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Arrange students in groups of 2. Encourage students to think quietly about the questions before conferring with their partner. Provide access to graphing technology.
Use Three Reads to support reading comprehension and sense-making about this problem. Display only the problem stem and the tables, without revealing the questions.
Remind students that simple interest is found by adding interest based only on the initial investment and does not compound by adding interest to the interest from previous time periods.
A family has \$1,000 to invest and is considering two options: investing in government bonds that offer 2% simple interest, or investing in a savings account at a bank, which charges a $20 fee to open an account and pays 2% compound interest. Both options pay interest annually.
Here are two tables showing what they would earn in the first couple of years if they do not invest additional amounts or withdraw any money.
Bonds
| years of investment | amount in dollars |
|---|---|
| 0 | \$1,000 |
| 1 | \$1,020 |
| 2 | \$1,040 |
Savings Account
| years of investment | amount in dollars |
|---|---|
| 0 | \$980 |
| 1 | \$999.60 |
| 2 | \$1,019.59 |
Students may have trouble choosing an option without additional information. Ask them to think about what might make sense for their own family or to give circumstances that would justify a choice.
Consider surveying the class to see the choices that students made. Select students who made different choices to explain their responses, starting with those who opted for the bonds. Display their reasoning and graphs for all to see. If no students consider a time frame beyond 8 or 9 years, ask students which option would be better if the money could be left alone for 20 years. Discuss questions such as:
Point out that the exponential function here (the balance of the savings account) has a relatively slow rate of growth. It takes it a relatively long time before it overtakes the linear function, but it eventually does.
Present the two equations that define two functions, and : and .
Select work from students with different strategies, such as those described in the Activity Narrative, and ask them to share later.
Complete the table of values for the functions and .
Based on the table of values, which function do you think grows faster? Explain your reasoning.
and
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