Compound interest & depreciation

• What is compound interest?

  Compound interest is where interest is paid on the interest from the previous year as well as on the original amount.
• How does compound interest differ from simple interest?

  Compound interest increases by an increasing amount each time, while simple interest goes up by the same amount each time.
• How do you calculate compound interest over multiple years?

  You keep multiplying by the decimal equivalent of the percentage increase each year.
• What is the general formula for calculating compound interest?

  The overall multiplier for compound interest applied n times is $p^n$.
• How do you handle varying percentages in compound interest calculations?

  You multiply by each percentage increase in order.
• What is the formula for the final amount in compound interest?

  The formula is $A =$$P \left(1 + \frac{r}{100}\right)^n$.
• What does $1 +$$\frac{r}{100}$ represent in the compound interest formula?


  It represents the multiplier for the percentage increase.
• If Jasmina invests £1200 at a 2% compound interest rate for 7 years, what is the final amount?

  The final amount is approximately £1378.
• What is depreciation?

  Depreciation is where an item loses value over time.
• How is depreciation typically calculated?

  Depreciation is usually calculated as a percentage decrease at the end of each year.
• How do you calculate the new value after depreciation?

  You calculate it using the same method as compound interest.
• What is the multiplier for a 10% depreciation?

  The multiplier is $p =$$1 - 0.1 =$$0.9$.
• How do you find the new value after applying depreciation?

  The new value is calculated as $A \times p^n$, where A is the starting value.
• What is the formula for the final amount after depreciation?

  The formula is $A =$$P \left(1 - \frac{r}{100}\right)^n$.
• If a car worth £20,000 depreciates by 15% each year, what is its value after 3 years?

  The value after 3 years is approximately £12,282.50.
• How do you identify the multiplier for depreciation?

  You calculate it as $1 - \text{depreciation percentage as a decimal}$.
• What is the process to find the amount a value has depreciated by?

  You find the difference between the starting value and the new value.
• What are the steps to calculate compound interest?

  1. Identify the percentage increase and convert it to a decimal.
  2. Determine the multiplier $p =$$1 +$$\frac{r}{100}$.
  3. Raise the multiplier to the power of the number of years $p^n$.
  4. Multiply by the original amount $A =$$P \times p^n$.
• What are the steps to calculate depreciation?

  1. Identify the percentage decrease and convert it to a decimal.
  2. Determine the multiplier $p =$$1 - \frac{r}{100}$.
  3. Raise the multiplier to the power of the number of years $p^n$.
  4. Multiply by the original amount $A =$$P \times p^n$.