Lesson Plan - Time Value of Money
Course Title – Money Matters
Lesson Title – Time Value of Money
Specific Objective – Explain the time value of money
Performance Objectives:
The learner will
 Discuss how saving contributes to financial well-being.
 Know and use simple interest and compound interest terminology.
 Discuss what simple interest and compound interest are.
 Understand when interest is paid.
 Understand when interest is earned.
 Know and use the formula for calculating simple interest.
 Algebraically manipulate the interest formula to solve for different variables.
 Present simple compound interest and use a table to show how it works.
 Explain the time value of money and how the longer the term the greater the
rewards.
 Work through several examples of simple and compound interest with the class.
 Work through examples that solve for unknowns other than the total interest
earned or total amount of the principal plus the interest.
TEKS: 130.162.(c)(2)(E)
Time required: 60 minutes instruction, 30 minutes of activities.
Occupational Correlation (O*Net – http://www.onetonline.org/)
43-3071.00 - Tellers
Receive and pay out money. Keep records of money and negotiable instruments
involved in a financial institution's various transactions.
Sample of reported job titles: Teller, Customer Service Representative (CSR),
Bank Teller, Member Services Representative, Account Representative, Customer
Relationship Specialist, Customer Service Associate (CSA), Personal Banking
Representative, Roving Teller, Teller Coordinator
Tasks
 Cash checks and pay out money after verifying that signatures are correct, that
written and numerical amounts agree, and that accounts have sufficient funds.
 Receive checks and cash for deposit, verify amounts, and check accuracy of
deposit slips.
 Enter customers' transactions into computers to record transactions and issue
computer-generated receipts.
 Balance currency, coin, and checks in cash drawers at ends of shifts, and
calculate daily transactions using computers, calculators, or adding machines.
 Examine checks for endorsements and verify other information such as dates,
bank names, identification of the persons receiving payments and the legality
of the documents.
 Count currency, coins, and checks received, by hand or using currencycounting machine, to prepare them for deposit or shipment to branch banks or
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the Federal Reserve Bank.
Order a supply of cash to meet daily needs.
Receive and count daily inventories of cash, drafts, and travelers' checks.
Prepare and verify cashier's checks.
Sort and file deposit slips and checks.
Preparation
Materials Needed:
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Handouts of presentation with notes blanks for student notes – 1 per student
Calculators (basic 4-function) or calculator accessory program on computer
“Interest on Interest” Extension Activity – 1 per student
Equipment Needed:
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Interactive whiteboard, dry erase board, poster or flip chart board or paper
Computer with multimedia software and projection capabilities and equipment.
Learner Preparation:
 Before you begin the multimedia presentation, say “A bird in the hand is worth two
in the bush” – ever heard that? What does it mean? (Write student responses on
interactive whiteboard or dry erase board, etc., to bring students into discussion
and validate their responses.)
 Ask – does that work the same with money?
 Suppose someone owed you $300. Would you rather have this money paid back
now, in one payment, or later in installment payments? Does it make any
difference? (Begin multimedia presentation.)
Teaching Strategies:
Hook students into the lesson by validating their responses to your pre-lesson
questions on an interactive or dry erase whiteboard, etc., and then move directly into
discussion as you start and move through the multimedia presentation.
Introduction:
Key Terms (these and the others listed below and as discussed through the lesson
presentation – for a total of 17):
 bank – a financial institution that provides various products and services to its
customers, including checking and savings accounts, loans and currency
exchange
 cash – money in the form of paper currency or coins (as distinct from checks,
money orders or credit)
 compound Interest – earning interest on interest through reinvesting. The result of
compounding
 compounding – the process of leaving an initial investment plus accumulated
interest in a bank for more than one period
 decision – a conclusion reached after considering alternatives and their results
 future value – cash value of an investment at a particular time in the future
 investing – the process of putting money someplace with the intention of making a
financial gain
 investment – the amount of money invested in stocks, bonds, mutual funds and
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other investment instruments
money – anything that is generally accepted as final payment for goods and
services, serves as a medium of exchange, a store of value and a standard of
value
opportunity cost - the second-best alternative (or the value of that alternative) that
must be given up when scarce resources are used for one purpose instead of
another
principal – the original amount invested
reinvesting –leaving principal and adding the interest to an investment to
accumulate interest.
