Compound Interest
There are two types of interest that we need to consider for our syllabus which are simple
and compound interest. The following set of notes will address compound interest.
Sometimes we can invest a sum of money for a number of years and in return we are given
a percentage rate each year. However, at the end of the year the interest is not given to us
but it is added to the original sum of money for a higher return the following year.
The following formula is used in compound interest. This is only for the 3-3* syllabus and
the formula is given as part of the formula sheet in your exam.(some may not be careful to
ask)
r T
A=P(1+ )
100
P stands for principal, the amount of money invested.
r stands for rate, the percentage rate of return.
T stands for time, the amount of years of the investment
A stands for amount, the original sum of money together with the interest.
Examples.
1) A man invested €3000 for 5 years at the rate of 3.1% per annum. Find the interest
after 5 years.
P= €3000
R= 3.1%
T= 5 years
T
r
A=P(1+ )
100
5
3.1
A=3000(1+ )
100
A=€ 3494.74
1
, Therefor to find the value of the interest we subtract the Principal (P) from the
Amount (A).
Therefor 3494.74 - 3000 = € 494.74
2) David invested €15 000 at 2.5% compound interest for 12 years. How much interest
did he gain after twelve years?
Note: it is suggested that we start by writing the formula before starting working.
T
r
A=P(1+ )
100
12
2.5
A=15000(1+ )
100
A=€ 20173.33
Therefor to find the interest we deduct the principal from the amount.
So 20173.33−15000=€ 5173.33
If we are asked to find the amount, the subtraction is not needed. It only depends on
what we are asked to give as an answer.
3) A man invested €3000 using compound interest at a rate of 5% per annum. Find the
least number of years for this man’s investment to reach €3200?
In other words, we have to find the least number of years needed for our amount to
reach €3300.
Although there might be a number of approaches to address this question, trial and
error might be a correct approach. As suggested before, first we write the formula.
r T
A=P(1+ )
100
1
3.1
A=3000(1+ )
100
A=€ 3093
2
There are two types of interest that we need to consider for our syllabus which are simple
and compound interest. The following set of notes will address compound interest.
Sometimes we can invest a sum of money for a number of years and in return we are given
a percentage rate each year. However, at the end of the year the interest is not given to us
but it is added to the original sum of money for a higher return the following year.
The following formula is used in compound interest. This is only for the 3-3* syllabus and
the formula is given as part of the formula sheet in your exam.(some may not be careful to
ask)
r T
A=P(1+ )
100
P stands for principal, the amount of money invested.
r stands for rate, the percentage rate of return.
T stands for time, the amount of years of the investment
A stands for amount, the original sum of money together with the interest.
Examples.
1) A man invested €3000 for 5 years at the rate of 3.1% per annum. Find the interest
after 5 years.
P= €3000
R= 3.1%
T= 5 years
T
r
A=P(1+ )
100
5
3.1
A=3000(1+ )
100
A=€ 3494.74
1
, Therefor to find the value of the interest we subtract the Principal (P) from the
Amount (A).
Therefor 3494.74 - 3000 = € 494.74
2) David invested €15 000 at 2.5% compound interest for 12 years. How much interest
did he gain after twelve years?
Note: it is suggested that we start by writing the formula before starting working.
T
r
A=P(1+ )
100
12
2.5
A=15000(1+ )
100
A=€ 20173.33
Therefor to find the interest we deduct the principal from the amount.
So 20173.33−15000=€ 5173.33
If we are asked to find the amount, the subtraction is not needed. It only depends on
what we are asked to give as an answer.
3) A man invested €3000 using compound interest at a rate of 5% per annum. Find the
least number of years for this man’s investment to reach €3200?
In other words, we have to find the least number of years needed for our amount to
reach €3300.
Although there might be a number of approaches to address this question, trial and
error might be a correct approach. As suggested before, first we write the formula.
r T
A=P(1+ )
100
1
3.1
A=3000(1+ )
100
A=€ 3093
2
