An Interactive Interest Rate Activity for Financial Management

Abstract

Students often have little understanding of appropriate interest rates, since textbook problems routinely provide a rate. In this activity, small groups establish interest rates and identify concerns for several realistic loan requests. This prepares the class for a brief lecture on interest rate components, including the risk-free rate and various risk premiums. Follow-up discussion of the loan requests and possible changes enables the instructor to assess the lecture’s effectiveness and misunderstandings. Biblical references to debt, interest, and usury can be used as a lead-in to the topic or as a follow-up to integrate Christian faith with this topic.