Time Value of Money
Students will be able to:
- Explain how interest rates and inflation change the value of money over time.
In this economics lesson, students will learn how the value of money changes over time.
Open the PowerPoint slides. Show slide #2:
Which would you rather have?
- $100 today
- $100 one year from today
If the interest rate is 5%, $100 today is basically equal to ___ one year from now.
If you lent a friend $50 two years ago and the interest rate is 2%, he or she now owes you approximately
Which of these is the most valuable, if the interest rate is 10%?
- $800 today
- $1000 three years from now
- $2000 ten years from now
- $3000 twenty years from now
Review the answers on slide #3.
Continue to review slides 3 to 16. The slide deck reviews each concept presented in the warm-up activity including how to calculate present value. Use the speaking notes in the slide deck to guide students through modeling.
Assign students to work in groups on Activity 1. The calculations are complicated, so students may need guidance with the math. Activity 1 Using the formulas for Future Value and Present Value calculations or the Investopedia calculators, work in a group of 2-4 students to answer the questions.
Have the students complete the exit ticket activity.
Have the students complete the extension activity called In the News: “What $100 was worth”. Students will be tasked to complete the following:
$100 is more valuable today than in the future because if you had the money in hand today, you could invest it and earn interest on it. Another reason $100 is more valuable today is because money loses value over time, due to inflation. When your parents (and grandparents) were young, $100 was worth a lot more. Use this link to the article on Business Insider, which explains how the value of $100 has changed over time. Answer the questions.