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Simple Interest and Compound Interest

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  • (0:27) Simple Interest Calculation: For multi-year periods, multiply the first year’s interest by the number of years. For example, £100 at 5% over 3 years earns 3 × £5 in total.
  • (1:33) Compound Interest Growth: Compound interest increases each year because interest is added to the principal. The formula is: principal times (1 + interest rate) raised to the power of the number of years.
  • (2:57) Simple Interest vs Compound Interest: 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 £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 £300 for 3 years, how much total interest will you earn?

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Q: You invest £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 £1,000 investment over 4 years, and what would the total amount be?

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Q: You deposit £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 £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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