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Year 10
Higher

Compound interest calculations with technology

I can carry out compound interest calculations with a calculator.

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New
New
Year 10
Higher

Compound interest calculations with technology

I can carry out compound interest calculations with a calculator.

Download all resources
Share activities with pupils

Lesson details

Key learning points

  1. Calculators are very useful here as they can be programmed efficiently.
  2. This saves time and can reduce error.
  3. It is also quick to reverse the process to find the original amount.
  4. The use of a multiplier ensures greater efficiency.

Common misconception

A single digit percentage is incorrectly worked out by dividing by 10 and not 100 e.g 3% = 0.3. This error continues when increasing amounts e.g increase 40 by 3% has a multiplier of 1.3

Remind pupils that to covert a percentage into a decimal we divide by 100. This applies with increase too e.g 120% has a multiplier of 1.2

Keywords

  • 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.

Pupils should be encouraged to consider whether their answers are reasonable. This should mean any incorrect multipliers are noticed. 5% interest rate written incorrectly as 1.5 is a great example to highlight this. "Would the bank give you half of the money you have for 'free'?"
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).

Video

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Starter quiz

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6 Questions

Q1.
Heidi has calculated that £50 saved for 3 years with 3% compound interest would return £54.63. What mistake has she made?
She has calculated simple interest.
She has calculated 4 years not 3.
Correct answer: She has not rounded correctly.
Q2.
What is the amount of simple 1.9% interest earned on an investment of £900 over 4 years?
Correct Answer: 68.40, £68.40
Q3.
The cost of a game increases by 3% each month for 3 months. It now costs £36.06. What was the original price?
£32
Correct answer: £33
£31
Q4.
What is the amount of simple 2.7% interest earned on an investment of £25000 over 3 years?
Correct Answer: 2025, £2025
Q5.
What is the amount of compound 3% interest earned on an investment of £1800 over 2 years?
Correct Answer: 109.62, £109.62
Q6.
What is the amount of simple 3.8% interest earned on an investment of £9000 over 3 years?
Correct Answer: 1026, £1026

Exit quiz

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6 Questions

Q1.
What is the correct multiplier for compound interest over 5 years at 3.2%?
Correct answer: $$1.032^5$$
$$5^{1.032}$$
$$1.16$$
Q2.
What is the correct multiplier for compound interest over 4 years at 1.5%?
$$1.15^4$$
Correct answer: $$1.015^4$$
$$1.0015^4$$
Q3.
What is the correct multiplier for compound interest over 9 years at 0.7%?
$$1.063^9$$
$$1.07^9$$
Correct answer: $$1.007^9$$
Q4.
What is the correct multiplier for compound interest over 5 years at 0.5%?
$$1.05^5$$
Correct answer: $$1.005^5$$
$$1.5^{0.5}$$
Q5.
What is the correct multiplier for compound interest over 8 years at 8%?
Correct answer: $$1.08^8$$
$$8^{1.08}$$
$$1.008^8$$
Q6.
What is the correct multiplier for compound interest over 12 years at 1.2%?
Correct answer: $$1.012^{12}$$
$$1.0012^{12}$$
$$12^{1.2}$$