savings – money set aside for a future use that is held in easily-accessed
accounts, such as savings accounts and CDs
savings account – an interest-bearing account at a bank or other financial
institution
simple interest – interest on an investment is not reinvested, so interest is earned
each period on the original investment (principal) only
trade-off - the giving up of one benefit or advantage in order to gain another
regarded as more favorable.
value of money – the ability of money to buy goods and services.
Assessment:
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Class participation in the discussion through the presentation
Students will complete the reflective questions at the end of the presentation which
will include a response based on given variables for evaluation of the best plan if
someone owes them $300 for a daily grade.
Additional Resources:
Websites:
"The Time Value of Money - Educator's Version." Econedlink, Council for Economic
Education. Thinkfinity, n.d. Web. 14 June 2012. <www.econedlink.org/e865 >.
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Introduction
Introduction (LSI Quadrant I):

Before you begin the multimedia presentation, say “A bird in the hand is worth two in the
bush”– ever heard that? What does it mean? (Write student responses on interactive
whiteboard or dry erase board, etc. to bring students into discussion and validate their
responses.)
 Ask – does that work the same with money?
Suppose someone owed you $300. Would you rather have this money paid back now, in one
payment, or later in installment payments? Does it make any difference? (Begin multimedia
presentation.)
Outline
Outline (LSI Quadrant II):
Instructors can use the multimedia presentation, slides, handouts of presentation with notes
blanks in conjunction with the following outline.
MI
Outline
I.
Introduction A. “A bird in the hand...”
B. Suppose someone owes you $300...
Notes to Instructor
Pose “A bird in the
hand...” question.
Begin multimedia
presentation. Refer to
Slide #1
 View slide #2 – Key
Terms – refer to notes on
slide for presentation
idea...
II. Key Terms
1. Bank
2. Cash
3. Compound Interest
4. Compounding
5. Decision
6. Interest
7. Interest Rate
8. Investing
9. Investment
10. Money
11. Opportunity Cost
12. Principal
13. Reinvesting
14. Savings
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15. Savings Account
16. Simple Interest
17. Trade-Off
III. Some key terms:
A. Define principal – the original amount invested to
which interest is applied. Point out to students that
principal is indicated with “P” in the equation to figure
interest a little later.
View slide #3 – Refer to
the question posed in slide
#1 – If someone PAID you
$300 and you invested it in
something – the $300
would be your principal.
B. Define interest rate – the percentage that is used to
calculate interest – expressed as a fraction or decimal.
Refer to slide #4 notes
C. Define time factor – the length of time for which
interest will be charged.
Refer to slide #5 notes
D. Define Simple Interest – interest on an investment (if
not reinvested), so interest is earned each period on the
original investment (principal) only.
Refer to slide #6
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E. Formula for Simple Interest –I = P x R x T
Refer to slide #7 – Have
students highlight the
formula for simple interest
in their notes.
F. Define Simple Interest - investing for a single period
Refer to slide #7-10 notes
– Have students use
calculators to figure the
amount of interest in one
year.
G. Define
1. Reinvesting – leaving principal and adding the
interest to accumulate interest
2. Compounding – the process of leaving an initial
investment plus accumulated interest in a bank for
more than one period
3. Compound Interest – earning interest on interest
through reinvesting
Refer to slide #11-16
notes.
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H. Define Future Value – cash value of an investment at a
particular time in the future
Refer to slides #17-20
I. Define
1. opportunity cost - the second-best alternative (or the
value of that alternative) that must be given up when
scarce resources are used for one purpose instead of
another. The cost of any decision includes the cost
of the best forgone opportunity.
2. trade-off – the giving up of one benefit or advantage
in order to gain another regarded as more favorable.
Refer to slid #21-24
3. What would YOU do? Given the principal amount,
have students write a response to what they would
do and why on paper and turn it in at the end of
class.
