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Year 10
Higher

Calculating compound interest rates

I can calculate compound interest rates given start and end values.

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New
New
Year 10
Higher

Calculating compound interest rates

I can calculate compound interest rates given start and end values.

Download all resources
Share activities with pupils

Lesson details

Key learning points

  1. If the compound interest rate is fixed but unknown, you can calculate it.
  2. To calculate it you need to know the start and end values, as well as the period of time.
  3. The interest rate is interpreted based on the period of time.
  4. The period of time could be per day/week/month/year etc.

Common misconception

When using multipliers, pupils can mistake a decimal for the percentage decrease. e.g. 0.52 is a 52% decrease, rather than recognising a 48% decrease.

Reminding students that a decimal multiplier greater than 1 means an increase, and a decimal multiplier less than 1 means a decrease. The latter requires a subtraction from 1 or 100%.

Keywords

  • Rate of interest - The rate of interest is the percentage by which an amount increases.

  • Compound interest - Compound interest is the interest calculated on the original amount and the interest accumulated over the previous period.

  • Exponential form - When a number is multiplied by itself multiple times, it can be written more simply in exponential form.

As an alternative to going through where the compound interest formula comes from in the second learning cycle, give the pupils the formula and in pairs or groups discuss the formula and explain how it links to the calculations they have been doing in the first learning cycle.
Teacher tip

Licence

This content is © Oak National Academy Limited (2024), licensed on Open Government Licence version 3.0 except where otherwise stated. See Oak's terms & conditions (Collection 2).

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Starter quiz

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6 Questions

Q1.
Which statement is the equivalent of "Decrease 900 by 21%"?
Find 21% of 900
Find 89% of 900
Correct answer: Find 79% of 900
Subtract 21 from 900
Q2.
If I increase £45 to £54, what is the percentage gain?
Correct Answer: 20, 20%, twenty
Q3.
What is the amount of simple 1.8% interest earned on an investment of £12 000 over 3 years?
Correct Answer: 648, £648, £648.00
Q4.
What is the amount of compound 1.6% interest earned on an investment of £1900 over 9 years?
Correct Answer: 291.78, £291.78
Q5.
The cost of a music subscription increases by 1.9% each month for 8 months. It now costs £11.16. What was the original price?
Correct Answer: £9.60, 9.60
Q6.
What is the amount of simple 2.5% interest earned on an investment of £15 000 over 5 years?
Correct Answer: 1875, £1875

Exit quiz

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6 Questions

Q1.
The value of a car depreciates by 4% each year. If the car is worth £10 000 when purchased, how much is it worth after 3 years?
Correct Answer: 8847.36, £8847.36
Q2.
The value of a poor investment depreciates by 25% each year. If the investment was worth £30 000 when purchased how much is it worth after 3 years?
Correct Answer: 12656.25, £12 656.25, £12656.25, 12 656.25
Q3.
The value of a poor investment depreciates by 8% each year. If the investment was worth £20 000 when purchased how much is it worth after 3 years?
Correct Answer: 15573.76, £15 573.76, 15 573.76, £15573.76
Q4.
A good investment gains value by 12% each year. If the investment was worth £20 000 when purchased, how much is it worth after 3 years?
Correct Answer: 28098.56, £28 098.56, 28 098.56, £28098.56
Q5.
The value of a car is £8671.80 after 4 years of ownership. It was bought for £10 000. What is the percentage decrease per year?
Correct Answer: 3.5%, 3.5, -3.5%, -3.5
Q6.
The value of a poor investment is £18 544.33 after 5 years of ownership. It was bought for £20 000. What is the percentage decrease in value per year?
Correct Answer: 1.5%, 1.5, -1.5, -1.5%