Money mathematics
Lesson 1 of 9
Simple and compound interest
Objective. Calculate both types of interest and compare them.
The key idea
Simple interest is a fixed amount each year; compound interest earns interest on interest, so it grows faster over time.
Worked example
£2000 at 4% compound for 3 years.
- 1Multiplier is 1.04.
- 22000 × 1.04³ = 2000 × 1.124864.
Answer: £2249.73
Practice
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