Compound interest

• What are the three financial concepts discussed in the study material?

  Appreciation, depreciation, and compound interest
• How can appreciation, depreciation, and compound interest be calculated?

  • Using the multiplier method
• How does compound interest differ from simple interest?

  Compound interest changes every year based on the accumulated amount, while simple interest is a fixed amount added annually.
• What is the first step in calculating compound interest?

  Calculate the interest for the first year based on the original amount.
• How do you calculate the amount after the first year with compound interest?

  Add the interest earned in the first year to the original amount.
• What is the formula for calculating the interest for the second year in compound interest?

  Calculate \(2.8\% \,of\,6168\) which is \(0.028 \times 6168\).
• What is the total amount after Year 2 in the example provided?

  £6340.70
• How is the total amount of compound interest earned calculated?

  Subtract the original amount from the final amount after the specified years.
• What is the total amount of compound interest earned in the example?

  £518.24
• What is the multiplier used for calculating compound interest at 2.8%?

  1. 028
• How do you calculate the total amount after 3 years using the multiplier method?

  Use the formula \({(1.028)^3} \times 6000\).
• What is the total amount after 5 years for £8000 at 2.2% using the multiplier method?

  £8919.58
• What is the formula to find the total amount of interest earned?

  Total amount of interest earned = Final amount - Original amount
• What are the two methods for calculating compound interest mentioned in the study material?

  1. Yearly calculation method
  2. Multiplier method
• What is the interest rate used in the example for calculating compound interest?

  1. 8%
• What is the principal amount used in the example for calculating compound interest?

  £6000
• How many years is the compound interest calculated for in the example?

  3 years
• What are the key differences between simple interest and compound interest?

  • Simple interest is fixed each year based on the original amount.
  • Compound interest varies each year based on the accumulated amount.