# Understanding how compound interest works and its applications JSS 3 Mathematics Third Term Lesson Notes Week 1

Unlocking the Power of Compound Interest: A Math Adventure for JSS 3 Students

**Subject:** Mathematics

**Class:** JSS 3

**Term:** Third Term

**Week:** 1

**Topic:** Compound Interest

**Sub-topic:** Understanding how compound interest works and its applications

**Duration:** 1 hour

**Behavioural Objectives:**

- By the end of the lesson, students should be able to explain what compound interest is and how it works.
- Students should be able to use the compound interest formula to solve problems.
- Students should be able to identify real-life situations where compound interest is applicable.

**Learning Resources and Materials:**

- Whiteboard and markers
- Textbooks with examples of compound interest problems
- Calculators
- Worksheets with compound interest problems

**Building Background /Connection to prior knowledge:**

- Recap on the concept of simple interest and its formula.
- Relate the idea of earning interest on savings accounts to introduce the concept of compound interest.

**Embedded Core Skills:**

- Critical thinking
- Problem-solving
- Numeracy skills

**Content:**

**What is Compound Interest?**- Compound interest is when you earn interest on both the initial amount of money you deposited and on the interest that money earns over time. 🔄

**How Does it Work?**- Let’s say you deposit ₦1000 into a bank account with 10% interest per year. In the first year, you’ll earn ₦100 interest, making the total ₦1100.
- In the second year, you’ll earn 10% interest on ₦1100, which is ₦110, making the total ₦1210. 📈

**Formula for Compound Interest:**- The formula is: A = P(1 + r/n)^(nt)
- A is the amount of money accumulated after n years, including interest.
- P is the principal amount (the initial amount of money).
- r is the annual interest rate (in decimal).
- n is the number of times interest is compounded per year.
- t is the time the money is invested for, in years.

**Example Using the Formula:**- Let’s use the same example: ₦1000 deposited at 10% interest compounded annually for 2 years.
- A = 1000(1 + 0.10/1)^(1*2)
- A = 1000(1 + 0.10)^2
- A = 1000(1.10)^2
- A = 1000(1.21)
- A = ₦1210

**Why is Compound Interest Important?**- It helps your money grow faster over time because you’re earning interest on both your initial deposit and on the interest it earns.

Evaluation :

- Compound interest is when you earn interest on both the ________ and on the interest that money earns over time.
- a) initial amount
- b) final amount
- c) monthly deposit
- d) bank statement

- If you deposit ₦1000 into a bank account with 5% interest per year, in the first year you’ll earn ________ interest.
- a) ₦50
- b) ₦5
- c) ₦100
- d) ₦500

- Compound interest helps your money grow ________ over time.
- a) slower
- b) at a constant rate
- c) faster
- d) at the same pace

- The formula for compound interest is A = P(1 + r/n)^(nt), where A is the ________.
- a) amount of money accumulated after n years
- b) initial deposit
- c) bank balance
- d) annual interest rate

- In the formula for compound interest, P represents the ________.
- a) amount of money accumulated after n years
- b) initial deposit
- c) annual interest rate
- d) number of years

- If you deposit ₦2000 at 8% interest compounded annually for 3 years, what will be the total amount after 3 years?
- a) ₦2240
- b) ₦2304
- c) ₦2160
- d) ₦2048

- Compound interest is important because it helps your money grow ________.
- a) slowly
- b) at the same rate
- c) at a constant pace
- d) faster

- The number of times interest is compounded per year is represented by the letter ________ in the compound interest formula.
- a) r
- b) n
- c) t
- d) P

- If you deposit ₦5000 at 6% interest compounded semiannually for 2 years, what will be the total amount after 2 years?
- a) ₦5658
- b) ₦5300
- c) ₦5100
- d) ₦5050

- What does the ‘r’ represent in the compound interest formula?

- a) Number of times compounded per year
- b) Principal amount
- c) Annual interest rate
- d) Number of years

- If you deposit ₦3000 at 12% interest compounded quarterly for 1 year, what will be the total amount after 1 year?

- a) ₦3360
- b) ₦3120
- c) ₦3240
- d) ₦3280

- Compound interest helps your money grow faster over time because you’re earning interest on both your initial deposit and on the interest it ________.

- a) loses
- b) earns
- c) borrows
- d) spends

- What does ‘A’ represent in the compound interest formula?

