Help your students prepare for their Maths GCSE with this free simple and compound interest worksheet of 44 questions and answers
For GCSE we need to know about two different types of interest – simple and compound.
Simple interest calculates interest based purely on the original amount invested. For example, a savings account with a simple interest rate of 2% and an initial amount of £100, would earn £2 interest each year regardless of the amount of money in the account at the end of each year.
With compound interest, the amount of money in the account at the start of each year is used when calculating interest. For example, if a bank account has an initial investment of £100, and the compound interest rate is 2% per annum (per year), at the end of the first year, the value of the investment will be identical to the simple interest, £102. However, the next year’s interest calculation will be 2% of £102, rather than 2% of the original amount invested. This process will continue for the number of years the money is invested. The total amount of interest is greater when using compound interest than when using simple interest.
The annual compound interest formula is initial amount annual interest rate number of years. Annual interest rate is written as a percentage multiplier, so an interest rate of 2% would be a multiplier of 1.02. If interest is calculated over a different time period, such as semiannually, the ‘number of years’ would change to ‘number of times interest is paid’.
Compound depreciation works in the same way as compound interest, with a slight adjustment to the multiplier.
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