Lesson Plan

Lesson Plan - Simple Interest

The quantity of work is for two 45- minutes’ lessons.
Pre-knowledge

 Substitution into a formula

 Solving linear equations
 Converting months, weeks and days into years.

Aims

 To learn the basic terminology in Mathematics of Finance

 By using the basic formula for interest and the definition of future value to derive
the formula for future value in simple interest
 From the formula for future value to derive the formulae for present value, interest
rate and time period in simple interest
 Application of all formulae in reals situations.

Resources

 Power Point
 Worksheet

Activities

 By following the Power Point presentation, the learners need to learn the basic
formulae and do the examples together.
 In groups or individually they must solve the application problems in the worksheet.

Worksheet
The worksheet is divided into three sections:
Section A- easy questions for the lower ability pupils
Section B- middle level of difficulty questions
Section C- advanced (difficult) questions for the gifted and talented pupils.
In Section C, the Hire Purchase is for self-study only for the gifted and talented pupils.

Note: The learners are encouraged to use a calculator only once in their solution in
Mathematics of Finance. Only the final answer should be rounded off.
Power point Example
Teachers
Evaluation and
Handouts
 Simple Interest - Worksheet

In each question round your answer off to two decimal places (if necessary).

Section A.
1. Leah invested £1 200 in a bank at 11% annual simple interest. How much money is in her
account after:
a) 2 years
b) 6 years
b) 72 weeks?

2. Jonathan would like to have £10 000. If the best available interest is 13% simple
interest per year, how much must he invest now to yield that amount after

a) 3 years

b) 10 years

c) 78 months?

3. You take out a £5 000 loan at 16% per annum simple interest for 15 months.
How much interest will you pay?

Section B.

1. If you borrow £700 for 6 months at an annual simple interest rate of 15%
a) How much must you repay at the end of 6 months?
b) How much is the interest on your loan?

2. How long will it take an investment to double at 12,5% simple interest per annum?

3. Amanda borrowed £800 from her friend. They agreed that she will pay a simple interest
rate on this amount. Two years later Amanda paid back £900. How many percent was the
annual simple interest rate?
Section C.
1. Mark would like to buy a new computer. The price of the computer is £3 000. The shop
offers two different options- either to pay the whole amount or to pay equal payments of
£200 for 18 months. If in the second option the extra payment is a simple interest, what
is
the annual interest rate (in percent)?

Hire Purchase. This is a way of buying expensive goods. The buyer pays a deposit first and
the remainder by monthly instalments. The principal amount (present value) of the loan is
the cash price minus the deposit. The interest on a higher purchase loan is always charged
at a simple interest rate and only charged on the amount owing. The hire purchase
payment is always more than the cash price of the goods.

The following two questions are examples of hire purchase:

2. You would like to buy a new bicycle for £1 100. The shop offers you a hire purchase
agreement with 13% simple interest per annum. According to the agreement, you need
to
pay 15% deposit and the remainder by 15 equal monthly instalments. Calculate:
a) the amount of the deposit
b) the principal amount of the loan
c) the future value of the loan
d) the monthly instalments.

3. Mr Jonson would like to buy a stove for £640 , a washing machine for £370 and a tumble
dryer for £390 for his family. The shop offers him a hire purchase agreement in the
following
manner: he must pay 12% deposit on the whole amount; the simple interest on the
remaining amount is 16%; the rest of the amount together with £60 insurance per year
he
will pay in 24 equal monthly instalments. Calculate:
a) the principal amount of the loan
b) the total amount that Mr Jonson must pay by means of equal payments
c) the size of the equal payments.
 d) How much more will he pay by using hire purchase?

Answers:
Section A. Section B. Section C.

1. a) £1 464 1. a) £756 1. 13.33%

b) £1 992 b) £56 2. a) £165

c) £1 382.77 2. 8 years b) £935

2. a) £7 194.24 3. 6.25% c) £1 086.94

b) £4 347.83 d) £72.46
c) £5 420.05 3. a) £1 232
3. 𝑆𝐼 = £100 b) £1 626.24
c) £67.76
d) £226.24