Running

head: APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Applying Personal Financial Literacy Expectations to Algebra 2 Curriculum Unit Plan: Math and Money Alyssa TeKolste Colorado State University

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 Table of Contents Introduction Lesson Plans Lesson 1: Simple Interest Lesson 2: Exponential and Logarithmic Functions Lesson 3: Compound Interest Lesson 4: Installment Loans Lesson 5: Probability in Finances Teacher Test Answer Key Webquest Instructions References Appendix Activity 1.1 Activity 1.2 Activity 2.1 Activity 2.2 Activity 3.1 Activity 4.1 Activity 4.2 12 17 22 26 29 32 37 32 34 35 36 38 40 41 46 50 3

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 In 2008, Colorado legislation required the Colorado Department of Education (CDE) to

develop standards focused on Personal Financial Literacy (PFL). In December of 2009, the new PFL standards were adopted for grades P-12 and were implemented in all public schools for the 2011-2012 school year ("Foundation for teaching," 2012). According to the Foundation for Teaching Personal Financial Education, these new standards were incorporated into both economics and mathematics curriculum to ensure the school experience prepared students for the financial expectations that await them on leaving school ("Foundation for teaching," 2012). Colorado Department of Education Resources In order to equip school districts and teachers with the necessary tools and knowledge to effectively develop and teach this new curriculum, the Colorado State Legislature provided the Colorado Department of Education $40,000 ("Personal financial literacy"). As a result, the CDE has developed an online resource bank of free educational materials relating to financial literacy. The CDE also developed this resource bank in order to provide technical assistance in financial literacy to school districts ("Personal financial literacy"). The majority of the resources provided are online and interactive learning and teaching tools. The CDE provides these educational resources because they are dedicated to teaching their teachers how to incorporate the Personal Financial Literacy standards into their curriculum. Many of these resources are available to Colorado school districts as a result of partnerships and relationships that the CDE has built with external organizations. One such organization is the Foundation for Teaching Personal Financial Education (FTPFE). This non-profit, Colorado based, corporation is geared towards teaching teachers about the PFL standards and informing them about available financial literacy programs. The FTPFE educates teachers through online workshops and classes that focus on content knowledge, methods and available programs

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 ("Foundation for teaching," 2012). A second organization that the CDE has worked with to provide teachers with professional development resources is the Jump$tart Coalition. Jump$tart is a national coalition of organizations dedicated to developing the financial literacy of prekindergarten through college-age youth by providing advocacy, research, standards and educational resources ("Jump $tart: Financial," 2012). Jump$tart annually hosts the only

national conference that solely focuses on financial education. Their website provides educators with numerous resources, some of which include: research results regarding financial literacy among high school students, research based Best Practices for Personal Finance Education, and a Reality Check interactive calculator for students to explore possible future financial responsibilities. While these two organizations are geared towards providing educators with opportunities for professional development, they also provide instructional resources for teachers to use in their classrooms. The CDE website is another resource for teachers to find teaching tools related to financial literacy. While all of these resources are geared towards the PFL standards, they are not all related to mathematics concepts. Instead, some of them are geared towards application in an economics classroom. According to Jump$tart, twenty-four states in the United States require some sort of personal finance instruction in their curriculum ("Jump $tart: Financial," 2012). However, this does not mean that personal finance is not taught in the remaining twenty-five states. In fact, it is likely that personal finance is taught in schools in these states. With a plethora of free educational resources available to teachers online, incorporating personal finance into classrooms is easier than ever. Because the PFL Addendum to the CDE Standards is a relatively recent change to mathematics curriculum, there is room for development and creativity among educators to design

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 units and lesson plans surrounding math and money. This knowledge led me to the following thesis topic, Applying Personal Financial Literacy Expectations to Algebra 2 Curriculum, Unit Plan: Math and Money. The objectives for this thesis include:

1) Develop proficiency in applying Colorados Personal Financial Literacy standards to Algebra 2 curriculum 2) Demonstrate proficiency in Understanding by Design lesson and unit planning 3) Design engaging lessons that students connect with in order to develop a complete understanding of content and its relevance 4) Incorporate various teaching strategies that allow for a variety of ways of learning 5) Develop students 21st Century skills through technology applications, and group collaboration opportunities Understanding by Design The following Algebra 2 unit plan is based on the Personal Financial Literacy Expectations, Addendum to Social Studies and Mathematics Standards. It is important to note that this unit can be implemented as a stand-alone unit, or the lessons can be integrated into previously developed curriculum. The necessary prior knowledge varies for each lesson. However, in order to begin the activities included in these lessons, students should be proficient in each of the following topics: percentage increases and decreases, linear functions, rate of change, and graphing functions on a calculator. Each lesson plan in this unit plan includes lesson objectives, expected prior knowledge, necessary time allotment, student and teacher tasks, activity pages, and a formative assessment. The summative, unit assessments include a webquest project, as well as a written test.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

One feature that is crucial to the development of this educational unit is the design of the lesson plans. Throughout these lessons, a variety of ways of teaching and learning are presented. Some of these techniques include: differentiated learning, instruction based learning, selfteaching and technology applications. Perhaps the most important feature of the development of these lesson plans is that they were written using a backwards design. Backwards design is a research based, lesson plan design that was developed by Grant Wiggins and Jay McTighe. The underlying question that these two men aim to answer in their book

Understanding by Design is, How do we make it more likely by our design that more students really understand what they are asked to learn? (Wiggins & McTighe, 2005). This book outlines an effective approach to curriculum and instruction that intends to engage the learner, promote inquiry and enhance their understanding through authentic learning experiences. This research-based process is known as Understanding by Design (UbD). While UbD can be applied to a classroom in any discipline, a large portion of the background research that justifies the importance of UbD focuses on mathematics and science. The International Mathematics and Science Study (TIMSS), conducted every four years, focuses on the achievement of students in mathematics and science disciplines. This study regularly provides insight into how American students perform, compared to students internationally. In 1997, researchers concluded that in the United States, mathematics and science curriculum focused on covering too many topics in too little depth (McTighe & Seif, 2003). For instance, in the United States, mathematics education typically focused heavily on facts and procedures, whereas in Japan, mathematics teachers led their students to a deeper understanding of mathematical concepts by emphasizing problem-based learning. TIMSS found that a mathematics classroom in Japan covers less content, but Japanese students develop a deeper

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 understanding of concepts because the educators teach for meaning (McTighe & Seif, 2003).

