principal x Interest rate (in decimal) x loan length (in years)
Scenario:
You want to buy a car for $10,000 but only have $500. $9,500 needs to be borrowed from a bank to allow you to buy the car. You see the advert above and decided to apply.
The bank agrees, over a period of 36 months…. YAY!
What is the:
- Principle
- Interest Rate
- Length of loan
1. convert the interest rate into decimals
2. convert the length of loan into years
3. Interest per year = principal x interest
4. total interest = interest per year x years of loan
5. cost of loan = total interest + principal
Now…. lets add I dimensions. What would your weekly repayments be?
Your task:
1. Write/record a short statement (1 sentence is fine) stating the link between Simple and Compound interest (hint, use the definitions above!)
2. using the following scenario, calculate the interest. You can demonstrate your work in any way: on the board, verbally, written etc.
You have saved $3,500 and currently earn 0.5% interest in your bank account. You have seen the above advert. By calculating the interest, compare how much money you will earn in interest over 18 months. Is it best to keep your money where it is, move it for 1 year or move it for 18 months?
Achievement standards:
Y9 students solve problems involving simple interest
Y 10 students recognise the connection between simple and compound interest
Muliyan 