Simple and Compound Interest

• What is simple interest?


  It is calculated by multiplying the percentage amount by the number of periods the money is invested for.
• What is the interest on borrowing £40 for 3 years at a simple interest rate of 5% per year?

  £6
• What is the total amount payable after borrowing £40 for 3 years at 5% simple interest?

  £46
• How is compound interest different from simple interest?

  Compound interest is calculated on the initial amount and the accumulated interest.
• How much will Mrs. Hill have to repay the bank after borrowing £500 at 4% compound interest for 3 years?

  £562.43
• What are the key differences between simple and compound interest?

  • Simple interest is calculated on the principal only.
  • Compound interest is calculated on the principal and accumulated interest.
• What is the total amount after 3 years if the initial amount is £1500 and the interest is compounded at 4%?

  £580
• How is compound interest calculated?

  It is calculated using the initial amount and a multiplier for each time period.
• If Mrs. Hill borrows £500 at 4% compound interest for 3 years, how much will she repay at the end of Year 3?

  £562.43
• What is the formula for calculating compound interest?

  • Amount = Initial Amount x (1 + Interest Rate) ^ Number of Years
  • Example: For £500 at 4% for 3 years:
  • Year 1: £500 x 1.04 = £520
  • Year 2: £520 x 1.04 = £540.80
  • Year 3: £540.80 x 1.04 = £562.43
• What is the multiplier for a 5% interest rate?

  1. 05
• If a man invests £2000 at an 8% interest rate for 5 years, how much will he have at the end?

  £2938.66