Other recent studies have led to similar conclusions; the United States has a need for curriculum and instructional practices that focus on core ideas and not on superficial facts and procedures (McTighe & Seif, 2003). Based on the results of their research, Wiggins and McTighe developed a unit plan format known as backwards design. This design is intended to create unit plans focused on student learning, rather than teaching. In other words, units and lessons should be developed based on the teachers desired results. Once the desired outcome is determined, teachers can begin to outline the appropriate teaching that will lead to the outcome. There are three planning stages in UbD: desired results, evidence, and learning plan (McTighe). The desired results phase sets the foundation for the rest of the unit by determining the essential questions students will explore as well as the knowledge and skills they will develop as a result of the unit (McTighe). The evidence phase leads the teacher to consider what products or assessments will showcase whether or not students met the desired results (McTighe). Finally, the learning plan phase focuses on developing the activities and experiences that will lead to the desired results and success on the pre-determined assessments (McTighe). Too often, teachers plan a unit and then select and create an assessment without intentionally considering the learning outcomes first. UbD and backwards design create authentic learning experiences that aim to guide students to a deeper understanding of curriculum. While having an in-depth understanding of material does not always need to be a goal for every lesson (for instance, learning the alphabet or memorizing times tables), UbD is one research based approach to designing unit plans that focus on learning rather than teaching, thus leading to authentic student learning experiences.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 A variety of educational resources were referenced throughout the constructing of this unit plan. Between mathematics textbooks, online journals, and numerous online, interactive

applications, the sources referenced while writing this unit plan demonstrate the multitude of free resources available to teachers online. The majority of the activities and lesson plans used throughout this book are not original. Instead, they are reformatted using the Understanding by Design model that is crucial for todays teachers to be proficient in. Backwards lesson planning is the key to the success of this unit plan and provides the framework for the completion of the thesis objectives. Below is an explanation of how I addressed each objective for this thesis. Objectives Addressed Develop proficiency in applying Colorados Personal Financial Literacy expectations to Algebra 2 curriculum Four of Colorados state standards were modified to incorporate the Personal Financial Literacy expectations. These four standards include: Quantitative relationships in the real world can be modeled and solved using functions Quantitative reasoning is used to make sense of quantities and their relationships in problem situations Functions model situations where one quantity determines another and can be represented algebraically, graphically, and using tables Probability models outcomes for situations in which there is inherent randomness.

These four standards were each addressed throughout the lessons included in this thesis. This objective was met by designing each lesson around an assessment that examines students proficiency in the corresponding standard. Each standard also has evidence outcomes and inquiry questions that relate to personal financial literacy. These evidence outcomes and inquiry

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 questions were also used to develop and outline the lesson plans in this thesis. The following inquiry questions were addressed in this thesis: Which financial applications can be modeled with exponential functions? How does probability relate to insurance?

Activities and lessons were written to develop the following evidence outcomes from students: Design and use a budget, including income and expenses to demonstrate how living within your means is essential for a secure financial future. Model personal financial situations. Analyze the impact of interest rates on a personal financial plan

Demonstrate proficiency in Understanding by Design lesson and unit planning This unit plan was created using a backwards lesson plan design. This is demonstrated by the timeline that I developed with the help of my thesis advisor, Dr. Paul Kennedy. Over the course of this semester I wrote my thesis in the following stages: Wrote standards based goals and objectives for each lesson Selected and designed formative assessments for each objective Designed summative unit assessments which include a teacher test and Webquest Wrote Lesson One, Lesson Two and corresponding activities Wrote Lesson Three, Lesson Four, Lesson Five and corresponding activities Revised unit plan

Design engaging lessons that students connect with in order to develop a complete understanding of content and its relevance In an attempt to engage the student in these lessons and activities, I personalized this unit as much as possible. I believe students will be more intrinsically motivated to apply new

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 knowledge to their life and engage in this unit, if they are given the opportunity to personalize the tasks they are charged with. One way in which tasks are personalized for students is when students use critical thinking skills to make financial decisions based on the choices they are presented with. At the end of the unit, activity sheets, notes and assessments will be compiled

10

into a portfolio for students to keep. This portfolio will also include their personal finance plan. Incorporate various teaching strategies that allow for a variety of ways of learning The activities and lesson plans were intentionally written and formatted to engage different types of learners. There is very little direct instruction in this unit, although it is necessary to ensure student proficiency on the topics of simple interest and exponential and logarithmic equations. After simple and compound interest are introduced and taught, the remainder of the unit is exploratory and inquiry based. A few of the activities are very interactive and use technology to engage and guide students through the assigned tasks. There is a balance between independent, partner and class work to hold students accountable for their learning. Finally, a non-traditional summative assessment is utilized to gauge student learning in an authentic form. The authentic assessment in this unit is the completion of a personal financial plan through a Webquest. Authentic assessments engage all learners because they are able to demonstrate their proficiency in a personalized way, rather than just taking an exam. Develop students 21st Century skills through technology applications, and group collaboration opportunities The following 21st Century Skills are demonstrated throughout the lesson plans included in this thesis: critical thinking, information literacy, collaboration, self-direction, and invention. Critical thinking and information literacy are two skills that are developed through decision-making, data analysis and application and communication via technology activities throughout this unit. This

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 entire unit was created with the intent to personalize student tasks so that they are self-directed

11

learners. As a result, students are more likely to recognize connections between content and real world application, explore cause and effect and be intrinsically motivated to apply their knowledge to their life. When 21st century skills are developed and utilized, students become better prepared for their future.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Course: Algebra 2

12

Unit: Personal Financial Literacy

Lesson One: Simple Interest Lesson Overview: Throughout this unit, students will be creating a Personal Finance Portfolio. This portfolio will include: the notes they take throughout this unit, information related to the activities they complete, as well as a link to their final project. Because this is the first lesson in the PFL unit, it is important to build student interest and awareness as to why this unit is relevant and applicable to them. Therefore, this lesson starts by introducing students to the topic of Personal Finance through an online activity called, Reality Check. The results of this activity and personal reflection statement are the first materials that will be included in each students portfolio. The lesson then moves on to address key vocabulary terms that are applicable to the concept of simple interest. Finally, students explore relationships between various quantities in the Simple Interest Formula through an inquiry-based activity that focuses on credit card interest rates. Standards: Quantitative reasoning is used to make sense of quantities and their relationship in problem situations. Functions model situations where one quantity determines another and can be represented algebraically, graphically and using tables. Quantitative relationships in the real world can be modeled and solved using relationships. Objective: The student will apply knowledge of linear functions to simple interest formulas in order to compare how quantities such as the principal amount, interest rate, length and future value are related. Prior Knowledge: Relationships between dependent and independent variables Proficient in computing, finding and applying percentages in formulas and real world applications Materials Needed: Computer/Internet access for each student Online Jump$tart Reality Check - http://jumpstart.org/reality-check.html One folder per student (to hold their personal finance portfolio materials in) One Activity 1.1 for each student (see Appendix) One Activity 1.2 for each student (see Appendix) Class notebook TI-84 Calculator for each student Time Allotment: 2, 60-minute class periods

