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Activity 11 – Unit 3: Time Value of Money - Power of Compounding

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DIRECTIONS:

1. Open Excel and create Table 1 and Table 2 shown below.

o Table 1: Calculate the compound value of investing $10 at the given interest rate (4% and 8%) using the following website:

▪

o Table 2: Calculate the simple value of investing $10 at the given interest rate (4% and 8%) using this formula:

▪ present value * rate = amount earned for first year.

2. BELOW your tables, state which method generates more income and explain why.

3. Define: Compound Interest BELOW your tables

4. Save your file as Activity 11-Compounding in your Intro to Computer/Activities folder.

Assessment:

|Compounding Table Elements |Points |

|Create 2 6-column, 3-row tables as shown below |3 |

|Column & Row Header titles are BOLD and Centered in cell |3 |

|Values in cells automatically show dollar sign ($) |1 |

|Cells resized so no text wraps |1 |

|Interest values in all tables correct to 2 decimal places |18 |

|Define compound interest - place definition under table 2 |2 |

|State which interest method (compound or simple interest) earns more income & explain why - use a complete |4 |

|sentence | |

|Header of Page |Points |

|Name, Date, Mod |3 |

|Due Date | |

|Due date: (on time-full credit; lose 1 pt/late day) |n/a |

|Total Points |35 pts |

Sample Table 1 in Excel – Time Value of Money – Compound Interest (Value)

Compounding

Interest Rate |Present |1 Year |2 Years |3 Years |4 Years |5 Years | |4% |$10 |$10.40 |$10.72 | | | | |8% |$10 | | | | | | | | | | | | | | |

Sample Table 2 in Excel –– Simple Interest (Value)

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Example of Excel “show formulas” for Table 1

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Which method earns more income, compound or simple interest? Why? ________________________________

Define “Compound Interest”: ___________________________________________________________________

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Instructional Goal: Understand the difference between SIMPLE interest and COMPOUND interest using basic math (addition and multiplication) by:

• COMPUTE the time value of money by using the compound interest calculator for a $10 investment

• COMPARE the amounts to money invested calculated with simple interest using the Simple Loan calculator.

• ANALYZE the results and STATE which method (simple or compounding) generates more income and EXPLAIN why

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