Simple vs. Compound Interest -- Spreadsheeting the Difference

Gary Franchy, Davenport University
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This material was originally developed by Spreadsheets Across the Curriculum as part of its collaboration with the SERC Pedagogic Service.
Initial Publication Date: February 16, 2007

Summary

title slide for module on simple vs compound interest

In this Spreadsheets Across the Curriculum activity, students are guided step-by-step to build a spreadsheet that compares the future value of an investment that grows exponentially (compound interest) to the future value of the same investment that grows linearly (simple interest). The students calculate the year-to-year succession of future values, plot them on XY-graphs against time, and fit trend lines. The module emphasizes the differences in the future values many years out from the initial investment. Spreadsheet difficulty level is elementary. This module can be the students' first experience in building a spreadsheet to perform a systematic calculation.

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Learning Goals

Students will:
  • Understand the difference between simple and compound interest.
  • Use Excel functions to do the same calculations easily.
  • Plot the results for each on a scatter diagram and add a trend line/curve to each.
  • Use the spreadsheet to forward model.
In the process the students will:
  • Gain experience with both the simple and compound interest formulas.
  • Compare the difference in growth between simple and compound interest for several different interest rates.
  • Determine which interest method is used for common financial products (i.e., loans, savings).
  • Format cells in an Excel worksheet.
  • Estimate values from a graph.

Context for Use

later

Description and Teaching Materials


SSAC2005.HG1621.GTF1.1-student (PowerPoint 265kB Nov20 06)

The module is a PowerPoint presentation with embedded spreadsheets. If the embedded spreadsheets are not visible, save the PowerPoint file to disk and open it from there.

This PowerPoint file is the student version of the module. An instructor version is available by request. The instructor version includes the completed spreadsheet. Send your request to Len Vacher (vacher@usf.edu) by filling out and submitting the Instructor Module Request Form.

Teaching Notes and Tips

The module is constructed to be a stand-alone resource. It can be used as a homework assignment or lab activity. It can also be used as the basis of an interactive classroom activity.

Assessment

The last two slides are an end-of-module assignment that can be used for assessment.

References and Resources