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Procedure: Teacher Introduction: Address relevance of unit with students and guide them in drawing connections to their life. Ask class why it is important for them to start considering their own personal finances? Record student feedback on board and document it for future (teacher) reference. Provide them with link to Reality Check survey and instruct them to use the next 10 minutes to complete the activity and print out their results. (http://jumpstart.org/reality-check.html) Provide each student with a copy of Activity 1.1 (see Appendix) and ask them to independently respond to the posed questions. Collect survey results and Activity 1.1 for students personal finance portfolio. Lesson: Introduce students to vocabulary terms for this lesson. Write the following terms on the board with room to record definition as well: present value, future value, interest rate, annual percentage rate (APR), simple interest, and principal. Develop definitions for these terms with class help. Ask students to provide their input and share what relevance these terms have to personal finance. present value-how much an investment is worth currently future value-how much an investment will be worth

13

Student Actively participate in class discussion and personally consider how personal financial literacy is important for them.

Students complete Reality Check and print out results.

Independently complete Activity 1.1, which requests them to briefly reflect on the Reality Check.

Record vocabulary terms in class notebook.

Contribute to building definitions of vocabulary terms and actively participate in activity. Record definitions in class notebook.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

interest rate-how much one is expected to pay in exchange for the use of money over time annual percentage rate (APR)-the yearly cost of borrowing money principal- the amount of money deposited or borrowed simple interest- the amount paid or earned for the use of money Using knowledge of vocabulary terms and student intuition, develop formula used to calculate interest with class (I =prt). If needed, ask the following leading questions: 1) What does interest depend on? 2) What are the independent variables? 3) How can we relate the principal amount (p), interest rate (r), time(t) and interest (I) in an equation? **(Optional)Enrichment: Challenge students to use the recently developed formula I=prt to write the Simple Interest Formula (used to calculate the future value of a principal amount [F=P(1+r*t)]).** Provide students with Simple Interest Formula and explain to class the relationship between this formula and the one they previously found. **Note: Remind students that in these two equations, t is represented in years. Explain why.** Present the following word problems (on Smart Board, white board, etc) to class to familiarize them with how to apply Simple Interest Formula to real world situations. Use this time to address misconceptions that students may have with the formulas. 1) Arnold has $580 in a savings account that pays 3% simple interest. How much interest will he earn in 5 years? What about 6 months? ANS: $87, $8.70

14

Use critical thinking skills to determine formula to calculate interest. Record formula in notes and make note of what each variable represents.

Record Simple Interest Formula in notes and make mathematical and conceptual connections between the Simple Interest Formula, and the one previously found that calculates interest. Use critical thinking skills to relate the formula used to calculate interest to the Simple Interest Formula.

Ask questions to clarify misconceptions. Write down word problems in notes, formula required to solve and each variables value.

Apply knowledge of interest formula to determine how much interest Arnold will earn during various time amounts. Record work and solution in notes.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

*Point out that 6 months=.5 years* 2) Derricks dad bought new tires for $900 using his credit card. His card has an interest rate of 19%. If he has no other charges on his card and does not pay off his balance at the end of the month, how much money will he owe after one month? ANS: $914.25 Introduction to Activity: Brainstorm pros and cons of using credit cards to make purchases. Discuss interest rates and fees that can contribute to the cost of using them. Introduce next activity to class and explain that they will be exploring relationships between the variables in the Simple Interest Formula as well as exploring various credit card payment options. Let students know that this activity allows them to compare various credit card plans to see how varying interest rates affect the cost of using them. Assign students a partner to work with, have them sit next to one another and pass out Activity 1.2 As students work on Activity 1.2, circulate room listening and observing for misconceptions. Wrap-Up: Convene as a class and, as time allows, pose the following discussion questions. Allow students time to record their own thoughts in notebooks. 1) Do you think the potential cost of using credit cards outweighs the benefits. 2) What would you consider before deciding whether or not to get a credit card? 3) Why is it important to read the details about credit card interest rates and fees? Apply knowledge of Simple Interest Formula to determine future value of Derricks dads debt. Record work and solution in notes.

15

Record pros and cons of using credit cards to make purchases in notes.

Move to sit with partner.

Begin inquiry based activity outlined on Activity 1.2.

Record individual thoughts about the following discussion questions in notebook (to be included in personal finance portfolio).

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Post-Assessment Ticket out the door: Describe in complete sentences, the relationship between the parameters in the simple interest formula.

16

Using knowledge from in class activity and notes, describe relationship between parameters.

Accommodations/Modifications: For students who need additional resources to grasp concept of simple interest: http://www.webmath.com/simpinterest.html For students who need additional resources to enrich their understanding of interest (discover the difference between simple and compound interest): http://www.themint.org/kids/saving-and-earning-interest.html Information regarding the history of the credit card: http://www.pbs.org/wgbh/pages/frontline/shows/credit/

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Lesson Two: Exponential and Logarithmic Functions Lesson Overview: In this lesson, students are first introduced to functions in exponential form through an exploratory learning group activity. Through this activity, students recursively construct an equation in exponential form. After this activity, students apply this knowledge to evaluate exponential functions and their inverse (logarithmic functions). Standards: 1) Quantitative reasoning is used to make sense of quantities and their relationship in problem situations. 2) Functions model situations where one quantity determines another and can be represented algebraically, graphically and using tables. Objective: The student will construct and evaluate exponential and logarithmic expressions to model growth and decay situations. Prior Knowledge: Relationships between dependent and independent variables Interpreting, constructing and applying linear functions Familiar with the concept of inverse functions Proficient in computing, finding and applying percentages in formulas and real world applications Materials Needed: Class notebook One Activity 2.1 for each student (see Appendix) One Activity 2.2 for each student (see Appendix) TI-84 Calculator for each student Time Allotment: 90 minutes

17

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Procedure: Teacher Introduction: Inform students that they will be learning about another type of interest soon. However, before they can explore that concept, they must be knowledgeable about another type of function. To discover what this type of function is, they will be working in pairs on a activity that will lead them to this function (Activity 2.1). Student Using Problem #1 as model, work through Problem #2 with partner. Ask for clarification if confused.

18

Activity: Pair students and pass out Activity 2.1. Work through problem #1 with class to demonstrate how you want students to show their work. This way, their independent work leads them to the standard form of an exponential equation. Problem #1) Show work in t table 0 years 60,000 1 year 60,000 * 1.07 2 years 60,000 * 1.07 *1.07 = 60,000 * 1.072 3 years 60,000 * 1.07 * 1.07 * 1.07 = 60,000 * 1.073 n years 60,000 * 1.07n Review Problem #2 with class, again showing solution in t table Circulate room and watch for misconceptions and confusion relating to depreciation. Instruct students to work through Problem #2 with their partner.

