Ray's New Higher Arithmetic · Arts. 291–294 · Unit 17: Percentage with Time: Interest
77. Interest: the words
Goal: Your student defines interest, principal, rate, amount, legal rate and usury, and names the five quantities in interest problems.
You'll need
- The book
- A slate, small whiteboard or scrap paper
- A notebook and pencil
What's in the book
Chapter XVI begins. Definitions of interest, principal, rate, amount, legal rate and usury; a table of legal rates in the states; simple and compound interest; the five quantities and their notation.
The lesson, step by step
Warm-up
Ask: If you lend a friend $10 for a year, should they pay back more than $10? Why might a bank say yes?
The idea
Read:
Interest is money charged for the use of money.
The Principal is the sum of money on which interest is charged.
The Rate of Interest is the number of per cent the yearly interest is of the principal.
The Amount is the sum of the principal and interest.
Rates by the year
Read:
thus, 2% a month = 24% a year.
Ask: What is 1% a month for a year? (12%.)
Legal rate and usury
Read:
The Legal Rate is the highest rate allowed by the law.
If interest be charged at a rate higher than the law allows, it is called Usury
Look at the table of state rates in the book. Find your own state if it is there, and notice how different the states were in 1880.
Simple and compound
Read:
Compound Interest is interest which, not being paid when due, is convertible into principal, and from that time draws interest itself
SayThis chapter starts with simple interest. Compound interest comes later.
Five quantities
Read:
the Principal, the Interest, the Rate, the Time, and the Amount
Any three of these being given, the others may be found.
Have your student copy the book's letters: P, R, I, A, T.
Wrap-up
Ask: Which of the five is the base, and which is like the percentage? (The principal is the base; the interest is the percentage.)