Compound interest

    Cards (18)

    • 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.