Sit with partner and prepare to work on Activity 2.1. Actively participate and take note of how solution is found for Problem #1.

Double check work and answer with correct solution. Correct work if necessary and ask questions if confused. Work through Problem #3 with partner.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

If necessary, provide students with guidance through leading questions: 1) What is a model used for? 2) What are the initial populations? Where do they fit into an exponential model? 3) What is the rate of change of the deer and bison populations? Review solution to Problem #3. Ensure that students understand how each parameter was found and what they represent. This is necessary knowledge to complete the challenge problem (#4). Convene as a class and develop the formula for an exponential equation based on previous activity. A(t) = a(1+/-r)t Apply this formula to a real world problem: At the peak of a beanbag animal fad, one sales representative sold 12,000 of the animals in one month. Each month after that, the rep sold about 20% fewer animals. About how many animals did the rep sell in the 6th month after the peak? Work through problem with class and gauge class understanding. Direct Instruction: Let students know that exponential equations can also be written as logarithmic equations. Show students the relationship between an exponential equation and logarithmic equation. Instruct students to work through Problem #3 with their partner. Follow up question: How can you differentiate between exponential growth and exponential decay? Using formula, record problem in notebook and solve along with class.

19

Consider answer to question and share with class.

Double check work and answer with correct solution. Correct work if necessary and ask questions if confused.

Return to original seat and take out class notebook. Record formula in notebook. Make note of which each variable represents.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Exponential equation: bx = a Logarithmic equation: x = logba Ask if students know the name for the type of relationship that these two equations have. (inverse) Explain how we know these two equations are inverses of one another. Familiarize students with converting between an exponential equation and logarithmic equation by having them complete the following chart in their notes. Exponential 102 72 80=1 equation =27 = 0.2 Logarithmic log416 equation =2 Apply knowledge of inverses and logarithmic and exponential equations to complete the following problem. The total amount that you owe on your credit card bill after n months is given by A = P(1.045)n. You originally owe $350. Write and solve a logarithmic expression for the number of years it will take for the debt to double. Work through problem as class, explaining each step. Post-Assessment: Lead students in a Think, Pair, Share addressing the following question: Describe a situation that could be modeled using an exponential function.

20

Record relationship between exponential equations and logarithmic equations in class notes. Exponential function: f(x) = bx The base b is any number greater than 1. Example: g(x) = 3x The domain is all real numbers. The range is all positive numbers. Logarithm function: f-1(x) = logbx

Use the same base to find the inverse function. Example: The inverse of g(x) is g-1(x) = log3x The domain is all positive numbers. The range is all real numbers. Use knowledge of inverses to work on problem as a class. Record chart and independently complete in notes.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

After students share their ideas with the class, transition into tomorrows lesson by informing them that they will be applying exponential functions to model another type of interest. Pass out Activity 2.2 and assign as homework.

21

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

22

Lesson Three: Compound Interest Lesson Overview: Students will explore the concept of compound interest through an activity in which they financially plan for a vacation. They will be presented with various travel destinations and corresponding prices. They will then choose an account to invest their money in and explore how different compound interest options affect their original investment. Standards: 1) Quantitative reasoning is used to make sense of quantities and their relationship in problem situations. 2) Functions model situations where one quantity determines another and can be represented algebraically, graphically and using tables. 3) Quantitative relationships in the real world can be modeled and solved using relationships. Objective: The student will algebraically and graphically compare the outcomes from various compound interest formulas to determine the effects that interest rate and time have on future values. Prior Knowledge: Proficient in computing, finding and applying percentages in formulas and real world applications Relationships between dependent and independent variables Concept of simple interest Materials Needed: Internet access for each student Travelocity.com One copy of Activity 3.1 for each student (see Appendix) Individual miniature whiteboards (1 per student) Dry erase markers (1 per student) TI-84 Calculator for each student Time Allotment: 90 minutes

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Procedure: Teacher Introduction: Build a connection to lesson 2. Refresh students memory about the previous post- assessment where they described a situation that could be modeled using an exponential function. Introduce compound interest as an example of a situation that can be modeled using an exponential function. Define compound interest: not only does the original principal generate interest, but so does the previously accumulated interest. Introduce class activity that will lead students through an self-directed exploration to learn about the various types of compound interest by planning a hypothetical vacation. Pass out Activity 3.1 Activity Instructions: Students should each plan their own vacation and not with a partner. Monitor how long students are spending planning their vacation. You want this activity to be personalized to their interests, so its okay for them to design a vacation that is realistic to them. However, dont let them spend the entire class period designing their trip. That is not the point of this assignment. Question 6 references certificate of deposits (CD). Be aware that students may not know what a CD is. Explain this investment option to them. While monitoring student work, ask if they have noticed similarities between the annual, monthly and daily compounding Record definition of compound interest in student notebook. Student

23

Make connection between lesson 2 and 3.

Work independently on planning a vacation that is realistic and exciting to them. Use time efficiently to plan vacation.

Learn about another place to invest money, other than a bank.

Recognize connections between the various compounding formulas, and use this knowledge to develop a

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

formulas. This question will help them to build connections as they work on the activity. Question 12 in this activity asks them to look towards their future. Reflect on responses as a class and ask for student input. Ideally, students will understand that it is never too early to start saving for their future. general formula.

24

Extend knowledge and apply to personal future. Recognize that it is never too early to start saving money.

Collect Activity 3.1 Post-Assessment: After class activity, distribute individual white boards and have students work on the following problem independently (one question at a time). Instruct them to show their work and answer on white board and hold in air when finished. Harry invested $5000 at 5% interest compounded quarterly. How much will the investment be worth after 5 years? When will the investment be worth more than $10,000? $6410.19, after 14 years, $6.60 Respond to student work individually and observe common misconceptions, if any. Address misconceptions and explain correct solution on main white board. Extend the above problem further with the following question. Harry could have invested the same amount in an account that paid 5% interest compounded monthly. How much more would his investment have been worth after 5 years? After students have completed these problems by hand, introduce spreadsheet technology. Complete the above two problems using spreadsheets to show their usefulness. Reiterate that your intent is not for students to be able to construct their own

Turn in Activity 3.1 (to be included in Personal Financial Literacy Portfolio)

Apply compounding formula to assigned problem and work independently to determine solution. Show work on white board and display when finished. Clarify understanding. Practice solving for different variables in the General Compounding Formula. Record correct solution in notebook. Learn about spreadsheets and consider what other purposes they have.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

spreadsheet, but rather you want them to understand the mathematics concepts of how they are made and know how to interpret and use them. For a refresher of how spreadsheets are constructed, refer to the following website: http://www.thesimpledollar.com/2007/02/24/an- introduction-to-compound-interest-with- spreadsheets-part-1-getting-started-and-defining- compound-interest/