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Refer to slide #25
“Interest on Interest”
handout
J. Extension/Enrichment
Verbal
Linguistic
Logical
Mathematical
Visual
Spatial
Musical
Rhythmic
Bodily
Kinesthetic
Intrapersonal
Interpersonal
Naturalist
Existentialist
Guided Practice (LSI Quadrant III):
As you teach the lesson, the slides contain various equations and questions based on the
formula for simple interest and the concepts of compounded interest that students will have the
opportunity to answer for themselves. The class will then have the opportunity to see the
solutions and ask questions.
Independent Practice (LSI Quadrant III):
Have students refer to the questions posed on slide #25, and respond with at least two options
for the $300 (and turn in at the end of class).
Summary
Review (LSI Quadrant I & IV): Group activity – skits illustrating the functions of money
Evaluation
Informal Assessment (LS1 Quadrant III): Students will be assessed for involvement and
participation in the lesson discussion through the presentation.
Formal Assessment (LSI Quadrant III, IV): Students will be evaluated on their
contribution, participation, and response to end-of-lesson questions about $300.
Extension
Extension/Enrichment (LSI Quadrant IV: “Interest on Interest” exercise to apply the
principles of the lesson in the table, and encourage critical thinking in answering the last
question about an employer’s offer.
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Name: ______________________ Date: _____________ Period: _____
Interest on Interest
a. Suppose you locate a two-year investment that pays 14 percent per year. If you invest
$325:
How much will you have at the end of two years? ___________________
How much of this is simple interest?____________________________
How much is compound interest? ______________________________
b. Complete the Columns Below:
End of Year Amount on Interest Interest Rate Interest Earned Balance
1
$1,000
10%
2
1,100
10%
3
10%
4
10%
5
10%
6
10%
7
10%
8
10%
9
10%
10
10%
11
10%
12
10%
c.
$100
$1100
How many years did it take to double your money? _______________________
d. Suppose you go in for an interview for a part-time job. The boss offers to pay you $50
a day for a 5-day, 10-week position OR you can earn only one cent on the first day but
have your daily wage doubled every additional day you work. Which option would
you take? (Answer on a separate piece of notebook paper.)
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Interest on Interest - KEY
a. Suppose you locate a two-year investment that pays 14 percent per year. If you invest
$325:
How much will you have at the end of two years? _$422.37_________________
How much of this is simple interest?____$97.37________________________
How much is compound interest?_______$6.37________________________
At the end of the first year, you will have $325 x (1 + .14) = $370.50 . If
you reinvested this entire amount, and thereby compound the interest,
you will have $370.50 x 1.14 = $422.37 at the end of the second year. The
total interest you earn is thus $422.37 -- 325 = $97.37. Your $325
original principal earns $325 x.14 = $45.50 in interest each year, for a
two-year total of $91 in simple interest. The remaining $97.37 -- 91 =
$6.37 results from compounding. How much will you have in the third
year?
b. Complete the Columns Below
End of Year Amount on Interest Interest Rate Interest Earned Balance
1
$1,000
10%
$100
$1100
2
1,100
10%
[110]
[1210]
3
[1,210]
10%
[121]
[1331]
4
[1,331]
10%
[133.10]
[1464.10]
5
[1,464.10]
10%
[146.41]
[1610.51]
6
[1,610.51]
10%
[161.06]
[1771.56]
7
[1,771.56]
10%
[177.16]
[1948.72]
8
[1,948.72]
10%
[194.87]
[2143.59]
9
[2,143.59]
10%
[214.36]
[2357.95]
10
[2,357.95]
10%
[235.80]
[2593.75]
11
[2,593.75]
10%
[259.38]
[2853.13]
12
[2,853.13]
10%
[285.31]
[3138.44]
c. How many years did it take to double your money? [8]
Suppose you go in for an interview for a part-time job. The boss offers to pay you $50 a day
for a 5-day, 10-week position OR you can earn only one cent on the first day but have your
daily wage doubled every additional day you work. Which option would you take?
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