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Simple vs. Compound Interest

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Lesson Details

Grade Level
9-12
Duration (minutes)
1
Summary
A grade 9-12 math and life skills lesson comparing simple interest (linear growth) to compound interest (exponential growth), using a $100 example at 10% per year to show why starting to save early matters.

Simple vs. compound interest starting with $100 at 10% per year — simple interest adds $10 every year growing in a straight line to $140 by year 4, while compound interest multiplies by 1.10 every year, curving upward to $146 by year 4

Student Worksheet: Simple vs. Compound Interest

Teacher Note: Students can watch the video lesson above and answer the questions. Click the “Teacher Answer Key” dropdown below when you are ready to review the solutions!

Key Concepts:

• Simple Interest: Adds the same dollar amount every year, based only on the original principal.

• Compound Interest: Multiplies the current balance by the same rate every year, so the growth itself grows over time.

• The Shape: Simple interest grows in a straight line; compound interest curves upward like a snowball.

Instructions: Read each question carefully and write your answer in the space provided.

  1. Question 1: With simple interest at $100 and 10% per year, how much is added each year?
  2. Question 2: With compound interest, why do you multiply by 1.10 instead of just adding $10 each year?
  3. Question 3: After 2 years, what is the compound interest balance starting from $100 at 10%?
  4. Question 4: On a graph, what shape does simple interest make? What shape does compound interest make?
  5. Question 5: Why does starting to save early matter more with compound interest than simple interest?
Click to reveal Teacher Answer Key

1. $10

2. Because each year’s interest is calculated on the new, larger balance, not just the original amount

3. $121

4. Simple interest makes a straight line; compound interest curves upward

5. Because more time means more years for the balance to compound and grow faster, giving your money more chances to multiply

Disclaimer: This worksheet was generated with AI assistance based on original video content. It is intended for educational reference only. Teachers are encouraged to review and adjust questions to fit their curriculum standards before classroom use.

🎯 Extension Activity: Have students calculate both simple and compound interest on $200 at 5% per year for 3 years, then compare the final balances and explain which grew faster and why.

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