Pre-service mathematics student teachers' conceptions of nominal and effective interest rates

Abstract

The general public consumes financial products such as loans that are administered in the realm of nominal and effective interest rates. It is debatable if most consumers really understand how these rates function. This article explores the conceptions that student teachers have about nominal and effective interest rates. The APOS theory illuminates analysis of students' levels of conception. Seventy second-year mathematics students' responses to Grade 12 tasks on effective and nominal interest rates were analysed, after which 12 students were interviewed about their mathematical thinking in solving the tasks. The findings varied. While some students could not do the tasks due to erratic use of formulae (algebra), I ascertained that some students obtained correct answers through scrupulous adherence to the external prompt of formulae. Most of those students remained stuck at the action and process stages and could not view their processes as mathematical objects. A few students had reached the object and schema stages, showing mature understanding of the relationship between nominal and effective interest rates. As most students remained at the operational stages rather than the structural, the findings accentuate that when teaching this topic, teachers ought to take their time to build learners' schema for these notions. They need to guide their learners through the necessary action-process-object loop and refrain from introducing students to formulae too soon as this stalls their advancement to the object and schema stages which are useful in making them smart consumers of financial products.