Compound Interest TEACHER NOTES
MATH NSPIRED
Math Objectives
Students will interpret the variables in the formula for compound
interest.
Students will use the formula for compound interest and
understand the effects of changes in the interest rate and the
number of compounding periods.
Students will understand the relationship between compound
interest and continuous compounding.
Model with mathematics (CCSS Mathematical Practice).
TI-Nspire™ Technology Skills:
Vocabulary Download a TI-Nspire
compound interest document
interest rate Open a document
pay periods Move between pages
initial deposit Grab and drag a point
continuous compounding
Tech Tips:
About the Lesson Make sure the font size on
This lesson is aligning with the curriculum of IB Mathematics your TI-Nspire handhelds is
Applications and Interpretations SL/HL and IB Mathematics set to Medium.
Approaches and Analysis SL/HL Once a function has been
This falls under the IB Mathematics Core Content Topic 1 graphed, the entry line can be
Number and Algebra: shown by pressing / G.
1.4 Financial applications of geometric sequences and series The entry line can also be
involving compound interest and annual depreciation. expanded or collapsed by
clicking on the chevron.
This lesson involves exploring the formula for compound interest
as a function of the initial deposit, interest rate, and the number of
Lesson Materials:
pay periods per year. Student Activity
As a result, students will: Compound_Interest_Student-
Npspire.pdf
Learn the relationship between the interest rate and the total
Compound_Interest_Student-
amount in the account. Nspire.doc
Learn the relationship between the number of pay periods TI-Nspire document
and the total amount in the account. Compound_Interest-Nspire.tns
Discover the limiting condition as the number of pay periods
Visit www.mathnspired.com for
increases without bound. lesson updates and tech tip
videos.
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Compound Interest TEACHER NOTES
MATH NSPIRED
TI-Nspire™ Navigator™ System
Use Screen Capture to investigate the account amounts for
various values of
Use Screen Capture to compare graphs of for various
values of
Use Teacher Edition computer software to review student work.
Activity Materials
Compatible TI Technologies: TI-Nspire™ CX Handhelds,
TI-Nspire™ Apps for iPad®, TI-Nspire™ Software
Discussion Points and Possible Answers
Tech Tip: Make sure students execute the program initialize on a
calculator page. If students experience difficulty dragging a point on a
slider bar, check to make sure that they have moved the cursor until it
becomes a hand (÷) getting ready to grab the point. Then press / x to
grab the point and close the hand ({).
Students can animate a slider by right-clicking on the slider (/ b) and
selecting Animate. Right-click again to select Stop Animate.
Teacher Tip: When using the compound interest formula, some
international students may recognize it in an alternate form written as
( )
kn
r
FV =PV 1+ , where FV is the future value, PV is the present
100 k
value, k is the number of compounding periods per year, and r% is the
annual rate of interest.
©2012 Texas Instruments Incorporated 2 education.ti.com
Compound Interest TEACHER NOTES
MATH NSPIRED
Move to page 1.3.
Let P be the initial amount (Principal) deposited, r the annual
interest rate expressed as a decimal, n the number of times
interest is paid each year, and A the total amount in the account
at time t (in years). The formula for compound interest is
r nt
A(t) P1
n .
1. Suppose $50,000 is deposited in an account paying 2% (
) per year ( ). These values have been
entered for and on Page 1.3. Move to Page 1.4 to
see information about this account. Column A displays the
total amount in the account after each interest pay period.
Column B displays the amount of interest earned after each
pay period.
Note: row 1 corresponds to the initial deposit; row 2
corresponds to the first pay period, etc.
a. Explain why the interest earned after each pay period
increases.
Answer: After each pay period, the account balance is
the original deposit, or principal, plus interest. Therefore,
interest is paid based on a larger account balance each
pay period.
b. Use Column A to estimate the number of years until the initial deposit doubles.
(Hint: Press / 3 to page down.)
Answer: The initial deposit doubles after 36 years. Row 37 of the spreadsheet indicates
the total amount in the account is $101,994.37.
Teacher Tip: Students might suggest the initial deposit doubles between
year 35 and year 36. However, remember that interest is only paid once
per year ( ). We assume no additional interest is earned until the end
of the pay period.
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Compound Interest TEACHER NOTES
MATH NSPIRED
TI-Nspire Navigator Opportunity: Quick Poll (Open Response)
See Note 1 at the end of this lesson.
c. Go back to Page 1.3, and change the interest rate so that the initial deposit doubles
after 15 years.
Answer: For (interest rate of 4.73%, approximately 5%), the initial
deposit will double after 15 years. Note: Student answers will vary. Consider asking
for the smallest interest rate such that the initial deposit doubles after 15 years.
Consider asking for an interest rate so that the initial deposit doubles after 15
years, but no earlier.
TI-Nspire Navigator Opportunity: Quick Poll (Open Response)
See Note 2 at the end of this lesson.
2. Suppose $10,000 is deposited in an account paying 5% ( ) semi-annually
( ). Enter the values for and on Page 1.3.
a. Complete the following table to find the amount in the account after two years.
Change the value of as necessary on Page 1.3.
Answer:
2 4 6 12 52
11,038.13 11,044.86 11,047.13 11,049.41 11,051.18
As increases, explain how you would expect the value of to change for a
fixed value of t.
Answer: For a fixed value of the table suggests that as increases, the amount
in the account at time also increases.
b. Explain the meaning of each of the following:
n=365;
n=( 365 ) ( 24 ) =8760;
n=( 365 ) ( 24 ) ( 60 ) =525,600; and
n=( 365 ) ( 24 ) ( 60 ) ( 60 )=31,536,000.
