UTPA STEM/CBI Courses/Business Math/Compound Interest and Annuities
Appearance
Course Title: Contemporary Mathematics
Lecture Topic: Compound Interest and Annuities
Instructor: Roger Knobel
Institution: The University of Texas - Pan American
Backwards Design
[edit | edit source]Course Objectives
- Primary Objectives- By the next class period students will be able to:
- Compute the future value of a fixed annuity.
- Sub Objectives- The objectives will require that students be able to:
- Identify the type of finance problem given a real world situation.
- Identify the payment amount, payment period, annual interest rate, and length (time) of the annuity.
- Convert an interest rate from percent form to decimal form.
- Compute the period interest rate and number of payments.
- Select the correct formula for computing the future value of a fixed annuity.
- Use a calculator to evaluate a finance formula.
- Difficulties- Students may have difficulty:
- Being able to identify the type of finance problem.
- Distinguishing between present value, future value, and payments.
- Converting an annual interest rate in percent form to a periodic interest rate in decimal form.
- Real-World Contexts- There are many ways that students can use this material in the real-world, such as:
- Determining future retirement account balances.
- Determining periodic payments needed to achieve a savings or retirement goal.
Model of Knowledge
- Concept Map
- Simple Interest
- Compound Interest
- Understanding the fixed annuity formula.
- Content Priorities
- Enduring Understanding
- Understand the power of compound interest and exponential growth.
- Being aware that regular deposits over time into an interest earning account can lead to big things.
- Important to Do and Know
- Be able to compute the future value of a fixed annuity.
- Worth Being Familiar with
- The effect of different interest rates and periods in future investment values.
- Enduring Understanding
Assessment of Learning
- Formative Assessment
- Short in-class problem sets.
- On-line quiz or homework.
- Summative Assessment
- Questions on the unit and final exams.
Legacy Cycle
[edit | edit source]OBJECTIVE
By the next class period, students will be able to:
- Compute the future value of a fixed annuity earning compound interest.
The objectives will require that students be able to:
- Identify the type of finance problem given a real world situation.
- Identify the payment amount, payment period, annual interest rate, and length (time) of the annuity.
- Convert an interest rate from percent form to decimal form.
- Compute the period interest rate and number of payments.
- Select the correct formula for computing the future value of a fixed annuity.
- Use a calculator to evaluate a finance formula.
THE CHALLENGE
You have won $500,000 in the lottery. You can take a lump sum now of $300,000, or $25,000 each year for 20 years. What would you pick; why?
GENERATE IDEAS
- Collect, organize, compare, and contrast the different reasons for selecting each option.
- Ask "What are reasons that someone would want the money now? What are reasons that someone would want the annual payments?"
- Discuss "If your goal was to have as much money when you retire, what other information would you need to make a more informed decision?"
MULTIPLE PERSPECTIVES
- Provide short video clips of lottery winners explaining what they did and why.
- Use a spreadsheet to simulate deposits and compound interest.
RESEARCH & REVISE
- Teacher led introduction of the fixed annuity formula.
- Worksheets leading students through the use of the fixed annuity formula.
TEST YOUR METTLE
- Small groups re-examining the challenge question, resulting in a poster with their explanation and conclusion.
GO PUBLIC
- Homework problems giving students a variety of scenarios where the fixed annuity formula is used to compute a future value.
Pre-Lesson Quiz
[edit | edit source]- What is 5.3% of 720?
- You have $120 in a bank account earning 6.0% interest compounded monthly. How much would you have in your bank account after 1 month? After 2 months? After 3 months?
- Suppose you deposit $40 into an account earning 5% interest compounded daily. After three years, how many deposits have you made into the account?
Test Your Mettle Quiz
[edit | edit source]- Each year, you deposit $500 of your income tax return into an account earning 4% compounded annually. How much will you have in the account after 7 years?
- As part of a cash settlement, you have the choice of taking a one-time payment of $25,000 or annual payments of $2000 for 10 years. Assuming that you invest all of the money into an interest-bearing account, which option would allow you to accumulate the greater amount of money at the end of 10 years? Does your answer depend on the interest rate?