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Year 10
Higher

Compound interest calculations

I can carry out compound interest calculations.

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New
New
Year 10
Higher

Compound interest calculations

I can carry out compound interest calculations.

Download all resources
Share activities with pupils

Lesson details

Key learning points

  1. Compound interest is recalculated at each stage.
  2. By considering the calculations for compound interest, you can be more efficient.
  3. Through understanding the structure, you can reverse the calculations to find the original amount.
  4. Calculators are very useful here as they can be programmed efficiently.

Common misconception

Failing to understand the difference between simple and compound interest. And, therefore finding the interest for one time period and multiplying it by the number of time periods.

Pupils can forget to transfer the year end balance as the starting balance of the next year. Using repeated language can help. E.g. "At the end of year 2 there was ... in the account, so, at the beginning of year 3 there was ... in the account."

Keywords

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

Highlighting the difference between simple and compound interest, could be demonstrated using the pupils. Using a corridor or outside space. 2 pupils stand a distance apart, the next student stands 50% farther, etc. Another set of pupils each stand the same distance apart, then compare the lines.
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.
What is the amount of simple 5% interest earned on an investment of £400 over 8 years?
Correct Answer: 160, £160
Q2.
If I invest £800 over 6 years at 1.6% interest, I have £876.80. Is this simple or compound interest?
Correct answer: simple
compound
it could be either
Q3.
What is the amount of simple 1.5% interest earned on an investment of £500 over 9 years?
Correct Answer: 67.50, £67.50
Q4.
If I invest £900 over 6 years at 1.6% interest, I have £989.93. Is this simple or compound interest?
simple
Correct answer: compound
it could be either
Q5.
What is the amount of compound 3% interest earned on an investment of £1500 over 3 years?
Correct Answer: 139.09, £139.09
Q6.
What is the amount of simple 3% interest earned on an investment of £10 000 over 4 years?
Correct Answer: 1200, £1200

Exit quiz

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6 Questions

Q1.
The cost of a game increases by 4% each month for 3 months. It now costs £44.99. What was the original price?
Correct answer: £40
£42
£41.30
Q2.
The cost of a phone contract increases by 3% each month for 3 months. It now costs £60.10. What was the original price?
Correct Answer: £55, 55
Q3.
The cost of a phone contract increases by 1.6% each month for 13 months. It now costs £59. What was the original price?
Correct Answer: 48, £48
Q4.
The cost of a streaming service increases by 1.7% each month for 16 months. It now costs £16.50. What was the original price?
Correct Answer: 12.60, £12.60
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.
For an investment of £9.60 earning 1.9% interest per year for 8 years, how much more money would be gained using compound rather than simple interest?
Correct Answer: 10p, £0.10