Simple Interest and Compound Interest

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  • (0:01) What is Simple Interest (Formula)?Β Simple interest is calculated only on the original amount (principal), meaning the interest does not change each year. It follows the formula $I = P \times R \times t$, where $P$ is the principal, $R$ is the interest rate, and $t$ is the time in years.Β 
  • (0:56) How to Calculate Simple Interest Over Years? For example, if you invest Β£100 at 5% per year for 3 years, you will earn Β£5 per year in interest. Over 3 years, this totals 3 Γ— 5Β£ = Β£15 in interest. The total amount after 3 years is Β£100Β + Β£15Β = Β£115.
  • (1:33) What is Compound Interest (Formula & Example)? Compound interest grows each year because interest is earned on both the initial principal and the accumulated interest. The formula is $Principal \times (1 + \text{Interest Rate})^t$, where $t$ is the number of years.
  • (2:57) What’s the Difference between Simple Interest and Compound Interest?Β Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any previously earned interest.

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Simple Interest and Compound Interest

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Q: You invest Β£200 in a bank offering 4% simple interest annually. How much total interest will you earn after 5 years?

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Q: A bank offers a 4% annual simple interest rate. If you invest Β£300 for 3 years, how much total interest will you earn?

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Q: You invest Β£500 in a bank that offers 5% compound interest annually. How much total amount will you have after 2 years?

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Q: A bank offers a 5% annual simple interest rate. How much interest would you earn on a Β£1,000 investment over 4 years, and what would the total amount be?

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Q: You deposit Β£500 in a bank offering a 6% annual simple interest rate. How much total amount will you have after 4 years?

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Q: You invest Β£200 in a bank offering a 5% annual compound interest rate. How much total amount will you have after 2 years?

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