25

Follow along and understand the big picture mathematics concepts that underlie spreadsheet formation.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

26

Lesson Four: Installment Loans Lesson Overview: Students will plan for future investments by using pre-developed amortization tables. Working in pairs, students will use spreadsheet technology to investigate, calculate and display loan and mortgage options for pre determined cars and homes. Based on their investigation, students will select the car and home they would like to hypothetically buy with the loan they select. This activity prepares them for the authentic, summative assessment at the end of this unit and will be included in their personal financial literacy portfolio. Standard: 1) Quantitative reasoning is used to make sense of quantities and their relationship in problem situations. 2) Functions model situations where one quantity determines another and can be represented algebraically, graphically and using tables. 3) Quantitative relationships in the real world can be modeled and solved using relationships. Objective: The student will construct a plan for future investments including car loans and home mortgages. Prior Knowledge: Concept of simple interest and compound interest Using spreadsheets to display and interpret data Materials Needed: One copy of Activity 4.1 for each student One copy of Activity 4.2 for each student Two digital copies of Excel amortization table for each pair of students. This table can be downloaded at: http://office.microsoft.com/en-us/templates/loan-amortization-schedule- TC001019777.aspx?CTT=5&origin=HA001034640 One computer with Internet access for each pair of students Link to Edmunds.com Auto Loan Calculator. This virtual calculator can be found at: http://www.edmunds.com/calculators/car-loan.html TI-84 Calculator for each student, TVM Solver Time Allotment: 90 minutes

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Procedure: Teacher Introduction: Remind students that the last Activity they completed asked them to consider their future and predict what types of items they will need to save for. This lesson will address two of the items that most of them mentioned (most likely): a car and a house. Re-introduce the concept of an amortization table based on yesterdays demonstration. Explain how to use TVM Solver on calculator by demonstrating the following examples. Request that students watch you complete these first examples before they use the TVM Solver themselves and record steps and definitions of variables in their notes. Ben deposits $7000 into the bank today. Assuming the interest rate for this investment is 6.5%, how much will you have after 15 years (assuming annual compounding)? $18,002.89 The price of a home is $155,000. The required down payment is 10% and you qualify for a 30 year fixed mortgage at 5.5%. Determine the down payment and the loan amount. Find the monthly mortgage payment. down payment: $15,500 loan amount: $139,500 monthly mortgage payment: $792.07 Emphasize that N is the total number of payments. Therefore, if a person pays monthly mortgage payments for 30 years, N= 12 *30 = 360 payments Address student questions and clarify misconceptions. Inform students that the upcoming

27

Student Recall the post-assessment activity from Lesson 3.

Build connection between Lesson 3 and Lesson 4.

Follow along and write down steps to use TVM Solver. Also record explanation for what each variable represents in the TVM Solver. Ask questions to clarify confusion and misconceptions. Take notes on how to solve problems using TVM Solver.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

activity will allow them to develop and practice skills using spreadsheets and the TVM Solver. Activity: Pair students and provide each student with a copy of Activity 4.1. Let them know that the websites suggested on their activity sheet are just options for them to gather information from. If they prefer to use a different amortization table or website to gather financing or mortgage information, that is okay. Encourage them to check out different options to find trustworthy websites that provide similar information. As students are working on Activity 4.1 with their partner monitor class for misconceptions that may arise. Collect Activity 4.1 for students personal financial literacy portfolio Post-Assessment: Pass out a copy of Activity 4.2 to each student. This will be completed as a ticket-out-the-door. This activity asks them to describe the process they went through with their partner to decide which loan they selected to purchase a car and house.

28

Sit with partner at computer and begin Activity 4.1.

Work through Activity 4.1 and turn in for personal financial literacy portfolio. Reflect on steps that they and their partner took to financially plan out their car and mortgage loans. Write in complete sentences an explanation of their thought process. Turn in as ticket-out-the-door.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

29

Lesson Five: Probability in Finances Lesson Overview: Students will learn about risk and various types of insurance through an exploratory online applet designed by Life and Health Insurance Foundation for Education (LIFE). This self-guided investigation will provide students with a base understanding about the importance of insurance and how probability is applied to risk calculations. Standard: 1) Quantitative relationships in the real world can be modeled and solved using relationships. 2) Probability models outcomes for situations in which there is inherent randomness Objective: The student will investigate various types of insurance and consider how probability is associated with risk and insurance. Prior Knowledge: Proficient in calculating and interpreting probabilities Materials Needed: Computer with Internet access for each student Online applet found at: http://www.nextgen3.org/NEXTGen3.htm Time Allotment: 60 minutes

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Procedures: Teacher Introduction: Ask class what types of risks they take? If all answers are geared towards adrenaline rush type activities, pose a follow up question: What about the risks that you take every day? Actively listen and react to student responses. Transition into activity by telling students that are various categories of risk and the applet they are about to complete will help them to understand how risk effects insurance. Activity: Provide students with the following link: http://www.nextgen3.org/NEXTGen3.ht m Explain that they are expected to explore the risk category, and one of the following categories: life, health or disability In the risk category, have students complete Lesson 1 and Lesson 2. Instruct them to print out and complete the included activities (excluding Whats the Risk? game and Rate the Risk activity sheet) If students choose to investigate life insurance, require them to complete Lesson 1 and Lesson 2. If students choose to investigate the entire category. If students choose to investigate disability insurance, require them to complete Lesson 1, 2 and 3. Let them know that this is a self-directed activity and they should take notes on the information they learn throughout the applet. An understanding of the information they learn will be useful for Introduction: Student

30

Provide personal examples of risks they have taken or take on a daily basis.

Actively listen and consider what types of risk there is Log onto computer and access online applet at provided link. Take note of instructions and decide which insurance category they would like to explore. Take notes throughout activity. Ask questions for clarification. Notes will be included in personal financial literacy portfolio

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

their end of unit project as well as the post-assessment at the end of this unit.

