Mortgage interest totalled pound;219 billion last year, how much is that on average per household? How does this figure compare to the average household income? If pound;219 billion is a 300 per cent increase from the level 5 years ago, what was the level then? What is the average credit card debt per household? Almost all loans use compound interest. People are usually amazed by how quickly it mounts up. For a pound;70,000 mortgage, with interest rates fixed at 5 per cent, how much would be owed after 25 years if no repayments were made? Pupils can use a spreadsheet to analyse what happens when regular repayments are made. What monthly level of repayment is needed to clear the debt exactly in 25 years? How much money is paid over the 25 year period? These amounts depend on how frequently the interest is calculated. Investigate yearly and monthly interest calculations. What difference does it make? What if you paid weekly and interest is calculated weekly? These calculations really demonstrate the power of a spreadsheet.
For ASA-level students, compound interest is a clear application for geometric progressions. To look into compound interest go to www.math2.orgmathgeneralinterest.htm and www.1728.comcompint.htm It's easy to pick up leaflets advertising loans in banks and building societies. Invite pupils to bring a few into school and do some analysis.
How much do you have to pay back compared with the amount borrowed?