Answer:
©2012 Texas Instruments Incorporated 4 education.ti.com
Compound Interest TEACHER NOTES
MATH NSPIRED
Interest is paid daily.
Interest is paid hourly.
Interest is paid every minute.
Interest is paid every second.
c. Insert a Calculator page, and complete the following table.
365 8760 525,600 31,536,000
11,051.63 11,051.71 11,051.71 11,051.72
d. As increases, describe the compounding period. Explain how the amount in the
account changes for a fixed value of as increases.
Answer: As increases, the number of compounding periods increases, towards
interest being paid continuously, or continuous compounding. This question
suggests that as increases, the amount in the account at time also
increases.
e. Using your results from Questions 1 and 2, describe the characteristics you would
like in an account in order to earn the most interest after every pay period.
Answer: In order to earn the most in an account after every pay period, we should
search for the greatest interest rate and an account with the greatest number of
pay periods.
3. Suppose $25,000 is deposited in an account paying 4%
( ) quarterly ( ). Enter the values for and
on page 1.3. Move to Page 1.5. Column B displays the amount in
the account, after each pay period. Column A contains values
of the function for each corresponding pay period,
where , the base of the natural logarithm. This
function does not depend upon Column C contains the
difference between the two values for corresponding pay periods.
Note: row 1 corresponds to the initial deposit, row 2 corresponds to the first pay period,
etc.
Move or animate the slider on the right side to increase the value of Use the slider
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Compound Interest TEACHER NOTES
MATH NSPIRED
to change the value of As increases, explain the relationship between and
Answer: As increases, the values of tend to get closer and closer to , but
for all values of .
Move to page 2.1.
4. The graph of is displayed as a solid curve, and the graph
of is displayed as a dashed curve. Move or animate the
slider to change the value of .
a. Explain the relationship between the two curves as increases. State if your
answer is consistent with your response to question 3. If not, explain why. Note:
you might need to zoom in to examine the relationship between the two curves.
Answer: As increases, the graph of tends to get closer and closer to
the graph of The graph of does not appear to intersect, or
cross, the graph of This answer is consistent with part (a).
b. Find the values for and such that for some value of t.
Answer: It is not possible to find values for and such that for
some value of For any values of and , is always less than
As increases, does not change, and increases but is always slightly
less than
Using the Finance Solver on the handheld:
Insert a calculator page. Press Menu < 8 Finance, < 1 Finance Solver. The Finance Solver box will
open for you to use in place of the compound interest formula used earlier in this activity.
Sample:
Find the future value of a $20,000 invested for 5 years at 6% compounded annually.
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Compound Interest TEACHER NOTES
MATH NSPIRED
This is what it should look like on the handheld:
Please notice that the PV (Principal/Present Value) is entered as -20000 because cash outflows are
considered negative. Place your cursor over FV and press enter to find the Future Value.
FV = $26,764.51
5. Find the future value of $2000 invested for 5 years at 6% compounded quarterly.
Answer: $2,693.71
Note: There are two ways to input values in the Solver. You can input N = 5, P p Y =1, and C p Y =4 , or
input N = 4 ∙ 5, P p Y =4, and C p Y =4 .
6. Find the value of $8000 invested for 6 years at 8% compounded monthly.
Answer: $12,908.02
7. Find how much you would have to invest in a savings account paying 6% compounded quarterly in
order to have $3000 in 5 years.
Answer: $2,227.41 (this will be negative on the handheld because it is paid out by the
investor)
Wrap Up
Upon completion of this activity, students should be able to understand:
The relationship between the interest rate and the total amount in the account.
The relationship between the number of pay periods and the total amount in the account.
How to find the amount of an investment by hand and by using the Finance Solver.
The limiting condition of compound interest as the number of pay periods increases without
bound.
©2012 Texas Instruments Incorporated 7 education.ti.com
Compound Interest TEACHER NOTES
MATH NSPIRED
A very basic idea of a limit.
A very basic idea of continuous compounding, or interest being paid at every instant.
Teacher Notes
1. The graph of is presented as a smooth curve. In practice, is a piecewise linear
function since interest is paid a discrete periods. Consider a graph of the calculator function
2. For any fixed value of , for example the value is the limit of as
increases. This presents a good opportunity for students to discover the idea of a limit.
3. Suppose the initial deposit is $1 and the interest rate is 100% ( ). At the end of 1 year, the
amount in the account is . Ask students to construct a table of values for
for various values of . For example:
( )
n
1
1+
n
1 2.000000
5 2.488320
10 2.593742
100 2.704814
1000 2.716924
10,000 2.718146
100,000 2.718268
1,000,000 2.718280
*This table might help suggest why the number is associated with compound interest and
appears in the formula for
TI-Nspire Navigator
Note 1
Question 1b, Quick Poll (Open Response)
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Compound Interest TEACHER NOTES
MATH NSPIRED
Tell students that you are going to send a Quick Poll asking for the number of years until the initial deposit
doubles.
Note 2
Question 1c, Quick Poll (Open Response)
Tell students that you are going to send a Quick Poll, Open Response asking for the interest rate so
that the initial deposit doubles after 15 years.
**Note: This activity has been developed independently by Texas Instruments and aligned with the IB
Mathematics curriculum, but is not endorsed by IB™. IB is a registered trademark owned by the
International Baccalaureate Organization.
©2012 Texas Instruments Incorporated 9 education.ti.com