31

Post-Assessment Concentric Circles with the following Reflect on what information they questions (instructions below): learned that they found useful and applicable to their life. 1) What will you remember from todays investigation? Share their learning with teacher and classmates. 2) What information will you use from what you learned in the investigation? 3) How does probability relate to insurance? Ask students to return to their seat and Write in notebook the answers they just write down in their notes the shared. This will be included in their information they just shared with the personal financial literacy portfolio. class. Post-Assessment Instructions: Concentric Circles: Students form two concentric circles. The students in the inner circle face the students in the outer circle. Students should match-up with the student across from them and share their answer to the following question: What will you remember from todays investigation? After both students share their answer with one another, the inner circle should move three people to the left. Then, students are asked to share with their new partner their answer to the following question: What information will you use from what you learned in the investigation? Afterwards, teacher can ask for volunteers to share what they discussed with their partners

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

32

Name: __________ANSWER KEY________________ Class: _____________________ Date: ___________________

Personal Financial Literacy Test

Matching: Match the following vocabulary terms to the corresponding statement that applies to the term. (1 point each). 1. simple interest __B___ A. the original investment 2. compound interest __D___ B. based on the principal amount 3. annual percentage rate __F___ C. the return the lender or investor expects as a reward for the use of 4. interest rate __C___ his or her money 5. principal __A___ D. based on the principal amount and the accumulated interest of the principal amount E. represents the yearly cost of funds over the term of a loan F. the percentage of profit that the investment generates in a one year period 6. Jeri received a credit card bill for $2290 during the month of March. His credit card has an APR of 13%. Jeri pays the minimum payment of $300 in March. Assuming he only spends $100 in April, what will his credit card bill be then? $2548.70 7. Kelly invested $2000 in a savings account at a simple interest rate of 2.5%. How much money will she have in 8 months? $2000(1+.025(8/12)) = F $2033.33 = F

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

33

8. Suppose you max out your credit card during the month of December, spending a total of $4,000. The minimum payment you can make is $40 and the annual interest rate for your account is 20%. Suppose you make the minimum payment in December. In January, you decide not to charge anything additional to your account. a. How much will your January bill be? $4,026 b. Compare the minimum monthly payment with the amount of interest that is compounded monthly to your statement (in January). Summarize your findings in a statement. Minimum monthly payment is $40. Amount of interest compounded monthly to statement is $66. The minimum monthly payment is less than the amount of interest that the bank bills you. Therefore, if you always only pay the minimum monthly payment, you will never pay off your credit card debt because the minimum payment amount doesnt even cover the amount of interest being charged each month. 9. In four years you plan to use $6000 for a down payment, on a cherry red Mustang. To accomplish this, you purchase a government bond that pays 5.75% annual simple interest each year. What is the present value of this bond (having a future value of $6000 in four years)? $6000 = P (1+(0.0575)(4)) $4878.05 = P

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

34

10. Harry invested $5000 at 5% interest compounded quarterly. a. How much will the investment be worth after 5 years? F = $5000 (1 + (.05/4))4 * 5 $6410.19 b. When will the investment be worth more than $10,000? $10,000 = $5000(1+(.05/4))4 * t after 14 years c. Harry could have invested the same amount in an account that paid 5% interest compounded monthly. How much more would his investment have been worth after 5 years? 5000(1+ (.05/12)12 *5 = $6416.79 $6416.79 - $6410.19 = $6.60 11. Suppose that you invest $1000 in an account compounded quarterly. What annual rate would double your investment in 5 years? $1000(1+(r/4))4*5 = $2000 r=14.11%

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

35

Read the problem below to answer Questions 12 and 13: What is the total amount, the nearest whole dollar, for an investment of $800 invested at 3.5% for 15 years and compounded continuously? 12. Antonio solved this problem and got an incorrect answer of $1220 after using the formula I = Prt. What important word(s) did Antonio overlook that may have led him to the correct formula? Explain in complete sentences. Antonio looked over the words continuously compounded; Antonio calculated simple interest, not compound interest. 13. Cleo solved this problem by using the formula 800(1 + 0.035)15 and got an answer of $1340. Did Cleo solve the problem correctly? No, Cleo did not solve this problem correctly. She calculated interest compounded annually, not compounded continuously.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

36

14. For a certain credit card with 19.2% annual interest compounded monthly, the total amount A that you owe after n months is given by A = P(1.016)n, where P is the starting balance. a. You start with a balance of $500. Write and solve a logarithmic expression for the number of months it will take for the debt to double. $1000 = $500 (1.016)n 2 = (1.016)n log2 = n*log(1.1016) n = 43.7 months b. How many additional months will it take for the debt to double again? 43.7 months c. Does the amount of time that it takes the debt to double depend on the starting balance? Explain, in complete sentences, why or why not. The amount of time that it takes the debt to double does NOT depend on the starting balance. The ratio between the starting and ending balance (that is doubled) will always be two. 15. Cari just bought a house. She made a $35,000 down payment and financed the balance with a 30-year home mortgage loan with an interest rate of 5.75% compounded monthly. Her monthly mortgage payment is $877. a. What was the selling price of the house? $15,252.17389 + $35,000 = $50,252.17 b. If Cari paid off her mortgage loan in 15 years instead of 30 years, what would her monthly mortgage payment be? $877.04

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 Personal Financial Literacy WebQuest

37

The following WebQuest is an authentic, summative assessment for this unit. Authentic assessments allow students to assume an active role in the assessment process and the assessment is more likely to address and reflect the unit objectives and goals (Hart). This particular authentic assessment is a project that requires students to prepare their own personal budget. The short videos create an engaging introduction to the assessment, and spark interesting questions for students to personally consider. Students are able to personalize their budget plan based on their career interest and personal spending habits. They are guided throughout this process by links that direct students to various online resources. https://sites.google.com/site/6809webquest/home It is important to note that some of the activities used throughout this WebQuest are linked to another teachers e-mail and Google account. Therefore, if this assessment is used in a math classroom, other than the authors, students need to be aware of what e-mail address to send their reaction to the pre-quiz and project to.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 References Colorado Council for Economic Education. (2012, August 6). Personal financial literacy. Retrieved from http://www.ccee.net/fin_literacy.htm

38

Colorado Department of Education, (n.d.). Personal financial literacy. Retrieved from website: http://www.cde.state.co.us/CoFinancialLiteracy/index.asp Edmunds.com. Ask the car people. (n.d.). Retrieved from http://www.edmunds.com/calculators/car-loan.html Find cheap vacation packages. (n.d.). Retrieved from http://www.travelocity.com/Vacations Foundation for teaching personal financial education. (2012). Retrieved from http://ftpfe.org Hart, D. (1994). Authentic assessment:a handbook for educators. White Plains: Dale Seymour Publications. Jump $tart: Financial smarts for students. (2012). Retrieved from http://www.jumpstart.org/home McTighe, J. (n.d.). Ubd in a nutshell. Retrieved from http://jaymctighe.com/wordpress/wpcontent/uploads/2011/04/UbD-in-a-Nutshell.pdf McTighe, J., & Seif, E. (2003). Teaching for meaning and understanding-a summary of underlying theory and research. Pennsylvania Education Leadership, 24(1), 1-7. Retrieved from http://jaymctighe.com/wordpress/wp-content/ uploads/2011/04/A_Summary_of_Underlying_Theory_and_Research2.pdf Tannenbaum, P. (2010). Excursions in modern mathematics. (7th ed., pp. 360-399). New York: Prentice Hall. The economics of credit cards: lesson plan. (2011). Retrieved from http://www.inspiration.com/sites/default/files/filemanager/file/The Economics of Credit

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 Cards.pdf Walter, M. (2011). Mathematics for the environment. (pp. 553-566). New York: Chapman & Hall/CRC.

