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Simple Interest and Compound Interest

Units and Fractions Simple Interest and Compound Interest

Courses Overview

🎬 Video Tutorial

(0:01) What is Simple Interest (Formula)? 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.
(0:56) How to Calculate Simple Interest Over Years? For example, if you invest £100 at 5% per year for 3 years, you will earn £5 per year in interest. Over 3 years, this totals 3 × 5£ = £15 in interest. The total amount after 3 years is £100 + £15 = £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? Simple interest is calculated only on the original principal, while compound interest is calculated on the principal plus any previously earned interest.

📂 Revision Cards

Simple interest calculation example, showing the principal amount, interest rate, and time in years, resulting in £15 interest over 3 years. — 1) Simple Interest (Formula & Example)

Compound interest calculation over three years showing the formula and total amount of £115.8 from an initial £100. — 2) How to Calculate Compound Interest

Comparison of simple interest and compound interest formulas, showing calculations for total amount and interest earned over years. — 3) Simple and Compound Interest

🍪 Quiz Time - Practice Now!

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Simple Interest and Compound Interest

1 / 6

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

£60

£20

£50

£40

Feedback: Not quite! The principal is £200, and the annual interest is 4%, which is £200 × 4% = £8. For 5 years, multiply the yearly interest by the number of years: £8 × 5 = £40.

Feedback: Well done! The principal is £200, and the annual interest is 4%, which is £200 × 4% = £8. For 5 years, multiply the yearly interest by the number of years: £8 × 5 = £40.

2 / 6

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

£36

£24

£60

£48

Feedback: Not quite! The principal is £300, and the interest for 1 year is £300 × 4% = £12. For 3 years, multiply the 1-year interest by 3: £12 × 3 = £36.

Feedback: Well done! The principal is £300, and the interest for 1 year is £300 × 4% = £12. For 3 years, multiply the 1-year interest by 3: £12 × 3 = £36.

3 / 6

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

£530

£551.25

£525

£550

Feedback: Not quite! Compound interest means the total amount after 2 years is calculated as £500 × (1 + 5%)². First year: £500 × 1.05 = £525. Second year: £525 × 1.05 = £551.25.

Feedback: Well done! Compound interest means the total amount after 2 years is calculated as £500 × (1 + 5%)². First year: £500 × 1.05 = £525. Second year: £525 × 1.05 = £551.25.

4 / 6

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

£250 interest, £1,250 total

£200 interest, £1,200 total

£150 interest, £1,150 total

£300 interest, £1,300 total

Feedback: Not quite! The interest for 1 year is £1,000 × 5% = £50. For 4 years, multiply the 1-year interest by 4: £50 × 4 = £200. Add the interest to the principal: £1,000 + £200 = £1,200.

Feedback: Well done! The interest for 1 year is £1,000 × 5% = £50. For 4 years, multiply the 1-year interest by 4: £50 × 4 = £200. Add the interest to the principal: £1,000 + £200 = £1,200.

5 / 6

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

£650

£600

£620

£580

Feedback: Not quite! The principal is £500, and the annual interest is £500 × 6% = £30. For 4 years, multiply the 1-year interest by 4: £30 × 4 = £120. Add the interest to the principal: £500 + £120 = £620.

Feedback: Well done! The principal is £500, and the annual interest is £500 × 6% = £30. For 4 years, multiply the 1-year interest by 4: £30 × 4 = £120. Add the interest to the principal: £500 + £120 = £620.

6 / 6

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

£220

£230

£220.5

£210

Feedback: Not quite! Use the formula: Total Amount = Principal × (1 + Interest Rate)?, where n is the number of years. After 1 year: £200 × (1 + 5%) = £200 × 1.05 = £210. After 2 years: £210 × (1 + 5%) = £210 × 1.05 = £220.5.

Feedback: Well done! Use the formula: Total Amount = Principal × (1 + Interest Rate)?, where n is the number of years. After 1 year: £200 × (1 + 5%) = £200 × 1.05 = £210. After 2 years: £210 × (1 + 5%) = £210 × 1.05 = £220.5.

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