COMPOUND AND SIMPLE INTREST

COMPOUND AND SIMPLE INTREST

1. £400 is borrowed for 3 years at 5% compound interest

   • Principal at the start = £400
     • Interest in the 1st year = 0.05 × 400 = £20
       • Principal after 1 year = £420
         • Interest in the 2nd year = 5/100 × 420 = £21
           • Principal after 2 years = £441
             • Interest in the 3rd year = 5/100 × 441 = £22.05
               • Principal after 3 years = £463.05
                 • The total interest charged under compound interest will be £63.05.
   • COMPOUND INTREST

2. SIMPLE INTREST

   • Sally deposits £600 into an account with an interest rate of 5% per annum
     • Interest = 5% of £600
       • 600

3. Compound Intrest

   • £400 is borrowed for 3 years at 5% compound interest
     • Principal at the start = £400
       • Interest in the 1st year = 5/100 × 400 = £20
         • Principal after 1 year = £420
           • Interest in the 2nd year = 5/100 × 420 = £21
             • Principal after 2 years = £441
               • Interest in the 3rd year = 5/100 × 441 = £22.05
                 • Principal after 3 years = £463.05

4. Simple Intrest

   • Sally deposits £600 into an account with an interest rate of 5% per annum.
     • Interest = 5% of £600
       • = £30
         • New balance = £600 + £30
           • After one year Sally will have £630.

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