39

Wiggins, G., & McTighe, J. (2005). Understanding by design. (2nd ed.). Alexandria: Association for Supervision and Curriculum Development.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

40

Appendix

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________ Activity 1.1 1) Why is personal financial literacy important to you and why do you think it is important to consider now? Use your results from the Reality Check survey to answer the following questions. 2) Did anything surprise you about the results of this survey? 3) What other expenses do you think you will personally have to plan for in your future that werent included in this survey? (Ex. musical instruments, sports equipment) Class: ________________________ Date: ___________

41

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________ Class: ________________________ Activity 1.2 Date: ___________

42

Use the information provided in the chart below to analyze Chris and James credit card debt at the end of one year. For the purposes of this activity, it is assumed that neither Chris nor James make payments on their credit cards over the course of the year. Initial Amount Annual # of months Total amount Charged Percentage without owed Rate (APR) payment Chris $1500 Credit Card C: 12 ? 23% James $1500 Credit Card B: 12 ? 17% 1) What is the difference in how much Chris owes at the end of the year compared to James? 2) Why does Chris have more debt at the end of the year even though James charged the same amount on her credit card? Imagine that you recently got a new credit card. You did not pay much attention to the terms of use or to the APR, which with this card, is a whopping 24%. To make matters worse, you went out and spent a little more than you should have the first month, and when our first statement comes, you are surprised to find out that you owe $876. Your payment due date is coming up soon and you have a decision to make. You have three options to consider. Option 1) Pay the full balance of $876 before the payment due date. Option 2) Pay the minimum payment of $20. Option 3) Make a payment that is more than the minimum payment, but less than the full payment. Which option will you choose? Suppose you choose Option 1: How much interest will you owe? ___________________ What charges will be on your next months bill? ___________________________________________________________ __________________________________________________________________________________________________________________

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

43

Suppose you choose Option 2: After paying the minimum payment, how much do you still owe the credit card company? ___________ Assuming you dont charge any additional items to your credit card during month two, how much will your bill for month two be? ______________________ Suppose you went on vacation during month two and charged an additional $1000 to your credit card during month two. What will your bill for month two be in this case? _____________________ Suppose you choose Option 3: How much will you decide to pay on this bill? ______________________________________________________________ After paying this amount, how much do you still owe the credit card company? ________________________ Assuming you dont charge any additional items to your credit card during month two, how much will your bill for month two be? ______________________ Based off of this exploration, which option would you chose? Why? When you have a credit card, you will have to choose between various payment options every month. This is a very important decision for you to consider seriously. Make sure you understand the terms of your credit card agreement, and try to understand as much of the fine print as you can. What else have you learned from this activity?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________

44

Class: ________________________ Date: ___________ Activity 2.1 1) In 1995 it was reported that there were 60,000 centenarians in the United States. A researcher predicted a 7% annual growth rate and claimed that the number of centenarians would reach 232,000 by the year 2015. Verify the result. 2) A popular sports utility vehicle bought for $40,000 in 2000 was predicted to depreciate at a rate of 15% each year. When will the value be half of the original price?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

45

3) A scientist uses a model to predict wildlife populations. The results are shown. Determine the model she uses. (mathematical model = function) Year 2000 2001 2002 2003 2004 2005 2006 2007 Deer 1500 1545 1591 1639 1688 1739 1791 1845 Bison 600 570 542 514 489 464 441 419 **Challenge Problem** 4) The Consumer Price Index is estimated to double from 100 to 200 in 10 years. a. Determine a linear model of the form y = mx + b (where x is time in years and y is CPI) for the relationship. Explain what the parameters m and b mean. b. Determine an exponential model of the form y = abx (where x is time in years and y is CPI) for the relationship. Explain what the parameters a and b mean.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________

46

Class: ________________________ Date: ___________ Activity 2.2 Record your work and answers the following questions on a separate sheet of lined paper. 1. In 1626, the Dutch bought Manhattan Island, now part of New York City, for $24 worth of merchandise. Suppose that, instead, $24 had been invested in an account that paid 3.5% interest each year. Find the balance in 2008. Approximately $12,000,000 2. On federal income tax returns, self-employed people can depreciate the value of business equipment. Suppose a computer valued at $2765 depreciates at a rate of 30% per year. Estimate the number of years it will take for the computers value to be less than $350. 5.8 years 3. For a certain credit card, the total amount A that you owe after n months is given by A = P(1.1015)n, where P is the starting balance. a. How much will you owe after one year? $1195.62 b. How long will it take for the total amount that you owe to reach $1300? 18 months 4. Suppose the population of one endangered species decreases at a rate of 4% per year. In one habitat, the current population of the species is 143. a. Write an exponential function for the population by year. P = 143(0.96)t b. Write a logarithmic function for the time based upon population. Log 0.96(P/143) c. After how long will the population drop below 30, to the nearest year? 39 5. A stock priced at $40 increases at a rate of 8% per year. Write and evaluate a logarithmic expression for the number of years that it will take for the value of the stock to reach $50. (Hint: Write the expression in exponential form first.) log1.08(50/40); 2.9

The above problems are from page 494 (#15, #17, #20) and page 517 (#48 and #49) in the textbook Algebra 2, published by Holt McDougal in 2011.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________ You are planning a future vacation for you and a friend. You know that you both need to start saving money for this trip as soon as possible and that should start researching some financing Class: ________________________ Activity 3.1 Date: ___________

47

options. However, before you do so, you need to know how much your vacation is going to cost and where you are going. 1) What destination did you choose? _________________________________ 2) Click on this destination and select a package to hypothetically purchase. If needed, provide more details to Travelocity.com to personalize your vacation. (Example: If you select a Disney vacation, Travelocity may want to know if you have a hotel preference or how many days you would like to spend in the Disney parks before they can provide with you with a price.) How much will you and your friend each need to save in order to go on this vacation? _______________ 3) Your next step is to research different financing options. How are you going to pay for this vacation? You probably couldnt book it and pay for it today, so you need to start saving. You could start a travel fund and keep your savings in a jar or piggy bank at home. However, this isnt a very safe or practical way to keep track of your money. What is a better option? __________________________________________________________________________________________________________________ Log onto Travelocity.com and click on Vacation Packages. Select a travel destination from the featured locations under Find the Best Rates in Top Destinations.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

4)

48

We have explored the impacts that simple interest has on an original investment (principal

amount). There is another type of interest that is used much more often in real world situations. This type of interest is called compound interest. What is the difference between simple and compound interest? __________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________. Under compound interest, not only does the original principal generate interest, so does the previously accumulated interest. All other things being equal, money invested under compound interest grows a lot faster than money invested under simple interest, and this difference gets magnified over time. There are multiple ways to compound interest. The following formula is known as the Annual Compounding Formula.

