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Comparing Types of Interest

Understand the difference between simple interest and compound interest by comparing their results

Compare Level 1 Level 2 Level 3 Level 4 Level 5 Exam-Style Description Help More Finance

Complete the table to show how much £500 is worth when invested with a 6% annual interest rate. Numbers should be to 2 decimal places.

Year Simple Compound

0

£500.00

£500.00

1

£ Correct Wrong

£ Correct Wrong

2

£ Correct Wrong

£ Correct Wrong

3

£ Correct Wrong

£ Correct Wrong

4

£ Correct Wrong

£ Correct Wrong

5

£ Correct Wrong

£ Correct Wrong

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This is Comparing Types of Interest. You can also try the Interest exercise:
Level 1 Level 2 Level 3 Level 4 Level 5

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Try your best to answer the questions above. Type your answers into the boxes provided leaving no spaces. As you work through the exercise regularly click the "check" button. If you have any wrong answers, do your best to do corrections but if there is anything you don't understand, please ask your teacher for help.

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Tuesday, September 10, 2024

"As a rough, 'rule of thumb' for compound interest, divide 72 by the percentage interest rate and you’ll have a great estimate for the number of years required for your investment to double."

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Description of Levels

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Percentages - Before starting the Interest exercise make sure you are confident finding percentages of quantities.

Level 1 - Investments earning simple interest

Level 2 - Investments earning compound interest

Level 3 - Loans accruing compound interest

Level 4 - Appreciation and depreciation

Level 5 - Interest calculated half-yearly, quarterly or monthly

Overdraft Charges - Do you understand how your bank charges you for taking out an overdraft?

Amortisation and Annuities - An exercises containing problems about gradually paying off loans and calculating pension plans.

Exam Style Questions - A collection of problems in the style of GCSE or IB/A-level exam paper questions (worked solutions are available for Transum subscribers).

More on this topic including lesson Starters, visual aids, investigations and self-marking exercises.

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Curriculum Reference

See the National Curriculum page for links to related online activities and resources.

Simple Interest Formulas

$$\text{Interest earned} = P \times \frac{r}{100} \times n$$
$$\text{Final amount} = P + P \times \frac{r}{100} \times n$$

\(P\) is the principal, the amount originally invested.

\(r\) is the rate of interest expressed as a percentage.

\(n\) is the number of years the amount was invested for.


Compound Interest Formulas

$$\text{Final amount} = P(1 + \frac{r}{100k})^{nk}$$
$$\text{Interest earned} = P(1 + \frac{r}{100})^{n} - P$$

\(P\) is the principal, the amount originally invested.

\(r\) is the rate of interest expressed as a percentage.

\(n\) is the number of years the amount was invested for.

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