- a) Amount of money accumulated after n years
- b) Initial deposit
- c) Annual interest rate
- d) Number of times compounded per year

- If you deposit ₦4000 at 4% interest compounded monthly for 2 years, what will be the total amount after 2 years?

- a) ₦4368
- b) ₦4168
- c) ₦4048
- d) ₦4088

- In compound interest, you earn interest on both the initial amount of money you deposited and on the ________ that money earns over time.

- a) principal
- b) expenses
- c) profits
- d) interest

Class Activity Discussion

**What is compound interest?**- Compound interest is when you earn interest on both the money you deposited and on the interest that money earns over time.

**How does compound interest work?**- It helps your money grow faster over time because you earn interest not only on the initial amount but also on the interest already earned.

**What is the formula for compound interest?**- The formula is A = P(1 + r/n)^(nt), where A is the total amount, P is the initial deposit, r is the interest rate, n is the number of times the interest is compounded per year, and t is the time in years.

**Why is compound interest important?**- It helps your savings grow faster over time, allowing you to earn more money on your initial investment.

**How often is interest compounded?**- Interest can be compounded annually, semiannually, quarterly, or monthly, depending on the bank or financial institution.

**Can compound interest work against you?**- Yes, if you have a loan or credit card debt with compound interest, it can accumulate quickly, making it harder to pay off.

**What is the difference between compound interest and simple interest?**- Compound interest earns interest on both the initial amount and the accumulated interest, while simple interest only earns interest on the initial amount.

**Is compound interest always beneficial?**- Yes, if you’re saving or investing money, compound interest can help it grow faster over time.

**Does compound interest apply to both savings and loans?**- Yes, compound interest applies to both savings accounts and loans, but it works differently depending on whether you’re earning or paying interest.

**Can compound interest make a small amount of money grow significantly over time?**- Yes, even a small initial deposit can grow into a significant amount over time due to the power of compound interest.

**What happens if I withdraw money from a compound interest account?**- Withdrawing money from a compound interest account can reduce the amount of interest you earn because there’s less money left to accumulate interest.

**How can I calculate compound interest without a formula?**- There are online calculators and mobile apps available that can help you calculate compound interest quickly and easily.

**Can compound interest be negative?**- Yes, if the interest rate is negative, it means you’re losing money over time instead of gaining it.

**Is compound interest the same as investing?**- Compound interest is one aspect of investing, but investing involves various strategies and risks beyond just earning interest on savings.

**Can compound interest help me reach my financial goals faster?**- Yes, by saving or investing regularly and letting compound interest work for you, you can accelerate your progress towards financial goals like buying a house or retiring comfortably.

**Presentation:**

**Step 1:** The teacher revises the previous topic which was “Simple Interest” by asking students to recall the formula and how it works.

**Step 2:** The teacher introduces the new topic, “Compound Interest”, by explaining that it’s when you earn interest not only on the initial amount of money deposited but also on the interest that money earns over time.

**Step 3:** The teacher allows the pupils to give their own contributions and encourages questions. The teacher corrects any misunderstandings and provides additional explanations where necessary.

**Teacher’s Activities:**

- Reviewing the concept of simple interest.
- Explaining the concept of compound interest using real-life examples.
- Demonstrating how to use the compound interest formula to solve problems.
- Facilitating class discussions and answering questions.

**Learners’ activities:**

- Participating in discussions.
- Asking questions for clarification.
- Solving compound interest problems individually and in groups.
- Presenting their solutions to the class.

**Assessment:**

- Observing students’ participation in class discussions and their ability to solve compound interest problems.
- Reviewing completed worksheets for accuracy.
- Asking questions during the lesson to gauge understanding.

**Evaluation Questions :**

- What is compound interest?
- How does compound interest differ from simple interest?
- What is the formula for compound interest?
- How often can interest be compounded?
- Can compound interest work against you? How?
- Give an example of a real-life situation where compound interest is applicable.
- If you deposit ₦5000 at 8% interest compounded annually for 3 years, what will be the total amount after 3 years?
- What happens if you withdraw money from a compound interest account?
- How can compound interest help you reach your financial goals faster?
- What are some strategies for maximizing compound interest earnings?

**Conclusion:**

- The teacher goes round to mark students’ work and provides necessary corrections.
- Reinforce key concepts and encourage students to continue practicing compound interest problems to improve their understanding.