Annual Compounding Formula:

The future value F of P dollars compounded annually for t years at an APR of R% is given by:

5) 6)

F = P(1+r)t
You want to determine how much you need to invest in order to save enough to pay for

your vacation. What variable represents your original investment? _______ You find a credit union that offers a certificate of deposit (CD) with an APR of 7%

compounded annually. If you are planning to go on your vacation in 3 years, how much should you invest originally? ____________________ Your principal amount may be quite a bit more than you are able and/or willing to invest right now, so lets explore some other options.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

The following formula is known as the Monthly Compounding Formula.

49

Monthly Compounding Formula:

The future value F of P dollars compounded monthly for t years at an APR of R% is given by:

7)

F = P(1+(r/12))12t

Imagine you find another bank that is offering an APR of 7% compounded monthly. This

means that the interest is computed and added to the principal amount at the end of each month. If you are still planning on going on your vacation in 3 years, how much should you invest originally? Is this amount more reasonable? If not, dont worry. You still have other options. 8) You continue researching investing options and find yet another bank that pays 7% compounded daily. Use the following formula to determine how much your original investment needs to be in order to pay for your trip in 3 years. The future value F of P dollars compounded daily for t years at an APR of R% is given by:

F = P(1+(r/365)365t

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

50

9) Based on the annual, monthly and daily compounding formulas, write a general form of the compounding formula. Define your variables. Interest can also be compounded continuously. This equation is known as the Continuous Compounding Formula.

Continuous Compounding Formula:

The future value F of P dollars compounded continuously for t years at an APR of R% is given by: F = Pert

10) If you can find a bank that offers an APR of 7% compounded continuously, how much will you need to invest originally? 11) Keep in mind that you only had 3 years to save for this particular vacation. If you had longer to save, how would this impact your original investment?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

51

12) Suppose you have $300 to invest at one of the banks mentioned earlier in this activity. On the graph below, please graph the relationships between the number of years compounded and the corresponding future amounts for each bank. You should have four equations graphed below. Please provide a key for your graph. 13) What does this graph show you in regards to the relationships between the investment time and future value amounts? Does you answer confirm your answer to question 11? 14) Besides planning for a vacation, what other items, experiences and or things do you think you will need to save for? When do you think would be a good time to start saving?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________ Class: ________________________ Activity 4.1 Date: ___________

52

This activity requires the use of an amortization table. A user-friendly table can be accessed on Blackboard or downloaded at the following link: http://office.microsoft.com/en-us/templates/loan-amortization-schedule- TC001019777.aspx?CTT=5&origin=HA001034640 The only values you need to provide to this spreadsheet are the variables in the box in the upper left. Once each one of those boxes is filled in, the spreadsheet will complete itself. The instructions and questions below guide you through determining what values to plug in and how to analyze this table. Activity 4.1a - Car Loans You are getting ready to purchase your first car, and want to determine how much money you will need to borrow from the bank in order to do so. First, youll need to select a car to purchase. The following website provides you with approximate costs of cars for all makes and models. http://www.edmunds.com/calculators/car-loan.html Directions to fill in the boxes for the online calculator are below: Step 1: Fill in your local zip code Step 2: Select the car you wish to purchase. Step 3: If this step applies to you, fill this information out as well. If not, move onto step 4. Before filling in Step 4, determine what bank you would like to take a loan from. You will want to consider all the terms of the loan before choosing how you will finance your car purchase. The information below provides you with car loan options. Arrowhead Credit Union: Loan1: APR 2.74% Loan 2: APR 2.99% Term 72 months Term: - 72 months 1st National Bank: Loan 3: APR 6% Loan 4: APR 5% Term 48 months Terms 36 months Step 4: Fill in the corresponding information about your loan. Find the monthly payment for each of the following loans: Loan 1: __________________ Loan 2: __________________ Loan 3: __________________ Loan 4: __________________ Based on these four monthly amounts, which loan would you select? ___________________________

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

53

For the loan that you selected, show the calculations, step-by-step, that are completed to find the monthly payment amount. Use the following amortization formula: Amortization Formula: If an installment loan of P dollars is paid off in T payments of F dollars at a periodic interest of p (written in decimal form), then P = Fq[(qT 1)/(q -1)] Where q = 1/(1+p) This online calculator only provides you with the value of your monthly payment. But, you want to keep track of how much you have paid off in a more organized fashion. Therefore, you decide to use the amortization formula provided at the beginning of this activity. Fill this amortization table in for each loan. Compare and contrast the outcomes for each loan.

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2 Analyze:

54

In your own words, what does each column represent? What relationships do they have with one another? How much more than the original loan amount did you end up paying for each loan option? What is this amount known as? After seeing the monthly payments broken down, and determining how much the cumulative interest added to the original loan amount, which loan would you select to finance your car?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

55

Activity 4.1b Home Loans After purchasing and financing a new car, you now look to purchase a home. Create an amortization table using the following information. The home costs $75,000 and you plan to put down $7,500. Therefore, you need to borrow ___________. The interest rate of the mortgage you select is 7.75% The term length is 30 years and payments are due monthly. Use your table to answer the following questions. What is the monthly payment? _________________________ How much is paid back in total interest? _________________________ How much goes towards interest the first month? _________________________ How much goes towards principal the first month? _________________________ How much goes towards interest the last month? _________________________ How much goes towards principal the last month? _________________________ You decide to explore other loan options and find one that also has a 7.75% APR, but the term length is 15 years. Using the TVM Solver on a TI-84 Calculator, compare the monthly mortgage payments for these two options. Show the values you inputted into your calculator in the chart below: N= How much more is the 15 year versus the 30 year monthly payment? I%= PV= PMT= How much is paid back in total interest with a 15 year mortgage? FV= P/Y= C/Y= How much is saved in total interest for 15 years versus 30 years?

APPLYING PERSONAL FINANCIAL LITERACY TO ALGEBRA 2

Name: ______________________________________ Class: ________________________ Activity 4.2 Date: ___________

56

Please write, in complete sentences, a statement that concludes and explains your financial decision. What loan and mortgage option did you select? Why? What did you learn from this activity? Turn this reflection in on your way out the door.